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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-K



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Annual Report Pursuant to Section 13 or 15(D) of the

Securities Exchange Act
of 1934



For the fiscal year ended December 31, 2003



Commission File Number 000-33047



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MAX RE CAPITAL LTD.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|Bermuda                                                        |  | Not Applicable                         
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification Number)



Max Re House

2 Front Street

Hamilton, HM 11

Bermuda

(Address of principal executive offices)



Registrants telephone number, including area code: (441) 296-8800



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



|                     |  |                                           
|-------------------- |  | ------------------------------------------
|Title of each class: |  | Name of each exchange on which registered:
|None                 |  | None                                      



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



Common
Shares, Par Value $1.00 per share (the Common Shares)



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



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



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



The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June
30, 2003 was $349,421,480, based on the closing price of the registrants common shares on June 30, 2003, the last business day of the registrants most recently completed second fiscal quarter. Solely for the purpose of this calculation
and for no other purpose, the non-affiliates of the registrant are assumed to be all shareholders of the registrant other than (i) directors of the registrant, (ii) executive officers of the registrant who are identified as named executive
officers pursuant to Item 11 of this Form 10-K, (iii) any shareholder that beneficially owns 10% or more of the registrants common shares and (iv) any shareholder that has one or more of its affiliates on the registrants board of
directors. Such exclusion is not intended, nor shall it be deemed, to be an admission that such persons are affiliates of the registrant.



The number of shares of the registrants common shares outstanding as of February 27, 2004 was $45,780,111.



Documents incorporated by reference:



Portions of the proxy statement for the registrants annual meeting of
shareholders to be held on April 29, 2004, to be filed subsequently with the Securities and Exchange Commission pursuant to Regulation 14A, are incorporated by reference in Part III of this Annual Report on Form 10-K.



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TABLE OF CONTENTS



|         |  |          |  |                                                                                       |  |   
|-------- |  | -------- |  | ------------------------------------------------------------------------------------- |  | --
|         |  | Page    
|PART I   |  | 1       
|         |  | ITEM 1.  |  | BUSINESS                                                                              |  | 1 
|         |  | ITEM 2.  |  | PROPERTIES                                                                            |  | 16
|         |  | ITEM 3.  |  | LEGAL PROCEEDINGS                                                                     |  | 16
|         |  | ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 16
|         | 
|PART II  |  | 17      
|         |  | ITEM 5.  |  | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                 |  | 17
|         |  | ITEM 6.  |  | SELECTED FINANCIAL DATA                                                               |  | 19
|         |  | ITEM 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 19
|         |  | ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 31
|         |  | ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                           |  | 32
|         |  | ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  |  | 32
|         |  | ITEM 9A  |  | CONTROLS AND PROCEDURES                                                               |  | 32
|         | 
|PART III |  | 34      
|         |  | ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                    |  | 34
|         |  | ITEM 11. |  | EXECUTIVE COMPENSATION                                                                |  | 34
|         |  | ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                        |  | 34
|         |  | ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                        |  | 34
|         |  | ITEM 14. |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                |  | 34
|         | 
|PART IV  |  | 35      
|         |  | ITEM 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                       |  | 35



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##### Table of Contents

PART I



|ITEM 1. | BUSINESS
|------- | --------



References in this Annual Report on Form 10-K to Max Re Capital or the Company refer to Max Re Capital Ltd., a Bermuda company, and, unless the context
otherwise requires or is otherwise as expressly stated, its direct and indirect subsidiaries, Max Re Ltd., a Bermuda company licensed under the laws of Bermuda as a Class 4 insurer and long-term insurer (Max Re), Max Europe Holdings
Limited (Max Europe Holdings) and its wholly owned operating subsidiaries Max Re Europe Limited (Max Re Europe) and Max Insurance Europe Limited (Max Insurance Europe), each incorporated and operated in Dublin,
Ireland (collectively referred to as Max Europe), Max Re Diversified Strategies Ltd., a Bermuda company that invests in entities that pursue alternative investment strategies (Max Re Diversified), and Max Re Managers Ltd., a
Bermuda company licensed under the laws of Bermuda as an insurance manager (Max Re Managers).



Safe Harbor Disclosure



This Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company intends that the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 apply to these forward-looking statements. Forward-looking statements are not statements of historical fact but rather reflect the Companys current expectations, estimates and predictions
about future results and events. These statements may use words such as anticipate, believe, estimate, expect, intend, predict, project and similar expressions as
they relate to the Company or the Companys management. When the Company makes forward-looking statements, it is basing them on managements beliefs and assumptions, using information currently available to it. These forward-looking
statements are subject to risks, uncertainties and assumptions. Factors that could cause such forward-looking statements not to be realized (which are described in more detail elsewhere herein and in documents filed by the Company with the
Securities and Exchange Commission) include, without limitation, acceptance in the market of the Companys products, general economic conditions and conditions specific to the reinsurance and insurance markets in which the Company operates,
pricing competition, the amount of underwriting capacity from time to time in the market, material fluctuations in interest rate levels, tax and regulatory changes and conditions, rating agency policies and practices, claims development and loss of
key executives. Other factors such as changes in U.S. and global financial and equity markets resulting from general economic conditions, market disruptions and significant interest rate fluctuations may adversely impact the Companys
investments or impede the Companys access to, or increase the cost of, financing its operations. The Company cautions that the foregoing list of important factors is not intended to be, and is not, exhaustive. 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. If one or more of these or other risks or uncertainties materialize, or if the Companys underlying
assumptions prove to be incorrect, actual results may vary materially from what the Company projected. Any forward-looking statements in this Form 10-K reflect the Companys current views with respect to future events and are subject to these
and other risks, uncertainties and assumptions relating to the Companys operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to the Company or individuals
acting on the Companys behalf are expressly qualified in their entirety by this paragraph.



General Description



Max Re Capital is a holding company formed in July 1999 under the laws of Bermuda. The Company commenced operations in January 2000. Through its subsidiaries Max Re, Max Re Europe and Max Insurance Europe, the Company provides multi-line
reinsurance and insurance products. Max Re Managers provides reinsurance underwriting and administrative services on a fee basis. Max Re Diversified holds all of the Companys alternative investments, other than reinsurance private equity
investments that are held by Max Re. Max Europe Holdings is the holding company for the Companys European operating subsidiaries and was formed in June 2003 under the laws of Ireland.



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In December 1999, the Company raised gross proceeds of $331 million from an initial private placement of
its Common Shares and non-voting common shares of Max Re, par value $1.00 per share. In March 2000, the Company completed a second private placement of the Common Shares which raised an additional $180 million of gross proceeds. The Company used
substantially all of the net proceeds of these offerings to capitalize its reinsurance operations.



On August 14, 2001, the Company raised gross proceeds of $192 million in its initial public offering of Common Shares. Total proceeds received, net of
underwriting discounts and commissions, were $179.5 million. Substantially all of the net proceeds were contributed to Max Re in support of its reinsurance operations. The Companys Common Shares are listed on the Nasdaq National Market under
the symbol MXRE and the Bermuda Stock Exchange under the symbol MXRE BH.



On July 30, 2003, the holders of non-voting common shares of Max Re and warrants to acquire non-voting common shares of Max Re exchanged such shares and warrants for Common Shares and warrants to acquire Common
Shares. The effect of this exchange resulted in the elimination of minority interest and increase in shareholders equity of equal amounts as of the date of the exchange.



Business Segments



The Company operates in the reinsurance and insurance business serving two segments: the property and casualty segment and the life and annuity segment,
which includes disability products. The table below sets forth the Companys gross premiums written by type of risk for the years ended December 31, 2003, 2002 and 2001. Additional information about the Companys business segments is set
forth in Note 16 to the audited consolidated financial statements of the Company included herein.



Segment Analysis of Gross Premiums Written



Gross premiums written, by type of risk assumed, for the years ended December 31, 2003, 2002 and 2001 was as follows:



|                                                     |  |                      |           |                                   |       |   |                      |      |                                   |  |       |                      |  |                                   |         |  |       |  
|---------------------------------------------------- |  | -------------------- | --------- | --------------------------------- | ----- | - | -------------------- | ---- | --------------------------------- |  | ----- | -------------------- |  | --------------------------------- | ------- |  | ----- | -
|                                                     |  | 2003                 |           |                                   | 2002  |   |                      | 2001 |                                  
|                                                     |  | GrossPremiumsWritten |           | Percentageof TotalPremiumsWritten |       |   | GrossPremiumsWritten |      | Percentageof TotalPremiumsWritten |  |       | GrossPremiumsWritten |  | Percentageof TotalPremiumsWritten |        
|                                                     |  | (in thousands)       |           |                                   |       |   | (in thousands)       |      |                                   |  |       | (in thousands)       |  |                                   |        
|Property and Casualty:                               |  |                      |           |                                   |       |   |                      |      |                                   |  |       |                      |  |                                   |         |  |       |  
|Whole Account                                        |  | $                    | 201,792   |                                   | 20.0  | % |                      | $    | 232,554                           |  | 35.9  | %                    |  | $                                 | 196,077 |  | 27.6  | %
|Workers Compensation                                |  |                      | 80,375    |                                   | 8.0   |   |                      |      | 88,431                            |  | 13.7  |                      |  |                                   | 300,327 |  | 42.3  |  
|General Liability                                    |  |                      | 134,753   |                                   | 13.3  |   |                      |      | 50,613                            |  | 7.8   |                      |  |                                   |        |  |      |  
|Professional Liability                               |  |                      | 275,965   |                                   | 27.3  |   |                      |      | 107,988                           |  | 16.6  |                      |  |                                   |        |  |      |  
|Aviation and Marine                                  |  |                      | 89,230    |                                   | 8.9   |   |                      |      |                                  |  |      |                      |  |                                   |        |  |      |  
|Property                                             |  |                      | 8,284     |                                   | 0.8   |   |                      |      |                                  |  |      |                      |  |                                   |        |  |      |  
|Accident and Health                                  |  |                      | 94,165    |                                   | 9.3   |   |                      |      | 116,325                           |  | 18.0  |                      |  |                                   |        |  |      |  
|Medical Malpractice                                  |  |                      | 13,708    |                                   | 1.4   |   |                      |      |                                  |  |      |                      |  |                                   | 48      |  |      |  
|Other                                                |  |                      | 3,257     |                                   | 0.3   |   |                      |      | 36,823                            |  | 5.7   |                      |  |                                   |        |  |      |  
|                                                     |  |                      |           |                                   |       |   |                      |      |                                   |  |       |                      |  |                                   |         |  |       |  
|Aggregate Property and Casualty                      |  | $                    | 901,529   |                                   | 89.3  |   |                      | $    | 632,734                           |  | 97.7  |                      |  | $                                 | 496,452 |  | 69.9  |  
|                                                     |  |                      |           |                                   |       |   |                      |      |                                   |  |       |                      |  |                                   |         |  |       |  
|Life and Annuity:                                    |  |                      |           |                                   |       |   |                      |      |                                   |  |       |                      |  |                                   |         |  |       |  
|Life                                                 |  | $                    | 108,250   |                                   | 10.7  |   |                      | $    |                                  |  |      |                      |  | $                                 | 3,988   |  | 0.5   |  
|Disability                                           |  |                      |          |                                   |      |   |                      |      |                                  |  |      |                      |  |                                   | 109,983 |  | 15.5  |  
|Health                                               |  |                      |          |                                   |      |   |                      |      | 14,656                            |  | 2.3   |                      |  |                                   |        |  |      |  
|Structured Settlement                                |  |                      |          |                                   |      |   |                      |      |                                  |  |      |                      |  |                                   | 100,128 |  | 14.1  |  
|                                                     |  |                      |           |                                   |       |   |                      |      |                                   |  |       |                      |  |                                   |         |  |       |  
|Aggregate Life and Annuity                           |  | $                    | 108,250   |                                   | 10.7  |   |                      | $    | 14,656                            |  | 2.3   |                      |  | $                                 | 214,099 |  | 30.1  |  
|                                                     |  |                      |           |                                   |       |   |                      |      |                                   |  |       |                      |  |                                   |         |  |       |  
|Aggregate Property and Casualty and Life and Annuity |  | $                    | 1,009,779 |                                   | 100.0 | % |                      | $    | 647,390                           |  | 100.0 | %                    |  | $                                 | 710,551 |  | 100.0 | %
|                                                     |  |                      |           |                                   |       |   |                      |      |                                   |  |       |                      |  |                                   |         |  |       |  



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The majority of the Companys clients are insurers, reinsurers and companies located in the United
States. Calculated based on the location of the cedent, the Company derived approximately 62.9%, 63.7% and 72.4%, of gross premiums written for the years ended December 31, 2003, 2002 and 2001, respectively, from cedents located in the United
States. The Company sources business throughout Europe, which represented approximately 37.1%, 36.3% and 27.6%, of gross premiums written for the years ended December 31, 2003, 2002 and 2001, respectively.



For the years ended December 31, 2003, 2002, and 2001, the Company derived
approximately 89.3%, 97.7% and 69.9%, respectively, of its gross premiums written from property and casualty products and 10.7%, 2.3% and 30.1%, respectively, from life and annuity products. Due to continual changes in industry and global economic
cycles, the Company anticipates that the percentages of premiums written will fluctuate regularly between its property and casualty products and life and annuity products.



Description of Business



The Company is a Bermuda-based provider of reinsurance and insurance products for both the property and casualty and life and annuity, including
disability, markets. To manage its reinsurance and insurance liability exposure, structure its investment portfolio and assess overall risk, the Company models its underwriting and investments on an integrated basis.



The Companys integrated risk management and the cash flow
characteristics of the Companys products allow the Company to invest a portion of its assets in alternative investments, in addition to high grade fixed maturities investments.



Property and Casualty



Reinsurance Products



The Company offers structured risk transfer, alternative risk transfer and traditional reinsurance products, as well as insurance products, in the
property and casualty market. The Company often customizes its reinsurance products in an effort to satisfy particular client needs. The structured risk transfer and alternative risk transfer reinsurance products that the Company offers have several
features that differ from traditional reinsurance products. These features require the client to share in its own loss results. Features that the Company includes in its structured risk transfer and alternative risk transfer reinsurance products
include: (i) premium refunds if the losses the Company incurs under a reinsurance contract are more favorable than those projected at the time of execution of the reinsurance contract; (ii) loss sharing provisions that may require a client to share
in a portion of its losses resulting from ceded risks; (iii) additional premium amounts if the Company incurs losses under the reinsurance contracts that are less favorable than those projected at the time of execution of the reinsurance contract;
and (iv) underwriting terms that limit the Companys maximum aggregate exposure. Structured risk transfer and alternative risk transfer products are distinguished from each other based on the amount of risk transferred to the Company, with
alternative risk transfer products transferring more risk to the Company.



The Companys traditional reinsurance products do not typically include certain features described above and, accordingly, they expose the Company to greater reinsurance loss than the structured or alternative
risk transfer products. Generally, the Companys traditional reinsurance products are written on market terms with participation by other reinsurers.



The Companys primary focus is on the casualty classes, such as whole account, workers compensation, general liability, professional liability,
accident and health and medical malpractice with a lesser focus on aviation and marine, property and homeowners. Whole account coverage provides integrated liability coverage across a clients multi-line portfolio of risk and may include some
or all of the classes above.



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The Company typically writes its property and casualty reinsurance products in the form of treaty
reinsurance contracts, which are contractual arrangements that provide for automatic reinsuring of a type or category of risk underwritten by the Companys clients. With treaty reinsurance contracts, the Company does not evaluate separately
each of the individual risks assumed under the contracts and is largely dependent on the individual underwriting decisions made by the ceding client. Accordingly, the Company carefully reviews and analyzes the ceding clients risk management
and underwriting practices in deciding whether to provide treaty reinsurance and in appropriately pricing the treaty.



The Companys property and casualty reinsurance contracts are written on either a quota share, also known as proportional or pro rata, basis or on an
excess of loss basis. With respect to quota share reinsurance, the Company shares the premiums as well as the losses and expenses in an agreed proportion with the ceding client. With respect to excess of loss reinsurance, the Company indemnifies the
ceding client against all or a specified portion of losses and expenses in excess of a specified dollar or percentage amount. In both types of contracts, the Company may provide a ceding commission to the client.



Insurance Products



In the first quarter of 2003, the Company began offering excess liability
and professional lines insurance products, primarily to Fortune 1000 clients. The excess liability products are excess umbrella liability, excess product liability, excess medical malpractice and excess product recall. The professional lines
products offered are directors and officers, errors and ommissions and employment practices liability. The products offered by the Company are underwritten in Bermuda and Ireland.



The products noted above are underwritten by the Company on an individual risk basis, which in many cases includes a face to
face meeting with the client in Bermuda or Ireland. Excess Liability and Professional Liability premiums accounted for approximately equal shares of the gross premium written for traditional insurance products for the year ending December 31, 2003.
The Company also offers alternative risk transfer insurance products with alternative risk transfer features to its clients.



Reinsurance and Insurance Premium Activity



For the years ended December 31, 2003, 2002 and 2001, $302.3 million, $275.5 million and $94.1 million, or 33.5%, 43.5% and 19.0%, respectively, of gross
premiums written were written on a quota share basis and $599.2 million, $357.2 million and $402.4 million, or 66.5%, 56.5% and 81.0%, respectively, were written on an excess of loss basis.



Life and Annuity



The Companys life and annuity reinsurance products focus on existing blocks of business. They typically take the form
of co-insurance structures, where generally the risk is reinsured on the same basis as that of the original policy. In a co-insurance transaction, the Company receives a percentage of the gross premium charged to the policyholder by the client less
an expense allowance that the Company grants to the client, as the primary insurer. By transferring liabilities and the related assets to the Company in these co-insurance transactions, the Company seeks to allow its life and annuity clients to
achieve capital relief and improved returns on equity.



The
life and annuity risks the Company underwrites include mortality and investment risks and, to a lesser extent, early surrender and lapse risks. The disability products the Company underwrites include morbidity risk and, to a lesser extent, early
surrender and lapse risks. Mortality risk measures the sensitivity of the insurance companys liability to higher mortality rates than were assumed in setting the premium. Morbidity risk measures the sensitivity of the insurance companys
liability for higher illness, sickness and disease rates than were assumed in setting the premium. Early surrender and lapse risks measure the sensitivity of the insurance companys liability to early or changing policy surrender distributions.
Life reinsurance is often written on a



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yearly renewable term basis, where the predominant risk is the mortality of the insured population. However, the Companys co-insurance structures
typically involve a certain level of investment risk, with the Company reinsuring a percentage of the ceding clients investment risk.



The Company seeks to write life and annuity reinsurance agreements with respect to individual and group disability, whole life, universal life, variable
life, corporate owned life, term life, fixed annuities, variable annuities and structured settlements.



Pricing of the Companys life and annuity reinsurance products is based on actuarial models that incorporate a number of factors, including
assumptions for mortality, morbidity, expenses, demographics, persistency, investment returns, certain macroeconomic factors, such as inflation, and certain regulatory factors, such as taxation and minimum surplus requirements for all products.



Underwriting and Risk Management



The Company attempts to manage its underwriting exposures by diversifying
across many underlying insureds with small policy limits per insured. The Companys largest underlying exposure in the property and casualty reinsurance business is workers compensation, (including reinsurance written as such and
workers compensation exposure embedded in other types of contracts such as whole account), which has attractive features of payments over many years and low statutorily defined cash payout amounts. The exposure in the Companys property
and casualty traditional insurance business is allocated approximately evenly between general liability and professional liability business. With its life reinsurance products, the Companys focus is on reinsuring blocks of business having
small underlying policy limits spread across a large population of insureds and avoids high policy limit exposures.



The Company seeks to reduce the volatility transmitted from underlying risks assumed through its written business by setting and maintaining overall
aggregate limits on liabilities, sub-limits on liabilities, attachment points for liabilities and contract terms providing for additional premium where losses are worse than expected.



The Company manages its overall risk by attempting to manage the volatility of its asset mix in the context of its
liabilities. The Company believes that its portfolio of underwriting risks benefits from diversification and complements its investment strategy. The Company accesses the retrocession and capital markets to transfer risk to other parties when
competitive advantages permit them to assume a risk for a lower price. The Company also manages the amount of leverage that it employs on the liability side of its business based upon continual assessment of the risks and opportunities in the
capital and underwriting markets.



The Company uses a series of
proprietary and non-proprietary actuarial and financial models in an effort to analyze the underlying risk characteristics of its liabilities and assets. The Company conducts both transaction-by-transaction modeling as well as portfolio aggregation
modeling. The Company then analyzes these modeling efforts on an integrated basis in an effort to determine the aggregation of its underwriting risks and investment risks and the ultimate impact adverse events might have on the Companys
surplus.



The Company utilizes dynamic financial analysis to
examine the possible effects of future variables, such as the effect of inflation on the cost of losses, using multiple scenarios to predict the range of outcomes and prices of its products. In addition, the Company attempts to manage capital
adequacy by incorporating value at risk and risk based capital analyses into its modeling. Through the use of dynamic financial analysis, the Company seeks to measure adequately the financial risk inherent in each transaction and the portfolio
overall, and the potential for adverse scenarios producing projected losses and potential negative cash flow. Additionally, by employing a risk based capital analysis, rather than using premium income as a measure of risk, the Company is able to
obtain an estimate of the amount of capital to be allocated to each transaction and its portfolio of liabilities. The Company believes that its analysis of loss payment patterns enables it to generate meaningful projections of the total and interim
cash flows of its liability portfolios. The Company then uses the projections to determine the



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profile of liquidity and investment returns required of its investment portfolio. The Company believes that this integrated approach allows it to optimize
the use of its capital by providing a dynamic measurement of risk and return to evaluate competing reinsurance, insurance and investment opportunities.



Due Diligence



The Company performs a significant amount of due diligence on every material transaction that it considers underwriting, and performs regular monitoring
and periodic due diligence on the transactions that it completes. Generally, the Company complements its internal skills with reputable third party resources. Third party actuaries, attorneys, claim adjusters and other professionals perform on-site
client due diligence on the Companys behalf and assist the Company in modeling transactions and contract documentation.



Retrocessional and Balance Sheet Protections



As part of the underwriting process, the Company reinsures, or retrocedes, portions of certain risks for which it has accepted liability. In these
transactions, the Company cedes to another reinsurer, called the retrocessionaire, all or part of the reinsurance risk that the Company has assumed. However, these arrangements do not legally discharge the Company from its liability with respect to
the obligations it has reinsured.



The Company utilizes
retrocessional arrangements, such as quota share reinsurance, excess of loss reinsurance and stop-loss contracts that are available in the retrocessional market as a means to manage risk on the products it writes. In quota share reinsurance
arrangements, the retrocessionaire shares a proportional part of the Companys premiums and losses associated with the risks being reinsured, while in excess of loss reinsurance and stop-loss contracts, the retrocessionaire agrees to cover all
losses in excess of the amount of risk the Company has retained, subject to negotiated limits. The Companys strategy includes purchasing reinsurance to limit losses on a single risk or transaction, or on a whole portfolio basis, as the need
arises.



The amount of risk the Company retains differs in each
retrocession transaction it underwrites. The Company may retain higher amounts of net risk on transactions where it believes it can monitor outcomes with a high degree of accuracy or where larger blocks of business offer the Company the possibility
of higher returns without retaining excessive risk. The Companys underwriting policy is to retain a maximum net exposure of not more than 5% of its shareholders equity for any individual contract it writes.



The Company prefers to cede risk to a retrocessionaire on a funds withheld
basis. Retroceding risk on this basis allows the Company to cede risk while retaining collateral for its retrocessionaires obligation. Since the Company is liable with respect to the reinsurance that it cedes in the event that a
retrocessionaire is unable to meet its obligations assumed under a retrocession agreement, the financial strength of each retrocessionaire is evaluated and monitored. Two retrocessionaires accounted for 61.8% and 28.7% of the Companys losses
recoverable from reinsurers as of December 31, 2003. These retrocessionaires have a financial strength rating of A- and A, respectively by A.M. Best Company as of February 27, 2004. The Company retains funds from these two
retrocessionaires to secure the obligations.



Reserves



To recognize liabilities for unpaid losses and loss adjustment expenses and
life and annuity benefits, the Company establishes reserves, which are balance sheet liabilities representing estimates of future amounts needed to pay losses and related expenses with respect to insured events that have occurred on or before the
balance sheet date, including events that have occurred but have not been reported by the ceding client. The adequacy of the Companys reserves is reviewed annually by outside actuaries to support managements estimates. Future losses and
policy benefits constitute the majority of the Companys financial obligations.



Reserves do not represent an exact calculation of liability. Rather, reserves represent an estimate of what the Company expects the ultimate settlement and claim administration will cost. While the methods for
establishing



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the reserves are well tested over time, some of the major assumptions about anticipated loss emergence patterns are subject to unanticipated fluctuation.
These estimates, which generally involve actuarial projections, are based upon the Companys assessment of facts and circumstances then known, as well as estimates of future trends in claims severity and frequency, mortality, judicial theories
of liability and other factors, including the actions of third parties, that are beyond the Companys control.



Loss and loss adjustment expenses and life and annuity benefits, net of related reinsurance recoverables, are charged to income as incurred. Unpaid losses
and loss adjustment expenses represent the accumulation of case reserves, reserves for incurred but not reported losses and loss adjustment expenses.



Property and Casualty Reserve Process



The Companys property and casualty reserves are compiled on a transaction-by-transaction basis and are computed on an undiscounted basis. The
reserves include amounts for:



| |  | Claims reported but not yet paid (Case Reserves),
| | - | -------------------------------------------------



| |  | Claims incurred but not reported (IBNR) and
| | - | -------------------------------------------



| |  | Estimated expenses of adjusting and settling claims, including legal and other fees (Loss Adjustment Expenses).
| | - | ---------------------------------------------------------------------------------------------------------------



The Company establishes and reviews these reserves on a regular basis. The
process for establishing reserves is based upon both internally generated actuarial analysis and models, and data provided by clients. The Company uses a variety of actuarial techniques and methods in estimating its ultimate liability for losses and
loss expenses. These methods include paid loss development, incurred loss development, paid and incurred Bornhuetter-Ferguson methods and frequency and severity methods. This actuarial data is analyzed by line of business, coverage and accident or
policy year, as appropriate. Industry loss experience is also used to supplement the Companys own data in selecting tail factors and in areas where the Companys own data is limited.



In the course of its ongoing reserve analysis, the Company reviews loss
reports received from its clients to confirm that submitted claims are covered under the contract terms, establishes reserves on an individual client basis and takes into account industry loss activity and industry loss trends. Other factors
considered by the Company in this process include historical data, legal developments, changes in social attitudes and economic conditions, including the effects of inflation. As additional experience and other data become available and are
reviewed, these reserve estimates are revised. This process may result in increases or decreases to reserves for insured events of prior years. These adjustments are recorded in the period they are determined.



Life and Annuity Reserve Process



The Companys life and annuity reserves are compiled on a
transaction-by-transaction basis and are computed on a discounted basis. The Company establishes and reviews its life and annuity reserves on a regular basis. The process for establishing reserves is based upon cash flow projection models that
utilize both internally generated actuarial analysis, and data provided by clients. The Company establishes and maintains reserves at a level that, when taken together with future interest earned on these reserves, will in the Companys
estimation be sufficient to support all the future cash flow benefit and third party servicing obligations as they become payable.



Since the development of the Companys life and annuity reserves is based upon cash flow projection models, the Company must make estimates and
assumptions regarding mortality, morbidity, lapse, expense and investment experience. The Company establishes such estimates based upon transaction specific historical experience, information provided by ceding companies and industry experience
studies. Actual results could differ materially from these estimates. The Company monitors actual experience and, where circumstances warrant, will revise its assumptions and the related reserve estimates. These revisions are recorded in the period
they are determined.



7



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##### Table of Contents

Evaluation of Loss Reserves



The Company regularly reviews and updates its methods of determining estimates for reported and unreported losses and
establishing resulting reserves and related reinsurance recoverables, and adjustments resulting from this review are reflected in income in the period such adjustments are determined. In connection with the process, the Company relies upon the basic
assumption that past experience, adjusted for the effect of current developments and likely trends, is an appropriate basis for predicting future events. However, estimation of loss reserves is a difficult process, especially in view of changes in
the legal environment that affect the development of loss reserves. Therefore, quantitative techniques frequently have to be supplemented by subjective considerations and managerial judgment.



During the loss settlement period, which can be many years in duration,
additional facts regarding individual claims and trends usually become known. As these become apparent, it usually becomes necessary to refine and adjust the reserves upward or downward. Even then, the ultimate net liability may be less than or
greater than the Companys revised estimates.



The
following table represents the development of balance sheet property and casualty reserves in accordance with accounting principles generally accepted in the United States of America (GAAP) since the Companys commencement of
operations on January 1, 2000 through December 31, 2003. This table does not present accident or policy year development data. The top line of the table shows the reserves, net of reinsurance recoverables, at the balance sheet date for each of the
indicated years. This represents the estimated amount of net claims and claim expenses arising in the current year and all prior years that are unpaid at the balance sheet date, including IBNR reserves. The table also shows the reestimated amount of
the previously recorded reserves as adjusted for new information received as of the end of each succeeding year. The estimate changes as more information becomes known about the frequency and severity of claims for individual years. The net
cumulative redundancy (deficiency) represents the aggregate change to date from the original estimate on the top line of the table. The table also shows the cumulative net paid amounts as of successive years with respect to the net reserve
liability.



|                                                                               |  |      |         |   |      |   |         |      |  |   |         |     |  |   |        
|------------------------------------------------------------------------------ |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | --- |  | - | -------
|                                                                               |  | 2000 |         |   | 2001 |   |         | 2002 |  |   | 2003   
|As at December 31,                                                             |  |      |         |   |      |   |         |      |  |   |         |     |  |   |        
|Reserve for property and casualty losses originally stated, net of reinsurance |  | $    | 110,394 |   |      | $ | 264,490 | (1)  |  | $ | 414,731 | (1) |  | $ | 760,000
|                                                                               |  |      |         |  
|Cumulative net paid losses,                                                    |  |      |         |   |      |   |         |      |  |   |         |     |  |   |        
|1 year later                                                                   |  |      | 6,154   |   |      |   | 119,734 |      |  |   | 107,841 |     |  |   |       
|2 years later                                                                  |  |      | 92,676  |   |      |   | 184,216 |      |  |   |        |     |  |   |       
|3 years later                                                                  |  |      | 116,580 |   |      |   |        |      |  |   |        |     |  |   |       
|                                                                               |  |      |         |  
|Reserves re-estimated as of                                                    |  |      |         |   |      |   |         |      |  |   |         |     |  |   |        
|1 year later                                                                   |  |      | 126,104 |   |      |   | 293,835 |      |  |   | 410,830 |     |  |   |       
|2 years later                                                                  |  |      | 154,410 |   |      |   | 288,288 |      |  |   |        |     |  |   |       
|3 years later                                                                  |  |      | 151,007 |   |      |   |        |      |  |   |        |     |  |   |       
|                                                                               |  |      |         |  
|Net cumulative redundancy (deficiency)                                         |  |      | (40,613 | ) |      |   | (23,798 | )    |  |   | 3,901   |     |  |   |       

---

|(1) | Reserve balance adjusted to reflect reclassification of a reinsurance contract to a deposit liability.
|--- | ------------------------------------------------------------------------------------------------------



Adverse development on two whole account stop loss covers written in 2000 principally account for the deterioration of the
reserve balances at December 31, 2000 and December 31, 2001, respectively. The contracts have workers compensation as the principal underlying risk, where losses incurred and settled by the underlying reinsured exceeded the Companys estimates
and consequently resulted in additional losses being recorded by the Company. The reserve for the first of these two contracts was increased by $11.2 million in the year ended December 31, 2001 but was subsequently reduced by $10.2 million at final
commutation of the liability in 2002.



8



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##### Table of Contents

The reserve for the second of these contracts was increased by $36.8 million in the year ended December
31, 2002 based on loss information received. Consequently, the reserve increase with respect to this contract affected both the 2000 and 2001 balance sheet reserve re-estimation in the table above. For this contract, the adverse loss development
triggered additional premiums, net of acquisition costs and inclusive of interest on premiums, of $29.2 million to the Company. The contract was commuted in 2003 with no further loss development.



The Company structures a number of its contracts with features to reduce its
overall loss exposure by requiring clients to pay additional premiums in the event of adverse loss activity. A summary of additional premiums relating to contracts where the loss development has triggered this type of premium together with the
effect of those premiums on the net cumulative reserve redundancy (deficiency) is as follows:



|                                       |  |      |         |   |      |   |         |      |  |   |       
|-------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------
|                                       |  | 2000 |         |   | 2001 |   |         | 2002
|As at December 31,                     |  |      |         |   |      |   |         |      |  |   |       
|Net cumulative redundancy (deficiency) |  | $    | (40,613 | ) |      | $ | (23,798 | )    |  | $ | 3,901 
|Additional premiums                    |  |      | 29,187  |   |      |   | 36,978  |      |  |   | 9,998 
|                                       |  |      |         |   |      |   |         |      |  |   |       
|Adjusted redundancy (deficiency)       |  | $    | (11,426 | ) |      | $ | 13,180  |      |  | $ | 13,899
|                                       |  |      |         |   |      |   |         |      |  |   |       



For additional
information on the Companys reserves, including a reconciliation of losses and loss adjustment expense reserves for the years ended December 31, 2003, 2002 and 2001, please refer to Note 4 to the audited consolidated financial statements of
the Company included herein.



Marketing



The Company believes that diversity in its sources of business reduces the
potential adverse effect arising from the termination of any one of its business relationships. The Companys marketing plan calls for the development of relationships with potential clients that the Company believes have a need for reinsurance
or insurance, based on regulatory filings, industry knowledge and market trends. Given the nature of its business, the Company targets clients through broker markets, existing relationships and non-traditional marketing channels.



The Company uses independent professional brokers to market and obtain a
majority of its property and casualty business. For the years ended December 31, 2003, 2002 and 2001, intermediaries and brokerage firms accounted for 84%, 80% and 71%, respectively, of gross premiums written. For the years ended December 31, 2003,
2002, and 2001, the top three producing intermediaries and brokerage firms accounted for 36%, 15% and 11%; 25%, 24% and 18%; and 26%, 16% and 11%, respectively, of gross premiums written.



In addition to using independent professional brokers, the Company and its employees attempt to capitalize on existing
relationships with insurance and reinsurance companies, large global corporations and financial intermediaries to develop and underwrite business.



Overview of Investments



The Company seeks to earn a superior risk-adjusted total return on its assets by engaging in an investment strategy that combines fixed maturities
investments and alternative investments that employ strategies to manage investment risk. The Company diversifies its portfolio to limit volatility and attempts to maintain adequate liquidity in its fixed maturities investments to fund operations
and protect against unexpected events. The Company seeks to manage its credit risk through industry and issuer diversification and interest rate risk by monitoring the duration and structure of the investment portfolio relative to the duration and
structure of the liability portfolio. The managers of the fixed maturities investments and alternative investments are selected by the Companys board of directors (the Board of Directors), through its Finance and Investment
Committee. The Board of Directors periodically reviews the investment guidelines in light of prevailing market conditions



9



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##### Table of Contents

and amends them from time to time as it deems appropriate. Based on fair values at December 31, 2003, approximately 68.5% of the Companys investment
portfolio was invested in cash and fixed maturities and approximately 31.5% was invested in alternative investments. The Company intends to allocate between 50% and 80% of its investment portfolio in cash and fixed maturities securities and between
20% and 50% in alternative investments. However, this allocation can vary from the targeted amounts because of cash flow and market value variations at specific points in time.



Aggregate Portfolio Results



The following table shows the annual rate of return (1) of the Companys cash and fixed maturities investments, alternative investments and aggregate
investment portfolio for the years ended December 31, 2003, 2002 and 2001:



|                                                  |  |       |   |  |        |   |  |        |  
|------------------------------------------------- |  | ----- | - |  | ------ | - |  | ------ | -
|                                                  |  | 2003  |   |  | 2002   |   |  | 2001   |  
|Cash and Fixed Maturities Investments             |  | 3.26  | % |  | 8.59   | % |  | 8.55   | %
|Alternative Investments(2)                        |  | 16.57 |   |  | 5.24   |   |  | 6.69   |  
|Aggregate Portfolio(3)                            |  | 7.74  |   |  | 7.37   |   |  | 7.78   |  
|Merrill Lynch Master Bond Index                   |  | 4.12  |   |  | 10.41  |   |  | 8.32   |  
|S&P 500® with dividends reinvested                |  | 28.67 |   |  | (22.09 | ) |  | (11.87 | )
|80% Merrill Lynch Master Index and 20% S&P Index® |  | 8.72  |   |  | 3.92   |   |  | 4.55   |  

---

|(1) | Annual rate of return means the annual rate of return calculated by compounding the 12 consecutive monthly rates of return that are calculated by dividing monthly net performance by
the beginning net asset value of that month. One is then subtracted from the product and the result is multiplied by one hundred.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Max Re Diversified holds all of the Companys alternative investments other than reinsurance private equity investments that are held by Max Re.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The aggregate portfolio consists of both cash and fixed maturities and the alternative investments.
|--- | ---------------------------------------------------------------------------------------------------



This annual rate of return information should not be relied upon as a representation of future results. Future results may
vary and these variations may be significant.



Fixed Maturities Investments



Based on fair values at December 31, 2003, approximately
68.5% of the Companys total investment portfolio was invested in cash and fixed maturities and was managed by General Re-New England Asset Management, Inc., Conning Asset Management and Asset Allocation and Management. The Companys fixed
maturities investments are comprised of liquid, high quality securities. At December 31, 2003, the fixed maturities investments had a dollar-weighted average rating of AA+, an average duration of approximately 3.88 years and an average
book yield to maturity of 3.92%.



The investment strategy and
guidelines for the Companys fixed maturities investments emphasize diversification and preservation of principal. Under the current fixed maturities investment guidelines, the Company may not purchase a security for the portfolio unless it has
a minimum rating of BAA3/BBB-, or its equivalent, from at least one nationally recognized statistical rating organization. In addition, a minimum weighted average credit quality rating of AA2/Aa, or its equivalent, must be maintained for the fixed
maturities investment portfolio as a whole. The fixed maturities investment guidelines provide that the fixed maturities investments may not be leveraged.



The cash and fixed maturities investments provide liquidity for day-to-day operations. The Company believes that it is able to satisfy its foreseeable
cash needs from its cash and fixed maturities investments. Accordingly, the Company believes that its cash and fixed maturities investment guidelines reduce the likelihood of having to liquidate any portion of the Companys alternative
investments to meet near term cash flow needs.



10



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##### Table of Contents

Additional information about the Companys fixed maturities investments can be found in Notes 2 and
3 to the audited consolidated financial statements of the Company included herein.



Alternative Investments



Based on fair values
at December 31, 2003, approximately 31.5% of the Companys investment portfolio was invested in alternative investments. Max Re Diversified holds all of the Companys alternative investments other than reinsurance private equity
investments that are held by Max Re. Moore Capital Management, LLC (Moore Capital) serves as fund of funds advisor for Max Re Diversified. As of December 31, 2003, Max Re Diversified was invested in approximately 45 underlying
alternative investment funds that currently represent ten investment strategies. These strategies were selected because of their low correlation with the stock market, the bond market and each other. At December 31, 2003, the types of fund
strategies in which Max Re Diversified had invested were Long/Short Equities, Convertible Arbitrage, Global Macro, Event Driven Arbitrage, Diversified Arbitrage, Fixed Income Arbitrage, Distressed Securities Investing, Emerging Markets, Commodities
Trading and Opportunistic Investing. The Companys alternative investment guidelines also provide that Max Re Diversified may be invested in Merger Arbitrage and Long/Short Credit.



The Companys alternative investments are invested in accordance with investment guidelines, which may be amended from
time to time by the Companys Board of Directors. The alternative investment guidelines currently mandate, among other things:



| |  | investment in a minimum of five distinct alternative investment strategies;
| | - | ---------------------------------------------------------------------------



| |  | no one strategy may represent more than 25% of the book value of the alternative investments, with further concentration limits imposed on certain strategies;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | investments with less than quarterly liquidity may not exceed 15% of the alternative investment portfolio; and
| | - | --------------------------------------------------------------------------------------------------------------



| |  | investments in any single underlying fund may not result in such fund exceeding 5% of the book value of the alternative investment portfolio.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------



Under the terms of the Companys customer agreement and trading
authorization contract with Moore Capital, Moore Capital may make discretionary investment determinations so long as those determinations comply with the Companys alternative investment guidelines. Moore Capital did not receive fees as the
fund of funds advisor for Max Re Diversified from the Companys inception through 2002. However, effective January 1, 2003, Max Re Diversified began paying a management fee of 70 basis points plus an incentive fee of 7.5% of the return in
excess of a 10% threshold on the net asset value of funds in which Max Re Diversified is invested and that are not managed directly by Moore Capital. At December 31, 2003, approximately $703.1 million, or 93.1%, of Max Re Diversifieds
investments were in funds not managed directly by Moore Capital or its affiliates.



A summary of the underlying strategies in which the Company may invest its alternative investments is as follows:



Long/Short Equities. Funds that pursue a long/short strategy typically purchase common stock (go long) of companies in a particular sector with
perceived strong fundamentals and sell common stock (go short) of companies in the same sector that are perceived to have deteriorating fundamentals. The strategy attempts to create investment returns through superior stock selection based upon
fundamental analysis rather than create returns based simply upon an upward price direction of the overall stock market. While this strategy can profit from either positive or negative price trends in the overall stock market, most managers
generally have a net long position and returns tend to benefit from upward movement in the stock market and be negatively affected by declines in the stock market. The securities purchased and sold in this strategy are generally common stocks of
publicly traded companies.



11



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##### Table of Contents

Convertible Arbitrage. Funds that pursue a convertible arbitrage strategy typically simultaneously
make purchases of a convertible bond and a short sale of the underlying common stock, which results in an offsetting hedged position. This strategy generates returns from equity market volatility in either up or down directions. Income is also
earned from the coupon interest payment on the convertible bond and from the short sale rebate, which is effectively interest paid on balances generated from the short sale of the underlying common stock. The principal risk of the strategy is a
decline in the price of the convertible bond due to interest rate movements or credit quality changes that are not offset by an increase in the value of the corresponding common stock short position.



Global Macro. Funds that pursue a global macro strategy typically
participate in directional trading of bonds, stocks and currencies in an attempt to take advantage of perceived changes in macroeconomic conditions. A global macro fund will typically buy or sell securities such as Treasury bills and government
notes and bonds, corporate bonds, foreign currencies and common stocks of individual companies or futures contracts on stock indices such as the S&P 500®. A global macro fund typically purchases both securities, such as common stocks or government bonds, as well as derivatives of such
securities. Such derivatives would include futures and forward contracts as well as options. The principal risk of this strategy is that funds pursuing the strategy may incorrectly predict macroeconomic trends.



Event-Driven Arbitrage. Funds that pursue an event driven arbitrage
strategy seek to achieve arbitrage profits by investing in securities of a company involved in a significant corporate event. Event driven arbitrage funds will typically employ merger arbitrage techniques along with additional arbitrage techniques
for companies that are spinning off divisions, going through reorganizations or undergoing other significant corporate events.



Diversified Arbitrage. Funds classified as diversified arbitrage simultaneously pursue a variety of market neutral strategies such as convertible
arbitrage and event driven arbitrage. By combining multiple skill sets within the same fund, these managers are able to allocate resources from one market neutral strategy to another in an effort to focus opportunistically on those strategies
perceived to offer the greatest potential for returns in any given environment.



Fixed Income Arbitrage. Funds classified as fixed income arbitrage seek to make returns by arbitraging fixed income securities. Principal trading activities include making arbitrage trades based on aberrations
in the yield curve, credit spreads or between sectors in the fixed maturity market, such as between mortgage backed securities and asset backed securities.



Distressed Securities Investing. Funds that pursue distressed investing purchase securities of companies experiencing financial stress. Typically,
these companies are engaged in debt restructuring or subject to provisions of Federal bankruptcy laws.



Emerging Markets. Emerging market funds seek to generate returns by employing fundamental analysis of emerging market countries and investing in
government and corporate securities of emerging market countries.



Commodities Trading. Commodities trading advisors seek to make returns by trading futures, options and other securities on the regulated commodities exchanges and over the counter.



Opportunistic Investing. The Companys principal opportunistic
investment is in a fund that focuses on investing in distressed loan portfolios in Japan. Such loans tend to be collateralized by real estate and are typically purchased for a small fraction of the original loan amount. This strategy involves
analysis of the value of the real estate collateral underlying each loan. The fund then attempts to work out each of the individual loans for greater than its purchase price from the selling institution. The securities purchased in this strategy are
normally private debt obligations for which there is no public market.



12



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##### Table of Contents

Merger Arbitrage. Funds that pursue a merger arbitrage strategy typically simultaneously make
purchases of common stock of a company being acquired or merged and execute a short sale of the common stock of the acquiring company.



Long/Short Credit. Funds that pursue a long/short credit strategy seek opportunities to invest primarily in high grade, high yield and distressed
fixed maturity securities based on identification of imbalance in valuation and capital allocation across credit ratings, industry sectors and geographic regions.



In addition to funds held through Max Re Diversified, the Companys alternative investments include private equity
investments in reinsurance entities made by Max Re. Current investments include Grand Central Re Limited, a Bermuda multi-line property and casualty and life and annuity reinsurer (Grand Central Re), and DaVinci Re Holdings Ltd., and its
operating subsidiary DaVinci Reinsurance Ltd., a Bermuda property catastrophe reinsurer.



As of December 31, 2003 and 2002, the Companys alternative investments were allocated as follows:



|                                       |  |                |         |                                                            |       |   |                |   |                                                            |  |       |  
|-------------------------------------- |  | -------------- | ------- | ---------------------------------------------------------- | ----- | - | -------------- | - | ---------------------------------------------------------- |  | ----- | -
|                                       |  | 2003           |         |                                                            | 2002  |  
|                                       |  | Fair Value     |         | Percentage of Fair Value ofAlternative InvestmentPortfolio |       |   | Fair Value     |   | Percentage of Fair Value ofAlternative InvestmentPortfolio | 
|                                       |  | (in thousands) |         |                                                            |       |   | (in thousands) |   |                                                            | 
|Long/short equity                      |  | $              | 71,657  |                                                            | 8.6   | % |                | $ | 59,222                                                     |  | 9.1   | %
|Convertible arbitrage                  |  |                | 88,065  |                                                            | 10.6  |   |                |   | 36,290                                                     |  | 5.6   |  
|Global macro                           |  |                | 112,717 |                                                            | 13.6  |   |                |   | 93,240                                                     |  | 14.3  |  
|Event driven arbitrage                 |  |                | 47,414  |                                                            | 5.7   |   |                |   | 48,286                                                     |  | 7.4   |  
|Diversified arbitrage                  |  |                | 117,728 |                                                            | 14.2  |   |                |   | 123,173                                                    |  | 18.9  |  
|Fixed income arbitrage                 |  |                | 65,091  |                                                            | 7.8   |   |                |   | 47,164                                                     |  | 7.2   |  
|Distressed securities investing        |  |                | 132,276 |                                                            | 15.9  |   |                |   | 79,445                                                     |  | 12.1  |  
|Emerging markets                       |  |                | 58,358  |                                                            | 7.0   |   |                |   | 24,971                                                     |  | 3.8   |  
|Commodities trading                    |  |                | 52,576  |                                                            | 6.3   |   |                |   | 33,440                                                     |  | 5.1   |  
|Opportunistic investing                |  |                | 9,407   |                                                            | 1.1   |   |                |   | 33,617                                                     |  | 5.1   |  
|                                       |  |                |         |                                                            |       |   |                |   |                                                            |  |       |  
|Total Max Re Diversified               |  |                | 755,289 |                                                            | 90.8  |   |                |   | 578,848                                                    |  | 88.6  |  
|Strategic equity investments           |  |                | 76,070  |                                                            | 9.2   |   |                |   | 74,317                                                     |  | 11.4  |  
|                                       |  |                |         |                                                            |       |   |                |   |                                                            |  |       |  
|Total alternative investment portfolio |  | $              | 831,359 |                                                            | 100.0 | % |                | $ | 653,165                                                    |  | 100.0 | %
|                                       |  |                |         |                                                            |       |   |                |   |                                                            |  |       |  



The Company is able to
liquidate the alternative investments held through Max Re Diversified on the same terms that the underlying funds can be liquidated. In general, the funds in which the alternative investments are invested require 30 days notice of liquidation,
and may be liquidated on a monthly, quarterly or longer basis. In accordance with the alternative investment guidelines, a minimum of 85% of the alternative investment portfolio held through Max Re Diversified must be maintained in funds with
monthly or quarterly liquidity. As of December 31, 2003, the liquidity profile of the alternative investments held through Max Re Diversified was:



|                   |  |      |   |  | 
|------------------ |  | ---- | - |  | 
|        monthly   |  | 36.1 | % |  | 
|        quarterly |  | 57.3 | % |  | 
|        other     |  | 6.6  | % |  | 



Once a notice of
withdrawal is given, the Company is subject to periods extending up to 60 days before the cash proceeds must be returned by an investment fund. Although the Company believes that its fixed maturities investments provides sufficient liquidity to
satisfy the claims of its insureds and ceding clients, in the event that the Company were required to access assets invested in the alternative investments, its ability to do so may be impaired by these liquidity constraints.



13



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##### Table of Contents

Additional information about the Companys alternative investments can be found in Notes 2 and 3 to
the audited consolidated financial statements of the Company included herein.



Competition



The reinsurance and insurance
industry is highly competitive. Reinsurance and insurance companies compete on the basis of many factors, including premium charges, ability to structure innovative terms and conditions in product offerings, the general reputation and perceived
financial strength of the reinsurer or insurer, relationships with reinsurance and insurance intermediaries, ratings assigned by independent rating agencies, speed of claims payment and administrative activities and experience in the particular risk
to be underwritten.



The Company competes directly with
numerous independent reinsurance companies, captive insurance companies, insurance companies, subsidiaries or affiliates of established insurance companies or newly formed companies, reinsurance departments of primary insurance companies and
underwriting syndicates from countries throughout the world in the Companys chosen product lines. Many of these competitors are well established, have significant operating histories and have developed longstanding customer relationships.
Competitors that offer on a worldwide basis reinsurance and insurance products similar to products the Company offers include ACE Limited, American International Group, Inc., Berkshire Hathaway, Inc., Swiss Reinsurance Company and XL Capital Ltd.,
all of which are larger companies, have higher credit ratings and have greater credit capacity than the Company. Additionally, competitors such as Axis Capital Holdings Limited, Arch Capital Group Ltd., Endurance Specialty Insurance Ltd. and
Platinum Underwriters Reinsurance, Inc. entered the market following the improvement in pricing levels and contract terms for property and casualty business, resulting primarily from the September 11, 2001 tragedy.



Ratings



Ratings are an important factor in establishing the competitive position of insurance and reinsurance companies and are
important to the Companys ability to market its products. Max Re is currently rated A- (excellent) by A.M. Best Company and A (strong) by Fitch, Inc. These ratings reflect each rating agencys opinion of Max
Res financial strength, operating performance and ability to meet obligations. They are not evaluations directed toward the protection of investors.



Administration



The Company provides most of its own management and administrative services, setting and administering its loss reserves and policy benefits. The
Companys underwriters, chief risk officer and actuaries assist the claims personnel in performing traditional claims tasks such as monitoring claims and reserving. The Company also engages third parties to administer claims on some of the
business that the Company reinsures. In addition, the Company hires third party claims specialists from time to time to assist in evaluating loss exposure and establishing reserving practices and other claims-paying procedures when the Company
writes business that is highly specialized. The Company self manages and administers the claim activity associated with its insurance operations, which commenced in January 2003. The Company utilizes both internal resources and external experts in
the reserving and settlement of the insurance claims.



The
Company, together with its clients, selects an independent third party claims administrator to administer the losses and benefit payments of the clients primary insureds that are covered on certain reinsurance transactions. The Company is
responsible for the benefit payment expense charged by the third party administrators. The Company and its clients enter into contracts with long-term cancellation provisions with the third party administrators. If a third party administrator
contract is terminated, the Company and the client would have to identify and contract with a substitute third party administrator.



14



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##### Table of Contents

Regulation



Bermuda



The Insurance Act 1978, and amendments thereto and related regulations of Bermuda (the Insurance Act), regulates the reinsurance business of
Max Re. In addition, the Insurance Act regulates the reinsurance management business of Max Re Managers. The Insurance Act imposes solvency and liquidity standards and auditing and reporting requirements and grants to the Bermuda Supervisor of
Insurance powers to supervise, investigate and intervene in the affairs of Bermuda insurance and reinsurance companies. Max Re is required to prepare annual statutory financial statements, file an annual statutory financial return and have the
statutory reserves actuarially certified. Max Re Diversified is subject to regulations under the Companies Act 1981 and the Investment Business Act 2003.



Max Re Capital, Max Re, Max Re Managers and Max Re Diversified are required to comply with the provisions of the Companies Act 1981 of Bermuda regulating
the payment of dividends and making distributions from contributed surplus.



Ireland



Max Insurance
Europe and Max Re Europe are subject to regulation by the Irish Financial Services Regulatory Authority (IFSRA) under the Irish Insurance Acts 1909 to 2000, regulations promulgated under those Acts, regulations relating to insurance business
promulgated under the European Communities Act 1972, directions issued under those regulations and guidelines issued by IFSRA (collectively, the Insurance Acts and Regulations).



Max Insurance Europe is required to maintain statutory reserves in respect of
underwriting liabilities and a solvency margin as provided for in the Insurance Acts and Regulations. Assets constituting statutory reserves must comply with admissibility, diversification, localization and currency matching rules, and statutory
reserves must be actuarially certified annually.



United
States and Other Jurisdictions



The Company is currently
not licensed or admitted as an insurer in any jurisdiction except Bermuda and Ireland. The insurance laws of each state in the United States and of many other jurisdictions regulate the sale of insurance and reinsurance within their jurisdiction by
insurers, such as Max Re, which are not licensed or admitted to do business within such jurisdictions. The Company conducts its business through its Bermuda and Dublin offices and does not intend to conduct any activities that may constitute the
transaction of the business of insurance in any jurisdiction in which it is not licensed or otherwise authorized to engage in such activities.



In addition to the regulatory requirements imposed by the jurisdictions in which a reinsurer is licensed, a reinsurers business operations are
affected by regulatory requirements governing credit for reinsurance in other jurisdictions in which its ceding companies are located. In general, a ceding company that obtains reinsurance from a reinsurer that is licensed, accredited or approved by
the jurisdiction in which the ceding company files statutory financial statements is permitted to reflect in its statutory financial statements a credit in an aggregate amount equal to the liability for unearned premiums and loss reserves and loss
expense reserves ceded to the reinsurer. Many jurisdictions also permit ceding companies to take credit on their statutory financial statements for reinsurance obtained from unlicensed or nonadmitted reinsurers if certain prescribed security
arrangements are made. Because Max Re is not licensed, accredited or approved in any jurisdiction except Bermuda and Ireland, in certain instances the Companys reinsurance customers require it to obtain a letter of credit or enter into other
security arrangements.



Employees



As of December 31, 2003, the Company had 55 employees.



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Available Information



The Companys Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports and the
Proxy Statement for its Annual General Meeting of Shareholders are made available, free of charge, on its web site, http://www.maxre.bm, as soon as reasonably practicable after such reports have been filed with or furnished to the Securities and
Exchange Commission.



|ITEM 2. | PROPERTIES
|------- | ----------



The Company leases office space in Hamilton, Bermuda and Dublin, Ireland, the locations in which it operates. The Company leases office space on a
long-term basis in Bermuda, which the Company believes will be adequate for anticipated future operations. The lease in Ireland is currently on a month-to-month basis. Although sufficient to conduct current operations, the Company is seeking to
lease replacement space in Dublin, Ireland on a long-term basis to support future operations.



|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------



At December 31, 2003, the Company was not a party to any material litigation or arbitration. The Company anticipates that it may become subject to
litigation and arbitration from time to time in the ordinary course of business.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------



No matters were submitted to a vote of shareholders during the fourth quarter of the fiscal year ended December 31, 2003.



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PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES
|------- | --------------------------------------------------------------------------------------------------------------



(A) Market Information



The Companys Common Shares began trading on the Nasdaq National Market under the symbol MXRE on August 14, 2001. Prior
to that time, there was no trading market for the Common Shares. The following table sets forth for the periods indicated the high and low closing sale price of the Common Shares on the Nasdaq National Market.



|               |  |             |       |             |   |       |  |     |       |  |   |      
|-------------- |  | ----------- | ----- | ----------- | - | ----- |  | --- | ----- |  | - | -----
|               |  | Fiscal 2003 |       | Fiscal 2002
|               |  | High        |       | Low         |   | High  |  | Low
|First Quarter  |  | $           | 13.15 |             | $ | 9.96  |  | $   | 16.75 |  | $ | 13.50
|Second Quarter |  | $           | 15.70 |             | $ | 12.58 |  | $   | 16.06 |  | $ | 13.30
|Third Quarter  |  | $           | 17.60 |             | $ | 14.45 |  | $   | 13.29 |  | $ | 10.12
|Fourth Quarter |  | $           | 22.50 |             | $ | 16.99 |  | $   | 12.20 |  | $ | 9.39 



The Common Shares
began trading on the Bermuda Stock Exchange (BSX), under the symbol MXRE BH on December 17, 2001. For the period December 18, 2001 through June 18, 2002, the last day a closing price was reported by the BSX, the high and low price of the
Common Shares on the BSX was $15.50 and $13.70, respectively.



(B) Holders



As of February 27, 2004, the number of holders of record
of the Common Shares was approximately 133.



(C) Dividends



The Company began paying a quarterly cash dividend of $0.02 per Common
Share ($0.08 annually) in the fourth quarter of 2001. Prior to that time, the Company had not declared or paid any dividends on its Common Shares. In the fourth quarter of 2003 the Company paid a cash dividend of $0.03 per Common Share. Any
determination to pay cash dividends is at the discretion of the Board of Directors and is dependent upon the results of operations and cash flows, the financial position and capital requirements, general business conditions, legal, tax, regulatory
and any contractual restrictions on the payment of dividends and other factors the Board of Directors deems relevant.



The Companys ability to pay dividends depends, in part, on the ability of its subsidiaries to pay dividends to it. Max Re is subject to Bermuda
regulatory constraints that affect its ability to pay dividends to the Company. Under the Insurance Act, Max Re must maintain a minimum solvency margin and minimum liquidity ratio and is prohibited from declaring or paying dividends if it does not
comply or such action would result in noncompliance with the Insurance Act. In addition, as a long-term insurer Max Re must maintain long-term business assets of a value of at least $250,000 greater than its long-term business liabilities and is
prohibited from declaring or paying dividends unless the value of its long-term business assets exceeds the amount of its long-term business liabilities, as certified by its approved actuary, by the amount of the dividend and at least $250,000.
Additionally, the amounts of any such dividend shall not exceed the aggregate of that excess and other funds properly available for the payment of dividends, being funds arising out of its business, other than its long-term business.



Under the Bermuda Companies Act 1981, each of the Company, Max Re, Max Re
Managers and Max Re Diversified may only declare or pay a dividend if, among other matters, there are reasonable grounds for believing that it is, or would after the payment be, able to pay its respective liabilities as they become due. Under the
Insurance Acts and Regulations, each of Max Europe Holdings, Max Re Europe and Max Insurance Europe



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may only declare a dividend if, among other matters, such payment would not reduce its statutory surplus below the required minimum. Accordingly, the Company
cannot assure shareholders that it will declare or pay dividends in the future. In addition, each of Max Res three letter of credit facilities prohibits Max Re from paying dividends at any time that it is in default under the respective
facility, which will occur if the Companys shareholders equity or Max Res shareholders equity is less than a specified amount as well as in certain other circumstances.



(D) Securities Authorized for Issuance Under Equity Compensation Plans



Equity Compensation Plan Information



The following table provides information as of December 31, 2003 about the
Companys Common Shares that may be issued upon the exercise of options, warrants and rights granted to employees, consultants or members of the Board of Directors under all of the Companys existing equity compensation plans, including
the Incentive Plan, each as amended.



|                                                           |  |                                                                                             |     |  |                                                                             |       |                                                                                                                                             |           |    
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- | --- |  | --------------------------------------------------------------------------- | ----- | ------------------------------------------------------------------------------------------------------------------------------------------- | --------- | ---
|Plan category                                              |  | Number of securities to be issued upon exercise of outstanding options, warrants and rights |     |  | Weighted-average exercise price of outstanding options, warrants and rights |       | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |          
|                                                           |  | (a)                                                                                         |     |  | (b)                                                                         |       | (c)                                                                                                                                         |          
|Equity compensation plans approved by security holders     |  | 4,940,665                                                                                   | (1) |  | $                                                                           | 15.28 |                                                                                                                                             | 2,124,921 | (2)
|Equity compensation plans not approved by security holders |  |                                                                                            |     |  |                                                                             |      |                                                                                                                                             |          |    
|                                                           |  |                                                                                             |     |  |                                                                             |       |                                                                                                                                             |           |    
|Total                                                      |  | 4,940,665                                                                                   | (1) |  | $                                                                           | 15.28 |                                                                                                                                             | 2,124,921 | (2)
|                                                           |  |                                                                                             |     |  |                                                                             |       |                                                                                                                                             |           |    

---

|(1) | Includes 2,188,479 Common Shares issuable upon the exercise of options that were outstanding under the Incentive Plan as of December 31, 2003. The Incentive Plan was approved by the
shareholders of the Company at the Annual General Meeting of Shareholders in 2000 and an amendment to the Incentive Plan was approved by shareholders at the Annual General Meeting of Shareholders in 2002. Also includes 2,752,186 Common Shares
issuable upon the exercise of warrants granted in 1999, 2000 and 2001 to the Named Executive Officers and certain other employees of the Company pursuant to their respective employment agreements with the Company. The terms in the employment
agreements providing for the granting of these warrants were approved by written shareholder resolution in December 1999.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Represents the difference between the number of securities issuable under the Incentive Plan (5,000,000) and the number of securities issued under the Incentive Plan as of December
31, 2003 (2,875,079), which consist of options to acquire 2,188,479 Common Shares as well as 686,600 shares of restricted stock.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



(E) Purchases of Equity Securities by the Issuer and Affiliated Purchasers



There were no purchases of Common Shares by the Company or affiliated purchasers during the three months ended December 31,
2003.



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|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------



The following table of selected financial data should be read in conjunction with the audited consolidated financial statements of the Company and the
notes thereto and with Managements Discussion and Analysis of Financial Condition and Results of Operations, each contained herein.



|                                       |  |                                                              |         |   |      |   |         |      |  |   |         |   |  |   |       |  
|-------------------------------------- |  | ------------------------------------------------------------ | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | - | ----- | -
|                                       |  | Year Ended December 31,                                      |        
|                                       |  | 2003                                                         |         |   | 2002 |   |         | 2001 |  |   | 2000    |  
|                                       |  | (dollars in millions, except percentages and per share data) |        
|Gross premiums written                 |  | $                                                            | 1,009.8 |   |      | $ | 647.4   |      |  | $ | 710.6   |   |  | $ | 409.7 |  
|Net premiums earned                    |  |                                                              | 727.2   |   |      |   | 388.0   |      |  |   | 500.9   |   |  |   | 401.4 |  
|Net investment income                  |  |                                                              | 60.1    |   |      |   | 64.4    |      |  |   | 43.9    |   |  |   | 38.9  |  
|Net gain on alternative investments    |  |                                                              | 124.0   |   |      |   | 32.1    |      |  |   | 29.8    |   |  |   | 9.6   |  
|Income (loss) before minority interest |  |                                                              | 130.9   |   |      |   | (7.1    | )    |  |   | 2.6     |   |  |   | 11.3  |  
|Fixed maturities and cash              |  |                                                              | 1,805.9 |   |      |   | 1,371.7 |      |  |   | 982.4   |   |  |   | 507.3 |  
|Alternative investments                |  |                                                              | 831.4   |   |      |   | 653.2   |      |  |   | 627.8   |   |  |   | 347.1 |  
|Total assets                           |  |                                                              | 3,495.6 |   |      |   | 2,643.4 |      |  |   | 2,048.6 |   |  |   | 935.5 |  
|Shareholders equity (1)               |  |                                                              | 805.2   |   |      |   | 710.7   |      |  |   | 699.7   |   |  |   | 514.6 |  
|Book value per share (1)               |  |                                                              | 17.82   |   |      |   | 15.75   |      |  |   | 14.92   |   |  |   | 14.70 |  
|Diluted earnings (loss) per share      |  |                                                              | 2.84    |   |      |   | (0.15   | )    |  |   | 0.06    |   |  |   | 0.35  |  
|Cash dividends per share               |  |                                                              | 0.09    |   |      |   | 0.08    |      |  |   | 0.02    |   |  |   | 0.00  |  
|Return on average combined equity      |  |                                                              | 17.27   | % |      |   | (1.01   | )%   |  |   | 0.4     | % |  |   | 2.7   | %

---

|(1) | Formerly shown as combined shareholders equity (shareholders equity and minority interest) and combined book value per share. On July 30, 2003, the holders of non-voting
common shares of Max Re and warrants to acquire non-voting common shares of Max Re exchanged such shares and warrants for Common Shares of the Company and warrants to acquire Common Shares of the Company. The effect of this exchange resulted in the
elimination of minority interest and an increase in shareholders equity of equal amounts as of the date of the exchange.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------



The following is a discussion and analysis of the Companys results of operations for the year ended December 31, 2003
compared to the year ended December 31, 2002, and for the year ended December 31, 2002 compared to the year ended December 31, 2001 and also a discussion of the Companys financial condition as of December 31, 2003. This discussion and analysis
should be read in conjunction with the audited consolidated financial statements and related notes that are included in this Annual Report.



Overview



The Company is a Bermuda-based provider of reinsurance and insurance products for both the property and casualty and the life and annuity markets. In the
past two years, the property and casualty market has presented more opportunities to the Company than the life and annuity market due to a shortage of reinsurance capacity in the property and casualty market, resulting in improvement in premium
rates. Further, a weak global economy and corrections in the global capital markets over the last several years have resulted in a wider pricing gap between buyers and sellers for the type of life and annuity reinsurance products that the Company
offers. The Company anticipates continuing greater demand for its property and casualty products than for its life and annuity products for the foreseeable future.



To manage reinsurance and insurance liability exposure, make investment decisions and assess overall enterprise risk, the
Company models its underwriting and investing activities on an integrated basis. The



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Companys integrated risk management, as well as features of its products, provides flexibility in making decisions regarding investments. The
Companys investments are currently comprised of a high grade fixed maturities portfolio and an alternative investment portfolio that currently employs ten strategies invested in approximately 45 underlying trading entities designed to provide
diversification and to generate positive returns while attempting to reduce the frequency and severity of loss outcomes. The alternative investment portfolio also includes two strategic reinsurance private equity investments. Based on fair value at
December 31, 2003, the allocation of invested assets was approximately 68.5% in cash and fixed maturities and 31.5% in alternative investments.



The Companys principal operating subsidiary is Max Re. At December 31, 2003, Max Re had $793.2 million of shareholders equity. The Company
conducts its European activities through Max Europe Holdings and its operating subsidiaries, Max Re Europe and Max Insurance Europe. The Company also provides reinsurance underwriting and administrative services on a fee basis through Max Re
Managers. The Company holds all of its alternative investments in Max Re Diversified, other than reinsurance private equity investments that are held by Max Re.



Executive Summary



The Company achieved a key objective of shifting its property and casualty product mix toward traditional reinsurance and insurance business during the
year ended December 31, 2003. The strategy resulted in improved underwriting performance, which, coupled with strong investment performance, enabled the Company to generate increased net income. Implementation of the shift in product mix was
realized through the hiring of a seasoned team of insurance underwriting professionals with proven track records. The Company believes these professionals bring underwriting talent, experience, discipline and market presence, which allowed the
Companys insurance operations to grow to over 16% of total gross premium written volume for the year ended December 31, 2003.



The Company also realized a diversification of its reinsurance underwriting business. The shift in underwriting focus and hiring of additional traditional
reinsurance underwriting professionals, coupled with the introduction of insurance operations, enabled the Company to develop its professional liability, general liability, aviation and property underwriting capability and to expand into additional
lines of business. Consequently, the Company believes its underwriting portfolio is more balanced and diversified than in previous years.



The Company experienced growth in premium revenue during the year ended December 31, 2003 with gross premium written of $1,009.8 million compared to
$647.4 million in 2002. The increase of 56.0% reflects the Companys strategic decision to shift its product mix toward traditional reinsurance and insurance products during the year. These markets are presenting additional underwriting
opportunities to the Company at favorable pricing terms. Traditional reinsurance operations represent 31.6% of total volume, up from 21.3% in the prior year. The Company recognizes the potential for increased volatility in its loss ratio arising
from the shift in product mix to traditional reinsurance and insurance business. The Company plans to manage this risk by selecting appropriate line sizes and underlying exposures to diversify its existing underwriting portfolio and to continue to
purchase reinsurance protection to manage its risk.



The
Companys shift in product mix has resulted in improved underwriting performance in 2003. Loss ratios (losses, benefits and experience refunds as a percentage of net premiums earned) for the property and casualty business have declined from
83.3% in 2002 to 74.5% in 2003 and the combined ratio (total losses and expenses as a percentage of net premiums earned) has similarly declined from 111.2% in 2002 to 99.8% in 2003. Traditional reinsurance and insurance products are expected to
generate lower loss and combined ratios than structured risk transfer products. In 2004, the Company expects to continue to increase the percentage of its gross premium written volume represented by traditional reinsurance and insurance operations.



Losses, benefits and experience refunds represent the largest
expense to the Company and account for over 50% of total liabilities at December 31, 2003. The Company establishes loss expenses and reserves using a



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combination of loss reserving techniques and actuarial methods. Loss expenses and reserves are reviewed regularly to reflect new information received by the
Company. The adequacy of the Companys reserves is reviewed annually by outside actuaries to support managements estimates. There was no significant adjustment to the Companys reserves for the year ended December 31, 2003. An
analysis of property and casualty loss development may be found in Note 4 to the audited consolidated financial statements, attached hereto.



The Companys investments during the year ended December 31, 2003 produced a total return of 7.74% compared to 7.37% for the year ended December 31,
2002. The principal contributor to the investment performance during the year ended December 31, 2003, was the 16.57% rate of return generated on the Companys alternative investments compared to a 5.24% rate of return in 2002. The Company
currently invests in eleven strategies within its alternative investment portfolio, with all strategies showing positive rates of return during the year ended December 31, 2003. In 2003, the Company reallocated investments over a broader array of
investment managers, to achieve diversification, to protect against concentrated exposure and to benefit from the proven track records of the new investment managers.



The Company continually assesses its liquidity needs by monitoring new business prospects and development of its existing
operations. In 2003, the Company generated $451 million of cash from operations of which the Company invested $396 million in fixed maturities and alternative investments. The Company expects to continue to generate operating cash inflow in 2004
through profitable new business, which will be offset partially by paid losses on existing reinsurance and insurance obligations, as well as operating expenses.



Drivers of Profitability



Revenues



The Company derives revenues from three principal sourcespremiums from reinsurance and insurance business, income from its investment portfolio and,
to a lesser extent, management fees from underwriting services. Reinsurance and insurance premiums are a function of the amount and type of contracts written as well as prevailing market prices. Premiums are earned over the terms of the underlying
contracts. Each of the Companys reinsurance contracts contains unique pricing, terms and conditions and expected profit margins. Therefore, the amount of premiums is not necessarily an accurate indicator of the Companys anticipated
profitability.



The Companys net investment income is a
function of the average invested assets and the average yield that the Company earns on those invested assets. The investment yield on the Companys fixed maturities investments is a function of market interest rates as well as the credit
quality and maturity of its fixed maturities holdings. The Company realizes capital gains or losses on its fixed maturities investments as a result of changing market conditions, including, but not limited to, changes in market interest rates and
changes in the markets perception of the credit quality of the Companys fixed maturities holdings. The Companys net gains on alternative investments is a function of the success of the funds in which the Company is invested, which
depends on, among other things, the underlying strategies of the funds, the ability of the fund managers to execute the fund strategies and general economic conditions, and the underlying operating results of the private equity reinsurance
investments.



Expenses



The Companys three principal expenses are losses, benefits and
experience refunds, acquisition costs, and general and administrative expenses. Losses, benefits and experience refunds are based on the amount and type of reinsurance and insurance contracts written by the Company during the current reporting
period and information received during the current reporting period from ceding clients pertaining to contracts written in prior years. The Company records losses, benefits and experience refunds based on an actuarial estimate of the expected
losses, benefits and experience refunds to be incurred on each contract written. The ultimate losses, benefits and experience refunds depend on the actual costs to settle these liabilities. The Company increases or



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decreases losses, benefits and experience refunds estimates as actual claim reports are received. The Companys ability to estimate losses, benefits and
experience refunds accurately at the time of pricing its contracts is a critical factor in determining profitability.



Acquisition costs consist principally of ceding commissions paid to ceding clients and brokerage expenses, and typically represent a percentage of the
premiums on reinsurance and insurance contracts written. These costs are generally deferred and amortized over the period in which the related premiums are earned.



General and administrative expenses are principally employee salaries and related personnel costs, rent and other operating
costs. These costs are primarily fixed in nature and do not vary with the amount of premiums written.



Critical Accounting Policies:



The Companys consolidated financial statements are prepared in accordance with GAAP, which require management to make estimates and assumptions. The Company believes that the following accounting policies affect the more significant
judgments and estimates used in the preparation of its consolidated financial statements.



Revenue recognition



The Company follows FAS No. 60, Accounting and Reporting by Insurance Enterprises, FAS No. 97, Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and Realized Gains and Losses from the
Sale of Investments, and FAS No. 113, Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts, in determining the accounting for its reinsurance and insurance products. Assessing whether or not the
contracts it writes meets the conditions for risk transfer requires judgment. The determination of risk transfer is fundamental to the Companys determination of gross premiums written and is based, in part, on the use of actuarial and pricing
models and assumptions.



The Companys premiums are
recorded at the inception of each contract, based upon contract terms and information received from ceding clients and their brokers. For excess of loss contracts, the amount of premium is usually contractually documented at inception, and no
management judgment is necessary in accounting for this. For quota share or proportional contracts, gross premiums written are normally estimated at inception by the ceding client. The Company accounts for such premiums using the initial estimates,
and then adjusts them as advised by its ceding clients. The Company also accrues for reinstatement and additional premiums resulting from losses. Such accruals are based upon contractual terms, and the only element of management judgment involved is
with respect to the amount of losses, benefits and experience refunds, as described below. Premiums are earned on a pro rata basis over the coverage period.



Reinstatement and additional premiums are recognized and earned at the time losses are adjusted by the Company. Reinstatement premiums are the premiums
charged for the restoration of the reinsurance limit of a contract to its full amount after payment by the reinsurer of losses as a result of an occurrence. Additional premiums are premiums charged based on loss experience during the policy term or
coverage period.



Losses, benefits and experience refunds



Under GAAP, the Company is not permitted to establish
loss reserves until the occurrence of an event that may give rise to a loss. Once such an event occurs, the Company establishes reserves based upon estimates of total losses incurred by the ceding client as a result of the event and the
Companys estimate of the portion of such loss it covers. As a result, only loss reserves applicable to losses incurred up to the reporting date may be recorded, with no allowance for the provision of a contingency reserve to account for
expected future losses.



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Setting appropriate reserves for losses, benefits and experience refunds is an inherently uncertain
process. Losses, benefits and experience refunds reserves represent estimates, at a given point in time, of the ultimate settlement costs of losses incurred (including IBNR losses, which are losses that have been incurred but not yet reported). The
Company regularly reviews and updates these estimates using the most current information available and employing generally accepted actuarial methods. Consequently, the ultimate liability for a loss is likely to differ from the original estimate.
Whenever the Company determines that an existing reserve for losses, benefits and experience refunds needs adjustment, it is required to record a change in estimate, increasing or decreasing the reserve with a corresponding reduction or increase,
which could be material, in its operating results in the period in which the deficiency or redundancy is identified. Adjustments resulting from changes in the Companys estimates are recorded in the period such adjustments are determined. The
establishment of new reserves, or the adjustment of reserves for reported claims, could result in significant upward or downward changes to the Companys financial condition or results of its operations in the period such amounts are reported.



The Companys reinsurance and insurance reserves are
actuarial projections as of the balance sheet date of the ultimate unpaid losses and benefits associated with its reinsurance and insurance contracts. Considerable judgment is required to evaluate losses and benefits and establish liabilities for
losses and benefits. The Company employs a variety of actuarial loss reserving techniques and several models to assist in the setting and reviewing of reserves. The actuarial loss reserves techniques and models employed are principally based on paid
and incurred loss development methods. Further, the Company retains an independent actuarial firm to annually review the adequacy of the reserves as determined by management. Additional information regarding losses, benefits and experience refund
amounts incurred will be revealed over time and the estimates of such amounts may need to be revised, resulting in gains and losses in the periods determined.



Investments



The Companys investments are carried at fair value or amounts that approximate fair value. Fair value for the Companys investments in fixed
maturities is generally based on quoted market prices, dealer quotes or pricing models. At December 31, 2003, the valuation of approximately 98% of the Companys fixed maturities investments was based on quoted market prices. Fair value for the
Companys alternative investments is generally based on the net asset value reported by the respective investment fund managers or, for its reinsurance equity investments, based on the carried amount under the equity method of accounting. The
investment fund managers generally carry their trading positions and investments at fair value. The Company relies principally on the financial reports from these entities for recording the net gains on alternative investments in its statement of
income. For its equity investments, the Company initially records the investments at cost and periodically adjusts the carrying values to recognize its proportionate share of income or loss from these investments. Future adverse changes in general
market, global and economic conditions, changes to the interest and currency rate environment or poor operating results by the Companys investments carried under the equity method of accounting could result in losses.



See Note 2 to the audited consolidated financial statements of the Company
included herein for the Companys significant accounting policies.



Results of Operations



Year ended
December 31, 2003 compared to year ended December 31, 2002



Gross premiums written.Gross premiums written for the year ended December 31, 2003 were $1,009.8 million compared to $647.4 million for the year ended December 31, 2002, an increase of 56.0%. Gross premiums written for property and
casualty were $901.5 million for the year ended December 31, 2003 compared to $632.7 million for the year ended December 31, 2002. Gross premiums written for property and casualty increased principally due to increased production of traditional
reinsurance business and the commencement of the Companys traditional insurance operations in the first quarter of 2003. Gross premiums written for life and



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annuity were $108.3 million for the year ended December 31, 2003 compared to $14.7 million for the year ended December 31, 2002. Gross premiums written for
life and annuity in the year ended December 31, 2003 resulted from two life insurance contracts written in the fourth quarter.



Reinsurance premiums ceded.Premiums ceded for the year ended December 31, 2003 were $154.6 million compared to $54.7 million for the year ended
December 31, 2002, an increase of 182.6%. Reinsurance premiums ceded were principally related to the Companys quota-share retrocessional and aggregate stop loss agreements with Grand Central Re and the quota share retrocession of its
traditional insurance business. In addition during 2003, the Company purchased specific reinsurance to manage the risks associated with certain lines of business and to manage the exposure retained by the Company on certain transactions. As the
Companys traditional reinsurance and insurance business grows, the Company is purchasing, and expects to continue to purchase, additional retrocessional coverage consistent with its risk management objectives.



Net premiums written.Net premiums written for the year ended December
31, 2003 were $855.2 million compared to $592.7 million for the year ended December 31, 2002, an increase of 44.3%. Net premiums written for property and casualty products for the year ended December 31, 2003 were $768.6 million compared to $580.3
million for the year ended December 31, 2002. Net premiums written for life and annuity products for the year ended December 31, 2003 were $86.6 million compared to $12.5 million for the year ended December 31, 2002.



Net premiums earned.Net premiums earned for the year ended December
31, 2003 were $727.2 million compared to $388.0 million for the year ended December 31, 2002, an increase of 87.4%. Property and casualty net premiums earned were $640.6 million, after the deduction of $86.6 million of earned premiums ceded, for the
year ended December 31, 2003 compared to $375.6 million, after the deduction of $44.4 million of earned premiums ceded, for same period in 2002. Life and annuity net premiums earned were $86.6 million, after the deduction of $21.7 million of earned
premiums ceded, for the year ended December 31, 2003 compared to $12.5 million, after the deduction of $2.2 million of earned premiums ceded, for the same period in 2002. The difference between net premiums written and net premiums earned for the
year ended December 31, 2003 compared to 2002 reflects the earning pattern of an increasingly mature book of property and casualty contracts. In addition, the life and annuity business written in the fourth quarter of the year was fully earned in
the year ended December 31, 2003.



Net investment
income.Net investment income, excluding realized and unrealized gains and losses, for the year ended December 31, 2003 decreased $4.3 million to $60.1 million compared to $64.4 million for the year ended December 31, 2002, a decrease of 6.7%.
The decrease was principally attributable to a $13.4 million decline in the investment income earned from premiums and deposits withheld by clients during the year ended December 31, 2003. Funds withheld by clients declined significantly in the year
principally due to the commutation of certain contracts. The overall decline in investment income was partially offset by the growth in the fixed maturities portfolio from $1,279.6 million to $1,604.4 million resulting from cash received from the
collection of premiums written since December 31, 2002. For the year ended December 31, 2003, yields on the fixed maturity investments remained at historically low levels. The average investment yield on the cash, fixed maturities investments and
funds withheld by clients for the year ended December 31, 2003 was 3.8% compared to an average yield of 5.2% for the year ended December 31, 2002. The decline principally relates to the reduction in interest earned on the funds withheld balances,
which also decreased.



Net gains on alternative investments.Net gains on the alternative investment portfolio were $124.0 million, including $12.1 million from the Companys private equity reinsurance investments, for the year ended December 31, 2003 compared to $32.1 million, including $8.4 million
from the Companys private equity reinsurance investments, for the year ended December 31, 2002. The increase was attributable to both a 16.6% rate of return on the alternative investments for the year ended December 31, 2003 compared to a 5.2%
rate of return for the year ended December 31, 2002 and an increase in the amount of the alternative investments resulting from cash flows generated from operating activities during 2003. Every alternative investment strategy



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employed by the Company was profitable during the year ended December 31, 2003. Alternative investment strategies principally contributing to income during
the year ended December 31, 2003 were distressed securities, emerging markets, event driven arbitrage, global macro, long/short equity and fixed income arbitrage.



Losses, benefits and experience refunds.Losses, benefits and experience refunds were $592.3 million for the year
ended December 31, 2003 compared to $361.0 million for the year ended December 31, 2002, an increase of 64.1%. Property and casualty losses were $477.3 million for the year ended December 31, 2003 compared to $313.0 million for the year ended
December 31, 2002. The increase in property and casualty losses was related to the increase in property and casualty premiums written and earned during the year ended December 31, 2003 compared to the same period in 2002. The loss ratio for property
and casualty business for the year ended December 31, 2003 was 74.5% compared to 83.3% for the year ended December 31, 2002. The decrease in loss ratio reflects the increased traditional reinsurance and insurance underwriting production which is
currently producing lower loss ratios than the Companys structured and alternative risk products.



During the year ended December 31, 2003, incurred losses related to prior year contracts amounted to $25.3 million, and included amortization of deferred
charges on retrospective property and casualty reinsurance contracts of $4.0 million, and was net of $5.1 million in realized profits from contracts terminated during the current year that were written in prior years. The Company recognized
additional premiums, net of acquisition costs, of $19.2 million relating to incurred losses on prior years, which offsets the increase in incurred losses related to prior year contracts. One reinsurance contract that provides whole account coverage
accounted for $19.1 million of the prior year incurred losses amount. The contract is a multi year reinsurance contract under which additional premium was recorded for a prior year. The premium adjustment caused the Company to recognize additional
losses for the prior year at a percentage rate consistent with the original loss ratio.



The life and annuity benefits were $114.9 million for the year ended December 31, 2003 which related to two transactions written and earned in the fourth quarter of the current year combined with the accretion of
liability for future benefits on contracts written in prior years, compared to $47.9 million for the year ended December 31, 2002.



Acquisition costs.Acquisition costs were $149.5 million for the year ended December 31, 2003 compared to $97.7 million for the year ended December
31, 2002, an increase of 53.0%. The increase in acquisition costs results from an increase in property and casualty net premiums earned. The decline, in percentage terms, of acquisition costs to net premiums earned during the year ended December 31,
2003, from 25.2% to 20.6%, principally reflected lower acquisition costs on insurance business written and the life and annuity business. Acquisition costs during each of the years ended December 31, 2003 and 2002 consisted primarily of amortization
of deferred policy acquisition costs incurred in connection with writing property and casualty business. Acquisition costs are customarily associated with the type of premium written by the Company. Generally, acquisition costs fluctuate with
business volume and changes in product mix. A significant component of deferred policy acquisition costs are ceding commissions paid to the buyer of the Companys reinsurance products.



Interest expense. Interest expense was $28.8 million for the year
ended December 31, 2003 compared to $23.1 million for the year ended December 31, 2002, an increase of 24.7%. The increase resulted principally from interest expense on additional funds withheld from reinsurers of the Company and on increased
deposit liabilities and increased interest expense on the swap transaction, accounted for as a bank loan, resulting from a higher principal balance for the year ended December 31, 2003 compared to the same period in 2002.



General and administrative expenses.General and administrative
expenses were $39.8 million for the year ended December 31, 2003 compared to $21.3 million for the year ended December 31, 2002, an increase of 86.9%. The increase resulted principally from expenses associated with establishing the Companys
insurance operations and expanding the Companys traditional reinsurance capabilities through the hiring of additional staff. The general and administrative expense to net premiums earned ratio remained unchanged at 5.5% for the year ended
December 31, 2003 compared to that for the year ended December 31, 2002.



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Net income (loss).Net income for the year ended December 31, 2003 was $120.6 million compared to
a net loss of $5.8 million for the year ended December 31, 2002. The results for the year ended December 31, 2003 were principally attributable to increased income from the Companys alternative investments and underwriting income generated
from the Companys property and casualty products compared to the year ended December 31, 2002.



Year ended December 31, 2002 compared to year ended December 31, 2001



Gross premiums written. Gross premiums written for the year ended December 31, 2002 were $647.4 million compared to
$710.6 million for the year ended December 31, 2001, a decrease of 8.9%. Gross premiums written for property and casualty were $632.7 million for the year ended December 31, 2002 compared to $496.5 million for the year ended December 31, 2001. Gross
premiums written for property and casualty increased principally due to increased demand for, and improved pricing of, the Companys products and the expansion of the product offering to include traditional property and casualty reinsurance
risks during 2002. Gross premiums written for life and annuity were $14.7 million for the year ended December 31, 2002 compared to $214.1 million for the year ended December 31, 2001. The Company believes that the lack of life and annuity
underwriting production during the year ended December 31, 2002 was attributable to the low interest rate environment and weak global economy in 2002. The demand for the type of life and annuity reinsurance that the Company offers is typically weak
during periods when interest rates are low.



Reinsurance
premiums ceded. Premiums ceded for the year ended December 31, 2002 were $54.7 million compared to $116.4 million for the year ended December 31, 2001, a decrease of 53.0%. The reinsurance premiums ceded were principally related to the
Companys quota-share retrocessional agreement with Grand Central Re. The decline in premiums ceded in the year is a result of the decline in the volume of life and annuity business written by the Company and the change in the mix of property
and casualty business written.



Net premiums written.
Net premiums written for the year ended December 31, 2002 were $592.7 million compared to $594.2 million for the year ended December 31, 2001, a decrease of 0.3%. Net premiums written for property and casualty products for the year ended December
31, 2002 were $580.2 million compared to $412.6 million for the year ended December 31, 2001. Net premiums written for life and annuity products for the year ended December 31, 2002 were $12.5 million compared to $181.6 million for the year ended
December 31, 2001.



Net premiums earned. Net premiums
earned for the year ended December 31, 2002 were $388.0 million compared to $500.9 million for the year ended December 31, 2001, a decline of 22.5%. Property and casualty net premiums earned were $375.5 million, after the deduction of $44.4 million
of earned premiums ceded, for the year ended December 31, 2002 compared to $319.3 million, after the deduction of $66.6 million of earned premiums ceded, for the year ended December 31, 2001. Life and annuity net premiums earned were $12.5 million,
after the deduction of $2.2 million of earned premiums ceded, for the year ended December 31, 2002 compared to $181.6 million, after the deduction of $32.4 million of earned premiums ceded, for the year ended December 31, 2001. The difference
between net premiums written and net premiums earned for the years ended December 31, 2002 and 2001 reflects the fact that most of the Companys property and casualty reinsurance contracts are written on a prospective basis, with the premium
earned over the period reinsurance protection is provided, whereas each of the Companys life and annuity contracts assumes the existing risk of the reinsured, and, accordingly, the related premium is earned at the time the Company enters into
the contract.



Net investment income. Net investment
income, excluding realized and unrealized gains and losses, for the year ended December 31, 2002 increased $20.5 million to $64.4 million compared to $43.9 million for the year ended December 31, 2001, an increase of 46.7%. The increase was
primarily attributable to the growth in the fixed maturities portfolio from $884.1 million to $1,279.6 million resulting from cash received from the collection of premiums written since December 31, 2001 and $6.4 million of additional investment
income earned from premiums and deposits withheld by clients during the year ended December 31, 2002 compared to



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calendar year 2001. The average investment yield on the fixed maturities portfolio for the year ended December 31, 2002 was 5.19% compared to an average
yield of 6.15% for the year ended December 31, 2001.



Net
gains on alternative investments. Net gains on the alternative investment portfolio were $32.1 million, including $8.4 million from the Companys private equity reinsurance investments, for the year ended December 31, 2002 compared to $29.8
million, net of $0.3 million loss from the Companys private equity reinsurance investments for the year ended December 31, 2001, an increase of 7.7%. The alternative investment portfolio returned a 5.2% gain during the year ended December 31,
2002 compared to a 6.7% gain during the year ended December 31, 2001. The increase in net gains of $2.3 million resulted from the return from the Companys private equity reinsurance investments and the larger size of the alternative investment
portfolio, offset by the lower return earned on these investments in 2002 compared to 2001.



Losses, benefits and experience refunds. Losses, benefits and experience refunds were $361.0 million for the year ended December 31, 2002 compared to $514.3 million for the year ended December 31, 2001, a
decrease of 29.8%. Property and casualty losses and experience refunds were $313.0 million for the year ended December 31, 2002 compared to $313.0 million for the year ended December 31, 2001. The increase in property and casualty losses and
experience refunds was smaller than the increase in property and casualty net premiums written and net premiums earned as the Companys product mix changed during the year 2002.



During the year ended December 31, 2002, incurred losses related to prior years contracts amounted to $49.9 million, and
included amortization of deferred charges on retrospective property and casualty reinsurance contracts of $6.3 million. The Company recognized additional premiums and interest on those premiums, net of acquisition costs, of $37.8 million,
substantially mitigating the losses incurred on prior year contracts. One contract written during calendar year 2000 accounted for $41.2 million of the prior year incurred losses amount. The contract was a whole account stop loss cover, with
workers compensation as the principal underlying risk, providing reinsurance for calendar year 1999, where losses incurred and settled through December 31, 2002 by the underlying reinsured exceeded the Companys estimates and consequently
resulted in additional losses being recorded by the Company.



Life and annuity benefits and experience refunds were $48.0 million for the year ended December 31, 2002 compared to $201.4 million for the year ended December 31, 2001. The decrease was principally attributable to the lower volume of life
and annuity premiums written and earned in 2002 compared to 2001. The Company recorded net adverse mortality and morbidity expense of $7.0 million during the year ended December 31, 2002 resulting principally from worse than expected claims
experience on a coinsurance transaction involving group long term disability written during calendar year 2000.



Acquisition costs. Acquisition costs were $97.7 million for the year ended December 31, 2002 compared to $30.9 million for the year ended December
31, 2001, an increase of 216.2%. The increase in acquisition costs was a result of the Companys increase in property and casualty reinsurance volume and a change in the mix and ceding commission rates of contracts written in 2002 compared to
2001. Acquisition costs during each of the years ended December 31, 2002 and 2001 consisted primarily of amortization of deferred policy acquisition costs incurred in connection with writing property and casualty business. Acquisition costs are
customarily associated with the type of premium written by the Company. Generally, acquisition costs fluctuate with business volume and changes in product mix. The largest component of deferred policy acquisition costs are ceding commissions paid to
the buyer of the Companys reinsurance products.



Interest expense. Interest expense was $23.1 million for the year ended December 31, 2002 compared to $12.1 million for the year ended December 31, 2001, an increase of 90.9%. The increase resulted principally from interest expense
on additional funds withheld from reinsurers of the Company and on increased deposit liabilities and increased interest expense on the swap transaction into which the Company entered in March 2002.



General and administrative expenses. General and administrative
expenses were $21.3 million for the year ended December 31, 2002 compared to $21.0 million for the year ended December 31, 2001, an increase of



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1.4%. The increase reflected the costs associated with growing the Companys operations and principally relates to staff additions, offset by decreased
bonuses paid to management and employees in 2002 compared to 2001. The general and administrative expense ratio was 5.5% for the year ended December 31, 2002 compared to 4.2% for the year ended December 31, 2001.



Net income (loss). Net loss for the year ended December 31, 2002 was
$5.8 million compared to net income of $2.5 million for the year ended December 31, 2001. The change to a net loss in 2002 compared to net income in 2001 resulted from the unfavorable development on the Companys reinsurance reserves and lower
investment returns than necessary to support the Companys increased reinsurance liabilities.



Financial Condition



Cash and invested assets. Aggregate invested assets, comprising cash and cash equivalents, fixed maturities and alternative investments were $2,637.3 million at December 31, 2003 compared to $2,024.8 million at December 31, 2002, an
increase of 30.2%. The increase in cash and invested assets from 2002 to 2003 resulted principally from $451.8 million in cash flows from operations generated in 2003, appreciation of the alternative investments portfolio of $124.0 million and a
$50.0 million increase in the swap transaction accounted for as a bank loan.



Property and casualty losses and experience refunds. Property and casualty losses and experience refunds totaled $991.7 million at December 31, 2003 compared to $778.1 million at December 31, 2002, an increase
of 27.5%. The increase in property and casualty losses and experience refunds was principally attributable to increased premiums earned during the year ended December 31, 2003 and expected claim settlements. The increase is partially offset by a
decrease in these liabilities, resulting from an amendment, effective January 1, 2003, to the terms of a property and casualty contract written in a prior year. The amendment was a material change to the contract, causing the Company to record the
amended contract as a deposit arrangement, thereby reducing the liabilities for property and casualty losses and experience refunds by $160.7 million and increasing the deposit liabilities by a corresponding amount. An analysis of the changes in
property and casualty losses and experience refunds can be found in Note 4 to the audited consolidated financial statements of the Company included herein.



Life and annuity benefits and experience refunds. Gross life and annuity benefits and experience refunds totaled $480.1 million at December 31,
2003 compared to $405.0 million at December 31, 2002, an increase of 18.5%. The increase in 2003 was principally attributable to the benefit reserves of $107.2 million required on business written and earned during the current year, partially offset
by benefit payments of $32.1 million on existing contracts in force.



Losses recoverable from reinsurers. Losses recoverable from reinsurers totaled $273.7 million at December 31, 2003 compared to $212.2 million at December 31, 2002, an increase of 29.0%, principally reflecting losses ceded under the
Companys retrocessional agreements. At December 31, 2003, two retrocessionaires account for 61.8% and 28.7% of the Companys losses recoverable from reinsurers. The retrocessionaires have a financial strength ratings of A- and
A, respectively, by A.M. Best Company. The Company retains funds from these two retrocessionaires to secure the obligations.



Bank loans. In March 2002, Max Re completed a $100.0 million sale of shares of Max Re Diversified to a third party financial institution.
Simultaneous with the sale, Max Re entered into a total return swap with the purchaser of these shares whereby Max Re received the return earned on the Max Re Diversified shares in exchange for a variable rate of interest based on LIBOR plus a
spread. Under GAAP, these transactions were viewed on a combined basis and accounted for as a financing transaction, which resulted in the recording of a $100.0 million bank loan.



On February 18, 2003, the Company and the third party financial institution mutually terminated the swap transaction
described above and, immediately following the termination, the Company completed a $150.0



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million sale of shares of Max Re Diversified to the same third party financial institution and entered into a total return swap with the purchaser on similar
terms as the terminated transaction. Max Re Diversified shares owned by Max Re with a fair value of $86.2 million at December 31, 2003 were pledged as collateral to which the Company is exposed to credit risk. Under GAAP, these transactions are
viewed on a combined basis and accounted for as a financing transaction, which resulted in the recording of a $150.0 million bank loan. The swap termination date is February 2005, with provisions for earlier termination at the Companys option
or in the event that the Company fails to comply with certain covenants, including maintaining a minimum financial strength rating and a minimum Max Re Diversified net asset value. At termination, the purchaser has the option to sell the Max Re
Diversified shares to the Company at a price equal to the fair value of the Max Re Diversified shares on the date of repurchase. The swap transaction enables the Company to transform a portion of its Max Re Diversified assets into fixed maturities
investments that can be held in trusts for the benefit of certain ceding reinsurance companies that require fixed maturity trust assets to meet regulatory requirements.



Duration of liabilities. The average duration of the Companys liabilities as of December 31, 2003 was
approximately 4.2 years. This average duration was calculated using the actuarial estimates of cash flow of the contracts in force. The actuarial estimates of cash flow of the contracts include assumptions as to the size and timing of payments due
from the Company under the contracts. Variations in the Companys actual experience from its assumptions may cause the average duration of its liabilities to be shorter or longer.



Shareholders equity. The Companys shareholders equity increased to $805.2 million at December 31,
2003 from $710.7 million, including minority interest, at December 31, 2002, an increase of 13.3%, principally reflecting income of $120.6 million for the year ended December 31, 2003, partially offset by unrealized holding losses on fixed
maturities arising during the period of $21.2 million and dividends paid and minority interest distributions in the amount of $4.1 million.



On July 30, 2003, the holders of non-voting common shares of Max Re and warrants to acquire non-voting common shares of Max Re exchanged such shares and
warrants for Common Shares of the Company and warrants to acquire Common Shares of the Company. The effect of this exchange resulted in the elimination of minority interest and an increase in shareholders equity of equal amounts as of the date
of the exchange. This exchange did not have a dilutive effect on equity.



Liquidity and capital resources. The Company generated $451.8 million from operations during the year ended December 31, 2003 compared to $225.4 million in 2002, an increase of 100.4%, principally reflecting
the shift in product mix, which generated increased gross premiums written during the year. The Company generated $53.8 million from financing activities, with the principal contributor being an increase in the bank loan facility of $50.0 million
during the year. The cash generated from operating and financing activities was applied to the Companys investing activities, through the net purchase of $341.6 million in fixed maturities and $54.5 million in alternative investments.



As a holding company, Max Re Capitals principal assets
are its investments in the common shares of its principal subsidiary, Max Re, and the common shares of its other subsidiaries. The Companys principal source of funds is from interest income on cash balances and cash dividends from its
subsidiaries, including Max Re. The payment of dividends is limited under Bermuda insurance laws. In particular, Max Re may not declare or pay any dividends if it is in breach of its minimum solvency or liquidity levels under Bermuda law or if the
declaration or payment of the dividends would cause it to fail to meet the minimum solvency or liquidity levels under Bermuda law. At December 31, 2003, Max Re, which is required to have $382.8 million in statutory capital and surplus in order to
pay dividends, had $698.0 million in actual statutory capital and surplus.



Capital resources. At December 31, 2003, the Companys capital structure consisted of equity. Total capitalization after deducting loans to employees and including retained earnings and accumulated other
comprehensive income amounted to $805.2 million as compared with $710.7 million at December 31, 2002. The Company has flexibility with respect to capitalization as the result of its access to the debt and equity markets.



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The Company regularly reviews its capital adequacy and believes its current level of capital is sufficient to support the Companys current reinsurance
and insurance operations. The Company is currently evaluating various capital resource alternatives to continue growing its business, and believes that issuing debt is likely in 2004.



In the ordinary course of business, the Company is required to provide letters of credit or other regulatory approved
security to certain of its ceding clients to meet contractual and regulatory requirements.



The Company has three letter of credit facilities as of December 31, 2003, totaling $470.0 million. The Companys primary letter of credit facility is with a syndicate of commercial banks, one of which is
affiliated with a director of Max Re Capital. In June 2003, the Company amended the terms of this facility principally to lower the cost of the facility and reduced the capacity of the facility from $375.0 million to $270.0 million. In accordance
with the facility agreement, the syndicate will issue letters of credit that may total up to $243.0 million secured by fixed maturities and up to $27.0 million secured by alternative investments. The Company believes that the terms of this letter of
credit facility are comparable to the terms that the Company would expect to negotiate with an unrelated party. At December 31, 2003 and December 31, 2002, letters of credit totaling $249.9 million and $284.6 million, respectively, were issued and
outstanding under this facility. Fixed maturities and cash equivalents with a fair value of $285.9 million and Max Re Diversified shares with a fair value of $74.3 million at December 31, 2003 were pledged as collateral for these letters of credit.



The Company also has a $100.0 million letter of credit
facility with the New York branch of Bayerische Hypo- und Vereinsbank AG (HVB), a shareholder of the Company. HVB is the majority shareholder of Grand Central Re, which is managed by Max Re Managers and in which the Company has a 7.5%
equity interest. The Company believes that the terms of this letter of credit facility are comparable to the terms that the Company would expect to negotiate at arms length with an unrelated party. At December 31, 2003 and December 31, 2002,
letters of credit totaling $21.1 million and $58.5 million, respectively, were issued by HVB under this facility. All letters of credit issued under this facility are collateralized by a portion of the Companys invested assets. Fixed
maturities and cash equivalents with a fair value of $21.1 million and Max Re Diversified shares with a fair value of $81.1 million at December 31, 2003 were pledged as collateral for these letters of credit. Effective January 1, 2004, the letter of
credit facility with HVB was reduced to $50.0 million.



In
September 2003, the Company entered into a $100.0 million letter of credit facility with an independent commercial bank. At December 31, 2003, there were $nil million letters of credit issued under this letter of credit facility. Fixed maturities
and cash equivalents with a fair value of $nil million were pledged as collateral for these letters of credit.



Each of the letter of credit facilities requires that the Company, and/or certain of its subsidiaries, comply with certain covenants, including a minimum
consolidated tangible net worth and restrictions on the payment of dividends. The Company was in compliance with all the covenants of each of its letter of credit facilities at December 31, 2003.



On each of January 31, 2003, May 1, 2003 and July 25, 2003, the
Companys Board of Directors declared a quarterly shareholder dividend of $0.02 per share payable to shareholders of record on February 17, 2003, May 12, 2003 and August 8, 2003, respectively. On October 31, 2003, the Board of Directors
declared a shareholder dividend of $0.03 per share payable to shareholders of record on November 14, 2003. Continuation of cash dividends in the future will be at the discretion of the Board of Directors and will be dependent upon the Companys
results of operations and cash flows, and its financial position and capital requirements, general business conditions, legal, tax, regulatory and any contractual restrictions on the payment of dividends and other factors the Board of Directors
deems relevant. On January 30, 2004, the Board of Directors declared a dividend of $0.03 per share to be paid on February 23, 2004 to shareholders of record on February 13, 2004.



The Company has been assigned an insurer financial strength rating of A- (Excellent) by A.M. Best Company, Inc.
and an insurer financial strength rating of A (Strong) by Fitch, Inc. These ratings reflect each



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rating agencys opinion of the Companys financial strength, operating performance and ability to meet obligations. If an independent rating agency
downgrades or withdraws any of the Companys ratings, the Company could be severely limited or prevented from writing any new reinsurance contracts, which would significantly and negatively affect its business. To date, the Companys
ratings have been affirmed by A.M. Best and Fitch on each rating review. Ratings are based upon factors relevant to policyholders and are not directed toward the protection of investors.



No off-balance sheet arrangements. The Company does not participate in transactions that generate relationships with
unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities (VIEs), which would have been established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes. As of December 31, 2003, the Company was not aware of any unconsolidated VIE transactions.



Contractual Obligations



|                                                                                |  |                                              |         |                  |   |           |  |           |         |                   |   |       |  |   |      
|------------------------------------------------------------------------------- |  | -------------------------------------------- | ------- | ---------------- | - | --------- |  | --------- | ------- | ----------------- | - | ----- |  | - | -----
|                                                                                |  | Payment due by period (thousands of dollars)
|Contractual Obligations                                                         |  | Total                                        |         | Less than 1 year |   | 1-3 years |  | 3-5 years |         | More than 5 years
|Long-term debt obligations                                                      |  | $                                            | 150,000 |                  | $ |          |  | $         | 150,000 |                   | $ |      |  | $ |     
|Capital lease obligations                                                       |  |                                              |        |                  |   |          |  |           |        |                   |   |      |  |   |     
|Operating lease obligations                                                     |  |                                              | 10,712  |                  |   | 1,113     |  |           | 2,226   |                   |   | 2,365 |  |   | 5,008
|Purchase obligations                                                            |  |                                              |        |                  |   |          |  |           |        |                   |   |      |  |   |     
|Other long-term liabilities reflected on the Companys balance sheet under GAAP |  |                                              |        |                  |   |          |  |           |        |                   |   |      |  |   |     
|                                                                                |  |                                              |         |                  |   |           |  |           |         |                   |   |       |  |   |      
|Total                                                                           |  | $                                            | 160,712 |                  | $ | 1,113     |  | $         | 152,226 |                   | $ | 2,365 |  | $ | 5,008
|                                                                                |  |                                              |         |                  |   |           |  |           |         |                   |   |       |  |   |      



Risk Factors



See Factors Affecting Future Financial Results, filed as Exhibit 99.1 to
this report, incorporated by reference herein.



|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------



The Company engages in an investment strategy that combines a fixed maturities investment portfolio and an alternative investment portfolio that employ
strategies to manage investment risk. The Company attempts to maintain adequate liquidity in its fixed maturities investment portfolio to fund operations, pay reinsurance and insurance liabilities and claims and provide funding for unexpected
events. The Company seeks to manage its credit risk through industry and issuer diversification, and interest rate risk by monitoring the duration and structure of the Companys investment portfolio relative to the duration and structure of its
liability portfolio. The Company is exposed to potential loss from various market risks, primarily changes in interest rates and equity prices. Accordingly, earnings would be affected by these changes. The Company manages its market risk based on
Board-approved investment policies. With respect to its fixed maturities investment portfolio, the Companys risk management strategy and investment policy is to invest in debt instruments of high credit quality issuers and to limit the amount
of credit exposure with respect to particular ratings categories and any one issuer. The Company selects investments with characteristics such as duration, yield, currency and liquidity that are tailored to the cash flow characteristics of the
Companys property and casualty and life and annuity liabilities.



As of December 31, 2003, the Company did not hold any high-yield investments in its fixed maturities investment portfolio. Currently, the Companys policy is not to hold securities rated lower than BBB-/BAA- in its fixed maturities
investment portfolio. At December 31, 2003, the estimated impact on the fixed maturities investment portfolio from an immediate 100 basis point increase in market interest rates would have resulted in



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an estimated decrease in market value of 3.91% or approximately $65.6 million, and the impact on the fixed maturities investment portfolio from an immediate
100 basis point decrease in market interest rates would have resulted in an estimated increase in market value of 3.85% or approximately $64.6 million.



With respect to the Companys alternative investment portfolio, the Company does not directly control the allocation of its assets to strategies or
underlying funds, nor does the Company control the manner in which they are invested by the Companys fund managers. However, the Company consistently and systematically monitors the strategies and funds in which it is invested, and the Company
believes its overall risk is limited as a result of its selected strategies low volatility and low correlation to the bond market, the stock market and each other. At December 31, 2003, the estimated impact on the alternative investment
portfolio from an immediate 100 basis point increase in market interest rates would have resulted in an estimated decrease in market value of 1.96% or approximately $16.3 million, and the impact on the alternative investment portfolio from an
immediate 100 basis point decrease in market interest rates would have resulted in an estimated increase in market value of 1.96% or approximately $16.3 million.



|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------



Information with respect to this item is set forth under Item 15.



|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------



None.



|ITEM 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------



Disclosure Controls and Internal Controls.The Companys disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, the Exchange Act) (Disclosure Controls) are controls and other procedures that are designed with the objective of ensuring that information required to be disclosed in the Companys reports filed
under the Exchange Act, such as this annual report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms. Disclosure Controls are also designed with the
objective of ensuring that such information is accumulated and communicated to the Companys management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required
disclosure. Internal control over financial reporting (Internal Controls) is a process designed by, or under the supervision of, the Chief Executive Officer and Chief Financial Officer, and effected by the Board, management and other
personnel, with the objective of providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal Controls also include policies and
procedures that:



(1) pertain to the maintenance of records
that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;



(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and



(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
the Companys assets that could have a material effect on the financial statements.



Limitations on the effectiveness of controls.Although the Companys management, including the Chief Executive Officer and the Chief Financial Officer, believes that the Companys Disclosure Controls
and Internal



32



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##### Table of Contents

Controls currently provide reasonable assurance that the Companys desired control objectives have been met, management does not expect that the
Companys Disclosure Controls or Internal Controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty,
and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the control. The design of any
system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.



Evaluation of the Companys Disclosure Controls.As of December
31, 2003, an evaluation was carried out under the supervision and with the participation of the Companys management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the
Companys Disclosure Controls. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded, subject to the limitations noted above, that the design and operation of these Disclosure Controls were effective to
ensure that material information relating to the Company is made known to management, including the Chief Executive Officer and Chief Financial Officer, particularly during the period when the Companys periodic reports are being prepared.



Changes in Internal Controls. There were no significant
changes in the Companys internal controls over financial reporting that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.



33



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##### Table of Contents

PART III



|ITEM 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
|-------- | --------------------------------------------------



The information required in response to this Item is contained under the captions PROPOSALS ONEELECTION OF DIRECTORS OF THE COMPANY and SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE in the Proxy Statement, dated on or about March 24, 2004, filed with the Securities and Exchange Commission (the SEC) pursuant to Regulation 14A. These portions of the Proxy Statement are
hereby incorporated by reference herein.



The Company has
adopted a written code of ethics, the Max Re Capital Ltd. Code of Business Conduct and Ethics, that is applicable to all directors, officers and employees of the Company, including the Companys principal executive officer,
principal financial officer, principal accounting officer or controller and other executive officers identified pursuant to this Item 10 who perform similar functions (collectively, the Selected Officers). In accordance with the rules
and regulations of the SEC, a copy of the code was filed as an exhibit to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, and is available on the Companys website. The Company will disclose any changes in
or waivers from its code of ethics applicable to any Selected Officer on its website at http://www.maxre.bm or by filing a Form 8-K.



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------



The information required in response to this Item is contained under the captions COMPENSATION OF DIRECTORS, PERFORMANCE GRAPH, EXECUTIVE COMPENSATION,
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR, DEFERRED COMPENSATION PLANS, EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS, COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION and COMPENSATION
COMMITTEE REPORT ON EXECUTIVE COMPENSATION in the Proxy Statement, dated on or about March 24, 2004, filed with the SEC pursuant to Regulation 14A. These portions of the Proxy Statement are hereby incorporated by reference herein.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|-------- | --------------------------------------------------------------



The information required in response to this Item is contained under the captions SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, OFFICERS AND DIRECTORS
in the Proxy Statement, dated on or about March 24, 2004, filed with the SEC pursuant to Regulation 14A. This portion of the Proxy Statement is hereby incorporated by reference herein.



|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|-------- | ----------------------------------------------



The information required in response to this Item is contained under the caption CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS in the Proxy Statement,
dated on or about March 24, 2004, filed with the SEC pursuant to Regulation 14A. This portion of the Proxy Statement is hereby incorporated by reference herein.



|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------



The information required in response to this Item is contained under the captions PRINCIPAL ACCOUNTANT FEES AND SERVICES in the Proxy Statement,
dated on or about March 24, 2004, filed with the SEC pursuant to Regulation 14A. This portion of the Proxy Statement is hereby incorporated by reference herein.



34



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##### Table of Contents

PART IV



|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
|-------- | ---------------------------------------------------------------



|       |  |                                                                                                                 |  |     
|------ |  | --------------------------------------------------------------------------------------------------------------- |  | ----
|       |  |                                                                                                                 |  | Page
|(a)(1) |  | Financial Statements                                                                                            |  |     
|       |  |                                                                                                                
|       |  | Independent Auditors Report                                                                                    |  | F-1 
|       |  |                                                                                                                
|       |  | Consolidated Balance Sheets as of December 31, 2003 and 2002                                                    |  | F-2 
|       |  |                                                                                                                
|       |  | Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2003, 2002 and 2001 |  | F-3 
|       |  |                                                                                                                
|       |  | Consolidated Statements of Changes in Shareholders Equity for the Years Ended December 31, 2003, 2002 and 2001 |  | F-4 
|       |  |                                                                                                                
|       |  | Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, 2002 and 2001                      |  | F-5 
|       |  |                                                                                                                
|       |  | Notes to Consolidated Financial Statements                                                                      |  | F-6 



(a)(2) Financial Statement
Schedules:



All other schedules have been omitted as not
required or not applicable under the instructions, or the required information is shown in the consolidated financial statements or notes thereto.



(a)(3) Exhibits



|        |  |                                                                                                                                                                                                                                
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                    
|3(i)    |  | Memorandum of Association. (incorporated by reference to Exhibit 3.1 of the Companys Registration Statement No. 333-62006)                                                                                                    
|        | 
|3(ii)   |  | Amended and Restated Bye-laws of Max Re Capital Ltd. (incorporated by reference to Exhibit 3.1 of the Companys Quarterly Report on Form 10-Q for the quarter ended September 30,
2003)                                        
|        | 
|4.1     |  | Specimen Common Share Certificate. (incorporated by reference to Exhibit 4.1 of the Companys Registration Statement No. 333-62006)                                                                                            
|        | 
|4.2     |  | Form of Warrant. (incorporated by reference to Exhibit 4.2 of the Companys Registration Statement No. 333-62006)                                                                                                              
|        | 
|10.1    |  | Form of Shareholders Agreement, dated as of December 22, 1999, among the Company, Max Re Ltd. and certain other signatories. (incorporated by reference to Exhibit 10.1 of the
Companys Registration Statement No. 333-62006)
|        | 
|10.2    |  | Employment Agreement, dated as of December 15, 1999, between W. Dave Brining and the Company. (incorporated by reference to Exhibit 10.2 of the Companys Registration Statement No.
333-62006)                                
|        | 
|10.3    |  | Employment Agreement, dated as of August 1, 1999, as amended, between Robert J. Cooney and the Company. (incorporated by reference to Exhibit 10.3 of the Companys Registration Statement
No. 333-62006)                      
|        | 
|10.4    |  | Employment Agreement, dated as of December 15, 1999, between Philip R. Kruse and the Company. (incorporated by reference to Exhibit 10.4 of the Companys Registration Statement No.
333-62006)                                
|        | 
|10.5    |  | Employment Agreement, dated as of December 15, 1999, between Keith S. Hynes and the Company. (incorporated by reference to Exhibit 10.5 of the Companys Registration Statement No.
333-62006)                                 



35



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##### Table of Contents

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                   
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                                                                                                                                                       
|10.6    |  | Employment Agreement, dated as of April, 2000, between Peter Minton and the Company. (incorporated by reference to Exhibit 10.6 of the Companys Registration Statement No.
333-62006)                                                                                                                                                                                                            
|        | 
|10.7    |  | 2000 Stock Incentive Plan. (incorporated by reference to Exhibit 10.7 of the Companys Registration Statement No. 333-62006)                                                                                                                                                                                                                                                                      
|        | 
|10.8    |  | Amendment to the 2000 Stock Incentive Plan. (incorporated by reference to Exhibit 10.8 of the Companys Annual Report on Form 10-K for the year ended December 31, 2002)                                                                                                                                                                                                                          
|        | 
|10.9    |  | Securities Purchase Agreement, dated as of December 22, 1999, among Moore Holdings, LLC, Max Re Ltd. and the Company. (incorporated by reference to Exhibit 10.8 of the Companys
Registration Statement No. 333-62006)                                                                                                                                                                           
|        | 
|10.10   |  | Securities Purchase Agreement, dated as of December 22, 1999, among Capital Z Investments, LP, Max Re Ltd. and the Company. (incorporated by reference to Exhibit 10.9 of the Companys
Registration Statement No. 333-62006)                                                                                                                                                                     
|        | 
|10.11   |  | Subscription Agreement, dated as of December 22, 1999, between Western General Insurance, Ltd. and the Company. (incorporated by reference to Exhibit 10.10 of the Companys Registration
Statement No. 333-62006)                                                                                                                                                                                
|        | 
|10.12   |  | Third Amended and Restated Letter of Credit Reimbursement Agreement, dated as of June 5, 2003, among Max Re Ltd., various financial institutions, as lenders, and Citibank, N.A., as agent, and
Bank of America, N.A., as fronting bank and as administrative agent.                                                                                                                              
|        | 
|10.13   |  | Letter of Credit Reimbursement Agreement, dated as of January 14, 2002, among Max Re Ltd., as the borrower, various financial institutions, as the lenders, and Bayerische Hypo- und
Vereinsbank AG, as fronting bank and as administrative agent for the lenders. (incorporated by reference to Exhibit 10.1 of the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2002)
|        | 
|10.14   |  | Letter of Credit Reimbursement Agreement, dated as of September 19, 2003, between Max Re Ltd. And Fleet National Bank. (incorporated by reference to Exhibit 10.1 of the Companys
Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)                                                                                                                                        
|        | 
|10.15   |  | Investment Management Agreement dated as of May 1, 2000, between General Re-New England Asset Management, Inc. and Max Re Ltd. (incorporated by reference to Exhibit 10.13 of the
Companys Registration Statement No. 333-62006)                                                                                                                                                                 
|        | 
|10.16   |  | Amended and Restated Customer Agreement and Trading Authorization, dated as of June 14, 2001, between Moore Capital Management, Inc. and Max Re Diversified Strategies Ltd. (incorporated by
reference to Exhibit 10.14 of the Companys Registration Statement No. 333-62006)                                                                                                                    
|        | 
|10.17   |  | Amendment No. 1 to Amended and Restated Customer Agreement and Trading Authorization, dated as of January 1, 2003, among Moore Capital Management, Inc. and Max Re Diversified Strategies Ltd.
(incorporated by reference to Exhibit 10.17 of the Companys Annual Report on Form 10-K for the year ended December 31, 2002)                                                                      
|        | 
|10.18   |  | Insurance Management Agreement among Max Re Managers Ltd., Max Re Capital Ltd., Bayerische Hypo- und Vereinsbank AG and Grand Central Re Limited dated as of May 10, 2001. (incorporated by
reference to Exhibit 10.15 of the Companys Registration Statement No. 333-62006)                                                                                                                     
|        | 
|10.19   |  | Total Return Swap Confirmation, dated as of February 18, 2003, between Max Re Ltd. and Canadian Imperial Bank of Commerce. (incorporated by reference to Exhibit 10.19 of the Companys
Annual Report on Form 10-K for the year ended December 31, 2002)                                                                                                                                          
|        | 
|10.20   |  | Exchange Agreement, dated as of June 13, 2003, between Moore Holdings, LLC and the Company.                                                                                                                                                                                                                                                                                                       
|        | 
|10.21   |  | Exchange Agreement, dated as of June 13, 2003, between Capital Z Investments, L.P. and the Company.                                                                                                                                                                                                                                                                                               



36



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##### Table of Contents

|        |  |                                                                                                                                                                                         
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                             
|14.1    |  | Max Re Capital Ltd. Code of Business Conduct and Ethics. (incorporated by reference to Exhibit 99.1 of the Companys Quarterly Report on Form 10-Q for the quarter ended March 31,
2003)
|        | 
|21.1    |  | Schedule of Group Companies. (incorporated by reference to Exhibit 21.1 of the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2003)                             
|        | 
|23.1    |  | Consent of KPMG.                                                                                                                                                                        
|        | 
|24.1    |  | Power of Attorney for officers and directors of the Company (included at page 38).                                                                                                      
|        | 
|31.1    |  | Certification of the Chief Executive Officer filed herewith pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                  
|        | 
|31.2    |  | Certification of the Chief Financial Officer filed herewith pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                  
|        | 
|32.1    |  | Certification of the Chief Executive Officer furnished herewith pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                              
|        | 
|32.2    |  | Certification of the Chief Financial Officer furnished herewith pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                              
|        | 
|99.1    |  | Factors Affecting Future Financial Results.                                                                                                                                             



(b) Reports On Form 8-K



On November 3, 2003, Max Re Capital filed a Current
Report on Form 8-K reporting (i) its earnings for its third quarter ended September 30, 2003 and (ii) the declaration on October 31, 2003 of a dividend payable to shareholders of record on November 14, 2003.



On December 4, 2003, Max Re Capital filed a Current Report on Form 8-K
reporting 2004 earnings guidance provided on December 3, 2003.`



37



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##### Table of Contents

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.



|                                                      
|------------------------------------------------------
|MAX RE CAPITAL LTD.                                   
|                                                      
|/s/    ROBERT J.
COONEY                               
|Robert J. Cooney President and Chief Executive Officer



Date: February 27, 2004



POWER OF ATTORNEY



Each person whose signature appears below hereby constitutes and appoints
Robert J. Cooney and Keith S. Hynes, or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all
amendments or supplements to this Form 10-K and to file the same with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing necessary or appropriate to be done with this Form 10-K and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.



Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.



|                                                                                                                         |  |                                                                                                                                      
|------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                         | 
|/s/    ROBERT J.
COONEYRobert J. Cooney
President and Chief Executive Officer and Director (Principal executive officer) |  | /s/    KEITH S.
HYNESKeith S.
Hynes Executive Vice President and Chief Financial Officer (Principal financial and accounting officer)
|                                                                                                                         | 
|Date: February 27, 2004                                                                                                  |  | Date: February 27, 2004                                                                                                              
|                                                                                                                         | 
|/s/    N. JAMES
TEESN. James Tees Senior Vice President and Treasurer                                                    |  | /s/    ZACK H. BACON,
IIIZack H. Bacon, III Director                                                                                 
|                                                                                                                         | 
|Date: February 27, 2004                                                                                                  |  | Date: February 27, 2004                                                                                                              
|                                                                                                                         | 
|/s/    JOHN R.
BARBERJohn R. Barber
Director                                                                             |  | /s/    JAMES L.
ZECHJames L.
Zech Director                                                                                           
|                                                                                                                         | 
|Date: February 27, 2004                                                                                                  |  | Date: February 27, 2004                                                                                                              
|                                                                                                                         | 
|/s/    LAURENCE W.
CHENGLaurence W. Cheng
Director                                                                       |  | /s/    WILLIAM H.
HEYMANWilliam H.
Heyman Director                                                                                   
|                                                                                                                         | 
|Date: February 27, 2004                                                                                                  |  | Date: February 27, 2004                                                                                                              



38



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##### Table of Contents

|                                                       |  |                                                     
|------------------------------------------------------ |  | ----------------------------------------------------
|                                                       | 
|/s/    WILLIS T. KING,
JR.Willis T. King, Jr.
Director |  | /s/    JOHN L.
MARIONJohn L.
Marion Director        
|                                                       | 
|Date: February 27, 2004                                |  | Date: February 27, 2004                             
|                                                       | 
|/s/    STEVEN M.
SKALASteven M. Skala
Director         |  | /s/    MARIO P.
TORSIELLOMario P.
Torsiello Director
|                                                       | 
|Date: February 27, 2004                                |  | Date: February 27, 2004                             



39



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##### Table of Contents

INDEPENDENT AUDITORS REPORT



The Board of
Directors and Shareholders

Max Re Capital Ltd.



We have audited the accompanying consolidated balance sheets of Max Re Capital Ltd. and subsidiaries as of December 31, 2003 and 2002 and the related
consolidated statements of income and comprehensive income, changes in shareholders equity and cash flows for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the responsibility of
the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of Max Re Capital Ltd. and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year
period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.



/s/    KPMG

Chartered Accountants

Hamilton, Bermuda

January 26, 2004



F-1



---

##### Table of Contents

MAX RE CAPITAL LTD.



Consolidated Balance Sheets



December 31,
2003 and 2002

(Expressed in thousands of United States Dollars, except per share and share amounts)



|                                                                                                                           |  |      |           |   |      |   |           |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                                                                                                           |  | 2003 |           |   | 2002 |  
|Assets                                                                                                                     |  |      |           |   |      |   |           |  
|Cash and cash equivalents                                                                                                  |  | $    | 201,515   |   |      | $ | 92,103    |  
|Fixed maturities, available for sale at fair value                                                                         |  |      | 1,604,430 |   |      |   | 1,279,564 |  
|Alternative investments, at fair value                                                                                     |  |      | 831,359   |   |      |   | 653,165   |  
|Accrued interest income                                                                                                    |  |      | 14,608    |   |      |   | 12,304    |  
|Premiums receivable                                                                                                        |  |      | 389,393   |   |      |   | 190,214   |  
|Losses recoverable from reinsurers                                                                                         |  |      | 273,711   |   |      |   | 212,241   |  
|Funds withheld                                                                                                             |  |      | 56        |   |      |   | 55,276    |  
|Deferred acquisition costs                                                                                                 |  |      | 87,116    |   |      |   | 79,447    |  
|Deferred charges                                                                                                           |  |      | 5,259     |   |      |   | 32,086    |  
|Prepaid reinsurance premiums                                                                                               |  |      | 67,343    |   |      |   | 25,408    |  
|Other assets                                                                                                               |  |      | 20,769    |   |      |   | 11,633    |  
|                                                                                                                           |  |      |           |   |      |   |           |  
|Total assets                                                                                                               |  | $    | 3,495,559 |   |      | $ | 2,643,441 |  
|                                                                                                                           |  |      |           |   |      |   |           |  
|Liabilities                                                                                                                |  |      |           |   |      |   |           |  
|Property and casualty losses and experience refunds                                                                        |  | $    | 991,687   |   |      | $ | 778,069   |  
|Life and annuity benefits and experience refunds                                                                           |  |      | 480,099   |   |      |   | 405,008   |  
|Deposit liabilities                                                                                                        |  |      | 267,350   |   |      |   | 115,513   |  
|Funds withheld from reinsurers                                                                                             |  |      | 213,483   |   |      |   | 152,172   |  
|Unearned property and casualty premiums                                                                                    |  |      | 471,625   |   |      |   | 323,672   |  
|Reinsurance balances payable                                                                                               |  |      | 74,693    |   |      |   | 42,264    |  
|Accounts payable and accrued expenses                                                                                      |  |      | 41,392    |   |      |   | 16,019    |  
|Bank loan                                                                                                                  |  |      | 150,000   |   |      |   | 100,000   |  
|                                                                                                                           |  |      |           |   |      |   |           |  
|Total liabilities                                                                                                          |  |      | 2,690,329 |   |      |   | 1,932,717 |  
|                                                                                                                           |  |      |           |   |      |   |           |  
|Minority interest                                                                                                          |  |      |          |   |      |   | 116,565   |  
|                                                                                                                           |  |      |           |   |      |   |           |  
|Shareholders equity                                                                                                       |  |      |           |   |      |   |           |  
|Preferred shares (par value $1.00) 20,000,000 shares authorized; no shares issued or outstanding                           |  |      |          |   |      |   |          |  
|Common shares (par value $1.00) 200,000,000 shares authorized 45,184,611 (2002 - 37,998,779) shares issued and
outstanding |  |      | 45,185    |   |      |   | 37,999    |  
|Additional paid-in capital                                                                                                 |  |      | 637,772   |   |      |   | 526,582   |  
|Loans receivable from common share sales                                                                                   |  |      | (11,965   | ) |      |   | (12,575   | )
|Unearned stock grant compensation                                                                                          |  |      | (4,032    | ) |      |   | (2,656    | )
|Accumulated other comprehensive income                                                                                     |  |      | 25,790    |   |      |   | 49,108    |  
|Retained earnings (deficit)                                                                                                |  |      | 112,480   |   |      |   | (4,299    | )
|                                                                                                                           |  |      |           |   |      |   |           |  
|Total shareholders equity                                                                                                 |  |      | 805,230   |   |      |   | 594,159   |  
|                                                                                                                           |  |      |           |   |      |   |           |  
|Total liabilities, minority interest and shareholders equity                                                              |  | $    | 3,495,559 |   |      | $ | 2,643,441 |  
|                                                                                                                           |  |      |           |   |      |   |           |  



See accompanying
notes to consolidated financial statements



F-2



---

##### Table of Contents

MAX RE CAPITAL LTD.



Consolidated Statements of Income and Comprehensive Income



Years Ended December 31, 2003, 2002 and 2001

(Expressed in thousands of United States Dollars,
except per share and share amounts)



|                                                          |  |      |           |   |      |   |         |      |  |   |          |  
|--------------------------------------------------------- |  | ---- | --------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                                          |  | 2003 |           |   | 2002 |   |         | 2001 | 
|Revenues                                                  |  |      |           |   |      |   |         |      |  |   |          |  
|Gross premiums written                                    |  | $    | 1,009,779 |   |      | $ | 647,390 |      |  | $ | 710,551  |  
|Reinsurance premiums ceded                                |  |      | (154,574  | ) |      |   | (54,679 | )    |  |   | (116,417 | )
|                                                          |  |      |           |   |      |   |         |      |  |   |          |  
|Net premiums written                                      |  | $    | 855,205   |   |      | $ | 592,711 |      |  | $ | 594,134  |  
|                                                          |  |      |           |   |      |   |         |      |  |   |          |  
|Earned premiums                                           |  | $    | 835,449   |   |      | $ | 434,681 |      |  | $ | 599,991  |  
|Earned premiums ceded                                     |  |      | (108,245  | ) |      |   | (46,644 | )    |  |   | (99,044  | )
|                                                          |  |      |           |   |      |   |         |      |  |   |          |  
|Net premiums earned                                       |  |      | 727,204   |   |      |   | 388,037 |      |  |   | 500,947  |  
|                                                          |  |      |          
|Net investment income                                     |  |      | 60,132    |   |      |   | 64,353  |      |  |   | 43,870   |  
|Net gains on alternative investments                      |  |      | 124,036   |   |      |   | 32,127  |      |  |   | 29,784   |  
|Net realized gains on sale of fixed maturities            |  |      | 19,259    |   |      |   | 5,390   |      |  |   | 2,512    |  
|Other income                                              |  |      | 10,743    |   |      |   | 6,181   |      |  |   | 3,857    |  
|                                                          |  |      |           |   |      |   |         |      |  |   |          |  
|Total revenues                                            |  |      | 941,374   |   |      |   | 496,088 |      |  |   | 580,970  |  
|                                                          |  |      |           |   |      |   |         |      |  |   |          |  
|Losses and expenses                                       |  |      |           |   |      |   |         |      |  |   |          |  
|Losses, benefits and experience refunds                   |  |      | 592,274   |   |      |   | 360,982 |      |  |   | 514,323  |  
|Acquisition costs                                         |  |      | 149,534   |   |      |   | 97,738  |      |  |   | 30,860   |  
|Interest expense                                          |  |      | 28,829    |   |      |   | 23,131  |      |  |   | 12,121   |  
|General and administrative expenses                       |  |      | 39,845    |   |      |   | 21,337  |      |  |   | 21,042   |  
|                                                          |  |      |           |   |      |   |         |      |  |   |          |  
|Total losses and expenses                                 |  |      | 810,482   |   |      |   | 503,188 |      |  |   | 578,346  |  
|                                                          |  |      |           |   |      |   |         |      |  |   |          |  
|Income (loss) before minority interest                    |  |      | 130,892   |   |      |   | (7,100  | )    |  |   | 2,624    |  
|                                                          |  |      |          
|Minority interest                                         |  |      | (10,325   | ) |      |   | 1,346   |      |  |   | (93      | )
|                                                          |  |      |           |   |      |   |         |      |  |   |          |  
|Net income (loss)                                         |  |      | 120,567   |   |      |   | (5,754  | )    |  |   | 2,531    |  
|                                                          |  |      |          
|Change in net unrealized appreciation of fixed maturities |  |      | (21,169   | ) |      |   | 35,633  |      |  |   | 6,674    |  
|                                                          |  |      |          
|Foreign currency translation adjustment                   |  |      | (2,149    | ) |      |   |        |      |  |   |         |  
|                                                          |  |      |           |   |      |   |         |      |  |   |          |  
|Comprehensive income                                      |  | $    | 97,249    |   |      | $ | 29,879  |      |  | $ | 9,205    |  
|                                                          |  |      |           |   |      |   |         |      |  |   |          |  
|Basic earnings (loss) per share                           |  | $    | 2.91      |   |      | $ | (0.15   | )    |  | $ | 0.08     |  
|                                                          |  |      |           |   |      |   |         |      |  |   |          |  
|Diluted earnings (loss) per share                         |  | $    | 2.84      |   |      | $ | (0.15   | )    |  | $ | 0.06     |  
|                                                          |  |      |           |   |      |   |         |      |  |   |          |  





See accompanying notes to consolidated financial statements



F-3



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##### Table of Contents

MAX RE CAPITAL LTD.



Consolidated Statements of Changes in Shareholders Equity



Years Ended December 31, 2003, 2002 and 2001

(Expressed in thousands of United
States Dollars, except per share and share amounts)



|                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                              |  | 2003 |         |   | 2002 |   |         | 2001 | 
|Common shares                                                 |  |      |         |   |      |   |         |      |  |   |         |  
|Balance - beginning of year                                   |  | $    | 37,999  |   |      | $ | 39,582  |      |  | $ | 27,683  |  
|Issue of shares                                               |  |      | 371     |   |      |   | 262     |      |  |   | 13,102  |  
|Issue of shares on elimination of minority interest           |  |      | 7,120   |   |      |   |        |      |  |   |        |  
|Repurchase of shares                                          |  |      | (305    | ) |      |   | (1,845  | )    |  |   | (1,203  | )
|                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Balance - end of year                                         |  |      | 45,185  |   |      |   | 37,999  |      |  |   | 39,582  |  
|                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Additional paid-in capital                                    |  |      |         |   |      |   |         |      |  |   |         |  
|Balance - beginning of year                                   |  |      | 526,582 |   |      |   | 543,438 |      |  |   | 376,905 |  
|Issue of common shares                                        |  |      | 4,127   |   |      |   | 3,736   |      |  |   | 198,210 |  
|Issue of common shares on elimination of minority interest    |  |      | 110,285 |   |      |   |        |      |  |   |        |  
|Repurchase of shares                                          |  |      | (3,591  | ) |      |   | (19,058 | )    |  |   | (15,856 | )
|Stock option expense                                          |  |      | 369     |   |      |   |        |      |  |   |        |  
|Direct equity offering expenses                               |  |      |        |   |      |   |        |      |  |   | (15,821 | )
|Distribution to shareholders                                  |  |      |        |   |      |   | (1,534  | )    |  |   |        |  
|                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Balance - end of year                                         |  |      | 637,772 |   |      |   | 526,582 |      |  |   | 543,438 |  
|                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Loans receivable from common share sales                      |  |      |         |   |      |   |         |      |  |   |         |  
|Balance - beginning of year                                   |  |      | (12,575 | ) |      |   | (12,575 | )    |  |   | (11,650 | )
|Loans granted                                                 |  |      |        |   |      |   |        |      |  |   | (1,025  | )
|Loans repaid                                                  |  |      | 610     |   |      |   |        |      |  |   | 100     |  
|                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Balance - end of year                                         |  |      | (11,965 | ) |      |   | (12,575 | )    |  |   | (12,575 | )
|                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Unearned stock grant compensation                             |  |      |         |   |      |   |         |      |  |   |         |  
|Balance - beginning of year                                   |  |      | (2,656  | ) |      |   | (2,894  | )    |  |   | (630    | )
|Stock grants awarded                                          |  |      | (3,740  | ) |      |   | (971    | )    |  |   | (3,288  | )
|Amortization                                                  |  |      | 2,364   |   |      |   | 1,209   |      |  |   | 1,024   |  
|                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Balance - end of year                                         |  |      | (4,032  | ) |      |   | (2,656  | )    |  |   | (2,894  | )
|                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Accumulated other comprehensive income                        |  |      |         |   |      |   |         |      |  |   |         |  
|Balance - beginning of year                                   |  |      | 49,108  |   |      |   | 13,475  |      |  |   | 6,801   |  
|Holding (losses) gains on fixed maturities arising in year    |  |      | (11,111 | ) |      |   | 46,942  |      |  |   | 10,652  |  
|Net realized gains included in net income                     |  |      | (19,259 | ) |      |   | (5,390  | )    |  |   | (2,512  | )
|Currency translation adjustments                              |  |      | (2,149  | ) |      |   |        |      |  |   |        |  
|Allocation to minority interest                               |  |      | 6,504   |   |      |   | (5,919  | )    |  |   | (1,466  | )
|Holding gains transferred on elimination of minority interest |  |      | 2,697   |   |      |   |        |      |  |   |        |  
|                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Balance - end of year                                         |  |      | 25,790  |   |      |   | 49,108  |      |  |   | 13,475  |  
|                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Retained earnings (deficit)                                   |  |      |         |   |      |   |         |      |  |   |         |  
|Balance - beginning of year                                   |  |      | (4,299  | ) |      |   | 3,044   |      |  |   | 1,306   |  
|Net income (loss)                                             |  |      | 120,567 |   |      |   | (5,754  | )    |  |   | 2,531   |  
|Dividends paid                                                |  |      | (3,788  | ) |      |   | (1,589  | )    |  |   | (793    | )
|                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Balance - end of year                                         |  |      | 112,480 |   |      |   | (4,299  | )    |  |   | 3,044   |  
|                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Total shareholders equity                                    |  | $    | 805,230 |   |      | $ | 594,159 |      |  | $ | 584,070 |  
|                                                              |  |      |         |   |      |   |         |      |  |   |         |  



See accompanying
notes to consolidated financial statements



F-4



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##### Table of Contents

MAX RE CAPITAL LTD.



Consolidated Statements of Cash Flows



Years
Ended December 31, 2003, 2002 and 2001

(Expressed in thousands of United States Dollars, except per share and share
amounts)



|                                                                                         |  |      |            |   |      |   |          |      |  |   |          |  
|---------------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                         |  | 2003 |            |   | 2002 |   |          | 2001 | 
|Operating activities                                                                     |  |      |            |   |      |   |          |      |  |   |          |  
|Net income (loss)                                                                        |  | $    | 120,567    |   |      | $ | (5,754   | )    |  | $ | 2,531    |  
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |      |            |   |      |   |          |      |  |   |          |  
|Minority interest share of net income (loss)                                             |  |      | 10,325     |   |      |   | (1,346   | )    |  |   | 93       |  
|Amortization of unearned stock grant compensation                                        |  |      | 2,733      |   |      |   | 1,209    |      |  |   | 1,024    |  
|Amortization of discount on fixed maturities                                             |  |      | 5,986      |   |      |   | 1,378    |      |  |   | (1,015   | )
|Net gains on alternative investments                                                     |  |      | (124,036   | ) |      |   | (32,127  | )    |  |   | (29,784  | )
|Net realized gains on sale of fixed maturities                                           |  |      | (19,259    | ) |      |   | (5,390   | )    |  |   | (2,512   | )
|Accrued interest income                                                                  |  |      | (2,304     | ) |      |   | (1,408   | )    |  |   | (4,477   | )
|Premiums receivable                                                                      |  |      | (199,179   | ) |      |   | (100,607 | )    |  |   | (86,899  | )
|Losses recoverable from reinsurers                                                       |  |      | (85,570    | ) |      |   | (38,578  | )    |  |   | (168,293 | )
|Funds withheld                                                                           |  |      | 55,220     |   |      |   | 204      |      |  |   | (13,489  | )
|Deferred acquisition costs                                                               |  |      | (8,402     | ) |      |   | (39,612  | )    |  |   | (39,835  | )
|Deferred charges                                                                         |  |      | 7,398      |   |      |   | 12,351   |      |  |   | (22,756  | )
|Prepaid reinsurance premiums                                                             |  |      | (45,979    | ) |      |   | (8,035   | )    |  |   | (17,373  | )
|Other assets                                                                             |  |      | (9,136     | ) |      |   | (4,558   | )    |  |   | (4,108   | )
|Property and casualty losses and experience refunds                                      |  |      | 374,283    |   |      |   | 181,692  |      |  |   | 460,039  |  
|Life and annuity benefits and experience refunds                                         |  |      | 75,091     |   |      |   | (18,759  | )    |  |   | 169,848  |  
|Funds withheld from reinsurers                                                           |  |      | 61,311     |   |      |   | 52,313   |      |  |   | 80,459   |  
|Unearned property and casualty premiums                                                  |  |      | 174,916    |   |      |   | 212,709  |      |  |   | 110,560  |  
|Reinsurance balances payable                                                             |  |      | 32,429     |   |      |   | 12,468   |      |  |   | 26,529   |  
|Accounts payable and accrued expenses                                                    |  |      | 25,373     |   |      |   | 7,283    |      |  |   | 1,158    |  
|                                                                                         |  |      |            |   |      |   |          |      |  |   |          |  
|Cash provided by operating activities                                                    |  |      | 451,767    |   |      |   | 225,433  |      |  |   | 461,700  |  
|                                                                                         |  |      |            |   |      |   |          |      |  |   |          |  
|Investing activities                                                                     |  |      |            |   |      |   |          |      |  |   |          |  
|Purchases of fixed maturities                                                            |  |      | (1,210,386 | ) |      |   | (746,259 | )    |  |   | (588,120 | )
|Sales (purchases) of alternative investments                                             |  |      | (54,524    | ) |      |   | 7,936    |      |  |   | (250,910 | )
|Sales of fixed maturities                                                                |  |      | 785,383    |   |      |   | 306,241  |      |  |   | 178,571  |  
|Redemptions of fixed maturities                                                          |  |      | 83,407     |   |      |   | 88,905   |      |  |   | 16,780   |  
|                                                                                         |  |      |            |   |      |   |          |      |  |   |          |  
|Cash used in investing activities                                                        |  |      | (396,120   | ) |      |   | (343,177 | )    |  |   | (643,679 | )
|                                                                                         |  |      |            |   |      |   |          |      |  |   |          |  
|Financing activities                                                                     |  |      |            |   |      |   |          |      |  |   |          |  
|Net proceeds from subscriptions to share capital                                         |  |      | 758        |   |      |   | 3,027    |      |  |   | 191,179  |  
|Repurchase of common shares                                                              |  |      | (3,896     | ) |      |   | (20,903  | )    |  |   | (17,059  | )
|Proceeds from bank loan                                                                  |  |      | 50,000     |   |      |   | 100,000  |      |  |   |         |  
|Dividends and distributions                                                              |  |      | (3,788     | ) |      |   | (3,123   | )    |  |   | (793     | )
|Distributions to / conversions of minority shareholders                                  |  |      | (285       | ) |      |   | (3,600   | )    |  |   | (146     | )
|Deposit liabilities, net                                                                 |  |      | 10,366     |   |      |   | 36,124   |      |  |   | 79,389   |  
|Notes and loans repaid                                                                   |  |      | 610        |   |      |   |         |      |  |   | 100      |  
|                                                                                         |  |      |            |   |      |   |          |      |  |   |          |  
|Cash provided by financing activities                                                    |  |      | 53,765     |   |      |   | 111,525  |      |  |   | 252,670  |  
|                                                                                         |  |      |            |   |      |   |          |      |  |   |          |  
|Net increase (decrease) in cash and cash equivalents                                     |  |      | 109,412    |   |      |   | (6,219   | )    |  |   | 70,691   |  
|Cash and cash equivalents, beginning of year                                             |  |      | 92,103     |   |      |   | 98,322   |      |  |   | 27,631   |  
|                                                                                         |  |      |            |   |      |   |          |      |  |   |          |  
|Cash and cash equivalents, end of year                                                   |  | $    | 201,515    |   |      | $ | 92,103   |      |  | $ | 98,322   |  
|                                                                                         |  |      |            |   |      |   |          |      |  |   |          |  
|Supplemental Disclosure of Cash Flow Information                                         |  |      |            |   |      |   |          |      |  |   |          |  
|Interest paid                                                                            |  | $    | 3,370      |   |      | $ | 2,176    |      |  | $ |         |  
|                                                                                         |  |      |            |   |      |   |          |      |  |   |          |  



A non cash item that
was an amendment to a reinsurance contract resulted in the following changes in the year ended December 31, 2003: decreased property and casualty losses and experience refunds by $160,665, decreased unearned property and casualty premiums by
$26,963, decreased deferred charges by $19,429, decreased losses recoverable from reinsurers by $24,100, decreased prepaid reinsurance premiums by $4,044, decreased acquisitions costs by $733 and increased deposit liabilities by $139,322.



Shareholders equity reflects the exchange on July 30,
2003 of non-voting common shares of Max Re Ltd. and warrants to acquire non-voting common shares of Max Re Ltd. (which were accounted for as minority interest) for common shares of the Company and warrants to acquire common shares of the Company.
The exchange is a non cash item and has no effect on the consolidated Statement of Cash Flows.



See accompanying notes to consolidated financial statements



F-5



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##### Table of Contents

MAX RE CAPITAL LTD.



Notes to
Consolidated Financial Statements



December 31, 2003,
2002 and 2001

(Expressed in thousands of United States Dollars, except per share and share amounts)



1. General



Max Re Capital Ltd. (the Company) was incorporated on July 8, 1999 under the laws of Bermuda. The Companys
principal operating subsidiary is Max Re Ltd. (Max Re). Max Re is registered as a Class 4 insurer and long-term insurer under the insurance laws of Bermuda. The Companys European activities are conducted from Dublin, Ireland
through Max Europe Holdings Limited and its two wholly owned operating subsidiaries, Max Re Europe Limited and Max Insurance Europe Limited.



2. Significant accounting policies



(a) Basis of presentation



The consolidated financial statements include the financial statements of Max Re Capital Ltd., Max Re and Max Re Managers Ltd., together with Max
Res subsidiaries, Max Europe Holdings Limited and Max Re Diversified Strategies Ltd. (Max Re Diversified). All significant inter-company balances and transactions have been eliminated.



The accompanying financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America (GAAP) which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.



Certain reclassifications have been made to the prior year reported amounts to conform to the current year presentation.



(b) Minority interest



Minority interest represented non-voting shares in Max Re held by certain
founding shareholders of the Company. On July 30, 2003, the holders of non-voting common shares of Max Re exchanged such shares for common shares of the Company. The effect of this exchange results in the elimination of the minority interest and an
increase in shareholders equity of equal amounts as of the date of exchange.



The minoritys share of net income was calculated quarterly using the minoritys weighted average ownership percentage. Minority interest represented the minoritys proportionate share of Max Res
net assets prior to the exchange described above.



(c)
Premium revenue recognition



Property and Casualty



Premiums written are earned on a pro-rata basis over the
period the coverage is provided. Reinsurance premiums are recorded at the inception of the policy and are estimated based upon information received from ceding companies and any subsequent differences arising on such estimates are recorded in the
period they are determined. Unearned premiums represent the portion of premiums written which relate to the unexpired terms of policies in force. Premiums ceded are similarly pro-rated over the period the coverage is provided with the unearned
portion being deferred as prepaid reinsurance premiums. Premium estimates for retrospectively rated contracts are recognized within the periods in which the related losses are incurred.



F-6



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##### Table of Contents

MAX RE CAPITAL LTD.



Notes to Consolidated Financial Statements(Continued)



December 31, 2003, 2002 and 2001

(Expressed in thousands of United States Dollars, except per share and share amounts)



Life and Annuity



Reinsurance premiums from traditional life and annuity policies with life contingencies are generally recognized as revenue
when due from policyholders. Traditional life policies include those contracts with fixed and guaranteed premiums and benefits. Benefits and expenses are matched with such income to result in the recognition of profit over the life of the contracts.



Premiums from annuity contracts without life contingencies are
reported as annuity deposits. Policy benefits and claims that are charged to expenses include benefit claims incurred in the period in excess of related policyholders account balances.



Deposits



Short duration reinsurance contracts entered into by the Company which are
not deemed to transfer significant underwriting and timing risk are accounted for as deposits, whereby liabilities are initially recorded at the same amount as assets received. An initial accretion rate is established based on actuarial estimates
whereby the deposit liability is increased to the estimated amount payable over the term of the contract. This accretion charge is presented in the period as either interest expense, where the contract does not transfer underwriting risk, or losses,
benefits and experience refunds where the contract does not transfer significant timing risk. Long duration contracts written by the Company that do not transfer significant mortality or morbidity risks are also accounted for as deposits. The
Company periodically reassesses the amount of deposit liabilities and any changes to the estimated ultimate liability is recognized as an adjustment to earnings to reflect the cumulative effect since the inception of the contract and by an
adjustment to the future accretion rate of the liability over the remaining estimated contract term.



(d) Investments



Investments in securities with fixed maturities are classified as available for sale and are carried at fair value with any unrealized gains and losses
included in accumulated other comprehensive income as a separate component of shareholders equity. The cost of fixed maturities is adjusted for amortization of premiums and discounts. Realized gains and losses on investments are recognized in
net income using the specific identification method and include adjustments to the net realizable value of investments for declines in value that are considered other than temporary. Investment income is recognized when earned and includes interest
income together with amortization of premium and discount on fixed maturities.



Fair value of investments in fixed maturities is generally based on quoted market prices. If quoted market prices are not available, fair values are estimated based on dealer quotes, pricing models or quoted prices
for instruments with similar characteristics. Changes in fair value are recorded in the period they are determined.



Alternative investments represent a diversified portfolio of (i) limited partnerships and stock investments in trading entities that invest in a range of
financial products including U.S. and non-U.S. securities and financial instruments and (ii) other strategic equity investments. Investments in limited partnerships and trading entities are carried at the net asset value provided by the respective
entity. These entities generally carry their trading positions and investments at fair value as determined by their respective investment managers. The change in net asset value is included in net gains on alternative investments and recognized in
net income.



F-7



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##### Table of Contents

MAX RE CAPITAL LTD.



Notes to Consolidated Financial Statements(Continued)



December 31, 2003, 2002 and 2001

(Expressed in thousands of United States Dollars, except per share and share amounts)



Investments in unquoted equities where the Company has significant influence are carried under the
equity method of accounting. Under this method the investments are initially recorded at cost and adjusted periodically to recognize the Companys proportionate share of income or loss from the investments. The Company believes this
approximates fair value for these equity investments for which quoted market prices are not available. The Companys share of income or loss from these investments is included in net gains on alternative investments and recognized in net
income.



(e) Fee revenue recognition



Transaction structuring and advisory fees are earned as the services
generating the fees are performed.



(f) Losses and loss
adjustment expenses and experience refunds



Property and Casualty



The liability for
losses, including loss adjustment expenses, represents estimates of the ultimate cost of all losses incurred but not paid as of the balance sheet date. Inherent in the estimates of losses are expected trends of frequency, severity and other factors
which could vary significantly as claims are settled. Accordingly, ultimate losses could vary from the liability recorded in these consolidated financial statements. These estimates are regularly reviewed and any adjustments to the estimates are
recorded in the period they are determined.



Life and
Annuity



The development of policy reserves requires
management to make estimates and assumptions regarding mortality, morbidity, lapse, expense and investment experience. Such estimates are primarily based on historical experience and information provided by ceding companies. Actual results could
differ materially from these estimates. Management monitors actual experience and, where circumstances warrant, will revise its assumptions and the related reserve estimates. These revisions are recorded in the period they are determined.



Experience refunds



The liability for experience refunds represents estimates of the ultimate
liability incurred under profit sharing provisions of various contracts. These estimates are regularly reviewed and any adjustments to the estimates are recorded in the period they are determined. Since this liability is based on estimates, the
ultimate settlement of experience refunds may vary from the amount provided.



(g) Acquisition costs



Acquisition costs consist of commissions and fees paid to brokers and consultants and ceding commissions paid to the Companys clients. Deferred acquisition costs are amortized over the period in which the related premiums are earned
or, for annuities, as a percentage of estimated gross profit. Deferred acquisition costs are regularly reviewed to determine if they are recoverable from future income, including investment income, by evaluating whether a loss is probable on
policies in force. A premium deficiency loss is recognized when it is probable that expected future claims will exceed anticipated future premiums, reinsurance recoveries and anticipated investment income. If such costs are estimated to be
unrecoverable as a result of a premium deficiency loss, they are expensed.



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##### Table of Contents

MAX RE CAPITAL LTD.



Notes to Consolidated Financial Statements(Continued)



December 31, 2003, 2002 and 2001

(Expressed in thousands of United States Dollars, except per share and share amounts)



(h) Deferred chargesreinsurance assumed



The excess of estimated liabilities for claims and claim costs over the
consideration received with respect to retroactive property and casualty reinsurance contracts that provide for indemnification of insurance risk is established as a deferred charge at inception of such contracts. The deferred charges are
subsequently amortized using the interest method over the expected liability settlement periods of the contracts. The periodic amortization charges are recorded in losses, benefits and experience refunds.



(i) Translation of foreign currencies



Assets and liabilities of foreign operations whose functional currency is
not the U.S. dollar are translated at year end exchange rates. Revenue and expenses of such foreign operations are translated at average exchange rates during the year. The effect of the translation adjustments for foreign operations, is included in
accumulated other comprehensive income.



Other foreign currency
assets and liabilities that are considered monetary items, are translated at exchange rates in effect at the balance sheet date. Foreign currency revenues and expenses are translated at transaction date exchange rates. These exchange gains and
losses are included in the determination of net income.



(j) Offering costs



Direct offering
costs incurred in connection with the Companys initial public offering (the Offering), including certain amounts payable for investment banking, legal services and printing were deducted from the gross proceeds of the Offering.



(k) Cash and cash equivalents



The Company considers all time deposits and money market instruments with an
original maturity of ninety days or less as equivalent to cash.



(l) Earnings per share



Basic earnings
per share is based on weighted average common shares outstanding and excludes any dilutive effects of warrants, options and convertible securities. Diluted earnings per share assumes the conversion of dilutive convertible securities and the exercise
of all dilutive stock options and warrants using the treasury stock method.



F-9



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##### Table of Contents

MAX RE CAPITAL LTD.



Notes to Consolidated Financial Statements(Continued)



December 31, 2003, 2002 and 2001

(Expressed in thousands of United States Dollars, except per share and share amounts)



3. Investments



(a)The fair values and amortized costs of fixed maturities at December 31, 2003 and 2002 were as follows:



|                                     |  |                |           |                 |   |                 |  |   |            |   |  |   |          
|------------------------------------ |  | -------------- | --------- | --------------- | - | --------------- |  | - | ---------- | - |  | - | ---------
|2003                                 |  | Amortized Cost |           | Unrealized Gain |   | Unrealized Loss |  |   | Fair Value
|US Government and Agencies           |  | $              | 402,520   |                 | $ | 8,973           |  | $ | (2,066     | ) |  | $ | 409,427  
|US Corporate Securities              |  |                | 541,193   |                 |   | 16,504          |  |   | (1,104     | ) |  |   | 556,593  
|Other Corporate Securities           |  |                | 13,656    |                 |   |                |  |   | (348       | ) |  |   | 13,308   
|Asset and Mortgage Backed Securities |  |                | 598,264   |                 |   | 5,477           |  |   | (697       | ) |  |   | 603,044  
|Collateralized Mortgage Obligations  |  |                | 21,673    |                 |   | 385             |  |   |           |   |  |   | 22,058   
|                                     |  |                |           |                 |   |                 |  |   |            |   |  |   |          
|                                     |  | $              | 1,577,306 |                 | $ | 31,339          |  | $ | (4,215     | ) |  | $ | 1,604,430
|                                     |  |                |           |                 |   |                 |  |   |            |   |  |   |          
|                                     |  |                |           |                
|2002                                 |  | Amortized Cost |           | Unrealized Gain |   | Unrealized Loss |  |   | Fair Value
|US Government and Agencies           |  | $              | 497,897   |                 | $ | 35,391          |  | $ |           |   |  | $ | 533,288  
|US Corporate Securities              |  |                | 351,011   |                 |   | 14,274          |  |   | (344       | ) |  |   | 364,941  
|Other Corporate Securities           |  |                | 17,641    |                 |   | 229             |  |   | (2         | ) |  |   | 17,868   
|Asset and Mortgage Backed Securities |  |                | 275,577   |                 |   | 5,142           |  |   | (281       | ) |  |   | 280,438  
|Collateralized Mortgage Obligations  |  |                | 80,311    |                 |   | 2,741           |  |   | (23        | ) |  |   | 83,029   
|                                     |  |                |           |                 |   |                 |  |   |            |   |  |   |          
|                                     |  | $              | 1,222,437 |                 | $ | 57,777          |  | $ | (650       | ) |  | $ | 1,279,564
|                                     |  |                |           |                 |   |                 |  |   |            |   |  |   |          



The following table
sets forth certain information regarding the investment ratings (provided by major rating agencies) of fixed maturities at December 31, 2003 and 2002.



|                              |  |            |           |      |       |            |   |           |  |      
|----------------------------- |  | ---------- | --------- | ---- | ----- | ---------- | - | --------- |  | -----
|                              |  | 2003       |           | 2002
|                              |  | Fair Value |           | %    |       | Fair Value |   | %        
|US Government and Agencies(1) |  | $          | 821,198   |      | 51.2  |            | $ | 575,095   |  | 44.9 
|AAA                           |  |            | 262,150   |      | 16.3  |            |   | 331,655   |  | 26.0 
|AA                            |  |            | 90,865    |      | 5.7   |            |   | 136,672   |  | 10.7 
|A                             |  |            | 422,607   |      | 26.3  |            |   | 231,022   |  | 18.0 
|BBB                           |  |            | 7,610     |      | 0.5   |            |   | 5,120     |  | 0.4  
|                              |  |            |           |      |       |            |   |           |  |      
|                              |  | $          | 1,604,430 |      | 100.0 |            | $ | 1,279,564 |  | 100.0
|                              |  |            |           |      |       |            |   |           |  |      

---

|(1) | Included within US Government and Agencies are Agency Mortgage Backed Securities with a fair
value of $411,771 (2002 - $41,807).
|--- | --------------------------------------------------------------------------------------------------------------------------------



(b)
The maturity distribution for fixed maturities held at December 31, 2003 was as follows:



|                       |  |                |           |            |   |          
|---------------------- |  | -------------- | --------- | ---------- | - | ---------
|                       |  | Amortized Cost |           | Fair Value
|Within one year        |  | $              | 40,074    |            | $ | 39,634   
|From one to five years |  |                | 498,723   |            |   | 511,997  
|From five to ten years |  |                | 371,411   |            |   | 378,601  
|More than ten years    |  |                | 667,098   |            |   | 674,198  
|                       |  |                |           |            |   |          
|                       |  | $              | 1,577,306 |            | $ | 1,604,430
|                       |  |                |           |            |   |          



Expected maturities
could differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties.



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##### Table of Contents

MAX RE CAPITAL LTD.



Notes to Consolidated Financial Statements(Continued)



December 31, 2003, 2002 and 2001

(Expressed in thousands of United States Dollars, except per share and share amounts)



(c) Investment income earned for the years ended December 31, 2003, 2002 and 2001 was as
follows:



|                                                                     |  |      |        |   |      |   |        |      |  |   |        |  
|-------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                     |  | 2003 |        |   | 2002 |   |        | 2001 | 
|Interest earned on fixed maturities, cash and short term investments |  | $    | 67,440 |   |      | $ | 53,398 |      |  | $ | 36,658 |  
|Interest earned on funds withheld                                    |  |      | (238   | ) |      |   | 13,155 |      |  |   | 6,740  |  
|Amortization of discount on fixed maturities                         |  |      | (5,987 | ) |      |   | (1,378 | )    |  |   | 1,015  |  
|Investment expenses                                                  |  |      | (1,083 | ) |      |   | (822   | )    |  |   | (543   | )
|                                                                     |  |      |        |   |      |   |        |      |  |   |        |  
|                                                                     |  | $    | 60,132 |   |      | $ | 64,353 |      |  | $ | 43,870 |  
|                                                                     |  |      |        |   |      |   |        |      |  |   |        |  



(d)The net
realized gains and the change in net unrealized appreciation on fixed maturities for the years ended December 31, 2003, 2002 and 2001 was as follows:



|                                                                                   |  |      |         |   |      |   |        |      |  |   |        |  
|---------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                   |  | 2003 |         |   | 2002 |   |        | 2001 | 
|Net realized gains:                                                                |  |      |         |   |      |   |        |      |  |   |        |  
|Gross realized gains                                                               |  | $    | 29,314  |   |      | $ | 5,879  |      |  | $ | 2,777  |  
|Gross realized losses                                                              |  |      | (10,055 | ) |      |   | (489   | )    |  |   | (265   | )
|                                                                                   |  |      |         |   |      |   |        |      |  |   |        |  
|Net realized gains                                                                 |  |      | 19,259  |   |      |   | 5,390  |      |  |   | 2,512  |  
|                                                                                   |  |      |         |   |      |   |        |      |  |   |        |  
|Change in unrealized appreciation                                                  |  |      | (27,673 | ) |      |   | 41,552 |      |  |   | 8,140  |  
|Less: allocation to minority interest                                              |  |      | 6,504   |   |      |   | (5,919 | )    |  |   | (1,466 | )
|                                                                                   |  |      |         |   |      |   |        |      |  |   |        |  
|Net change in unrealized appreciation                                              |  |      | (21,169 | ) |      |   | 35,633 |      |  |   | 6,674  |  
|                                                                                   |  |      |         |   |      |   |        |      |  |   |        |  
|Total net realized gains and change in unrealized appreciation on fixed maturities |  | $    | (1,910  | ) |      | $ | 41,023 |      |  | $ | 9,186  |  
|                                                                                   |  |      |         |   |      |   |        |      |  |   |        |  



(e)The Company
endeavors to match the timing of its loss payments with the maturities of its fixed maturity portfolio. Due to fluctuations in interest rates, it is likely that over the period a fixed maturity security is held there will be periods, greater than
twelve months, when the investments fair value is less than its cost resulting in unrealized losses. As the Company expects to hold the investment for a longer period, the securitys fair value and amortized cost will tend to converge
over time reducing the size of any unrealized gains or losses. Therefore the Company does not intend to recognize these temporary differences that relate to interest rate fluctuations in the Statement of Income as the security will ultimately reach
the maturity value and interest payments are current. The only time the Company would expect to realize an other than temporary difference on a fixed maturity security is if there were concern about receiving the interest payments on and the
maturity value of the investment. Of the total holding of 511 securities, 108 had unrealized losses at December 31, 2003. Fixed maturities with unrealized losses and the duration such conditions have existed at December 31, 2003 were as follows:



|                                     |  |                     |         |                     |   |            |  |                   |   |            |   |                   |  |   |         |  |   |      
|------------------------------------ |  | ------------------- | ------- | ------------------- | - | ---------- |  | ----------------- | - | ---------- | - | ----------------- |  | - | ------- |  | - | -----
|                                     |  | Less than 12 months |         | 12 months or longer |   | Total     
|2003                                 |  | Fair Value          |         | Unrealized Losses   |   | Fair Value |  | Unrealized Losses |   | Fair Value |   | Unrealized Losses
|US Government and Agencies           |  | $                   | 129,685 |                     | $ | 2,066      |  | $                 |  |            | $ |                  |  | $ | 129,685 |  | $ | 2,066
|US Corporate Securities              |  |                     | 139,312 |                     |   | 1,104      |  |                   |  |            |   |                  |  |   | 139,312 |  |   | 1,104
|Other Corporate Securities           |  |                     | 6,000   |                     |   | 348        |  |                   |  |            |   |                  |  |   | 6,000   |  |   | 348  
|Asset and Mortgage Backed Securities |  |                     | 101,271 |                     |   | 697        |  |                   |  |            |   |                  |  |   | 101,271 |  |   | 697  
|Collateralized Mortgage Obligations  |  |                     |        |                     |   |           |  |                   |  |            |   |                  |  |   |        |  |   |     
|                                     |  |                     |         |                     |   |            |  |                   |   |            |   |                   |  |   |         |  |   |      
|                                     |  | $                   | 376,268 |                     | $ | 4,215      |  | $                 |  |            | $ |                  |  | $ | 376,268 |  | $ | 4,215
|                                     |  |                     |         |                     |   |            |  |                   |   |            |   |                   |  |   |         |  |   |      



F-11



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##### Table of Contents

MAX RE CAPITAL LTD.



Notes to Consolidated Financial Statements(Continued)



December 31, 2003, 2002 and 2001

(Expressed in thousands of United States Dollars, except per share and share amounts)



(f)The majority of the Companys alternative investments at December 31, 2003 comprise a
fund of funds portfolio owned by Max Re Diversified and managed by Moore Capital Management, LLC (the Manager), a company owned by certain of the Companys shareholders. The funds are primarily engaged in global macro,
long/short equity, fixed income arbitrage, convertible arbitrage, diversified arbitrage, distressed investing, event driven arbitrage, commodity trading, emerging market and opportunistic investment strategies. Certain funds in the portfolio are
managed by the Manager. For the year ended December 31, 2003 the Company paid the Manager $5,489 (2002$3,101; 2001$7,639) for investment management services. In addition, as the trading manager of Max Re Diversified, the Manager earned
$8,102 for the year ended December 31, 2003 (2002$nil; 2001$nil).



All investment fees incurred on the alternative investments are included in net gains on alternative investments in the accompanying consolidated statements of income and comprehensive income.



(g)In May 2001, the Company made an equity investment of $15,000 for
7.5% of the ordinary shares of Grand Central Re Limited (Grand Central Re), a Bermuda domiciled reinsurance company. The investment in Grand Central Re is recorded using the equity method of accounting and is classified as an alternative
investment in the accompanying consolidated balance sheets.



Max Re Managers Ltd. provides Grand Central Re with insurance management services under an insurance management agreement. Fees for such services for the year ended December 31, 2003 were approximately $4,300 (2002$2,800;
2001$2,600) and are included in other income in the accompanying consolidated statements of income and comprehensive income.



Max Re entered into a quota share retrocession agreement with Grand Central Re, effective January 1, 2002, amending the quota share arrangement with Grand
Central Re that commenced January 1, 2001. The 2002 quota share reinsurance agreement with Grand Central Re requires each of the Company and Grand Central Re to retrocede a portion of their respective gross premiums written from certain transactions
to the other party in order to participate on a quota share basis. Max Re also entered into an aggregate stop loss contract with Grand Central Re, effective January 1, 2003, whereby Grand Central Re provided aggregate reinsurance protection to Max
Re on one of its underlying reinsurance contracts. The accompanying consolidated balance sheets and consolidated statements of income and comprehensive income include, or are net of, the following amounts related to the quota share retrocession and
aggregate stop loss agreements with Grand Central Re:



|                                        |  |      |         |      |   |         |  |   |        
|--------------------------------------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                        |  | 2003 |         | 2002 |   | 2001   
|Prepaid reinsurance premiums            |  | $    | 17,596  |      | $ | 24,045  |  | $ | 16,644 
|Losses recoverable from reinsurers      |  |      | 169,088 |      |   | 129,308 |  |   | 97,700 
|Funds withheld from reinsurers          |  |      | 155,843 |      |   | 108,704 |  |   | 79,108 
|Deposit liabilities                     |  |      | 49,515  |      |   | 22,543  |  |   | 14,016 
|Reinsurance balances payable            |  |      | 28,063  |      |   | 14,043  |  |   | 13,579 
|Reinsurance premiums ceded              |  |      | 71,874  |      |   | 52,089  |  |   | 106,535
|Earned premiums ceded                   |  |      | 74,279  |      |   | 44,688  |  |   | 89,890 
|Losses, benefits and experience refunds |  |      | 80,762  |      |   | 42,864  |  |   | 98,671 



During 2003, Max Re
credited Grand Central Re with interest of $6,180 (2002$7,703; 2001$1,573) on the funds withheld by Max Re at a negotiated rate of 3.07% (20028.59%; 20018.55%).



F-12



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##### Table of Contents

MAX RE CAPITAL LTD.



Notes to Consolidated Financial Statements(Continued)



December 31, 2003, 2002 and 2001

(Expressed in thousands of United States Dollars, except per share and share amounts)



The Company believes that the terms of the insurance management, quota share retrocession and
aggregate stop loss agreements are comparable to terms that the Company would expect to negotiate in similar transactions with unrelated parties.



(h)In December 2001, the Company made an equity investment of $50,000 in Class D shares of DaVinci Re Holdings Ltd., and its operating subsidiary
DaVinci Reinsurance Ltd. (DaVinci), representing 12.5% of its share capital. DaVinci is a Bermuda-based property catastrophe reinsurer, managed by Renaissance Underwriting Managers, Ltd. The investment in DaVinci is recorded using the
equity method of accounting and is classified as an alternative investment in the accompanying consolidated balance sheets.



4. Property and casualty losses and loss adjustment expenses



The summary of changes in outstanding property and casualty losses at December 31, 2003, 2002 and 2001 is as follows:



|                                                                        |  |      |          |   |      |   |          |      |  |   |         |  
|----------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | ---- |  | - | ------- | -
|                                                                        |  | 2003 |          |   | 2002 |   |          | 2001 | 
|Gross balance at January 1                                              |  | $    | 778,069  |   |      | $ | 596,377  |      |  | $ | 136,338 |  
|Less: Reinsurance recoverables, deferred charges and experience refunds |  |      | (215,330 | ) |      |   | (210,824 | )    |  |   | (47,625 | )
|                                                                        |  |      |          |   |      |   |          |      |  |   |         |  
|Net balance at January 1                                                |  |      | 562,739  |   |      |   | 385,553  |      |  |   | 88,713  |  
|                                                                        |  |      |          |   |      |   |          |      |  |   |         |  
|Reclassification to deposit liability                                   |  |      | (117,136 | ) |      |   |         |      |  |   |        |  
|                                                                        |  |      |          |   |      |   |          |      |  |   |         |  
|Incurred losses related to:                                             |  |      |          |   |      |   |          |      |  |   |         |  
|Current year                                                            |  |      | 443,617  |   |      |   | 261,836  |      |  |   | 292,743 |  
|Prior year                                                              |  |      | 25,268   |   |      |   | 49,912   |      |  |   | 18,181  |  
|                                                                        |  |      |          |   |      |   |          |      |  |   |         |  
|Total incurred                                                          |  |      | 468,885  |   |      |   | 311,748  |      |  |   | 310,924 |  
|                                                                        |  |      |          |   |      |   |          |      |  |   |         |  
|Paid losses related to:                                                 |  |      |          |   |      |   |          |      |  |   |         |  
|Current year                                                            |  |      | (54,823  | ) |      |   | (20,784  | )    |  |   | (7,930  | )
|Prior year                                                              |  |      | (104,924 | ) |      |   | (113,778 | )    |  |   | (6,154  | )
|                                                                        |  |      |          |   |      |   |          |      |  |   |         |  
|Total paid                                                              |  |      | (159,747 | ) |      |   | (134,562 | )    |  |   | (14,084 | )
|                                                                        |  |      |          |   |      |   |          |      |  |   |         |  
|Net balance at December 31                                              |  |      | 754,741  |   |      |   | 562,739  |      |  |   | 385,553 |  
|Plus: Reinsurance recoverables, deferred charges and experience refunds |  |      | 236,946  |   |      |   | 215,330  |      |  |   | 210,824 |  
|                                                                        |  |      |          |   |      |   |          |      |  |   |         |  
|Gross balance at December 31                                            |  | $    | 991,687  |   |      | $ | 778,069  |      |  | $ | 596,377 |  
|                                                                        |  |      |          |   |      |   |          |      |  |   |         |  



The reclassification
to deposit liability relates to an amendment, effective January 1, 2003, to the terms of a property and casualty contract written in a prior year. The amendment was a material change to the contract, causing the Company to record the amended
contract as a deposit arrangement, thereby reducing the net reserve for property and casualty losses by $117,136.



Prior year incurred losses of $25,268 for the year ended December 31, 2003 relate to a current year change in estimate of expected losses of $26,363 on
certain reinsurance contracts written in prior years and the current year amortization of deferred charges of $3,995 with respect to retroactive reinsurance contracts written in prior years, and is net of $5,090 in realized profits from contracts
terminated during the current year that were written in prior years. The change in estimates results from the receipt of new information or notification from the ceding companies during the current year. One contract accounted for $19,118 of the
prior year incurred losses amount.



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##### Table of Contents

MAX RE CAPITAL LTD.



Notes to Consolidated Financial Statements(Continued)



December 31, 2003, 2002 and 2001

(Expressed in thousands of United States Dollars, except per share and share amounts)



For certain contracts, these losses triggered additional premium of $30,763 and acquisition costs of $11,526, which were earned and/or incurred in the
current year.



Prior year incurred losses of $49,912 for the
year ended December 31, 2002 relate to a change in estimate of expected losses of $53,825 on certain reinsurance contracts written in prior years and the amortization of deferred charges of $6,280 with respect to retroactive reinsurance contracts
written in prior years, and is net of $10,193 in realized profits from contracts terminated during 2002 that were written in prior years. The change in estimate results from the receipt of information or notification from the ceding companies during
2002. One contract accounted for $41,156 of the prior year incurred losses amount. For certain contracts, these losses triggered additional premium of $40,892, interest on premium of $9,797 and acquisition costs of $12,915, which were earned and/or
incurred in the year ended December 31, 2002.



Prior year
incurred losses of $18,181 for the year ended December 31, 2001 relate principally to a change in estimate of expected losses of $11,820 on two reinsurance contracts written during the year ended December 31, 2000, the Companys first year of
operations, and amortization of deferred charges of $6,361 with respect to retroactive reinsurance contracts written during the year ended December 31, 2000.



For the year ended December 31, 2003, the change in estimate of expected loss results primarily from contracts covering whole account covers. For the
years ended December 31, 2002 and 2001, the change in estimate of expected loss results from contracts covering primarily workers compensation claims.



While the Company believes that it has made a reasonable estimate of ultimate property and casualty losses, subsequent claims experience may exceed loss
reserves and have a significant effect on the Companys results of operations.



Included in deposit liabilities is $203,898 (2002$48,490) related to reinsurance contracts that do not transfer sufficient risk to be accounted for as reinsurance.



5. Life and annuity benefits



Life and annuity benefits at December 31, 2003 and 2002 was as follows:



|                    |  |      |         |      |   |        
|------------------- |  | ---- | ------- | ---- | - | -------
|                    |  | 2003 |         | 2002
|Life                |  | $    | 150,982 |      | $ | 47,371 
|Annuities           |  |      | 95,629  |      |   | 97,882 
|Accident and health |  |      | 233,488 |      |   | 259,755
|                    |  |      |         |      |   |        
|                    |  | $    | 480,099 |      | $ | 405,008
|                    |  |      |         |      |   |        



Losses recoverable
relating to life and annuity contracts of $49,565 in 2003 (2002$30,172) are included in losses recoverable from reinsurers in the accompanying consolidated balance sheets.



All annuities included in life and annuity benefits in the accompanying consolidated balance sheets are not subject to
discretionary withdrawal. Included in deposit liabilities at December 31, 2003 are annuities of $6,082 (2002$8,645) which are subject to discretionary withdrawal. Deposit liabilities also include $57,370 (2002$58,378) representing the
account value of a universal life reinsurance contract as prescribed under FAS 97.



F-14



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##### Table of Contents

MAX RE CAPITAL LTD.



Notes to Consolidated Financial Statements(Continued)



December 31, 2003, 2002 and 2001

(Expressed in thousands of United States Dollars, except per share and share amounts)



6. Reinsurance



The Company utilizes reinsurance and retrocession agreements principally to increase aggregate capacity and to reduce the risk of loss on business
assumed. The Companys reinsurance and retrocession agreements provide for recovery of a portion of losses and loss adjustment expenses from reinsurers. Losses recoverable from reinsurers are recorded as assets. Losses, benefits and experience
refunds are net of losses recoverable of $102,339 in 2003 (2002$49,835; 2001$167,692) under these agreements. Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their
obligations could result in losses to the Company. The Company regularly evaluates the financial condition of its reinsurers. Two retrocessionaires account for 61.8% and 28.7% of the Companys losses recoverable from reinsurers as of December
31, 2003. The retrocessionaires have financial strength ratings of A- and A, respectively, by A.M. Best at December 31, 2003.



The effect of reinsurance and retrocessional activity on premiums written and earned for the years ended December 31, 2003, 2002 and 2001 was as follows:



|                                       |  |                  |          |   |                 |   |         |      |  |   |         |   |  |      |         |   |      |   |         |   |  |   |         |  
|-------------------------------------- |  | ---------------- | -------- | - | --------------- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - | ---- | - | ------- | - |  | - | ------- | -
|Property and casualty                  |  | Premiums written |          |   | Premiums earned |  
|                                       |  | 2003             |          |   | 2002            |   |         | 2001 |  |   | 2003    |   |  | 2002 |         |   | 2001 |  
|Direct                                 |  | $                | 163,213  |   |                 | $ |        |      |  | $ |        |   |  | $    | 66,083  |   |      | $ |        |   |  | $ |        |  
|Assumed                                |  |                  | 738,316  |   |                 |   | 632,734 |      |  |   | 496,452 |   |  |      | 661,116 |   |      |   | 420,025 |   |  |   | 385,892 |  
|Ceded                                  |  |                  | (132,924 | ) |                 |   | (52,481 | )    |  |   | (83,974 | ) |  |      | (86,595 | ) |      |   | (44,446 | ) |  |   | (66,601 | )
|                                       |  |                  |          |   |                 |   |         |      |  |   |         |   |  |      |         |   |      |   |         |   |  |   |         |  
|Net                                    |  | $                | 768,605  |   |                 | $ | 580,253 |      |  | $ | 412,478 |   |  | $    | 640,604 |   |      | $ | 375,579 |   |  | $ | 319,291 |  
|                                       |  |                  |          |   |                 |   |         |      |  |   |         |   |  |      |         |   |      |   |         |   |  |   |         |  
|                                       |  |                 
|Life and annuity                       |  | Premiums written |          |   | Premiums earned |  
|                                       |  | 2003             |          |   | 2002            |   |         | 2001 |  |   | 2003    |   |  | 2002 |         |   | 2001 |  
|Amounts assessed against policyholders |  | $                |         |   |                 | $ |        |      |  | $ |        |   |  | $    |        |   |      | $ |        |   |  | $ |        |  
|Assumed                                |  |                  | 108,250  |   |                 |   | 14,656  |      |  |   | 214,099 |   |  |      | 108,250 |   |      |   | 14,656  |   |  |   | 214,099 |  
|Ceded                                  |  |                  | (21,650  | ) |                 |   | (2,198  | )    |  |   | (32,443 | ) |  |      | (21,650 | ) |      |   | (2,198  | ) |  |   | (32,443 | )
|                                       |  |                  |          |   |                 |   |         |      |  |   |         |   |  |      |         |   |      |   |         |   |  |   |         |  
|Net                                    |  | $                | 86,600   |   |                 | $ | 12,458  |      |  | $ | 181,656 |   |  | $    | 86,600  |   |      | $ | 12,458  |   |  | $ | 181,656 |  
|                                       |  |                  |          |   |                 |   |         |      |  |   |         |   |  |      |         |   |      |   |         |   |  |   |         |  
|Total                                  |  | $                | 855,205  |   |                 | $ | 592,711 |      |  | $ | 594,134 |   |  | $    | 727,204 |   |      | $ | 388,037 |   |  | $ | 500,947 |  
|                                       |  |                  |          |   |                 |   |         |      |  |   |         |   |  |      |         |   |      |   |         |   |  |   |         |  



7. Bank loan



In March 2002, the Company completed a $100,000 sale of shares of Max Re
Diversified to a third party financial institution. Simultaneous with the sale, the Company entered into a total return swap with the purchaser of these shares whereby the Company received the return earned on the Max Re Diversified shares in
exchange for a variable rate of interest based on LIBOR plus a spread. Under GAAP, these transactions were viewed on a combined basis and accounted for as a financing transaction, which resulted in the recording of a $100,000 bank loan.



On February 18, 2003, the Company and the third party financial
institution mutually terminated the swap transaction described above and, immediately following the termination, the Company completed a $150,000 sale of shares of Max Re Diversified to the same third party financial institution and entered into a
total return swap with the purchaser on similar terms as the terminated transaction. Max Re Diversified shares owned by



F-15



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##### Table of Contents

MAX RE CAPITAL LTD.



Notes to Consolidated Financial Statements(Continued)



December 31, 2003, 2002 and 2001

(Expressed in thousands of United States Dollars, except per share and share amounts)



Max Re with a fair value of $86,196 at December 31, 2003 were pledged as collateral to which the Company is exposed to credit risk. Under GAAP, these
transactions are viewed on a combined basis and accounted for as a financing transaction, which resulted in the recording of a $150,000 bank loan. The swap termination date is February 2005, with provision for earlier termination at the
Companys option or in the event that the Company fails to comply with certain covenants, including maintaining a minimum financial strength rating and a minimum Max Re Diversified net asset value. At termination, the purchaser has the option
to sell the Max Re Diversified shares to the Company at a price equal to the fair value of the Max Re Diversified shares on the date of repurchase.



8. Pension and deferred compensation plans



The Company provides pension benefits to certain employees as required by the Bermuda National Pension Scheme Act, 1998 through a defined contribution
plan. The Company also provides pension benefits to employees of the Irish subsidiary companies under a separately administered defined contribution pension scheme. Company contributions are subject to vesting provisions. Pension expenses totaled
$184 for the year ended December 31, 2003 (2002$65; 2001$59).



The Company sponsors a deferred compensation plan in which employee salary deferrals are supplemented by matching contributions. The Companys contribution is subject to a defined amount and is subject to vesting
provisions. Deferred compensation expense totaled $734 for the year ended December 31, 2003 (2002$543; 2001$468).



9. Loans receivable from common share sales



As of December 31, 2003, the Company has full recourse loans outstanding provided to certain members of management of $11,965 (2002$12,575;
2001$12,575) in connection with their investment in the Company pursuant to the terms of their employment agreements. The loans have maturity dates ranging from March 2005 to August 2006 and are secured by the shares issued. Interest is
charged at applicable federal rates which are published by the U.S. Internal Revenue Service and is payable annually in arrears. Interest earned on the loans amounted to $198 for the year ended December 31, 2003 (2002$343; 2001$461) and
is included in other assets in the accompanying consolidated balance sheets, and net investment income in the accompanying consolidated statements of income and comprehensive income.



10. Shareholders equity



Common Shares



The holders of common shares are entitled to one vote per paid up share subject to a maximum of 9.5% of total voting rights per shareholder unless waived
by the Board of Directors. The Board of Directors has waived these provisions with respect to one shareholder, Western General Insurance Ltd.



On July 30, 2003, the holders of non-voting common shares of Max Re and warrants to acquire non-voting common shares of Max Re exchanged such shares and
warrants for common shares of the Company and warrants to acquire common shares of the Company. The effect of this exchange results in the elimination of minority interest and an increase in shareholders equity of equal amounts as of the date
of the exchange. This exchange did not have a dilutive effect on equity.



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##### Table of Contents

MAX RE CAPITAL LTD.



Notes to Consolidated Financial Statements(Continued)



December 31, 2003, 2002 and 2001

(Expressed in thousands of United States Dollars, except per share and share amounts)



Warrants



In connection with the issuance of certain shares, the Company has issued warrants to purchase the Companys common
shares exchangeable on a one-for-one basis. The warrants may be exercised at any time up to their expiration dates, which range from December 22, 2009 to August 17, 2011. Warrants are issued with exercise prices approximating their fair value on the
date of issuance.



Warrant related activity is as follows:



|                           |  |                      |   |  |                      |  |                                 |       |                             |   |                          |  |   |             
|-------------------------- |  | -------------------- | - |  | -------------------- |  | ------------------------------- | ----- | --------------------------- | - | ------------------------ |  | - | ------------
|                           |  | Warrants Outstanding |   |  | Warrants Exercisable |  | Weighted Average Exercise Price |       | Weighted Average Fair Value |   | Range of Exercise Prices
|Balance, December 31, 2000 |  | 6,783,827            |   |  | 6,644,587            |  | $                               | 15.00 |                             |   |                          |  |   |             
|                           |  |                      |   |  |                     
|Warrants granted           |  | 2,590,036            |   |  |                      |  | $                               | 16.13 |                             | $ | 5.72                     |  | $ | 16.00-$18.00
|                           |  |                      |   |  |                      |  |                                 |       |                             |   |                          |  |   |             
|Balance, December 31, 2001 |  | 9,373,863            |   |  | 8,999,366            |  | $                               | 15.31 |                             |   |                          |  |   |             
|                           |  |                      |   |  |                     
|Warrants forfeited         |  | (4,500               | ) |  |                      |  | $                               | 15.00 |                             |   |                          |  |   |             
|                           |  |                      |   |  |                      |  |                                 |       |                             |   |                          |  |   |             
|Balance, December 31, 2002 |  | 9,369,363            |   |  | 8,999,366            |  | $                               | 15.31 |                             |   |                          |  |   |             
|                           |  |                      |   |  |                     
|Warrant activity           |  |                     |   |  |                      |  | $                               |      |                             |   |                          |  |   |             
|                           |  |                      |   |  |                      |  |                                 |       |                             |   |                          |  |   |             
|Balance, December 31, 2003 |  | 9,369,363            |   |  | 8,999,366            |  | $                               | 15.31 |                             | $ | 5.76                     |  | $ | 15.00-$18.00
|                           |  |                      |   |  |                      |  |                                 |       |                             |   |                          |  |   |             



11. Stock incentive plan



In June 2000, the shareholders of the Company approved
the adoption of a Stock Incentive Plan (the Plan) under which it may award, subject to certain restrictions, Incentive Stock Options (ISOs), Non-Qualified Stock Options (NQSOs), restricted stock, share awards or
other awards. In May 2002, the shareholders of the Company approved the adoption of an amendment to the Plan to increase the maximum aggregate number of common shares available for awards under the Plan to 5,000,000. Only eligible employees of the
Company are entitled to ISOs, while NQSOs may be awarded to eligible employees, non-employee Directors and consultants. The Plan is administered by the Compensation Committee of the Board of Directors (the Committee).



Stock options issued under the Plan have terms set by the Committee. The
maximum option period is ten years. The minimum exercise price of ISOs is equal to the fair value of the Companys common shares at the date of grant. Options contain restrictions relating to, among other things, vesting, forfeiture in the
event of termination of employment, and transferability.



Restricted stock issued under the Plan have terms set by the Committee. These shares contain certain restrictions relating to, among other things, vesting, forfeiture in the event of termination of employment, and transferability. At the
time of grant the fair value of the shares awarded is recorded as unearned stock grant compensation and is presented as a separate component of shareholders equity. The unearned compensation is charged to income over the vesting period. Total
compensation cost recognized in income for stock-based compensation awards was $2,365 for the year ended December 31, 2003 (2002$1,209; 2001$1,024).



Eligible non-employee Directors were granted NQSOs to purchase 10,000 common shares on the date of their directorship and 2,000 common shares each year
thereafter. The NQSOs have an exercise price equal to the fair value of the Companys common shares at the date of grant and become exercisable and vest over three years.



F-17



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##### Table of Contents

MAX RE CAPITAL LTD.



Notes to Consolidated Financial Statements(Continued)



December 31, 2003, 2002 and 2001

(Expressed in thousands of United States Dollars, except per share and share amounts)



Effective January 1, 2003, the Company began to account for stock-based employee compensation in
accordance with the fair value method prescribed by FAS No. 123Accounting for Stock-Based Compensation (FAS No. 123), as amended by FAS No. 148Accounting for Stock-Based CompensationTransition and Disclosure, using the
prospective adoption method. Under the prospective adoption method, compensation expense is recognized over the relevant service period based on the fair value of stock options granted after January 1, 2003.



In accordance with FAS 123, the fair value of options granted is estimated on
the date of grant using the Black-Scholes option pricing method with the following weighted average assumptions:



|                              |  |         |   |  |         |   |  |         |  
|----------------------------- |  | ------- | - |  | ------- | - |  | ------- | -
|                              |  | 2003    |   |  | 2002    |   |  | 2001    |  
|Option valuation assumptions: |  |         |   |  |         |   |  |         |  
|Expected option life          |  | 7 years |   |  | 7 years |   |  | 7 years |  
|Expected dividend yield       |  | 0.63    | % |  | 0.52    | % |  | 0.13    | %
|Expected volatility           |  | 21.00   | % |  | 22.00   | % |  | 20.00   | %
|Risk-free interest rate       |  | 4.00    | % |  | 4.62    | % |  | 5.11    | %



If the Company were to
recognize compensation expense over the relevant service period under the fair value method of FAS No. 123 with respect to stock options granted for the year ended December 31, 2002 and all prior years, net income would have decreased in each period
from the amount reported, resulting in pro forma net income and earnings per share as follows:



|                                                                                                    |  |      |         |   |      |   |        |      |  |   |       |  
|--------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------ | ---- |  | - | ----- | -
|                                                                                                    |  | 2003 |         |   | 2002 |   |        | 2001 | 
|Net income (loss), as reported                                                                      |  | $    | 120,567 |   |      | $ | (5,754 | )    |  | $ | 2,531 |  
|Add: Stock-based employee compensation expense included in reported net income                      |  |      | 342     |   |      |   |       |      |  |   |      |  
|Deduct: Stock-based employee compensation expense determined under fair value method for all awards |  |      | (2,531  | ) |      |   | (1,990 | )    |  |   | (913  | )
|                                                                                                    |  |      |         |   |      |   |        |      |  |   |       |  
|Pro forma net income (loss)                                                                         |  | $    | 118,378 |   |      | $ | (7,744 | )    |  | $ | 1,618 |  
|                                                                                                    |  |      |         |   |      |   |        |      |  |   |       |  
|Earnings per share, as reported                                                                     |  |      |         |   |      |   |        |      |  |   |       |  
|Basic                                                                                               |  | $    | 2.91    |   |      | $ | (0.15  | )    |  | $ | 0.08  |  
|Diluted                                                                                             |  | $    | 2.84    |   |      | $ | (0.20  | )    |  | $ | 0.05  |  
|                                                                                                    |  |      |        
|Earnings per share, pro forma                                                                       |  |      |         |   |      |   |        |      |  |   |       |  
|Basic                                                                                               |  | $    | 2.88    |   |      | $ | (0.15  | )    |  | $ | 0.06  |  
|Diluted                                                                                             |  | $    | 2.79    |   |      | $ | (0.20  | )    |  | $ | 0.04  |  



F-18



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##### Table of Contents

MAX RE CAPITAL LTD.



Notes to Consolidated Financial Statements(Continued)



December 31, 2003, 2002 and 2001

(Expressed in thousands of United States Dollars, except per share and share amounts)



A summary of Plan related activity follows:



|                             |  |                            |   |  |                     |   |  |                     |  |                                 |       |                                        |   |                          |  |   |             
|---------------------------- |  | -------------------------- | - |  | ------------------- | - |  | ------------------- |  | ------------------------------- | ----- | -------------------------------------- | - | ------------------------ |  | - | ------------
|                             |  | Awards Available for Grant |   |  | Options Outstanding |   |  | Options Exercisable |  | Weighted Average Exercise Price |       | Weighted Average Fair Value of Options |   | Range of Exercise Prices
|Balance, December 31, 2000   |  | 975,521                    |   |  | (176,479            | ) |  | 151,183             |  | $                               | 15.06 |                                        |   |                          |  |   |             
|                             |  |                            |   |  |                     |  
|Increase in shares available |  | 800,000                    |   |  |                     |   |  |                     |  |                                 |       |                                        |   |                          |  |   |             
|Options granted              |  | (841,000                   | ) |  | (841,000            | ) |  |                     |  | $                               | 16.01 |                                        | $ | 5.75                     |  | $ | 14.78-$18.00
|Restricted stock issued      |  | (205,500                   | ) |  |                     |   |  |                     |  |                                 |       |                                        |   |                          |  |   |             
|                             |  |                            |   |  |                     |   |  |                     |  |                                 |       |                                        |   |                          |  |   |             
|Balance, December 31, 2001   |  | 729,021                    |   |  | (1,017,479          | ) |  | 657,117             |  | $                               | 15.84 |                                        |   |                          |  |   |             
|                             |  |                            |   |  |                     |  
|Increase in shares available |  | 3,000,000                  |   |  |                     |   |  |                     |  |                                 |       |                                        |   |                          |  |   |             
|Options granted              |  | (718,500                   | ) |  | (718,500            | ) |  |                     |  | $                               | 15.51 |                                        | $ | 5.19                     |  | $ | 10.26-$15.66
|Restricted stock issued      |  | (62,000                    | ) |  |                     |   |  |                     |  |                                 |       |                                        |   |                          |  |   |             
|                             |  |                            |   |  |                     |   |  |                     |  |                                 |       |                                        |   |                          |  |   |             
|Balance, December 31, 2002   |  | 2,948,521                  |   |  | (1,735,979          | ) |  | 944,518             |  | $                               | 15.71 |                                        |   |                          |  |   |             
|                             |  |                            |   |  |                     |  
|Increase in shares available |  |                           |   |  |                     |   |  |                     |  |                                 |       |                                        |   |                          |  |   |             
|Options granted              |  | (452,500                   | ) |  | (452,500            | ) |  |                     |  | $                               | 13.02 |                                        | $ | 3.77                     |  | $ | 10.95-$15.84
|Stock grants                 |  | (36,000                    | ) |  |                     |   |  |                     |  |                                 |       |                                        |   |                          |  |   |             
|Restricted stock issued      |  | (335,100                   | ) |  |                     |   |  |                     |  |                                 |       |                                        |   |                          |  |   |             
|                             |  |                            |   |  |                     |   |  |                     |  |                                 |       |                                        |   |                          |  |   |             
|Balance, December 31, 2003   |  | 2,124,921                  |   |  | (2,188,479          | ) |  | 985,918             |  | $                               | 15.15 |                                        | $ | 15.13                    |  | $ | 10.26-$18.00
|                             |  |                            |   |  |                     |   |  |                     |  |                                 |       |                                        |   |                          |  |   |             



12. Taxation



Under current Bermuda law the Company is not required to pay any taxes in
Bermuda on either income or capital gains. The Company and Max Re have each received an assurance from the Bermuda Minister of Finance under the Exempted Undertaking Tax Protection Act, 1966 of Bermuda that if there is enacted in Bermuda any
legislation imposing tax computed on profits or income, or computed on any capital asset, gain or appreciation, then the imposition of any such tax will not be applicable until March 2016.



The Company and its Bermuda subsidiaries plan to operate in a manner so that
they will not generally be subject to tax in other jurisdictions except for withholding taxes on certain kinds of investment income, excise taxes and other taxes attributable to marketing activities in certain jurisdictions.



The Companys Irish subsidiaries will be subject to Irish corporate
taxes and premium taxes in jurisdictions where business is conducted.



13.
Statutory requirements and dividend restrictions



Under
the Bermuda Insurance Act, 1978 and related regulations Max Re is required to maintain certain levels of solvency and liquidity. The minimum statutory capital and surplus required at December 31, 2003 was $382,823 and actual statutory capital and
surplus was $697,966. The principle differences between statutory capital and surplus and shareholders equity presented in accordance with accounting principles generally accepted in the United States of America are deferred acquisition costs,
deferred charges and prepaid reinsurance premiums.



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##### Table of Contents

MAX RE CAPITAL LTD.



Notes to Consolidated Financial Statements(Continued)



December 31, 2003, 2002 and 2001

(Expressed in thousands of United States Dollars, except per share and share amounts)



Max Re is also required by its Class 4 licence to maintain a minimum liquidity ratio whereby the
value of its relevant assets is not less than 75% of the amount of its relevant liabilities for general business. Relevant assets include cash and cash equivalents, fixed maturities, accrued interest income, premiums receivable, losses recoverable
from reinsurers and funds withheld. Max Re has received approval from the Minister of Finance to include all of its alternative investments as relevant assets. The relevant liabilities are total general business insurance reserves and total other
liabilities, less sundry liabilities. As of December 31, 2003, the Company met the minimum liquidity ratio requirement.



Under the Irish Insurance Acts 1909 to 2000, regulations made under those Acts, and regulations relating to insurance business made under the European
Communities Act, 1972 and directions issued under those regulations, Max Insurance Europe Limited is required to maintain technical reserves and a minimum solvency margin. As of December 31, 2003 Max Insurance Europe Limited met the minimum solvency
margin requirement.



The Companys ability to pay
dividends is subject to certain regulatory restrictions on the payment of dividends by its subsidiaries. The payment of such dividends is limited by applicable regulations and statutory requirements of Bermuda and Ireland. Max Re and Max Insurance
Europe Limited are prohibited from declaring or paying a dividend if such payment would reduce their statutory surplus below the required minimum. Max Re is also subject to certain restrictions under its letter of credit facilities that affect its
ability to pay dividends to the Company. The Company paid dividends and capital distributions of $0.09 per share during 2003, compared to $0.08 per share in 2002.



14. Earnings per share



The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2003, 2002 and 2001.



|                                                       |  |      |            |      |   |            |      |  |   |           
|------------------------------------------------------ |  | ---- | ---------- | ---- | - | ---------- | ---- |  | - | ----------
|                                                       |  | 2003 |            | 2002 |   |            | 2001
|Basic earnings (loss) per share:                       |  |      |            |      |   |            |      |  |   |           
|Net income (loss)                                      |  | $    | 120,567    |      | $ | (5,754     | )    |  | $ | 2,531     
|Weighted average common shares outstanding             |  |      | 41,094,393 |      |   | 39,097,059 |      |  |   | 32,710,380
|                                                       |  |      |            |      |   |            |      |  |   |           
|Basic earnings (loss) per share                        |  | $    | 2.91       |      | $ | (0.15      | )    |  | $ | 0.08      
|                                                       |  |      |            |      |   |            |      |  |   |           
|Diluted earnings (loss) per share:                     |  |      |            |      |   |            |      |  |   |           
|Net income (loss)                                      |  | $    | 120,567    |      | $ | (5,754     | )    |  | $ | 2,531     
|Add back minority interest share of income (loss)      |  |      | 10,325     |      |   | (1,346     | )    |  |   | 93        
|                                                       |  |      |            |      |   |            |      |  |   |           
|Adjusted net income (loss)                             |  | $    | 130,892    |      | $ | (7,100     | )    |  | $ | 2,624     
|                                                       |  |      |            |      |   |            |      |  |   |           
|Weighted average ordinary shares outstanding - basic   |  |      | 41,094,393 |      |   | 39,097,059 |      |  |   | 32,710,380
|Weighted average non-voting shares outstanding         |  |      | 4,135,064  |      |   | 7,163,716  |      |  |   | 7,319,332 
|Conversion of warrants                                 |  |      | 179,333    |      |   |           |      |  |   | 164,027   
|Conversion of non-voting warrants                      |  |      | 422,103    |      |   |           |      |  |   | 372,993   
|Conversion of options                                  |  |      | 164,722    |      |   |           |      |  |   | 31,032    
|                                                       |  |      |            |      |   |            |      |  |   |           
|Weighted average ordinary shares outstanding - diluted |  |      | 45,995,615 |      |   | 46,260,775 |      |  |   | 40,597,764
|                                                       |  |      |            |      |   |            |      |  |   |           
|Diluted earnings (loss) per share                      |  | $    | 2.84       |      | $ | (0.15      | )    |  | $ | 0.06      
|                                                       |  |      |            |      |   |            |      |  |   |           



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##### Table of Contents

MAX RE CAPITAL LTD.



Notes to Consolidated Financial Statements(Continued)



December 31, 2003, 2002 and 2001

(Expressed in thousands of United States Dollars, except per share and share amounts)



15. Commitments and contingencies



(a) Concentrations of credit risk



The Companys portfolio of fixed maturities is managed following prudent standards of diversification. Specific
provisions limit the allowable holdings of a single issue and issuers. The Company believes that there are no significant concentrations of credit risk associated with its portfolio of fixed maturities.



The Companys portfolio of alternative investments is managed pursuant
to guidelines that emphasize diversification and liquidity. Pursuant to these guidelines, the Max Re Diversified Manager is responsible for managing and monitoring risk across a variety of investment funds and vehicles, markets and counterparties.
The Company believes that there are no significant concentrations of credit risk associated with its alternative investments.



(b) Lease commitments



The Company and its subsidiaries lease office space in the countries in which they operate under operating leases, which expire at various dates through
2012. Total rent expense for the year ended December 31, 2003 was $1,289. In 2003, the Company entered into a ten year lease agreement to lease a building in Bermuda. The rent and maintenance expense for the next four years will be approximately
$1,113 annually and the expense for the remaining five years will not exceed approximately $1,252 annually.



(c) Letter of credit facilities



The Company has three letter of credit facilities as of December 31, 2003. The Companys primary letter of credit facility is with a syndicate of
commercial banks, one of which is affiliated with a director of Max Re Capital. In June 2003, the Company amended the terms of this facility principally to lower the cost of the facility and reduce the capacity of the facility from $375,000 to
$270,000. In accordance with the facility agreement, the syndicate will issue letters of credit that may total up to $243,000 secured by fixed maturities and up to $27,000 secured by alternative investments. The Company believes that the terms of
this letter of credit facility are comparable to the terms that the Company would expect to negotiate with an unrelated party. At December 31, 2003 and December 31, 2002, letters of credit totaling $249,898 and $284,557, respectively, were issued
and outstanding under this facility. Fixed maturities and cash equivalents with a fair value of $285,916 and Max Re Diversified shares with a fair value of $74,336 at December 31, 2003 were pledged as collateral for these letters of credit.



The Company also has a $100,000 letter of credit facility with
the New York branch of Bayerische Hypo- und Vereinsbank AG (HVB), a shareholder of the Company and an affiliate of a director of Max Re Capital. HVB is the majority shareholder of Grand Central Re, which is managed by Max Re
Managers and in which the Company has 7.5% equity interest. The Company believes that the terms of this letter of credit facility are comparable to the terms that the Company would expect to negotiate at arms length with an unrelated party. At
December 31, 2003 and December 31, 2002, letters of credit totaling $21,138 and $58,472, respectively, were issued by HVB under this facility. All letters of credit issued under this facility are collateralized by a portion of the Companys
invested assets. Fixed maturities and cash equivalents with a fair value of $21,095 and Max Re Diversified shares with a fair value of $81,094 at December 31, 2003 were pledged as collateral for these letters of credit. With effect from January 1,
2004 the letter of credit facility with HVB was reduced to $50,000.



F-21



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##### Table of Contents

MAX RE CAPITAL LTD.



Notes to Consolidated Financial Statements(Continued)



December 31, 2003, 2002 and 2001

(Expressed in thousands of United States Dollars, except per share and share amounts)



In September 2003, the Company entered into a $100,000 letter of credit facility with Fleet National
Bank (Fleet). At December 31, 2003, there were no letters of credit issued under this letter of credit facility. Fixed maturities and cash equivalents with a fair value of $nil were pledged as collateral for these letters of credit.



Each of the letter of credit facilities requires that the
Company and/or certain of its subsidiaries comply with certain covenants, including a minimum consolidated tangible net worth and restrictions on the payment of dividends. The Company was in compliance with all the covenants of each of its letter of
credit facilities at December 31, 2003.



16. Segment information



The Company operates in the reinsurance and insurance
business serving two segments: the property and casualty segment and the life and annuity segment, which includes disability products. Within the property and casualty segment, the Company offers four products: structured risk transfer reinsurance,
traditional risk transfer reinsurance, alternative risk transfer reinsurance and insurance, and traditional risk transfer insurance. The Company differentiates its property and casualty products in several ways, including by the amount of aggregate
loss cap and/or occurrence limits incorporated into the underlying contract, with its structured risk transfer products having the lowest aggregate loss cap and occurrence limits and its traditional risk transfer products having the highest,
relative to premium received. Within the life and annuity segment, the Company currently offers reinsurance products focusing on existing blocks of business, which take the form of co-insurance transactions. In co-insurance transactions, risks are
reinsured on the same basis as that of the original policies. The Company also has a corporate segment that includes its investments and financing functions. The Company does not allocate assets by segment.



F-22



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##### Table of Contents

MAX RE CAPITAL LTD.



Notes to Consolidated Financial Statements(Continued)



December 31, 2003, 2002 and 2001

(Expressed in thousands of United States Dollars, except per share and share amounts)



A summary of operations by segment for the years ended December 31, 2003,
2002 and 2001 were as follows:



|                                               |            |                     |         |                        |                |   |                  |           |  |                      |         |   |       |   |         |   |  |   |          |   |  |   |          |   |  |   |         |  |   |           |  
|---------------------------------------------- | ---------- | ------------------- | ------- | ---------------------- | -------------- | - | ---------------- | --------- |  | -------------------- | ------- | - | ----- | - | ------- | - |  | - | -------- | - |  | - | -------- | - |  | - | ------- |  | - | --------- | -
|2003                                           |            | Property & Casualty |         |                        | Life & Annuity |   |                  | Corporate |  | Consolidated         |        
|                                               | Structured |                     |         | TraditionalReinsurance |                |   | Alternative Risk |           |  | TraditionalInsurance |         |   | Total |   |         |   | 
|Revenues                                       |            |                     |         |                        |                |   |                  |           |  |                      |         |   |       |   |         |   |  |   |          |   |  |   |          |   |  |   |         |  |   |           |  
|Gross premiums written                         |            | $                   | 236,173 |                        |                | $ | 318,624          |           |  | $                    | 183,519 |   |       | $ | 163,213 |   |  | $ | 901,529  |   |  |   | $108,250 |   |  | $ |        |  | $ | 1,009,779 |  
|Reinsurance premiums ceded                     |            |                     | (41,294 | )                      |                |   | (17,538          | )         |  |                      | (17,100 | ) |       |   | (56,992 | ) |  |   | (132,924 | ) |  |   | (21,650  | ) |  |   |        |  |   | (154,574  | )
|                                               |            |                     |         |                        |                |   |                  |           |  |                      |         |   |       |   |         |   |  |   |          |   |  |   |          |   |  |   |         |  |   |           |  
|Net premiums written                           |            | $                   | 194,879 |                        |                | $ | 301,086          |           |  | $                    | 166,419 |   |       | $ | 106,221 |   |  | $ | 768,605  |   |  | $ | 86,600   |   |  | $ |        |  | $ | 855,205   |  
|                                               |            |                     |         |                        |                |   |                  |           |  |                      |         |   |       |   |         |   |  |   |          |   |  |   |          |   |  |   |         |  |   |           |  
|Earned premiums                                |            | $                   | 266,748 |                        |                | $ | 204,098          |           |  | $                    | 190,270 |   |       | $ | 66,083  |   |  | $ | 727,199  |   |  | $ | 108,250  |   |  | $ |        |  | $ | 835,449   |  
|Earned premiums ceded                          |            |                     | (44,645 | )                      |                |   | (8,074           | )         |  |                      | (13,678 | ) |       |   | (20,198 | ) |  |   | (86,595  | ) |  |   | (21,650  | ) |  |   |        |  |   | (108,245  | )
|                                               |            |                     |         |                        |                |   |                  |           |  |                      |         |   |       |   |         |   |  |   |          |   |  |   |          |   |  |   |         |  |   |           |  
|Net premiums earned                            |            |                     | 222,103 |                        |                |   | 196,024          |           |  |                      | 176,592 |   |       |   | 45,885  |   |  |   | 640,604  |   |  |   | 86,600   |   |  |   |        |  |   | 727,204   |  
|                                               |            |                     |         |                        |                |   |                  |          
|Net investment income                          |            |                     |        |                        |                |   |                 |           |  |                      |        |   |       |   |        |   |  |   |         |   |  |   |         |   |  |   | 60,132  |  |   | 60,132    |  
|Net gains on alternative investments           |            |                     |        |                        |                |   |                 |           |  |                      |        |   |       |   |        |   |  |   |         |   |  |   |         |   |  |   | 124,036 |  |   | 124,036   |  
|Net realized gains on sale of fixed maturities |            |                     |        |                        |                |   |                 |           |  |                      |        |   |       |   |        |   |  |   |         |   |  |   |         |   |  |   | 19,259  |  |   | 19,259    |  
|Other income                                   |            |                     | 6,401   |                        |                |   |                 |           |  |                      |        |   |       |   |        |   |  |   | 6,401    |   |  |   |         |   |  |   | 4,342   |  |   | 10,743    |  
|                                               |            |                     |         |                        |                |   |                  |           |  |                      |         |   |       |   |         |   |  |   |          |   |  |   |          |   |  |   |         |  |   |           |  
|Total revenues                                 |            |                     | 228,504 |                        |                |   | 196,024          |           |  |                      | 176,592 |   |       |   | 45,885  |   |  |   | 647,005  |   |  |   | 86,600   |   |  |   | 207,769 |  |   | 941,374   |  
|                                               |            |                     |         |                        |                |   |                  |           |  |                      |         |   |       |   |         |   |  |   |          |   |  |   |          |   |  |   |         |  |   |           |  
|Losses and expenses                            |            |                     |         |                        |                |   |                  |           |  |                      |         |   |       |   |         |   |  |   |          |   |  |   |          |   |  |   |         |  |   |           |  
|Losses, benefits and experience refunds        |            |                     | 190,645 |                        |                |   | 125,312          |           |  |                      | 126,787 |   |       |   | 34,591  |   |  |   | 477,335  |   |  |   | 114,939  |   |  |   |        |  |   | 592,274   |  
|Acquisition costs                              |            |                     | 66,996  |                        |                |   | 41,296           |           |  |                      | 36,277  |   |       |   | 3,098   |   |  |   | 147,667  |   |  |   | 1,867    |   |  |   |        |  |   | 149,534   |  
|Interest expense                               |            |                     |        |                        |                |   |                 |           |  |                      |        |   |       |   |        |   |  |   |         |   |  |   |         |   |  |   | 28,829  |  |   | 28,829    |  
|General and administrative expenses            |            |                     | 3,540   |                        |                |   | 3,226            |           |  |                      | 2,630   |   |       |   | 4,907   |   |  |   | 14,303   |   |  |   | 4,486    |   |  |   | 21,056  |  |   | 39,845    |  
|                                               |            |                     |         |                        |                |   |                  |           |  |                      |         |   |       |   |         |   |  |   |          |   |  |   |          |   |  |   |         |  |   |           |  
|Total losses and expenses                      |            |                     | 261,181 |                        |                |   | 169,834          |           |  |                      | 165,694 |   |       |   | 42,596  |   |  |   | 639,305  |   |  |   | 121,292  |   |  |   | 49,885  |  |   | 810,482   |  
|                                               |            |                     |         |                        |                |   |                  |           |  |                      |         |   |       |   |         |   |  |   |          |   |  |   |          |   |  |   |         |  |   |           |  
|Net income (loss) before minority interest     |            | $                   | (32,677 | )                      |                | $ | 26,190           |           |  | $                    | 10,898  |   |       | $ | 3,289   |   |  | $ | 7,700    |   |  | $ | (34,692  | ) |  | $ | 157,884 |  | $ | 130,892   |  
|                                               |            |                     |         |                        |                |   |                  |           |  |                      |         |   |       |   |         |   |  |   |          |   |  |   |          |   |  |   |         |  |   |           |  
|Loss ratio                                     |            |                     | 85.8    | %                      |                |   | 63.9             | %         |  |                      | 71.8    | % |       |   | 75.4    | % |  |   | 74.5     | % |  |   |          |   |  |   |         |  |   |           |  
|Combined ratio                                 |            |                     | 117.6   | %                      |                |   | 86.6             | %         |  |                      | 93.8    | % |       |   | 92.8    | % |  |   | 99.8     | % |  |   |          |   |  |   |         |  |   |           |  



The loss ratio is calculated by
dividing losses, benefits and experience refunds by net premiums earned.



The
combined ratio is calculated by dividing total losses and expenses by net premiums earned.



F-23



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##### Table of Contents

MAX RE CAPITAL LTD.



Notes to Consolidated Financial Statements(Continued)



December 31, 2003, 2002 and 2001

(Expressed in thousands of United States Dollars, except per share and share amounts)





|                                               |            |                     |         |                         |                |   |                  |           |  |                       |         |       |  |   |   |  |   |         |   |  |   |         |   |  |   |         |  |   |         |  
|---------------------------------------------- | ---------- | ------------------- | ------- | ----------------------- | -------------- | - | ---------------- | --------- |  | --------------------- | ------- | ----- |  | - | - |  | - | ------- | - |  | - | ------- | - |  | - | ------- |  | - | ------- | -
|2002                                           |            | Property & Casualty |         |                         | Life & Annuity |   |                  | Corporate |  | Consolidated          |        
|                                               | Structured |                     |         | Traditional Reinsurance |                |   | Alternative Risk |           |  | Traditional Insurance |         | Total |  |   |   | 
|Revenues                                       |            |                     |         |                         |                |   |                  |           |  |                       |         |       |  |   |   |  |   |         |   |  |   |         |   |  |   |         |  |   |         |  
|Gross premiums written                         |            | $                   | 308,615 |                         |                | $ | 137,919          |           |  | $                     | 186,200 |       |  | $ |  |  | $ | 632,734 |   |  | $ | 14,656  |   |  | $ |        |  | $ | 647,390 |  
|Reinsurance premiums ceded                     |            |                     | (43,593 | )                       |                |   |                 |           |  |                       | (8,888  | )     |  |   |  |  |   | (52,481 | ) |  |   | (2,198  | ) |  |   |        |  |   | (54,679 | )
|                                               |            |                     |         |                         |                |   |                  |           |  |                       |         |       |  |   |   |  |   |         |   |  |   |         |   |  |   |         |  |   |         |  
|Net premiums written                           |            | $                   | 265,022 |                         |                | $ | 137,919          |           |  | $                     | 177,312 |       |  | $ |  |  | $ | 580,253 |   |  | $ | 12,458  |   |  | $ |        |  | $ | 592,711 |  
|                                               |            |                     |         |                         |                |   |                  |           |  |                       |         |       |  |   |   |  |   |         |   |  |   |         |   |  |   |         |  |   |         |  
|Earned premiums                                |            | $                   | 283,963 |                         |                | $ | 38,910           |           |  | $                     | 97,152  |       |  | $ |  |  | $ | 420,025 |   |  | $ | 14,656  |   |  | $ |        |  | $ | 434,681 |  
|Earned premiums ceded                          |            |                     | (39,261 | )                       |                |   |                 |           |  |                       | (5,185  | )     |  |   |  |  |   | (44,446 | ) |  |   | (2,198  | ) |  |   |        |  |   | (46,644 | )
|                                               |            |                     |         |                         |                |   |                  |           |  |                       |         |       |  |   |   |  |   |         |   |  |   |         |   |  |   |         |  |   |         |  
|Net premiums earned                            |            |                     | 244,702 |                         |                |   | 38,910           |           |  |                       | 91,967  |       |  |   |  |  |   | 375,579 |   |  |   | 12,458  |   |  |   |        |  |   | 388,037 |  
|                                               |            |                     |         |                         |                |   |                  |          
|Net investment income                          |            |                     |        |                         |                |   |                 |           |  |                       |        |       |  |   |  |  |   |        |   |  |   |        |   |  |   | 64,353  |  |   | 64,353  |  
|Net gains on alternative investments           |            |                     |        |                         |                |   |                 |           |  |                       |        |       |  |   |  |  |   |        |   |  |   |        |   |  |   | 32,127  |  |   | 32,127  |  
|Net realized gains on sale of fixed maturities |            |                     |        |                         |                |   |                 |           |  |                       |        |       |  |   |  |  |   |        |   |  |   |        |   |  |   | 5,390   |  |   | 5,390   |  
|Other income                                   |            |                     | 2,763   |                         |                |   |                 |           |  |                       | 638     |       |  |   |  |  |   | 3,401   |   |  |   |        |   |  |   | 2,780   |  |   | 6,181   |  
|                                               |            |                     |         |                         |                |   |                  |           |  |                       |         |       |  |   |   |  |   |         |   |  |   |         |   |  |   |         |  |   |         |  
|Total revenues                                 |            |                     | 247,465 |                         |                |   | 38,910           |           |  |                       | 92,605  |       |  |   |  |  |   | 378,980 |   |  |   | 12,458  |   |  |   | 104,650 |  |   | 496,088 |  
|                                               |            |                     |         |                         |                |   |                  |           |  |                       |         |       |  |   |   |  |   |         |   |  |   |         |   |  |   |         |  |   |         |  
|Losses and expenses                            |            |                     |         |                         |                |   |                  |           |  |                       |         |       |  |   |   |  |   |         |   |  |   |         |   |  |   |         |  |   |         |  
|Losses, benefits and experience refunds        |            |                     | 221,352 |                         |                |   | 28,152           |           |  |                       | 63,533  |       |  |   |  |  |   | 313,037 |   |  |   | 47,945  |   |  |   |        |  |   | 360,982 |  
|Acquisition costs                              |            |                     | 67,515  |                         |                |   | 9,218            |           |  |                       | 21,210  |       |  |   |  |  |   | 97,943  |   |  |   | (205    | ) |  |   |        |  |   | 97,738  |  
|Interest expense                               |            |                     |        |                         |                |   |                 |           |  |                       |        |       |  |   |  |  |   |        |   |  |   |        |   |  |   | 23,131  |  |   | 23,131  |  
|General and Administrative expenses            |            |                     | 3,313   |                         |                |   | 1,441            |           |  |                       | 1,945   |       |  |   |  |  |   | 6,699   |   |  |   | 6,050   |   |  |   | 8,588   |  |   | 21,337  |  
|                                               |            |                     |         |                         |                |   |                  |           |  |                       |         |       |  |   |   |  |   |         |   |  |   |         |   |  |   |         |  |   |         |  
|Total losses and expenses                      |            |                     | 292,180 |                         |                |   | 38,811           |           |  |                       | 86,688  |       |  |   |  |  |   | 417,679 |   |  |   | 53,790  |   |  |   | 31,719  |  |   | 503,188 |  
|                                               |            |                     |         |                         |                |   |                  |           |  |                       |         |       |  |   |   |  |   |         |   |  |   |         |   |  |   |         |  |   |         |  
|Net income (loss) before minority interest     |            | $                   | (44,715 | )                       |                | $ | 99               |           |  | $                     | 5,917   |       |  | $ |  |  | $ | (38,699 | ) |  | $ | (41,332 | ) |  | $ | 72,931  |  | $ | (7,100  | )
|                                               |            |                     |         |                         |                |   |                  |           |  |                       |         |       |  |   |   |  |   |         |   |  |   |         |   |  |   |         |  |   |         |  
|Loss ratio                                     |            |                     | 90.5    | %                       |                |   | 72.4             | %         |  |                       | 69.1    | %     |  |   |  |  |   | 83.3    | % |  |   |         |   |  |   |         |  |   |         |  
|Combined ratio                                 |            |                     | 119.4   | %                       |                |   | 99.7             | %         |  |                       | 94.3    | %     |  |   |  |  |   | 111.2   | % |  |   |         |   |  |   |         |  |   |         |  



F-24



---

##### Table of Contents

MAX RE CAPITAL LTD.



Notes to Consolidated Financial Statements(Continued)



December 31, 2003, 2002 and 2001

(Expressed in thousands of United States Dollars, except per share and share amounts)



|                                               |            |                     |         |                        |                |                 |   |                      |   |              |  |   |   |  |   |         |   |  |   |         |   |  |   |        |  |   |          |  
|---------------------------------------------- | ---------- | ------------------- | ------- | ---------------------- | -------------- | --------------- | - | -------------------- | - | ------------ |  | - | - |  | - | ------- | - |  | - | ------- | - |  | - | ------ |  | - | -------- | -
|2001                                           |            | Property & Casualty |         |                        | Life & Annuity |                 |   | Corporate            |   | Consolidated | 
|                                               | Structured |                     |         | TraditionalReinsurance |                | AlternativeRisk |   | TraditionalInsurance |   | Total        |  |   |   | 
|Revenues                                       |            |                     |         |                        |                |                 |   |                      |   |              |  |   |   |  |   |         |   |  |   |         |   |  |   |        |  |   |          |  
|Gross premiums written                         |            | $                   | 496,452 |                        |                | $               |  |                      | $ |             |  | $ |  |  | $ | 496,452 |   |  | $ | 214,099 |   |  | $ |       |  | $ | 710,551  |  
|Reinsurance premiums ceded                     |            |                     | (83,974 | )                      |                |                 |  |                      |   |             |  |   |  |  |   | (83,974 | ) |  |   | (32,443 | ) |  |   |       |  |   | (116,417 | )
|                                               |            |                     |         |                        |                |                 |   |                      |   |              |  |   |   |  |   |         |   |  |   |         |   |  |   |        |  |   |          |  
|Net premiums written                           |            | $                   | 412,478 |                        |                | $               |  |                      | $ |             |  | $ |  |  | $ | 412,478 |   |  | $ | 181,656 |   |  | $ |       |  | $ | 594,134  |  
|                                               |            |                     |         |                        |                |                 |   |                      |   |              |  |   |   |  |   |         |   |  |   |         |   |  |   |        |  |   |          |  
|Earned premiums                                |            | $                   | 385,892 |                        |                | $               |  |                      | $ |             |  | $ |  |  | $ | 385,892 |   |  | $ | 214,099 |   |  | $ |       |  | $ | 599,991  |  
|Earned premiums ceded                          |            |                     | (66,601 | )                      |                |                 |  |                      |   |             |  |   |  |  |   | (66,601 | ) |  |   | (32,443 | ) |  |   |       |  |   | (99,044  | )
|                                               |            |                     |         |                        |                |                 |   |                      |   |              |  |   |   |  |   |         |   |  |   |         |   |  |   |        |  |   |          |  
|Net premiums earned                            |            |                     | 319,291 |                        |                |                 |  |                      |   |             |  |   |  |  |   | 319,291 |   |  |   | 181,656 |   |  |   |       |  |   | 500,947  |  
|                                               |            |                     |         |                        |                |                 |   |                     
|Net investment income                          |            |                     |        |                        |                |                 |  |                      |   |             |  |   |  |  |   |        |   |  |   |        |   |  |   | 43,870 |  |   | 43,870   |  
|Net gains on alternative investments           |            |                     |        |                        |                |                 |  |                      |   |             |  |   |  |  |   |        |   |  |   |        |   |  |   | 29,784 |  |   | 29,784   |  
|Net realized gains on sale of fixed maturities |            |                     |        |                        |                |                 |  |                      |   |             |  |   |  |  |   |        |   |  |   |        |   |  |   | 2,512  |  |   | 2,512    |  
|Other income                                   |            |                     | 1,289   |                        |                |                 |  |                      |   |             |  |   |  |  |   | 1,289   |   |  |   |        |   |  |   | 2,568  |  |   | 3,857    |  
|                                               |            |                     |         |                        |                |                 |   |                      |   |              |  |   |   |  |   |         |   |  |   |         |   |  |   |        |  |   |          |  
|Total revenues                                 |            |                     | 320,580 |                        |                |                 |  |                      |   |             |  |   |  |  |   | 320,580 |   |  |   | 181,656 |   |  |   | 78,734 |  |   | 580,970  |  
|                                               |            |                     |         |                        |                |                 |   |                      |   |              |  |   |   |  |   |         |   |  |   |         |   |  |   |        |  |   |          |  
|Losses and expenses                            |            |                     |         |                        |                |                 |   |                      |   |              |  |   |   |  |   |         |   |  |   |         |   |  |   |        |  |   |          |  
|Losses, benefits and experience refunds        |            |                     | 312,952 |                        |                |                 |  |                      |   |             |  |   |  |  |   | 312,952 |   |  |   | 201,371 |   |  |   |       |  |   | 514,323  |  
|Acquisition costs                              |            |                     | 29,254  |                        |                |                 |  |                      |   |             |  |   |  |  |   | 29,254  |   |  |   | 1,606   |   |  |   |       |  |   | 30,860   |  
|Interest expense                               |            |                     |        |                        |                |                 |  |                      |   |             |  |   |  |  |   |        |   |  |   |        |   |  |   | 12,121 |  |   | 12,121   |  
|General and Administrative expenses            |            |                     | 6,296   |                        |                |                 |  |                      |   |             |  |   |  |  |   | 6,296   |   |  |   | 6,849   |   |  |   | 7,897  |  |   | 21,042   |  
|                                               |            |                     |         |                        |                |                 |   |                      |   |              |  |   |   |  |   |         |   |  |   |         |   |  |   |        |  |   |          |  
|Total losses and expenses                      |            |                     | 348,502 |                        |                |                 |  |                      |   |             |  |   |  |  |   | 348,502 |   |  |   | 209,826 |   |  |   | 20,018 |  |   | 578,346  |  
|                                               |            |                     |         |                        |                |                 |   |                      |   |              |  |   |   |  |   |         |   |  |   |         |   |  |   |        |  |   |          |  
|Net income (loss) before minority interest     |            | $                   | (27,922 | )                      |                | $               |  |                      | $ |             |  | $ |  |  | $ | (27,922 | ) |  | $ | (28,170 | ) |  | $ | 58,716 |  | $ | 2,624    |  
|                                               |            |                     |         |                        |                |                 |   |                      |   |              |  |   |   |  |   |         |   |  |   |         |   |  |   |        |  |   |          |  
|Loss ratio                                     |            |                     | 98.0    | %                      |                |                 |  |                      |   |             |  |   |  |  |   | 98.0    | % |  |   |         |   |  |   |        |  |   |          |  
|Combined ratio                                 |            |                     | 109.1   | %                      |                |                 |  |                      |   |             |  |   |  |  |   | 109.1   | % |  |   |         |   |  |   |        |  |   |          |  



F-25



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##### Table of Contents

MAX RE CAPITAL LTD.



Notes to Consolidated Financial Statements(Continued)



December 31, 2003, 2002 and 2001

(Expressed in thousands of United States Dollars, except per share and share amounts)



The Company currently operates in two geographic segments: North America, which represents North
American based risks written by North American based reinsureds, and Europe, which principally represents the United Kingdom and Continental Europe.



Financial information relating to gross premiums written and reinsurance premiums ceded by geographic region for the years ended December 31, 2003, 2002
and 2001 was as follows:



|                                |  |      |         |   |      |   |         |      |  |   |          |  
|------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | -------- | -
|                                |  | 2003 |         |   | 2002 |   |         | 2001 | 
|North America                   |  | $    | 634,795 |   |      | $ | 412,373 |      |  | $ | 514,551  |  
|Europe                          |  |      | 374,984 |   |      |   | 235,017 |      |  |   | 196,000  |  
|Reinsurance cededNorth America |  |      | (90,882 | ) |      |   | (27,914 | )    |  |   | (106,535 | )
|Reinsurance cededEurope        |  |      | (63,692 | ) |      |   | (26,765 | )    |  |   | (9,882   | )
|                                |  |      |         |   |      |   |         |      |  |   |          |  
|                                |  | $    | 855,205 |   |      | $ | 592,711 |      |  | $ | 594,134  |  
|                                |  |      |         |   |      |   |         |      |  |   |          |  



Three customers
accounted for 14.8%, 14.8% and 11.4%, respectively, of the Companys gross premiums written during the year ended December 31, 2003. Three customers accounted for 20.7%, 17.2% and 14.2%, respectively, of the Companys gross premiums
written during the year ended December 31, 2002. Five customers accounted for 22.1%, 16.2%, 14.5%, 14.1% and 11.4%, respectively, of the Companys gross premiums written during the year ended December 31, 2001.



17. Quarterly financial results (unaudited)



|                                               |  |               |         |         |   |              |  |             |         |  |   |        
|---------------------------------------------- |  | ------------- | ------- | ------- | - | ------------ |  | ----------- | ------- |  | - | -------
|                                               |  | Quarter Ended
|2003                                           |  | March 31      |         | June 30 |   | September 30 |  | December 31
|Revenues                                       |  |               |         |         |   |              |  |             |         |  |   |        
|Gross premiums written                         |  | $             | 430,545 |         | $ | 165,767      |  | $           | 188,608 |  | $ | 224,859
|                                               |  |               |         |         |   |              |  |             |         |  |   |        
|Net premiums earned                            |  | $             | 143,728 |         | $ | 143,305      |  | $           | 178,746 |  | $ | 261,425
|Net interest income                            |  |               | 14,507  |         |   | 15,061       |  |             | 13,899  |  |   | 16,665 
|Net gain on alternative investments            |  |               | 21,802  |         |   | 45,212       |  |             | 28,148  |  |   | 28,874 
|Net realized gains on sale of fixed maturities |  |               | 2,490   |         |   | 509          |  |             | 11,548  |  |   | 4,712  
|Other income                                   |  |               | 2,002   |         |   | 2,212        |  |             | 1,122   |  |   | 5,407  
|                                               |  |               |         |         |   |              |  |             |         |  |   |        
|Total revenues                                 |  |               | 184,529 |         |   | 206,299      |  |             | 233,463 |  |   | 317,083
|                                               |  |               |         |         |   |              |  |             |         |  |   |        
|Losses and expenses                            |  |               |         |         |   |              |  |             |         |  |   |        
|Losses, benefits and experience refunds        |  |               | 114,463 |         |   | 114,371      |  |             | 139,655 |  |   | 223,785
|Acquisition costs                              |  |               | 38,737  |         |   | 35,690       |  |             | 36,696  |  |   | 38,411 
|Interest expense                               |  |               | 5,981   |         |   | 8,953        |  |             | 5,382   |  |   | 8,513  
|General and administrative expenses            |  |               | 8,196   |         |   | 10,785       |  |             | 10,896  |  |   | 9,968  
|                                               |  |               |         |         |   |              |  |             |         |  |   |        
|Total losses and expenses                      |  |               | 167,377 |         |   | 169,799      |  |             | 192,629 |  |   | 280,677
|                                               |  |               |         |         |   |              |  |             |         |  |   |        
|Income before minority interest                |  | $             | 17,152  |         | $ | 36,500       |  | $           | 40,834  |  | $ | 36,406 
|                                               |  |               |         |         |   |              |  |             |         |  |   |        
|Net income                                     |  | $             | 14,562  |         | $ | 30,849       |  | $           | 38,750  |  | $ | 36,406 
|                                               |  |               |         |         |   |              |  |             |         |  |   |        
|Basic earnings per share                       |  | $             | 0.38    |         | $ | 0.81         |  | $           | 0.91    |  | $ | 0.81   
|                                               |  |               |         |         |   |              |  |             |         |  |   |        
|Diluted earnings per share                     |  | $             | 0.38    |         | $ | 0.81         |  | $           | 0.89    |  | $ | 0.76   
|                                               |  |               |         |         |   |              |  |             |         |  |   |        



F-26



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##### Table of Contents

MAX RE CAPITAL LTD.



Notes to Consolidated Financial Statements(Continued)



December 31, 2003, 2002 and 2001

(Expressed in thousands of United States Dollars, except per share and share amounts)



|                                               |  |               |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|---------------------------------------------- |  | ------------- | ------- | - | ------- | - | ------- | ------------ |  | - | ----------- | - |  | - | ------- | -
|                                               |  | Quarter Ended |        
|2002                                           |  | March 31      |         |   | June 30 |   |         | September 30 |  |   | December 31 |  
|Revenues                                       |  |               |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|Gross premiums written                         |  | $             | 343,894 |   |         | $ | 121,538 |              |  | $ | 65,664      |   |  | $ | 116,294 |  
|                                               |  |               |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|Net premiums earned                            |  | $             | 85,473  |   |         | $ | 65,299  |              |  | $ | 96,874      |   |  | $ | 140,391 |  
|Net interest income                            |  |               | 12,415  |   |         |   | 13,389  |              |  |   | 13,772      |   |  |   | 24,777  |  
|Net gain on alternative investments            |  |               | 2,666   |   |         |   | 2,905   |              |  |   | 1,095       |   |  |   | 25,461  |  
|Net realized gains on sale of fixed maturities |  |               | 149     |   |         |   | 2,439   |              |  |   | 663         |   |  |   | 2,139   |  
|Other income                                   |  |               | 1,895   |   |         |   | 2,144   |              |  |   | 1,114       |   |  |   | 1,028   |  
|                                               |  |               |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|Total revenues                                 |  |               | 102,598 |   |         |   | 86,176  |              |  |   | 113,518     |   |  |   | 193,796 |  
|                                               |  |               |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|Losses and expenses                            |  |               |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|Losses, benefits and experience refunds        |  |               | 69,632  |   |         |   | 71,717  |              |  |   | 102,647     |   |  |   | 135,284 |  
|Acquisition costs                              |  |               | 24,191  |   |         |   | 14,818  |              |  |   | 22,743      |   |  |   | 35,986  |  
|Interest expense                               |  |               | (148    | ) |         |   | 911     |              |  |   | 315         |   |  |   | 3,755   |  
|General and administrative expenses            |  |               | 5,875   |   |         |   | 4,723   |              |  |   | 4,856       |   |  |   | 5,883   |  
|                                               |  |               |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|Total losses and expenses                      |  |               | 99,550  |   |         |   | 92,169  |              |  |   | 130,561     |   |  |   | 180,908 |  
|                                               |  |               |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|Income (loss) before minority interest         |  | $             | 3,048   |   |         | $ | (5,993  | )            |  | $ | (17,043     | ) |  | $ | 12,888  |  
|                                               |  |               |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|Net income (loss)                              |  | $             | 2,604   |   |         | $ | (5,003  | )            |  | $ | (14,338     | ) |  | $ | 10,983  |  
|                                               |  |               |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|Basic earnings (loss) per share                |  | $             | 0.07    |   |         | $ | (0.13   | )            |  | $ | (0.37       | ) |  | $ | 0.29    |  
|                                               |  |               |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|Diluted earnings (loss) per share              |  | $             | 0.06    |   |         | $ | (0.13   | )            |  | $ | (0.37       | ) |  | $ | 0.28    |  
|                                               |  |               |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|                                               |  |               |         |  
|2001                                           |  |               |         |   |         |   |         |              |  |   |             |  
|Revenues                                       |  |               |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|Gross premiums written                         |  | $             | 276,200 |   |         | $ | 152,508 |              |  | $ | 42,395      |   |  | $ | 239,448 |  
|                                               |  |               |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|Net premiums earned                            |  | $             | 55,230  |   |         | $ | 146,521 |              |  | $ | 55,539      |   |  | $ | 243,657 |  
|Net interest income                            |  |               | 8,773   |   |         |   | 9,981   |              |  |   | 13,244      |   |  |   | 11,872  |  
|Net gain on alternative investments            |  |               | 14,791  |   |         |   | 5,326   |              |  |   | (4,734      | ) |  |   | 14,401  |  
|Net realized gains on sale of fixed maturities |  |               | 767     |   |         |   | 19      |              |  |   | 183         |   |  |   | 1,543   |  
|Other income                                   |  |               | 45      |   |         |   | 1,397   |              |  |   | 1,056       |   |  |   | 1,359   |  
|                                               |  |               |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|Total revenues                                 |  |               | 79,606  |   |         |   | 163,244 |              |  |   | 65,288      |   |  |   | 272,832 |  
|                                               |  |               |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|Losses and expenses                            |  |               |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|Losses, benefits and experience refunds        |  |               | 60,668  |   |         |   | 158,915 |              |  |   | 59,626      |   |  |   | 245,156 |  
|Acquisition costs                              |  |               | 7,192   |   |         |   | 5,257   |              |  |   | 8,813       |   |  |   | 9,598   |  
|Interest expense                               |  |               |        |   |         |   |        |              |  |   | 2,846       |   |  |   | (767    | )
|General and administrative expenses            |  |               | 5,074   |   |         |   | 4,537   |              |  |   | 5,009       |   |  |   | 6,422   |  
|                                               |  |               |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|Total losses and expenses                      |  |               | 72,934  |   |         |   | 168,709 |              |  |   | 76,294      |   |  |   | 260,409 |  
|                                               |  |               |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|Income (loss) before minority interest         |  | $             | 6,672   |   |         | $ | (5,465  | )            |  | $ | (11,006     | ) |  | $ | 12,423  |  
|                                               |  |               |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|Net income (loss)                              |  | $             | 5,192   |   |         | $ | (4,119  | )            |  | $ | (8,691      | ) |  | $ | 10,149  |  
|                                               |  |               |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|Basic earnings (loss) per share                |  | $             | 0.19    |   |         | $ | (0.15   | )            |  | $ | (0.25       | ) |  | $ | 0.26    |  
|                                               |  |               |         |   |         |   |         |              |  |   |             |   |  |   |         |  
|Diluted earnings (loss) per share              |  | $             | 0.19    |   |         | $ | (0.15   | )            |  | $ | (0.26       | ) |  | $ | 0.26    |  
|                                               |  |               |         |   |         |   |         |              |  |   |             |   |  |   |         |  



F-27