UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION Washington, D.C.20549

FORM 10-Q/AAmendment No. 1

|        |                                                                                       |
|--------|---------------------------------------------------------------------------------------|
|   | QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 |

For the quarterly period ended March 31, 2005

|        |                                                                                       |
|--------|---------------------------------------------------------------------------------------|
|   | TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF1934 |

For the transition period from                  to                  

Commission file number 000-50885

QUANTA CAPITAL HOLDINGSLTD.(Exact name of registrant as specified in itscharter)

|                                                              |  |                                     |  |  |  |  |
|--------------------------------------------------------------|--|-------------------------------------|--|--|--|--|
| Bermuda                                                      |  | N/A                                 |
| (Stateor other jurisdiction of incorporation ororganization) |  | (I.R.S. Employer IdentificationNo.) |
|                                                              |

1 Victoria Street, FourthFloorHamilton HM11Bermuda(Address of principal executiveoffices and zipcode)

441-294-6350(Registrant's telephonenumber, including area code)

Indicate by check markwhether the registrant (1) has filed all reports required to be filedby Section  13 or 15(d)  of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period thatthe registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90  days. Yes No 

Indicate by check mark whether theregistrant is an accelerated filer (as defined in Exchange Act Rule12b-2). Yes  No 

As of May 5, 2005 therewere 56,798,218 common shares, $0.01 par value per share,outstanding.

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EXPLANATORYNOTE

This Amendment No. 1 on Form 10-Q/A("Form 10-Q/A") amends the Company'sQuarterly Report on Form 10-Q as of and for the three months endedMarch 31, 2005, as filed with the Securities and Exchange Commission onMay 5, 2005 (the "Original Filing"), and isbeing filed to reflect the restatement of the Company's condensedconsolidated financial statements for that period due to a mathematicalerror in the calculation of policy acquisition expenses. Acquisitionexpenses for the three months ended March 31, 2005 were approximately$20.4 million as compared to previously reported acquisition expensesof approximately $18.4 million. Premiums receivable for the threemonths ended March 31, 2005 were reduced to $185.6 million frompreviously reported premiums receivable of $187.6 million. Therestatement of the Company's results for the first quarter of2005 resulted in the recognition of a net loss of approximately $0.6million as compared to previously reported net income of approximately$1.4 million. See Note 2 in the accompanying condensed consolidatedfinancial statements for further discussion of this matter.

This Form 10-Q/A amends and restates Items 1, 2, 3 and 4 ofPart I and Item 6 of Part II of the Original Filing to take intoaccount the effects of the restatement. No other information includedin the Original Filing is amended hereby.

Except for theforegoing amended information, this Form 10-Q/A continues to describeconditions as of the date of the Original Filing, and this amendmentdoes not reflect events subsequent to May 5, 2005, the date of theOriginal Filing. Additionally, as a result of these amendments, thecertifications pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350,filed as exhibits to the Original Filing, have been re-executed andrefiled as of the date of this Form 10-Q/A.

2

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QUANTA CAPITAL HOLDINGS LTD.

INDEX TO FORM 10-Q/A

|         |  |                                                                                                                                           |  |         |        |        |  |  |  |  |
|---------|--|-------------------------------------------------------------------------------------------------------------------------------------------|--|---------|--------|--------|--|--|--|--|
|    |  |                                                                                                                                      |  | PageNo. |
| PARTI.  |  | FINANCIALINFORMATION                                                                                                                      |  |    |   |   |
| Item 1  |  | FinancialStatements                                                                                                                       |  |    |   |   |
|    |  | Condensed ConsolidatedBalance Sheets at March 31, 2005 (unaudited) and December 31,2004                                                   |  |    | 4      |   |
|    |  | Unaudited CondensedConsolidated Statements of Operations and Comprehensive (Loss)Income for the three months ended March 31, 2005 and2004 |  |    | 5      |   |
|    |  | Unaudited CondensedConsolidated Statements of Changes in Shareholders' Equityfor the three months ended March 31, 2005 and2004            |  |    | 6      |   |
|    |  | Unaudited CondensedConsolidated Statements of Cash Flows for the three months endedMarch 31, 2005 and 2004                                |  |    | 7      |   |
|    |  | Notes tothe Unaudited Condensed Consolidated FinancialStatements                                                                          |  |    | 8      |   |
| Item2   |  | Management's Discussion and Analysis of FinancialCondition and Results ofOperations                                                       |  |    | 22     |   |
| Item 3  |  | Quantitativeand Qualitative Disclosures about MarketRisk                                                                                  |  |    | 45     |   |
| Item 4  |  | Controls andProcedures                                                                                                                    |  |    | 48     |   |
| PARTII. |  | OTHER INFORMATION                                                                                                                         |  |    |   |   |
| Item1   |  | Legal Proceedings                                                                                                                         |  |    | 49     |   |
| Item2   |  | Unregistered Sales of Equity Securities and Use ofProceeds                                                                                |  |    | 49     |   |
| Item6   |  | Exhibits                                                                                                                                  |  |    | 49     |   |
|         |

3

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PART 1. FINANCIALINFORMATION

ITEM 1. FINANCIAL STATEMENTS

QUANTA CAPITAL HOLDINGS LTD. CONDENSED CONSOLIDATEDBALANCE SHEETS(Expressed in thousands of U.S. dollars exceptfor share and per shareamounts)

|                                                                                                                                                                |  |              |           |                  |  |        |         |         |  |  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--------------|-----------|------------------|--|--------|---------|---------|--|--|
|                                                                                                                                                           |  | March31,2005 |           | December 31,2004 |
|                                                                                                                                                           |  | Restated     |           |             |
|                                                                                                                                                           |  | (unaudited)  |           |             |
| **Assets**                                                                                                                                                     |  |         |      |             |  |
| Investmentsat fair value (amortized cost: March 31, 2005, $657,881; December31, 2004,$600,161)                                                                 |  |         |      |             |  |   |    |    |
| Available forsaleinvestments                                                                                                                                   |  | $            | 611,019   |             |  | $      | 559,430 |    |
| Tradinginvestments related to depositliabilities                                                                                                               |  |         | 39,633    |             |  |   | 40,492  |    |
| Totalinvestments at fairvalue                                                                                                                                  |  |         | 650,652   |             |  |   | 599,922 |    |
| Cash and cashequivalents                                                                                                                                       |  |         | 52,985    |             |  |   | 32,775  |    |
| Restrictedcash and cashequivalents                                                                                                                             |  |         | 53,441    |             |  |   | 42,482  |    |
| Accruedinvestmentincome                                                                                                                                        |  |         | 4,513     |             |  |   | 4,719   |    |
| Premiumsreceivable                                                                                                                                             |  |         | 185,577   |             |  |   | 146,784 |    |
| Lossesand loss adjustment expensesrecoverable                                                                                                                  |  |         | 24,874    |             |  |   | 13,519  |    |
| Otheraccountsreceivable                                                                                                                                        |  |         | 9,424     |             |  |   | 11,575  |    |
| Deferredacquisition costs,net                                                                                                                                  |  |         | 46,285    |             |  |   | 41,496  |    |
| Deferredreinsurancepremiums                                                                                                                                    |  |         | 57,445    |             |  |   | 47,416  |    |
| Property andequipment, net of accumulated depreciation of $2,282(December 31,2004: $1,625)                                                                     |  |         | 5,391     |             |  |   | 4,875   |    |
| Goodwilland other intangibleassets                                                                                                                             |  |         | 20,432    |             |  |   | 20,617  |    |
| Otherassets                                                                                                                                                    |  |         | 25,402    |             |  |   | 14,553  |    |
| Totalassets                                                                                                                                                    |  | $            | 1,136,421 |             |  | $      | 980,733 |    |
| **Liabilities**                                                                                                                                                |  |         |      |             |  |   |    |    |
| Reservefor losses and lossexpenses                                                                                                                             |  | $            | 215,403   |             |  | $      | 159,794 |    |
| Unearnedpremiums                                                                                                                                               |  |         | 309,356   |             |  |   | 247,936 |    |
| Environmentalliabilitiesassumed                                                                                                                                |  |         | 6,406     |             |  |   | 6,518   |    |
| Reinsurancebalancespayable                                                                                                                                     |  |         | 26,540    |             |  |   | 24,929  |    |
| Accountspayable and accruedexpenses                                                                                                                            |  |         | 14,986    |             |  |   | 17,360  |    |
| Net payablefor investmentspurchased                                                                                                                            |  |         | 32,128    |             |  |   | 3,749   |    |
| Depositliabilities                                                                                                                                             |  |         | 42,676    |             |  |   | 43,365  |    |
| Deferredincome and otherliabilities                                                                                                                            |  |         | 4,089     |             |  |   | 4,935   |    |
| Juniorsubordinateddebentures                                                                                                                                   |  |         | 61,857    |             |  |   | 41,238  |    |
| Totalliabilities                                                                                                                                               |  | $            | 713,441   |             |  | $      | 549,824 |    |
| Commitmentsand contingencies (Note8)                                                                                                                           |  |         |      |             |  |   |    |    |
| **Shareholders'equity**                                                                                                                                        |  |         |      |             |  |   |    |    |
| Preferred shares($0.01 par value; 25,000,000 shares authorized; none issued andoutstanding at     March 31, 2005 and December 31, 2004)    |  | $            | —   |             |  | $      | — |    |
| Common shares($0.01 par value; 200,000,000 shares authorized; 56,798,218issued and     outstanding at March 31, 2005 and December 31,2004) |  |         | 568       |             |  |   | 568     |    |
| Additional paid-incapital                                                                                                                                      |  |         | 523,771   |             |  |   | 523,771 |    |
| Accumulateddeficit                                                                                                                                             |  |         | (93,702   | )           |  |   | (93,058 | )  |
| Accumulatedother comprehensiveloss                                                                                                                             |  |         | (7,657    | )           |  |   | (372    | )  |
| Totalshareholders'equity                                                                                                                                       |  | $            | 422,980   |             |  | $      | 430,909 |    |
| **Totalliabilities and shareholders'equity**                                                                                                                   |  | $            | 1,136,421 |             |  | $      | 980,733 |    |
|                                                                                                                                                                |

Theaccompanying notes are an integral part of these unaudited condensedconsolidated financial statements

4

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QUANTA CAPITAL HOLDINGS LTD.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ANDCOMPREHENSIVE LOSS(Expressed in thousands of U.S. dollarsexcept for share and per shareamounts)

|                                                                                                       |  |                                          |            |                                         |  |        |            |         |  |  |
|-------------------------------------------------------------------------------------------------------|--|------------------------------------------|------------|-----------------------------------------|--|--------|------------|---------|--|--|
|                                                                                                  |  | Forthe three months ended March 31, 2005 |            | For thethree months ended March 31,2004 |
|                                                                                                  |  | Restated                                 |            |                                    |
| **Revenues**                                                                                          |  |                                     |       |                                    |  |   |       |    |
| Grosspremiumswritten                                                                                  |  | $                                        | 172,726    |                                    |  | $      | 118,729    |    |
| Netpremiumswritten                                                                                    |  | $                                        | 142,877    |                                    |  | $      | 112,455    |    |
| Change innet unearnedpremiums                                                                         |  |                                     | (51,391    | )                                  |  |   | (85,220    | )  |
| Netpremiumsearned                                                                                     |  |                                     | 91,486     |                                    |  |   | 27,235     |    |
| Technicalservices revenues                                                                            |  |                                     | 7,150      |                                    |  |   | 6,507      |    |
| Netinvestment income                                                                                  |  |                                     | 5,225      |                                    |  |   | 3,235      |    |
| Netrealized (losses) gains oninvestments                                                              |  |                                     | (483       | )                                  |  |   | 1,195      |    |
| Net foreignexchange (losses)gains                                                                     |  |                                     | (112       | )                                  |  |   | 224        |    |
| Otherincome                                                                                           |  |                                     | 1,686      |                                    |  |   | 191        |    |
| Totalrevenues                                                                                         |  |                                     | 104,952    |                                    |  |   | 38,587     |    |
| **Expenses**                                                                                          |  |                                     |       |                                    |  |   |       |    |
| Netlosses and lossexpenses                                                                            |  |                                     | 57,496     |                                    |  |   | 15,895     |    |
| Acquisitionexpenses                                                                                   |  |                                     | 20,477     |                                    |  |   | 6,617      |    |
| Directtechnical servicescosts                                                                         |  |                                     | 4,861      |                                    |  |   | 4,384      |    |
| General andadministrativeexpenses                                                                     |  |                                     | 20,871     |                                    |  |   | 15,829     |    |
| Interestexpense                                                                                       |  |                                     | 826        |                                    |  |   | —    |    |
| Depreciation offixed assets and amortization of intangibleassets                                      |  |                                     | 842        |                                    |  |   | 387        |    |
| Totalexpenses                                                                                         |  |                                     | 105,373    |                                    |  |   | 43,112     |    |
| Lossbefore incometaxes                                                                                |  |                                     | (421       | )                                  |  |   | (4,525     | )  |
| Incometaxexpense                                                                                      |  |                                     | 223        |                                    |  |   | —    |    |
| **Netloss**                                                                                           |  |                                     | (644       | )                                  |  |   | (4,525     | )  |
| **Othercomprehensive (loss)income**                                                                   |  |                                     |       |                                    |  |   |       |    |
| Net unrealizedinvestment (losses) gains arising during the period, net of incometaxes                 |  |                                     | (7,763     | )                                  |  |   | 3,962      |    |
| Foreign currencytranslationadjustments                                                                |  |                                     | (5         | )                                  |  |   | (13        | )  |
| Reclassificationof net realized losses (gains) on investments included in net loss, netof incometaxes |  |                                     | 483        |                                    |  |   | (1,195     | )  |
| Othercomprehensive (loss)income                                                                       |  |                                     | (7,285     | )                                  |  |   | 2,754      |    |
| **Comprehensiveloss**                                                                                 |  | $                                        | (7,929     | )                                  |  | $      | (1,771     | )  |
| Weightedaverage common share and common share equivalents–                                      |  |
| basic                                                                                                 |  |                                     | 56,798,218 |                                    |  |   | 56,798,218 |    |
| diluted                                                                                               |  |                                     | 56,798,218 |                                    |  |   | 56,798,218 |    |
| Basicloss pershare                                                                                    |  | $                                        | (0.01      | )                                  |  | $      | (0.08      | )  |
| Diluted losspershare                                                                                  |  | $                                        | (0.01      | )                                  |  | $      | (0.08      | )  |
|                                                                                                       |

Theaccompanying notes are an integral part of these unaudited condensedconsolidated financial statements

5

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QUANTA CAPITAL HOLDINGS LTD.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES INSHAREHOLDERS' EQUITY(Expressed in thousands of U.S.dollars except for share and per shareamounts)

|                                                                  |  |                                         |         |                                         |  |        |         |         |  |  |
|------------------------------------------------------------------|--|-----------------------------------------|---------|-----------------------------------------|--|--------|---------|---------|--|--|
|                                                             |  | Forthe three months endedMarch 31, 2005 |         | For thethree months ended March 31,2004 |
|                                                             |  | Restated                                |         |                                    |
| **Sharecapital – preferred shares of par value $0.01each** |  | $                                       | — |                                    |  | $      | — |    |
| **Sharecapital – common shares of par value $0.01each**    |  |                                    |    |                                    |  |   |    |    |
| Balance at beginning ofperiod                                    |  |                                    | 568     |                                    |  |   | 568     |    |
| Issued duringperiod                                              |  |                                    | — |                                    |  |   | — |    |
| Balanceat end ofperiod                                           |  |                                    | 568     |                                    |  |   | 568     |    |
| **Additionalpaid-in capital**                                    |  |                                    |    |                                    |  |   |    |    |
| Balance atbeginning ofperiod                                     |  |                                    | 523,771 |                                    |  |   | 524,235 |    |
| Net offeringcosts                                                |  |                                    | — |                                    |  |   | (32     | )  |
| Balanceat end ofperiod                                           |  |                                    | 523,771 |                                    |  |   | 524,203 |    |
| **Accumulateddeficit**                                           |  |                                    |    |                                    |  |   |    |    |
| Balance at beginningof period                                    |  |                                    | (93,058 | )                                  |  |   | (38,477 | )  |
| Net lossforperiod                                                |  |                                    | (644    | )                                  |  |   | (4,525  | )  |
| Balanceat end ofperiod                                           |  |                                    | (93,702 | )                                  |  |   | (43,002 | )  |
| **Accumulatedother comprehensive (loss)income**                  |  |                                    |    |                                    |  |   |    |    |
| Balance at beginning ofperiod                                    |  |                                    | (372    | )                                  |  |   | 1,157   |    |
| Net change inunrealized losses on investments, net oftax         |  |                                    | (7,280  | )                                  |  |   | 2,767   |    |
| Foreign currencytranslationadjustments                           |  |                                    | (5      | )                                  |  |   | (13     | )  |
| Balanceat end ofperiod                                           |  |                                    | (7,657  | )                                  |  |   | 3,911   |    |
| **Totalshareholders'equity**                                     |  | $                                       | 422,980 |                                    |  | $      | 485,680 |    |
|                                                                  |

Theaccompanying notes are an integral part of these unaudited condensedconsolidated financial statements

6

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QUANTA CAPITAL HOLDINGS LTD.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(Expressed in thousands of U.S.dollars)

|                                                                                            |  |                                          |          |                                         |  |        |          |         |  |  |
|--------------------------------------------------------------------------------------------|--|------------------------------------------|----------|-----------------------------------------|--|--------|----------|---------|--|--|
|                                                                                       |  | Forthe three months ended March 31, 2005 |          | For thethree months ended March 31,2004 |
|                                                                                       |  | Restated                                 |          |                                    |
| **Cashflows from operatingactivities**                                                     |  |                                     |     |                                    |  |   |     |    |
| Netloss                                                                                    |  | $                                        | (644     | )                                  |  | $      | (4,525   | )  |
| **Adjustmentsto reconcile net loss to net cash provided by (used in) operatingactivities** |  |                                     |     |                                    |  |
| Depreciationof property andequipment                                                       |  |                                     | 657      |                                    |  |   | 202      |    |
| Amortization ofintangibleassets                                                            |  |                                     | 185      |                                    |  |   | 185      |    |
| Amortization ofdiscounts on investments                                                    |  |                                     | 375      |                                    |  |   | 924      |    |
| Netrealized losses (gains) oninvestments                                                   |  |                                     | 483      |                                    |  |   | (1,195   | )  |
| Net changein fair value of derivativeinstruments                                           |  |                                     | (470     | )                                  |  |   | 50       |    |
| Changesin assets andliabilities:                                                           |  |                                     |     |                                    |  |   |     |    |
| Restricted cash andcashequivalents                                                         |  |                                     | (10,959  | )                                  |  |   | (13,043  | )  |
| Accruedinvestmentincome                                                                    |  |                                     | 206      |                                    |  |   | (1,189   | )  |
| Premiumsreceivable                                                                         |  |                                     | (38,793  | )                                  |  |   | (72,012  | )  |
| Lossesand loss adjustment expensesrecoverable                                              |  |                                     | (11,355  | )                                  |  |   | (153     | )  |
| Deferredacquisitioncosts                                                                   |  |                                     | (4,789   | )                                  |  |   | (16,862  | )  |
| Deferredreinsurancepremiums                                                                |  |                                     | (10,029  | )                                  |  |   | (5,776   | )  |
| Otheraccountsreceivable                                                                    |  |                                     | 2,151    |                                    |  |   | 1,341    |    |
| Otherassets                                                                                |  |                                     | (9,820   | )                                  |  |   | 569      |    |
| Reserve forlosses and loss adjustmentexpenses                                              |  |                                     | 55,609   |                                    |  |   | 16,048   |    |
| Unearnedpremiums                                                                           |  |                                     | 61,420   |                                    |  |   | 90,942   |    |
| Environmentalliabilitiesassumed                                                            |  |                                     | (112     | )                                  |  |   | (150     | )  |
| Reinsurancebalancespayable                                                                 |  |                                     | 1,611    |                                    |  |   | 4,943    |    |
| Accounts payableand accruedexpenses                                                        |  |                                     | (2,374   | )                                  |  |   | (7,740   | )  |
| Deferredincome and otherliabilities                                                        |  |                                     | (846     | )                                  |  |   | 2,383    |    |
| Depositliabilities                                                                         |  |                                     | (689     | )                                  |  |   | —  |    |
| Netcash provided by (used in) operatingactivities                                          |  |                                     | 31,817   |                                    |  |   | (5,058   | )  |
| **Cashflows used in investingactivities**                                                  |  |                                     |     |                                    |  |   |     |    |
| Proceeds from saleof fixed maturities and short-terminvestments                            |  |                                     | 288,978  |                                    |  |   | 281,584  |    |
| Purchasesof fixed maturities and short-terminvestments                                     |  |                                     | (319,003 | )                                  |  |   | (293,619 | )  |
| Purchasesof property andequipment                                                          |  |                                     | (1,173   | )                                  |  |   | (829     | )  |
| Netcash used in investingactivities                                                        |  |                                     | (31,198  | )                                  |  |   | (12,864  | )  |
| **Cashflows used in financingactivities**                                                  |  |                                     |     |                                    |  |   |     |    |
| Net offeringcosts                                                                          |  |                                     | —  |                                    |  |   | (32      | )  |
| Proceeds fromjunior subordinated debentures, net of issuancecosts                          |  |                                     | 19,591   |                                    |  |   | —  |    |
| Netcash provided by (used in) financingactivities                                          |  |                                     | 19,591   |                                    |  |   | (32      | )  |
| Increase(decrease) in cash and cashequivalents                                             |  |                                     | 20,210   |                                    |  |   | (17,954  | )  |
| Cashand cash equivalents at beginning ofperiod                                             |  |                                     | 32,775   |                                    |  |   | 36,694   |    |
| Cashand cash equivalents at end ofperiod                                                   |  | $                                        | 52,985   |                                    |  | $      | 18,740   |    |
|                                                                                            |

Theaccompanying notes are an integral part of these unaudited condensedconsolidated financialstatements

7

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QUANTACAPITAL HOLDINGS LTD. NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; expressedin thousands of US dollars except for share and per share amounts,or as otherwisestated)

|          |                                                  |
|----------|--------------------------------------------------|
| 1.  | Descriptionof business and basis of presentation |

Quanta Capital HoldingsLtd. ("Quanta Holdings"), incorporated on May23, 2003, is a holding company organized under the laws of Bermuda.Quanta Holdings and its subsidiaries, collectively referred to as the"Company," were formed to provide specialtyinsurance, reinsurance, risk assessment and risk technical services andproducts on a global basis. Quanta Holdings conducts its insurance andreinsurance operations principally through subsidiaries operating inBermuda, the United States of America and Europe.

On February22, 2005 the Company announced the opening of a London insurance branchfollowing the receipt, by Quanta Europe, of approval to establish thisbranch office. The branch office underwrites specialty insurance linesincluding environmental liability, professional liability, financialinstitutions and trade and political risk.

Interim financialinformation

These unaudited condensed consolidated financialstatements include the accounts of the Company and have been preparedin conformity with generally accepted accounting principles in theUnited States of America ("GAAP") for interimfinancial information and with the instructions for Form 10-Q andArticle 10 of Regulation S-X. Accordingly, certain information andfootnote disclosures normally included in financial statements preparedin accordance with GAAP have been condensed, or omitted, pursuant tothe rules and regulations of the Securities and Exchange Commission(the "SEC"). In the opinion of management,the condensed consolidated financial statements include all adjustmentsnecessary (consisting of only normal and recurring accruals) for a fairstatement of the financial position and results of operations as at theend of and for the interim periods presented. The results of operationsfor any interim period are not necessarily indicative of the resultsthat may be expected for any other interim period or for a full year.All significant inter-company balances and transactions have beeneliminated on consolidation.

These unaudited condensedconsolidated financial statements should be read in conjunction withthe Company's audited consolidated financial statements for theyear ended December 31, 2004, included in the Form 10-K filed by theCompany with the SEC on March 30, 2005.

The preparation offinancial statements in conformity with GAAP requires management tomake estimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets andliabilities reported at the date of the unaudited condensedconsolidated financial statements and the reported amounts of revenuesand expenses during the reporting period. While management believes theamounts included in the unaudited condensed consolidated financialstatements reflect management's best estimates and assumptions,the actual results could ultimately be materially different from theamounts currently provided for in the unaudited condensed consolidatedfinancial statements. The Company's principal estimates andassumptions relate to the development and determination of thefollowing:

|              |                                                  |
|--------------|--------------------------------------------------|
| •  | reserves for losses and lossadjustment expenses; |

|              |                                                                      |
|--------------|----------------------------------------------------------------------|
| •  | certain estimatedpremiums written, unearned premiums andreceivables; |

|              |                                  |
|--------------|----------------------------------|
| •  | reinsurance balancesrecoverable; |

|              |                                                 |
|--------------|-------------------------------------------------|
| •  | the valuation of goodwilland intangible assets; |

|              |                                   |
|--------------|-----------------------------------|
| •  | environmentalliabilities assumed; |

|              |                       |
|--------------|-----------------------|
| •  | investmentvaluations; |

8

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QUANTACAPITAL HOLDINGS LTD. NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; expressedin thousands of US dollars except for share and per share amounts,or as otherwisestated)

|              |                                      |
|--------------|--------------------------------------|
| •  | annual incentiveplan provisions; and |

|              |                                       |
|--------------|---------------------------------------|
| •  | deferred incometaxes and liabilities. |

During the three months ended September30, 2004, the Company renamed its consulting segment as the technicalservices segment. Accordingly, the consulting revenues and directconsulting costs captions in the income statement, previously includedin the Company's Form 10-Q for the three months ended March 31,2004, have been renamed technical service revenues and direct technicalservice costs.

|          |             |
|----------|-------------|
| 2.  | Restatement |

TheCompany's previously issued Condensed Consolidated FinancialStatements as of and for the three months ended March 31, 2005, asfiled with the Securities and Exchange Commission on May 5, 2005, havebeen restated due to a mathematical error in the calculation ofacquisition expenses. The Company discovered the mathematical errorduring its routine monthly closing process for its books at the Aprilmonth-end. The Company has determined that this mathematical error onlyaffected its financial statements for the quarter ended March 31, 2005and did not affect any of its financial statements for prior periods.The restatement impacts the Company's specialty reinsurancesegment only.

The following tables present a summary of theeffects of the restatement adjustments on the Company's condensedconsolidated balance sheet as of March 31, 2005 and condensedconsolidated statement of operations for the three months ended March31, 2005. The restatement adjustments did not have any impact on netcash provided by operating activities for the three months endedMarch  31, 2005.

9

----

QUANTACAPITAL HOLDINGS LTD. NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; expressedin thousands of US dollars except for share and per share amounts,or as otherwisestated)

Unaudited Condensed ConsolidatedStatement ofOperations

|                                                                     |  |                       |            |             |  |            |         |         |  |        |            |         |  |  |
|---------------------------------------------------------------------|--|-----------------------|------------|-------------|--|------------|---------|---------|--|--------|------------|---------|--|--|
|                                                                |  | Aspreviously reported |            | Adjustments |  | Asrestated |
| **For the three months endedMarch 31,2005**                         |  |                  |       |        |  |       |    |    |  |   |       |    |
|                                                                |  |                  |       |        |  |       |    |    |  |   |       |    |
| Grosspremiumswritten                                                |  | $                     | 172,726    |        |  | $          | — |    |  | $      | 172,726    |    |
| Netpremiumswritten                                                  |  |                  | 142,877    |        |  |       | — |    |  |   | 142,877    |    |
| Netpremiumsearned                                                   |  |                  | 91,486     |        |  |       | — |    |  |   | 91,486     |    |
| Technicalservicesrevenues                                           |  |                  | 7,150      |        |  |       | — |    |  |   | 7,150      |    |
| Netinvestmentincome                                                 |  |                  | 5,225      |        |  |       | — |    |  |   | 5,225      |    |
| Netrealized losses oninvestments                                    |  |                  | (483       | )      |  |       | — |    |  |   | (483       | )  |
| Netforeign exchangelosses                                           |  |                  | (112       | )      |  |       | — |    |  |   | (112       | )  |
| Otherincome                                                         |  |                  | 1,686      |        |  |       | — |    |  |   | 1,686      |    |
| Totalrevenues                                                       |  |                  | 104,952    |        |  |       | — |    |  |   | 104,952    |    |
| Netlosses and loss expensesincurred                                 |  |                  | 57,496     |        |  |       | — |    |  |   | 57,496     |    |
| Acquisitionexpenses                                                 |  |                  | 18,445     |        |  |       | 2,032   |    |  |   | 20,477     |    |
| Directtechnical servicescosts                                       |  |                  | 4,861      |        |  |       | — |    |  |   | 4,861      |    |
| Generaland administrativeexpenses                                   |  |                  | 20,871     |        |  |       | — |    |  |   | 20,871     |    |
| Interestexpense                                                     |  |                  | 826        |        |  |       | — |    |  |   | 826        |    |
| Depreciationof fixed assets and amortization of intangibleassets    |  |                  | 842        |        |  |       | — |    |  |   | 842        |    |
| Totalexpenses                                                       |  |                  | 103,341    |        |  |       | 2,032   |    |  |   | 105,373    |    |
| Income(loss) before incometaxes                                     |  |                  | 1,611      |        |  |       | (2,032  | )  |  |   | (421       | )  |
| Incometaxexpense                                                    |  |                  | 223        |        |  |       | --      |    |  |   | 223        |    |
| Netincome(loss)                                                     |  | $                     | 1,388      |        |  | $          | (2,032  | )  |  | $      | (644       | )  |
| Weightedaverage number of common shares and common shareequivalents |  |
| –basic                                                        |  |                  | 56,798,218 |        |  |       | — |    |  |   | 56,798,218 |    |
| –diluted                                                      |  |                  | 56,798,916 |        |  |       | (698    | )  |  |   | 56,798,218 |    |
| Basicincome (loss) pershare                                         |  | $                     | 0.02       |        |  | $          | (0.03   | )  |  | $      | (0.01      | )  |
| Dilutedincome (loss) pershare                                       |  | $                     | 0.02       |        |  | $          | (0.03   | )  |  | $      | (0.01      | )  |
|                                                                     |

10

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QUANTACAPITAL HOLDINGS LTD. NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; expressedin thousands of US dollars except for share and per share amounts,or as otherwisestated)

Unaudited Condensed Consolidated BalanceSheet

|                                                  |  |                       |           |             |  |            |         |         |  |        |           |         |  |  |
|--------------------------------------------------|--|-----------------------|-----------|-------------|--|------------|---------|---------|--|--------|-----------|---------|--|--|
|                                             |  | Aspreviously reported |           | Adjustments |  | Asrestated |
| **As of March 31,2005**                          |  |                  |      |        |  |       |    |    |  |   |      |    |
| **Assets**                                       |  |                  |      |        |  |       |    |    |  |   |      |    |
| Investmentsat fair marketvalue                   |  |                  |      |        |  |       |    |    |  |   |      |    |
| Available forsaleinvestments                     |  | $                     | 611,019   |        |  |       | — |    |  | $      | 611,019   |    |
| Tradinginvestments related to depositliabilities |  |                  | 39,633    |        |  |       | — |    |  |   | 39,633    |    |
|                                             |  |                  | 650,652   |        |  |       | — |    |  |   | 650,652   |    |
| Cashand cashequivalents                          |  |                  | 52,985    |        |  |       | — |    |  |   | 52,985    |    |
| Restrictedcash and cashequivalents               |  |                  | 53,441    |        |  |       | — |    |  |   | 53,441    |    |
| Accruedinvestmentincome                          |  |                  | 4,513     |        |  |       | — |    |  |   | 4,513     |    |
| Premiumsreceivable                               |  |                  | 187,609   |        |  |       | (2,032  | )  |  |   | 185,577   |    |
| Lossesand loss adjustment expensesrecoverable    |  |                  | 24,874    |        |  |       | — |    |  |   | 24,874    |    |
| Otheraccountsreceivable                          |  |                  | 9,424     |        |  |       | — |    |  |   | 9,424     |    |
| Deferredacquisitioncosts                         |  |                  | 46,285    |        |  |       | — |    |  |   | 46,285    |    |
| Deferredreinsurancepremiums                      |  |                  | 57,445    |        |  |       | — |    |  |   | 57,445    |    |
| Propertyand equipment,net                        |  |                  | 5,391     |        |  |       | — |    |  |   | 5,391     |    |
| Goodwilland other intangibleassets               |  |                  | 20,432    |        |  |       | — |    |  |   | 20,432    |    |
| Otherassets                                      |  |                  | 25,402    |        |  |       | — |    |  |   | 25,402    |    |
| Totalassets                                      |  | $                     | 1,138,453 |        |  | $          | (2,032  | )  |  | $      | 1,136,421 |    |
| **Liabilities**                                  |  |                  |      |        |  |       |    |    |  |   |      |    |
| Reservefor losses and lossexpenses               |  | $                     | 215,403   |        |  |       | — |    |  | $      | 215,403   |    |
| Unearnedpremiums                                 |  |                  | 309,356   |        |  |       | — |    |  |   | 309,356   |    |
| Environmentalliabilitiesassumed                  |  |                  | 6,406     |        |  |       | — |    |  |   | 6,406     |    |
| Reinsurancebalancespayable                       |  |                  | 26,540    |        |  |       | — |    |  |   | 26,540    |    |
| Accountspayable and accruedexpenses              |  |                  | 14,986    |        |  |       | — |    |  |   | 14,986    |    |
| Netpayable for investmentspurchased              |  |                  | 32,128    |        |  |       | — |    |  |   | 32,128    |    |
| Depositliabilities                               |  |                  | 42,676    |        |  |       | — |    |  |   | 42,676    |    |
| Deferredincome and otherliabilities              |  |                  | 4,089     |        |  |       | — |    |  |   | 4,089     |    |
| Juniorsubordinateddebentures                     |  |                  | 61,857    |        |  |       | — |    |  |   | 61,857    |    |
| Totalliabilities                                 |  | $                     | 713,441   |        |  | $          | — |    |  | $      | 713,441   |    |
| **Shareholders'equity**                          |  |                  |      |        |  |       |    |    |  |   |      |    |
| Commonshares                                     |  |                  | 568       |        |  |       | — |    |  |   | 568       |    |
| Additionalpaid-incapital                         |  |                  | 523,771   |        |  |       | — |    |  |   | 523,771   |    |
| Accumulateddeficit                               |  |                  | (91,670   | )      |  |       | (2,032  | )  |  |   | (93,702   | )  |
| Accumulatedother comprehensiveloss               |  |                  | (7,657    | )      |  |       | — |    |  |   | (7,657    | )  |
| Totalshareholders'equity                         |  | $                     | 425,012   |        |  | $          | (2,032  | )  |  | $      | 422,980   |    |
| Totalliabilities and shareholders'equity         |  | $                     | 1,138,453 |        |  | $          | (2,032  | )  |  | $      | 1,136,421 |    |
|                                                  |

11

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QUANTACAPITAL HOLDINGS LTD. NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; expressedin thousands of US dollars except for share and per share amounts,or as otherwisestated)

|          |                                |
|----------|--------------------------------|
| 3.  | Significantaccounting policies |

A detailed discussion and analysis of theCompany's significant accounting policies is provided in thenotes to the Company's audited consolidated financial statementsas of and for the year ended December 31, 2004 included in its Form10-K.

Non-TraditionalContracts

The Company writes non-traditional contracts ofinsurance and reinsurance. The Company may account for thesetransactions as deposits held on behalf of clients instead of asinsurance and reinsurance premiums, as appropriate. Under the depositmethod of accounting, revenues and expenses from insurance andreinsurance contracts are not recognized as written premium andincurred losses. Instead, amounts from these contracts are recognizedas other income or investment income over the expected contract orservice period.

During the first quarter of 2005, the Companyrecognized in other income $1.0 million  of fees and revenuesrelating to non-traditional contracts which were accounted for usingthe deposit method. If these contracts transferred risk as determinedby Statement of Financial Accounting Standards("SFAS") No. 113 "Accountingand Reporting for Reinsurance of Short-Duration and Long-DurationContracts", gross premium relating to these contractswould total approximately  $28 million in the firstquarter  of 2005.

Of the $1.0 million, $0.2 million ofthis other income relates to fees earned from a surplus relief lifereinsurance arrangement with a U.S. insurance company which meets theCompany's definition of a non-traditional contract.   Inthe fourth quarter  of 2004, under this contract the Company madean arrangement with a client and assumed, through novation agreements,several life reinsurance  contracts it had made. Because theCompany assumed these contracts, the client, which is subject toinsurance regulation in the United States and therefore is required tomaintain a certain amount of statutory capital, may reduce itsstatutory capital requirements. In exchange for the Company'sassumption of the contracts it received a fee. The arrangement, amongother things, also provides that on certain dates and during specificperiods, the client has the right but not the obligation to recapturethe life reinsurance contracts the Company has assumed, provided thatthe underlying cedants do not reasonably withhold their consent to thisrecapture.   The Company believes that its client is economicallyincentivized to exercise the recapture provision in the future, as theamount of statutory relief that its client receives from its regulatorover the period of this contract reduces over time.

The Companybelieves the arrangement, including the client's option torecapture, and the assumption of the life insurance contractsconstitute one contract with minimal mortality, credit or otherinsurance or economic risk which results in deposit accounting.Although the Company believes its client will exercise the recapture,it is not assured  that this will be the case.   If theCompany's client does not recapture the underlying insurancecontracts in the future, the Company may be viewed as having had therisks described above and, as a result, the Company could become thelife reinsurer and may be required to account for some or all of theunderlying insurance contracts as life insurance, recognizing lifepremiums written and life benefit reserves in the consolidatedstatement of operations. With respect to this particular arrangement,at this time, the Company believes that the gross life reinsurancepremiums written, of approximately $5.6 million, that would have beenrecognized had deposit accounting not been appropriate, would not havehad a material effect on the Company's financial position andresults of operations. However, as the underlying life insurancecontracts mature the effect on the Company's financial conditionand results of operations may become material.

The remaining$0.8 million of the $1.0 million of other income relates to revenuesearned from three reinsurance contracts accounted for as deposits.Although these contracts did possess some 

12

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QUANTACAPITAL HOLDINGS LTD. NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; expressedin thousands of US dollars except for share and per share amounts,or as otherwisestated)

underwriting and timing risks as prescribedby SFAS No. 113, the Company does not believe it is exposed to areasonable possibility of significant loss.

|          |                                  |
|----------|----------------------------------|
| 4.  | Recent accounting pronouncements |

InMarch 2004, the Financial Accounting Standards Board's("FASB") Emerging Issues Task Force("EITF") reached a consensus on EITF issue03-01, "The Meaning of Other-Than-Temporary Impairment andIts Application to Certain Investments." EITF 03-01addresses the meaning of the term "other-than-temporaryimpairment" and its application to the Company'sinvestments in debt and equity securities. On September 30, 2004, theFASB issued FASB Staff Position EITF 03-1-1 which delayed the effectivedate for the measurement and recognition guidance contained in EITF03-01.

This delay does not suspend the requirement to recognizeother than temporary impairments as required by existing authoritativeliterature. During the three months ended March 31, 2005, the Companydid not identify any securities with declines in value that wereconsidered to be other-than-temporary. The Company anticipates that theadoption of the new evaluation guidance of EITF 03-01 will not have amaterial effect on the Company's consolidated results ofoperations, financial position or cash flows.

In December 2004,the FASB issued Statement of Financial Accounting Standards("SFAS") No. 123 (revised 2004)"Share-based payment"("SFAS 123(R)"). SFAS 123(R) replaces SFASNo. 123, "Accounting for Stock-BasedCompensation" ("SFAS 123")and supersedes Accounting Principles Board Opinion No. 25,"Accounting for Stock Issued toEmployees" and related interpretations("APB 25"). Generally, the approach in SFAS123(R) is similar to SFAS 123, however, SFAS 123(R) requires allshare-based payments to employees, including grants of employee stockoptions, to be recognized in the consolidated financial statementsbased on their fair values and, accordingly, SFAS 123(R) does not allowpro forma disclosure as an alternative to financial statementrecognition. SFAS 123(R) is effective for the beginning of the firstannual period beginning after June 15, 2005. The Company is currentlyevaluating the effects of this statement on its financialreporting.

In March 2005, the Staff of the SEC issued StaffAccounting Bulletin No. 107 ("SAB 107")providing guidance on SFAS 123(R). SAB 107 was issued to assist issuersin their initial implementation of FAS 123(R) and enhance theinformation received by investors and other users of the financialstatements. The Company is evaluating the impact that the guidance inSAB 107 will have on its financial reporting.

13

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QUANTACAPITAL HOLDINGS LTD. NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; expressedin thousands of US dollars except for share and per share amounts,or as otherwisestated)

|          |                    |
|----------|--------------------|
| 5.  | Segmentinformation |

The following tables summarize the Company'sresults before income taxes for each reportable segment for the threemonths ended March 31, 2005 and 2004 based on the reportable segmentsin effect during the year ended December 31, 2004.

|                                                            |  |                                            |         |                      |  |         |         |                   |  |                             |         |              |  |        |         |         |  |        |         |         |  |        |         |         |  |  |
|------------------------------------------------------------|--|--------------------------------------------|---------|----------------------|--|---------|---------|-------------------|--|-----------------------------|---------|--------------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                       |  | Threemonths ended March 31, 2005(restated) |
| Statement ofoperations by segment                          |  | Specialtyinsurance                         |         | Specialtyreinsurance |  | Lloyd's |         | Technicalservices |  | Adjustments andeliminations |         | Consolidated |
| Directinsurance                                            |  | $                                          | 66,178  |                 |  | $       | — |              |  | $                           | 16,293  |         |  | $      | — |    |  | $      | — |    |  | $      | 82,471  |    |
| Reinsuranceassumed                                         |  |                                       | 848     |                 |  |    | 89,407  |              |  |                        | — |         |  |   | — |    |  |   | — |    |  |   | 90,255  |    |
| Totalgross premiumswritten                                 |  |                                       | 67,026  |                 |  |    | 89,407  |              |  |                        | 16,293  |         |  |   | — |    |  |   | — |    |  |   | 172,726 |    |
| Premiumsceded                                              |  |                                       | (24,930 | )               |  |    | (1,297  | )            |  |                        | (3,622  | )       |  |   | — |    |  |   | — |    |  |   | (29,849 | )  |
| Netpremiumswritten                                         |  | $                                          | 42,096  |                 |  | $       | 88,110  |              |  | $                           | 12,671  |         |  | $      | — |    |  | $      | — |    |  | $      | 142,877 |    |
|                                                       |  |                                       |    |                 |  |    |    |              |  |                        |    |         |  |   |    |    |  |   |    |    |  |   |    |    |
| Netpremiumsearned                                          |  | $                                          | 34,540  |                 |  | $       | 53,637  |              |  | $                           | 3,309   |         |  | $      | — |    |  | $      | — |    |  | $      | 91,486  |    |
| Technicalservicesrevenues                                  |  |                                       | — |                 |  |    | — |              |  |                        | — |         |  |   | 7,999   |    |  |   | (849    | )  |  |   | 7,150   |    |
| Otherincome                                                |  |                                       | 254     |                 |  |    | 790     |              |  |                        | — |         |  |   | 123     |    |  |   | — |    |  |   | 1,167   |    |
| Netlosses and lossexpenses                                 |  |                                       | (26,005 | )               |  |    | (29,648 | )            |  |                        | (1,843  | )       |  |   | — |    |  |   | — |    |  |   | (57,496 | )  |
| Directtechnical servicescosts                              |  |                                       | — |                 |  |    | — |              |  |                        | — |         |  |   | (4,861  | )  |  |   | — |    |  |   | (4,861  | )  |
| Acquisitionexpenses                                        |  |                                       | (6,340  | )               |  |    | (13,804 | )            |  |                        | (333    | )       |  |   | — |    |  |   | — |    |  |   | (20,477 | )  |
| Generaland administrativeexpenses                          |  |                                       | (9,465  | )               |  |    | (5,156  | )            |  |                        | (4,560  | )       |  |   | (2,539  | )  |  |   | 849     |    |  |   | (20,871 | )  |
| Segment(loss)income                                        |  | $                                          | (7,016  | )               |  | $       | 5,819   |              |  | $                           | (3,427  | )       |  | $      | 722     |    |  | $      | — |    |  | $      | (3,902  | )  |
| Depreciation of fixedassets and amortization ofintangibles |  |                                       |    |                 |  |    |    |              |  |                        |    |         |  |   |    |    |  |   |    |    |  | $      | (842    | )  |
| Interestexpense                                            |  |                                       |    |                 |  |    |    |              |  |                        |    |         |  |   |    |    |  |   |    |    |  |   | (826    | )  |
| Netinvestmentincome                                        |  |                                       |    |                 |  |    |    |              |  |                        |    |         |  |   |    |    |  |   |    |    |  |   | 5,225   |    |
| Netrealized losses oninvestments                           |  |                                       |    |                 |  |    |    |              |  |                        |    |         |  |   |    |    |  |   |    |    |  |   | (483    | )  |
| Otherincome                                                |  |                                       |    |                 |  |    |    |              |  |                        |    |         |  |   |    |    |  |   |    |    |  |   | 519     |    |
| Netforeign exchangelosses                                  |  |                                       |    |                 |  |    |    |              |  |                        |    |         |  |   |    |    |  |   |    |    |  |   | (112    | )  |
| Netloss before incometaxes                                 |  |                                       |    |                 |  |    |    |              |  |                        |    |         |  |   |    |    |  |   |    |    |  | $      | (421    | )  |
|                                                            |

14

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QUANTACAPITAL HOLDINGS LTD. NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; expressedin thousands of US dollars except for share and per share amounts,or as otherwisestated)

|                                                            |  |                                 |         |                       |  |                   |         |                             |  |              |         |         |  |        |         |         |  |        |         |         |  |  |  |  |  |  |
|------------------------------------------------------------|--|---------------------------------|---------|-----------------------|--|-------------------|---------|-----------------------------|--|--------------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|--|--|--|--|
|                                                       |  | Threemonths ended March 31,2004 |         |
| Statement of operationsby Segment                          |  | Specialtyinsurance              |         | Specialty reinsurance |  | Technicalservices |         | Adjustments andeliminations |  | Consolidated |         |
| Directinsurance                                            |  | $                               | 15,949  |                  |  | $                 | — |                        |  | $            | — |    |  | $      | — |    |  | $      | 15,949  |    |  |
| Reinsuranceassumed                                         |  |                            | 22,083  |                  |  |              | 80,697  |                        |  |         | — |    |  |   | — |    |  |   | 102,780 |    |  |
| Totalgross premiumswritten                                 |  |                            | 38,032  |                  |  |              | 80,697  |                        |  |         | — |    |  |   | — |    |  |   | 118,729 |    |  |
| Premiumsceded                                              |  |                            | (6,274  | )                |  |              | — |                        |  |         | — |    |  |   | — |    |  |   | (6,274  | )  |  |
| Netpremiumswritten                                         |  | $                               | 31,758  |                  |  | $                 | 80,697  |                        |  | $            | — |    |  | $      | — |    |  | $      | 112,455 |    |  |
| Netpremiums earned                                         |  | $                               | 4,009   |                  |  | $                 | 23,226  |                        |  | $            | — |    |  | $      | — |    |  | $      | 27,235  |    |  |
| Technicalservicesrevenues                                  |  |                            | — |                  |  |              | — |                        |  |         | 7,036   |    |  |   | (529    | )  |  |   | 6,507   |    |  |
| Otherincome                                                |  |                            | — |                  |  |              | — |                        |  |         | 159     |    |  |   | — |    |  |   | 159     |    |  |
| Netlosses and lossexpenses                                 |  |                            | (2,175  | )                |  |              | (13,720 | )                      |  |         | — |    |  |   | — |    |  |   | (15,895 | )  |  |
| Directtechnical servicescosts                              |  |                            | — |                  |  |              | — |                        |  |         | (4,384  | )  |  |   | — |    |  |   | (4,384  | )  |  |
| Acquisitionexpenses                                        |  |                            | (822    | )                |  |              | (5,795  | )                      |  |         | — |    |  |   | — |    |  |   | (6,617  | )  |  |
| Generaland administrativeexpenses                          |  |                            | (8,649  | )                |  |              | (5,192  | )                      |  |         | (2,517  | )  |  |   | 529     |    |  |   | (15,829 | )  |  |
| Segment(loss)income                                        |  | $                               | (7,637  | )                |  | $                 | (1,481  | )                      |  | $            | 294     |    |  | $      | — |    |  | $      | (8,824  | )  |  |
| Depreciation of fixedassets and amortization ofintangibles |  |                            |    |                  |  |              |    |                        |  |         |    |    |  |   |    |    |  |   | (387    | )  |  |
| Netinvestmentincome                                        |  |                            |    |                  |  |              |    |                        |  |         |    |    |  |   |    |    |  |   | 3,235   |    |  |
| Netrealized gains oninvestments                            |  |                            |    |                  |  |              |    |                        |  |         |    |    |  |   |    |    |  |   | 1,195   |    |  |
| Otherincome                                                |  |                            |    |                  |  |              |    |                        |  |         |    |    |  |   |    |    |  |   | 32      |    |  |
| Netforeign exchangegains                                   |  |                            |    |                  |  |              |    |                        |  |         |    |    |  |   |    |    |  |   | 224     |    |  |
| Netloss before incometaxes                                 |  |                            |    |                  |  |              |    |                        |  |         |    |    |  |   |    |    |  | $      | (4,525  | )  |  |
|                                                            |

Itemsof revenue and expense resulting from charges between segments areeliminated on consolidation of the segments. During the three monthsended March 31, 2005 and 2004, the technical services segment chargedthe underwriting segments $0.8 million and $0.5 million of revenues fortechnical services rendered.

The Company's specialtyinsurance segment writes business both on a direct basis with insuredclients or by assuming reinsurance of underlying policies that areissued on its behalf by third party insurers and reinsurers. OurLloyd's segment was not established until the fourth quarter of2004.

|          |                                    |
|----------|------------------------------------|
| 6.  | Stock-based compensation(restated) |

Employee stock awards under the Company's longterm incentive compensation plan are accounted for in accordance withAPB 25. Compensation expense for stock options and stock-based awardsgranted to employees is recognized using the intrinsic value method tothe extent that the fair value of the stock exceeds the exercise priceof the option at the measurement date. Any resulting compensationexpense is recorded over the shorter of the vesting or serviceperiod.

The Company provides the disclosure as set forth in SFAS123 which requires pro-forma compensation expense for theCompany's employee stock options and performance share units tobe measured as the fair value at their grant date and recorded over theshorter of the vesting or service period.

15

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QUANTACAPITAL HOLDINGS LTD. NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; expressedin thousands of US dollars except for share and per share amounts,or as otherwisestated)

|          |         |
|----------|---------|
| a)  | Options |

In accordance with SFAS 123, the fair value of options granted isestimated on the date of the grant using the Black-Scholesoption-pricing model with the following weighted average assumptionsfor the three months ended March 31, 2005: a dividend yield of0%; expected volatility of 23.98%; a risk-free interestrate of 4.14% and an expected life of the options ofapproximately 7 years. The following weighted average assumptions wereused for the three months ended March 31, 2004: a dividend yield of0%; expected volatility of 24.0%; a risk-free interestrate of 3.75% and an expected life of the options ofapproximately 7 years.

|          |                        |
|----------|------------------------|
| b)  | Performance ShareUnits |

During the three months ended March 31, 2005,Performance Share Units were awarded to various employees pursuant tothe Company's 2003 Long Term Incentive Plan. The number of sharesof common stock to be received under these awards at the end of theperformance period will depend on the attainment of performanceobjectives based on the Company's GAAP average return onshareholders' equity over the three year period ending December31, 2007. The grantees will receive shares of common stock in an amountranging from zero to 300% percent of the share award (as suchamount is defined in the grant).

Since unvested performanceshare units are contingent upon satisfying performance objectives,those unvested shares are considered to be contingently issuable sharesand are not included in the computation of diluted earnings per shareuntil all conditions for issuance are met. Performance share units areincluded in basic shares outstanding when issued.

During thethree months ended March 31, 2005, awards for 106,835 performance shareunits were granted at a weighted average grant date fair value of$8.87. During the three months ended March  31, 2004, zero awardsfor performance share units were granted.

The following tablesummarizes the Company's stock-based compensation, net loss andloss per share for the three months ended March 31, 2005 and 2004 hadthe Company elected to recognize compensation cost based on the fairvalue of the Company's stock based awards granted at the grantdate as prescribed by SFAS 123.

16

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QUANTACAPITAL HOLDINGS LTD. NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; expressedin thousands of US dollars except for share and per share amounts,or as otherwisestated)

|                                                                                             |  |                                        |         |                                         |  |        |         |         |  |  |
|---------------------------------------------------------------------------------------------|--|----------------------------------------|---------|-----------------------------------------|--|--------|---------|---------|--|--|
|                                                                                        |  | Forthe threemonths endedMarch 31, 2005 |         | For the threemonths ended March 31,2004 |
|                                                                                        |  | Restated                               |         |                                    |
| **Stockcompensation expense**                                                               |  |                                   |    |                                    |  |   |    |    |
| Asreported                                                                                  |  | $                                      | — |                                    |  | $      | — |    |
| Additional stock-basedemployee compensation expense determined under fair value basedmethod |  |                                   | (737    | )                                  |  |   | (614    | )  |
| Proforma                                                                                    |  | $                                      | (737    | )                                  |  | $      | (614    | )  |
| Netloss                                                                                     |  |                                   |    |                                    |  |   |    |    |
| As reported                                                                                 |  | $                                      | (644    | )                                  |  | $      | (4,525  | )  |
| Additional stock-basedemployee compensation expense determined under fair value basedmethod |  |                                   | (737    | )                                  |  |   | (614    | )  |
| Proforma                                                                                    |  | $                                      | (1,381  | )                                  |  | $      | (5,139  | )  |
| Basicloss per share                                                                         |  |                                   |    |                                    |  |   |    |    |
| Asreported.                                                                                 |  | $                                      | (0.01   | )                                  |  | $      | (0.08   | )  |
| Proforma                                                                                    |  | $                                      | (0.02   | )                                  |  | $      | (0.09   | )  |
| Dilutedloss per share                                                                       |  |                                   |    |                                    |  |   |    |    |
| Asreported.                                                                                 |  | $                                      | (0.01   | )                                  |  | $      | (0.08   | )  |
| Proforma                                                                                    |  | $                                      | (0.02   | )                                  |  | $      | (0.09   | )  |
|                                                                                             |

|          |                  |
|----------|------------------|
| 7.  | ReinsuranceCeded |

The effect of reinsurance activity on premiums written,premiums earned and losses and loss expenses incurred for the threemonths ended March 31, 2005 and 2004 is shown below.

|                                  |  |                 |         |                 |  |                         |         |         |  |        |         |         |  |  |
|----------------------------------|--|-----------------|---------|-----------------|--|-------------------------|---------|---------|--|--------|---------|---------|--|--|
| Threemonths ended March 31, 2005 |  | PremiumsWritten |         | Premiums Earned |  | Losses and LossExpenses |
| Directinsurance                  |  | $               | 82,471  |            |  | $                       | 35,633  |    |  | $      | 26,873  |    |
| Reinsuranceassumed               |  |            | 90,255  |            |  |                    | 75,352  |    |  |   | 42,021  |    |
| Totalgross premiumswritten       |  |            | 172,726 |            |  |                    | 110,985 |    |  |   | 68,894  |    |
| Cededreinsurance                 |  |            | (29,849 | )          |  |                    | (19,499 | )  |  |   | (11,398 | )  |
| Net                              |  | $               | 142,877 |            |  | $                       | 91,486  |    |  | $      | 57,496  |    |
|                                  |

|                                  |  |                 |         |                 |  |                         |        |         |  |        |        |         |  |  |
|----------------------------------|--|-----------------|---------|-----------------|--|-------------------------|--------|---------|--|--------|--------|---------|--|--|
| Threemonths ended March 31, 2004 |  | PremiumsWritten |         | Premiums Earned |  | Losses and LossExpenses |
| Directinsurance                  |  | $               | 38,032  |            |  | $                       | 4,507  |    |  | $      | 2,328  |    |
| Reinsuranceassumed               |  |            | 80,697  |            |  |                    | 23,226 |    |  |   | 13,720 |    |
| Totalgross premiumswritten       |  |            | 118,729 |            |  |                    | 27,733 |    |  |   | 16,048 |    |
| Cededreinsurance                 |  |            | (6,274  | )          |  |                    | (498   | )  |  |   | (153   | )  |
| Net                              |  | $               | 112,455 |            |  | $                       | 27,235 |    |  | $      | 15,895 |    |
|                                  |

17

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QUANTACAPITAL HOLDINGS LTD. NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; expressedin thousands of US dollars except for share and per share amounts,or as otherwisestated)

|          |                          |
|----------|--------------------------|
| 8.  | Loss per share(restated) |

The following table sets forth the computation ofbasic and diluted loss pershare.

|                                                          |  |                                          |            |                                         |  |        |            |         |  |  |
|----------------------------------------------------------|--|------------------------------------------|------------|-----------------------------------------|--|--------|------------|---------|--|--|
|                                                     |  | Forthe three months ended March 31, 2005 |            | For the threemonths ended March 31,2004 |
|                                                     |  | Restated                                 |            |                                    |
| **Basicloss per share**                                  |  |                                     |       |                                    |  |   |       |    |
| Netloss                                                  |  | $                                        | (644       | )                                  |  | $      | (4,525     | )  |
| Weightedaverage common shares outstanding –basic   |  |                                     | 56,798,218 |                                    |  |   | 56,798,218 |    |
| Basicloss pershare                                       |  | $                                        | (0.01      | )                                  |  | $      | (0.08      | )  |
| **Dilutedloss per share**                                |  |                                     |       |                                    |  |   |       |    |
| Netloss                                                  |  | $                                        | (644       | )                                  |  | $      | (4,525     | )  |
| Weightedaverage common sharesoutstanding                 |  |                                     | 56,798,218 |                                    |  |   | 56,798,218 |    |
| Weightedaverage common shareequivalents                  |  |                                     |       |                                    |  |   |       |    |
| Options                                                  |  |                                     | —    |                                    |  |   | —    |    |
| Warrants                                                 |  |                                     | —    |                                    |  |   | —    |    |
| Weightedaverage common shares outstanding –diluted |  |                                     | 56,798,218 |                                    |  |   | 56,798,218 |    |
| Dilutedloss pershare                                     |  | $                                        | (0.01      | )                                  |  | $      | (0.08      | )  |
|                                                          |

Dueto a net loss for the three months ended March 31, 2005 and 2004, theassumed net exercise of options and warrants under the treasury stockmethod has been excluded, as the effect would have been anti-dilutive.Accordingly, for the three months ended March 31, 2005, the calculationof weighted average common shares outstanding on a diluted basisexcludes 3,933,342 options and 2,542,813 warrants. For the three monthsended March 31, 2004, the calculation of weighted average common sharesoutstanding on a diluted basis excludes 2,871,400 options and 2,542,813warrants.

|          |                              |
|----------|------------------------------|
| 9.  | Commitments andcontingencies |

|          |                                         |
|----------|-----------------------------------------|
| a)  | Concentrations of credit risk(restated) |

As of March 31, 2005, substantially all of theCompany's cash and cash equivalents, and investments were held bytwo custodians. Management considers these custodians to be of highcredit quality. The Company's investment portfolio is managed byexternal investment advisors in accordance with the Company'sinvestment guidelines. The Company's investment guidelinesrequire that the average credit quality of the investment portfolio istypically Aa3/AA− and that no more than 5% of theinvestment portfolio's market value shall be invested insecurities rated below Baa3/BBB-. The Company also limits its exposureto any single issuer to 5% or less of the totalportfolio's market value at the time of purchase, with theexception of U.S. government and agency securities. As of March 31,2005, the largest single non-U.S. government and government agenciesissuer accounted for less than 2.5% of the aggregate marketvalue of the externally managed portfolios.

The premiumsreceivable balance of $185.6 million as of March 31, 2005 includesapproximately $24.9 million, or 13.4%, from one third partyagent that sources a residential builders' and contractors'program that provides warranty, general liability, builders' riskand excess liability coverages for new home contractors throughout theU.S. The Company has not experienced any losses related to premiumsreceivable from this third party agent to date and monitors the agedpremiums receivable balances on a monthly basis.

18

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QUANTACAPITAL HOLDINGS LTD. NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; expressedin thousands of US dollars except for share and per share amounts,or as otherwisestated)

|          |                                     |
|----------|-------------------------------------|
| b)  | Concentrationsof premium production |

The Company generates its businessprimarily through brokers and to a much lesser extent directrelationships with insurance companies. During the three months endedMarch 31, 2005, two brokers accounted for approximately 43.9%and 21.1% of the specialty reinsurance segment's grosspremiums written and four brokers accounted for approximately19.6%, 17.4%, 13.0% and 10.5% of theLloyd's segment's gross premiums written. No other brokersaccounted for more than 10% of the specialty reinsurance,specialty insurance or Lloyd's segments' gross writtenpremium for the three months ended March 31, 2005.

During thethree months ended March 31, 2004, one broker accounted forapproximately 16.0% of the specialty insurance segment'sgross premiums written and three brokers accounted for approximately41.8%, 17.8% and 11.2% of the specialtyreinsurance segment's gross premiums written. No other brokersaccounted for more than 10% of the underwriting segments'gross written premium for the three months ended March 31, 2004. TheCompany believes that all of its brokers are large and establishedcompanies.

During the three months ended March 31, 2005 and2004, the Company continued writing a residential builders' andcontractors' program that provides warranty, general liability,builders' risk and excess liability coverages for new homecontractors throughout the U.S. This program accounted forapproximately $41.1 million, or 61.3%, of the specialtyinsurance segment gross written premiums and approximately $4.6million, or 5.2%, of the specialty reinsurance segment grosswritten premiums for the three months ended March 31, 2005. Policiesunderwritten in this program are sourced by one third party agent thatthe Company believes is a large and established specialist in thisclass of business. This program accounted for approximately $21.9million, or 58.0%, of the specialty insurance segment grosswritten premiums and approximately $2.2 million, or 2.7%, of thespecialty reinsurance segment gross written premiums for the threemonths ended March 31, 2004.

|          |                   |
|----------|-------------------|
| c)  | Restricted assets |

The Company is required to maintain assets on deposit with variousregulatory authorities to support its insurance and reinsuranceoperations. These requirements are generally promulgated by theregulations of the individual locations within which the Companyoperates. These funds on deposit are available to settle insurance andreinsurance liabilities.

The Company participates in theLloyd's of London market through Syndicate 4000 at Lloyd'sand has dedicated a significant amount of its capital to theLloyd's business. The regulations of the Council of Lloyd'sdetermine the amount of premium that may be written, also known asstamp capacity, based on the Company's funds at Lloyd's.The Company has funds at Lloyd's for every underwriting year inwhich we write business through Syndicate 4000 at Lloyd's. Thesefunds may not be withdrawn until each underwriting year is closed whichgenerally takes three years. Traditionally, three years have beennecessary to report substantially all premiums associated with anunderwriting year and to report most related claims, although claimsmay remain unsettled after the underwriting year is closed. ALloyd's syndicate typically closes an underwriting year byreinsuring outstanding claims on that underwriting year with theparticipants of the next underwriting year. As of March 31, 2005, cashand investments with a market value of $106.7 million are held byLloyd's as trustee.

The Company has also issued letters ofcredit ("LOC") under its Credit Agreement forwhich cash and cash equivalents and investments are pledged as securityin favor of certain ceding companies to collateralize its obligationsunder contracts of insurance and reinsurance and in favor of a landlordrelating to a lease agreement for office space.

The Company alsoutilizes trust funds in certain large transactions where the trustfunds are set up for the benefit of the ceding companies, and generallytake the place of letter of credit 

19

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QUANTACAPITAL HOLDINGS LTD. NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; expressedin thousands of US dollars except for share and per share amounts,or as otherwisestated)

requirements. In addition, the Company holdscash and cash equivalents and investments in trust to fund theCompany's obligations associated with the assumption ofenvironmental remediation liabilities.

The fair values of theserestricted assets by category at March 31, 2005 are asfollows:

|                                                          |  |                          |        |             |  |        |         |        |  |  |
|----------------------------------------------------------|--|--------------------------|--------|-------------|--|--------|---------|--------|--|--|
|                                                     |  | March31, 2005            |
|                                                     |  | Cash andcash equivalents |        | Investments |
| Depositswith U.S. regulatoryauthorities                  |  | $                        | 100    |        |  | $      | 29,171  |   |
| Fundsdeposited withLloyd's                               |  |                     | 18,788 |        |  |   | 87,912  |   |
| LOCpledged assets                                        |  |                     | 5,339  |        |  |   | 139,042 |   |
| Trustfunds                                               |  |                     | 26,172 |        |  |   | 85,944  |   |
| Amounts held intrust funds related to depositliabilities |  |                     | 3,042  |        |  |   | 39,633  |   |
| Total                                                    |  | $                        | 53,441 |        |  | $      | 381,702 |   |
|                                                          |

|          |                  |
|----------|------------------|
| d)  | Leasecommitments |

The Company leases office space and furnitureand equipment under operating lease agreements. Certain office spaceleases include an escalation clause that calls for annual increases tothe base rental payments. Rent expenses are being recognized on astraight-line basis over the respective lease terms. Future annualminimum payments under non-cancelable operating leases as of March 31,2005, are asfollows:

|                     |  |        |        |        |  |  |
|---------------------|--|--------|--------|--------|--|--|
| Yearending March31, |  |   |
| 2006                |  | $      | 4,481  |   |
| 2007                |  |   | 4,236  |   |
| 2008                |  |   | 3,783  |   |
| 2009                |  |   | 2,756  |   |
| 2010                |  |   | 2,798  |   |
| 2011andthereafter   |  |   | 22,701 |   |
| Total               |  | $      | 40,755 |   |
|                     |

Totalrent expense under operating leases for the three months ended March31, 2005 and 2004 was approximately $1.1 million.

|           |                                |
|-----------|--------------------------------|
| 10.  | Junior subordinated debentures |

OnFebruary 24, 2005, the Company participated in a private placement of$20.0 million of floating rate capital securities (the"Trust Preferred Securities") issued byQuanta Statutory Capital Trust II ("Quanta TrustII"). The Trust Preferred Securities mature on June 15,2035, are redeemable at the Company's option at par beginningJune 15, 2010, and require quarterly distributions of interest byQuanta Trust II to the holder of the Trust Preferred Securities.Distributions will be payable at a variable per annum rate of interest,reset quarterly, equal to the London Interbank Offered Rate("LIBOR") plus 350 basis points. Quanta TrustII simultaneously issued 619 of its common securities to the Companyfor a purchase price of $0.6 million, which constitutes all of theissued and outstanding common securities of Quanta Trust II. TheCompany's investment of $0.6 million in the common shares ofQuanta Trust II is recorded in other assets in the consolidated balancesheet.

20

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QUANTACAPITAL HOLDINGS LTD. NOTES TO THE UNAUDITED CONDENSEDCONSOLIDATED FINANCIAL STATEMENTS

(Unaudited; expressedin thousands of US dollars except for share and per share amounts,or as otherwisestated)

Quanta Trust II used the proceeds fromthe sale of the Trust Preferred Securities and the issuance of itscommon securities to purchase $20.6 million junior subordinated debtsecurities, due June 15, 2035, in the principal amount of $20.6 millionissued by the Company (the "Debentures"). Thenet proceeds of $19.6 million from the sale of the debentures to QuantaTrust II, after the deduction of approximately $0.4 million ofcommissions paid to the placement agents in the transaction andapproximately $0.6 million representing the Company's investmentin Quanta Trust II, will be used by the Company to grow its specialtylines businesses and for working capital purposes.

TheDebentures were issued pursuant to an Indenture (the"Indenture"), dated February 24, 2005, by andbetween the Company and JPMorgan Chase Bank, N.A., as trustee. Theterms of the Debentures are substantially the same as the terms of theTrust Preferred Securities. The interest payments on the Debenturespaid by the Company will be used by Quanta Trust II to pay thequarterly distributions to the holders of the Trust PreferredSecurities. The Indenture permits the Company to redeem the Debentures(and thus a like amount of the Trust Preferred Securities) on or afterJune 15, 2010. If the Company redeems any amount of the Debentures,Quanta Trust II must redeem a like amount of the Trust PreferredSecurities.

Pursuant to a Guarantee Agreement (the"Guarantee Agreement"), dated February 24,2005, by and between the Company and JPMorgan Chase Bank, N.A., astrustee, the Company has agreed to guarantee the payment ofdistributions and payments on liquidation or redemption of the TrustPreferred Securities, but only in each case to the extent of funds heldby Quanta Trust II. The obligations of the Company under the GuaranteeAgreement and the Trust Preferred Securities are subordinate to all ofthe Company's debt.

The issuance costs incurred have beencapitalized and are included in other assets in the consolidatedbalance sheet. Issuance costs will be amortized over the term of theDebentures as a component of interest expense.

Quanta Trust IIis determined to be a Variable Interest Entity("VIE") under FASB Interpretation No. 46(revised December 2003) ("FIN46R"),"Consolidation of Variable InterestEntites." The Company was not determined to be theprimary beneficiary of Quanta Trust II and in accordance with FIN46Rhas not consolidated Quanta Trust II in the consolidated financialstatements. The earnings of Quanta Trust II are included in theconsolidated statement of operations and comprehensive loss.

21

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|              |                                                                                      |
|--------------|--------------------------------------------------------------------------------------|
| ITEM2.  | MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS |

The followingdiscussion and analysis of our results of operations, financialcondition and liquidity and capital resources should be read inconjunction with our restated unaudited condensed consolidatedfinancial statements and related notes contained in this Form 10-Q/Aand the audited consolidated financial statements and related notes forthe year ended December 31, 2004, as well as"Management's Discussion and Analysis of FinancialCondition and Results of Operations," including thediscussions of critical accounting policies and of estimates andquantitative and qualitative disclosures about market risk, containedin the Form 10-K filed by the Company with the SEC on March 30,2005.

Safe Harbor Disclosure

The Private SecuritiesLitigation Reform Act of 1995 provides a "safeharbor" for forward-looking statements. Any written ororal statements made by or on our behalf may include forward-lookingstatements. Statements using words such as"believes,""expects,""intends,""estimates,""projects,""predicts,""assumes,""anticipates,""plans," and"seeks" and comparable terms, areforward-looking statements. Forward-looking statements are notstatements of historical fact and reflect our views and assumptions asof the date of this report regarding future events and operatingperformance. Because we have a limited operating history, manystatements relating to us and our business, including statementsrelating to our competitive strengths and business strategies, areforward-looking statements.

All forward-looking statementsaddress matters that involve risks and uncertainties. There areimportant factors that could cause our actual results to differmaterially from those indicated in these statements. We believe thatthese factors include but are not limited to the following:

|              |                                                                                                                                                                                                                                                                                                                                    |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | actual results, changes in marketconditions, the occurrence of catastrophic losses and other factorsoutside our control that may require us to alter our anticipatedmethods of conducting our business, such as the nature, amount andtypes of risk we assume and the terms and limits of the products wewrite or intend to write; |

|              |                                                                          |
|--------------|--------------------------------------------------------------------------|
| •  | the riskthat we may not be able to fully implement our businessstrategy; |

|              |                               |
|--------------|-------------------------------|
| •  | our limited operatinghistory; |

|              |                                                                                                                 |
|--------------|-----------------------------------------------------------------------------------------------------------------|
| •  | our insurance and reinsurancebusiness is not widely diversified among classes of risk or sources oforigination; |

|              |                                                                                                                           |
|--------------|---------------------------------------------------------------------------------------------------------------------------|
| •  | the ineffectiveness orobsolescence of our planned business strategy due to changes in currentor future market conditions; |

|              |                                                                                 |
|--------------|---------------------------------------------------------------------------------|
| •  | changesin regulation or tax laws applicable to us, our brokers or ourcustomers; |

|              |                                                            |
|--------------|------------------------------------------------------------|
| •  | changes in theavailability, cost or quality ofreinsurance; |

|              |                                                                                  |
|--------------|----------------------------------------------------------------------------------|
| •  | our ability to hire,retain and integrate our management team and otherpersonnel; |

|              |                                                |
|--------------|------------------------------------------------|
| •  | changes in rating agencypolicies or practices; |

|              |                                                                                                                                    |
|--------------|------------------------------------------------------------------------------------------------------------------------------------|
| •  | risks relatingto our reliance on program managers, third party administrators, andother vendors to support our programsoperations; |

|              |                                                                                                                                                                                                                                                               |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | other risks of doingbusiness with program managers, including the risk we might be bound topolicyholder obligations beyond our underwriting intent, and the riskthat our program managers or agents may elect not to continue or renewtheir programs with us; |

|              |                                                |
|--------------|------------------------------------------------|
| •  | changes inaccounting policies or practices;and |

|              |                                                                                                                               |
|--------------|-------------------------------------------------------------------------------------------------------------------------------|
| •  | changes in general economicconditions, including inflation, foreign currency exchange rates,interest rates and other factors. |

This list of factors is notexhaustive and should be read with the other cautionary statements thatare included in this report and under "Item 7A.Quantitative and Qualitive Disclosures About Market Risk"in the Form 10-K filed by the Company with the SEC on March 30,2005.

22

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If one or more of these or other risks oruncertainties materialize, or if our underlying assumptions prove to beincorrect, our actual results may vary materially from our projections.Any forward-looking statements you read in this report reflect ourcurrent views with respect to future events and are subject to theseand other risks, uncertainties and assumptions relating to, among otherthings, our operations, results of operations, growth strategy andliquidity. All subsequent written and oral forward-looking statementsattributable to us or individuals acting on our behalf are expresslyqualified in their entirety by this paragraph. You are cautioned not toplace undue reliance on these forward-looking statements, which speakonly as of their dates. We undertake no obligation to publicly updateor review any forward-looking statement, whether as a result of newinformation, future events or otherwise.

Overview

General

Quanta Holdings was incorporated on May 23, 2003 asa Bermuda holding company formed to provide specialty lines insurance,reinsurance, risk assessment and technical services on a global basisthrough its affiliated companies. We commenced substantive operationson September 3, 2003 when we obtained our initial capital and purchasedESC, our predecessor for accounting purposes. During the remainder of2003, we wrote a small number of insurance and reinsurance contracts.During the year ended December 31, 2004 and the three months endedMarch 31, 2005 we continued to grow and diversify our specialty linesof business, and we had a significant increase in the number ofinsurance and reinsurance contracts underwritten.

Through ouroperating subsidiaries in Bermuda, the U.S. and Europe, we focus onwriting coverage for specialized classes of property and casualtyinsurance and reinsurance risks through teams of experienced andtechnically qualified underwriters. We define specialty insurance andreinsurance as those lines of business that are often unusual ordifficult to place and do not fit the underwriting criteria of standardcommercial product providers. We are using our Bermuda operationsprimarily to insure U.S. risks from Bermuda on a non-admitted basis andalso to underwrite some European risks. We are also writing specialtyinsurance and reinsurance in the United States on an admitted basisthrough our subsidiary, Quanta Indemnity Company, which is a U.S.licensed insurer with licenses in 45 states and is an accreditedreinsurer in Washington, D.C. Further, we write specialty insurancefrom the United States on an excess and surplus lines basis and U.S.reinsurance on a non-admitted basis through our subsidiary, QuantaSpecialty Lines Insurance Company. During the last quarter of 2004 webegan to underwrite European Union sourced specialty insurance andreinsurance business through Quanta Europe, our Irish subsidiarylocated in Dublin, Ireland, which is the headquarters of our Europeanbusiness and started to underwrite specialty insurance business throughSyndicate 4000 at Lloyd's in London. In the U.K., we obtained ourbranch license in February 2005 and are serving our London-basedclients for European insurance and reinsurance business through thatbranch.

We acquired Environmental Strategies Corporation, knownas ESC, on September 3, 2003. ESC is our predecessor company foraccounting and financial reporting purposes. ESC provides diversifiedenvironmental risk management services to assist customers inenvironmental remediation, regulatory analyses, technical support forenvironmental claims, merger and acquisition due diligence,environmental audits and risk assessments, and engineering andinformation management services. ESC also provides risk assessment andtechnical services support to our environmental underwriters. We havealso established Quanta Technical Services, which we use to providerisk assessment and evaluation technical services in our otherspecialty lines of insurance and to third parties on a fee basis.Through Quanta Technical Services and its subsidiaries, we also provideliability assumption programs under which these subsidiaries assumespecified liabilities (which may, at times, include taking title toproperty) associated with environmental conditions in properties andagree to provide technical services and to perform the requiredremediation services.

We only started writing insurance andreinsurance contracts in the fourth quarter of 2003 and caution youthat, because of our limited operating history, our financialinformation is not indicative of 

23

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the actual results that we expect to achievein future periods.  This report does contain our first quarter toquarter comparison of our business in 2004 and 2005 and, in general,reveals that our insurance and reinsurance businesses each have grownand the insurance segment has become a bigger proportion of ourbusiness in the first quarter of 2005 as compared to the first quarterof 2004.  We expect that this trend will continue throughout2005.  This trend is not expected to occur evenly during thequarters as the reinsurance business has traditionally been moreconcentrated in the first and third quarter.

We generatedapproximately $142.9 million of net premiums written after premiumsceded on purchased reinsurance protection and $91.5 million of netpremiums earned during the three months ended March 31, 2005 ascompared to approximately $112.5 million of net premiums written afterpremiums ceded on purchased reinsurance protection and $27.2 million ofnet premiums earned during the three months ended March 31, 2004.

The primary drivers of growth in our lines of business and netwritten premiums are the continued development of our relationshipswith important insurance and reinsurance brokers, our success duringthe January 2005 renewal season in the reinsurance industry, and thedevelopment of specialty insurance lines of business includingSyndicate 4000. Our specialty insurance segment demonstrated continuedpremium growth during the three months ended March 31, 2005 and ourLloyd's segment increased its underwriting specialty insurancebusiness following receipt of regulatory approvals during the fourthquarter of 2004. Our specialty insurance segment continues to become anincreasingly significant contributor to our overall business andrepresented approximately 38.8% of our total gross premiumswritten in the three months ended March 31, 2005 compared to32.0% in the three months ended March 31, 2004. We believe thatour net premiums written and net premiums earned will increase as wefurther develop our current businesses and enter new product lines andinsurance and reinsurance markets. In addition, we believe that ourportfolio is not yet fully diversified either among classes of risks orsource of origination. For example, during the three months ended March31, 2005, we grew our residential builders' andcontractors' program, which we refer to as the HBW program, thataccounted for approximately 61.3% of our specialty insurancesegment gross written premium. We expect that this concentration willremain significant through the remainder of 2005. In addition, the HBWprogram and the other insurance programs we write, accounted for 62.1% of our specialty insurance segment gross written premium inthe three months ended March 31, 2005. We expect that the otherinsurance programs we write will have increasing gross written premiumthrough the remainder of 2005 and that the concentration of ourprograms business in our specialty insurance segment will continue tobe significant. As described below, our specialty reinsurance segmentshowed significant concentrations across certain risk classes. Inaddition, our specialty reinsurance segment generated approximately43.9% and 21.1% of its gross written premiums through twobrokers. We expect, but cannot assure you, that our portfolio willcontinue to diversify through 2005.

A number of insurancecompanies have been subpoenaed by U.S. regulators in connection withinvestigations relating to business and accounting practices in theinsurance industry. To date, we have not been served any subpoenas. Wehave received, and have responded to, inquiries from the North CarolinaDepartment of Insurance and the Colorado Department of Insurance. FromJanuary 1, 2004 to September 30, 2004 we were party to placementservice agreements, known as PSAs and market service agreements, knownas MSAs, with Aon Corporation and Marsh Inc. and have paid a total of$31,000 under these agreements as of March 31, 2005. We have accruedapproximately $1.1 million in addition to the amount we have alreadypaid under these agreements. At this time, it is not possible for us todetermine the impact of any outcome of these investigations on ourfuture results of operations. In addition, we do not know what theramifications of the brokers' stated intent to formulate adifferent commission structure will be on our future results ofoperations, financial condition or liquidity as brokers seek ourparticipation in this commission structure.

With respect tomarket conditions, we believe that premium rates continue to remainunchanged with exceptions in the property insurance and property andcasualty reinsurance lines of business where we see deterioratingpricing trends. In the professional liability insurance market, wherewe had previously seen deteriorating pricing trends, we have seenrecent signs of greater rate stability, and 

24

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more prudent pricing appears to be takinghold. We believe that favorable market conditions will continue toexist in the markets we are targeting during the remainder of 2005. Wewill also continue to seek opportunities to provide insurance andreinsurance in areas that require both capacity and highly technicalunderwriting expertise.

Segment Information

We organizeour business along five product lines and three geographies. Our twotraditional product lines are specialty insurance and specialtyreinsurance. We also have programs and structured products productlines. The products we offer our clients are written either astraditional insurance or reinsurance policies or are provided as aprogram, a structured product or a combination of a traditional policywith a program or a structured product. Our fifth product line is ourtechnical services line. However, for financial reporting purposes,some of our product lines are aggregated for purposes of the reportablesegment disclosure includedbelow:

|              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Specialtyinsurance.    Our specialty insurance segment excludes ourLloyd's operations, which, due to its characteristics, has itsown reportable segment as described below. Our specialty insurancesegment includes our traditional, structured and program specialtyinsurance products. Our traditional specialty insurance productsinclude technical risk property, professional liability, environmentalliability, fidelity and crime, surety, trade credit and political riskand marine and aviation. Our specialty insurance segment writesbusiness both on a direct basis with insured clients or by reinsuringpolicies that are issued on our behalf by third party insurers andreinsurers. Our specialty insurance programs include the HBWprogram. |

|              |                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Specialtyreinsurance.    Our specialty reinsurance segment includes ourtraditional, structured and program specialty reinsurance products. Ourspecialty reinsurance products include property, casualty and marineand aviation products while our structured reinsurance products includeour trade credit business lines. We currently do not write reinsuranceon a programbasis. |

|              |                                                                                                                                                                                                                                                                                                                                                                         |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Lloyd's.    Syndicate4000 at Lloyd's, our Lloyd's segment, was created inDecember 2004 and currently writes traditional specialty insuranceproducts including professional liability (professional indemnity anddirectors' and officers' coverage), fidelity and crime(financial institutions). We also plan to write specie and fine artcoverages. |

|              |                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| •  | Technicalservices.    Our technical services segment provides diversifiedenvironmental investigation, remediation and engineering services,assessment services, other technical and information managementservices primarily in the environmental area in the U.S. Our technicalservices segment also provides technical and information managementservices to our specialty insurance and reinsurance segments. |

The determination of these reportable segments reflects how wemanage and monitor the performance of our insurance and reinsuranceoperations. We refer to the specialty insurance, specialty reinsuranceand Lloyd's segments as our underwriting segments. We refer toour risk consulting and management operations as our technical servicessegment. We evaluate each segment based on its underwriting ortechnical services results, as applicable, including items of revenueand expense that are associated with, and directly related to, eachsegment.

We allocate corporate general and administrativeexpenses to each segment based upon each product line's allocatedcapital for the current reporting period. We allocate capital to eachof our product lines through the estimated value-at-risk method, whichuses statistical analyses of historical market trends and volatility toestimate the probable amounts of capital at risk for each reportingperiod. We do not manage our assets by segment and, as a result, netinvestment income, and depreciation and amortization are not evaluatedat the segment level.

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Main Drivers of our Results

Revenues

We derive the majority of our revenues from twoprincipal sources: premiums from policies written by our underwritingsegments and investment income from our investment portfolios.

We record premiums written at the time that there is sufficientevidence of agreement to the significant terms of the contract but noearlier than the effective date of the policy. The amount of ourinsurance and reinsurance premiums written depends on the number andtype of policies we write, the amount of reinsurance protection weprovide, as well as prevailing market prices. Furthermore, the amountof net premiums earned depends upon the type of contracts we write, thecontractual periods of the contracts we write, the inception date ofthe contracts, the expired portions of the contract periods and thetype of purchased reinsurance protection. Because of all these factors,the amount of premiums written and ceded may not result in acorrelative level of profitability.

Our investment incomedepends on the average invested assets in our investment portfolios andthe yield that we earn on those invested assets. Our investment yieldis a function of market interest rates and the credit quality andmaturity period of our invested assets. Our investment portfolioconsists principally of fixed income securities, short-term liquidityfunds, cash, and cash equivalents. In addition, we realize capitalgains or losses on sales of investments as a result of changing marketconditions, including changes in market interest rates and changes inthe credit quality of our invested assets. Under U.S. GAAP, ouravailable-for-sale investments are carried at fair market value withunrealized gains and losses on the investments included on our balancesheet in accumulated other comprehensive income net of income taxes asa separate component of shareholders' equity. Our tradinginvestments that relate to deposits associated with non-risk bearingcontracts are recorded at estimated fair value with the change in fairvalue included in net realized gains and losses on investments in theconsolidated statement of operations and comprehensive loss. Theobjective of our current investment strategy is to preserve investmentprincipal, maintain liquidity and to manage duration risk betweeninvestment assets and insurance liabilities, while maximizinginvestment returns through a diversified portfolio. Our investmentreturns are benchmarked against certain specified indices. However, thevolatility in claim payments and the interest rate environment cansignificantly affect the returns we generate on our investmentportfolios.

Our technical services segment operates primarily inthe environmental area and its revenues principally comprise fees fromtechnical services and risk management services provided under variousshort-term service contracts and from revenues for services performedby subcontractors we engage on behalf of clients. We also generaterevenues from remediation fees which are used to extinguishenvironmental remediation obligations that we have assumed undercontracts of remediation. The amount of technical services andremediation fees and subcontractor revenues is a function of politicaland economic conditions and the impact these conditions have onclients' discretionary spending on environmental projects.

Expenses

Our expenses primarily consist of net loss andloss expenses, acquisition expenses, direct technical services costsand general and administrative expenses.

Net loss and lossexpenses, which are net of loss and loss expenses recovered under ourceded reinsurance contracts, depend on the number and type of insuranceand reinsurance contracts we write and reflect our best estimate ofultimate losses and loss expenses we expect to incur on each contractwritten using various actuarial analyses. Actual losses and lossexpenses will depend on actual costs to settle insurance andreinsurance claims. Our ability to accurately estimate expectedultimate loss and loss expense at the time of pricing each insuranceand reinsurance contract and the occurrence of unexpected high lossseverity catastrophe events will be critical factors in determining ourprofitability.

Acquisition expenses, which are net of expensesrecovered under our ceded reinsurance contracts, consist principally ofcommissions, fees, brokerage and tax expenses that are directly relatedto 

26

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obtaining and writing insurance andreinsurance contracts. Typically, acquisition expenses are based on acertain percentage of the premiums written on contracts of insuranceand reinsurance. These expenses are a function of the number and typeof insurance and reinsurance contracts written.

General andadministrative expenses consist primarily of personnel relatedexpenses, information technology, other operating overheads andprofessional fees. From time to time we engage administrative serviceproviders and legal, accounting, tax and financial advisors. Generaland administrative expenses are a function of the development of ourbusiness and infrastructure, including the growth in personnel and thevolume of insurance and reinsurance contracts written. These generaland administrative expenses may be incurred directly by a segment orindirectly at the corporate level.

We also incur expensesdirectly related to and arising from our technical services andenvironmental remediation activities. These direct costs primarilyinclude expenses associated with direct technical labor, subcontractorswe engage on behalf of our technical services clients, and othertechnical services or remediation contract related expenses. Thesecosts are a function of, and are proportional to, the level oftechnical services and remediation revenues earned from the provisionof technical services and completion of remediation activities.

Results of Operations

The following is a discussion of ourconsolidated results of operations for the three months ended March 31,2005 and 2004.

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Three months ended March 31, 2005 and2004

Results of operations for the three months ended March 31,2005 and 2004 were as follows:

|                                                  |  |                                 |          |                                |  |        |         |         |  |  |
|--------------------------------------------------|--|---------------------------------|----------|--------------------------------|--|--------|---------|---------|--|--|
|                                             |  | Threemonthsended March 31, 2005 |          | Threemonthsended March 31,2004 |
|                                             |  | Restated                        |          |
|                                             |  | ($ in thousands)      |
| **Revenues**                                     |  |
| Grosspremiumswritten                             |  | $                               | 172,726  |                           |  | $      | 118,729 |    |
| Netpremiumswritten                               |  | $                               | 142,877  |                           |  | $      | 112,455 |    |
| Netpremiumsearned                                |  | $                               | 91,486   |                           |  | $      | 27,235  |    |
| Technicalservices revenues                       |  |                            | 7,150    |                           |  |   | 6,507   |    |
| Netinvestment income                             |  |                            | 5,225    |                           |  |   | 3,235   |    |
| Netrealized (losses) gains oninvestments         |  |                            | (483     | )                         |  |   | 1,195   |    |
| Net foreignexchange (losses)gains                |  |                            | (112     | )                         |  |   | 224     |    |
| Otherincome                                      |  |                            | 1,686    |                           |  |   | 191     |    |
| Totalrevenues                                    |  |                            | 104,952  |                           |  |   | 38,587  |    |
| **Expenses**                                     |  |
| Netlosses and lossexpenses                       |  |                            | (57,496  | )                         |  |   | (15,895 | )  |
| Acquisitionexpenses                              |  |                            | (20,477  | )                         |  |   | (6,617  | )  |
| Directtechnical servicescosts                    |  |                            | (4,861   | )                         |  |   | (4,384  | )  |
| General andadministrativeexpenses                |  |                            | (20,871  | )                         |  |   | (15,829 | )  |
| Interestexpense                                  |  |                            | (826     | )                         |  |   | — |    |
| Depreciationand amortization of intangibleassets |  |                            | (842     | )                         |  |   | (387    | )  |
| Totalexpenses                                    |  |                            | (105,373 | )                         |  |   | (43,112 | )  |
| Lossbefore incometaxes                           |  |                            | (421     | )                         |  |   | (4,525  | )  |
| Incometaxes                                      |  |                            | (223     | )                         |  |   | — |    |
| Netloss                                          |  | $                               | (644     | )                         |  | $      | (4,525  | )  |
|                                                  |

Revenues.

Substantially all of our revenues were generated by our underwritingsubsidiaries in Bermuda, the U.S and Europe. Technical servicesrevenues were derived from the operations of ESC.

Premiums.    Gross premiums written were $172.7 million forthe three months ended March 31, 2005, an increase of $54.0 million, or45.5%, compared to $118.7 million for the three months endedMarch 31, 2004. The increase of $54.0 million in gross premiums writtenreflects the continued growth of our specialty lines of business, thecontribution of our Lloyd's segment and a solid January 2005renewal season for our specialty reinsurance segment.

We expectduring 2005 that our insurance and reinsurance gross and net premiumswritten will continue to grow and that our Lloyd's segment willbecome a more significant contributor as we focus on continuing toexecute our business strategy.

Gross premiums ceded were $29.9million for the three months ended March 31, 2005 an increase of $23.6million compared to $6.3 million for the three months ended March 31,2004. The increase in gross premiums ceded reflects the increase in ourgross premiums written and the reinsurance treaties that we haveentered into for our product lines in order to limit our net lossexposures to our planned net limits and to control our aggregateexposures to particular classes of risk. These reinsurance treatiesprovide us with reinsurance protection on either a quota share, excessof loss treaty or facultative basis for policies written in ourinsurance product lines of business.

Net premiums earned were$91.5 million for the three months ended March 31, 2005 an increase of$64.3 million, or 235.9%, compared to $27.2 million for thethree months ended March 31, 2004 

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reflecting the earning of premiums oncontracts written during the three months ended March 31, 2005 andduring the year ended December 31, 2004. We expect that our netpremiums earned will increase in future periods as we enter into moreinsurance and reinsurance contracts and as our existing portfoliosmature. Our net premiums written are typically earned over the riskperiods of the underlying insurance policies which are generally twelvemonths. Net written premiums that are not yet earned and are deferredas unearned premium reserves, net of deferred reinsurance premiums,totaled $251.9 million at March 31, 2005 and will be earned andrecognized in our results of operations in future periods. Because weonly began to write insurance and reinsurance business during thefourth quarter of 2003 and because our Lloyd's segment commencedoperations in December 2004, we believe that our net premiums earnedare not yet representative of a fully developed and diversifiedportfolio of insurance and reinsurance contracts.

Technicalservices revenues.    Technical services revenues were $7.1million for the three months ended March 31, 2005 an increase of $0.6million, or 9.9%, compared to $6.5 million for the three monthsended March 31, 2004. Technical services revenues of $7.1 million forthe three months ended March 31, 2005 consisted of $3.9 million fromdirect labor and $3.2 million from subcontractor relatedactivities.

Net investment income and net realizedlosses.    Net investment income and net realized losses totaled$4.7 million for the three months ended March 31, 2005 an increase of$0.3 million, or 7.0%, compared to $4.4 million for the threemonths ended March 31, 2004. This is due to an increase in netinvestment income of $2.0 million compared to the three months endedMarch 31, 2004 which is attributable to the larger amount of investedassets and to a lesser extent by interest rates and is offset by achange in net realized losses of $1.7 million.

Net investmentincome was $5.2 million for the three months ended March 31, 2005 andwas derived primarily from interest earned on fixed maturity and shortterm investments, partially offset by investment management fees andamortization of discounts on fixed maturity investments. Our averageannualized effective yield (calculated by dividing net investmentincome by the average amortized cost of invested assets, net of amountspayable or receivable for investments purchased or sold) wasapproximately 3.2% for the three months ended March 31, 2005.Net realized losses of $0.4 million were generated primarily from thesale of fixed maturity securities as we sought to manage our totalinvestment returns and the duration of our investment portfolios.

As of March 31, 2005, the average duration of our investmentportfolio was approximately 2.6 years with an average credit rating ofapproximately "AA".

Otherincome.    Other income was $1.7 million for the three monthsended March 31, 2005 and includes amounts recognized on non-traditionalinsurance and reinsurance contracts of $1.0 million. A more detaileddescription of these non-traditional contracts is provided under"— Non-Traditional Contracts"below.

Expenses.

Net losses and lossexpenses.    Net losses and loss expenses were $57.5 million forthe three months ended March 31, 2005 an increase of $41.6 million, or261.7%, compared to $15.9 million for the three months endedMarch 31, 2004. The increase in net losses and loss expenses is due tothe increase in the number of insurance and reinsurance contracts weentered into and the associated net premiums earned as our insuranceand reinsurance portfolios continue to mature. Net losses and lossexpenses are a function of our net premiums earned and our expectedultimate losses and loss expenses for reported and unreported claims oncontracts of insurance and reinsurance underwritten. Included in ourexpected ultimate losses during the three months ended March 31, 2005are reported loss estimates, including $4.9 million related to damagecaused by an oil pipeline in California which ruptured during amudslide, for which the damage is covered by a insurance contractissued by our environmental liability product line, and adversedevelopment of $1.0 million related to contracts of reinsuranceinsuring claims arising from the 2004 hurricanes Charley, Frances, Ivanand Jeanne. Our estimate of our exposure to ultimate claim costs fromthese reported losses is based on currently available information,claims notifications received to date, industry loss estimates, outputfrom 

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industry models, a detailed review ofaffected contracts and discussion with cedants and brokers. The actualamount of losses from reported events may vary significantly from ourestimates. As of March 31, 2005, other than claims related to theruptured oil pipeline in California and the four hurricanes we havereceived a limited amount of other reported losses. However, weparticipate in lines of business where claims may not be reported forsome period of time after those claims are incurred.

Our totalnet loss ratio (calculated by dividing net losses and loss expenses bynet premiums earned) was 62.8% for the three months ended March31, 2005 an increase of 4.4% compared to a total net loss ratioof 58.4% for the three months ended March 31, 2004. The increasein the total net loss ratio is due to the ruptured oil pipeline inCalifornia and the adverse development related to the hurricanes. Weexpect that our total net loss ratio will decrease during 2005 as wecontinue to expand and diversify our lines of business and increase ournet premiums earned. This expectation could change depending upon theoccurrence of unusual or unexpected claim events.

Acquisitionexpenses.    Acquisition expenses were $20.5 million for thethree months ended March 31, 2005 an increase of $13.9 million, or209.5%, compared to $6.6 million for the three months endedMarch 31, 2004. The increase in acquisition expenses is due to theincrease in the number of insurance and reinsurance contracts weentered into and the associated net premiums earned. Our acquisitioncost ratio (calculated by dividing acquisition expenses by net premiumsearned) for the three months ended March 31, 2005 was 22.4% adecrease of 1.9% compared to our acquisition cost ratio of24.3% for the three months ended March 31, 2004. The decrease isdue to ceding commission income that we are recovering on our specialtyinsurance segment's reinsurance treaties and lower commissionspayable on our HBW program as a result of the contracts containingsliding scale commission provisions that vary with changes in theselected loss ratio. Deferred acquisition costs include, as of March31, 2005, $46.3 million of acquisition expenses on written contracts ofinsurance and reinsurance that will by amortized in future periods asthe premiums written to which they relate are earned.

Directtechnical services costs.    Direct technical services costs were$4.9 million for the three months ended March 31, 2005 an increase of$0.5 million, or 10.9%, compared to $4.4 million for the threemonths ended March 31, 2004 and were comprised of subcontractor anddirect labor expenses. Direct technical services costs, as a percentageof technical services revenues, was approximately 68.0% for theperiod and was consistent with 67.4% for the three months endedMarch 31, 2004.

General and administrativeexpenses.    General and administrative expenses were $20.9million for the three months ended March 31, 2005 an increase of $5.1million, or 31.9%, compared to $15.8 million for the threemonths ended March 31, 2004 and were comprised of $13.3 million ofpersonnel related expenses and $7.6 million of other general andadministrative expenses. The increase in general and administrative isin line with expectations as we grew our lines of business andincreased the number of employees. General and administrative expensesinclude $19.2 million related to our underwriting segment, including$0.8 million of expenses charged by our technical services segment forinformation management services provided, and $2.5 million of expensesrelated to our technical services segment.

Our general andadministrative expense ratio (calculated by dividing underwritingrelated general and administrative expenses by net premiums written)was 13.4% for the three months ended March 31, 2005 an increaseof 1.1% compared to 12.3% for the three months endedMarch 31, 2004 due to the additional number of employees hired anddevelopment of our infrastructure as we grew our lines of business inthe first quarter of 2005.

Depreciation and amortization ofintangible assets.    Depreciation and amortization of intangibleassets was $0.8 million for the three months ended March 31, 2005 anincrease of $0.4 million, or 117.6%, compared to $0.4 millionfor the three months ended March 31, 2004 and consisted of amortizationof intangible assets related to the acquisition of ESC and depreciationof fixed assets. The increase in depreciation and amortization is dueto the purchase of additional fixed assets throughout 2004 as we grewour lines of business.

We have not recorded any net deferredincome tax benefits or assets relating to tax operating lossesgenerated by our subsidiaries since our results of operations include a100% valuation allowance 

30

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against net deferred tax assets. For thethree months ended March 31, 2005, the net valuation allowance wasapproximately $1.7 million.

Results by Operating Segments

Underwriting

We principally provide insurance andreinsurance protection for risks that are often unusual or difficult toplace, that do not fit the underwriting criteria of standard commercialproduct carriers and that require extensive technical underwriting andassessment resources in order to be profitably underwritten. Ourunderwriting objective is to deploy capital to what we believe are themost attractive lines of business at the most opportune times in orderto maximize our risk-adjusted returns on capital. In measuring theperformance of our specialty insurance, specialty reinsurance andLloyd's segments, we consider each segment's netunderwriting income and a number of financial ratios. Net underwritingincome is the sum of net premiums earned less net losses and lossexpenses, acquisition expenses and direct and allocated general andadministrative expenses. The financial ratios we use include the netloss and loss expense ratio, the acquisition expense ratio and thegeneral and administrative expense ratio. Our net loss and loss expenseratio is calculated as net losses and loss expenses incurred divided bynet premiums earned. Our acquisition expense ratio is calculated bydividing acquisition expenses by net premiums earned. Our net loss andloss expense ratio and acquisition expense ratio provide a measure ofthe current profitability of the earned portions of our writteninsurance and reinsurance contracts. Our general and administrativeexpense ratio is calculated by dividing underwriting related generaland administrative expenses by net premiums written and indicates thelevel of indirect costs that we incur in acquiring and writinginsurance and reinsurance business. Our combined ratio is the aggregateof our loss and loss expense, acquisition expense and general andadministrative expense ratios. We believe that these financial ratiosappropriately reflect the profitability of our underwriting segments. Acombined ratio of less than 100% indicates an underwritingprofit and over 100%, an underwriting loss. Because we have alimited operating history, our combined ratio may be subject tosignificant volatility and may not be indicative of futureprofitability.

We allocate indirect corporate general andadministrative expenses among each of our segments, including thoserelated to underwriting operations, as described above under"Segment Information."

Three months ended March 31, 2005 and 2004

Thefollowing table summarizes our net underwriting results andprofitability measures for our segments for the three months endedMarch 31, 2005 and 2004:

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Specialty insurance

|                                        |  |                                 |         |                                |  |        |         |         |  |        |         |          |  |  |
|----------------------------------------|--|---------------------------------|---------|--------------------------------|--|--------|---------|---------|--|--------|---------|----------|--|--|
|                                   |  | Threemonthsended March 31, 2005 |         | Threemonthsended March 31,2004 |  | Change |
|                                   |  | ($ inthousands)                 |
| Directinsurance                        |  | $                               | 66,178  |                           |  | $      | 15,949  |    |  | $      | 50,229  |     |
| Reinsuranceassumed                     |  |                            | 848     |                           |  |   | 22,083  |    |  |   | (21,235 | )   |
| Totalgross premiumswritten             |  |                            | 67,026  |                           |  |   | 38,032  |    |  |   | 28,994  |     |
| Premiumsceded                          |  |                            | (24,930 | )                         |  |   | (6,274  | )  |  |   | (18,656 | )   |
| Netpremiumswritten                     |  | $                               | 42,096  |                           |  | $      | 31,758  |    |  | $      | 10,338  |     |
| Netpremiumsearned                      |  | $                               | 34,540  |                           |  | $      | 4,009   |    |  | $      | 30,531  |     |
| Otherincome                            |  |                            | 254     |                           |  |   | — |    |  |   | 254     |     |
| Netlosses and lossexpenses             |  |                            | (26,005 | )                         |  |   | (2,175  | )  |  |   | (23,830 | )   |
| Acquisitionexpenses                    |  |                            | (6,340  | )                         |  |   | (822    | )  |  |   | (5,518  | )   |
| Generaland administrativeexpenses      |  |                            | (9,465  | )                         |  |   | (8,649  | )  |  |   | (816    | )   |
| Netunderwriting (loss)income           |  | $                               | (7,016  | )                         |  | $      | (7,637  | )  |  | $      | 621     |     |
| Ratios:                                |  |
| Lossand loss expenseratio              |  |                            | 75.3    | %                         |  |   | 54.3    | %  |  |   | (21.0   | )%  |
| Acquisitionexpenseratio                |  |                            | 18.4    | %                         |  |   | 20.5    | %  |  |   | 2.1     | %   |
| Generaland administrative expenseratio |  |                            | 22.5    | %                         |  |   | 27.2    | %  |  |   | 4.7     | %   |
| Combinedratio                          |  |                            | 116.2   | %                         |  |   | 102.0   | %  |  |   | (14.2   | )%  |
|                                        |

Premiums.    Grossand net written premiums were $67.0 million and $42.1 million for thethree months ended March 31, 2005 compared to $38.0 million and $31.8million for the three months ended March 31, 2004. The increase in ourspecialty insurance segment's gross and net premiums written wasdue primarily to growth in U.S. insurance business as we grew from ourstart-up phase into a more recognized insurer. The increase reflectsour increasing participation in the insurance marketplace anddevelopment of our insurance portfolios.

The table below showsgross written premiums by product line for the three months ended March31, 2005 and 2004 whether written on a traditional insurance, programsor structured basis:

|                               |  |                                 |        |                                |  |        |         |        |  |  |
|-------------------------------|--|---------------------------------|--------|--------------------------------|--|--------|---------|--------|--|--|
|                          |  | Threemonthsended March 31, 2005 |        | Threemonthsended March 31,2004 |
|                          |  | ($ inthousands)                 |
| Technical risk property       |  | $                               | 43,887 |                           |  |   | 22,040  |   |
| Professionalliability         |  |                            | 8,918  |                           |  |   | 4,205   |   |
| Environmentalliability        |  |                            | 5,842  |                           |  |   | 10,196  |   |
| Fidelity andcrime             |  |                            | 3,892  |                           |  |   | 1,591   |   |
| Surety                        |  |                            | 2,871  |                           |  |   | — |   |
| Tradecredit and politicalrisk |  |                            | 1,616  |                           |  |   | — |   |
| Total                         |  | $                               | 67,026 |                           |  | $      | 38,032  |   |
|                               |

Duringthe three months ended March 31, 2005 we continued to write, in ourtechnical risk property product line, a residential builders' andcontractors' program that provides warranty, general liability,builders' risk and excess liability coverage's for new homecontractors throughout the U.S. This program, which we refer to as theHBW program, accounted for approximately $41.1 million, or93.7%, of the technical risk property line of business and $41.1million of total specialty insurance segment gross written premiums inthe three months ended March 31, 2005. The policies in the program areunderwritten through a third party agent that we believe is anestablished specialist in this technical field. We expect that thisprogram will continue to contribute substantial net written

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premiums during the remainder of 2005 andthat we will experience further growth and diversification in our otherspecialty insurance lines of business.

Approximately61.3% of our specialty insurance segment gross written premiumsof $67.0 million were generated through our HBW program. The remaining38.7% of our specialty insurance segment gross written premiumswere generated through seventy brokers, none of which accounted formore than 10% of our total specialty insurance segment grosswritten premiums.

Ceded premiums were $24.9 million during thethree months ended March 31, 2005 an increase of $18.6 million comparedto $6.3 million for the three months ended March 31, 2004. The increasein ceded premiums reflects the increase in our gross written premiumsand the reinsurance treaties that we have entered into for each of ourspecialty insurance product lines in order to limit our net lossexposures to our planned net limits and to control our aggregateexposures to particular classes of risk. Gross premiums written andceded premiums are earned over the period of each insured risk. Theterms of our insurance contracts range from between one and ten years.Net premiums earned during the three months ended March 31, 2005 were$34.5 million representing the earning and amortization of premiumswritten and ceded during the year ended December 31, 2004 and the threemonths ended March 31, 2005.

Other income.    Otherincome was $0.3 million for the three months ended March 31, 2005 andrelated to income, including fees, recognized on non-traditionalinsurance contracts. A more detailed description of thesenon-traditional contracts is provided under "—Non-Traditional Contracts" below.

Net losses andloss expenses.    Net losses and loss expenses were $26.0 millionfor the three months ended March 31, 2005 an increase of $23.8 millioncompared to $2.2 million for the three months ended March 31, 2004. Theincrease of $23.8 million in net losses and loss expenses incurred wasdue to the increase in the number of insurance contracts we enteredinto and the associated net premiums earned. Net losses and lossexpenses were a function of our net premiums earned and our expectedultimate losses and loss expenses for reported and unreported claims oncontracts of insurance underwritten. Included in our expected ultimatelosses during the three months ended March 31, 2005 is $4.9 million ofspecific loss related to damages from a ruptured oil pipeline inCalifornia which was covered by an insurance contract issued by ourenvironmental liability product line.

Our loss ratio was75.3% for the three months ended March 31, 2005 compared to54.3% for the three months ended March 31, 2004. The increase of21.0% in our loss ratio is due, in part, to the environmentalloss described above. We have received a limited number of other lossnotifications in our specialty insurance segment. However, weparticipate in lines of business where claims may not be reported forsome period of time after those claims are incurred. We expect that ourloss and loss expense ratio will decrease during 2005 as we continue toexpand and diversify our lines of business and increase our netpremiums earned.

Acquisition expenses.    Acquisitionexpenses were $6.3 million for the three months ended March 31, 2005 anincrease of $5.5 million compared to $0.8 million for the three monthsended March 31, 2004. The increase of $5.5 million in acquisitionexpenses was due to the increase in the number of insurance contractswe entered into and the associated net premiums earned. Theseacquisition expenses primarily represented brokerage fees, commissionfees and premium tax expenses and were net of ceding commissions earnedon purchased reinsurance treaties.

Our acquisition expense ratiowas 18.4% for the three months ended March 31, 2005 a decreaseof 2.1% compared to 20.5% for the three months endedMarch 31, 2004. The reduction in our acquisition expense ratio in thespecialty insurance segment is primarily due to the acquisition costson our technical risk property contracts, including the residentialbuilders' and contractors' risk program described above,being lower during the three months ended March 31, 2005 as a result ofthe contracts containing sliding scale commission provisions that varywith changes in the selected loss ratio. The reduction in ouracquisition expense ratio is also due to ceding commission income thatwe are earning on the reinsurance treaties that we have entered intofor each of our specialty insurance product lines. We expect that ouracquisition expense ratio will remain constant during 2005.

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General and administrativeexpenses.    Direct and allocated indirect general andadministrative expenses totaled $9.5 million for the three months endedMarch 31, 2005 an increase of $0.8 compared to $8.7 million for thethree months ended March 31, 2004. The increase in our general andadministrative expense ratio was due to the additional number ofemployees hired throughout 2004 as we grew our specialty insurancelines of business.

Our general and administrative expense ratiowas 22.5% of net premiums written for the three months endedMarch 31, 2005 a decrease of 4.7% compared to 27.2% forthe three months ended March 31, 2004 and was due to the increase inour net premiums written. We expect our general and administrativeexpense ratio to continue to decrease, although not evenly, during theremainder of 2005 as we continue to expand our lines of business andincrease our net premiums written.

Specialty reinsurance

|                                        |  |                                 |         |                                |  |          |         |         |  |        |         |          |  |  |
|----------------------------------------|--|---------------------------------|---------|--------------------------------|--|----------|---------|---------|--|--------|---------|----------|--|--|
|                                   |  | Threemonthsended March 31, 2005 |         | Threemonthsended March 31,2004 |  | Change   |
|                                   |  | Restated                        |         |                           |  | Restated |
|                                   |  | ($in thousands)                 |
| Reinsuranceassumed                     |  | $                               | 89,407  |                           |  | $        | 80,697  |    |  | $      | 8,710   |     |
| Totalgross premiumswritten             |  |                            | 89,407  |                           |  |     | 80,697  |    |  |   | 8,710   |     |
| Premiumsceded                          |  |                            | (1,297  | )                         |  |     | — |    |  |   | (1,297  | )   |
| Netpremiumswritten                     |  | $                               | 88,110  |                           |  | $        | 80,697  |    |  | $      | 7,413   |     |
|                                   |  |                            |    |                           |  |     |    |    |  |   |    |     |
| Netpremiumsearned                      |  | $                               | 53,637  |                           |  | $        | 23,226  |    |  | $      | 30,411  |     |
| Otherincome                            |  |                            | 790     |                           |  |     | — |    |  |   | 790     |     |
| Netlosses and lossexpenses             |  |                            | (29,648 | )                         |  |     | (13,720 | )  |  |   | (15,928 | )   |
| Acquisitionexpenses                    |  |                            | (13,804 | )                         |  |     | (5,795  | )  |  |   | (8,009  | )   |
| Generaland administrativeexpenses      |  |                            | (5,156  | )                         |  |     | (5,192  | )  |  |   | 36      |     |
| Netunderwriting income(loss)           |  | $                               | 5,819   |                           |  | $        | (1,481  | )  |  | $      | 7,300   |     |
| Ratios:                                |  |
| Lossand loss expenseratio              |  |                            | 55.3    | %                         |  |     | 59.1    | %  |  |   | 3.8     | %   |
| Acquisitionexpenseratio                |  |                            | 25.7    | %                         |  |     | 25.0    | %  |  |   | (0.7    | )%  |
| Generaland administrative expenseratio |  |                            | 5.9     | %                         |  |     | 6.4     | %  |  |   | 0.5     | %   |
| Combinedratio                          |  |                            | 86.9    | %                         |  |     | 90.5    | %  |  |   | 3.6     | %   |
|                                        |

Premiums.    Grossand net premiums written were $89.4 million and $88.1 million for thethree months ended March 31, 2005 compared to $80.7 million of grossand net premiums for the three months ended March 31, 2004. Theincrease in our specialty reinsurance segment's gross and netwritten premiums was due primarily to the reinsurance opportunitiesduring the January 2005 renewal season and premium generated fromexisting reinsurance contracts entered into during the year endedDecember 31, 2004 as our risks attaching reinsurance policiesmature.

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The table below shows gross writtenpremiums by product line whether written on a traditional reinsurance,programs or structuredbasis:

|                                   |  |                                 |        |                                |  |        |        |        |  |  |
|-----------------------------------|--|---------------------------------|--------|--------------------------------|--|--------|--------|--------|--|--|
|                              |  | Threemonthsended March 31, 2005 |        | Threemonthsended March 31,2004 |
|                              |  | ($ inthousands)                 |
| Property                          |  | $                               | 44,439 |                           |  | $      | 44,966 |   |
| Casualty                          |  |                            | 29,104 |                           |  |   | 20,325 |   |
| Marine,technical risk andaviation |  |                            | 15,864 |                           |  |   | 15,406 |   |
| Total                             |  | $                               | 89,407 |                           |  | $      | 80,697 |   |
|                                   |

Ourproperty reinsurance gross premiums written during the three monthsended March 31, 2005 are summarized in the table below by riskclass.

|                                   |  |        |       |         |  |  |
|-----------------------------------|--|--------|-------|---------|--|--|
| Homeownersand commercial property |  |   | 73.6  | %  |
| Crophail                          |  |   | 26.4  | %  |
| Total                             |  |   | 100.0 | %  |
|                                   |

Ourhomeowners and commercial property risk class includes a single treatycovering property risks of small regional accounts throughout the U.S.,which accounted for approximately 32.9% of our total propertyreinsurance gross premiums written during the three months ended March31, 2005. Our crop hail category covers crops throughout the U.S.

Our property premiums written include contracts written on excess ofloss and quota share bases. Of our total property reinsurance grosspremiums written for the three months ended March 31, 2005,17.7% represents excess of loss contracts that we believe areexposed to losses from natural catastrophe events worldwide. Themajority of our property quota share contracts are exposed to naturalperils, including natural catastrophes.

Our casualty reinsurancegross premiums written during the three months ended March 31, 2005 aresummarized in the table below by risk class.

|                                 |  |        |       |         |  |  |
|---------------------------------|--|--------|-------|---------|--|--|
| Directorsand officers'liability |  |   | 28.2  | %  |
| Other professionalliability     |  |   | 15.5  | %  |
| Other                           |  |   | 56.3  | %  |
| Total                           |  |   | 100.0 | %  |
|                                 |

Ourcasualty reinsurance gross premiums written included in our"other" casualty category, was spread across21 different risk classes, none of which accounted for more than10% of our casualty reinsurance premiums written for the threemonths ended March 31, 2005.

Approximately 43.9% and21.1% of our reinsurance segment gross written premiums weregenerated through Guy Carpenter & Company, Inc. and BenfieldGroup.

Gross reinsurance premiums written are being earned overthe periods of reinsured or underlying insured risks which aretypically one year. Ceded premiums were $1.3 million during the threemonths ended March 31, 2005 under the reinsurance treaties we purchasedfor our marine, technical risk and aviation product line. Grosspremiums written and ceded premiums are earned over the period of eachinsured risk. We expect to purchase additional reinsurance treatiesduring the second quarter of 2005 in order to limit our net lossexposures to our planned net limits and to control our aggregateexposures to particular classes of risk for our property reinsuranceproduct line.

Net premiums earned of $53.6 million reflect theearning of premiums on contracts written during the year ended December31, 2004 and during the three months ended March 31, 2005.

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Other income.    Other incomewas $0.8 million for the three months ended March 31, 2005 and relatedto income, including fees, recognized on non-traditional reinsurancecontracts. A more detailed description of these non-traditionalcontracts is provided under "— Non-TraditionalContracts" below.

Net losses and lossexpenses.    Net losses and loss expenses were $29.6 million forthe three months ended March 31, 2005 an increase of $15.9 millioncompared to $13.7 million for the three months ended March 31, 2004.The increase of $15.9 million in net losses and loss expenses incurredwas due to the increase in the number of reinsurance contracts weentered into and the associated net premiums earned. Net losses andloss expenses were a function of our net premiums earned and ourexpected ultimate losses and loss expenses for reported and unreportedclaims on contracts of reinsurance underwritten. Included in ourexpected ultimate losses is adverse development of $1.0 million relatedto our loss estimates on contracts of reinsurance and insuranceinsuring claims arising from hurricanes Charley, Frances, Ivan andJeanne. The actual amount of losses from the hurricanes may varysignificantly from the estimate. Other than claims related to the 2004hurricanes, as of March 31, 2005 we have received a limited amount ofother reported losses. However, we participate in lines of businesswhere claims may not be reported for some period of time after thoseclaims are incurred.

Our total net loss ratio (calculated bydividing net losses and loss expenses by net premiums earned) was55.3% for the three months ended March 31, 2005 a decrease of3.8% compared to 59.1% for the three months ended March31, 2004. The decrease in our total net loss ratio reflects a decreasein the concentration of crop hail contracts included in the specialtyreinsurance segment's net premiums earned during the three monthsended March 31, 2005 compared to the three months ended March 31, 2004.We expect that this ratio will remain constant during the remainder of2005 barring any further significant catastrophe losses. In addition,we expect during the second quarter of 2005 to enter into reinsurancetreaties in our property reinsurance line of business to reduce thepotential impact to our total net loss ratio from catastrophic eventsof similar magnitude as we experienced in 2004.

Acquisitionexpenses.    Acquisition expenses were $13.8 million for thethree months ended March 31, 2005 an increase of $8.0 million comparedto $5.8 million for the three months ended March 31, 2004. The increasein acquisition expenses was due to the increase in the number ofreinsurance contracts we entered into and the associated net premiumsearned. These acquisition expenses primarily represented brokerage andceding commissions.

Our acquisition expense ratio was25.7% for the three months ended March 31, 2005 which isslightly higher than or acquisition expense ratio of 25.0% forthe three months ended March 31, 2004. The increase reflects certaincontracts with higher commission rates that were written during thesecond and third quarters of 2004, particularly in our propertyreinsurance product line.

General and administrativeexpenses.    Direct and allocated indirect general andadministrative expenses totaled $5.2 million for the three months endedMarch 31, 2005 and were constant compared to the three months endedMarch 31, 2004. Our general and administrative expense ratio was5.9% of net premiums written for the three months ended March31, 2005 a decrease of 0.5% compared to 6.4% for thethree months ended March 31, 2004 and was due to the increase in ournet premiums written.

Lloyd's

We did not commencewriting business at our Lloyd's Syndicate 4000 until the fourthquarter of 2004 and accordingly there is no comparative review of thethree months ended March 31, 2005 to the three months ended March 31,2004.

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|                                        |  |                                 |         |         |  |  |
|----------------------------------------|--|---------------------------------|---------|---------|--|--|
|                                   |  | Threemonthsended March 31, 2005 |
|                                   |  | ($ inthousands)                 |
| Directinsurance                        |  | $                               | 16,293  |    |
| Reinsuranceassumed                     |  |                            | — |    |
| Total grosspremiums written            |  |                            | 16,293  |    |
| Premiumsceded                          |  |                            | (3,622  | )  |
| Netpremiums written                    |  | $                               | 12,671  |    |
| Netpremiums earned                     |  | $                               | 3,309   |    |
| Otherincome                            |  |                            | — |    |
| Net losses and lossexpenses            |  |                            | (1,843  | )  |
| Acquisitionexpenses                    |  |                            | (333    | )  |
| General and administrativeexpenses     |  |                            | (4,560  | )  |
| Net underwritingloss                   |  | $                               | (3,427  | )  |
| Ratios:                                |  |                            |    |    |
| Lossand loss expenseratio              |  |                            | 55.7    | %  |
| Acquisition expenseratio               |  |                            | 10.1    | %  |
| General andadministrative expenseratio |  |                            | 36.0    | %  |
| Combinedratio                          |  |                            | 101.8   | %  |
|                                        |

Premiums.    Wecommenced underwriting specialty insurance lines at Syndicate 4000 atLloyd's in December 2004. Gross and net written premiums were$16.3 million and $12.7 million for the three months ended March 31,2005 and represented professional liability insurance business. Weexpect that our gross and net premiums written will increase in futureperiods as we continue to grow our Syndicate 4000 at Lloyd's andenter into additional insurance contracts.

Net premiums earnedin the three months ended March 31, 2005 were $3.3 million and reflectthe earning of premiums on contracts written during the year endedDecember 31, 2004 and during the three months ended March 31, 2005. Weexpect that our gross and net premiums written and net premiums earnedwill increase in future periods as Syndicate 4000 at Lloyd'scontinues to grow and enters into additional insurance contracts.

Losses and loss expenses.    Net losses and loss expensesincurred were $1.8 million for the three months ended March 31, 2005and reflect a loss and loss expense ratio (calculated as losses andloss expenses incurred divided by net premium earned) of 55.7%.For the three months ended March 31, 2005, given the segment'slimited operating history and historical claims experience, we adoptedan expected loss ratio methodology to estimate our ultimate cost oflosses. As of March 31, 2005, we had not received any notifications ofsignificant reported losses that were covered under Syndicate4000's insurance contracts. However, we participate in lines ofbusiness where claims may not be reported for some period of time afterthose claims are incurred.

Acquisitionexpenses.    Acquisition expenses were $0.3 million for the threemonths ended March 31, 2005 and reflect an acquisition expense ratio of10.1% and were a function of the number and type of insurancecontracts we entered into and the associated net premiums earned. Theseacquisition expenses primarily represented brokerage expenses.

General and administrative expenses.    Direct andallocated indirect general and administrative expenses totaled $4.6million, or 36.0%, of net premiums written for the three monthsended March 31, 2005 and were largely comprised of employee and otherLloyd's and corporate related expenses. We expect our general andadministrative expense ratio to decrease during the remainder of 2005as we continue to expand our lines of business and increase our netpremiums written.

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Technical services

Three months ended March 31, 2005 and 2004

|                                   |  |                                |        |                               |  |        |        |         |  |        |      |         |  |  |
|-----------------------------------|--|--------------------------------|--------|-------------------------------|--|--------|--------|---------|--|--------|------|---------|--|--|
|                              |  | ThreemonthsendedMarch 31, 2005 |        | ThreemonthsendedMarch 31,2004 |  | Change |
|                              |  | ($ inthousands)                |
| Technical servicesrevenues        |  | $                              | 7,999  |                          |  | $      | 7,036  |    |  | $      | 963  |    |
| Otherincome                       |  |                           | 123    |                          |  |   | 159    |    |  |   | (36  | )  |
| Directtechnical servicescosts     |  |                           | (4,861 | )                        |  |   | (4,384 | )  |  |   | (477 | )  |
| Generaland administrativeexpenses |  |                           | (2,539 | )                        |  |   | (2,517 | )  |  |   | (22  | )  |
| Nettechnical servicesincome       |  | $                              | 722    |                          |  | $      | 294    |    |  | $      | 428  |    |
|                                   |

Technicalservices revenues.    Technical services revenues were $8.0million for the three months ended March 31, 2005, an increase of $1.0million, or 13.7%, compared to $7.0 million for the three monthsended March 31, 2004. The increase of $1.0 million in technicalservices revenues consists is attributable to increases in direct laborrevenue which is a result of an increase in client spending onenvironmental projects.

Other income.    Other incomewas $0.1 million for the three months ended March 31, 2005 as comparedto $0.2 million for the three months ended March 31, 2004. Other incomewas primarily generated from our liability assumption program underwhich we assume specified environmental liabilities. This incomerepresents fees earned relating to the remediation servicesperformed.

Direct technical services costs.    Directtechnical services costs were $4.9 million for the three months endedMarch 31, 2005, an increase of $0.5 million, or 10.9%, comparedto $4.4 million for the three months ended March 31, 2004. The increasein direct technical services costs was primarily attributable toincreased direct labor expenses which resulted from an increase in thenumber, and change in the scope and nature of, remediation projectsundertaken during the three months ended March 31, 2005 compared to thethree months ended March 31, 2004. Direct technical services costs, asa percentage of revenue was 60.8% for the three months endedMarch 31, 2005 compared to 62.3% for the three months endedMarch 31, 2004. The reduction in direct technical services costs as apercentage of revenues was primarily due to the decreased subcontractoractivity as a percentage of revenues during the period.

General and administrative expenses.    Direct and indirectallocated general and administrative expenses were $2.5 million for thethree months ended March 31, 2005 which was constant with $2.5 millionfor the three months ended March 31, 2004.

Financial Conditionand Liquidity

Quanta Holdings is organized as a Bermuda holdingcompany, and as such, has no direct operations of its own. Our assetsconsist of investments in our subsidiaries through which we conductsubstantially all of our insurance, reinsurance and technical servicesoperations. As of March 31, 2005, we had operations in Bermuda, theU.S., Ireland and the U.K., including Syndicate 4000 atLloyd's.

As a holding company, we will have continuingfunding needs for general corporate expenses, the payment of principaland interest on current and future borrowings, taxes, and the paymentof other obligations. Funds to meet these obligations will comeprimarily from dividends, interest and other statutorily permissiblepayments from our operating subsidiaries. The ability of our operatingsubsidiaries to make these payments is limited by the applicable lawsand regulations of the domiciles in which the subsidiaries operate.These laws and regulations subject our subsidiaries to significantrestrictions and require, among other things, that some of oursubsidiaries maintain minimum solvency requirements and limit theamount of dividends that these subsidiaries can pay to us.

Financial condition

Our available-for-saleinvestments, excluding trading investments related to depositliabilities, totaled $611.0 million as of March 31, 2005 compared to$559.4 million at December 31, 2004. The 

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majority of our investment portfolioconsists of fixed maturity investments which are managed by thefollowing external investment advisors: Pacific Investment ManagementCompany LLC, JP Morgan Investment Management Inc. and Loomis, Sayles& Company, L.P. Custodians of our externally managed investmentportfolios are JP Morgan Chase Bank N.A. and Citibank N.A. Included inour investment portfolio is a mortality-risk-linked security for whichthe repayment of principal is dependent on the performance of aspecified mortality index. The total market value of this security was$20.0 million as of March 31, 2005. As of March 31, 2005, all of thefixed maturity investments were investment grade, with a weightedaverage credit rating of "AA" based onratings assigned by S&P. Our cash and cash equivalents totaled$53.0 million as of March 31, 2005 compared to $32.8 million atDecember 31, 2004. The increase in our available-for-sale investmentsand cash and cash equivalents is primarily due to the growth in ourpremiums written during the three months ended March 31, 2005 and theissuance of $21.6 million of Junior Subordinated Debentures, partiallyoffset by claims notifications and associated loss payments we havemade up to and including March 31, 2005. We expect that our fixedmaturity investments and cash and cash equivalent balances willdecrease during the early part of 2005 as we continue to pay loss andloss expenses related to reported claims, particularly those arisingfrom the hurricane events during the third quarter of 2004.

Ourinsurance and reinsurance premiums receivable balances totaled $185.6million as of March 31, 2005 compared to $146.8 million at December 31,2004. The increase in premiums receivable reflects our growth acrossall specialty insurance and reinsurance segments during the threemonths ended March 31, 2005 and the associated increase in the level ofpremiums written. Included in our premiums receivable are approximately$141.3 million of written premium installments that are not yetcurrently due under the terms of the related insurance and reinsurancecontracts. As of March 31, 2005, based on our review of the remainingbalance of $44.3 million, which represents premiums installments thatare currently due, there are no individually significant balances thatare delinquent or uncollectible.

Our deferred acquisition costsand unearned premiums, net of deferred reinsurance premiums, totaled$46.3 million and $251.9 million, respectively, as of March 31, 2005compared to $41.5 million and $200.5 million as of December 31, 2004.These increases were due to the growth in our premiums written duringthe three months ended March 31, 2005. These amounts represent premiumsand acquisition expenses on written contracts of insurance andreinsurance that will be recognized in earnings in future periods.Substantially all of these amounts will be recognized over the next 12months.

Our reserves for losses and loss adjustment expenses,net of reinsurance recoverable, totaled $190.5 million as of March 31,2005 compared to $146.3 million as of December 31, 2004. The increasein our net loss and loss expense reserves reflects the growth in ourbusiness, the associated insured risks we assumed during the threemonths ended March 31, 2005 and include our estimate of ultimate unpaidloss expenses totaling $9.3 million relating to hurricanes Charley,Frances, Ivan and Jeanne and $4.9 million relating to the environmentalclaim that we incurred during the three months ended March 31, 2005.Our estimate of our unpaid exposure to ultimate claim costs associatedwith these losses is based on currently available information, claimnotifications received to date, industry loss estimates, output fromindustry models, a detailed review of affected contracts and discussionwith clients, cedants and brokers. The actual amount of future losspayments relating to these loss events may vary significantly from thisestimate. As of March 31, 2005 we have received a limited amount ofother reported losses. However, we participate in lines of businesswhere claims may not be reported for some period of time after thoseclaims are incurred.

Our shareholders' equity was $423.0million as of March 31, 2005 compared to $430.9 million as of December31, 2004, reflecting a decrease of $7.9 million that was primarilyrelated to a net change in unrealized losses on our investmentportfolios of $7.3 million during the three months ended March 31, 2005and our net loss of $0.6 million for the three months ended March 31,2005. As of March 31, 2005, we have provided a 100% cumulativevaluation allowance against our deferred tax assets in the amount of$15.0 million. These deferred tax assets were generated primarily fromnet operating losses. As a start-up company with limited operatinghistory, the realization of these deferred tax assets is neitherassured nor accurately determinable.

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Liquidity

Operating Cashflow

We generated net operating cashflow of approximately $31.8 million during the three months ended March31, 2005, primarily related to premiums and investment income receivedand offset by general and administrative expenses paid. In addition, wealso generated net proceeds from the issuance of Junior SubordinatedDebentures of $19.6 million. During the same period, we invested netcash of $31.2 million in our investment assets and, as of March 31,2005, had net cash and cash equivalent balances of $53.0 million.Included in our cash and cash equivalents and investments is $106.7million that is held by Lloyd's to support our underwritingactivities, $112.1 million held in trust funds for the benefit ofceding companies and to fund our obligations associated with theassumption of an environmental remediation liability, $144.4 millionthat is pledged as collateral for letters of credit, $29.3 million thatis on deposit with, or has been pledged to, U.S. state insurancedepartments and $42.7 million held in trust funds that are related toour deposit liabilities. Our cash flows from operations for the threemonths ended March 31, 2005 provided us with sufficient liquidity tomeet operating cash requirements during that period.

Sources of cash

Our sources of cash consistprimarily of existing cash and cash equivalents, premiums written,proceeds from sales and redemptions of investment assets, capital ordebt issuances, investment income, reinsurance recoveries, and, to alesser extent, our secured bank credit facility and collections ofreceivables for technical services rendered to third parties.

OnJuly 13, 2004, Quanta Holdings and certain designated insurancesubsidiaries entered into a credit agreement providing for a securedbank credit facility and a revolving credit facility with a syndicateof lenders in the amount of $150 million. Up to $25 million may beborrowed under the facility on a revolving basis for general corporatepurposes and working capital requirements. The facility is secured byspecified investments of the borrowers. As of March 31, 2005, we had$144.4 million of secured letters of credit issued and outstandingunder the facility. As of March 31, 2005, we have not made anyborrowings under the revolving credit facility. The availability to aborrower is based on the amount of eligible investments pledged by thatborrower and no material adverse change provisions. Regulatoryrestrictions will also limit the amount of investments that may bepledged by our U.S. insurance borrowers and, consequently, the amountavailable for letters of credit and borrowings under the facility tothose borrowers.

The credit agreement has certain financialcovenants, including a leverage ratio (consolidated indebtedness toconsolidated total capital) of not greater than 0.35 to 1, a minimumconsolidated net worth of at least $340 million and maintenance of theCompany's insurance ratings. In addition, the credit agreementcontains certain covenants restricting the activities of QuantaHoldings and its subsidiaries, such as the incurrence of additionalindebtedness, liens and dividends and other payments to QuantaHoldings. Quanta Holdings has also unconditionally and irrevocablyguaranteed all of the obligations of its subsidiaries to the lenders.The facility terminates on July 12, 2005. We intend to renew thisfacility or enter into a new facility but cannot assure you that thiswill be available to us on terms that are commercially reasonable, orat all. We may also enter into other credit facilities to supportportions of our business.

On February 24, 2005, we participatedin a private placement of $20.0 million of floating rate capitalsecurities (the "Trust Preferred Securities")issued by Quanta Capital Statutory Trust II ("Quanta TrustII"), a subsidiary Delaware trust formed on February 24,2004. The Trust Preferred Securities mature on June 15, 2035 areredeemable at our option at par beginning June 15, 2010, and requirequarterly distributions of interest by Quanta Trust II to the holder ofthe Trust Preferred Securities. Distributions will be payable at avariable per annum rate of interest, reset quarterly, equal to theLondon Interbank Offered Rate ("LIBOR") rateplus 350 basis points. Quanta Trust II used the proceeds from the saleof the Trust Preferred Securities and the issuance of its commonsecurities to purchase $20.6 million of junior subordinated debtsecurities, due March 15, 2035, in the principal 

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amount of $20.6 million issued by us (the"Trust II Debentures"). We are using the netproceeds of $19.6 million, after the deduction of approximately $0.4million of commissions paid to the placement agents in the transaction,from the sale of the Trust II Debentures to Quanta Trust II for workingcapital purposes and to support the growth of our business.

Uses of cash

In the near term, our principal cashrequirements are expected to be investments in operating subsidiaries,losses and loss adjustment expenses and other policy holder benefits,brokerage and commissions, expenses to develop and implement ourbusiness strategy, other operating expenses, premiums ceded, capitalexpenditures, the servicing of borrowing arrangements (including theJunior Subordinated Debentures), and taxes. The potential for a largeclaim under one of our insurance or reinsurance contracts means that wemay need to make substantial and unpredictable payments withinrelatively short periods of time. While our board of directorscurrently does not intend to declare dividends or make any otherdistributions to the shareholders of Quanta Holdings, our board plansto periodically reevaluate our dividend policy. Our cash requirementswill also include the payment of any future dividends to ourshareholders if and when our board of directors determines to changeour dividend policy.

We paid additional claims of $8.1 millionduring the first quarter of 2005 relating to the hurricane events of2004. We expect that our cash requirements for the payment of these andother claims will be significant in future periods as we receive andsettle claims, including those relating to these hurricanes.

Weare in the process of hiring additional employees in 2005 to complementthe growth in our specialty insurance and reinsurance segments. As aresult our general and administrative expenses for the three monthsended March 31, 2005 are not fully representative of our expectedemployee base. We anticipate that our cash requirements for the paymentof annual salaries and benefits for these employees will increase infuture periods as compared to the three months ended March 31,2005.

We incurred capital expenditures of $1.2 million duringthe three months ended March 31, 2005 related primarily to the purchaseand development of information technology assets. During the remainderof 2005, we expect capital expenditures principally relating toinformation systems, furniture and fixtures and leasehold improvementsto be less than $10 million. We expect to fund these capitalexpenditures through cash provided by our operating activities.

In addition to these cash requirements, under the purchase agreementwith ESC, we will be required to pay ESC's former shareholders anearn-out payment if ESC achieves specified EBITDA targets. EBITDAgenerally is defined to mean earnings before interest, taxes,depreciation and amortization. Under the earn-out arrangements, ifEBITDA for the two-year period ending December 31, 2005 is $7.5 millionor greater, we will be required to pay an earn-out payment of $5.0million. If EBITDA is greater than $7.0 million and less than $7.5million, then we will be required to pay a pro rata portion of the $5.0million. We cannot, at this time, determine with any certainty whetherESC will achieve these EBITDA targets, or estimate the amount of anypotential earn-out payments that would be required if these targets areachieved.

We may also have substantial liabilities to clients,third parties and government authorities for property damage, personalinjuries, breach of contract or breach of warranty claims, fines andpenalties and regulatory action that could adversely affect ourbusiness arising from the assessment, analysis and assumption ofenvironmental liabilities, and the management, remediation, andengineering of environmental conditions constitute a significantportion of our technical services business. From time to time, we mayoffer a liability assumption program under which a special-purposeentity assumes specified liabilities (at times including taking titleto property) associated with environmental conditions for which weprovide technical services, which may be insured or guaranteed by us.These businesses involve significant risks, including the possibilitythat we may have substantial liabilities to clients, third parties andgovernmental authorities for property damage, personal injuries, breachof contract or breach of warranty claims, fines and penalties andregulatory action that could adversely affect our business.

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While we had sufficient liquidity to paythe losses we experienced in the past hurricane season, we may raiseadditional funds to further expand our business strategy, enter newlines of business and manage our expected growth. We may raise capitalthrough debt or equity or other securities. The amount and timing ofthis capital raise will depend on many factors, including our abilityto write new business successfully and to establish premium rates andreserves at levels sufficient to cover losses. At this time, we are notable to quantify the amount of additional capital we may raise or willrequire in the future or predict the timing of any other future capitalneeds. Any future equity or debt financing, if available at all, may beon terms that are not favorable to us. If we raise capital throughequity financings, your interest in our company will be diluted, andthe securities we issue may have rights, preferences and privilegesthat are senior to those of the shares that are currently issued andoutstanding. If we cannot maintain or obtain adequate capital to manageour business strategy and expected growth targets, our business,results of operations and financial condition may be adverselyaffected.

Commitments

We have contractual obligationsrelating to commitments under the trust preferred securities andnon-cancelable operating leases for property and office equipmentdescribed above under "Liquidity" as of March31, 2005 as follows:

|                                          |  |                       |         |                 |  |           |         |           |  |                  |         |        |  |        |         |        |  |        |         |        |  |  |
|------------------------------------------|--|-----------------------|---------|-----------------|--|-----------|---------|-----------|--|------------------|---------|--------|--|--------|---------|--------|--|--------|---------|--------|--|--|
|                                     |  | Paymentsdue by period |
| Contractualobligations($000's)           |  | Total                 |         | Lessthan 1 year |  | 1-3 years |         | 3-5 years |  | Morethan 5 years |
| Long-term debtobligations                |  | $                     | 61,857  |            |  | $         | — |      |  | $                | — |   |  | $      | — |   |  | $      | 61,857  |   |
| Intereston long-term debt obligations(1) |  |                  | 116,354 |            |  |      | 3,868   |      |  |             | 7,736   |   |  |   | 7,736   |   |  |   | 97,014  |   |
| Operatingleaseobligations                |  |                  | 40,755  |            |  |      | 4,481   |      |  |             | 8,019   |   |  |   | 5,554   |   |  |   | 22,701  |   |
| Total                                    |  | $                     | 218,966 |            |  | $         | 8,349   |      |  | $                | 15,755  |   |  | $      | 13,290  |   |  | $      | 181,572 |   |
|                                          |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                         |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1) | Theinterest on the long-term debt obligation is based on a spread aboveLIBOR. We have reflected the interest due based upon the currentinterest rate at March 31, 2005 on the facility. |

Off-balance sheet arrangements

Other than as describedunder "Liquidity" related to our TrustPreferred Securities offerings through the Quanta Capital StatutoryTrust I ("Quanta Trust I") and Quanta TrustII (together "Quanta Trust I and II"), as ofMarch 31, 2005, we have not entered into any off-balance sheetarrangements with special purpose entities or variable interestentities. We did not consolidate Quanta Trust I and II, theissuers' of the Trust Preferred Securities and variable interestentities, since we are not the primary beneficiary of Quanta Trust I orII. As of March 31, 2005, we have recorded the $61.9 million ofDebentures, which were issued to Quanta Trust I and II, on ourconsolidated balance sheet. The net proceeds of $58.4 million from thesale of the Debentures to Quanta Trust I and II will be used forworking capital purposes and to support the growth of our business.Distributions will be payable at a variable per annum rate of interest,reset quarterly, equal to LIBOR plus 385 basis points by the Company toQuanta Trust I and equal to LIBOR plus 350 basis points by the Companyto Quanta Trust II as described above under"Commitments." The Debentures are redeemableat the Company's option at par beginning March 15, 2010.

Adequacy of Regulatory and Rating Capital

While insuranceregulation differs by location, each jurisdiction requires that minimumlevels of capital be maintained in order to write new insurancebusiness. Factors that affect capital requirements generally includepremium volume, the extent and nature of loss and loss expensereserves, the type and form of insurance and reinsurance businessunderwritten and the availability of reinsurance protection fromadequately rated retrocessionaires on terms that are acceptable tous.

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In all of the jurisdictions in which weoperate insurers and reinsurers are required to maintain certainminimum levels of capital and risk-based capital, the calculation ofwhich includes numerous factors as specified by the respectiveinsurance regulatory authorities and the related insurance regulations.We capitalize our insurance operations in excess of the minimumregulatory requirements so that we may maintain adequate financialratings. Generally, a higher financial rating creates a higher demandfor insurance products. A higher financial rating will enable us bothto write more business and to be more selective in the business weunderwrite. Accordingly, allocation of capital sufficient to achievebusiness objectives is a critical aspect of any insurance organization,particularly a start-up insurance operation such as ours.

Wecurrently have sufficient capital and surplus to meet regulatory andrating agency requirements at our current rating levels. Substantiallyall of our capital has been distributed among our rated operatingsubsidiaries based on our assessment of the levels of capital that webelieve are prudent to support our expected levels of business, theapplicable regulatory requirements, and the recommendations of theinsurance regulatory authorities and rating agencies.

Postingof Security by Our Non-U.S. Operating Subsidiaries

Our Bermuda,United Kingdom, and Irish operating subsidiaries are not licensed,accredited or otherwise approved as reinsurers anywhere in the UnitedStates. Many U.S. jurisdictions do not permit insurance companies totake credit on their U.S. statutory financial statements forreinsurance to cover unpaid liabilities, such as loss and lossadjustment expense and unearned premium reserves, obtained fromunlicensed or non-admitted insurers without appropriate securityacceptable to U.S. insurance commissioners. Typically, this type ofsecurity will take the form of a letter of credit issued by anacceptable bank, the establishment of a trust, funds withheld or acombination of these elements.

As described under"Liquidity" above we entered into a securedbank credit facility with a syndicate of lenders that allows us toprovide to our insured clients up to $150 million in letters of creditas security under the terms of insurance and reinsurance contracts. Theavailability to a borrower is based on the amount of eligibleinvestments pledged by that borrower and no material adverse changeprovisions. Regulatory restrictions will also limit the amount ofinvestments that may be pledged by our U.S. insurance borrowers and,consequently, the amount available for letters of credit and borrowingsunder the facility to those borrowers. As of March 31, 2005, we had$144.4 million of secured letters of credit issued and outstandingunder the facility.

If we fail to maintain adequate letter ofcredit facilities, and are unable to otherwise provide the necessarysecurity, U.S. insurance companies may be less willing to purchase ourreinsurance products, which could have a material adverse effect on ourresults of operations.

Ratings

Ratings by independentagencies are an important factor in establishing the competitiveposition of insurance and reinsurance companies and are important toour ability to market and sell our products. Rating organizationscontinually review the financial positions of insurers. S&Pmaintains a letter scale rating system ranging from"AAA" (Extremely Strong) to"R" (under regulatory supervision). A.M. Bestmaintains a letter scale rating system ranging from"A++" (Superior) to"F" (in liquidation). The objective ofS&P and A.M. Best's ratings systems is to provide an opinionof an insurer's or reinsurer's financial strength andability to meet ongoing obligations to its policyholders. These ratingsreflect our ability to pay policyholder claims and are not applicableto our securities, nor are they a recommendation to buy, sell or holdour shares. These ratings are subject to periodic review by, and may berevised or revoked at the sole discretion of, S&P and A.M.Best.

We have received a rating of"A–" (excellent) from A.M. Best, whichis the fourth highest of fifteen rating levels and indicates A.M.Best's opinion of our financial strength and ability to meetongoing obligations to our future policyholders. We cannot assure youthat we will be able to maintain this rating. A significant ratingsdowngrade would result in a substantial loss of business and business

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opportunities as insureds and cedingcompanies purchase insurance from companies with higher claims-payingand financial strength ratings instead of from us and would have amaterial adverse effect on letters of credit outstanding under ourcredit facility and on certain other agreements. We have not been ratedby S&P.

Critical Accounting Policies and Estimates

Our management makes certain judgments, estimates and assumptions inthe application of accounting policies used to determine inherentlysubjective amounts reported in our condensed consolidated financialstatements. If management uses different assumptions and estimates thanit currently does, it could produce materially different estimates ofthe reported amounts. For a detailed discussion of our criticalaccounting policies, judgments, estimates and assumptions managementuses please refer to the Form 10-K for the year ended December 31, 2004as filed with the SEC on March 30, 2005. There were no significantchanges in the application of our critical accounting policies andestimates subsequent to December 31, 2004.

Non-TraditionalContracts

We write non-traditional contracts of insurance andreinsurance. We may account for these transactions as deposits held onbehalf of our clients instead of as insurance and reinsurance premiums,as appropriate. Under the deposit method of accounting, revenues andexpenses from insurance and reinsurance contracts are not recognized aswritten premium and incurred losses. Instead, amounts from thesecontracts are recognized as other income or investment income over theexpected contract or service period.

Pursuant to our revenuerecognition policy, a contract is non-traditional if it containscertain terms and features or otherwise results in a structurethat we believe limits our insurance risks, including timing risks, orthat does not provide for a reasonable possibility of significant loss.These terms or features include, among others, experience basedadjustable features, consideration of investment income,  anamount of funding or financing of a portion of potential expectedlosses and coverage for the adverse development of previously incurredlosses. Non-traditional contracts are also those contracts that are notnecessarily intended to provide for the transfer of economic risk butfor which coverage is triggered by a non-insurance event or for whichcoverage is provided to achieve temporary accounting or regulatoryrelief or other non-economic or risk management  benefits. Forexample, one of our non-traditional contracts is a life surplus relieftransaction that provides temporary statutory capital benefit to a U.S.life insurance entity. We use the test set forth in SFAS 113 toascertain whether we believe our underwriting risk is limited orwhether there is not a reasonable possibility of significant loss.These tests include a number of subjective judgments. Because of thissubjectivity and in the context of evolving practices and applicationof existing and future standards, we could be required in the future toadjust our accounting treatment of these transactions. This could havea material effect on our financial condition and results ofoperations.

During the first quarter of 2005, we recognized in"other income" $1.0 million  of feesand revenues relating to non-traditional contracts which we accountedfor using the deposit method. If these contracts transferred risk asdetermined by Statement of Financial Accounting Standards("SFAS") No. 113 "Accountingand Reporting for Reinsurance of Short-Duration and Long-DurationContracts", gross premium relating to these contractswould total approximately  $28 million in the firstquarter  of 2005.

Of the $1.0 million, $0.2 million ofthis other income relates to fees earned from a surplus relief lifereinsurance arrangement with a U.S. insurance company which meets ourdefinition of a non-traditional contract.   In the fourthquarter  of 2004, under this contract we made an arrangement withour client and assumed, through novation agreements, several lifereinsurance  contracts it had made. Because we assumed thesecontracts, our client, which is subject to insurance regulation in theUnited States and therefore is required to maintain a certain amount ofstatutory capital, may reduce its statutory capital requirements. Inexchange for our assumption of the contracts we received a fee. Thearrangement, among other things, also provides that on certain datesand during specific periods, 

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our client has the right but not theobligation to recapture the life reinsurance contracts we have assumed,provided that the underlying cedants do not reasonably withhold theirconsent to this recapture.   We believe that our client iseconomically incentivized to exercise the recapture provision in thefuture, as the amount of statutory relief that the client receives fromits regulator over the period of this contract reduces over time.

We believe the arrangement, including our client's option torecapture, and the assumption of the life insurance contractsconstitute one contract with minimal mortality, credit or otherinsurance or economic risk which leads us to the use of depositaccounting. Although we believe our client will exercise the recapture,we cannot assure you  that this will be the case.   If ourclient does not recapture the underlying insurance contracts in thefuture, we may be viewed as having had the risks described above and,as a result, we could become the life reinsurer and may be required toaccount for some or all of the underlying insurance contracts as lifeinsurance, recognizing life premiums written and life benefit reservesin our consolidated statement of operations. With respect to thisparticular arrangement, at this time, we believe that the gross lifereinsurance premiums written, of approximately $5.6 million, that wewould have had to recognize had deposit accounting not beenappropriate, would not have had a material effect on our financialposition and results of operations. However, as the underlying lifeinsurance contracts mature the effect on our financial condition andresults of operations may become material.

The remaining $0.8million of the $1.0 million of other income relates to revenues earnedfrom three reinsurance contracts accounted for as deposits. Althoughthese contracts did possess some underwriting and timing risks asprescribed by SFAS No. 113, we do not believe we are exposed to areasonable possibility of significant loss.

ITEM3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk can be described as the risk of change in fair value ofa financial instrument due to changes in interest rates,creditworthiness, foreign exchange rates or other factors. We areexposed to potential loss from these factors. Our most significantfinancial instruments are our investment assets which consist primarilyof fixed maturity securities and cash equivalents that are denominatedin both U.S. and foreign currencies. External investment professionalsmanage our investment portfolios in accordance with our investmentguidelines. Our investment guidelines also permit our investmentmanagers to use derivative instruments in very limited circumstances.We will seek to mitigate market risks by a number of actions, asdescribed below.

Derivative Valuation Risk

Ourderivative policy permits the use of derivatives to manage ourportfolio's duration, yield curve, currency exposure, creditexposure, exposure to volatility and to take advantage ofinefficiencies in derivatives markets. We may also enter intoderivative transactions (1) to hedge capital market risks that may bepresent in our contracts of insurance or reinsurance and (2) asreplication transactions which we define as a set of derivative,insurance and/or securities transactions that, when combined, producethe equivalent economic result of an investment security or insuranceor reinsurance contract that meets our investment or underwritingguidelines.

We utilize derivative instruments only when webelieve the terms and structure of the contracts are thoroughlyunderstood and its total return profile and risk characteristics can befully analyzed. Also, any single derivative or group of derivatives inthe aggregate cannot create risk characteristics that are inconsistentwith our overall risk profile and investment portfolio guidelines.

Foreign Currency Risk and Functional Currency

Ourreporting currency is the U.S. dollar. Although we have not experiencedany significant net exposures to foreign currency risk, we expect thatin the future our exposure to market risk for changes in foreignexchange rates will be concentrated in our investment assets,investments in foreign subsidiaries, premiums receivable and insurancereserves arising from known or probable losses that 

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are denominated in foreign currencies. Wegenerally manage our foreign currency risk by maintaining assetsdenominated in the same currency as our insurance liabilities resultingin a natural hedge or by entering into foreign currency forwardderivative contracts in an effort to hedge against movements in thevalue of foreign currencies against the U.S. dollar. These contractsare not designated as specific hedges for financial reporting purposesand therefore realized and unrealized gains and losses on thesecontracts are recorded in income in the period in which they occur.These contracts generally have maturities of three months or less. Aforeign currency forward contract results in an obligation to purchaseor sell a specified currency at future date and price specified at thetime of the contract. Foreign currency forward contracts will noteliminate fluctuations in the value of our assets and liabilitiesdenominated in foreign currencies but rather allow us to establish arate of exchange for a future point in time. We have not and do notexpect to enter into such contracts with respect to a material amountof our assets or liabilities.

Our non-U.S. subsidiaries maintainboth assets and liabilities in their functional currencies, principallyEuro and sterling. Assets and liabilities denominated in foreigncurrencies are exposed to changes in currency exchange rates. Exchangerate fluctuations in Euro and sterling functional currencies againstour U.S. dollar reporting currency are reported as a separate componentof other comprehensive (loss) income in shareholders' equity.Foreign exchange risk associated with non-US dollar functionalcurrencies of our foreign subsidiaries is reviewed as part of our riskmanagement process and we employ foreign currency risk managementstrategies, as described above, to manage our exposure. Exchange ratefluctuations against non-U.S. dollar functional currencies maymaterially impact our consolidated statement of operations andfinancial position.

Our investment guidelines limit the amountof our investment portfolio that may be denominated in foreigncurrencies to 20% (as measured by market value). Furthermore,our guidelines limit the amount of foreign currency denominatedinvestments that can be held without a corresponding hedge against theforeign currency exposure to 5% (as measured by market value).As of March 31, 2005, our investment portfolio included $11.9 million,or 2.1%, of our total net invested assets, of securities thatwere denominated in foreign currencies and were purchased by ourinvestment managers for the purpose of improving overall portfolioyield. $10.9 million of these securities were rated AAA and $1.0million were rated BAA, and were substantially hedged into U.S. dollarsaccording to our investment guidelines by entering into foreigncurrency forward contracts. At March 31, 2005, the net fair marketvalue of foreign currency forward contracts relating to foreigncurrency denominated investments was $0.3 million.

Interest Rate Risk

Our exposure to market risk forchanges in interest rates is concentrated in our investment portfolio.Our investment portfolio primarily consists of fixed income securities.Accordingly, our primary market risk exposure is to changes in interestrates. Fluctuations in interest rates have a direct impact on themarket valuation of fixed income securities. As interest rates rise,the market value of our fixed-income portfolio falls, and the converseis also true.

Our strategy for managing interest rate riskincludes maintaining a high quality investment portfolio that isactively managed by our managers in accordance with our investmentguidelines in order to balance our exposure to interest rates with therequirement to tailor the duration, yield, currency and liquiditycharacteristics to the anticipated cash outflow characteristics ofclaim reserve liabilities. As of March 31, 2005, assuming parallelshifts in interest rates, the impact of an immediate 100 basis pointincrease in market interest rates on our net invested assets, includingcash and cash equivalents, under Management by Third Party InvestmentManagers of approximately $642.1 million would have been an estimateddecrease in market value of approximately $18.0 million, or2.8%, and the impact on our net invested assets, including cashand cash equivalents, under management by third party investmentmanagers of an immediate 100 basis point decrease in market interestrates would have been an estimated increase in market value ofapproximately $15.3 million, or 2.4%.

As of March 31,2005, our investment portfolio included AAA rated mortgage-backedsecurities with a market value of $153.3 million, or 25.1%,excluding trading investments related to deposit 

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liabilities. As with other fixed incomeinvestments, the fair market value of these securities fluctuatesdepending on market and other general economic conditions and theinterest rate environment. Changes in interest rates can also expose usto prepayment and extension risks on these investments. In periods ofdeclining interest rates, the frequency of mortgage prepaymentsgenerally increase as mortgagees seek to refinance at a lower interestrate cost. Mortgage prepayments result in the early repayment of theunderlying principal of mortgage-backed securities requiring us toreinvest the proceeds at the then current market rates. When interestrates increase, these assets are exposed to extension risk, whichoccurs when holders of underlying mortgages reduce the frequency onwhich they prepay the outstanding principal before the maturity dateand delay any refinancing of the outstanding principal.

Credit Risk

We have exposure to credit riskprimarily as a holder of fixed income securities. This risk is definedas the default or the potential loss in market value resulting fromadverse changes in the borrower's ability to repay the debt. Ourrisk management strategy and investment policy is to invest in debtinstruments of high credit quality issuers and to limit the amount ofcredit exposure with respect to particular ratings categories and toany one issuer. We attempt to limit our overall credit exposure bypurchasing fixed income securities that are generally rated investmentgrade by Moody's Investors Service, Inc. and/or S&P. Ourinvestment guidelines require that the average credit quality of ourportfolio will be Aa3/AA– and that no more than 5% of ourinvestment portfolio's market value shall be invested insecurities rated below BBB–/Baa3. We also limit our exposure toany single issuer to 5% or less of our portfolio's marketvalue at the time of purchase, with the exception of U.S. governmentand agency securities. As of March 31, 2005, the average credit qualityof our investment portfolio was AA, and all fixed income securitiesheld were investment grade. Included in our investment portfolio was$20.0 million in par value of variable rate mortality linked securitiesissued by a single issuer which mature on January 1, 2007. We aresubject to loss of principal and interest in the event of theoccurrence of certain changes in a predefined mortality index. As ofMarch 31, 2005, the fair value of the security was $20.0 million andrepresented approximately 3.3% of our investments excludingtrading investments related to deposit liabilities.

We are alsoexposed to the credit risk of our insurance and reinsurance brokers towhom we make claims payments for insureds and our reinsureds, as wellas to the credit risk of our reinsurers and retrocessionaires whoassume business from us. To mitigate the risk of nonpayment of amountsdue under these arrangements, we have established business andfinancial standards for reinsurer and broker approval, incorporatingratings by major rating agencies and considering the financialcondition of the counterparty and the current market information.

We are also exposed to credit risk relating to our premiumsreceivable balance. As of March 31, 2005, our premiums receivablebalance was $185.6 million. We believe that credit risk exposurerelated to these balances is mitigated by several factors, includingbut not limited to credit monitoring controls performed as part of theunderwriting process and monitoring of aged receivable balances. Inaddition, as the majority of our insurance and reinsurance contractspermit the right of offset the premiums receivable against lossespayable, we believe that the credit risk in this area is substantiallyreduced.

Effects of Inflation

We do not believethat inflation has had a material effect on our consolidated results ofoperations. The effects of inflation could cause the severity of claimcosts to increase in the future. Our estimates for losses and lossexpenses include assumptions, including those relating to inflation,about future payments for settlement of claims and claims handlingexpenses. To the extent inflation causes these costs to increase aboveour estimated reserves that are established for these claims, we willbe required to increase reserves for losses and loss expenses with acorresponding reduction in our earnings in the period in which thedeficiency is identified. The actual effects of inflation on ourresults cannot be accurately determined until claims are ultimatelysettled.

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ITEM 4.    CONTROLS ANDPROCEDURES

Evaluation of Disclosure Controls andProcedures

As of the end of the period covered by this report,we evaluated under the supervision and with the participation ofmanagement, including the Company's Chief Executive Officer andthe Chief Financial Officer, the effectiveness of the design andoperation of our disclosure controls and procedures pursuant to Rules13a-15 and 15d-15 under the Securities and Exchange Act of 1934 (the"Exchange Act"). Based upon thatre-evaluation, the Chief Executive Officer and Chief Financial Officerconcluded that, due to the material weakness discussed below, ourdisclosure controls and procedures were ineffective in ensuring thatthe information required to be disclosed by us in the reports that wefile under the Exchange Act is recorded, processed, summarized andreported, within the time periods specified in the Securities andExchange Commission's rules and forms. 

Subsequentto the period covered by this quarterly report, in connection with ourroutine monthly closing process for our books at the April month-end,we discovered a mathematical error in the calculation of policyacquisition expenses used in the reporting of our first quarterresults. To address the error discovered as a part of this process, andas announced in our Current Report on Form 8-K filed with theSecurities and Exchange Commission on May 13, 2005, we are restatingour financial statements for the quarter ended March 31, 2005. Seefurther discussion in the Explanatory Note and Note 10 to our unauditedCondensed Consolidated Financial Statements for the three months endedMarch 31, 2005 contained herein. We have determined that thismathematical error only affected our financial statements for thequarter ended March 31, 2005 and did not affect any of our financialstatements for prior periods.

A material weakness in internalcontrol is a significant deficiency, or combination of significantdeficiencies, that results in more than a remote likelihood that amaterial misstatement of the annual or interim financial statementswill not be prevented or detected on a timely basis by us. We haveevaluated the effectiveness of our internal controls for thecalculation of acquisition expenses as of the end of the period coveredby this quarterly report, and have determined that the mathematicalerror referenced above indicates a material weakness in internalcontrol over financial reporting with respect to the calculation ofacquisition expenses. We are taking steps to ensure that the materialweakness is remedied, including adding staffing and implementingenhanced analytics and control processes over the calculation ofacquisition expenses.

As a non-accelerated registrant, we arecurrently in the process of reviewing and formalizing our internalcontrols over financial reporting in accordance with the Securities andExchange Commission's rules implementing the internal controlreporting requirements included in Section 404 of the Sarbanes-OxleyAct of 2002 ("Section 404"). Changes havebeen and will continue to be made to our internal controls overfinancial reporting as a result of these efforts. We are dedicatingsignificant resources to our ongoing Section 404 assessment. We willcontinue to work to improve our controls and procedures and to educateand train our employees on our existing controls and procedures inconnection with our efforts to maintain an effective controlsinfrastructure.

Limitations on the Effectiveness ofControls

We believe that a control system, no matter how welldesigned and operated, cannot provide absolute assurance that theobjectives of the control system are met, and no evaluation of controlscan provide absolute assurance that all control issues and instances offraud, if any, within a company have been detected. Our disclosurecontrols and procedures are designed to provide reasonable assurance ofachieving their objectives and our Chief Executive Officer and ChiefFinancial Officer have concluded that, except as otherwise describedabove, such controls and procedures are effective at the"reasonable assurance" level.

Changes in Internal Controls

There was no change inour internal control over financial reporting (as such term is definedin Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurredduring the three months ended March 31, 2005, that has materiallyaffected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

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PARTII.    OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

We are not a party to any pending or threatened material litigationand are not currently aware of any pending or threatened materiallitigation other than routine legal proceedings that we believe are, inthe aggregate, not material to our financial condition and results ofoperations. In the normal course of business we may become involved invarious claims and legal proceedings.

ITEM 2.    UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the threemonths ended March 31, 2005, the Company issued to certain employees anaggregate of 880,942 options to purchase common stock and 106,835performance share units. These transactions were completed withoutregistration of the relevant security under the Securities Act of 1933,as amended, in reliance upon the exemptions provided by Section 4(2)for transactions not involving a public offering.

ITEM6.    EXHIBITS

|            |                                                                                                                                                                                                                          |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1  | Form of StockOption Agreement (previously filed as Exhibit 10.1 to theCompany's Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2005, which was filed on May 5, 2005, and incorporated hereinby reference). |

|                                    |                                                                                                                                                                                                                                    |
|------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.2      | Form ofPerformance Share Unit Agreement (previously filed as Exhibit 10.2 tothe Company's Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2005, which was filed on May 5, 2005, and incorporated hereinby reference). |

|            |                                                                                                                                                   |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1  | Certification ofthe Chief Executive Officer required by Rule 13a-14(a) or Rule15d-14(a) pursuant to Section 302 of the Sarbanes-Oxley Act of2002. |

|            |                                                                                                                                                   |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2  | Certification of the ChiefFinancial Officer required by Rule 13a-14(a) or Rule 15d-14(a) pursuantto Section 302 of the Sarbanes-Oxley Act of2002. |

|            |                                                                                                                                                     |
|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
| 32.1  | Certification of the ChiefExecutive Officer pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of2002. |

|            |                                                                                                                                                    |
|------------|----------------------------------------------------------------------------------------------------------------------------------------------------|
| 32.2  | Certification of the ChiefFinancial Officer pursuant to 18 U.S.C Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of2002. |

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SIGNATURES

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

|                                          |  |                                                                                                                                                                                                                                                                                                                                                                            |  |  |  |  |
|------------------------------------------|--|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|--|--|
|                                     |  | **QuantaCapital HoldingsLtd.                **                                                                                                                                                                                                                                             |
|                                     |  |
| Date:    May13, 2005 |  | /s/ Tobey J.Russ                                                                                                                                                                                                                                                                           |
|                                     |  | TobeyJ. Russ                (On behalf of the registrant andas                 Principal ExecutiveOfficer)                 |
|                                     |  |
| Date:    May13, 2005 |  | /s/ John S. Brittain,Jr.                                                                                                                                                                                                                                                                   |
|                                     |  | JohnS. Brittain, Jr.                (Principal FinancialOfficer)                                                                                                                                           |
|                                          |

50

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Indexto Exhibits

|            |                                                                                                                                                                                                                          |
|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1  | Form of Stock OptionAgreement (previously filed as Exhibit 10.1 to the Company'sQuarterly Report on Form 10-Q for the quarter ended March 31, 2005,which was filed on May 5, 2005, and incorporated herein byreference). |

|            |                                                                                                                                                                                                                                    |
|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.2  | Form of PerformanceShare Unit Agreement (previously filed as Exhibit 10.2 to theCompany's Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2005, which was filed on May 5, 2005, and incorporated hereinby reference). |

|            |                                                                                                                                                   |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1  | Certification ofthe Chief Executive Officer required by Rule 13a-14(a) or Rule15d-14(a) pursuant to Section 302 of the Sarbanes-Oxley Act of2002. |

|            |                                                                                                                                                   |
|------------|---------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.2  | Certification of the ChiefFinancial Officer required by Rule 13a-14(a) or Rule 15d-14(a) pursuantto Section 302 of the Sarbanes-Oxley Act of2002. |

|            |                                                                                                                                                      |
|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|
| 32.1  | Certification of the ChiefExecutive Officer pursuant to 18 U.S.C. Section 1350, as adoptedpursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

|            |                                                                                                                                                    |
|------------|----------------------------------------------------------------------------------------------------------------------------------------------------|
| 32.2  | Certification of the Chief FinancialOfficer pursuant to 18 U.S.C Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of2002. |

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