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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549





FORM 10-Q





(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended September 30, 2009

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission file number 000-33047





MAX CAPITAL GROUP
LTD.

(Exact name of registrant as specified in its charter)







|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Bermuda                                                        |  | 98-0584464                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)

Max House

2 Front Street

Hamilton, HM 11

Bermuda

(Address of principal executive offices) (Zip Code)

(441) 295-8800

(Registrants telephone number, including area code)





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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files).    Yes   ̈    No  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definitions of large accelerated filer, accelerated filer and small reporting company, in Rule 12b-2 of the Exchange Act.



|                        |  |                                                 |  |                           |  |  
|----------------------- |  | ----------------------------------------------- |  | ------------------------- |  | -
|Large accelerated filer |  | x                                               |  | Accelerated filer         |  |  ̈
|                        |  |                                                 | 
|Non-accelerated filer   |  |  ̈ (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act.):    Yes   ̈    No  x

The number of the registrants common shares (par value $1.00 per share) outstanding as of October 30, 2009 was 57,013,063.









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MAX CAPITAL GROUP LTD.

INDEX



|                               |  |                                                                                                                                         |  |     
|------------------------------ |  | --------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                               |  |                                                                                                                                         |  | PAGE
|PART I - FINANCIAL INFORMATION |  | 3                                                                                                                                      
|                               |  |                                                                                                                                        
|ITEM 1.                        |  | Financial Statements                                                                                                                    |  | 3   
|                               |  |                                                                                                                                        
|                               |  | Consolidated Balance Sheets as of September 30, 2009 (Unaudited) and December 31,
2008                                                  |  | 3   
|                               |  |                                                                                                                                        
|                               |  | Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30,
 2009 and 2008 (Unaudited) |  | 4   
|                               |  |                                                                                                                                        
|                               |  | Consolidated Statements of Changes in Shareholders Equity for the Nine Months Ended September 30, 2009
 and 2008 (Unaudited)           |  | 5   
|                               |  |                                                                                                                                        
|                               |  | Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008
(Unaudited)                                 |  | 6   
|                               |  |                                                                                                                                        
|                               |  | Notes to the Interim Consolidated Financial Statements (Unaudited)                                                                      |  | 7   
|                               |  |                                                                                                                                        
|ITEM 2.                        |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                                                   |  | 29  
|                               |  |                                                                                                                                        
|ITEM 3.                        |  | Quantitative and Qualitative Disclosures about Market Risk                                                                              |  | 47  
|                               |  |                                                                                                                                        
|ITEM 4.                        |  | Controls and Procedures                                                                                                                 |  | 48  
|                               | 
|PART II  OTHER INFORMATION    |  | 49                                                                                                                                     
|                               |  |                                                                                                                                        
|ITEM 1.                        |  | Legal Proceedings                                                                                                                       |  | 49  
|                               |  |                                                                                                                                        
|ITEM 1A.                       |  | Risk Factors                                                                                                                            |  | 50  
|                               |  |                                                                                                                                        
|ITEM 2.                        |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                             |  | 49  
|                               |  |                                                                                                                                        
|ITEM 3.                        |  | Defaults Upon Senior Securities                                                                                                         |  | 49  
|                               |  |                                                                                                                                        
|ITEM 4.                        |  | Submission of Matters to a Vote of Security Holders                                                                                     |  | 50  
|                               |  |                                                                                                                                        
|ITEM 5.                        |  | Other Information                                                                                                                       |  | 50  
|                               |  |                                                                                                                                        
|ITEM 6.                        |  | Exhibits                                                                                                                                |  | 50  
|                               | 
|SIGNATURES                     |  | 51                                                                                                                                     



2



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PART I - FINANCIAL INFORMATION



|ITEM 1. | Financial Statements
|------- | --------------------

MAX CAPITAL GROUP LTD.

CONSOLIDATED BALANCE SHEETS

(Expressed in thousands of U.S. Dollars, except share amounts)



|                                                                                                                                      |  |                   |           |                  |   |           |  
|------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | --------- | ---------------- | - | --------- | -
|                                                                                                                                      |  | September 30,2009 |           | December 31,2008 |  
|                                                                                                                                      |  | (Unaudited)       |           |                  |  
|ASSETS                                                                                                                                |  |                   |           |                  |   |           |  
|Cash and cash equivalents                                                                                                             |  | $                 | 1,056,011 |                  | $ | 949,404   |  
|Fixed maturities, trading at fair value (amortized cost: 2009 - $71,521; 2008 - $60,127)                                              |  |                   | 74,337    |                  |   | 61,820    |  
|Fixed maturities, available for sale, at fair value (amortized cost: 2009 - $2,822,114; 2008 - $3,607,062)                            |  |                   | 2,872,146 |                  |   | 3,592,039 |  
|Fixed maturities, held to maturity at amortized cost (fair value: 2009 - $1,069,245; 2008 - $nil)                                     |  |                   | 1,026,244 |                  |   |          |  
|Other investments, at fair value                                                                                                      |  |                   | 389,515   |                  |   | 753,658   |  
|Accrued interest income                                                                                                               |  |                   | 52,145    |                  |   | 52,882    |  
|Premiums receivable                                                                                                                   |  |                   | 546,195   |                  |   | 554,845   |  
|Losses and benefits recoverable from reinsurers                                                                                       |  |                   | 985,614   |                  |   | 846,622   |  
|Deferred acquisition costs                                                                                                            |  |                   | 66,451    |                  |   | 51,337    |  
|Prepaid reinsurance premiums                                                                                                          |  |                   | 206,924   |                  |   | 192,889   |  
|Trades pending settlement                                                                                                             |  |                   | 38,217    |                  |   | 85,727    |  
|Other assets                                                                                                                          |  |                   | 114,947   |                  |   | 110,772   |  
|                                                                                                                                      |  |                   |           |                  |   |           |  
|Total assets                                                                                                                          |  | $                 | 7,428,746 |                  | $ | 7,251,995 |  
|                                                                                                                                      |  |                   |           |                  |   |           |  
|LIABILITIES                                                                                                                           |  |                   |           |                  |   |           |  
|Property and casualty losses                                                                                                          |  | $                 | 3,159,156 |                  | $ | 2,938,171 |  
|Life and annuity benefits                                                                                                             |  |                   | 1,415,836 |                  |   | 1,366,976 |  
|Deposit liabilities                                                                                                                   |  |                   | 152,638   |                  |   | 219,260   |  
|Funds withheld from reinsurers                                                                                                        |  |                   | 142,384   |                  |   | 164,157   |  
|Unearned property and casualty premiums                                                                                               |  |                   | 676,342   |                  |   | 574,134   |  
|Reinsurance balances payable                                                                                                          |  |                   | 151,615   |                  |   | 160,686   |  
|Accounts payable and accrued expenses                                                                                                 |  |                   | 92,722    |                  |   | 81,916    |  
|Bank loans                                                                                                                            |  |                   |          |                  |   | 375,000   |  
|Senior notes                                                                                                                          |  |                   | 91,379    |                  |   | 91,364    |  
|                                                                                                                                      |  |                   |           |                  |   |           |  
|Total liabilities                                                                                                                     |  |                   | 5,882,072 |                  |   | 5,971,664 |  
|                                                                                                                                      |  |                   |           |                  |   |           |  
|SHAREHOLDERS EQUITY                                                                                                                  |  |                   |           |                  |   |           |  
|Preferred shares (par value $1.00 per share) 20,000,000 shares authorized; no shares issued or outstanding                            |  |                   |          |                  |   |          |  
|Common shares (par value $1.00 per share) 200,000,000 shares authorized; 57,013,063 shares issued and outstanding (2008 
55,805,790) |  |                   | 57,013    |                  |   | 55,806    |  
|Additional paid-in capital                                                                                                            |  |                   | 773,923   |                  |   | 763,391   |  
|Accumulated other comprehensive income (loss)                                                                                         |  |                   | 41,602    |                  |   | (45,399   | )
|Retained earnings                                                                                                                     |  |                   | 674,136   |                  |   | 506,533   |  
|                                                                                                                                      |  |                   |           |                  |   |           |  
|Total shareholders equity                                                                                                            |  |                   | 1,546,674 |                  |   | 1,280,331 |  
|                                                                                                                                      |  |                   |           |                  |   |           |  
|Total liabilities and shareholders equity                                                                                            |  | $                 | 7,428,746 |                  | $ | 7,251,995 |  
|                                                                                                                                      |  |                   |           |                  |   |           |  

See accompanying notes to unaudited interim consolidated financial statements.



3



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MAX CAPITAL GROUP LTD.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)

(Expressed in thousands of U.S. Dollars, except shares and per share amounts)



|                                                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|----------------------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ------------------------------ | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                              |  | Three Months EndedSeptember 30, |            |   | Nine Months EndedSeptember 30, |  
|                                                                              |  | 2009                            |            |   | 2008                           |   |            | 2009 |  |   | 2008       |  
|REVENUES                                                                      |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Gross premiums written                                                        |  | $                               | 265,886    |   |                                | $ | 206,260    |      |  | $ | 1,096,668  |   |  | $ | 882,186    |  
|Reinsurance premiums ceded                                                    |  |                                 | (83,290    | ) |                                |   | (96,061    | )    |  |   | (377,338   | ) |  |   | (299,851   | )
|                                                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Net premiums written                                                          |  | $                               | 182,596    |   |                                | $ | 110,199    |      |  | $ | 719,330    |   |  | $ | 582,335    |  
|                                                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Earned premiums                                                               |  | $                               | 329,869    |   |                                | $ | 238,378    |      |  | $ | 993,871    |   |  | $ | 760,676    |  
|Earned premiums ceded                                                         |  |                                 | (121,853   | ) |                                |   | (96,789    | )    |  |   | (366,788   | ) |  |   | (248,665   | )
|                                                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Net premiums earned                                                           |  |                                 | 208,016    |   |                                |   | 141,589    |      |  |   | 627,083    |   |  |   | 512,011    |  
|Net investment income                                                         |  |                                 | 42,830     |   |                                |   | 45,265     |      |  |   | 125,073    |   |  |   | 137,398    |  
|Net gains (losses) on other investments                                       |  |                                 | 23,275     |   |                                |   | (158,756   | )    |  |   | 62,693     |   |  |   | (144,990   | )
|Net realized gains (losses) on fixed maturities                               |  |                                 | 1,253      |   |                                |   | (3,793     | )    |  |   | 1,747      |   |  |   | (1,024     | )
|Total other-than-temporary impairment losses                                  |  |                                 |           |   |                                |   | (13,757    | )    |  |   | (5,190     | ) |  |   | (16,887    | )
|Portion of loss recognized in other comprehensive income (loss), before taxes |  |                                 | (139       | ) |                                |   |           |      |  |   | 3,037      |   |  |   |           |  
|                                                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Net impairment losses recognized in earnings                                  |  |                                 | (139       | ) |                                |   | (13,757    | )    |  |   | (2,153     | ) |  |   | (16,887    | )
|Other income                                                                  |  |                                 | 819        |   |                                |   | (423       | )    |  |   | 3,099      |   |  |   | 1,001      |  
|                                                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Total revenues                                                                |  |                                 | 276,054    |   |                                |   | 10,125     |      |  |   | 817,542    |   |  |   | 487,509    |  
|                                                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|LOSSES AND EXPENSES                                                           |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Net losses and loss expenses                                                  |  |                                 | 131,778    |   |                                |   | 106,834    |      |  |   | 378,729    |   |  |   | 278,585    |  
|Claims and policy benefits                                                    |  |                                 | 14,378     |   |                                |   | 14,000     |      |  |   | 84,117     |   |  |   | 137,175    |  
|Acquisition costs                                                             |  |                                 | 27,997     |   |                                |   | 13,896     |      |  |   | 73,686     |   |  |   | 35,743     |  
|Interest expense                                                              |  |                                 | 5,971      |   |                                |   | 4,501      |      |  |   | 14,654     |   |  |   | 20,547     |  
|Net foreign exchange losses (gains)                                           |  |                                 | 406        |   |                                |   | 1,971      |      |  |   | (6,474     | ) |  |   | 1,984      |  
|Merger and acquisition expenses                                               |  |                                 | (41,350    | ) |                                |   | (500       | )    |  |   | (31,342    | ) |  |   | 3,488      |  
|General and administrative expenses                                           |  |                                 | 40,372     |   |                                |   | 31,837     |      |  |   | 115,537    |   |  |   | 90,048     |  
|                                                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Total losses and expenses                                                     |  |                                 | 179,552    |   |                                | $ | 172,539    |      |  |   | 628,907    |   |  | $ | 567,570    |  
|                                                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|INCOME (LOSS) BEFORE TAXES                                                    |  |                                 | 96,502     |   |                                |   | (162,414   | )    |  |   | 188,635    |   |  |   | (80,061    | )
|Income tax expense                                                            |  |                                 | 1,176      |   |                                |   | 773        |      |  |   | 5,012      |   |  |   | 1,174      |  
|                                                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|NET INCOME (LOSS)                                                             |  |                                 | 95,326     |   |                                | $ | (163,187   | )    |  |   | 183,623    |   |  | $ | (81,235    | )
|                                                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Change in net unrealized gains and losses of fixed maturities, net of tax     |  |                                 | 95,794     |   |                                |   | (40,127    | )    |  |   | 66,629     |   |  |   | (108,939   | )
|Foreign currency translation adjustment                                       |  |                                 | (4,462     | ) |                                |   | (9,116     | )    |  |   | 20,372     |   |  |   | (17,469    | )
|                                                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|COMPREHENSIVE INCOME (LOSS)                                                   |  | $                               | 186,658    |   |                                | $ | (212,430   | )    |  | $ | 270,624    |   |  | $ | (207,643   | )
|                                                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Basic earnings per share                                                      |  | $                               | 1.67       |   |                                | $ | (2.89      | )    |  | $ | 3.22       |   |  | $ | (1.43      | )
|                                                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Diluted earnings per share (1)                                                |  | $                               | 1.64       |   |                                | $ | (2.89      | )    |  | $ | 3.18       |   |  | $ | (1.43      | )
|                                                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Weighted average common shares outstandingbasic                              |  |                                 | 57,233,115 |   |                                |   | 56,385,134 |      |  |   | 56,978,901 |   |  |   | 56,660,457 |  
|                                                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Weighted average common shares outstandingdiluted (1)                        |  |                                 | 58,210,501 |   |                                |   | 56,385,134 |      |  |   | 57,677,996 |   |  |   | 56,660,457 |  
|                                                                              |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  



|(1) | Diluted earnings per share calculations use weighted average common shares outstanding-basic, when in a net loss position.
|--- | --------------------------------------------------------------------------------------------------------------------------

See accompanying notes to unaudited interim consolidated financial statements.



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MAX CAPITAL GROUP LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Unaudited)

(Expressed in thousands of U.S. Dollars)



|                                                                                                       |  |                                |           |   |      |   |           |  
|------------------------------------------------------------------------------------------------------ |  | ------------------------------ | --------- | - | ---- | - | --------- | -
|                                                                                                       |  | Nine Months EndedSeptember 30, |          
|                                                                                                       |  | 2009                           |           |   | 2008 |  
|Common shares                                                                                          |  |                                |           |   |      |   |           |  
|Balance, beginning of period                                                                           |  | $                              | 55,806    |   |      | $ | 57,515    |  
|Issuance of common shares, net                                                                         |  |                                | 1,529     |   |      |   | 2,315     |  
|Repurchase of shares                                                                                   |  |                                | (322      | ) |      |   | (3,860    | )
|                                                                                                       |  |                                |           |   |      |   |           |  
|Balance, end of period                                                                                 |  |                                | 57,013    |   |      |   | 55,970    |  
|                                                                                                       |  |                                |           |   |      |   |           |  
|Additional paid-in capital                                                                             |  |                                |           |   |      |   |           |  
|Balance, beginning of period                                                                           |  |                                | 763,391   |   |      |   | 844,455   |  
|Issuance of common shares, net                                                                         |  |                                | 457       |   |      |   | 2,677     |  
|Stock based compensation expense                                                                       |  |                                | 16,124    |   |      |   | 14,726    |  
|Repurchase of shares                                                                                   |  |                                | (6,049    | ) |      |   | (102,380  | )
|                                                                                                       |  |                                |           |   |      |   |           |  
|Balance, end of period                                                                                 |  |                                | 773,923   |   |      |   | 759,478   |  
|                                                                                                       |  |                                |           |   |      |   |           |  
|Accumulated other comprehensive income (loss)                                                          |  |                                |           |   |      |   |           |  
|Balance, beginning of period                                                                           |  |                                | (45,399   | ) |      |   | (20,341   | )
|Holding gains (losses) on available for sale securities arising in period, net of tax                  |  |                                | 66,650    |   |      |   | (122,677  | )
|Net realized losses on available for sale securities included in net income, net of tax                |  |                                | 3,016     |   |      |   | 13,738    |  
|Portion of other-than-temporary impairment losses recognized in other comprehensive income, net of tax |  |                                | (3,037    | ) |      |   |          |  
|Foreign currency translation adjustment                                                                |  |                                | 20,372    |   |      |   | (17,469   | )
|                                                                                                       |  |                                |           |   |      |   |           |  
|Balance, end of period                                                                                 |  |                                | 41,602    |   |      |   | (146,749  | )
|                                                                                                       |  |                                |           |   |      |   |           |  
|Retained earnings                                                                                      |  |                                |           |   |      |   |           |  
|Balance, beginning of period                                                                           |  |                                | 506,533   |   |      |   | 702,265   |  
|Net income (loss)                                                                                      |  |                                | 183,623   |   |      |   | (81,235   | )
|Dividends paid                                                                                         |  |                                | (16,020   | ) |      |   | (15,247   | )
|                                                                                                       |  |                                |           |   |      |   |           |  
|Balance, end of period                                                                                 |  |                                | 674,136   |   |      |   | 605,783   |  
|                                                                                                       |  |                                |           |   |      |   |           |  
|Total shareholders equity                                                                             |  | $                              | 1,546,674 |   |      | $ | 1,274,482 |  
|                                                                                                       |  |                                |           |   |      |   |           |  

See accompanying notes to unaudited interim consolidated financial statements.



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MAX CAPITAL GROUP LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Expressed in thousands of U.S. Dollars)



|                                                                                         |  |                                |           |   |      |   |          |  
|---------------------------------------------------------------------------------------- |  | ------------------------------ | --------- | - | ---- | - | -------- | -
|                                                                                         |  | Nine Months EndedSeptember 30, |          
|                                                                                         |  | 2009                           |           |   | 2008 |  
|OPERATING ACTIVITIES                                                                     |  |                                |           |   |      |   |          |  
|Net income (loss)                                                                        |  | $                              | 183,623   |   |      | $ | (81,235  | )
|Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |                                |           |   |      |   |          |  
|Stock based compensation                                                                 |  |                                | 16,124    |   |      |   | 14,726   |  
|Amortization of premium on fixed maturities                                              |  |                                | 2,503     |   |      |   | 3,771    |  
|Accretion of deposit liabilities                                                         |  |                                | 2,078     |   |      |   | 3,649    |  
|Net (gains) losses on other investments                                                  |  |                                | (62,693   | ) |      |   | 144,990  |  
|Net realized (gains) losses on fixed maturities                                          |  |                                | (1,747    | ) |      |   | 1,024    |  
|Net impairment losses recognized in earnings                                             |  |                                | 2,153     |   |      |   | 16,887   |  
|Changes in:                                                                              |  |                                |           |   |      |   |          |  
|Accrued interest income                                                                  |  |                                | 820       |   |      |   | 1,461    |  
|Premiums receivable                                                                      |  |                                | 12,894    |   |      |   | (72,295  | )
|Losses and benefits recoverable from reinsurers                                          |  |                                | (130,985  | ) |      |   | (140,869 | )
|Deferred acquisition costs                                                               |  |                                | (13,645   | ) |      |   | (7,381   | )
|Prepaid reinsurance premiums                                                             |  |                                | (11,907   | ) |      |   | (51,004  | )
|Other assets                                                                             |  |                                | (2,624    | ) |      |   | 17,135   |  
|Property and casualty losses                                                             |  |                                | 183,163   |   |      |   | 247,334  |  
|Life and annuity benefits                                                                |  |                                | 508       |   |      |   | 55,057   |  
|Funds withheld from reinsurers                                                           |  |                                | (21,773   | ) |      |   | (10,306  | )
|Unearned property and casualty premiums                                                  |  |                                | 92,046    |   |      |   | 121,510  |  
|Reinsurance balances payable                                                             |  |                                | (10,515   | ) |      |   | 48,358   |  
|Accounts payable and accrued expenses                                                    |  |                                | 9,828     |   |      |   | 36,821   |  
|                                                                                         |  |                                |           |   |      |   |          |  
|Cash provided by operating activities                                                    |  |                                | 249,851   |   |      |   | 349,633  |  
|                                                                                         |  |                                |           |   |      |   |          |  
|INVESTING ACTIVITIES                                                                     |  |                                |           |   |      |   |          |  
|Purchases of available for sale securities                                               |  |                                | (783,451  | ) |      |   | (630,760 | )
|Sales of available for sale securities                                                   |  |                                | 175,465   |   |      |   | 261,290  |  
|Redemptions of available for sale securities                                             |  |                                | 479,310   |   |      |   | 441,634  |  
|Purchases of trading securities                                                          |  |                                | (40,691   | ) |      |   |         |  
|Sales of trading securities                                                              |  |                                | 28,887    |   |      |   |         |  
|Redemptions of trading securities                                                        |  |                                | 5,094     |   |      |   |         |  
|Purchases of held to maturity securities                                                 |  |                                | (33,647   | ) |      |   |         |  
|Net sales of other investments                                                           |  |                                | 462,501   |   |      |   | 28,251   |  
|Acquisition of subsidiary, net of cash acquired                                          |  |                                |          |   |      |   | (29,941  | )
|                                                                                         |  |                                |           |   |      |   |          |  
|Cash provided by investing activities                                                    |  |                                | 293,468   |   |      |   | 70,474   |  
|                                                                                         |  |                                |           |   |      |   |          |  
|FINANCING ACTIVITIES                                                                     |  |                                |           |   |      |   |          |  
|Net proceeds from issuance of common shares                                              |  |                                | 1,986     |   |      |   | 4,992    |  
|Repurchase of common shares                                                              |  |                                | (6,371    | ) |      |   | (106,240 | )
|Dividends paid                                                                           |  |                                | (16,020   | ) |      |   | (15,247  | )
|Repayments of bank loans                                                                 |  |                                | (375,000  | ) |      |   | (35,000  | )
|Additions to deposit liabilities                                                         |  |                                | 12,422    |   |      |   | 15,762   |  
|Payments of deposit liabilities                                                          |  |                                | (80,748   | ) |      |   | (21,011  | )
|                                                                                         |  |                                |           |   |      |   |          |  
|Cash used in financing activities                                                        |  |                                | (463,731  | ) |      |   | (156,744 | )
|                                                                                         |  |                                |           |   |      |   |          |  
|Effect of exchange rate on foreign currency cash                                         |  |                                | 27,019    |   |      |   | (8,090   | )
|Net increase in cash and cash equivalents                                                |  |                                | 106,607   |   |      |   | 255,273  |  
|Cash and cash equivalents, beginning of period                                           |  |                                | 949,404   |   |      |   | 397,656  |  
|                                                                                         |  |                                |           |   |      |   |          |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                                 |  | $                              | 1,056,011 |   |      | $ | 652,929  |  
|                                                                                         |  |                                |           |   |      |   |          |  

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Interest paid totaled $4,943 and $14,892 for the nine months ended September 30, 2009 and 2008, respectively.

Corporate taxes paid totaled $310 and $185 for the nine months ended September 30, 2009 and 2008, respectively.

See accompanying notes to unaudited interim consolidated financial statements.



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##### Table of Contents

MAX CAPITAL GROUP LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. GENERAL

Max Capital Group Ltd. (Max Capital and,
collectively with its subsidiaries, the Company), is a Bermuda headquartered global provider of specialty insurance and reinsurance products for the property and casualty market, with underwriting operations based in Bermuda, Ireland,
the United States and the United Kingdom. The Company underwrites a diversified portfolio of risks and serves clients ranging from Fortune 1000 companies to small owner-operated businesses. The Company also provides reinsurance for the life and
annuity market when attractive opportunities arise.

Max Capital was incorporated on July 8, 1999 under the laws of
Bermuda. Max Capitals principal operating subsidiary is Max Bermuda Ltd. (Max Bermuda). Max Bermuda is registered as a Class 4 insurer and long-term insurer under the insurance laws of Bermuda.

The Companys non-Lloyds European activities are conducted from Dublin, Ireland through Max Europe Holdings Limited and its two
wholly-owned operating subsidiaries, Max Re Europe Limited (Max Re Europe) and Max Insurance Europe Limited (Max Insurance Europe). In November 2008, Max Capital completed the acquisition of Max UK Holdings Ltd. (Max
UK) which, through Lloyds Syndicates 1400, 2525 and 2526 (the Syndicates), underwrites a diverse portfolio of specialty risks. Max UKs operations are based primarily in London, England.

The Companys U.S. activities are conducted through Max USA Holdings Ltd. (Max USA) and its operating subsidiaries Max
Specialty Insurance Company (Max Specialty), a Delaware-domiciled excess and surplus insurance company, and Max America Insurance Company (Max America), an Indiana-domiciled insurance company. Through Max America and Max
Specialty, the Company is able to write both admitted and non-admitted business throughout the United States and Puerto Rico.

This report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

The consolidated financial statements are prepared in accordance with United States generally accepted accounting principles (U.S. GAAP) for interim financial information and in
conformity with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these
unaudited consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Companys financial position and results of operations as at the end of and for
the periods presented. All significant intercompany accounts and transactions have been eliminated from these statements.

Certain reclassifications have been made to prior period amounts to conform to the current period presentation. These include the reclassification of other-than-temporary impairment losses to be presented separately from net realized gains
and losses on fixed maturities and the reclassification of merger and acquisition expenses to be presented separately from general and administrative expenses in the consolidated statements of income and comprehensive income.

2. RECENT ACCOUNTING PRONOUNCEMENTS

ASU 2009-01  The FASB Accounting Standards Codification and Hierarchy of Generally Accepted Accounting Principles

On July 1, 2009, the FASB launched its Accounting Standards Codification (the Codification). The Codification became the sole source of authoritative U.S. GAAP for interim and annual
periods ending after September 15, 2009. Other than resolving certain minor inconsistencies in current U.S. GAAP, the Codification does not change U.S. GAAP, but is intended to make it easier to find and research U.S. GAAP applicable to a
particular transaction or specific accounting issue. The Codification did not have a material impact on the Companys consolidated financial statements.

ASU 2009-05, Fair Value Measurements and Disclosures (820)  Measuring Liabilities at Fair Value

ASU 2009-05 allows companies determining the fair value of a liability to use the perspective of an investor that holds the related obligation as an asset. The guidance is effective for interim and annual
periods beginning after August 27, 2009 and applied to all fair value measurements of liabilities. This accounting standards update is not expected to have a material impact on the Companys consolidated financial statements.



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##### Table of Contents

MAX CAPITAL GROUP LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)



ASU 2009-12, Fair Value Measurements and Disclosures (820)  Investments
in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent)

ASU 2009-12 expands the circumstances
in which a practical expedient may be used to estimate fair value to include investments in foreign and other entities that have attributes of investment companies and report net asset value or its equivalent to their investors. The practical
expedient cannot be used for investments that have a readily determinable fair value. The ASU sets forth disclosure requirements for investments within its scope. The amendments in ASU 2009-12 are effective for interim and annual periods ending
after December 15, 2009 with early adoption permitted. The Company has not early adopted this accounting standards update, however, the Company already makes use of reported net asset value to measure fair value for its other investments and
does not expect this standard to have a material impact on the Companys consolidated financial statements.

3. EARNINGS PER SHARE

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

In the three months ended March 31, 2009 the Company adopted a new accounting standard (in accordance with ASC 260-10-45) which
requires share based compensation awards that qualify as participating securities to be included in basic earnings per share using the two-class method. A share based compensation award is considered a participating security if it receives
non-forfeitable dividends. The pronouncement became effective for fiscal years beginning after December 15, 2008 and interim periods within those years. All prior-period earnings per share data presented are adjusted retroactively to conform to
the pronouncement. The adoption resulted in no change to earnings per share as previously reported for the three month and nine month periods ended September 30, 2008.

4. SEGMENT INFORMATION

The Company operates in five segments:
Bermuda/Dublin insurance, Bermuda/Dublin reinsurance, U.S. specialty, Max at Lloyds and life and annuity reinsurance. Within the Bermuda/Dublin insurance segment, the Company offers property and casualty excess of loss capacity on specific
risks related to individual insureds. In the Bermuda/Dublin reinsurance segment, the Company offers property and casualty quota share and excess of loss capacity providing coverage for a portfolio of underlying risks written by the Companys
clients. The U.S. specialty segment offers property and casualty coverage insurance from offices in the United States on specific risks related to individual insureds. The Max at Lloyds segment offers property and property catastrophe
reinsurance, accident & health reinsurance, financial institutions insurance and professional liability insurance coverage through the Syndicates. The life and annuity reinsurance segment offers reinsurance products focusing on existing
blocks of life and annuity business, which take the form of co-insurance transactions whereby the risks are reinsured on the same basis as the original policies.

The Company also has a corporate function that manages its investing and financing activities.

Each of the U.S. specialty and the Max at Lloyds segments has its own portfolio of fixed maturities investments. The investment income earned by each of these segments is reported in the respective
segment.

In contrast, invested assets relating to the Bermuda/Dublin insurance, Bermuda/Dublin reinsurance and life and
annuity segments are managed on an aggregated basis. Consequently, investment income on this consolidated portfolio and gains on other investments are not directly captured in any one of these segments. However, because of the longer duration of
liabilities on casualty insurance and reinsurance business (as compared to property) and life and annuity reinsurance business, investment returns are important in evaluating the profitability of these segments. Accordingly, we allocate investment
returns from the consolidated portfolio to each of these three segments. This is based on a notional allocation of invested assets from the consolidated portfolio using durations that are determined based on estimated cash flows into and out of each
segment. The balance of investment returns from this consolidated portfolio is allocated to our corporate function for the purposes of segment reporting.



8



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##### Table of Contents

MAX CAPITAL GROUP LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)



A summary of operations by segment for the three and nine months ended
September 30, 2009 and 2008 follows:

(Expressed in thousands of U.S. Dollars)



|                                                |  |                                       |         |   |                           |   |         |               |  |   |               |   |  |       |        |   |             |   |          |           |  |   |              |   |  |   |         |   |  |   |          |  
|----------------------------------------------- |  | ------------------------------------- | ------- | - | ------------------------- | - | ------- | ------------- |  | - | ------------- | - |  | ----- | ------ | - | ----------- | - | -------- | --------- |  | - | ------------ | - |  | - | ------- | - |  | - | -------- | -
|                                                |  | Three Months Ended September 30, 2009 |        
|                                                |  | Property & Casualty                   |         |   | Life &Annuity             |   |         |               |  |   |               |  
|                                                |  | Bermuda/DublinInsurance               |         |   | Bermuda/DublinReinsurance |   |         | U.S.Specialty |  |   | Max atLloyds |   |  | Total |        |   | Reinsurance |   |          | Corporate |  |   | Consolidated |  
|Gross premiums written                          |  | $                                     | 81,134  |   |                           | $ | 94,118  |               |  | $ | 69,419        |   |  | $     | 21,087 |   |             | $ | 265,758  |           |  | $ | 128          |   |  | $ |        |   |  | $ | 265,886  |  
|Reinsurance premiums ceded                      |  |                                       | (41,884 | ) |                           |   | (11,106 | )             |  |   | (26,259       | ) |  |       | (4,015 | ) |             |   | (83,264  | )         |  |   | (26          | ) |  |   |        |   |  |   | (83,290  | )
|                                                |  |                                       |         |   |                           |   |         |               |  |   |               |   |  |       |        |   |             |   |          |           |  |   |              |   |  |   |         |   |  |   |          |  
|Net premiums written                            |  | $                                     | 39,250  |   |                           | $ | 83,012  |               |  | $ | 43,160        |   |  | $     | 17,072 |   |             | $ | 182,494  |           |  | $ | 102          |   |  | $ |        |   |  | $ | 182,596  |  
|                                                |  |                                       |         |   |                           |   |         |               |  |   |               |   |  |       |        |   |             |   |          |           |  |   |              |   |  |   |         |   |  |   |          |  
|Earned premiums                                 |  | $                                     | 103,961 |   |                           | $ | 128,458 |               |  | $ | 68,175        |   |  | $     | 29,147 |   |             | $ | 329,741  |           |  | $ | 128          |   |  | $ |        |   |  | $ | 329,869  |  
|Earned premiums ceded                           |  |                                       | (54,814 | ) |                           |   | (25,367 | )             |  |   | (37,074       | ) |  |       | (4,572 | ) |             |   | (121,827 | )         |  |   | (26          | ) |  |   |        |   |  |   | (121,853 | )
|                                                |  |                                       |         |   |                           |   |         |               |  |   |               |   |  |       |        |   |             |   |          |           |  |   |              |   |  |   |         |   |  |   |          |  
|Net premiums earned                             |  |                                       | 49,147  |   |                           |   | 103,091 |               |  |   | 31,101        |   |  |       | 24,575 |   |             |   | 207,914  |           |  |   | 102          |   |  |   |        |   |  |   | 208,016  |  
|Net investment income                           |  |                                       | 5,898   |   |                           |   | 10,404  |               |  |   | 1,461         |   |  |       | 1,749  |   |             |   | 19,512   |           |  |   | 13,143       |   |  |   | 10,175  |   |  |   | 42,830   |  
|Net gains on other investments                  |  |                                       | 1,298   |   |                           |   | 3,040   |               |  |   |              |   |  |       |       |   |             |   | 4,338    |           |  |   | 11,932       |   |  |   | 7,005   |   |  |   | 23,275   |  
|Net realized gains (losses) on fixed maturities |  |                                       |        |   |                           |   |        |               |  |   |              |   |  |       | 1,400  |   |             |   | 1,400    |           |  |   |             |   |  |   | (147    | ) |  |   | 1,253    |  
|Net impairment losses recognized in earnings    |  |                                       |        |   |                           |   |        |               |  |   |              |   |  |       |       |   |             |   |         |           |  |   |             |   |  |   | (139    | ) |  |   | (139     | )
|Other income                                    |  |                                       | 91      |   |                           |   |        |               |  |   | 52            |   |  |       | (33    | ) |             |   | 110      |           |  |   |             |   |  |   | 709     |   |  |   | 819      |  
|                                                |  |                                       |         |   |                           |   |         |               |  |   |               |   |  |       |        |   |             |   |          |           |  |   |              |   |  |   |         |   |  |   |          |  
|Total revenues                                  |  |                                       | 56,434  |   |                           |   | 116,535 |               |  |   | 32,614        |   |  |       | 27,691 |   |             |   | 233,274  |           |  |   | 25,177       |   |  |   | 17,603  |   |  |   | 276,054  |  
|                                                |  |                                       |         |   |                           |   |         |               |  |   |               |   |  |       |        |   |             |   |          |           |  |   |              |   |  |   |         |   |  |   |          |  
|Net losses and loss expenses                    |  |                                       | 31,756  |   |                           |   | 68,728  |               |  |   | 21,266        |   |  |       | 10,028 |   |             |   | 131,778  |           |  |   |             |   |  |   |        |   |  |   | 131,778  |  
|Claims and policy benefits                      |  |                                       |        |   |                           |   |        |               |  |   |              |   |  |       |       |   |             |   |         |           |  |   | 14,378       |   |  |   |        |   |  |   | 14,378   |  
|Acquisition costs                               |  |                                       | 369     |   |                           |   | 20,299  |               |  |   | 1,926         |   |  |       | 5,250  |   |             |   | 27,844   |           |  |   | 153          |   |  |   |        |   |  |   | 27,997   |  
|Interest expense                                |  |                                       |        |   |                           |   | 1,706   |               |  |   |              |   |  |       |       |   |             |   | 1,706    |           |  |   | 2,349        |   |  |   | 1,916   |   |  |   | 5,971    |  
|Net foreign exchange losses                     |  |                                       |        |   |                           |   |        |               |  |   |              |   |  |       | 42     |   |             |   | 42       |           |  |   |             |   |  |   | 364     |   |  |   | 406      |  
|Merger and acquisition expenses                 |  |                                       |        |   |                           |   |        |               |  |   |              |   |  |       |       |   |             |   |         |           |  |   |             |   |  |   | (41,350 | ) |  |   | (41,350  | )
|General and administrative expenses             |  |                                       | 7,281   |   |                           |   | 8,857   |               |  |   | 7,804         |   |  |       | 5,423  |   |             |   | 29,365   |           |  |   | 829          |   |  |   | 10,178  |   |  |   | 40,372   |  
|                                                |  |                                       |         |   |                           |   |         |               |  |   |               |   |  |       |        |   |             |   |          |           |  |   |              |   |  |   |         |   |  |   |          |  
|Total losses and expenses                       |  |                                       | 39,406  |   |                           |   | 99,590  |               |  |   | 30,996        |   |  |       | 20,743 |   |             |   | 190,735  |           |  |   | 17,709       |   |  |   | (28,892 | ) |  |   | 179,552  |  
|                                                |  |                                       |         |   |                           |   |         |               |  |   |               |   |  |       |        |   |             |   |          |           |  |   |              |   |  |   |         |   |  |   |          |  
|Income before taxes                             |  | $                                     | 17,028  |   |                           | $ | 16,945  |               |  | $ | 1,618         |   |  | $     | 6,948  |   |             | $ | 42,539   |           |  | $ | 7,468        |   |  | $ | 46,495  |   |  | $ | 96,502   |  
|                                                |  |                                       |         |   |                           |   |         |               |  |   |               |   |  |       |        |   |             |   |          |           |  |   |              |   |  |   |         |   |  |   |          |  
|Loss ratio *                                    |  |                                       | 64.6    | % |                           |   | 66.7    | %             |  |   | 68.4          | % |  |       | 40.8   | % |             |   | 63.4     | %         |  |   | ***          |   |  |   |         |   |  |   |          |  
|Combined ratio **                               |  |                                       | 80.2    | % |                           |   | 94.9    | %             |  |   | 99.7          | % |  |       | 84.2   | % |             |   | 90.9     | %         |  |   | ***          |   |  |   |         |   |  |   |          |  



|* | Loss ratio is calculated by dividing net losses and loss expenses by net premiums earned.
|- | -----------------------------------------------------------------------------------------

|** | Combined ratio is calculated by dividing the sum of net losses and loss expenses, acquisition costs and general and administrative expenses by net premiums earned.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*** | Loss ratio and combined ratio are not provided for the life and annuity reinsurance segment as the Company believes these ratios are not appropriate measures for life
and annuity underwriting.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

MAX CAPITAL GROUP LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)



(Expressed in thousands of U.S. Dollars)



|                                                |  |                                      |          |   |                           |   |         |               |  |   |               |   |  |       |         |   |             |   |           |           |  |   |              |   |  |   |         |   |  |   |           |  
|----------------------------------------------- |  | ------------------------------------ | -------- | - | ------------------------- | - | ------- | ------------- |  | - | ------------- | - |  | ----- | ------- | - | ----------- | - | --------- | --------- |  | - | ------------ | - |  | - | ------- | - |  | - | --------- | -
|                                                |  | Nine Months Ended September 30, 2009 |         
|                                                |  | Property & Casualty                  |          |   | Life &Annuity             |   |         |               |  |   |               |  
|                                                |  | Bermuda/DublinInsurance              |          |   | Bermuda/DublinReinsurance |   |         | U.S.Specialty |  |   | Max atLloyds |   |  | Total |         |   | Reinsurance |   |           | Corporate |  |   | Consolidated |  
|Gross premiums written                          |  | $                                    | 302,727  |   |                           | $ | 422,296 |               |  | $ | 219,268       |   |  | $     | 110,629 |   |             | $ | 1,054,920 |           |  | $ | 41,748       |   |  | $ |        |   |  | $ | 1,096,668 |  
|Reinsurance premiums ceded                      |  |                                      | (146,076 | ) |                           |   | (80,574 | )             |  |   | (118,579      | ) |  |       | (31,963 | ) |             |   | (377,192  | )         |  |   | (146         | ) |  |   |        |   |  |   | (377,338  | )
|                                                |  |                                      |          |   |                           |   |         |               |  |   |               |   |  |       |         |   |             |   |           |           |  |   |              |   |  |   |         |   |  |   |           |  
|Net premiums written                            |  | $                                    | 156,651  |   |                           | $ | 341,722 |               |  | $ | 100,689       |   |  | $     | 78,666  |   |             | $ | 677,728   |           |  | $ | 41,602       |   |  | $ |        |   |  | $ | 719,330   |  
|                                                |  |                                      |          |   |                           |   |         |               |  |   |               |   |  |       |         |   |             |   |           |           |  |   |              |   |  |   |         |   |  |   |           |  
|Earned premiums                                 |  | $                                    | 307,709  |   |                           | $ | 364,994 |               |  | $ | 185,609       |   |  | $     | 93,811  |   |             | $ | 952,123   |           |  | $ | 41,748       |   |  | $ |        |   |  | $ | 993,871   |  
|Earned premiums ceded                           |  |                                      | (157,710 | ) |                           |   | (74,711 | )             |  |   | (111,682      | ) |  |       | (22,539 | ) |             |   | (366,642  | )         |  |   | (146         | ) |  |   |        |   |  |   | (366,788  | )
|                                                |  |                                      |          |   |                           |   |         |               |  |   |               |   |  |       |         |   |             |   |           |           |  |   |              |   |  |   |         |   |  |   |           |  
|Net premiums earned                             |  |                                      | 149,999  |   |                           |   | 290,283 |               |  |   | 73,927        |   |  |       | 71,272  |   |             |   | 585,481   |           |  |   | 41,602       |   |  |   |        |   |  |   | 627,083   |  
|Net investment income                           |  |                                      | 16,861   |   |                           |   | 29,607  |               |  |   | 4,549         |   |  |       | 3,216   |   |             |   | 54,233    |           |  |   | 37,626       |   |  |   | 33,214  |   |  |   | 125,073   |  
|Net gains on other investments                  |  |                                      | 3,537    |   |                           |   | 8,467   |               |  |   |              |   |  |       |        |   |             |   | 12,004    |           |  |   | 29,146       |   |  |   | 21,543  |   |  |   | 62,693    |  
|Net realized gains (losses) on fixed maturities |  |                                      |         |   |                           |   |        |               |  |   | 148           |   |  |       | 2,587   |   |             |   | 2,735     |           |  |   |             |   |  |   | (988    | ) |  |   | 1,747     |  
|Net impairment losses recognized in earnings    |  |                                      |         |   |                           |   |        |               |  |   |              |   |  |       |        |   |             |   |          |           |  |   |             |   |  |   | (2,153  | ) |  |   | (2,153    | )
|Other income                                    |  |                                      | 1,238    |   |                           |   | 12      |               |  |   | 272           |   |  |       | 475     |   |             |   | 1,997     |           |  |   |             |   |  |   | 1,102   |   |  |   | 3,099     |  
|                                                |  |                                      |          |   |                           |   |         |               |  |   |               |   |  |       |         |   |             |   |           |           |  |   |              |   |  |   |         |   |  |   |           |  
|Total revenues                                  |  |                                      | 171,635  |   |                           |   | 328,369 |               |  |   | 78,896        |   |  |       | 77,550  |   |             |   | 656,450   |           |  |   | 108,374      |   |  |   | 52,718  |   |  |   | 817,542   |  
|                                                |  |                                      |          |   |                           |   |         |               |  |   |               |   |  |       |         |   |             |   |           |           |  |   |              |   |  |   |         |   |  |   |           |  
|Net losses and loss expenses                    |  |                                      | 106,029  |   |                           |   | 192,756 |               |  |   | 46,500        |   |  |       | 33,444  |   |             |   | 378,729   |           |  |   |             |   |  |   |        |   |  |   | 378,729   |  
|Claims and policy benefits                      |  |                                      |         |   |                           |   |        |               |  |   |              |   |  |       |        |   |             |   |          |           |  |   | 84,117       |   |  |   |        |   |  |   | 84,117    |  
|Acquisition costs                               |  |                                      | (1,503   | ) |                           |   | 53,496  |               |  |   | 5,873         |   |  |       | 14,797  |   |             |   | 72,663    |           |  |   | 1,023        |   |  |   |        |   |  |   | 73,686    |  
|Interest expense                                |  |                                      |         |   |                           |   | 2,400   |               |  |   |              |   |  |       |        |   |             |   | 2,400     |           |  |   | 2,803        |   |  |   | 9,451   |   |  |   | 14,654    |  
|Net foreign exchange gains                      |  |                                      |         |   |                           |   |        |               |  |   |              |   |  |       | (5,124  | ) |             |   | (5,124    | )         |  |   |             |   |  |   | (1,350  | ) |  |   | (6,474    | )
|Merger and acquisition expenses                 |  |                                      |         |   |                           |   |        |               |  |   |              |   |  |       |        |   |             |   |          |           |  |   |             |   |  |   | (31,342 | ) |  |   | (31,342   | )
|General and administrative expenses             |  |                                      | 17,825   |   |                           |   | 23,604  |               |  |   | 21,195        |   |  |       | 15,856  |   |             |   | 78,480    |           |  |   | 2,180        |   |  |   | 34,877  |   |  |   | 115,537   |  
|                                                |  |                                      |          |   |                           |   |         |               |  |   |               |   |  |       |         |   |             |   |           |           |  |   |              |   |  |   |         |   |  |   |           |  
|Total losses and expenses                       |  |                                      | 122,351  |   |                           |   | 272,256 |               |  |   | 73,568        |   |  |       | 58,973  |   |             |   | 527,148   |           |  |   | 90,123       |   |  |   | 11,636  |   |  |   | 628,907   |  
|                                                |  |                                      |          |   |                           |   |         |               |  |   |               |   |  |       |         |   |             |   |           |           |  |   |              |   |  |   |         |   |  |   |           |  
|Income before taxes                             |  | $                                    | 49,284   |   |                           | $ | 56,113  |               |  | $ | 5,328         |   |  | $     | 18,577  |   |             | $ | 129,302   |           |  | $ | 18,251       |   |  | $ | 41,082  |   |  | $ | 188,635   |  
|                                                |  |                                      |          |   |                           |   |         |               |  |   |               |   |  |       |         |   |             |   |           |           |  |   |              |   |  |   |         |   |  |   |           |  
|Loss ratio *                                    |  |                                      | 70.7     | % |                           |   | 66.4    | %             |  |   | 62.9          | % |  |       | 46.9    | % |             |   | 64.7      | %         |  |   | ***          |   |  |   |         |   |  |   |           |  
|Combined ratio **                               |  |                                      | 81.6     | % |                           |   | 93.0    | %             |  |   | 99.5          | % |  |       | 89.9    | % |             |   | 90.5      | %         |  |   | ***          |   |  |   |         |   |  |   |           |  



|* | Loss ratio is calculated by dividing net losses and loss expenses by net premiums earned.
|- | -----------------------------------------------------------------------------------------

|** | Combined ratio is calculated by dividing the sum of net losses and loss expenses, acquisition costs and general and administrative expenses by net premiums earned.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*** | Loss ratio and combined ratio are not provided for the life and annuity reinsurance segment as the Company believes these ratios are not appropriate measures for life
and annuity underwriting.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



10



---

##### Table of Contents

MAX CAPITAL GROUP LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)



(Expressed in thousands of U.S. Dollars)



|                                             |  |                                       |         |   |                           |   |         |               |  |   |                   |   |       |   |   |             |   |         |           |  |   |              |   |  |   |         |   |  |   |          |  
|-------------------------------------------- |  | ------------------------------------- | ------- | - | ------------------------- | - | ------- | ------------- |  | - | ----------------- | - | ----- | - | - | ----------- | - | ------- | --------- |  | - | ------------ | - |  | - | ------- | - |  | - | -------- | -
|                                             |  | Three Months Ended September 30, 2008 |        
|                                             |  | Property & Casualty                   |         |   | Life &Annuity             |   |         |               |  |   |                   |  
|                                             |  | Bermuda/DublinInsurance               |         |   | Bermuda/DublinReinsurance |   |         | U.S.Specialty |  |   | Max atLloyds (a) |   | Total |   |   | Reinsurance |   |         | Corporate |  |   | Consolidated |  
|Gross premiums written                       |  | $                                     | 80,908  |   |                           | $ | 72,458  |               |  | $ | 52,894            |   |       | $ |  |             | $ | 206,260 |           |  | $ |             |   |  | $ |        |   |  | $ | 206,260  |  
|Reinsurance premiums ceded                   |  |                                       | (38,316 | ) |                           |   | (27,210 | )             |  |   | (30,535           | ) |       |   |  |             |   | (96,061 | )         |  |   |             |   |  |   |        |   |  |   | (96,061  | )
|                                             |  |                                       |         |   |                           |   |         |               |  |   |                   |   |       |   |   |             |   |         |           |  |   |              |   |  |   |         |   |  |   |          |  
|Net premiums written                         |  | $                                     | 42,592  |   |                           | $ | 45,248  |               |  | $ | 22,359            |   |       | $ |  |             | $ | 110,199 |           |  | $ |             |   |  | $ |        |   |  | $ | 110,199  |  
|                                             |  |                                       |         |   |                           |   |         |               |  |   |                   |   |       |   |   |             |   |         |           |  |   |              |   |  |   |         |   |  |   |          |  
|Earned premiums                              |  | $                                     | 93,264  |   |                           | $ | 110,132 |               |  | $ | 34,982            |   |       | $ |  |             | $ | 238,378 |           |  | $ |             |   |  | $ |        |   |  | $ | 238,378  |  
|Earned premiums ceded                        |  |                                       | (47,013 | ) |                           |   | (28,054 | )             |  |   | (21,722           | ) |       |   |  |             |   | (96,789 | )         |  |   |             |   |  |   |        |   |  |   | (96,789  | )
|                                             |  |                                       |         |   |                           |   |         |               |  |   |                   |   |       |   |   |             |   |         |           |  |   |              |   |  |   |         |   |  |   |          |  
|Net premiums earned                          |  |                                       | 46,251  |   |                           |   | 82,078  |               |  |   | 13,260            |   |       |   |  |             |   | 141,589 |           |  |   |             |   |  |   |        |   |  |   | 141,589  |  
|Net investment income                        |  |                                       | 4,933   |   |                           |   | 8,360   |               |  |   | 1,753             |   |       |   |  |             |   | 15,046  |           |  |   | 9,347        |   |  |   | 20,872  |   |  |   | 45,265   |  
|Net losses on other investments              |  |                                       | (14,937 | ) |                           |   | (32,637 | )             |  |   |                  |   |       |   |  |             |   | (47,574 | )         |  |   | (65,286      | ) |  |   | (45,896 | ) |  |   | (158,756 | )
|Net realized losses on fixed maturities      |  |                                       |        |   |                           |   |        |               |  |   | (523              | ) |       |   |  |             |   | (523    | )         |  |   |             |   |  |   | (3,270  | ) |  |   | (3,793   | )
|Net impairment losses recognized in earnings |  |                                       |        |   |                           |   |        |               |  |   |                  |   |       |   |  |             |   |        |           |  |   |             |   |  |   | (13,757 | ) |  |   | (13,757  | )
|Other income                                 |  |                                       |        |   |                           |   |        |               |  |   | 140               |   |       |   |  |             |   | 140     |           |  |   |             |   |  |   | (563    | ) |  |   | (423     | )
|                                             |  |                                       |         |   |                           |   |         |               |  |   |                   |   |       |   |   |             |   |         |           |  |   |              |   |  |   |         |   |  |   |          |  
|Total revenues                               |  |                                       | 36,247  |   |                           |   | 57,801  |               |  |   | 14,630            |   |       |   |  |             |   | 108,678 |           |  |   | (55,939      | ) |  |   | (42,614 | ) |  |   | 10,125   |  
|                                             |  |                                       |         |   |                           |   |         |               |  |   |                   |   |       |   |   |             |   |         |           |  |   |              |   |  |   |         |   |  |   |          |  
|Net losses and loss expenses                 |  |                                       | 39,014  |   |                           |   | 58,990  |               |  |   | 8,830             |   |       |   |  |             |   | 106,834 |           |  |   |             |   |  |   |        |   |  |   | 106,834  |  
|Claims and policy benefits                   |  |                                       |        |   |                           |   |        |               |  |   |                  |   |       |   |  |             |   |        |           |  |   | 14,000       |   |  |   |        |   |  |   | 14,000   |  
|Acquisition costs                            |  |                                       | (743    | ) |                           |   | 12,668  |               |  |   | 1,773             |   |       |   |  |             |   | 13,698  |           |  |   | 198          |   |  |   |        |   |  |   | 13,896   |  
|Interest expense                             |  |                                       |        |   |                           |   | (63     | )             |  |   |                  |   |       |   |  |             |   | (63     | )         |  |   | (148         | ) |  |   | 4,712   |   |  |   | 4,501    |  
|Net foreign exchange losses                  |  |                                       |        |   |                           |   |        |               |  |   |                  |   |       |   |  |             |   |        |           |  |   |             |   |  |   | 1,971   |   |  |   | 1,971    |  
|Merger and acquisition expenses              |  |                                       |        |   |                           |   |        |               |  |   |                  |   |       |   |  |             |   |        |           |  |   |             |   |  |   | (500    | ) |  |   | (500     | )
|General and administrative expenses          |  |                                       | 5,200   |   |                           |   | 6,186   |               |  |   | 8,323             |   |       |   |  |             |   | 19,709  |           |  |   | 782          |   |  |   | 11,346  |   |  |   | 31,837   |  
|                                             |  |                                       |         |   |                           |   |         |               |  |   |                   |   |       |   |   |             |   |         |           |  |   |              |   |  |   |         |   |  |   |          |  
|Total losses and expenses                    |  |                                       | 43,471  |   |                           |   | 77,781  |               |  |   | 18,926            |   |       |   |  |             |   | 140,178 |           |  |   | 14,832       |   |  |   | 17,529  |   |  |   | 172,539  |  
|                                             |  |                                       |         |   |                           |   |         |               |  |   |                   |   |       |   |   |             |   |         |           |  |   |              |   |  |   |         |   |  |   |          |  
|Loss before taxes                            |  | $                                     | (7,224  | ) |                           | $ | (19,980 | )             |  | $ | (4,296            | ) |       | $ |  |             | $ | (31,500 | )         |  | $ | (70,771      | ) |  | $ | (60,143 | ) |  | $ | (162,414 | )
|                                             |  |                                       |         |   |                           |   |         |               |  |   |                   |   |       |   |   |             |   |         |           |  |   |              |   |  |   |         |   |  |   |          |  
|Loss ratio *                                 |  |                                       | 84.4    | % |                           |   | 71.9    | %             |  |   | 66.6              | % |       |   |  |             |   | 75.5    | %         |  |   | ***          |   |  |   |         |   |  |   |          |  
|Combined ratio **                            |  |                                       | 94.0    | % |                           |   | 94.8    | %             |  |   | 142.7             | % |       |   |  |             |   | 99.0    | %         |  |   | ***          |   |  |   |         |   |  |   |          |  



|* | Loss ratio is calculated by dividing net losses and loss expenses by net premiums earned.
|- | -----------------------------------------------------------------------------------------

|** | Combined ratio is calculated by dividing the sum of net losses and loss expenses, acquisition costs and general and administrative expenses by net premiums earned.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*** | Loss ratio and combined ratio are not provided for the life and annuity reinsurance segment as the Company believes these ratios are not appropriate measures for life
and annuity underwriting.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(a) | The results of operations for the Max at Lloyds segment are consolidated only from November 6, 2008, the date Max at Lloyds was acquired.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------



11



---

##### Table of Contents

MAX CAPITAL GROUP LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)



(Expressed in thousands of U.S. Dollars)



|                                             |  |                                      |          |   |                           |   |         |               |  |   |                   |   |       |   |   |             |   |          |           |  |   |              |   |  |   |         |   |  |   |          |  
|-------------------------------------------- |  | ------------------------------------ | -------- | - | ------------------------- | - | ------- | ------------- |  | - | ----------------- | - | ----- | - | - | ----------- | - | -------- | --------- |  | - | ------------ | - |  | - | ------- | - |  | - | -------- | -
|                                             |  | Nine Months Ended September 30, 2008 |         
|                                             |  | Property & Casualty                  |          |   | Life &Annuity             |   |         |               |  |   |                   |  
|                                             |  | Bermuda/DublinInsurance              |          |   | Bermuda/DublinReinsurance |   |         | U.S.Specialty |  |   | Max atLloyds (a) |   | Total |   |   | Reinsurance |   |          | Corporate |  |   | Consolidated |  
|Gross premiums written                       |  | $                                    | 276,288  |   |                           | $ | 377,485 |               |  | $ | 134,162           |   |       | $ |  |             | $ | 787,935  |           |  | $ | 94,251       |   |  | $ |        |   |  | $ | 882,186  |  
|Reinsurance premiums ceded                   |  |                                      | (133,099 | ) |                           |   | (85,133 | )             |  |   | (81,334           | ) |       |   |  |             |   | (299,566 | )         |  |   | (285         | ) |  |   |        |   |  |   | (299,851 | )
|                                             |  |                                      |          |   |                           |   |         |               |  |   |                   |   |       |   |   |             |   |          |           |  |   |              |   |  |   |         |   |  |   |          |  
|Net premiums written                         |  | $                                    | 143,189  |   |                           | $ | 292,352 |               |  | $ | 52,828            |   |       | $ |  |             | $ | 488,369  |           |  | $ | 93,966       |   |  | $ |        |   |  | $ | 582,335  |  
|                                             |  |                                      |          |   |                           |   |         |               |  |   |                   |   |       |   |   |             |   |          |           |  |   |              |   |  |   |         |   |  |   |          |  
|Earned premiums                              |  | $                                    | 278,092  |   |                           | $ | 310,663 |               |  | $ | 77,670            |   |       | $ |  |             | $ | 666,425  |           |  | $ | 94,251       |   |  | $ |        |   |  | $ | 760,676  |  
|Earned premiums ceded                        |  |                                      | (140,991 | ) |                           |   | (57,817 | )             |  |   | (49,571           | ) |       |   |  |             |   | (248,379 | )         |  |   | (286         | ) |  |   |        |   |  |   | (248,665 | )
|                                             |  |                                      |          |   |                           |   |         |               |  |   |                   |   |       |   |   |             |   |          |           |  |   |              |   |  |   |         |   |  |   |          |  
|Net premiums earned                          |  |                                      | 137,101  |   |                           |   | 252,846 |               |  |   | 28,099            |   |       |   |  |             |   | 418,046  |           |  |   | 93,965       |   |  |   |        |   |  |   | 512,011  |  
|Net investment income                        |  |                                      | 13,313   |   |                           |   | 27,797  |               |  |   | 5,563             |   |       |   |  |             |   | 46,673   |           |  |   | 29,932       |   |  |   | 60,793  |   |  |   | 137,398  |  
|Net losses on other investments              |  |                                      | (13,576  | ) |                           |   | (29,638 | )             |  |   |                  |   |       |   |  |             |   | (43,214  | )         |  |   | (58,751      | ) |  |   | (43,025 | ) |  |   | (144,990 | )
|Net realized losses on fixed maturities      |  |                                      |         |   |                           |   |        |               |  |   | (523              | ) |       |   |  |             |   | (523     | )         |  |   |             |   |  |   | (501    | ) |  |   | (1,024   | )
|Net impairment losses recognized in earnings |  |                                      |         |   |                           |   |        |               |  |   |                  |   |       |   |  |             |   |         |           |  |   |             |   |  |   | (16,887 | ) |  |   | (16,887  | )
|Other income                                 |  |                                      | 1,112    |   |                           |   |        |               |  |   | 140               |   |       |   |  |             |   | 1,252    |           |  |   |             |   |  |   | (251    | ) |  |   | 1,001    |  
|                                             |  |                                      |          |   |                           |   |         |               |  |   |                   |   |       |   |   |             |   |          |           |  |   |              |   |  |   |         |   |  |   |          |  
|Total revenues                               |  |                                      | 137,950  |   |                           |   | 251,005 |               |  |   | 33,279            |   |       |   |  |             |   | 422,234  |           |  |   | 65,146       |   |  |   | 129     |   |  |   | 487,509  |  
|                                             |  |                                      |          |   |                           |   |         |               |  |   |                   |   |       |   |   |             |   |          |           |  |   |              |   |  |   |         |   |  |   |          |  
|Net losses and loss expenses                 |  |                                      | 108,819  |   |                           |   | 150,326 |               |  |   | 19,440            |   |       |   |  |             |   | 278,585  |           |  |   |             |   |  |   |        |   |  |   | 278,585  |  
|Claims and policy benefits                   |  |                                      |         |   |                           |   |        |               |  |   |                  |   |       |   |  |             |   |         |           |  |   | 137,175      |   |  |   |        |   |  |   | 137,175  |  
|Acquisition costs                            |  |                                      | (1,945   | ) |                           |   | 35,174  |               |  |   | 2,058             |   |       |   |  |             |   | 35,287   |           |  |   | 456          |   |  |   |        |   |  |   | 35,743   |  
|Interest expense                             |  |                                      |         |   |                           |   | 2,382   |               |  |   |                  |   |       |   |  |             |   | 2,382    |           |  |   | 2,096        |   |  |   | 16,069  |   |  |   | 20,547   |  
|Net foreign exchange losses                  |  |                                      |         |   |                           |   |        |               |  |   |                  |   |       |   |  |             |   |         |           |  |   |             |   |  |   | 1,984   |   |  |   | 1,984    |  
|Merger and acquisition expenses              |  |                                      |         |   |                           |   |        |               |  |   |                  |   |       |   |  |             |   |         |           |  |   |             |   |  |   | 3,488   |   |  |   | 3,488    |  
|General and administrative expenses          |  |                                      | 16,052   |   |                           |   | 21,981  |               |  |   | 20,599            |   |       |   |  |             |   | 58,632   |           |  |   | 2,273        |   |  |   | 29,143  |   |  |   | 90,048   |  
|                                             |  |                                      |          |   |                           |   |         |               |  |   |                   |   |       |   |   |             |   |          |           |  |   |              |   |  |   |         |   |  |   |          |  
|Total losses and expenses                    |  |                                      | 122,926  |   |                           |   | 209,863 |               |  |   | 42,097            |   |       |   |  |             |   | 374,886  |           |  |   | 142,000      |   |  |   | 50,684  |   |  |   | 567,570  |  
|                                             |  |                                      |          |   |                           |   |         |               |  |   |                   |   |       |   |   |             |   |          |           |  |   |              |   |  |   |         |   |  |   |          |  
|Income (loss) before taxes                   |  | $                                    | 15,024   |   |                           | $ | 41,142  |               |  | $ | (8,818            | ) |       | $ |  |             | $ | 47,348   |           |  | $ | (76,854      | ) |  | $ | (50,555 | ) |  | $ | (80,061  | )
|                                             |  |                                      |          |   |                           |   |         |               |  |   |                   |   |       |   |   |             |   |          |           |  |   |              |   |  |   |         |   |  |   |          |  
|Loss ratio *                                 |  |                                      | 79.4     | % |                           |   | 59.5    | %             |  |   | 69.2              | % |       |   |  |             |   | 66.6     | %         |  |   | ***          |   |  |   |         |   |  |   |          |  
|Combined ratio **                            |  |                                      | 89.7     | % |                           |   | 82.1    | %             |  |   | 149.8             | % |       |   |  |             |   | 89.1     | %         |  |   | ***          |   |  |   |         |   |  |   |          |  



|* | Loss ratio is calculated by dividing net losses and loss expenses by net premiums earned.
|- | -----------------------------------------------------------------------------------------

|** | Combined ratio is calculated by dividing the sum of net losses and loss expenses, acquisition costs and general and administrative expenses by net premiums earned.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*** | Loss ratio and combined ratio are not provided for the life and annuity reinsurance segment as the Company believes these ratios are not appropriate measures for life
and annuity underwriting.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(a) | The results of operations for the Max at Lloyds segment are consolidated only from November 6, 2008, the date Max at Lloyds was acquired.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

The Companys clients are located in three geographic regions: North America, Europe and the rest of the
world.



12



---

##### Table of Contents

MAX CAPITAL GROUP LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)



Financial information related to property and casualty gross premiums written and
reinsurance premiums ceded by geographic region for the nine months ended September 30, 2009 and 2008 were:



|                                           |  |                                          |          |   |      |   |          |  
|------------------------------------------ |  | ---------------------------------------- | -------- | - | ---- | - | -------- | -
|                                           |  | Nine Months EndedSeptember 30,           |         
|                                           |  | 2009                                     |          |   | 2008 |  
|                                           |  | (Expressed in thousands of U.S. Dollars) |         
|Gross premiums written - North America     |  | $                                        | 844,638  |   |      | $ | 651,681  |  
|Gross premiums written - Europe            |  |                                          | 128,722  |   |      |   | 103,405  |  
|Gross premiums written - Rest of the world |  |                                          | 81,560   |   |      |   | 32,849   |  
|Reinsurance ceded - North America          |  |                                          | (300,087 | ) |      |   | (263,617 | )
|Reinsurance ceded - Europe                 |  |                                          | (64,289  | ) |      |   | (25,530  | )
|Reinsurance ceded - Rest of the world      |  |                                          | (12,816  | ) |      |   | (10,419  | )
|                                           |  |                                          |          |   |      |   |          |  
|                                           |  | $                                        | 677,728  |   |      | $ | 488,369  |  
|                                           |  |                                          |          |   |      |   |          |  

The largest client in each of the nine month periods ended September 30, 2009
and 2008 accounted for 5.4% and 9.3% of the Companys property and casualty gross premiums written, respectively.

Financial information related to life and annuity gross premiums written and reinsurance premiums ceded by geographic region for the nine months ended September 30, 2009 and 2008 were:



|                                       |  |                                          |        |   |      |   |        |  
|-------------------------------------- |  | ---------------------------------------- | ------ | - | ---- | - | ------ | -
|                                       |  | Nine Months EndedSeptember 30,           |       
|                                       |  | 2009                                     |        |   | 2008 |  
|                                       |  | (Expressed in thousands of U.S. Dollars) |       
|Gross premiums written - North America |  | $                                        | 41,748 |   |      | $ | 1,430  |  
|Gross premiums written - Europe        |  |                                          |       |   |      |   | 92,821 |  
|Reinsurance ceded - North America      |  |                                          | (146   | ) |      |   | (285   | )
|Reinsurance ceded - Europe             |  |                                          |       |   |      |   |       |  
|                                       |  |                                          |        |   |      |   |        |  
|                                       |  | $                                        | 41,602 |   |      | $ | 93,966 |  
|                                       |  |                                          |        |   |      |   |        |  

The largest client in each of the nine month periods ended September 30, 2009
and 2008 accounted for 97.9% and 98.5% of the Companys life and annuity gross premiums written, respectively. One reinsurance transaction was written in each period, with the remainder of the gross premiums written comprising adjustment
premiums on prior transactions.

5. INVESTMENTS

Transfer of Available for Sale Securities to Held to Maturity

The
Company implemented a strategy in the three months ended September 30, 2009 to hold certain fixed income securities to maturity. Because the Company has the intent to hold such securities to maturity, they have been reclassified from available
for sale to held to maturity in the consolidated financial statements. As a result of this classification, the held to maturity portfolio is recorded at amortized cost in the consolidated balance sheet and is no longer recorded at fair value. The
held to maturity portfolio is comprised principally of long duration government and corporate debt securities. The Company believes this held to maturity strategy is achievable due to the relatively stable and predictable cash flows of the
Companys long-term liabilities. The fair value of those securities transferred was $952.7 million on the date of reclassification, and this became the new cost base. The unrealized appreciation at the date of the transfer continues to be
reported as a separate component of shareholders equity and is being amortized over the remaining lives of the securities as an adjustment to yield in a manner consistent with the amortization of any premium or discount. The unrealized
appreciation on the date of transfer was $17.7 million and $17.4 million of this balance remains unamortized at September 30, 2009.



13



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##### Table of Contents

MAX CAPITAL GROUP LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)



Fixed Maturities  Available for Sale

The fair values and amortized cost of available for sale fixed maturities at September 30, 2009 and December 31, 2008 were:



|                                                            |  |               |           |                                                            |   |                         |  |   |                    |   |  |            |        |   |  |   |          
|----------------------------------------------------------- |  | ------------- | --------- | ---------------------------------------------------------- | - | ----------------------- |  | - | ------------------ | - |  | ---------- | ------ | - |  | - | ---------
|                                                            |  |               |           | Included in Accumulated OtherComprehensive Income (AOCI) |   |                         | 
|                                                            |  |               |           |                                                            |   | Gross Unrealized Losses |  |   |                   
|September 30, 2009 (Expressed in thousands of U.S. Dollars) |  | AmortizedCost |           | UnrealizedGain                                             |   | Non-OTTIUnrealizedLoss  |  |   | OTTIUnrealizedLoss |   |  | Fair Value
|U.S. Government and Agencies                                |  | $             | 397,988   |                                                            | $ | 19,378                  |  | $ | (738               | ) |  | $          |       |   |  | $ | 416,628  
|Non-U.S. Government                                         |  |               | 97,649    |                                                            |   | 3,697                   |  |   | (983               | ) |  |            |       |   |  |   | 100,363  
|Corporate Securities                                        |  |               | 1,136,165 |                                                            |   | 42,088                  |  |   | (12,953            | ) |  |            |       |   |  |   | 1,165,300
|Municipal Securities                                        |  |               | 66,411    |                                                            |   | 2,430                   |  |   | (211               | ) |  |            |       |   |  |   | 68,630   
|Asset-Backed Securities                                     |  |               | 167,555   |                                                            |   | 1,195                   |  |   | (16,478            | ) |  |            | (1,466 | ) |  |   | 150,806  
|Residential Mortgage-Backed Securities(1)                   |  |               | 676,654   |                                                            |   | 24,018                  |  |   | (10,950            | ) |  |            | (581   | ) |  |   | 689,141  
|Commercial Mortgage-Backed Securities                       |  |               | 279,692   |                                                            |   | 14,240                  |  |   | (12,654            | ) |  |            |       |   |  |   | 281,278  
|                                                            |  |               |           |                                                            |   |                         |  |   |                    |   |  |            |        |   |  |   |          
|                                                            |  | $             | 2,822,114 |                                                            | $ | 107,046                 |  | $ | (54,967            | ) |  | $          | (2,047 | ) |  | $ | 2,872,146
|                                                            |  |               |           |                                                            |   |                         |  |   |                    |   |  |            |        |   |  |   |          



|                                                           |  |               |           |                |   |                |  |   |            |   |  |   |          
|---------------------------------------------------------- |  | ------------- | --------- | -------------- | - | -------------- |  | - | ---------- | - |  | - | ---------
|December 31, 2008 (Expressed in thousands of U.S. Dollars) |  | AmortizedCost |           | UnrealizedGain |   | UnrealizedLoss |  |   | Fair Value
|U.S. Government and Agencies                               |  | $             | 362,391   |                | $ | 43,664         |  | $ |           |   |  | $ | 406,055  
|Non-U.S. Government                                        |  |               | 610,057   |                |   | 52,648         |  |   | (1,912     | ) |  |   | 660,793  
|Corporate Securities                                       |  |               | 1,464,566 |                |   | 20,908         |  |   | (59,037    | ) |  |   | 1,426,437
|Municipal Securities                                       |  |               | 47,842    |                |   | 1,232          |  |   | (477       | ) |  |   | 48,597   
|Asset-Backed Securities                                    |  |               | 216,991   |                |   | 84             |  |   | (38,521    | ) |  |   | 178,554  
|Residential Mortgage-Backed Securities(1)                  |  |               | 717,531   |                |   | 13,575         |  |   | (31,719    | ) |  |   | 699,387  
|Commercial Mortgage-Backed Securities                      |  |               | 187,684   |                |   | 538            |  |   | (16,006    | ) |  |   | 172,216  
|                                                           |  |               |           |                |   |                |  |   |            |   |  |   |          
|                                                           |  | $             | 3,607,062 |                | $ | 132,649        |  | $ | (147,672   | ) |  | $ | 3,592,039
|                                                           |  |               |           |                |   |                |  |   |            |   |  |   |          



|(1) | Included within Residential Mortgage-Backed Securities are securities issued by U.S. Agencies with a fair value of $610,001 (2008$573,745).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------

The following table sets forth certain information regarding the investment ratings (provided by major
rating agencies) of the Companys available for sale fixed maturities at September 30, 2009 and December 31, 2008.



|                                         |  |                    |           |                   |       |            |   |           |  |      
|---------------------------------------- |  | ------------------ | --------- | ----------------- | ----- | ---------- | - | --------- |  | -----
|                                         |  | September 30, 2009 |           | December 31, 2008
|(Expressed in thousands of U.S. Dollars) |  | Fair Value         |           | %                 |       | Fair Value |   | %        
|U.S. Government and Agencies(1)          |  | $                  | 1,026,629 |                   | 35.8  |            | $ | 979,800   |  | 27.3 
|AAA                                      |  |                    | 651,448   |                   | 22.7  |            |   | 1,524,501 |  | 42.4 
|AA                                       |  |                    | 293,207   |                   | 10.2  |            |   | 396,229   |  | 11.0 
|A                                        |  |                    | 637,822   |                   | 22.2  |            |   | 621,996   |  | 17.3 
|BBB                                      |  |                    | 141,751   |                   | 4.9   |            |   | 59,432    |  | 1.7  
|BB                                       |  |                    | 32,607    |                   | 1.1   |            |   | 4,161     |  | 0.1  
|B or lower                               |  |                    | 88,682    |                   | 3.1   |            |   | 5,920     |  | 0.2  
|                                         |  |                    |           |                   |       |            |   |           |  |      
|                                         |  | $                  | 2,872,146 |                   | 100.0 |            | $ | 3,592,039 |  | 100.0
|                                         |  |                    |           |                   |       |            |   |           |  |      



|(1) | Included within U.S. Government and Agencies are Residential Mortgage-Backed Securities issued by U.S. Agencies with a fair value of $610,001
(2008$573,745).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

The maturity distribution for available for sale fixed maturities held at
September 30, 2009 was as follows:



|                                   |  |               |           |           |   |          
|---------------------------------- |  | ------------- | --------- | --------- | - | ---------
|                                   |  | AmortizedCost |           | FairValue
|Within one year                    |  | $             | 294,921   |           | $ | 298,850  
|After one year through five years  |  |               | 899,038   |           |   | 929,088  
|After five years through ten years |  |               | 407,551   |           |   | 422,930  
|More than ten years                |  |               | 1,220,604 |           |   | 1,221,278
|                                   |  |               |           |           |   |          
|                                   |  | $             | 2,822,114 |           | $ | 2,872,146
|                                   |  |               |           |           |   |          



14



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##### Table of Contents

MAX CAPITAL GROUP LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)



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

Fixed Maturities 
Held to Maturity

The fair values and amortized cost of held to maturity fixed maturities at September 30, 2009
were:



|                                                            |  |               |           |                |   |                         |  |                    |   |            |   |   |  |   |          
|----------------------------------------------------------- |  | ------------- | --------- | -------------- | - | ----------------------- |  | ------------------ | - | ---------- | - | - |  | - | ---------
|                                                            |  |               |           |                |   | Gross Unrealized Losses |  |                   
|September 30, 2009 (Expressed in thousands of U.S. Dollars) |  | AmortizedCost |           | UnrealizedGain |   | Non-OTTIUnrealizedLoss  |  | OTTIUnrealizedLoss |   | Fair Value
|U.S. Government and Agencies                                |  | $             | 14,041    |                | $ | 534                     |  | $                  |  |            | $ |  |  | $ | 14,575   
|Non-U.S. Government                                         |  |               | 585,906   |                |   | 22,892                  |  |                    |  |            |   |  |  |   | 608,798  
|Corporate Securities                                        |  |               | 426,297   |                |   | 19,575                  |  |                    |  |            |   |  |  |   | 445,872  
|                                                            |  |               |           |                |   |                         |  |                    |   |            |   |   |  |   |          
|                                                            |  | $             | 1,026,244 |                | $ | 43,001                  |  | $                  |  |            | $ |  |  | $ | 1,069,245
|                                                            |  |               |           |                |   |                         |  |                    |   |            |   |   |  |   |          

The following table sets forth certain information regarding the investment ratings
(provided by major rating agencies) of the Companys held to maturity fixed maturities at September 30, 2009.



|                                         |  |                    |           |   |      
|---------------------------------------- |  | ------------------ | --------- | - | -----
|                                         |  | September 30, 2009
|(Expressed in thousands of U.S. Dollars) |  | Fair Value         |           | %
|U.S. Government and Agencies             |  | $                  | 14,575    |   | 1.4  
|AAA                                      |  |                    | 762,815   |   | 71.3 
|AA                                       |  |                    | 110,348   |   | 10.3 
|A                                        |  |                    | 166,412   |   | 15.6 
|BBB                                      |  |                    | 13,582    |   | 1.3  
|BB                                       |  |                    |          |   |     
|B or lower                               |  |                    | 1,513     |   | 0.1  
|                                         |  |                    |           |   |      
|                                         |  | $                  | 1,069,245 |   | 100.0
|                                         |  |                    |           |   |      

The maturity distribution for held to maturity fixed maturities held at
September 30, 2009 was as follows:



|                                   |  |               |           |           |   |          
|---------------------------------- |  | ------------- | --------- | --------- | - | ---------
|                                   |  | AmortizedCost |           | FairValue
|Within one year                    |  | $             | 25,792    |           | $ | 25,955   
|After one year through five years  |  |               | 130,925   |           |   | 133,912  
|After five years through ten years |  |               | 138,890   |           |   | 145,481  
|More than ten years                |  |               | 730,637   |           |   | 763,897  
|                                   |  |               |           |           |   |          
|                                   |  | $             | 1,026,244 |           | $ | 1,069,245
|                                   |  |               |           |           |   |          

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

Investment Income

Investment income earned for the nine months ended September 30, 2009 and 2008 was:



|                                                               |  |                                          |         |   |      |   |         |  
|-------------------------------------------------------------- |  | ---------------------------------------- | ------- | - | ---- | - | ------- | -
|                                                               |  | Nine Months EndedSeptember 30,           |        
|                                                               |  | 2009                                     |         |   | 2008 |  
|                                                               |  | (Expressed in thousands of U.S. Dollars) |        
|Interest earned on fixed maturities, cash and cash equivalents |  | $                                        | 130,058 |   |      | $ | 143,199 |  
|Interest earned on funds withheld                              |  |                                          | 516     |   |      |   | 650     |  
|Amortization of premium on fixed maturities                    |  |                                          | (2,503  | ) |      |   | (3,771  | )
|Investment expenses                                            |  |                                          | (2,998  | ) |      |   | (2,680  | )
|                                                               |  |                                          |         |   |      |   |         |  
|                                                               |  | $                                        | 125,073 |   |      | $ | 137,398 |  
|                                                               |  |                                          |         |   |      |   |         |  



15



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##### Table of Contents

MAX CAPITAL GROUP LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)



Net Realized Gains and Losses

The net realized gains and losses and the change in net unrealized gains and losses on fixed maturities for the nine months ended
September 30, 2009 and 2008 were:



|                                                                                             |  |                                          |        |   |      |   |          |  
|-------------------------------------------------------------------------------------------- |  | ---------------------------------------- | ------ | - | ---- | - | -------- | -
|                                                                                             |  | Nine Months EndedSeptember
30,           |       
|                                                                                             |  | 2009                                     |        |   | 2008 |  
|                                                                                             |  | (Expressed in thousands of U.S. Dollars) |       
|Net realized gains and losses:                                                               |  |                                          |        |   |      |   |          |  
|Gross realized gains on available for sale securities                                        |  | $                                        | 6,550  |   |      | $ | 7,070    |  
|Gross realized losses on available for sale securities                                       |  |                                          | (7,898 | ) |      |   | (8,094   | )
|Net realized and unrealized gains and losses on trading securities                           |  |                                          | 2,587  |   |      |   |         |  
|Change in fair value of derivatives                                                          |  |                                          | 508    |   |      |   |         |  
|                                                                                             |  |                                          |        |   |      |   |          |  
|Net realized gains (losses) on fixed maturities                                              |  | $                                        | 1,747  |   |      | $ | (1,024   | )
|                                                                                             |  |                                          |        |   |      |   |          |  
|Net other-than-temporary impairment losses recognized in earnings                            |  | $                                        | (2,153 | ) |      | $ | (16,887  | )
|                                                                                             |  |                                          |        |   |      |   |          |  
|Change in net unrealized gains and losses on available for sale fixed maturities, before tax |  | $                                        | 65,055 |   |      | $ | (109,720 | )
|                                                                                             |  |                                          |        |   |      |   |          |  

For the nine month period ended September 30, 2009, the change in fair value of
derivatives of $0.5 million relates to equity call options embedded in certain convertible bonds. For the nine month period ended September 30, 2008, included in net realized losses on fixed maturities is a realized loss of $3.8 million on a
futures transaction that was initiated and fully settled in September 2008. This transaction was initiated as an economic hedge on a portion of the Companys holdings of U.S. government securities.

Other-Than-Temporary Impairment

The Company endeavors to tailor the maturities of its fixed maturities portfolio to the expected timing of its loss and benefit payments. Due to fluctuations in interest rates, it is likely that over the
period a security is held there will be periods, perhaps greater than twelve months, when the investments fair value is less than its cost, resulting in unrealized losses.

Any other-than-temporary impairment (OTTI) related to a credit loss is recognized in earnings, and the amount of the OTTI
related to other factors (e.g. interest rates, market conditions, etc.) is recorded as a component of other comprehensive income. If no credit loss exists but either: (a) an entity has the intent to sell the debt security or (b) it is more
likely than not that the entity will be required to sell the debt security before its anticipated recovery, the entire unrealized loss is recognized in earnings. In periods after the recognition of an OTTI on debt securities, the Company accounts
for such securities as if they had been purchased on the measurement date of the OTTI at an amortized cost basis equal to the previous amortized cost basis less the OTTI recognized in earnings. This policy was adopted as at April 1, 2009.

The Company was required to record, as of the beginning of the interim period of adoption, a cumulative effect adjustment to
reclassify the non-credit component of a previously recognized OTTI from retained earnings to other comprehensive income (loss). To determine whether a cumulative effect adjustment is required, the Company reviewed OTTI it had recorded through
realized losses on securities held at March 31, 2009, and estimated the portion related to credit losses (i.e., where the present value of cash flows expected to be collected are lower than the amortized cost basis of the security) and the
portion related to all other non-credit factors. The Company estimated that all of the OTTI previously recorded through earnings related to specific credit losses and therefore no cumulative effect adjustment was required.

The Company has reviewed all debt securities in an unrealized loss position at the end of the period to identify any securities for which
there is an intention to sell those securities after the period end. For those securities where there is such an intention, the OTTI charge (being the difference between the amortized cost and the fair value of the security) was recognized in net
income. The Company has reviewed debt securities in an unrealized loss position to determine whether it is more likely than not that it will be required to sell those securities. The Company has considered its liquidity and working capital needs and
determined that it is not more likely than not that it will be required to sell any of the securities in an unrealized loss position. The Company has also



16



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##### Table of Contents

MAX CAPITAL GROUP LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)



performed a review of debt securities which considers various indicators of potential credit losses. These indicators include the length of time and extent of the unrealized loss, any specific
adverse conditions, historic and implied volatility of the security, failure of the issuer of the security to make scheduled interest payments, expected cash flow analysis, significant rating changes and recoveries or additional declines in fair
value subsequent to the balance sheet date. The consideration of these indicators and the estimation of credit losses involve significant management judgment.

The Company recorded $0.1 million of OTTI in earnings for the three months ended September 30, 2009, all of which related to estimated credit losses. The Company recorded $2.2 million of OTTI in
earnings for the nine months ended September 30, 2009, of which $1.9 million related to estimated credit losses.

The
following methodology and significant inputs were used to determine the estimated credit losses during the three and nine months ended September 30, 2009:



| |  |  | Corporate securities ($nil and $1.4 million credit loss recognized for the three and nine months ended September 30, 2009)  the Company
reviewed the business prospects, credit ratings and information received from investment managers and rating agencies for each security;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Mortgage backed securities ($0.1 million and $0.4 million credit loss recognized for the three and nine months ended September 30, 2009) 
the Company utilized underlying data for each security provided by its investment managers in order to determine an expected recovery value for each security. The analysis provided by the investment managers includes expected cash flow projections
under base case and stress case scenarios which modify expected default expectations, loss severities and prepayment assumptions. The significant inputs in the models include the expected default rates, delinquency rates, foreclosure costs, etc. The
Company reviews the process used by each investment manager in developing their analysis, reviews the results of the analysis and then determines what the expected recovery values are for each security, which incorporates both base case and stress
case scenarios; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Asset backed securities ($nil and $0.1 million credit loss recognized for the three and nine months ended September 30, 2009)  the Company
utilized underlying data for each security provided by investment managers in order to determine an expected recovery value for each security. The analysis provided by the investment managers includes expected cash flow projections under base case
and stress case scenarios which modify expected default expectations and loss severities and prepayment assumptions. The significant inputs in the models include the expected default rates, delinquency rates, foreclosure costs, etc. The Company
reviews the process used by each investment manager in developing its analysis, reviews the results of the analysis and then determines what the expected recovery values are for each security, which incorporates both base case and stress case
scenarios.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Fixed maturities with unrealized losses, and the duration of such conditions as of
September 30, 2009 and as of December 31, 2008, were:



|                                                            |  |                     |           |                     |   |           |  |                  |        |           |   |                  |  |   |           |  |   |        
|----------------------------------------------------------- |  | ------------------- | --------- | ------------------- | - | --------- |  | ---------------- | ------ | --------- | - | ---------------- |  | - | --------- |  | - | -------
|                                                            |  | Less Than 12 Months |           | 12 Months or Longer |   | Total    
|September 30, 2009 (Expressed in thousands of U.S. Dollars) |  | FairValue           |           | UnrealizedLosses    |   | FairValue |  | UnrealizedLosses |        | FairValue |   | UnrealizedLosses
|U.S. Government and Agencies                                |  | $                   | 11,121    |                     | $ | 738       |  | $                |       |           | $ |                 |  | $ | 11,121    |  | $ | 738    
|Non-U.S. Government                                         |  |                     | 22,242    |                     |   | 983       |  |                  |       |           |   |                 |  |   | 22,242    |  |   | 983    
|Corporate Securities                                        |  |                     | 222,151   |                     |   | 12,948    |  |                  | 585    |           |   | 5                |  |   | 222,736   |  |   | 12,953 
|Municipal Securities                                        |  |                     | 6,097     |                     |   | 211       |  |                  |       |           |   |                 |  |   | 6,097     |  |   | 211    
|Asset Backed Securities                                     |  |                     | 103,848   |                     |   | 17,092    |  |                  | 2,064  |           |   | 852              |  |   | 105,912   |  |   | 17,944 
|Residential Mortgage-Backed Securities                      |  |                     | 84,742    |                     |   | 11,530    |  |                  | 1,300  |           |   | 1                |  |   | 86,042    |  |   | 11,531 
|Commercial Mortgage-Backed Securities                       |  |                     | 95,118    |                     |   | 12,653    |  |                  | 1,459  |           |   | 1                |  |   | 96,577    |  |   | 12,654 
|                                                            |  |                     |           |                     |   |           |  |                  |        |           |   |                  |  |   |           |  |   |        
|                                                            |  | $                   | 545,319   |                     | $ | 56,155    |  | $                | 5,408  |           | $ | 859              |  | $ | 550,727   |  | $ | 57,014 
|                                                            |  |                     |           |                     |   |           |  |                  |        |           |   |                  |  |   |           |  |   |        
|                                                            |  |                     |          
|                                                            |  | Less Than 12 Months |           | 12 Months or Longer |   | Total    
|December 31, 2008 (Expressed in thousands of U.S. Dollars)  |  | FairValue           |           | UnrealizedLosses    |   | FairValue |  | UnrealizedLosses |        | FairValue |   | UnrealizedLosses
|U.S. Government and Agencies                                |  | $                   |          |                     | $ |          |  | $                |       |           | $ |                 |  | $ |          |  | $ |       
|Non-U.S. Government                                         |  |                     | 44,103    |                     |   | 1,912     |  |                  |       |           |   |                 |  |   | 44,103    |  |   | 1,912  
|Corporate Securities                                        |  |                     | 781,724   |                     |   | 58,190    |  |                  | 8,097  |           |   | 847              |  |   | 789,821   |  |   | 59,037 
|Municipal Securities                                        |  |                     | 12,569    |                     |   | 477       |  |                  |       |           |   |                 |  |   | 12,569    |  |   | 477    
|Asset-Backed Securities                                     |  |                     | 169,628   |                     |   | 38,215    |  |                  | 1,540  |           |   | 306              |  |   | 171,168   |  |   | 38,521 
|Residential Mortgage-Backed Securities                      |  |                     | 141,774   |                     |   | 31,467    |  |                  | 1,287  |           |   | 252              |  |   | 143,061   |  |   | 31,719 
|Commercial Mortgage-Backed Securities                       |  |                     | 133,571   |                     |   | 15,910    |  |                  | 1,175  |           |   | 96               |  |   | 134,746   |  |   | 16,006 
|                                                            |  |                     |           |                     |   |           |  |                  |        |           |   |                  |  |   |           |  |   |        
|                                                            |  | $                   | 1,283,369 |                     | $ | 146,171   |  | $                | 12,099 |           | $ | 1,501            |  | $ | 1,295,468 |  | $ | 147,672
|                                                            |  |                     |           |                     |   |           |  |                  |        |           |   |                  |  |   |           |  |   |        



17



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##### Table of Contents

MAX CAPITAL GROUP LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)



Of the total holding of 1,403 (2008  1,333) available for sale securities, 242
(2008  614) had unrealized losses at September 30, 2009.

The following table provides a roll-forward of the
amount related to credit losses recognized in earnings for which a portion of an OTTI was recognized in accumulated other comprehensive income for the three months and six months ended September 30, 2009:

Credit losses recognized in earnings on fixed maturity securities held by the Company for which a portion of the OTTI loss was recognized
in OCI



|                                                                                                           |  |   |    
|---------------------------------------------------------------------------------------------------------- |  | - | ---
|(Expressed in thousands of U.S. Dollars)                                                                   |  |  
|Beginning balance at July 1, 2009                                                                          |  | $ | 466
|Addition for credit loss impairment recognized in the current period on securities previously impaired     |  |   | 139
|                                                                                                           |  |   |    
|Ending balance at September 30, 2009                                                                       |  | $ | 605
|                                                                                                           |  |   |    
|                                                                                                           | 
|(Expressed in thousands of U.S. Dollars)                                                                   |  |  
|Beginning balance at March 31, 2009                                                                        |  | $ |   
|Credit losses remaining in retained earnings related to accounting standard adoption                       |  |   |   
|Addition for credit loss impairment recognized in the current period on securities not previously impaired |  |   | 605
|                                                                                                           |  |   |    
|Ending balance at September 30, 2009                                                                       |  | $ | 605
|                                                                                                           |  |   |    

Other Investments

Other investments comprise the Companys investment in hedge funds and the Companys investment in Grand Central Re Limited
(Grand Central Re), a private equity investment. Together, the hedge funds and the private equity investment are referred to as the Companys hedge fund portfolio.

The distribution of the hedge fund portfolio by investment strategy as at September 30, 2009 and December 31, 2008 was:



|                                         |  |                    |         |              |                   |   |            |   |              |  |       |  
|---------------------------------------- |  | ------------------ | ------- | ------------ | ----------------- | - | ---------- | - | ------------ |  | ----- | -
|                                         |  | September 30, 2009 |         |              | December 31, 2008 |  
|(Expressed in thousands of U.S. Dollars) |  | Fair Value         |         | Allocation % |                   |   | Fair Value |   | Allocation % | 
|Convertible arbitrage                    |  | $                  |        |              |                  | % |            | $ | 10,650       |  | 1.4   | %
|Distressed securities                    |  |                    | 75,003  |              | 19.3              | % |            |   | 115,900      |  | 15.4  | %
|Diversified arbitrage                    |  |                    | 35,289  |              | 9.1               | % |            |   | 46,034       |  | 6.1   | %
|Emerging markets                         |  |                    | 29,174  |              | 7.5               | % |            |   | 39,683       |  | 5.3   | %
|Event-driven arbitrage                   |  |                    | 56,110  |              | 14.4              | % |            |   | 75,205       |  | 9.9   | %
|Fixed income arbitrage                   |  |                    | 17,029  |              | 4.4               | % |            |   | 30,881       |  | 4.1   | %
|Global macro                             |  |                    | 43,634  |              | 11.2              | % |            |   | 87,304       |  | 11.6  | %
|Long/short credit                        |  |                    | 11,083  |              | 2.8               | % |            |   | 38,581       |  | 5.1   | %
|Long/short equity                        |  |                    | 116,893 |              | 30.0              | % |            |   | 290,224      |  | 38.5  | %
|Opportunistic                            |  |                    | 2,772   |              | 0.7               | % |            |   | 14,746       |  | 2.0   | %
|                                         |  |                    |         |              |                   |   |            |   |              |  |       |  
|Total hedge funds                        |  |                    | 386,987 |              | 99.4              | % |            |   | 749,208      |  | 99.4  | %
|Reinsurance private equity               |  |                    | 2,528   |              | 0.6               | % |            |   | 4,450        |  | 0.6   | %
|                                         |  |                    |         |              |                   |   |            |   |              |  |       |  
|Total other investments                  |  | $                  | 389,515 |              | 100.0             | % |            | $ | 753,658      |  | 100.0 | %
|                                         |  |                    |         |              |                   |   |            |   |              |  |       |  

Cash and cash equivalent balances of $105.6 million and $133.4 million held within
the hedge fund portfolio are excluded from the above table and are presented within cash and cash equivalents on the consolidated balance sheets at September 30, 2009 and December 31, 2008, respectively. Redemptions receivable of $62.4
million and $98.1 million held within the hedge fund portfolio are excluded from the above table and are presented within trades pending settlement on the consolidated balance sheets at September 30, 2009 and December 31, 2008,
respectively.



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##### Table of Contents

MAX CAPITAL GROUP LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)



As of September 30, 2009, the hedge fund portfolio employed nine strategies
invested in 31 underlying funds. The Company is able to redeem the hedge funds on the same terms that the underlying funds can be redeemed. In general, the funds in which the Company is invested require at least 30 days notice of redemption, and may
be redeemed on a monthly, quarterly, semi-annual, annual, or longer basis, depending on the fund.

Certain funds may have a
lock-up period. A lock-up period refers to the initial amount of time an investor is contractually required to invest before having the ability to redeem. Funds that do provide for periodic redemptions may, depending on the funds governing
documents, have the ability to deny or delay a redemption request, called a gate. The fund may implement this restriction because the aggregate amount of redemption requests as of a particular date exceeds a specified level, generally ranging from
15% to 25% of the funds net assets. The gate is a method for executing an orderly redemption process which allows for redemption requests to be executed in a timely manner to reduce the possibility of adversely affecting the remaining
investors in the fund. Typically, the imposition of a gate delays a portion of the requested redemption, with the remaining portion settled in cash shortly after the redemption date.

Of the Companys September 30, 2009 outstanding redemptions receivable of $62.4 million, none of which is gated, $37.5 million was
received in cash prior to November 6, 2009. The fair value of the Companys holdings in funds with gates imposed as at September 30, 2009 is $38.8 million (December 31, 2008$42.7 million).

Certain funds may be allowed to invest a portion of their assets in illiquid securities, such as private equity or convertible debt. In such
cases, a common mechanism used is a side-pocket, whereby the illiquid security is assigned to a separate memorandum capital account or designated account. Typically, the investor loses its redemption rights in the designated account. Only when the
illiquid security is sold, or otherwise deemed liquid by the fund, may investors redeem their interest. As at September 30, 2009, the fair value of our hedge funds held in side-pockets is $108.3 million (December 31, 2008$113.4
million).

An increase in market volatility and an increase in volatility of hedge funds in general, as well as a decrease in
market liquidity, could lead to a higher risk of a large decline in value of the hedge funds in any given time period.

Restricted cash

As at September 30, 2009, $377.0 million of cash and cash equivalents (December
31, 2008$ 449.8 million) were deposited, pledged or held in escrow accounts in favor of ceding companies, other counterparties and regulatory authorities. Certain of these deposits can be substituted with fixed maturity securities at the
Companys option, subject to the counter party approval.

6. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value hierarchy, which is based on the quality of inputs used to measure fair value, gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1Quoted prices for identical instruments in active markets.

Level 2Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are
not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3Model derived valuations in which one or more significant inputs or significant value drivers are unobservable.

When the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is
significant to the fair value measurement in its entirety. Thus, a Level 3 fair value measurement may include inputs that are observable (Level 1 and Level 2) and unobservable (Level 3).

To the extent an entity determines that there has been a significant decrease in the volume and level of activity for the asset or the
liability in relation to the normal market activity for the asset or liability (or similar assets or liabilities), then transactions or quoted prices may not accurately reflect fair value. In addition, if there is evidence that the transaction for
the asset or liability is not orderly, the entity shall place little, if any weight on that transaction price as an indicator of fair value.

Fair value prices for all securities in our fixed maturities portfolio are independently provided by both our investment custodian and our investment managers, which each utilize nationally recognized
independent pricing services. We record the unadjusted price provided by the investment custodian and our validation process includes, but is not limited to: (i) comparison to the price provided by the investment manager, with significant
differences investigated; (ii) quantitative analysis (e.g., comparing the quarterly return for each managed portfolio to its target benchmark, with significant differences identified and investigated); (iii) evaluation of methodologies
used by external parties to calculate fair value; and (iv) comparing the price to our knowledge of the current investment market.



19



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##### Table of Contents

MAX CAPITAL GROUP LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)



The independent pricing services used by our investment custodian and investment
managers obtain actual transaction prices for securities that have quoted prices in active markets. Each pricing service has its own proprietary method for determining the fair value of securities that are not actively traded. In general, these
methods involve the use of matrix pricing in which the independent pricing service uses observable market inputs including, but not limited to, reported trades, benchmark yields, broker/dealer quotes, interest rates, prepayment speeds,
default rates and such other inputs as are available from market sources to determine a reasonable fair value. In addition, pricing services use valuation models, such as an Option Adjusted Spread model, to develop prepayment and interest rate
scenarios.

The Option Adjusted Spread model is commonly used to estimate fair value for securities such as mortgage-backed
and asset-backed securities. The ability to obtain quoted market prices is reduced in periods of decreasing liquidity, which generally increases the use of matrix pricing methods and generally increases the uncertainty surrounding the fair value
estimates. This could result in the reclassification of a security between levels of the fair value hierarchy.

At
September 30, 2009, the Company determined that U.S. government securities are classified as Level 1. Securities classified as Level 2 include mortgage-backed and asset-backed securities, corporate debt securities, U.S. government-sponsored
agency securities, certain foreign government securities and all other fixed maturity securities.

Investments in hedge funds
comprise a portfolio of limited partnerships and stock investments in trading entities, or funds, which invest in a wide range of financial products. Investments in the funds are carried at fair value. The change in fair value is included in net
gains on other investments and recognized in net income. The units of account that are valued by the Company are its interests in the funds and not the underlying holdings of such funds. Thus, the inputs used by the Company to value its investments
in each of the funds may differ from the inputs used to value the underlying holdings of such funds. These funds are stated at fair value which ordinarily will be the most recently reported net asset value as advised by the fund manager or
administrator, where the funds underlying holdings can be in various quoted and unquoted investments. The Company believes the reported net asset value represents the fair value market participants would apply to an interest in the fund. These
funds are classified as Level 3 in the fair value hierarchy. The fund managers value their underlying investments at fair value in accordance with policies established by each fund, as described in each of their financial statements and offering
memoranda.

The Company has ongoing due diligence processes with respect to funds and their managers. These processes are
designed to assist the Company in assessing the quality of information provided by, or on behalf of, each fund and in determining whether such information continues to be reliable or whether further review is warranted. Certain funds do not provide
full transparency of their underlying holdings; however, the Company obtains the audited financial statements for every fund annually, and regularly reviews and discusses the fund performance with the fund managers to corroborate the reasonableness
of the reported net asset values. While reported net asset value is the primary input to the review, when the net asset value is deemed not to be indicative of fair value, the Company may incorporate adjustments to the reported net asset value. Such
adjustments may involve significant management judgment.

Certain of the Companys funds have either imposed a gate on
redemptions, or have segregated a portion of the underlying assets into a side-pocket. Based on the review process applied by management, a reduction of $0.7 million was made to the net asset values reported by the fund managers as at
September 30, 2009 (December 31, 2008$2.0 million) to adjust the carrying value of the funds to the Companys best estimate of fair value.

A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets and
liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the beginning of the quarter in which the reclassifications occur.



20



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##### Table of Contents

MAX CAPITAL GROUP LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)



The following table presents the Companys fair value hierarchy for those assets or
liabilities measured at fair value on a recurring basis as of September 30, 2009 and December 31, 2008. The Company has no assets or liabilities measured at fair value on a non-recurring basis as of September 30, 2009.



|                                                            |  |                                       |         |                                           |   |                                            |  |       |         |  |   |          
|----------------------------------------------------------- |  | ------------------------------------- | ------- | ----------------------------------------- | - | ------------------------------------------ |  | ----- | ------- |  | - | ---------
|September 30, 2009 (Expressed in thousands of U.S. Dollars) |  | Quoted Prices inActive MarketsLevel 1 |         | Significant OtherObservable InputsLevel 2 |   | Significant OtherUnobservableInputsLevel 3 |  | Total
|U.S. Government and Agencies                                |  | $                                     | 153,461 |                                           | $ | 284,506                                    |  | $     |        |  | $ | 437,967  
|Non-U.S. Government                                         |  |                                       |        |                                           |   | 100,363                                    |  |       |        |  |   | 100,363  
|Corporate Securities                                        |  |                                       |        |                                           |   | 1,210,951                                  |  |       |        |  |   | 1,210,951
|Municipal Securities                                        |  |                                       |        |                                           |   | 68,630                                     |  |       |        |  |   | 68,630   
|Asset-Backed Securities                                     |  |                                       |        |                                           |   | 151,299                                    |  |       |        |  |   | 151,299  
|Residential Mortgage-Backed Securities                      |  |                                       |        |                                           |   | 689,497                                    |  |       |        |  |   | 689,497  
|Commercial Mortgage-Backed Securities                       |  |                                       |        |                                           |   | 287,776                                    |  |       |        |  |   | 287,776  
|                                                            |  |                                       |         |                                           |   |                                            |  |       |         |  |   |          
|Total fixed maturities                                      |  |                                       | 153,461 |                                           |   | 2,793,022                                  |  |       |        |  |   | 2,946,483
|Other investments                                           |  |                                       |        |                                           |   |                                           |  |       | 386,987 |  |   | 386,987  
|Derivative asset                                            |  |                                       |        |                                           |   | 1,457                                      |  |       |        |  |   | 1,457    
|                                                            |  |                                       |         |                                           |   |                                            |  |       |         |  |   |          
|                                                            |  | $                                     | 153,461 |                                           | $ | 2,794,479                                  |  | $     | 386,987 |  | $ | 3,334,927
|                                                            |  |                                       |         |                                           |   |                                            |  |       |         |  |   |          
|                                                            |  |                                       |         |                                          
|December 31, 2008 (Expressed in thousands of U.S. Dollars)  |  | Quoted Prices inActive MarketsLevel 1 |         | Significant OtherObservable InputsLevel 2 |   | Significant OtherUnobservableInputsLevel 3 |  | Total
|U.S. Government and Agencies                                |  | $                                     | 129,147 |                                           | $ | 277,981                                    |  | $     |        |  | $ | 407,128  
|Non-U.S. Government                                         |  |                                       |        |                                           |   | 662,566                                    |  |       |        |  |   | 662,566  
|Corporate Securities                                        |  |                                       |        |                                           |   | 1,471,379                                  |  |       |        |  |   | 1,471,379
|Municipal Securities                                        |  |                                       |        |                                           |   | 48,597                                     |  |       |        |  |   | 48,597   
|Asset-Backed Securities                                     |  |                                       |        |                                           |   | 178,554                                    |  |       |        |  |   | 178,554  
|Residential Mortgage-Backed Securities                      |  |                                       |        |                                           |   | 713,419                                    |  |       |        |  |   | 713,419  
|Commercial Mortgage-Backed Securities                       |  |                                       |        |                                           |   | 172,216                                    |  |       |        |  |   | 172,216  
|                                                            |  |                                       |         |                                           |   |                                            |  |       |         |  |   |          
|Total fixed maturities                                      |  |                                       | 129,147 |                                           |   | 3,524,712                                  |  |       |        |  |   | 3,653,859
|Other investments                                           |  |                                       |        |                                           |   |                                           |  |       | 749,208 |  |   | 749,208  
|                                                            |  |                                       |         |                                           |   |                                            |  |       |         |  |   |          
|                                                            |  | $                                     | 129,147 |                                           | $ | 3,524,712                                  |  | $     | 749,208 |  | $ | 4,403,067
|                                                            |  |                                       |         |                                           |   |                                            |  |       |         |  |   |          

The other investments above do not include a private equity investment of $2.5
million and $4.5 million at September 30, 2009 and December 31, 2008, respectively, in which the Company is deemed to have significant influence and as such is accounted for under the equity method.

The following table provides a summary of the changes in fair value of the Companys Level 3 financial assets (and liabilities) for the
three and nine months ended September 30, 2009 and 2008.



|                                                                                                                                                                                                                    |  |                                                                        |   |                  |   |          |              |  |       |   |  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------- | - | ---------------- | - | -------- | ------------ |  | ----- | - |  | - | -------- | -
|                                                                                                                                                                                                                    |  | Fair Value Measurements Using Significant Unobservable Inputs(Level
3) |  
|(Expressed in thousands of U.S. Dollars)                                                                                                                                                                            |  | Fixed Maturities                                                       |   | OtherInvestments |   |          | Other Assets |  | Total |  
|Beginning balance at July 1, 2009                                                                                                                                                                                   |  | $                                                                      |  |                  | $ | 434,149  |              |  | $     |  |  | $ | 434,149  |  
|Total gains or losses (realized/unrealized)                                                                                                                                                                         |  |                                                                        |   |                  |   |          |              |  |       |   |  |   |          |  
|Included in net income                                                                                                                                                                                              |  |                                                                        |  |                  |   | 23,307   |              |  |       |  |  |   | 23,307   |  
|Included in other comprehensive income                                                                                                                                                                              |  |                                                                        |  |                  |   |         |              |  |       |  |  |   |         |  
|Purchases, issuances and settlements                                                                                                                                                                                |  |                                                                        |  |                  |   | (70,469  | )            |  |       |  |  |   | (70,469  | )
|Transfers in and/or out of Level 3                                                                                                                                                                                  |  |                                                                        |  |                  |   |         |              |  |       |  |  |   |         |  
|                                                                                                                                                                                                                    |  |                                                                        |   |                  |   |          |              |  |       |   |  |   |          |  
|Ending balance at September 30, 2009                                                                                                                                                                                |  | $                                                                      |  |                  | $ | 386,987  |              |  | $     |  |  | $ | 386,987  |  
|                                                                                                                                                                                                                    |  |                                                                        |   |                  |   |          |              |  |       |   |  |   |          |  
|The amount of total gains or losses for the three months ended September 30, 2009 included in earnings attributable to the
change in unrealized gains or losses relating to assets still held at September 30, 2009 |  | $                                                                      |  |                  | $ | 23,223   |              |  | $     |  |  | $ | 23,223   |  
|                                                                                                                                                                                                                    |  |                                                                        |   |                  |   |          |              |  |       |   |  |   |          |  
|                                                                                                                                                                                                                    | 
|                                                                                                                                                                                                                    |  | Fair Value Measurements Using Significant Unobservable Inputs(Level
3) |  
|(Expressed in thousands of U.S. Dollars)                                                                                                                                                                            |  | Fixed Maturities                                                       |   | OtherInvestments |   |          | Other Assets |  | Total |  
|                                                                                                                                                                                                                    |  |                                                                        |   |                  |   |          |              |  |       |   |  |   |          |  
|Beginning balance at January 1, 2009                                                                                                                                                                                |  | $                                                                      |  |                  | $ | 749,208  |              |  | $     |  |  | $ | 749,208  |  
|Total gains or losses (realized/unrealized)                                                                                                                                                                         |  |                                                                        |   |                  |   |          |              |  |       |   |  |   |          |  
|Included in net income                                                                                                                                                                                              |  |                                                                        |  |                  |   | 62,178   |              |  |       |  |  |   | 62,178   |  
|Included in other comprehensive income                                                                                                                                                                              |  |                                                                        |  |                  |   |         |              |  |       |  |  |   |         |  
|Purchases, issuances and settlements                                                                                                                                                                                |  |                                                                        |  |                  |   | (424,399 | )            |  |       |  |  |   | (424,399 | )
|Transfers in and/or out of Level 3                                                                                                                                                                                  |  |                                                                        |  |                  |   |         |              |  |       |  |  |   |         |  
|                                                                                                                                                                                                                    |  |                                                                        |   |                  |   |          |              |  |       |   |  |   |          |  
|Ending balance at September 30, 2009                                                                                                                                                                                |  | $                                                                      |  |                  | $ | 386,987  |              |  | $     |  |  | $ | 386,987  |  
|                                                                                                                                                                                                                    |  |                                                                        |   |                  |   |          |              |  |       |   |  |   |          |  
|The amount of total gains or losses for the nine months ended September 30, 2009 included in earnings attributable to the
change in unrealized gains or losses relating to assets still held at September 30, 2009  |  | $                                                                      |  |                  | $ | 55,129   |              |  | $     |  |  | $ | 55,129   |  
|                                                                                                                                                                                                                    |  |                                                                        |   |                  |   |          |              |  |       |   |  |   |          |  



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MAX CAPITAL GROUP LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)



|                                                                                                                                                                                                                    |  |                                                                        |   |                  |   |        |              |  |   |       |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------- | - | ---------------- | - | ------ | ------------ |  | - | ----- | - |  | - | ------ | -
|                                                                                                                                                                                                                    |  | Fair Value Measurements Using Significant Unobservable Inputs(Level
3) |  
|(Expressed in thousands of U.S. Dollars)                                                                                                                                                                            |  | Fixed Maturities                                                       |   | OtherInvestments |   |        | Other Assets |  |   | Total |  
|Beginning balance at July 1, 2008                                                                                                                                                                                   |  | $                                                                      |  |                  | $ | 19,178 |              |  | $ | 552   |   |  | $ | 19,730 |  
|Total gains or losses (realized/unrealized)                                                                                                                                                                         |  |                                                                        |   |                  |   |        |              |  |   |       |   |  |   |        |  
|Included in net income                                                                                                                                                                                              |  |                                                                        |  |                  |   | (1,282 | )            |  |   | (664  | ) |  |   | (1,946 | )
|Included in other comprehensive income                                                                                                                                                                              |  |                                                                        |  |                  |   |       |              |  |   |      |   |  |   |       |  
|Purchases, issuances and settlements                                                                                                                                                                                |  |                                                                        |  |                  |   |       |              |  |   |      |   |  |   |       |  
|Transfers in and/or out of Level 3                                                                                                                                                                                  |  |                                                                        |  |                  |   | 5,375  |              |  |   |      |   |  |   | 5,375  |  
|                                                                                                                                                                                                                    |  |                                                                        |   |                  |   |        |              |  |   |       |   |  |   |        |  
|Ending balance at September 30, 2008                                                                                                                                                                                |  | $                                                                      |  |                  | $ | 23,271 |              |  | $ | (112  | ) |  | $ | 23,159 |  
|                                                                                                                                                                                                                    |  |                                                                        |   |                  |   |        |              |  |   |       |   |  |   |        |  
|The amount of total gains or losses for the three months ended September 30, 2008 included in earnings attributable to the
change in unrealized gains or losses relating to assets still held at September 30, 2008 |  | $                                                                      |  |                  | $ | (1,225 | )            |  | $ | (664  | ) |  | $ | (1,889 | )
|                                                                                                                                                                                                                    |  |                                                                        |   |                  |   |        |              |  |   |       |   |  |   |        |  
|                                                                                                                                                                                                                    | 
|                                                                                                                                                                                                                    |  | Fair Value Measurements Using Significant Unobservable Inputs(Level
3) |  
|(Expressed in thousands of U.S. Dollars)                                                                                                                                                                            |  | Fixed Maturities                                                       |   | OtherInvestments |   |        | Other Assets |  |   | Total |  
|Beginning balance at January 1, 2008                                                                                                                                                                                |  | $                                                                      |  |                  | $ | 17,743 |              |  | $ |      |   |  | $ | 17,743 |  
|Total gains or losses (realized/unrealized)                                                                                                                                                                         |  |                                                                        |   |                  |   |        |              |  |   |       |   |  |   |        |  
|Included in net income                                                                                                                                                                                              |  |                                                                        |  |                  |   | (772   | )            |  |   | (664  | ) |  |   | (1,436 | )
|Included in other comprehensive income                                                                                                                                                                              |  |                                                                        |  |                  |   |       |              |  |   |      |   |  |   |       |  
|Purchases, issuances and settlements                                                                                                                                                                                |  |                                                                        |  |                  |   |       |              |  |   | 552   |   |  |   | 552    |  
|Transfers in and/or out of Level 3                                                                                                                                                                                  |  |                                                                        |  |                  |   | 6,300  |              |  |   |      |   |  |   | 6,300  |  
|                                                                                                                                                                                                                    |  |                                                                        |   |                  |   |        |              |  |   |       |   |  |   |        |  
|Ending balance at September 30, 2008                                                                                                                                                                                |  | $                                                                      |  |                  | $ | 23,271 |              |  | $ | (112  | ) |  | $ | 23,159 |  
|                                                                                                                                                                                                                    |  |                                                                        |   |                  |   |        |              |  |   |       |   |  |   |        |  
|The amount of total gains or losses for the nine months ended September 30, 2008 included in earnings attributable to the
change in unrealized gains or losses relating to assets still held at September 30, 2008  |  | $                                                                      |  |                  | $ | 685    |              |  | $ | (679  | ) |  | $ | 6      |  
|                                                                                                                                                                                                                    |  |                                                                        |   |                  |   |        |              |  |   |       |   |  |   |        |  

7. DERIVATIVE INSTRUMENTS

The Company recognizes all derivative instruments as either assets or liabilities in the consolidated balance sheets and measures them at the
fair value of the instrument. The Company participates from time to time in equity index derivative instruments to mitigate financial risks, principally arising from investment holdings. The Company also holds convertible bond securities within its
available for sale fixed maturity portfolio.

As at September 30, 2009, the Company held $14.6 million in fair value of
convertible bond securities, including the fair value of the equity call options embedded within. A convertible bond is a debt instrument that can be converted into a predetermined amount of the issuers equity at certain times prior to the
bond maturity. The Company purchases convertible bond securities for their total return potential not the specific call option feature. The equity call option is an embedded derivative which is recorded at fair value with changes in fair value
recognized in net realized gains (losses) on fixed maturities in the consolidated statements of income and



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MAX CAPITAL GROUP LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)



comprehensive income. These derivative instruments were not designated as hedging instruments. The fair value of the convertible options is estimated using an option adjusted spread model using
observable market inputs for similar securities. The host instrument is classified within available for sale fixed maturity investments and the derivative asset within other assets in the consolidated balance sheets.

On April 23, 2009, the Company closed the derivative positions it had previously held in equity futures contracts denominated in U.S.
dollars, Japanese yen, and Canadian dollars, for which the primary purpose was to manage the Companys economic exposure to changes in the fair value of hedge fund redemptions requested but not yet received. These derivative instruments were
not designated as hedging instruments. The Company records changes in the fair value of these instruments within net gains on other investments in the consolidated statements of income and comprehensive income. These derivatives were exchange-traded
and the fair value was measured based on the later of the final traded price or the mid-point of the last bid-ask spread on the measurement date. The fair value of these derivatives was included within other investments in the consolidated balance
sheets.

The fair values of derivative instruments at September 30, 2009 were:



|                                                                                           |  |                       |  |                       |       |                       |   |           |   |  
|------------------------------------------------------------------------------------------ |  | --------------------- |  | --------------------- | ----- | --------------------- | - | --------- | - | -
|                                                                                           |  | Asset Derivatives     |  | Liability Derivatives
|Derivatives not designated as hedging instruments (Expressed in thousands of U.S. Dollars) |  | Balance SheetLocation |  | FairValue             |       | Balance SheetLocation |   | FairValue
|Convertible bond equity call options                                                       |  | Other assets          |  | $                     | 1,457 |                       |  |           | $ | 
|                                                                                           |  |                       |  |                       |       |                       |   |           |   |  
|Total derivatives                                                                          |  |                       |  | $                     | 1,457 |                       |   |           | $ | 
|                                                                                           |  |                       |  |                       |       |                       |   |           |   |  

The fair values of derivative instruments at December 31, 2008 were:



|                                                                                           |  |                       |  |                       |        |                       |   |           |   |  
|------------------------------------------------------------------------------------------ |  | --------------------- |  | --------------------- | ------ | --------------------- | - | --------- | - | -
|                                                                                           |  | Asset Derivatives     |  | Liability Derivatives
|Derivatives not designated as hedging instruments (Expressed in thousands of U.S. Dollars) |  | Balance SheetLocation |  | FairValue             |        | Balance SheetLocation |   | FairValue
|Equity futures contracts                                                                   |  | Other investments     |  | $                     | 15,770 |                       |  |           | $ | 
|                                                                                           |  |                       |  |                       |        |                       |   |           |   |  
|Total derivatives                                                                          |  |                       |  | $                     | 15,770 |                       |   |           | $ | 
|                                                                                           |  |                       |  |                       |        |                       |   |           |   |  

The impact of derivative instruments on the consolidated statement of income and
comprehensive income for the three months ended September 30 was:



|                                                                                           |  |                                                              |  |                                                             |     |                                                             |   |      |  
|------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------ |  | ----------------------------------------------------------- | --- | ----------------------------------------------------------- | - | ---- | -
|Derivatives not designated as hedging instruments (Expressed in thousands of U.S. Dollars) |  | Location of Gain or (Loss) Recognized inIncome on Derivative |  | 2009Amount
ofGain or (Loss)Recognized inIncomeon Derivative |     | 2008Amount
ofGain or (Loss)Recognized inIncomeon Derivative |  
|Convertible bond equity call options                                                       |  | Net realized gains on fixed maturities                       |  | $                                                           | 508 |                                                             | $ |     |  
|Hurricane index-linked contracts                                                           |  | Other income                                                 |  |                                                             |    |                                                             |   | (664 | )
|                                                                                           |  |                                                              |  |                                                             |     |                                                             |   |      |  
|Total derivatives                                                                          |  |                                                              |  | $                                                           | 508 |                                                             | $ | (664 | )
|                                                                                           |  |                                                              |  |                                                             |     |                                                             |   |      |  

The impact of derivative instruments on the consolidated statement of income and
comprehensive income for the nine months ended September 30 was:



|                                                                                           |  |                                                              |  |                                                             |       |                                                             |   |      |  
|------------------------------------------------------------------------------------------ |  | ------------------------------------------------------------ |  | ----------------------------------------------------------- | ----- | ----------------------------------------------------------- | - | ---- | -
|Derivatives not designated as hedging instruments (Expressed in thousands of U.S. Dollars) |  | Location of Gain or (Loss) Recognized inIncome on Derivative |  | 2009Amount
ofGain or (Loss)Recognized inIncomeon Derivative |       | 2008Amount
ofGain or (Loss)Recognized inIncomeon Derivative |  
|Convertible bond equity call options                                                       |  | Net realized gains on fixed maturities                       |  | $                                                           | 508   |                                                             | $ |     |  
|Equity futures contracts                                                                   |  | Net gains on other investments                               |  |                                                             | 8,112 |                                                             |   |     |  
|Hurricane index-linked contracts                                                           |  | Other income                                                 |  |                                                             |      |                                                             |   | (664 | )
|                                                                                           |  |                                                              |  |                                                             |       |                                                             |   |      |  
|Total derivatives                                                                          |  |                                                              |  | $                                                           | 8,620 |                                                             | $ | (664 | )
|                                                                                           |  |                                                              |  |                                                             |       |                                                             |   |      |  



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MAX CAPITAL GROUP LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)



8. BANK LOANS

In February 2003, the Company sold shares of its subsidiary, Max Diversified Strategies Ltd. (Max Diversified) to a third party financial institution (the Bank) for a fair value of
$150.0 million (the notional amount). Simultaneous with the sale, the Company entered into a total return swap with the Bank whereby the Company received the return earned on the Max Diversified shares in exchange for the payment of a
variable rate of interest based on LIBOR plus a spread. The non-controlling interest in Max Diversified and the total return swap were recorded on a combined basis and accounted for as a financing transaction. The effect of combining the
transactions resulted in the notional amount being presented as a bank loan (the swap loan).

The swap transaction
contained provisions for earlier termination at the Companys option or in the event that the Company failed to comply with certain covenants, including maintaining a minimum financial strength rating and a minimum Max Diversified net asset
value.

On August 31, 2009, the Company entered into a termination agreement with the Bank in connection with the total
return swap and the sale of Max Diversified shares to the Bank. On termination of the swap, the Company repurchased all of the remaining shares held by the Bank. The balance of the swap loan was $225.0 million at December 31, 2008, $120.0
million of which was repaid during the three months ended March 31, 2009 and the remaining $105.0 million was repaid during the three months ended September 30, 2009.

At December 31, 2008 the net amount payable included in accounts payable under the total return swap was $14.9 million. Interest
expense on the notional amount is included within interest expense on the consolidated statements of income and comprehensive income. For the three months ended September 30, 2009 and 2008, the interest expense on the swap loan was $0.3 million
and $2.5 million, respectively. For the nine months ended September 30, 2009 and 2008, the interest expense on the swap loan was $2.4 million and $9.1 million respectively. Investment income earned on the invested proceeds of the swap loan for
the three months ended September 30, 2009 and 2008 was approximately $0.5 million and $2.9 million respectively. Investment income earned on the invested proceeds of the swap loan for the nine months ended September 30, 2009 and 2008 was
approximately $3.2 million and $9.0 million, respectively.

On April 3, 2007, the Company borrowed $50.0 million under
its revolving loan facility for the capitalization of Max USA. This loan renewed at intervals of one to six months at the Companys option, at which time the interest rate was reset to LIBOR plus a premium based on the Companys current
debt rating. On April 9, 2009, this loan was repaid in full. On October 20, 2008, the Company borrowed an additional $100.0 million under the revolving loan facility, at an interest rate of 4.63%. Proceeds of this loan were used in
connection with the acquisition and capitalization of Max UK. This loan was repaid in full on April 20, 2009.

Interest
expense in connection with these loans was $nil and $0.4 million for the three months ended September 30, 2009 and 2008, respectively, and $2.0 million and $1.5 million for the nine months ended September 30, 2009 and 2008, respectively.

9. SENIOR NOTES

On April 16, 2007, Max USA privately issued $100.0 million principal amount of 7.20% senior notes due April 14, 2017 with interest payable on April 16 and October 16 of each year. The senior notes are Max USAs
senior unsecured obligations and rank equally in right of payment with all existing and future senior unsecured indebtedness of Max USA. The senior notes are fully and unconditionally guaranteed by Max Capital. The effective interest rate related to
the senior notes, based on the net proceeds received, was approximately 7.27%. The net proceeds from the sale of the senior notes were $99.5 million, and they were used to repay a bank loan used to acquire and capitalize Max Specialty. On
December 30, 2008, Max USA repurchased $8.5 million principal amount of its senior notes for $6.2 million, recognizing a gain of $2.2 million, net of deferred issuance costs. The fair value of the senior notes was $80.7 million as of
September 30, 2009, measured based on an independent pricing service using a matrix pricing methodology. Interest expense in connection with these senior notes was $1.7 million and $1.8 million for the three months ended September 30, 2009
and 2008, respectively, and $5.0 million and $5.4 million for the nine months ended September 30, 2009 and 2008, respectively.

10.
INCOME TAXES

Max Capital and Max Bermuda are incorporated in Bermuda, and pursuant to Bermuda law are not taxed on either
income or capital gains. They have each received an assurance from the Bermuda Minister of Finance under the Exempted Undertaking Tax Protection Act, 1966 of Bermuda that if there is enacted in Bermuda any legislation imposing tax computed on
profits or income, or computed on any capital asset, gain or appreciation, then the imposition of any such tax will not be applicable until March 2016. The Companys subsidiaries that are based in the United States, Ireland and the United
Kingdom are subject to the tax laws of those jurisdictions and the jurisdictions in which they operate.

The Company records
income taxes during the quarter on the estimated effective annual rates for each of the years ended December 31, 2009 and 2008. Interest and penalties related to uncertain tax positions, of which there has been none, would be recognized in
income tax expense.



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MAX CAPITAL GROUP LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)



11. EQUITY CAPITAL

Max Capitals board of directors declared a dividend of $0.10 per share on each of August 4, 2009 and November 3, 2009 payable on September 1, 2009 and November 30, 2009,
respectively, to shareholders of record on August 18, 2009 and November 16, 2009, respectively. On each of February 10, 2009 and May 4, 2009, the board of directors declared a dividend of $0.09 payable on March 10, 2009 and
June 1, 2009, respectively, to shareholders of record on February 24, 2009 and May 18, 2009, respectively.

During the nine months ended September 30, 2009, under the Board-approved share repurchase authorization, the Company repurchased 322,400 common shares at an average price of $19.76 per common share for a total amount of $6.4 million,
including the costs incurred to effect the repurchases. As at September 30, 2009, the remaining authorization under the Companys share repurchase program was $63.4 million.

12. RELATED PARTIES

Grand Central Re Limited

In May 2001, the Company made an equity investment in Grand Central Re, a Bermuda domiciled reinsurance company managed by Max Managers Ltd.
(Max Managers). The Company owns 7.5% of the ordinary shares of Grand Central Re. Max Bermuda entered into a quota share retrocession agreement with Grand Central Re, effective January 1, 2002, amending the quota share arrangement
with Grand Central Re that commenced January 1, 2001. The 2002 quota share reinsurance agreement with Grand Central Re requires each of the Company and Grand Central Re to retrocede a portion of their respective gross premiums written from
certain transactions to the other party in order to participate on a quota share basis. Max Bermuda did not cede any new business to Grand Central Re in the nine months ended September 30, 2009.

The accompanying consolidated balance sheets and consolidated statements of income and comprehensive income include, or are net of, the
following amounts related to the quota share retrocession agreement with Grand Central Re:



|                                                |  |                                          |         |   |                  |   |         |  
|----------------------------------------------- |  | ---------------------------------------- | ------- | - | ---------------- | - | ------- | -
|                                                |  | September 30,2009                        |         |   | December 31,2008 |  
|                                                |  | (Expressed in thousands of U.S. Dollars) |        
|Balance Sheet                                   |  |                                          |         |   |                  |   |         |  
|Losses and benefits recoverable from reinsurers |  | $                                        | 101,691 |   |                  | $ | 106,203 |  
|Deposit liabilities                             |  |                                          | 15,519  |   |                  |   | 26,273  |  
|Funds withheld from reinsurers                  |  |                                          | 111,071 |   |                  |   | 137,014 |  
|Reinsurance balances payable                    |  |                                          | 26,192  |   |                  |   | 24,603  |  
|                                                | 
|                                                |  | Nine Months EndedSeptember 30,           |        
|                                                |  | 2009                                     |         |   | 2008             |  
|                                                |  | (Expressed in thousands of U.S. Dollars) |        
|Income Statement                                |  |                                          |         |   |                  |   |         |  
|Reinsurance premiums ceded                      |  | $                                        | 1,198   |   |                  | $ | 1,337   |  
|Earned premiums ceded                           |  |                                          | 1,198   |   |                  |   | 1,337   |  
|Other income                                    |  |                                          | 600     |   |                  |   | 600     |  
|Net losses and loss expenses                    |  |                                          | (383    | ) |                  |   | (1,307  | )
|Claims and policy benefits                      |  |                                          | 3,008   |   |                  |   | 802     |  
|Interest (benefit) expense                      |  |                                          | 2,265   |   |                  |   | 664     |  

The variable quota share retrocession agreement with Grand Central Re is principally
collateralized on a funds withheld basis. The rate of return on funds withheld is based on the average of two total return fixed maturity indices. The interest expense recognized by the Company will vary from period to period due to changes in the
indices. The Company records the change in interest expense through the statement of income and comprehensive income on a monthly basis.

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

Hedge Fund Managers

Alstra Capital Management, LLC (Alstra), an affiliate of Mr. Zack H. Bacon III, one of our directors until
November 2, 2009, served as the investment advisor for Max Diversified from April 1, 2004 until January 31, 2009. For the nine months ended September 30, 2009 and 2008, Alstra received investment advisor fees of $0.7 million and
$6.2 million, respectively. During the three months ended March 31, 2009, the Company terminated its investment advisor agreement with Alstra, resulting in a termination fee of $2.0 million. The Company believes that the terms of its terminated
investment advisor agreement were comparable to the terms that the Company would expect to negotiate in similar transactions with unrelated parties.



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MAX CAPITAL GROUP LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)



In addition, Moore Capital Management, LLC (Moore Capital), an affiliate of
one of our significant shareholders, received aggregate management and incentive fees of $1.9 million and $2.0 million, respectively, in respect of Max Diversifieds assets invested in an underlying fund managed by Moore Capital for the nine
months ended September 30, 2009 and 2008.

All investment fees incurred on the Companys hedge funds are included in
net gains or losses on other investments in the consolidated statements of income and comprehensive income.

13. COMMITMENTS AND
CONTINGENCIES

Credit Facilities

The Company has three credit facilities as of September 30, 2009. The Company entered into its primary credit facility on August 7,
2007 with Bank of America and various other financial institutions. The primary credit facility provides for a $450.0 million five-year senior secured credit facility for letters of credit to be issued for the account of Max Bermuda and certain of
its insurance subsidiaries and a $150.0 million five-year unsecured senior credit facility for letters of credit to be issued for the account of Max Bermuda and certain of its insurance subsidiaries and loans to Max Bermuda and Max Capital. Subject
to certain conditions and at the request of Max Bermuda, the aggregate commitments of the lenders under the primary credit facility may be increased up to a total of $800.0 million, provided that the unsecured commitments may not exceed 25% of the
aggregate commitments under the primary credit facility.

On October 13, 2008, Max Capital entered into a credit facility
agreement with ING Bank N.V., London Branch (ING). This credit facility was entered into as part of the Companys acquisition of Max UK. This credit facility provides up to GBP 90.0 million for the issuance of letters of credit
to provide capital (Funds at Lloyds or FAL) to support Lloyds syndicate commitments of Max UK and its subsidiaries. The facility may be terminated by ING at any time after January 1, 2010, subject to a four
year notice requirement for any outstanding letters of credit. Effective December 5, 2008, Max UK was substituted as account party under the facility with Max Capital acting as guarantor.

The third facility is Max Bermudas $75.0 million letter of credit facility with The Bank of Nova Scotia. Absent renewal, this facility
expires on December 17, 2009.

Max Bermudas $20.0 million ING facility was terminated on July 21, 2009.

The following table provides a summary of the credit facilities and the amounts pledged as collateral for the issued and
outstanding letters of credit as of September 30, 2009 and December 31, 2008:



|                                                                                    |  |                                                                                                  |         |                        |   |              |  |       |        |                            |   |         |  |     |       
|----------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------ | ------- | ---------------------- | - | ------------ |  | ----- | ------ | -------------------------- | - | ------- |  | --- | ------
|                                                                                    |  | Credit Facilities (expressed in thousands of U.S. Dollars orGreat Britain Pounds, as applicable)
|                                                                                    |  | Bank of AmericaSyndicate                                                                         |         | The Bank ofNova Scotia |   | ING BankN.V. |  | Total |        | ING BankN.V. - FALfacility
|Letter of credit facility capacity at September 30, 2009(1)                         |  | $                                                                                                | 600,000 |                        | $ | 75,000       |  | $     |       |                            | $ | 675,000 |  | GBP | 90,000
|                                                                                    |  |                                                                                                  |         |                        |   |              |  |       |        |                            |   |         |  |     |       
|Letter of credit facility capacity at December 31, 2008(1)                          |  | $                                                                                                | 600,000 |                        | $ | 75,000       |  | $     | 20,000 |                            | $ | 695,000 |  | GBP | 90,000
|                                                                                    |  |                                                                                                  |         |                        |   |              |  |       |        |                            |   |         |  |     |       
|Unsecured loan outstanding at September 30, 2009                                    |  | $                                                                                                |        |                        | $ |             |  | $     |       |                            | $ |        |  | GBP |      
|                                                                                    |  |                                                                                                  |         |                        |   |              |  |       |        |                            |   |         |  |     |       
|Unsecured loan outstanding at December 31, 2008                                     |  | $                                                                                                | 150,000 |                        | $ |             |  | $     |       |                            | $ | 150,000 |  | GBP |      
|                                                                                    |  |                                                                                                  |         |                        |   |              |  |       |        |                            |   |         |  |     |       
|Letters of credit issued and outstanding at September 30, 2009                      |  | $                                                                                                | 388,142 |                        | $ | 50,103       |  | $     |       |                            | $ | 438,245 |  | GBP | 63,614
|                                                                                    |  |                                                                                                  |         |                        |   |              |  |       |        |                            |   |         |  |     |       
|Letters of credit issued and outstanding at December 31, 2008                       |  | $                                                                                                | 437,211 |                        | $ | 43,133       |  | $     | 10,000 |                            | $ | 490,344 |  | GBP | 63,614
|                                                                                    |  |                                                                                                  |         |                        |   |              |  |       |        |                            |   |         |  |     |       
|Cash and fixed maturities at fair value pledged as collateral at September 30, 2009 |  | $                                                                                                | 537,533 |                        | $ | 75,883       |  | $     |       |                            | $ | 613,416 |  | GBP | 3,614 
|                                                                                    |  |                                                                                                  |         |                        |   |              |  |       |        |                            |   |         |  |     |       
|Cash and fixed maturities at fair value pledged as collateral at December 31, 2008  |  | $                                                                                                | 481,750 |                        | $ | 51,717       |  | $     | 18,791 |                            | $ | 552,258 |  | GBP | 3,614 
|                                                                                    |  |                                                                                                  |         |                        |   |              |  |       |        |                            |   |         |  |     |       



|(1) | Letter of credit capacity is reduced by the amount of unsecured loans outstanding.
|--- | ----------------------------------------------------------------------------------

Each of the credit facilities requires that the Company and/or certain of its subsidiaries comply with covenants, including a minimum
consolidated tangible net worth and restrictions on the payment of dividends. The Company was in compliance with all the covenants of each of its letter of credit facilities at September 30, 2009.



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MAX CAPITAL GROUP LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)



14. STOCK INCENTIVE PLANS

At the May 5, 2008 Annual General Meeting of shareholders, Max Capitals shareholders approved the adoption of the 2008 Stock
Incentive Plan (the 2008 Plan) under which the Company may award, subject to certain restrictions, Incentive Stock Options, Non-Qualified Stock Options, restricted stock, restricted stock units, share awards or other awards. The 2008
Plan is administered by the Compensation Committee of the Board of Directors (the Committee).

Prior to adoption
of the 2008 Plan, the Company made awards of equity compensation under a Stock Incentive Plan approved by the shareholders in June 2000, and amended in each of May 2002 and April 2005 (the 2000 Plan, and together with the 2008 Plan, the
Plans). Effective upon the adoption of the 2008 Plan, unused shares from the 2000 Plan became unavailable for future awards and instead are used only to fulfill obligations from outstanding option, restricted stock unit awards or reload
obligations pursuant to grants originally made under the 2000 Plan.

Warrants

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

Warrant related activity is as follows:



|                            |  |                     |   |  |                     |  |                               |       |                           |   |                        |  |              
|--------------------------- |  | ------------------- | - |  | ------------------- |  | ----------------------------- | ----- | ------------------------- | - | ---------------------- |  | -------------
|                            |  | WarrantsOutstanding |   |  | WarrantsExercisable |  | WeightedAverageExercise Price |       | WeightedAverageFair Value |   | Range ofExercisePrices
|Balance, December 31, 2008  |  | 4,735,125           |   |  | 4,735,125           |  | $                             | 15.33 |                           | $ | 5.75                   |  | $15.00-$18.00
|Warrants exercised          |  | (2,277,634          | ) |  |                     |  | $                             | 15.01 |                           | $ | 5.93                   |  | $15.00-$16.00
|Warrants forfeited          |  |                    |   |  |                     |  |                               |       |                           |   |                        |  |              
|                            |  |                     |   |  |                     |  |                               |       |                           |   |                        |  |              
|Balance, September 30, 2009 |  | 2,457,491           |   |  | 2,457,491           |  | $                             | 15.62 |                           | $ | 5.58                   |  | $15.00-$18.00
|                            |  |                     |   |  |                     |  |                               |       |                           |   |                        |  |              

The warrants contain a cashless exercise provision which allows the
warrant holder to surrender the warrants with notice of cashless exercise and receive a number of shares based on the market value of the Companys shares. The cashless exercise provision results in a lower number of shares being issued than
the number of warrants exercised. The warrants exercised during 2009 were exercised pursuant to the cashless exercise provision, which resulted in 566,346 shares being issued for the exercise of 2,277,634 warrants.

Stock Option Awards

Options that have been granted under the Plans have an exercise price equal to or greater than the fair market value of Max Capitals common shares on the date of grant and have a maximum ten-year
term. The fair value of awards granted under the Plans are measured as of the grant date and expensed ratably over the vesting period of the award. All awards provide for accelerated vesting upon a change in control of Max Capital. Shares issued
under the Plans are made available from authorized but unissued shares.

The fair value of options granted during the nine
months ended September 30, 2009 and 2008 was estimated on the date of grant using the Black-Scholes option pricing method with the following weighted average assumptions:



|                              |  |           |   |  |           |  
|----------------------------- |  | --------- | - |  | --------- | -
|                              |  | 2009      |   |  | 2008      |  
|Option valuation assumptions: |  |           |   |  |           |  
|Expected option life          |  | 7.0 years |   |  | 3.0 years |  
|Expected dividend yield       |  | 2.32      | % |  | 1.78      | %
|Expected volatility           |  | 34.3      | % |  | 21.9      | %
|Risk-free interest rate       |  | 2.99      | % |  | 4.31      | %
|Forfeiture rate               |  | 0.00      | % |  | 0.00      | %

The Company recognized $0.2 million and $0.1 million of stock-based compensation
expense related to stock option awards for the three months ended September 30, 2009 and 2008, respectively. Stock-based compensation expense related to stock option awards for the nine months ended September 30, 2009 and 2008 was $0.5
million and $0.5 million, respectively. The Company did not capitalize any cost of stock-based option award compensation. As of September 30, 2009, the total compensation cost related to non-vested stock option awards not yet recognized was
$0.8 million, which is expected to be recognized over a weighted average period of 1.25 years.



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MAX CAPITAL GROUP LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)



The total intrinsic value of stock options exercised during the nine month period ended
September 30, 2009 was $0.6 million, and was $2.0 million during the nine months ended September 30, 2008.

A
summary of the 2000 Plan related activity follows:



|                            |  |                    |   |  |                    |  |                              |       |                      |   |                         |  |               
|--------------------------- |  | ------------------ | - |  | ------------------ |  | ---------------------------- | ----- | -------------------- | - | ----------------------- |  | --------------
|                            |  | OptionsOutstanding |   |  | OptionsExercisable |  | WeightedAverageExercisePrice |       | Fair Valueof Options |   | Range ofExercise Prices
|Balance, December 31, 2008  |  | 1,843,263          |   |  | 1,413,346          |  | $                            | 22.24 |                      | $ | 6.13                    |  | $10.95 - 36.26
|Options exercised           |  | (107,125           | ) |  |                    |  |                              | 14.68 |                      |   | 4.94                    |  | 11.50 - 16.00 
|Options forfeited           |  | (110,333           | ) |  |                    |  |                              | 24.47 |                      |   | 7.14                    |  | 23.25 - 24.49 
|                            |  |                    |   |  |                    |  |                              |       |                      |   |                         |  |               
|Balance, September 30, 2009 |  | 1,625,805          |   |  | 1,314,138          |  | $                            | 22.58 |                      | $ | 6.13                    |  | $10.95 - 36.26
|                            |  |                    |   |  |                    |  |                              |       |                      |   |                         |  |               

A summary of the 2008 Plan related activity follows:



|                               |  |                          |   |  |                    |  |                    |  |                              |       |                      |   |                        |  |   |      
|------------------------------ |  | ------------------------ | - |  | ------------------ |  | ------------------ |  | ---------------------------- | ----- | -------------------- | - | ---------------------- |  | - | -----
|                               |  | AwardsAvailablefor Grant |   |  | OptionsOutstanding |  | OptionsExercisable |  | WeightedAverageExercisePrice |       | Fair Valueof Options |   | Range ofExercisePrices
|Balance, December 31, 2008     |  | 4,350,909                |   |  |                   |  |                   |  | $                            |      |                      | $ |                       |  | $ |     
|Options granted                |  | (108,333                 | ) |  | 108,333            |  |                    |  |                              | 18.25 |                      |   | 6.01                   |  |   | 18.25
|Options exercised              |  |                         |   |  |                   |  |                    |  |                              |      |                      |   |                       |  |   |     
|Options forfeited              |  |                         |   |  |                   |  |                    |  |                              |      |                      |   |                       |  |   |     
|Restricted stock granted       |  | (707,048                 | ) |  |                   |  |                    |  |                              |       |                      |   |                        |  |   |      
|Restricted stock forfeited     |  | 12,135                   |   |  |                   |  |                    |  |                              |       |                      |   |                        |  |   |      
|Restricted stock units granted |  | (134,604                 | ) |  |                   |  |                    |  |                              |       |                      |   |                        |  |   |      
|                               |  |                          |   |  |                    |  |                    |  |                              |       |                      |   |                        |  |   |      
|Balance, September 30, 2009    |  | 3,413,059                |   |  | 108,333            |  |                   |  | $                            | 18.25 |                      | $ | 6.01                   |  | $ | 18.25
|                               |  |                          |   |  |                    |  |                    |  |                              |       |                      |   |                        |  |   |      

Restricted Stock Awards

Restricted stock and restricted stock units (RSUs) issued under the Incentive Plans have terms set by the Committee. These shares and RSUs
contain certain restrictions relating to, among other things, vesting, forfeiture in the event of termination of employment and transferability. Restricted stock awards are valued equal to the market price of the Companys common stock on the
date of grant. At the time of grant, the fair value of the shares and RSUs awarded is recorded as unearned stock grant compensation. The unearned compensation is charged to income over the vesting period. Generally, restricted stock awards vest
after three or four years. Total compensation cost recognized for restricted stock awards recorded in general and administrative expenses was $5.2 million and $4.4 million for the three months ended September 30, 2009 and 2008, respectively,
and $15.4 million and $14.2 million for the nine months ended September 30, 2009 and 2008, respectively.

A summary of
the Companys non-vested restricted stock awards as of December 31, 2008 and changes during the nine months ended September 30, 2009 follow:



|                            |  |                            |   |  |                                         |       |                |         |   |                                         |   |      
|--------------------------- |  | -------------------------- | - |  | --------------------------------------- | ----- | -------------- | ------- | - | --------------------------------------- | - | -----
|                            |  | Non-vestedRestricted Stock |   |  | Weighted -AverageGrant Date Fair Value |       | Non-vestedRSUs |         |   | Weighted -AverageGrant Date Fair Value
|Balance, December 31, 2008  |  | 2,121,067                  |   |  | $                                       | 25.59 |                | 347,759 |   |                                         | $ | 26.32
|Awards Granted              |  | 707,048                    |   |  |                                         | 18.27 |                | 134,604 |   |                                         |   | 18.25
|Awards Vested               |  | (401,894                   | ) |  |                                         | 25.32 |                | (83,849 | ) |                                         |   | 25.30
|Awards Forfeited(1)         |  | (62,112                    | ) |  |                                         | 23.89 |                |        |   |                                         |   |     
|                            |  |                            |   |  |                                         |       |                |         |   |                                         |   |      
|Balance, September 30, 2009 |  | 2,364,109                  |   |  | $                                       | 23.42 |                | 398,514 |   |                                         | $ | 23.81
|                            |  |                            |   |  |                                         |       |                |         |   |                                         |   |      



|(1) | Restricted stock forfeitures include 49,977 related to the 2000 Plan and do not increase the awards available for grant.
|--- | ------------------------------------------------------------------------------------------------------------------------

Employee Stock Purchase Plan

On July 1, 2008, the Company introduced an employee stock purchase plan (ESPP). The ESPP gives participating employees the right to purchase common shares through payroll deductions
during consecutive Subscription Periods. The Subscription Periods run from January 1 to June 30 and from July 1 to December 31 each year. The Company recorded an expense for ESPP of $0.1 million and $0.3 million for
the three months and nine months ended September 30, 2009, respectively.



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MAX CAPITAL GROUP LTD.

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)(Continued)



15. TERMINATED AMALGAMATION

On June 12, 2009, the Company announced it had terminated the Agreement and Plan of Amalgamation (as amended, the Max Amalgamation
Agreement) previously entered into among Max Capital, IPC Holdings, Ltd. (IPC), and IPC Limited on March 1, 2009. On July 9, 2009, IPC entered into an Agreement and Plan of Amalgamation with another company and as a
result, IPC was required to pay a termination fee of $50.0 million to the Company which was received on July 9, 2009. The fee is included within merger and acquisition expenses in the interim consolidated statements of income and comprehensive
income net of $8.6 million of expenses.

On April 28, 2009, Validus Holdings, Ltd. commenced a lawsuit in the Supreme
Court of Bermuda against IPC, IPCs wholly owned subsidiary, IPC Limited, and Max Capital. Subsequent to September 30, 2009 the parties have settled the dispute and agreed to discontinue the proceedings.

16. SUBSEQUENT EVENTS

Subsequent events have been evaluated up to and including November 6, 2009, the date of issuance of these unaudited interim consolidated financial statements.



|ITEM 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Unless otherwise indicated or unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to we,
us, our and similar expressions are references to Max Capital and its consolidated subsidiaries.

The
following is a discussion and analysis of our results of operations for the three and nine month periods ended September 30, 2009 compared to the three and nine month periods ended September 30, 2008 and our financial condition as of
September 30, 2009. This discussion and analysis should be read in conjunction with the attached unaudited interim consolidated financial statements and related notes and the audited consolidated financial statements and related notes contained
in our Annual Report on Form 10-K for the year ended December 31, 2008.

This Form 10-Q contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (Exchange Act). We intend that the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 apply to these forward-looking statements. Forward-looking statements are not statements of historical fact but rather reflect our current expectations, estimates and predictions about future results and events.

These statements may use words such as anticipate, believe, estimate, expect,
intend, predict, project and similar expressions as they relate to us or our management. When we make forward-looking statements, we are basing them on managements beliefs and assumptions, using information
currently available to us. These forward-looking statements are subject to risks, uncertainties and assumptions. Factors that could cause such forward-looking statements not to be realized (which are described in more detail included or incorporated
by reference herein and in documents filed by us with the Securities and Exchange Commission (SEC) include, but are not limited to:



| |  |  | claims development;
| | - |  | -------------------



| |  |  | cyclical trends, general economic conditions and conditions specific to the reinsurance and insurance markets in which we operate;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | pricing competition;
| | - |  | --------------------



| |  |  | rating agency policies and practices;
| | - |  | -------------------------------------



| |  |  | catastrophic events;
| | - |  | --------------------



| |  |  | the amount of underwriting capacity from time to time in the market;
| | - |  | --------------------------------------------------------------------



| |  |  | material fluctuations in interest rates;
| | - |  | ----------------------------------------



| |  |  | unexpected volatility associated with investments;
| | - |  | --------------------------------------------------



| |  |  | tax and regulatory changes and conditions; and
| | - |  | ----------------------------------------------



| |  |  | loss of key executives.
| | - |  | -----------------------

Other factors such as changes in U.S. and global equity and debt markets resulting from general economic conditions, market disruptions and significant interest rate fluctuations, foreign exchange rate
fluctuations and changes in credit spreads may adversely impact our business or impede our access to, or increase the cost of, financing our operations. We caution that the foregoing list of important factors is not intended to be, and is not,
exhaustive. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. If one or more risks or uncertainties materialize, or if our underlying
assumptions prove to be incorrect, actual results may vary materially from what we projected. Any



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forward-looking statements in this Form 10-Q reflect our current view with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our
operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by this safe harbor
disclosure.

Generally, our policy is to communicate events that we believe may have a material adverse impact on our
operations or financial position, including property and casualty catastrophic events and material losses in our investment portfolio, in a timely manner through a public announcement. It is also our policy not to make public announcements regarding
events that we believe have no material impact on our operations or financial position based on managements current estimates and available information, other than through regularly scheduled calls, press releases or filings.

Overview

We are a Bermuda
headquartered global provider of specialty insurance and reinsurance products for the property and casualty market, with underwriting operations based in Bermuda, Ireland, the United States and the United Kingdom. We underwrite a diversified
portfolio of risks and serve clients ranging from Fortune 1000 companies to small owner-operated businesses. We also provide reinsurance for the life and annuity market when opportunities arise.

We have approximately $1,546.7 million in consolidated shareholders equity as of September 30, 2009. Our principal operating
subsidiary is Max Bermuda. We conduct our non-Lloyds European activities through Max Europe Holdings and its operating subsidiaries, Max Re Europe and Max Insurance Europe. We conduct our U.S. operations through Max USA and its operating
subsidiaries, Max Specialty and Max America. Our United Kingdom Lloyds operations are conducted through Max UK and its operating subsidiary Max at Lloyds Ltd. (Max at Lloyds). We hold all hedge funds in Max Diversified.
We house certain personnel and assets within our global service companies which we believe improves the efficiency of certain corporate services across the group. The global service companies are incorporated in Ireland, Bermuda, the United Kingdom
and the United States.

To manage our insurance and reinsurance liability exposure, make our investment decisions and assess
our overall enterprise risk, we model our underwriting and investing activities on an integrated basis for all of our non-Lloyds operations, and this integration is currently being extended to include our Max at Lloyds platform. Our
integrated risk management, as well as terms and conditions of our products, provides flexibility in making decisions regarding investments. Our investments comprise three high grade fixed maturities securities portfolios (one held for trading, one
held as available for sale, the other being held to maturity) and a diversified hedge fund portfolio. Our investment portfolio is designed to provide diversification and to generate positive returns while attempting to reduce the frequency and
severity of credit losses. Based on carrying values at September 30, 2009, the allocation of invested assets was 92.8% in cash and fixed maturities and 7.2% in other investments.

Executive Summary

Net income for the nine months ended September 30,
2009 was $183.6 million, an increase of $264.8 million from a loss of $81.2 million for the same period in 2008. Diluted book value per share has increased 18.2% to $26.54 at September 30, 2009 compared to December 31, 2008. Our property
and casualty underwriting business is producing gross premium volumes ahead of plan for the year to date. Gross premiums written for our property and casualty segments for the nine months ended September 30, 2009 have increased 33.9% over the
same period in 2008, with net premiums earned increasing by 40.1%. This growth reflects the continued build out of our U.S specialty segment, with an increase in gross premiums written of $85.1 million over the comparable prior year-to-date period,
and the addition of our Max at Lloyds segment at the end of 2008 which has contributed $110.6 million of gross premiums written for the year-to-date period. Weve seen attractive rates in certain casualty and short tail lines during 2009,
and our diversified underwriting platforms enables us to take advantage of opportunities where market conditions are favorable.

Our four property and casualty segments produced an aggregate combined ratio for the nine months ended September 30, 2009 of 90.5%, compared to a combined ratio of 89.1% for the nine months ended September 30, 2008. Net losses
incurred in the nine months ended September 30, 2009 related to property catastrophe events were $3.4 million, compared to $50.0 million, net of reinstatement premiums of $7.4 million, in the same period in 2008. We recognized net favorable
development on prior year loss reserves of $47.5 million for the nine months ended September 30, 2009, compared to $88.6 million for the same period in 2008. The favorable development in the 2009 period relates principally to our property and
professional liability lines of business, offset by adverse development in the marine and energy lines. Absent the net favorable loss development our combined ratios for the nine months ended September 30, 2009 and 2008 were 98.6% and 110.3%,
respectively. Favorable loss reserve development is primarily due to lower than expected claims emergence on prior year contracts.

The current year to date has have seen some stabilization of the investment markets in comparison to the market disruption and significant interest rate fluctuations experienced in 2008. Net investment income for the nine months ended
September 30, 2009 was $125.1 million, a decrease of 9.0% compared to the same period in 2008. The reduction in net investment income is principally



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attributable to our maintenance of a significant allocation to cash and cash equivalents during the nine months ended September 30, 2009, averaging approximately 18.6% of invested assets,
compared to approximately 10.4% on average during the nine month period ended September 30, 2008. We anticipate this ratio will decrease as we deploy cash in more attractive investment opportunities. The credit quality of our fixed maturities
investments remains high, with 62.2% of our fixed maturities at September 30, 2009, by carrying value, being held in U.S. government, agency, or AAA-rated securities.

We implemented a strategy in the three months ended September 30, 2009 to hold certain fixed income securities to maturity. As a result
of this classification, the held to maturity portfolio is recorded at amortized cost in the consolidated balance sheet and is no longer recorded at fair value. As the movements in fair value of these securities are no longer reflected within
accumulated other comprehensive income this reclassification will eliminate the impact to shareholders equity of volatility in fair values. The held to maturity portfolio is comprised principally of long duration government and corporate debt
securities. We believe this held to maturity strategy is achievable due to the relatively stable and predictable cash flows of our long-term liabilities. The fair value of those securities reclassified as held to maturity was $952.7 million on the
date of reclassification, which became the new cost base.

The return on our hedge fund portfolio was 9.38% for the nine month
period ended September 30, 2009, compared to a return of 9.80% for the HFRI Fund of Funds Composite Index, which we believe to be the most comparable benchmark. As of September 30, 2009, our allocation of invested assets to the hedge fund
portfolio was 7.2%, compared to 18.6% as of September 30, 2008. We believe our reduced allocation to hedge funds and the rebalancing of our portfolio has significantly reduced the potential volatility of our investment returns.

Over the nine months ended September 30, 2009 we have significantly reduced our external borrowings. We have repaid $150.0 million in
bank loans and $225.0 million on our swap loan, reducing both balances to zero. These actions have reduced our total debt from $466.4 million at December 31, 2008 to $91.4 million at September 30, 2009.

Our underwriting and investment performance resulted in an annualized return on average shareholders equity of 17.3% for the nine
months ended September 30, 2009, compared to negative 7.6% for the same period in 2008. Diluted book value per common share increased 18.2% from $22.46 at December 31, 2008 to $26.54 at September 30, 2009. Diluted book value per
common share is computed using the treasury stock method, which assumes that in-the-money options and warrants are exercised and the proceeds received are used to purchase common shares in the market. Under this method diluted common shares
outstanding were 58,272,865 and 57,017,157 at September 30, 2009 and December 31, 2008, respectively.

Following the
termination of the amalgamation agreement with IPC on June 12, 2009, and as a result of IPC entering into an Agreement and Plan of Amalgamation with another company on July 9, 2009, the Company received a termination fee of $50.0 million
from IPC. This fee was received on July 9, 2009 and is reflected in our results for the three months ended September 30, 2009, net of $8.6 million of expenses.

Critical Accounting Policies

Our consolidated financial statements are
prepared in accordance with United States generally accepted accounting principles, which require management to make estimates and assumptions. We have performed a current assessment of our critical accounting policies in connection with preparing
our interim unaudited consolidated financial statements as of and for the nine months ended September 30, 2009. We believe that the critical accounting policies set forth in our Form 10-K for the year ended December 31, 2008 continue to
describe the more significant judgments and estimates used in the preparation of our consolidated financial statements. These accounting policies pertain to revenue recognition, loss and benefit expenses and investment valuation. If actual events
differ significantly from the underlying judgments or estimates used by management in the application of these accounting policies, there could be a material adverse effect on our results of operations and financial condition.

Other-Than-Temporary Impairment

Our critical accounting policy pertaining to the assessment of other-than-temporary impairments was updated as at April 1, 2009 in accordance with new accounting standards. Our updated policy
requires that an other-than-temporary impairment, or OTTI, related to a credit loss is recognized in earnings, and the amount of the OTTI related to other factors (e.g. interest rates, market conditions, etc.) is recorded as a component of other
comprehensive income. If no credit loss exists but either: (a) an entity has the intent to sell the debt security or (b) it is more likely than not that the entity will be required to sell the debt security before its anticipated recovery,
the entire unrealized loss is recognized in earnings. In periods after the recognition of an OTTI on debt securities, we account for such securities as if they had been purchased on the measurement date of the OTTI at an amortized cost basis equal
to the previous amortized cost basis less the OTTI recognized in earnings.

The Company reviews all securities at the end of
the period and identifies those which it either has the intention to sell or it is more likely than not that the Company will be required to sell. All such securities identified which are also in an unrealized loss position will have an OTTI charge
(being the difference between the amortized cost and the fair value of the security) recognized in net income. The Company considers its liquidity and working capital needs in the determination whether it is not more likely than not



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that it will be required to sell any securities. The Company also performs a review of debt securities which considers various indicators of potential credit losses. These indicators include the
length of time and extent of the unrealized loss, any specific adverse conditions, historic and implied volatility of the security, failure of the issuer of the security to make scheduled interest payments, expected cash flow analysis, significant
rating changes and recoveries or additional declines in fair value subsequent to the balance sheet date. The consideration of these indicators and the estimation of credit losses involve significant management judgment.

Results of Operations

We
monitor the performance of our underwriting operations in five segments:



| |  |  | Bermuda/Dublin insurance  This segment offers property and casualty excess of loss capacity from our Bermuda and Dublin offices on specific risks
related to individual insureds.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Bermuda/Dublin reinsurance  This segment offers property and casualty quota share and excess of loss capacity from our Bermuda and Dublin
offices, providing coverage for underlying risks written by our clients.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | U.S. specialty  This segment offers property and casualty coverage from offices in the United States on specific risks related to individual
insureds.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Max at Lloyds  This segment offers property and casualty quota share and excess of loss capacity from our London and Copenhagen offices.
This segment comprises our proportionate share of the underwriting results of the Syndicates, and the results of our managing agent, Max at Lloyds.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Life and annuity reinsurance  This segment operates out of Bermuda only and offers reinsurance products focusing on existing blocks of life and
annuity business, which take the form of co-insurance transactions whereby the risks are reinsured on the same basis as the original policies.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We also have a corporate function that manages our investing and financing activities.

Each of the U.S. specialty and the Max at Lloyds segments has its own portfolio of fixed maturities investments. The investment income earned by each of these segments is reported in their respective segments.

In contrast, invested assets relating to the Bermuda/Dublin reinsurance, Bermuda/Dublin insurance and life and annuity segments are managed
on an aggregated basis. Consequently, investment income on this consolidated portfolio and gains on the hedge fund portfolio are not directly captured in any one of these segments. However, because of the longer duration of liabilities on casualty
insurance and reinsurance business (as compared to property), and life and annuity reinsurance business, investment returns are important in evaluating the profitability of these segments. Accordingly, we allocate investment returns from the
consolidated portfolio to each of these three segments. This is based on a notional allocation of invested assets from the consolidated portfolio using durations that are determined based on estimated cash flows into and out of each segment. The
balance of investment returns from this consolidated portfolio is allocated to our corporate function for the purposes of segment reporting. The overall performance of our fixed maturities portfolio and hedge fund portfolio is discussed within the
corporate function results of operations.

Three and nine months ended September 30, 2009 compared to the three and
nine months ended September 30, 2008

Results of Underwriting Operations

Bermuda/Dublin Insurance Segment



|                                        |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |        |  
|--------------------------------------- |  | ---------------------------------- | ----- | - | -------- | ----- | -- | ---------------------------------- | - | ----- | --------------------------------- |  | - | -------- | - |  | --------------------------------- | -- |  | - | ------ | -
|                                        |  | Three MonthsEndedSeptember 30,2009 |       |   | % change |       |    | Three MonthsEndedSeptember 30,2008 |   |       | Nine MonthsEndedSeptember 30,2009 |  |   | % change |   |  | Nine MonthsEndedSeptember 30,2008 |   
|Gross premiums written                  |  | $                                  | 81.1  |   |          | 0.2   | %  |                                    | $ | 80.9  |                                   |  | $ | 302.7    |   |  | 9.6                               | %  |  | $ | 276.3  |  
|Reinsurance premiums ceded              |  |                                    | (41.9 | ) |          | 9.4   | %  |                                    |   | (38.3 | )                                 |  |   | (146.1   | ) |  | 9.8                               | %  |  |   | (133.1 | )
|                                        |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |        |  
|Net premiums written                    |  | $                                  | 39.2  |   |          | (8.0  | )% |                                    | $ | 42.6  |                                   |  | $ | 156.6    |   |  | 9.4                               | %  |  | $ | 143.2  |  
|                                        |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |        |  
|Net premiums earned(a)                  |  | $                                  | 49.1  |   |          | 6.0   | %  |                                    | $ | 46.3  |                                   |  | $ | 150.0    |   |  | 9.4                               | %  |  | $ | 137.1  |  
|Net investment income                   |  |                                    | 5.9   |   |          | 20.4  | %  |                                    |   | 4.9   |                                   |  |   | 16.9     |   |  | 27.1                              | %  |  |   | 13.3   |  
|Net gains (losses) on other investments |  |                                    | 1.3   |   |          | N/A   |    |                                    |   | (14.9 | )                                 |  |   | 3.5      |   |  | N/A                               |    |  |   | (13.5  | )
|Other income                            |  |                                    | 0.1   |   |          | N/A   |    |                                    |   |      |                                   |  |   | 1.2      |   |  | 9.1                               | %  |  |   | 1.1    |  
|                                        |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |        |  
|Total revenues                          |  |                                    | 56.4  |   |          | 55.4  | %  |                                    |   | 36.3  |                                   |  |   | 171.6    |   |  | 24.3                              | %  |  |   | 138.0  |  
|                                        |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |        |  
|Net losses and loss expenses(b)(c)      |  |                                    | 31.7  |   |          | (18.7 | )% |                                    |   | 39.0  |                                   |  |   | 106.0    |   |  | (2.6                              | )% |  |   | 108.8  |  
|Acquisition costs(c)                    |  |                                    | 0.4   |   |          | N/A   |    |                                    |   | (0.7  | )                                 |  |   | (1.5     | ) |  | (21.1                             | )% |  |   | (1.9   | )
|General and administrative expenses(c)  |  |                                    | 7.3   |   |          | 40.4  | %  |                                    |   | 5.2   |                                   |  |   | 17.8     |   |  | 10.6                              | %  |  |   | 16.1   |  
|                                        |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |        |  
|Total losses and expenses               |  |                                    | 39.4  |   |          | (9.4  | )% |                                    |   | 43.5  |                                   |  |   | 122.3    |   |  | (0.6                              | )% |  |   | 123.0  |  
|                                        |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |        |  
|Income (loss) before taxes              |  | $                                  | 17.0  |   |          | N/A   |    |                                    | $ | (7.2  | )                                 |  | $ | 49.3     |   |  | 228.7                             | %  |  | $ | 15.0   |  
|                                        |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |        |  
|Loss ratio(b)/(a)                       |  |                                    | 64.6  | % |          |       |    |                                    |   | 84.4  | %                                 |  |   | 70.7     | % |  |                                   |    |  |   | 79.4   | %
|Combined ratio(c)/(a)                   |  |                                    | 80.2  | % |          |       |    |                                    |   | 94.0  | %                                 |  |   | 81.6     | % |  |                                   |    |  |   | 89.7   | %



32



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##### Table of Contents

The loss ratio is calculated by dividing net losses and loss expenses(shown as (b))
by net premiums earned(shown as (a)). The combined ratio is calculated by dividing the sum of net losses and loss expenses, acquisition costs and general and administrative expenses(shown as (c)) by net premiums earned(shown as
(a)).



|                                        |  |                                    |      |                    |       |   |                                    |   |                    |  |       |                                   |  |                    |       |  |                                   |   |                    |   |       |  |       |  
|--------------------------------------- |  | ---------------------------------- | ---- | ------------------ | ----- | - | ---------------------------------- | - | ------------------ |  | ----- | --------------------------------- |  | ------------------ | ----- |  | --------------------------------- | - | ------------------ | - | ----- |  | ----- | -
|                                        |  | Three MonthsEndedSeptember 30,2009 |      | % ofPremiumWritten |       |   | Three MonthsEndedSeptember 30,2008 |   | % ofPremiumWritten |  |       | Nine MonthsEndedSeptember 30,2009 |  | % ofPremiumWritten |       |  | Nine MonthsEndedSeptember 30,2008 |   | % ofPremiumWritten |  
|Gross Premiums Written by Type of Risk: |  |                                    |      |                    |       |   |                                    |   |                    |  |       |                                   |  |                    |       |  |                                   |   |                    |   |       |  |       |  
|Aviation                                |  |                                    | 13.5 |                    | 16.6  | % |                                    |   | 9.1                |  | 11.2  | %                                 |  |                    | 30.3  |  | 10.0                              | % |                    |   | 21.9  |  | 7.9   | %
|Excess liability                        |  |                                    | 19.1 |                    | 23.6  | % |                                    |   | 20.8               |  | 25.7  | %                                 |  |                    | 87.1  |  | 28.8                              | % |                    |   | 96.5  |  | 34.9  | %
|Professional liability                  |  |                                    | 39.1 |                    | 48.2  | % |                                    |   | 42.8               |  | 53.0  | %                                 |  |                    | 134.8 |  | 44.5                              | % |                    |   | 116.6 |  | 42.2  | %
|Property                                |  |                                    | 9.4  |                    | 11.6  | % |                                    |   | 8.2                |  | 10.1  | %                                 |  |                    | 50.5  |  | 16.7                              | % |                    |   | 41.3  |  | 15.0  | %
|                                        |  |                                    |      |                    |       |   |                                    |   |                    |  |       |                                   |  |                    |       |  |                                   |   |                    |   |       |  |       |  
|                                        |  | $                                  | 81.1 |                    | 100.0 | % |                                    | $ | 80.9               |  | 100.0 | %                                 |  | $                  | 302.7 |  | 100.0                             | % |                    | $ | 276.3 |  | 100.0 | %
|                                        |  |                                    |      |                    |       |   |                                    |   |                    |  |       |                                   |  |                    |       |  |                                   |   |                    |   |       |  |       |  

The combined ratio was 80.2% and 81.6%, respectively for the three and nine months
ended September 30, 2009 compared to 94.0% and 89.7% respectively for the same periods in 2008. The combined ratio for both the three and nine months ended September 30, 2009 decreased primarily due to decreases in the loss ratio.

The loss ratio decreased over the comparative periods by 19.8 and 8.7 percentage points for the three and nine months ended
September 30, 2009, respectively. Significant items impacting the loss ratio were:



| |  |  | Net favorable loss development of prior year reserves in the three and nine month periods ended September 30, 2009 of $11.0 million and $26.4
million, respectively, compared to $8.3 million and $10.0 million in the comparable prior year periods.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Excluding the net favorable loss development, the loss ratio is 87.0% and 88.3% for the current year three and nine month periods and 102.3% and 86.6%
for the 2008 comparable periods.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The development in the three and nine months ended September 30, 2009 was evenly spread across our professional liability, aviation and excess
liability lines of business.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The three and nine months ended September 30, 2008 included $11.5 million in catastrophe-related and property per-risk losses compared to no
significant catastrophe losses in the corresponding 2009 periods.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Gross premiums written for the three and
nine months ended September 30, 2009 increased by 0.2% and 9.6% respectively compared to the same periods in 2008. Our gross premium written volume is ahead of plan for the nine months ended September 30, 2009. The increase in premiums has
principally been in our professional liability, aviation and property lines, where we have seen favorable market pricing and reduced market capacity, particularly in professional liability. In the excess liability line of business we are seeing a
more competitive pricing environment with additional capacity entering the market place. As a result we have been more selective in our excess liability renewals, focusing on business that meets our rate of return requirements.

The ratio of reinsurance premiums ceded to gross premiums written for the three and nine month periods ended September 30, 2009 was
51.6% and 48.3% respectively as compared to 47.3% and 48.2% respectively in the comparable prior year periods. Reinsurance premiums ceded are principally related to our quota share treaties and tend to fluctuate in line with gross premiums written.
The increase in the percentage of reinsurance premiums ceded is principally due to changes in the mix of business, specifically the increase in professional liability business written in comparison to prior periods.



33



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##### Table of Contents

General and administration expenses for the three and nine months ended September 30,
2009 increased $2.1 million and $1.7 million compared to the same periods in 2008. The improvement in the segments income before taxes for both 2009 periods compared to the corresponding 2008 periods resulted in increased incentive based
compensation for the 2009 periods. The nine months ended September 30, 2009 also includes a higher level of infrastructure and maintenance costs related to information technology, compared to the comparable 2008 period.

Net investment income and net gains on other investments are discussed within the corporate function results of operations as we manage
investments for this segment on a consolidated basis with the Bermuda/Dublin reinsurance and life and annuity reinsurance segments.

Bermuda/Dublin Reinsurance Segment



|                                        |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  
|--------------------------------------- |  | ---------------------------------- | ----- | - | -------- | ----- | -- | ---------------------------------- | - | ----- | --------------------------------- |  | - | -------- | - |  | --------------------------------- | -- |  | - | ----- | -
|                                        |  | Three MonthsEndedSeptember 30,2009 |       |   | % change |       |    | Three MonthsEndedSeptember 30,2008 |   |       | Nine MonthsEndedSeptember 30,2009 |  |   | % change |   |  | Nine MonthsEndedSeptember 30,2008 |   
|Gross premiums written                  |  | $                                  | 94.1  |   |          | 29.8  | %  |                                    | $ | 72.5  |                                   |  | $ | 422.3    |   |  | 11.9                              | %  |  | $ | 377.5 |  
|Reinsurance premiums ceded              |  |                                    | (11.1 | ) |          | (59.2 | )% |                                    |   | (27.2 | )                                 |  |   | (80.6    | ) |  | (5.3                              | )% |  |   | (85.1 | )
|                                        |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  
|Net premiums written                    |  | $                                  | 83.0  |   |          | 83.2  | %  |                                    | $ | 45.3  |                                   |  | $ | 341.7    |   |  | 16.9                              | %  |  | $ | 292.4 |  
|                                        |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  
|Net premiums earned(a)                  |  | $                                  | 103.1 |   |          | 25.6  | %  |                                    | $ | 82.1  |                                   |  | $ | 290.3    |   |  | 14.8                              | %  |  | $ | 252.8 |  
|Net investment income                   |  |                                    | 10.4  |   |          | 25.3  | %  |                                    |   | 8.3   |                                   |  |   | 29.6     |   |  | 6.5                               | %  |  |   | 27.8  |  
|Net gains (losses) on other investments |  |                                    | 3.0   |   |          | N/A   |    |                                    |   | (32.6 | )                                 |  |   | 8.5      |   |  | N/A                               |    |  |   | (29.6 | )
|                                        |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  
|Total revenues                          |  |                                    | 116.5 |   |          | 101.6 | %  |                                    |   | 57.8  |                                   |  |   | 328.4    |   |  | 30.8                              | %  |  |   | 251.0 |  
|                                        |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  
|Net losses and loss expenses(b)(c)      |  |                                    | 68.7  |   |          | 16.4  | %  |                                    |   | 59.0  |                                   |  |   | 192.8    |   |  | 28.3                              | %  |  |   | 150.3 |  
|Acquisition costs(c)                    |  |                                    | 20.3  |   |          | 59.8  | %  |                                    |   | 12.7  |                                   |  |   | 53.5     |   |  | 52.0                              | %  |  |   | 35.2  |  
|Interest expense                        |  |                                    | 1.7   |   |          | N/A   |    |                                    |   | (0.1  | )                                 |  |   | 2.4      |   |  |                                  |    |  |   | 2.4   |  
|General and administrative expenses(c)  |  |                                    | 8.9   |   |          | 43.5  | %  |                                    |   | 6.2   |                                   |  |   | 23.6     |   |  | 7.3                               | %  |  |   | 22.0  |  
|                                        |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  
|Total losses and expenses               |  |                                    | 99.6  |   |          | 28.0  | %  |                                    |   | 77.8  |                                   |  |   | 272.3    |   |  | 29.7                              | %  |  |   | 209.9 |  
|                                        |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  
|Income (loss) before taxes              |  | $                                  | 16.9  |   |          | N/A   |    |                                    | $ | (20.0 | )                                 |  | $ | 56.1     |   |  | 36.5                              | %  |  | $ | 41.1  |  
|                                        |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  
|Loss ratio(b)/(a)                       |  |                                    | 66.7  | % |          |       |    |                                    |   | 71.9  | %                                 |  |   | 66.4     | % |  |                                   |    |  |   | 59.5  | %
|Combined ratio(c)/(a)                   |  |                                    | 94.9  | % |          |       |    |                                    |   | 94.8  | %                                 |  |   | 93.0     | % |  |                                   |    |  |   | 82.1  | %

The loss ratio is calculated by dividing net losses and loss expenses(shown as
(b)) by net premiums earned(shown as (a)). The combined ratio is calculated by dividing the sum of net losses and loss expenses, acquisition costs and general and administrative expenses(shown as (c)) by net premiums earned(shown as (a)).



|                                        |  |                                    |      |   |                    |       |    |                                    |   |      |                    |  |       |                                   |  |                    |       |  |                                   |   |                    |   |       |  |       |  
|--------------------------------------- |  | ---------------------------------- | ---- | - | ------------------ | ----- | -- | ---------------------------------- | - | ---- | ------------------ |  | ----- | --------------------------------- |  | ------------------ | ----- |  | --------------------------------- | - | ------------------ | - | ----- |  | ----- | -
|                                        |  | Three MonthsEndedSeptember 30,2009 |      |   | % ofPremiumWritten |       |    | Three MonthsEndedSeptember 30,2008 |   |      | % ofPremiumWritten |  |       | Nine MonthsEndedSeptember 30,2009 |  | % ofPremiumWritten |       |  | Nine MonthsEndedSeptember 30,2008 |   | % ofPremiumWritten |  
|Gross Premiums Written by Type of Risk: |  |                                    |      |   |                    |       |    |                                    |   |      |                    |  |       |                                   |  |                    |       |  |                                   |   |                    |   |       |  |       |  
|Agriculture                             |  | $                                  | (0.1 | ) |                    | (0.1  | )% |                                    | $ | (4.8 | )                  |  | (6.7  | )%                                |  | $                  | 87.4  |  | 20.7                              | % |                    | $ | 80.2  |  | 21.2  | %
|Aviation                                |  |                                    | 10.5 |   |                    | 11.2  | %  |                                    |   | 4.3  |                    |  | 5.8   | %                                 |  |                    | 25.3  |  | 6.0                               | % |                    |   | 27.8  |  | 7.4   | %
|General casualty                        |  |                                    | 7.3  |   |                    | 7.8   | %  |                                    |   | 0.9  |                    |  | 1.2   | %                                 |  |                    | 23.4  |  | 5.5                               | % |                    |   | 8.2   |  | 2.2   | %
|Marine & energy                         |  |                                    | 6.0  |   |                    | 6.4   | %  |                                    |   | 2.6  |                    |  | 3.6   | %                                 |  |                    | 14.7  |  | 3.5                               | % |                    |   | 7.9   |  | 2.1   | %
|Medical malpractice                     |  |                                    | 2.6  |   |                    | 2.8   | %  |                                    |   | 7.7  |                    |  | 10.6  | %                                 |  |                    | 56.4  |  | 13.4                              | % |                    |   | 64.6  |  | 17.1  | %
|Other                                   |  |                                    |     |   |                    |      | %  |                                    |   | (1.2 | )                  |  | (1.6  | )%                                |  |                    | 2.3   |  | 0.5                               | % |                    |   | 2.8   |  | 0.7   | %
|Professional liability                  |  |                                    | 21.0 |   |                    | 22.3  | %  |                                    |   | 5.5  |                    |  | 7.6   | %                                 |  |                    | 45.9  |  | 10.9                              | % |                    |   | 29.3  |  | 7.8   | %
|Property and property catastrophe       |  |                                    | 13.5 |   |                    | 14.3  | %  |                                    |   | 18.5 |                    |  | 25.6  | %                                 |  |                    | 89.4  |  | 21.2                              | % |                    |   | 97.8  |  | 25.9  | %
|Whole account                           |  |                                    | 2.5  |   |                    | 2.6   | %  |                                    |   | 2.6  |                    |  | 3.6   | %                                 |  |                    | 8.5   |  | 2.0                               | % |                    |   | 10.5  |  | 2.8   | %
|Workers compensation                    |  |                                    | 30.8 |   |                    | 32.7  | %  |                                    |   | 36.4 |                    |  | 50.3  | %                                 |  |                    | 69.0  |  | 16.3                              | % |                    |   | 48.4  |  | 12.8  | %
|                                        |  |                                    |      |   |                    |       |    |                                    |   |      |                    |  |       |                                   |  |                    |       |  |                                   |   |                    |   |       |  |       |  
|                                        |  | $                                  | 94.1 |   |                    | 100.0 | %  |                                    | $ | 72.5 |                    |  | 100.0 | %                                 |  | $                  | 422.3 |  | 100.0                             | % |                    | $ | 377.5 |  | 100.0 | %
|                                        |  |                                    |      |   |                    |       |    |                                    |   |      |                    |  |       |                                   |  |                    |       |  |                                   |   |                    |   |       |  |       |  



34



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##### Table of Contents

The combined ratio was 94.9% and 93.0%, respectively for the three and nine months ended
September 30, 2009 compared to 94.8% and 82.1% respectively for the same periods in 2008. In the three month period a decrease in the loss ratio was offset by an increase in the acquisition and general and administrative expense ratio. The
combined ratio for the nine month period increased principally due to an increase in both the loss ratio and the ratio of acquisition costs to net premiums earned.

The loss ratio decreased over the comparative periods by 5.2 percentage points for the three months ended September 30, 2009 and increased by 6.9 percentage points for the nine months ended
September 30, 2009. Significant items impacting the loss ratio were:



| |  |  | Net favorable loss development of prior year reserves in the three and nine month periods ended September 30, 2009 was $3.3 million and $20.1
million, respectively, compared to $44.0 million and $78.6 million in the comparable prior year periods.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Excluding the net favorable loss development, the loss ratio is 69.8% and 73.3% for the current year three and nine month periods and 125.5% and 90.6%
for the 2008 comparable periods.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The development in the three and nine months ended September 30, 2009 was principally on our property and professional liability lines and was
partially offset by adverse development on our marine & energy line of business.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The three and nine months ended September 30, 2008 included $47.0 million in catastrophe-related and property per-risk losses compared to no
significant catastrophe losses in the current three month period and $2.0 million in the current nine month period.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Gross premiums written for the three and nine months ended September 30, 2009 increased by 29.8% and 11.9%, respectively, compared to the same periods in 2008. Our gross premium written volume is ahead of plan for the nine months ended
September 30, 2009. The increase in premiums is principally in our professional liability, workers compensation and general casualty lines of business. We have increased our professional liability business to take advantage of favorable market
pricing and reduced market capacity. The increase in workers compensation premiums for the nine month period is principally due to a significant non-recurring increase in a quota share treaty written in 2009. Our general casualty premium volume is
generally flat year-over-year, the comparative 2008 periods include negative premium adjustments which have not recurred in 2009. The market for property and property catastrophe was favorable and our renewals benefited from an increase in rates.
With the 59.0% growth in our Max Specialty property business in the United States, we have kept our reinsurance premium volumes stable year-over-year as part of our strategy to limit aggregate property exposures. The three and nine month periods
ended September 30, 2009 include reductions in premium estimates on prior year contracts of $1.1 million and $8.6 million compared to reductions of $11.9 million and $35.2 million for same periods in 2008.

The ratio of reinsurance premiums ceded to gross premiums written for the three and nine month periods ended September 30, 2009 was
11.8% and 19.1% respectively as compared to 37.5% and 22.5% respectively in the comparable prior year periods. The decrease in the percentage of reinsurance premiums ceded in the three and nine months ended September 30, 2009 as compared to the
comparable prior periods was due to a significant quota share contract incepting in the third quarter of 2008. In addition, reinstatement premiums ceded triggered by property catastrophe losses during the three months ended September 30, 2008
were $2.5 million.

The ratio of acquisition costs to net premiums earned has increased 4.3 percentage points (19.7% from
15.4%) and 4.5 percentage points (18.4% from 13.9%) for the three and nine month periods ended September 30, 2009 respectively compared to the same periods in 2008. This is principally as a result of changes in the mix of business written, in
particular the significant growth in workers compensation business which has raised the average ceding commission.

General
and administration expenses for the three and nine months ended September 30, 2009 increased $2.7 million and $1.6 million compared to the same periods in 2008. The improvement in the segments income before taxes for both 2009 periods
compared to the corresponding 2008 periods resulted in increased incentive based compensation for the 2009 periods. The nine months ended September 30, 2009 also includes a higher level of infrastructure and maintenance costs related to
information technology, compared to the comparable 2008 periods.

Net investment income and net gains on other investments are
discussed within the corporate function results of operations as we manage investments for this segment on a consolidated basis with the Bermuda/Dublin insurance and life and annuity reinsurance segments.



35



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##### Table of Contents

U.S. Specialty Segment



|                                       |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  
|-------------------------------------- |  | ---------------------------------- | ----- | - | -------- | ----- | -- | ---------------------------------- | - | ----- | --------------------------------- |  | - | -------- | - |  | --------------------------------- | -- |  | - | ----- | -
|                                       |  | Three MonthsEndedSeptember 30,2009 |       |   | % change |       |    | Three MonthsEndedSeptember 30,2008 |   |       | Nine MonthsEndedSeptember 30,2009 |  |   | % change |   |  | Nine MonthsEndedSeptember 30,2008 |   
|                                       |  | (In millions of U.S.Dollars)       |      
|Gross premiums written                 |  | $                                  | 69.4  |   |          | 31.2  | %  |                                    | $ | 52.9  |                                   |  | $ | 219.3    |   |  | 63.5                              | %  |  | $ | 134.1 |  
|Reinsurance premiums ceded             |  |                                    | (26.2 | ) |          | (14.1 | )% |                                    |   | (30.5 | )                                 |  |   | (118.6   | ) |  | 45.9                              | %  |  |   | (81.3 | )
|                                       |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  
|Net premiums written                   |  | $                                  | 43.2  |   |          | 92.9  | %  |                                    | $ | 22.4  |                                   |  | $ | 100.7    |   |  | 90.7                              | %  |  | $ | 52.8  |  
|                                       |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  
|Net premiums earned(a)                 |  | $                                  | 31.1  |   |          | 133.8 | %  |                                    | $ | 13.3  |                                   |  | $ | 73.9     |   |  | 163.0                             | %  |  | $ | 28.1  |  
|Net investment income                  |  |                                    | 1.5   |   |          | (11.8 | )% |                                    |   | 1.7   |                                   |  |   | 4.6      |   |  | (17.9                             | )% |  |   | 5.6   |  
|Net (losses) gains on fixed maturities |  |                                    |      |   |          | N/A   |    |                                    |   | (0.5  | )                                 |  |   | 0.1      |   |  | N/A                               | %  |  |   | (0.5  | )
|Other income                           |  |                                    |      |   |          | N/A   |    |                                    |   | 0.1   |                                   |  |   | 0.3      |   |  | 200.0                             | %  |  |   | 0.1   |  
|                                       |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  
|Total revenues                         |  |                                    | 32.6  |   |          | 123.3 | %  |                                    |   | 14.6  |                                   |  |   | 78.9     |   |  | 136.9                             | %  |  |   | 33.3  |  
|                                       |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  
|Net losses and loss expenses(b)(c)     |  |                                    | 21.3  |   |          | 142.0 | %  |                                    |   | 8.8   |                                   |  |   | 46.5     |   |  | 139.7                             | %  |  |   | 19.4  |  
|Acquisition costs(c)                   |  |                                    | 1.9   |   |          | 5.6   | %  |                                    |   | 1.8   |                                   |  |   | 5.9      |   |  | 181.0                             | %  |  |   | 2.1   |  
|General and administrative expenses(c) |  |                                    | 7.8   |   |          | (6.0  | )% |                                    |   | 8.3   |                                   |  |   | 21.2     |   |  | 2.9                               | %  |  |   | 20.6  |  
|                                       |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  
|Total losses and expenses              |  |                                    | 31.0  |   |          | 64.0  | %  |                                    |   | 18.9  |                                   |  |   | 73.6     |   |  | 74.8                              | %  |  |   | 42.1  |  
|                                       |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  
|Income (loss) before taxes             |  | $                                  | 1.6   |   |          | N/A   |    |                                    | $ | (4.3  | )                                 |  | $ | 5.3      |   |  | N/A                               |    |  | $ | (8.8  | )
|                                       |  |                                    |       |   |          |       |    |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  
|Loss ratio(b)/(a)                      |  |                                    | 68.4  | % |          |       |    |                                    |   | 66.6  | %                                 |  |   | 62.9     | % |  |                                   |    |  |   | 69.2  | %
|Combined ratio(c)/(a)                  |  |                                    | 99.7  | % |          |       |    |                                    |   | 142.7 | %                                 |  |   | 99.5     | % |  |                                   |    |  |   | 149.8 | %

The loss ratio is calculated by dividing net losses and loss expenses(shown as
(b)) by net premiums earned(shown as (a)). The combined ratio is calculated by dividing the sum of net losses and loss expenses, acquisition costs and general and administrative expenses(shown as (c)) by net premiums earned(shown as (a)).



|                                        |  |                                    |      |                    |       |   |                                    |   |                    |  |       |                                   |  |                    |       |  |                                   |   |                    |   |       |  |       |  
|--------------------------------------- |  | ---------------------------------- | ---- | ------------------ | ----- | - | ---------------------------------- | - | ------------------ |  | ----- | --------------------------------- |  | ------------------ | ----- |  | --------------------------------- | - | ------------------ | - | ----- |  | ----- | -
|                                        |  | Three MonthsEndedSeptember 30,2009 |      | % ofPremiumWritten |       |   | Three MonthsEndedSeptember 30,2008 |   | % ofPremiumWritten |  |       | Nine MonthsEndedSeptember 30,2009 |  | % ofPremiumWritten |       |  | Nine MonthsEndedSeptember 30,2008 |   | % ofPremiumWritten |  
|                                        |  | (In millions of U.S.Dollars)       |     
|Gross Premiums Written by Type of Risk: |  |                                    |      |                    |       |   |                                    |   |                    |  |       |                                   |  |                    |       |  |                                   |   |                    |   |       |  |       |  
|General casualty                        |  | $                                  | 27.3 |                    | 39.3  | % |                                    | $ | 22.4               |  | 42.3  | %                                 |  | $                  | 69.1  |  | 31.5                              | % |                    | $ | 42.8  |  | 31.9  | %
|Marine                                  |  |                                    | 16.2 |                    | 23.3  | % |                                    |   | 11.3               |  | 21.4  | %                                 |  |                    | 45.9  |  | 20.9                              | % |                    |   | 25.7  |  | 19.2  | %
|Property                                |  |                                    | 26.0 |                    | 37.4  | % |                                    |   | 19.2               |  | 36.3  | %                                 |  |                    | 104.3 |  | 47.6                              | % |                    |   | 65.6  |  | 48.9  | %
|                                        |  |                                    |      |                    |       |   |                                    |   |                    |  |       |                                   |  |                    |       |  |                                   |   |                    |   |       |  |       |  
|                                        |  | $                                  | 69.5 |                    | 100.0 | % |                                    | $ | 52.9               |  | 100.0 | %                                 |  | $                  | 219.3 |  | 100.0                             | % |                    | $ | 134.1 |  | 100.0 | %
|                                        |  |                                    |      |                    |       |   |                                    |   |                    |  |       |                                   |  |                    |       |  |                                   |   |                    |   |       |  |       |  

The combined ratio was 99.7% and 99.5%, respectively for the three and nine months
ended September 30, 2009 compared to 142.7% and 149.8% respectively for the same periods in 2008. The significant improvement in the combined ratio for both periods is principally due to the higher rate of growth in net premiums earned versus
general and administrative expenses.

Gross premiums written for the three and nine months ended September 30, 2009 are
ahead of plan for all lines of business, reflecting the continued expansion of the U.S. platform including the writing of business in the full suite of licensed states during 2009. This build out of business resulted in a 63.5% increase in gross
premiums written for 2009 over 2008, which may not be indicative of future growth rates. Reinsurance premiums ceded for the U.S. specialty segment reflect the purchase of quota share and excess of loss reinsurance coverage to manage our retained
exposure for risks underwritten. We continue to purchase substantial reinsurance protection, however the ratio of premiums ceded to premiums written has trended downwards over the last few quarters and we expect this to continue and then stabilize
as our capital base increases.

The loss ratio for the nine months ended September 30, 2009 has improved 6.3 percentage
points compared to the same period in 2008. As gross premiums written volume increases, creating a broader client base, we expect to see improvement in the net loss ratio. Our planned increase in the mix of general casualty business and our planned
addition of professional liability business may temper the reduction in the loss ratio in future periods as those lines tend to have a higher loss ratio than property lines. Net losses and loss expenses in this segment typically comprise a larger
volume of smaller dollar value losses compared to our Bermuda/Dublin insurance and reinsurance segments. The three and nine months ended September 30, 2008 included $5.0 million of losses related to hurricane events, net of reinsurance
recoveries, these were substantially offset by favorable development of loss reserves from previous quarters. For the three months ended September 30, 2009 and 2008 net unfavorable development on prior year reserves was $2.7 million and $nil,
respectively. For the nine months ended September 30, 2009 and 2008 net unfavorable development on prior year reserves was $1.8 million and $nil, respectively.



36



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##### Table of Contents

General and administrative expenses principally comprise personnel and infrastructure costs.
With the increasing scale of this segment, general and administrative expenses continue to decrease as a percentage of net premiums earned. Compared to our other segments, we expect this segment to have a higher volume of smaller-sized transactions.
Due to the greater number of personnel required to generate and process the high volume of transactions we expect a higher general and administrative expense ratio in this segment compared to our other segments.

Net investment income relating to the U.S. specialty segment, which excludes realized and unrealized gains and losses, is comprised
principally of interest on cash and fixed maturities investments held by Max Specialty and Max America. The average annualized investment yield on cash and fixed maturities for the three and nine months ended September 30, 2009 was 3.86% and
3.95%, respectively, compared to 4.47% and 4.66% for the comparable 2008 periods.

Max at Lloyds Segment

Our Max at Lloyds segment comprises all of our UK-based operating businesses acquired on November 6, 2008. This includes the
underwriting operations of the Syndicates for which we record our proportionate share.



|                                       |  |                                    |      |   |                                   |   |       |  
|-------------------------------------- |  | ---------------------------------- | ---- | - | --------------------------------- | - | ----- | -
|                                       |  | Three MonthsEndedSeptember 30,2009 |      |   | Nine MonthsEndedSeptember 30,2009 |  
|                                       |  | (In millions of U.S.Dollars)       |     
|Gross premiums written                 |  | $                                  | 21.1 |   |                                   | $ | 110.6 |  
|Reinsurance premiums ceded             |  |                                    | (4.0 | ) |                                   |   | (31.9 | )
|                                       |  |                                    |      |   |                                   |   |       |  
|Net premiums written                   |  | $                                  | 17.1 |   |                                   | $ | 78.7  |  
|                                       |  |                                    |      |   |                                   |   |       |  
|Net premiums earned(a)                 |  | $                                  | 24.6 |   |                                   | $ | 71.3  |  
|Net investment income                  |  |                                    | 1.7  |   |                                   |   | 3.2   |  
|Net realized gains on fixed maturities |  |                                    | 1.4  |   |                                   |   | 2.6   |  
|Other income                           |  |                                    |     |   |                                   |   | 0.5   |  
|                                       |  |                                    |      |   |                                   |   |       |  
|Total revenues                         |  |                                    | 27.7 |   |                                   |   | 77.6  |  
|                                       |  |                                    |      |   |                                   |   |       |  
|Net losses and loss expenses(b)(c)     |  |                                    | 10.0 |   |                                   |   | 33.4  |  
|Acquisition costs(c)                   |  |                                    | 5.3  |   |                                   |   | 14.8  |  
|Net foreign exchange (gains)           |  |                                    |     |   |                                   |   | (5.1  | )
|General and administrative expenses(c) |  |                                    | 5.4  |   |                                   |   | 15.9  |  
|                                       |  |                                    |      |   |                                   |   |       |  
|Total losses and expenses              |  |                                    | 20.7 |   |                                   |   | 59.0  |  
|                                       |  |                                    |      |   |                                   |   |       |  
|Income before taxes                    |  | $                                  | 7.0  |   |                                   | $ | 18.6  |  
|                                       |  |                                    |      |   |                                   |   |       |  
|Loss ratio(b)/(a)                      |  |                                    | 40.8 | % |                                   |   | 46.9  | %
|Combined ratio(c)/(a)                  |  |                                    | 84.2 | % |                                   |   | 89.9  | %

The loss ratio is calculated by dividing losses(shown as (b)) by net premiums
earned(shown as (a)). The combined ratio is calculated by dividing the sum of net losses and loss expenses, acquisition costs and general and administrative expenses(shown as (c)) by net premiums earned(shown as (a)).



|                                        |  |                                    |      |                    |       |   |                                   |   |                    |  |       |  
|--------------------------------------- |  | ---------------------------------- | ---- | ------------------ | ----- | - | --------------------------------- | - | ------------------ |  | ----- | -
|                                        |  | Three monthsendedSeptember 30,2009 |      | % ofPremiumWritten |       |   | Nine monthsendedSeptember 30,2009 |   | % ofPremiumWritten | 
|                                        |  | (In millions of U.S. Dollars)      |     
|Gross Premiums Written by Type of Risk: |  |                                    |      |                    |       |   |                                   |   |                    |  |       |  
|Accident & health                       |  | $                                  | 3.7  |                    | 17.5  | % |                                   | $ | 21.3               |  | 19.3  | %
|Financial institutions                  |  |                                    | 6.9  |                    | 32.7  | % |                                   |   | 18.4               |  | 16.6  | %
|Professional liability                  |  |                                    | 5.3  |                    | 25.1  | % |                                   |   | 14.6               |  | 13.2  | %
|Property and property catastrophe       |  |                                    | 5.2  |                    | 24.7  | % |                                   |   | 56.3               |  | 50.9  | %
|                                        |  |                                    |      |                    |       |   |                                   |   |                    |  |       |  
|                                        |  | $                                  | 21.1 |                    | 100.0 | % |                                   | $ | 110.6              |  | 100.0 | %
|                                        |  |                                    |      |                    |       |   |                                   |   |                    |  |       |  

The combined ratio was 84.2% and 89.9%, respectively for the three and nine months
ended September 30, 2009. Our combined ratio decreased from 99.0% in the second quarter to 84.2% in the third quarter of 2009. The decrease in the combined ratio quarter-over-quarter was principally due to a lower loss ratio.



37



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##### Table of Contents

The loss ratio for the nine months ended September 30, 2009 continues to be in line
with our expectations for this segment. The 11.3 point decrease in the loss ratio for the three months ended September 30, 2009 compared to the previous quarter was principally attributable to net favorable development of prior year loss
reserves in the current quarter of $3.6 million whereas the previous quarter had $1.3 million of net unfavorable development. Net favorable loss development for the nine months ended September 30, 2009 was $2.8 million. Net losses from property
catastrophe events for the three months ended September 30, 2009 were not significant and were $1.4 million for the nine months ended September 30, 2009. In the absence of catastrophe losses, our property line of business, which is
principally property catastrophe risks, and our accident & health lines of business, will tend to have lower loss ratios than our financial institutions and professional liability lines of business. In this segment the higher proportion of
property and accident & health premiums compared to financial institutions and professional liability premiums generally results in a lower loss ratio than our other segments.

Gross premiums written for the three and nine months ended September 30, 2009 are in line with our plan for the existing lines of
business. Gross premiums written decreased from $45.3 million in the second quarter of 2009 to $21.1 million in the third quarter of 2009, principally due to property catastrophe renewal business concentrated in the second quarter. During the fourth
quarter of 2009 and into 2010 we expect to expand our product offering in this segment with the addition of international casualty reinsurance and aviation which will be written by Syndicate 1400.

The ratio of acquisition costs to net premiums earned has remained consistent at 21.4% and 20.8% for the three and nine months ended
September 30, 2009.

General and administrative expenses principally comprise personnel and infrastructure costs and have
remained consistent throughout the year to date. The ratio of general and administration expenses to net premiums earned was 22.0% and 22.2% for the three and nine months ended September 30, 2009.

Net investment income, which excludes realized and unrealized gains and losses on Max at Lloyds trading portfolio, is comprised
principally of interest on cash and fixed maturities investments held by the Syndicates. The average annualized investment yield on cash and fixed maturities for the three and nine months ended September 30, 2009 was 2.29% and 1.49%,
respectively. This segment currently holds a higher ratio of cash and cash equivalents to fixed maturity securities than the rest of our group, resulting in a lower investment yield than our other segments. We intend to reduce the ratio of cash to
fixed maturities over time and this is expected to improve the investment yield for this segment.

Life and Annuity
Reinsurance Segment



|                                        |  |                                    |      |          |      |   |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  
|--------------------------------------- |  | ---------------------------------- | ---- | -------- | ---- | - | ---------------------------------- | - | ----- | --------------------------------- |  | - | -------- | - |  | --------------------------------- | -- |  | - | ----- | -
|                                        |  | Three MonthsEndedSeptember 30,2009 |      | % change |      |   | Three MonthsEndedSeptember 30,2008 |   |       | Nine MonthsEndedSeptember 30,2009 |  |   | % change |   |  | Nine MonthsEndedSeptember 30,2008 |   
|                                        |  | (In millions of U.S. Dollars)      |     
|Gross premiums written                  |  | $                                  | 0.1  |          | N/A  |   |                                    | $ |      |                                   |  | $ | 41.7     |   |  | (55.8                             | )% |  | $ | 94.3  |  
|Reinsurance premiums ceded              |  |                                    |     |          |     |   |                                    |   |      |                                   |  |   | (0.1     | ) |  | (66.7                             | )% |  |   | (0.3  | )
|                                        |  |                                    |      |          |      |   |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  
|Net premiums written                    |  | $                                  | 0.1  |          | N/A  |   |                                    | $ |      |                                   |  | $ | 41.6     |   |  | (55.7                             | )% |  | $ | 94.0  |  
|                                        |  |                                    |      |          |      |   |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  
|Net premiums earned                     |  | $                                  | 0.1  |          | N/A  |   |                                    | $ |      |                                   |  | $ | 41.6     |   |  | (55.7                             | )% |  | $ | 94.0  |  
|Net investment income                   |  |                                    | 13.1 |          | 40.9 | % |                                    |   | 9.3   |                                   |  |   | 37.6     |   |  | 25.8                              | %  |  |   | 29.9  |  
|Net gains (losses) on other investments |  |                                    | 11.9 |          | N/A  |   |                                    |   | (65.3 | )                                 |  |   | 29.1     |   |  | N/A                               |    |  |   | (58.8 | )
|                                        |  |                                    |      |          |      |   |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  
|Total revenues                          |  |                                    | 25.1 |          | N/A  |   |                                    |   | (56.0 | )                                 |  |   | 108.3    |   |  | 66.4                              | %  |  |   | 65.1  |  
|                                        |  |                                    |      |          |      |   |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  
|Claims and policy benefit               |  |                                    | 14.4 |          | 2.9  | % |                                    |   | 14.0  |                                   |  |   | 84.1     |   |  | (38.7                             | )% |  |   | 137.2 |  
|Acquisition costs                       |  |                                    | 0.2  |          |     |   |                                    |   | 0.2   |                                   |  |   | 1.0      |   |  | 150.0                             | %  |  |   | 0.4   |  
|Interest expense                        |  |                                    | 2.3  |          | N/A  |   |                                    |   | (0.2  | )                                 |  |   | 2.8      |   |  | 33.3                              | %  |  |   | 2.1   |  
|General and administrative expenses     |  |                                    | 0.8  |          |     |   |                                    |   | 0.8   |                                   |  |   | 2.2      |   |  | (4.3                              | )% |  |   | 2.3   |  
|                                        |  |                                    |      |          |      |   |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  
|Total losses and expenses               |  |                                    | 17.7 |          | 19.6 | % |                                    |   | 14.8  |                                   |  |   | 90.1     |   |  | (36.5                             | )% |  |   | 142.0 |  
|                                        |  |                                    |      |          |      |   |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  
|Income (loss) before taxes              |  | $                                  | 7.4  |          | N/A  |   |                                    | $ | (70.8 | )                                 |  | $ | 18.2     |   |  | N/A                               |    |  | $ | (76.9 | )
|                                        |  |                                    |      |          |      |   |                                    |   |       |                                   |  |   |          |   |  |                                   |    |  |   |       |  

We write life and annuity reinsurance transactions when attractive opportunities
arise. The nature of life and annuity reinsurance transactions that we consider results in a limited number of transactions actually bound with potentially large variations in quarterly and annual premium volume. Consequently, components of our
underwriting results, such as premiums written, premiums earned and benefits can be volatile and, accordingly, period-to-period comparisons are not necessarily representative of future trends. Income before taxes is primarily driven by the spread
between the actual rate of return on our investments and the rate of return assumption used when pricing the business that we have written, together with any material changes in our estimates of life and annuity benefit reserves.



38



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##### Table of Contents

No new life and annuity contracts were written during either of the three month periods
ended September 30, 2009 and 2008. One new life and annuity contract was written during each of the nine month periods ended September 30, 2009 and 2008. Gross premiums written on the new contracts for the nine months ended
September 30, 2009 and 2008 were $40.9 million and $92.8 million, respectively. The new 2009 contract covers a closed block of traditional life insurance for a new client. Apart from the components related to contracts commencing during a
period, gross premiums written, reinsurance premiums ceded, net premiums earned, acquisition costs and general and administrative expenses represent ongoing premium receipts or adjustments and related administration expenses on existing contracts.
Interest expense relates to interest on funds withheld on the variable quota share retrocession agreement with Grand Central Re and on certain deposit liabilities. The interest expense on funds withheld from Grand Central Re is based on the average
of two total return fixed maturity indices, which varies from period to period.

Claims and policy benefits were $14.4 million
and $84.1 million for the three and nine months ended September 30, 2009 compared to $14.0 million and $137.2 million for the same period in 2008. Excluding the new contracts incepting during each nine month period, benefits were $43.0 million
and $44.4 million respectively. Claims and policy benefits in each period represent reinsured policy claims payments net of the change in policy and claim liabilities.

Net investment income and net gains on other investments are discussed within the corporate function results of operations as we manage investments for this segment on a consolidated basis with the
Bermuda/Dublin insurance and Bermuda/Dublin reinsurance segments.

Corporate Function

The results of operations for the corporate function discussed below include the net investment income, net gains and losses on other
investments, net realized gains and losses on fixed maturities, and net impairment losses recognized in earnings for all of our segments, including amounts which are allocated to the segments and included in the segment discussions above. These
investment results are presented below on a consolidated basis for purposes of ease of discussion.

All other items represent
the portion not allocated or discussed in the results of operations of our other segments.



|                                                |  |                                    |       |   |          |       |    |                                    |   |        |                                   |  |   |          |   |  |                                   |    |  |   |        |  
|----------------------------------------------- |  | ---------------------------------- | ----- | - | -------- | ----- | -- | ---------------------------------- | - | ------ | --------------------------------- |  | - | -------- | - |  | --------------------------------- | -- |  | - | ------ | -
|                                                |  | Three MonthsEndedSeptember 30,2009 |       |   | % change |       |    | Three MonthsEndedSeptember 30,2008 |   |        | Nine MonthsEndedSeptember 30,2009 |  |   | % change |   |  | Nine MonthsEndedSeptember 30,2008 |   
|                                                |  | (In millions of U.S. Dollars)      |      
|Net Investment income                           |  | $                                  | 42.8  |   |          | (5.5  | )% |                                    | $ | 45.3   |                                   |  | $ | 125.1    |   |  | (9.0                              | )% |  | $ | 137.4  |  
|Net gains (losses) on other investments         |  |                                    | 23.3  |   |          | N/A   |    |                                    |   | (158.8 | )                                 |  |   | 62.7     |   |  | N/A                               |    |  |   | (145.0 | )
|Net realized gains (losses) on fixed maturities |  |                                    | 1.3   |   |          | N/A   |    |                                    |   | (3.8   | )                                 |  |   | 1.7      |   |  | N/A                               |    |  |   | (1.0   | )
|Net impairment losses recognized in earnings    |  |                                    | (0.1  | ) |          | (99.3 | )% |                                    |   | (13.8  | )                                 |  |   | (2.2     | ) |  | (87.0                             | )% |  |   | (16.9  | )
|                                                |  |                                    |       |   |          |      
|Other income (expense)                          |  | $                                  | 0.7   |   |          | N/A   |    |                                    | $ | (0.6   | )                                 |  | $ | 1.1      |   |  | N/A                               |    |  | $ | (0.2   | )
|Interest expense                                |  |                                    | 1.9   |   |          | (59.6 | )% |                                    |   | 4.7    |                                   |  |   | 9.5      |   |  | (41.0                             | )% |  |   | 16.1   |  
|Net foreign exchange losses (gains)             |  |                                    | 0.4   |   |          | (80.0 | )% |                                    |   | 2.0    |                                   |  |   | (1.4     | ) |  | N/A                               |    |  |   | 2.0    |  
|Merger and acquisition expense (income)         |  |                                    | (41.4 | ) |          | N/A   |    |                                    |   | (0.5   | )                                 |  |   | (31.3    | ) |  | N/A                               |    |  |   | 3.5    |  
|General and administrative expenses             |  |                                    | 10.2  |   |          | (9.7  | )% |                                    |   | 11.3   |                                   |  |   | 34.9     |   |  | 19.9                              | %  |  |   | 29.1   |  



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##### Table of Contents

Net investment income. The decrease in net investment income, which excludes realized
and unrealized gains and losses, was principally attributable to the increase in the proportion of cash held as at September 30, 2009 compared to September 30, 2008 and the lower returns on cash and cash equivalents. The average annualized
investment yield on cash, fixed maturities and funds withheld by clients was 3.53% compared to 4.40% for the three months ended September 30, 2009 and 2008, respectively. The yield for the nine month periods ended September 30, 2009 and
2008 was 3.59% and 4.43% respectively. Our ratio of cash to invested assets has increased from 13.1% at September 30, 2008 to 19.5% at September 30, 2009. This increase is principally attributable to significant cash redemptions received
during the period from the hedge fund portfolio and the growth in gross premiums written, which has been partially offset by the repayment of debt during the period. We anticipate this ratio to decrease as we seek to deploy cash in more attractive
investment opportunities.

Net gains on other investments. Net gains on the hedge fund portfolio were $23.3 million, or
a 3.94% rate of return, for the three months ended September 30, 2009, compared to net losses of $158.8 million, or a negative 12.99% rate of return, for the three months ended September 30, 2008. The three month rate of return of 3.94%
compares to the HFRI Fund of Funds Composite Index returning 4.37%. The three months ended September 30, 2009 experienced improvement in the equity markets and indications of easing in credit conditions. The S&P 500 Index had a return of
15.61% and the Merrill Lynch Master Bond Index had a return of 3.56% for the three months ended September 30, 2009.

Net
gains on the hedge fund portfolio were $62.7 million, or a 9.38% rate of return, for the nine months ended September 30, 2009, compared to net losses of $145.0 million, or a negative 11.98% rate of return, for the nine months ended
September 30, 2008. The nine month rate of return of 9.38% compares to the HFRI Fund of Funds Composite Index returning 9.80%. The nine months ended September 30, 2009 experienced improvement in the equity markets and indications of easing
in credit conditions. The S&P 500 Index had a return of 19.26% and the Merrill Lynch Master Bond Index had a return of 5.21% for the nine months ended September 30, 2009.

Eight out of the nine hedge fund strategies we employed experienced positive returns during the three months ended September 30, 2009,
and nine out of the ten strategies we employed earned positive returns during the nine months ended September 30, 2009. The largest contributors by investment strategy to the net gain for the current quarter were the distressed securities and
the long/short equity strategies. As of September 30, 2009, 19.3% and 30.0% of our hedge fund portfolio was allocated to the distressed securities and the long/short equity strategies, respectively.

We have reduced the allocation to our hedge fund portfolio from 14.1% as of December 31, 2008 to 7.2% as of September 30, 2009 and
we plan to reduce our allocation to our hedge fund portfolio to a target range of 5% to 7% by the end of 2009. Our hedge fund portfolio objective is to achieve a market neutral/absolute return strategy, with diversification by strategy and
underlying fund. A market neutral strategy strives to generate consistent returns in both up and down markets by selecting long and short positions with a total net exposure of zero. Returns are derived from the long/short spread, or the amount by
which long positions outperform short positions. The objective of an absolute return strategy is to provide stable performance regardless of market conditions, with minimal correlation to market benchmarks.

Net realized gains on fixed maturities and net impairment losses recognized in earnings. Our total fixed maturities portfolio is
split into three portfolios:



| |  |  | an available for sale portfolio;
| | - |  | --------------------------------



| |  |  | a held to maturity portfolio; and
| | - |  | ---------------------------------



| |  |  | a trading portfolio that was acquired as part of our Max UK acquisition.
| | - |  | ------------------------------------------------------------------------

Our available for sale portfolio is recorded at fair value with unrealized gains and losses recorded in other comprehensive income as part
of total shareholders equity. Our available for sale fixed maturities investment strategy is not intended to generate significant realized gains and losses as more fully discussed below in the Financial Condition section. Our held to maturity
portfolio includes securities for which the Company has the ability and intent to hold to maturity or redemption and is recorded at amortized cost. There should be no realized gains or losses related to this portfolio unless there is an other than
temporary impairment loss. Our trading portfolio is recorded at fair value with unrealized gains and losses recorded in net income as net realized gains or losses, all of which are reported within our Max at Lloyds segment.

As a result of our review of securities in an unrealized loss position, which is performed every quarter, we recorded other-than-temporary
impairment losses through earnings of $0.1 million and $13.8 million for the three months ended September 30, 2009 and 2008, respectively, and $2.2 million and $16.9 million for the nine months ended September 30, 2009 and 2008,
respectively. These impairment losses are presented separately from all other net realized gains and losses on fixed maturities. A discussion of our process for estimating other-than-temporary impairments is included in Note 5 of our unaudited
interim consolidated financial statements included herein.



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##### Table of Contents

Interest expense. Interest expense principally reflects interest on our bank loans
and senior notes outstanding. The 59.6% decrease in interest expense for the three months ended September 30, 2009 compared to the same period in 2008, and the 41.0% decrease for the nine months ended September 30, 2009 compared to the
same period in 2008, is principally attributable to the repayment of $150.0 million in bank loans in April 2009 and the $225.0 million repayment of the swap loan. The remaining debt at September 30, 2009 comprises $91.4 million in senior notes
outstanding that bear interest at 7.20%.

Merger and acquisition expenses.Merger and acquisition expenses in 2009
comprise the professional and legal fees related to the proposed amalgamation with IPC, which was terminated in June 2009. A $50.0 million termination fee received from IPC is included in our results for the three months and nine months ended
September 30, 2009. Merger and acquisition expenses in 2008 comprise the professional and legal fees related to the acquisition of Max UK and the creation of our Max at Lloyds segment.

General and administrative expenses. General and administrative expenses for the nine months ended September 30, 2009 increased
19.9% compared to 2008, principally due to a higher level of infrastructure and maintenance costs related to information technology.

Financial Condition

Cash and invested assets. Aggregate invested assets, comprising cash and cash
equivalents, fixed maturities and other investments, were $5,418.3 million at September 30, 2009 compared to $5,356.9 million at December 31, 2008, an increase of 1.1%. The increase in cash and invested assets resulted principally from the
settlement of losses and the repayment of bank loans during the period.

We own an available for sale portfolio, a held to
maturity portfolio and a trading portfolio of fixed maturities securities. We record the available for sale and trading investment portfolios at fair value on our balance sheet. On our trading portfolio, the unrealized gain or loss associated with
the difference between the fair value and the amortized cost of the investments is recorded in net income as a net realized gain or loss. On our available for sale portfolio, the unrealized gain or loss (absent credit losses) associated with the
difference between the fair value and the amortized cost of the investments is recorded in other comprehensive income in the shareholders equity section of our consolidated balance sheet.

To match the more predictable cash flow requirements of our long term liabilities we invest in a long duration investment portfolio. In
order to reduce the impact on shareholders equity of fluctuations in fair value of those investments we implemented a strategy in the three months ended September 30, 2009 to hold certain fixed income securities to maturity. This held to
maturity portfolio is recorded at amortized cost rather than at fair value.

Fixed maturities are subject to fluctuations in
fair value due to changes in interest rates, changes in issuer specific circumstances, such as credit rating changes, and changes in industry specific circumstances, such as movements in credit spreads based on the markets perception of
industry risks. As a result of these potential fluctuations, it is possible to have significant unrealized gains or losses on a security. Our strategy for our fixed maturities portfolios is to tailor the maturities of the portfolios to the timing of
expected loss and benefit payments. At maturity, absent any credit loss, a fixed maturitys amortized cost will equal its fair value and no realized gain or loss will be recognized in income. If, due to an unforeseen change in loss payment
patterns, we need to sell available for sale fixed maturity securities before maturity, we could realize significant gains or losses in any period, which could result in a meaningful effect on reported net income for such period.

In order to reduce the likelihood of needing to sell investments before maturity, especially given the unpredictable and potentially
significant cash flow requirements of our property catastrophe business, we maintain significant cash and cash equivalent balances. We believe it is more likely than not that we will not be required to sell those fixed maturities securities in an
unrealized loss position until such time as they reach maturity or the fair value increases.

We perform regular reviews of
our available for sale and held to maturity portfolios and utilize a process that considers numerous indicators in order to identify investments that are showing signs of potential other-than-temporary impairments. The indicators include the
issuers financial condition and ability to make future scheduled interest and principal payments, benchmark yield spreads, the nature of collateral or other credit support and significant economic events that have occurred that affect the
industry in which the issuer participates. As a result of this process, we recognized write-downs for other-than-temporary impairments through earnings of $0.1 million and $13.8 million for the three months ended September 30, 2009 and 2008,
respectively, and $2.2 million and $16.9 million for the nine months ended September 30, 2009 and 2008, respectively.

Our
portfolio of investment grade fixed maturities includes mortgage-backed and asset-backed securities and collateralized mortgage obligations. These types of securities have cash flows that are backed by the principal and interest payments of a group
of underlying mortgages or other receivables. During the twelve months ended September 30, 2009, delinquency and default rates have increased on these types of securities, and particularly on securities backed by sub-prime mortgages. Generally,
sub-prime mortgages are considered to be those made to borrowers who do not qualify for market interest rates for one or more possible reasons, such as a low credit score, a limited or lack of credit history or a lack of earnings documentation. As a
result of the increasing default rates of sub-prime borrowers, there is a greater risk of defaults on mortgage-backed and asset-backed securities and collateralized mortgage



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obligations, especially those that are non-investment grade. Therefore, fixed maturities securities backed by sub-prime mortgages have exhibited significant declines in fair value and liquidity.
These factors combined with the contraction in liquidity in the principal markets for these securities makes the estimate of fair value increasingly uncertain. The fair values of our holdings in securities exposed to sub-prime borrowers are
generally not based on quoted prices for identical securities, but are based on model-derived valuations from independent pricing sources as described below. We obtain fair value estimates from multiple independent pricing sources in an effort to
mitigate some of the uncertainty surrounding the fair value estimates. If we need to liquidate these securities within a short period of time, the actual realized proceeds may be significantly different from the fair values estimated at
September 30, 2009. We believe our investment exposure to sub-prime credit risk is limited although there can be no assurance that events in the sub-prime mortgage sector will not adversely affect the value of our investments. At
September 30, 2009, securities with significant exposure to sub-prime borrowers totaled $25.8 million in fair value, $38.6 million in amortized cost and $38.9 million in par value for a net unrealized loss of $12.8 million. By fair value, 18.6%
of these securities are AAA-rated, 6.9% are AA-rated, 31.6% are A-rated and 42.9% are rated BBB+ or lower. The weighted average life of these securities is 2.6 years. As of September 30, 2009, we have determined that a writedown for
other-than-temporary impairment of these securities is not warranted based on a consideration of relevant factors, including prepayment rates, subordination levels, default rates, credit ratings, weighted average life and cash flow testing. Together
with our investment managers, we continue to monitor our potential exposure to sub-prime borrowers, and we will make adjustments to the investment portfolio, if and when deemed necessary.

Generally, Alt-A mortgages are considered to be those made to borrowers who do not qualify for market interest rates but who are considered
to have less credit risk than sub-prime borrowers.

The following table summarizes the amortized cost and fair value of our
fixed maturities securities with exposure to sub-prime or Alt-A mortgages as of September 30, 2009.



|                                                  |  |                               |  |                               |     |    |   |     |  |             |      |               |   |           |  |   |      |  |   |     
|------------------------------------------------- |  | ----------------------------- |  | ----------------------------- | --- | -- | - | --- |  | ----------- | ---- | ------------- | - | --------- |  | - | ---- |  | - | ----
|By Vintage Year                                   |  | WeightedAverageLife inYears   |  | Credit RatingAAASeniorTranche |     | AA |   | A   |  | BBB+orlower |      | AmortizedCost |   | FairValue
|                                                  |  | (In millions of U.S. Dollars)
|Fixed maturities with sub-prime mortgage exposure |  |                               |  |                               |     |    |   |     |  |             |      |               |   |           |  |   |      |  |   |     
|Pre-2005                                          |  | 4.7                           |  | $                             | 2.0 |    | $ | 2.4 |  | $           | 0.1  |               | $ | 1.5       |  | $ | 6.0  |  | $ | 4.7 
|2005                                              |  | 3.6                           |  |                               | 1.4 |    |   | 0.3 |  |             | 3.0  |               |   |          |  |   | 4.7  |  |   | 3.0 
|2006                                              |  | 4.0                           |  |                               | 2.0 |    |   |    |  |             | 9.1  |               |   | 14.3      |  |   | 25.4 |  |   | 16.7
|2007                                              |  | 2.2                           |  |                               |    |    |   |    |  |             |     |               |   | 2.5       |  |   | 2.5  |  |   | 1.4 
|                                                  |  |                               |  |                               |     |    |   |     |  |             |      |               |   |           |  |   |      |  |   |     
|Total                                             |  | 2.6                           |  |                               | 5.4 |    |   | 2.7 |  |             | 12.2 |               |   | 18.3      |  |   | 38.6 |  |   | 25.8
|                                                  |  |                               |  |                               |     |    |   |     |  |             |      |               |   |           |  |   |      |  |   |     
|Fixed maturities with Alt-A mortgage exposure     |  |                               |  |                               |     |    |   |     |  |             |      |               |   |           |  |   |      |  |   |     
|Pre-2005                                          |  | 4.0                           |  |                               | 2.4 |    |   | 0.8 |  |             | 1.6  |               |   |          |  |   | 4.8  |  |   | 4.2 
|2005                                              |  | 2.6                           |  |                               |    |    |   | 0.8 |  |             |     |               |   | 13.5      |  |   | 14.3 |  |   | 10.8
|2006                                              |  | 1.7                           |  |                               |    |    |   | 0.7 |  |             |     |               |   | 1.7       |  |   | 2.4  |  |   | 2.4 
|                                                  |  |                               |  |                               |     |    |   |     |  |             |      |               |   |           |  |   |      |  |   |     
|Total                                             |  | 2.8                           |  |                               | 2.4 |    |   | 2.3 |  |             | 1.6  |               |   | 15.2      |  |   | 21.5 |  |   | 17.4
|                                                  |  |                               |  |                               |     |    |   |     |  |             |      |               |   |           |  |   |      |  |   |     
|Total                                             |  | 2.7                           |  | $                             | 7.8 |    | $ | 5.0 |  | $           | 13.8 |               | $ | 33.5      |  | $ | 60.1 |  | $ | 43.2
|                                                  |  |                               |  |                               |     |    |   |     |  |             |      |               |   |           |  |   |      |  |   |     

As described in Note 6 of our unaudited interim consolidated financial statements,
our fixed maturities investments and our other investments are carried at fair value.

Fair value prices for all securities in
our fixed maturities portfolio are independently provided by both our investment custodian and our investment managers, which each utilize nationally recognized independent pricing services. We record the unadjusted price provided by the investment
custodian and our validation process includes, but is not limited to: (i) comparison to the price provided by the investment manager, with significant differences investigated; (ii) quantitative analysis (e.g., comparing the quarterly
return for each managed portfolio to its target benchmark, with significant differences identified and investigated); (iii) evaluation of methodologies used by external parties to calculate fair value; and (iv) comparing the price to our
knowledge of the current investment market.

The independent pricing services used by our investment custodian and investment
managers obtain actual transaction prices for securities that have quoted prices in active markets. Each pricing service has its own proprietary method for determining the fair value of securities that are not actively traded. In general, these
methods involve the use of matrix pricing in which the independent pricing service uses observable market inputs including, but not limited to, reported trades, benchmark yields, broker/dealer quotes, interest rates, prepayment speeds,
default rates and such other inputs as are available from market sources to determine a reasonable



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fair value. In addition, pricing services use valuation models, such as an Option Adjusted Spread model, to develop prepayment and interest rate scenarios. The Option Adjusted Spread model is
commonly used to estimate fair value for securities such as mortgage-backed and asset-backed securities. The ability to obtain quoted market prices is reduced in periods of decreasing liquidity, which generally increases the use of matrix pricing
methods and increases the uncertainty surrounding the fair value estimates.

Investments in hedge funds comprise a portfolio
of limited partnerships and stock investments in trading entities, or funds, which invest in a wide range of financial products. The units of account that we value are our interests in the funds and not the underlying holdings of such funds. Thus,
the inputs we use to value our investments in each of the funds may differ from the inputs used to value the underlying holdings of such funds. These funds are stated at fair value which ordinarily will be the most recently reported net asset value
as advised by the fund manager or administrator, where the funds underlying holdings can be in various quoted and unquoted investments. We believe the reported net asset value represents the fair value market participants would apply to an
interest in the fund. The fund managers value their underlying investments at fair value in accordance with policies established by each fund, as described in each of their financial statements and offering memoranda.

We have ongoing due diligence processes with respect to funds and their managers. These processes are designed to assist us in assessing the
quality of information provided by, or on behalf of, each fund and in determining whether such information continues to be reliable or whether further review is warranted. While reported net asset value is the primary input to the review, when the
net asset value is deemed not to be indicative of fair value, we may incorporate adjustments to the reported net asset value. Such adjustments may involve significant judgment. We obtain the audited financial statements for every fund annually, and
regularly review and discuss the fund performance with the fund managers to corroborate the reasonableness of the reported net asset values.

We are able to redeem the hedge fund portfolio held through Max Diversified on the same terms that the underlying funds can be liquidated. In general, the funds in which Max Diversified is invested
require at least 30 days notice of redemption, and may be redeemed on a monthly, quarterly, semi-annual, annual, or longer basis, depending on the fund.

Certain funds may have a lock-up period. A lock-up period refers to the initial amount of time an investor is contractually required to invest before having the ability to redeem. Funds that do provide
for periodic redemptions may, depending on the funds governing documents, have the ability to deny or delay a redemption request, called a gate. The fund may implement this restriction because the aggregate amount of redemption requests as of
a particular date exceeds a specified level, generally ranging from 15% to 25% of the funds net assets. The gate is a method for executing an orderly redemption process which allows for redemption requests to be executed in a timely manner to
reduce the possibility of adversely affecting the remaining investors in the fund. In the current financial market environment, we have experienced an increase in the number of funds which have imposed gates, and we believe it is likely that this
trend will continue.

The majority of our hedge fund portfolio remains highly liquid and the imposition of gates by certain
funds is not expected to significantly impact our cash flow needs or change our timetable for reducing our allocation to hedge funds. Based upon information provided by the fund managers, as of September 30, 2009, we estimate that over 78.0% of
the underlying assets held by our hedge funds are traded securities or have broker quotes available. Typically, the imposition of a gate delays a portion of the requested redemption, with the remaining portion settled in cash shortly after the
redemption date. Of our September 30, 2009 outstanding redemptions receivable of $62.4 million, none of which is gated, $37.5 million was received in cash prior to November 6, 2009. The fair value of our holdings in funds with gates
imposed as at September 30, 2009 was $38.8 million.

Certain funds may be allowed to invest a portion of their assets in
illiquid securities, such as private equity and convertible debt. In such cases, a common mechanism used is a side-pocket, whereby the illiquid security is assigned to a separate memorandum capital account or designated account. Typically, the
investor loses its redemption rights in the designated account. Only when the illiquid security is sold, or otherwise deemed liquid by the fund, may investors redeem their interest. As at September 30, 2009, the fair value of our hedge funds
held in side-pockets is $108.3 million. Due to the uncertainty surrounding the timing of the sale of the underlying assets within side-pockets, the estimated timing of liquidity presented in the table below is subject to change. Our holdings in
side-pockets are included in the greater than 270 days section of the table below.

Had we requested full redemptions for all
of our holdings in the funds, the table below indicates our best estimate of the earliest date from September 30, 2009 on which such redemptions might be received. This estimate is based on available information from the funds and is subject to
significant change, particularly in the current economic environment.





|                        |  |                               |         |                  |       |  
|----------------------- |  | ----------------------------- | ------- | ---------------- | ----- | -
|                        |  | As at September 30, 2009      |        
|Liquidity:              |  | Fair Value                    |         | % of Hedge Funds |      
|                        |  | (in thousands of U.S.Dollars) |         |                  |      
|Within 90 days          |  | $                             | 21,311  |                  | 5.5   | %
|Between 91 to 120 days  |  |                               | 15,112  |                  | 3.9   | %
|Between 121 to 180 days |  |                               | 156,900 |                  | 40.5  | %
|Between 181 to 270 days |  |                               | 9,992   |                  | 2.6   | %
|Greater than 270 days   |  |                               | 183,672 |                  | 47.5  | %
|                        |  |                               |         |                  |       |  
|Total(1)                |  | $                             | 386,987 |                  | 100.0 | %
|                        |  |                               |         |                  |       |  



|(1) | Total excludes our reinsurance private equity investment.
|--- | ---------------------------------------------------------



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Although we believe that our significant cash balances, fixed maturities investments and
credit facilities provide sufficient liquidity to satisfy the claims of insureds and ceding clients, in the event that we are required to access assets invested in the hedge fund portfolio, our ability to do so may be impaired by these liquidity
constraints. See Risk FactorsUnexpected volatility or illiquidity associated with our alternative investment portfolio or in the financial markets could significantly and negatively affect our ability to conduct business in our
Annual Report on Form 10-K for the year ended December 31, 2008.

Additional information about the hedge fund portfolio
can be found in Notes 5 and 6 to our unaudited interim consolidated financial statements included herein.

Losses and
benefits recoverable from reinsurers. Losses and benefits recoverable from reinsurers totaled $985.6 million at September 30, 2009 compared to $846.6 million at December 31, 2008, an increase of 16.4%, principally reflecting losses
ceded under our reinsurance and retrocessional agreements resulting from net earned premiums during the nine months ended September 30, 2009.

Losses recoverable from reinsurers on property and casualty business was $948.8 million and $810.1 million at September 30, 2009 and December 31, 2008, respectively. Benefits recoverable from
reinsurers on life and annuity business was $36.8 million and $36.5 million at September 30, 2009 and December 31, 2008.

At September 30, 2009, 83.9% of our losses and benefits recoverable were with reinsurers rated A or above by A.M. Best Company and 5.3% are rated A-. Grand Central Re, a Bermuda domiciled reinsurance company in
which Max Bermuda has a 7.5% equity investment, is our largest NRnot rated retrocessionaire and accounted for 10.3% of our losses and benefits recoverable at September 30, 2009. As security for outstanding loss obligations, we
retain funds from Grand Central Re amounting to 109.2% of its loss recoverable obligations. The remaining 0.5% of losses and benefits recoverable are with B+ rated or lower reinsurers.

Liabilities for property and casualty losses. Property and casualty losses totaled $3,159.2 million at September 30, 2009
compared to $2,938.2 million at December 31, 2008, an increase of 7.5%. The increase in property and casualty losses was principally attributable to estimated losses associated with premiums earned during the nine months ended
September 30, 2009, partially offset by amounts paid on property and casualty losses and releases of reserves on prior period contracts. During the nine months ended September 30, 2009, we paid $367.1 million in property and casualty
losses and recorded gross favorable development on prior period reserves of $56.9 million.

Liabilities for life and
annuity benefits.Life and annuity benefits totaled $1,415.8 million at September 30, 2009 compared to $1,367.0 million at December 31, 2008. The increase was principally attributable to movements in foreign exchange rates. We endeavor
to match these liabilities with assets of similar currency and duration in order to limit the net impact to shareholders equity of movements in foreign exchange rates. During the nine months ended September 30, 2009, we paid $86.4 million
of benefit payments.

Bank loans. As described in Note 8 to our unaudited interim consolidated financial statements
included herein, the non-controlling interest in Max Diversified and the related total return swap were recorded on a combined basis and accounted for as a financing transaction. The effect of combining the transactions resulted in the notional
amount being presented as a bank loan, with changes in the fair value of the Max Diversified shares increasing or decreasing this notional amount. On August 31, 2009, we entered into a termination agreement with the Bank in connection with the
total return swap and non-controlling interest. On termination of the swap, we repurchased all of the remaining Max Diversified shares held by the Bank. The swap loan, which had a balance of $225.0 million at December 31, 2008 has been repaid
in full during the nine months ended September 30, 2009.

On April 3, 2007, Max Capital borrowed $50.0 million under
our revolving credit facility in connection with the acquisition and capitalization of Max Specialty. On April 9, 2009, this loan was repaid in full.

On October 20, 2008, Max Capital borrowed $100.0 million under our revolving credit facility in connection with the acquisition and capitalization of Max UK. On April 20, 2009, this loan was
repaid in full.



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Senior notes. On April 16, 2007, Max USA privately issued $100.0 million
principal amount of 7.20% senior notes, due April 14, 2017 with interest payable on April 16 and October 16 of each year. The senior notes are Max USAs senior unsecured obligations and rank equally in right of payment with all
existing and future senior unsecured indebtedness of Max USA. The senior notes are fully and unconditionally guaranteed by Max Capital. The effective interest rate related to the senior notes, based on the net proceeds received, was approximately
7.27%. The net proceeds from the sale of the senior notes were $99.5 million, and they were used to repay the $100.0 million short-term borrowing of Max USA under the revolving credit facility. On December 30, 2008, Max USA repurchased $8.5
million principal amount of these notes, leaving a principal amount of $91.5 million outstanding.

Shareholders
equity. Our shareholders equity increased to $1,546.7 million at September 30, 2009 from $1,280.3 million at December 31, 2008, an increase of 20.8%, principally due to net income of $183.6 million and an $87.0 million
increase in accumulated other comprehensive income, offset by the payment of dividends of $16.0 million during the nine months ended September 30, 2009.

Liquidity. We generated $249.9 million of cash from operations during the nine months ended September 30, 2009 compared to generating $349.6 million for the nine months ended
September 30, 2008. The decrease in cash from operations is principally due to the timing of the payment of property and casualty losses, the payment of reinsurance premiums ceded, and the decrease in life and annuity premiums written. The two
principal factors that impact our operating cash flow are premium collections and timing of loss and benefit payments.

The
casualty business we write generally has a long claim-tail, and we expect that we will generate significant operating cash flow as we accumulate property and casualty loss reserves and life and annuity benefit reserves on our balance sheet. As we
continue to diversify into property and property catastrophe business, which generally has a short claim-tail, and as losses are incurred, we expect potential volatility in our operating cash flow levels. We believe that our property and casualty
loss reserves and life and annuity benefit reserves currently have an average duration of approximately 4.8 years and we expect to see increases in the amount of expected loss payments in future periods with a resulting decrease in operating
cash flow. We do not expect loss payments to exceed the premiums generated and therefore expect to have continued positive cash flow. However, actual premiums written and collected and losses and loss expenses paid in any period could vary from our
expectations and could have a significant and adverse effect on operating cash flow.

While we endeavor to tailor our fixed
maturities portfolios to match the duration of expected loss and benefit payments, increased loss amounts or settlement of losses and benefits earlier than anticipated can result in greater cash needs. We maintain a significant working cash balance
and have generated positive cash flow from operations in each of our last eight years of operating history. In recent quarters our cash balance has increased as we have elected to maintain a larger cash position in the current investment
environment. Our cash and cash equivalents balance is $1,056.0 million at September 30, 2009. We believe that we currently maintain sufficient liquidity to cover existing requirements and provide for contingent liquidity. Nonetheless, it is
possible that significant deviations in expected loss and benefit payments can occur, potentially requiring us to liquidate a portion of our fixed maturities portfolios. If we need to liquidate our fixed maturities securities within a short period
of time, the actual realized proceeds may be significantly different from the fair values estimated at September 30, 2009. We believe that most of our portfolio has sufficient liquidity to mitigate this risk, and we believe that we can continue
to hold any potentially illiquid position until we can initiate an appropriately priced transaction.

As a holding company,
Max Capitals principal assets are its investments in the common shares of its principal subsidiary, Max Bermuda, and its other subsidiaries. Max Capitals principal source of funds is from interest income on cash balances and cash
dividends from its subsidiaries, including Max Bermuda. The payment of dividends is limited under Bermuda insurance laws. In particular, Max Bermuda may not declare or pay any dividends if it is in breach of its minimum solvency or liquidity levels
under Bermuda law or if the declaration or payment of the dividends would cause it to fail to meet the minimum solvency or liquidity levels under Bermuda law. At September 30, 2009, Max Bermuda had approximately $1,385.0 million in statutory
capital and surplus and met all minimum solvency and liquidity requirements.

In the ordinary course of business, we are
required to provide letters of credit or other regulatory approved security to certain of our clients to meet contractual and regulatory requirements. As of September 30, 2009, we have two letter of credit facilities totaling $675.0 million
with an additional $200.0 million available subject to certain conditions, plus a third facility of GBP 90.0 million for our Funds at Lloyds commitments. As of September 30, 2009 we had $438.2 million in letters of credit utilized
under these facilities. Under our Funds at Lloyds facility, GBP 63.6 million is utilized as of September 30, 2009. A $20.0 million credit facility with ING was terminated in July 2009. Each of our credit facilities requires that we
comply with certain covenants, which may include a minimum consolidated tangible net worth, a minimum insurer financial strength rating and restrictions on the payment of dividends. We were in compliance with all the covenants of each of our credit
facilities at September 30, 2009.

The amount which Max Capital provides as Funds at Lloyds is not available for
distribution for the payment of dividends. Our corporate members may also be required to maintain funds under the control of Lloyds in excess of their capital requirements and such funds also may not be available for distribution of the
payment of dividends.



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Capital resources. At September 30, 2009, our capital structure consisted of
common equity. Total shareholders equity amounted to $1,546.7 million as compared to $1,280.3 million at December 31, 2008, an increase of 20.8%. On August 20, 2007, we filed an automatic shelf registration statement on Form S-3 with
the SEC indicating that we may periodically issue up to $500.0 million in debt securities, common shares, preferred shares, depository shares, warrants, share-purchase contracts and share purchase units. The shelf registration statement also covers
debt securities of Max USA and trust preferred securities of Max Capital Trust I. No securities have been issued under the shelf registration statement. We believe that we have sufficient capital to meet our financial obligations.

In April 2007, Max USA sold $100.0 million aggregate principal amount of 7.20% senior notes due April 14, 2017, of which $91.5 million
remains outstanding at September 30, 2009. The senior notes are guaranteed by Max Capital. As of September 30, 2009, the senior notes were assigned a senior unsecured debt rating by Standard & Poors Ratings Services, or
S&P, A.M. Best Company, or A.M. Best, Fitch, Inc., or Fitch, and Moodys Investors Service, Inc., or Moodys (see table below). The senior unsecured debt ratings assigned by rating agencies to reinsurance and insurance companies are
based upon factors and criteria established independently by each rating agency. They are not an evaluation directed to investors in our senior notes, and are not a recommendation to buy, sell or hold our senior notes. These ratings are subject to
periodic review by the rating agencies or may be revised downward or revoked at the sole discretion of the rating agencies.

Ratings are an important factor in establishing the competitive position of reinsurance and insurance companies and are important to our ability to market our products. We have a financial strength rating for our non-Lloyds
reinsurance and insurance subsidiaries from each of A.M. Best, Fitch, Moodys and S&P (see table below). These ratings reflect each rating agencys opinion of our financial strength, operating performance and ability to meet
obligations. They are not evaluations directed toward the protection of investors in securities issued by Max Capital. The Syndicates share the Lloyds market ratings (see table below).

At September 30, 2009, we were rated as follows:



|                                                                                 |  |                  |  |               |  |                |  |            
|-------------------------------------------------------------------------------- |  | ---------------- |  | ------------- |  | -------------- |  | -----------
|                                                                                 |  | A.M. Best        |  | Fitch         |  | Moodys        |  | S&P        
|Financial strength rating for non-Lloyds reinsurance and insurance subsidiaries |  | A-(excellent)(1) |  | A (strong)(1) |  | A3(2)          |  | A- (1)     
|Outlook on financial strength rating                                             |  | Positive(1)      |  | Negative(1)   |  | Negative(2)    |  | Stable (1) 
|Senior notes senior unsecured debt rating(3)                                     |  | bbb-             |  | BBB+          |  | Baa2           |  | BBB        
|Outlook on debt rating(3)                                                        |  | Positive         |  | Negative      |  | Negative       |  | Stable     
|Lloyds financial strength rating applicable to the Syndicates(4)                |  | A (excellent)    |  | A+ (strong)   |  | Not applicable |  | A+ (strong)



|(1) | Applicable to Max Bermuda, Max Specialty, Max America, Max Re Europe and Max Insurance Europe.
|--- | ----------------------------------------------------------------------------------------------

|(2) | Applicable to Max Bermuda.
|--- | --------------------------

|(3) | Applicable to Max USA.
|--- | ----------------------

|(4) | Applicable to the Syndicates.
|--- | -----------------------------



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Max Capitals board of directors declared a dividend of $0.10 per share on each of
August 4, 2009 and November 3, 2009 payable on September 1, 2009 and November 30, 2009, respectively, to shareholders of record on August 18, 2009 and November 16, 2009, respectively. On each of February 10, 2009
and May 4, 2009, the board of directors declared a dividend of $0.09 payable on March 10, 2009 and June 1, 2009, respectively, to shareholders of record on February 24, 2009 and May 18, 2009, respectively. Continuation of
cash dividends in the future will be at the discretion of the board of directors and will be dependent upon our results of operations and cash flows, and our financial position and capital requirements, general business conditions, legal, tax,
regulatory and any contractual restrictions on the payment of dividends and other factors the board of directors deems relevant.

Off-balance sheet arrangements

We do not participate in transactions that generate relationships with
unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities that would have been established for the purpose of facilitating off-balance sheet arrangements or other
contractually narrow or limited purposes.

Contractual Obligations



|                             |  |                                                      |           |                 |   |           |  |          |           |                  |   |         |  |   |          
|---------------------------- |  | ---------------------------------------------------- | --------- | --------------- | - | --------- |  | -------- | --------- | ---------------- | - | ------- |  | - | ---------
|                             |  | Payment due by period (in thousands of U.S. Dollars)
|Contractual Obligations      |  | Total                                                |           | Less than1 year |   | 1-3years  |  | 3-5years |           | More than5 years
|Senior notes                 |  |                                                      | 142,626   |                 |   | 6,591     |  |          | 13,182    |                  |   | 13,182  |  |   | 109,671  
|Operating lease obligations  |  |                                                      | 23,939    |                 |   | 6,385     |  |          | 10,323    |                  |   | 5,090   |  |   | 2,141    
|Property and casualty losses |  |                                                      | 3,159,156 |                 |   | 933,651   |  |          | 723,464   |                  |   | 498,103 |  |   | 1,003,938
|Life and annuity benefits    |  |                                                      | 2,548,229 |                 |   | 119,558   |  |          | 227,846   |                  |   | 211,716 |  |   | 1,989,109
|Deposit liabilities          |  |                                                      | 200,567   |                 |   | 41,671    |  |          | 89,177    |                  |   | 10,952  |  |   | 58,767   
|                             |  |                                                      |           |                 |   |           |  |          |           |                  |   |         |  |   |          
|Total                        |  | $                                                    | 6,074,517 |                 | $ | 1,107,856 |  | $        | 1,063,992 |                  | $ | 739,043 |  | $ | 3,163,626
|                             |  |                                                      |           |                 |   |           |  |          |           |                  |   |         |  |   |          

The reserves for losses and benefits together with deposit liabilities represent
managements estimate of the ultimate cost of settling losses, benefits and deposit liabilities. As more fully discussed in our Critical Accounting PoliciesLosses and Benefits in our Annual Report on Form 10-K for the year
ended December 31, 2008, the estimation of losses and benefits is based on various complex and subjective judgments. Actual losses and benefits paid may differ, perhaps significantly, from the reserve estimates reflected in our financial
statements. Similarly, the timing of payment of our estimated losses and benefits is not fixed and there may be significant changes in actual payment activity. The assumptions used in estimating the likely payments due by period are based on our
historical claims payment experience and industry payment patterns, but due to the inherent uncertainty in the process of estimating the timing of such payments, there is a risk that the amounts paid in any such period can be significantly different
from the amounts disclosed above.

The amounts in this table represent our gross estimates of known liabilities as of
September 30, 2009 and do not include any allowance for claims for future events within the time period specified. Accordingly, it is highly likely that the total amounts paid out in the time periods shown will be greater than those indicated
in the table.

Furthermore, life and annuity benefits and deposit liabilities recorded in the unaudited interim consolidated
financial statements at September 30, 2009 are computed on a net present value basis, whereas the expected payments by period in the table above are the estimated payments at a future time and do not reflect a discount of the amount payable.



|ITEM 3. | Quantitative and Qualitative Disclosures about Market Risk
|------- | ----------------------------------------------------------

We engage in an investment strategy that combines a fixed maturities investment portfolio and a hedge fund portfolio that employ strategies to manage investment risk. We attempt to maintain adequate
liquidity in our cash and fixed maturities investment portfolio to fund operations, pay reinsurance and insurance liabilities and claims and provide funding for unexpected events. We seek to manage our credit risk through industry and issuer
diversification, and interest rate risk by monitoring the duration and structure of our investment portfolio relative to the duration and structure of our liability portfolio. We are exposed to potential loss from various market risks, primarily
changes in interest rates, credit spreads and equity prices. Accordingly, earnings would be affected by these changes. We manage our market risk based on board-approved investment policies. With respect to our fixed maturities investment portfolio,
our risk management strategy and investment policy is to invest in debt instruments of investment grade issuers and to limit



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the amount of credit exposure with respect to particular ratings categories and any one issuer. We select investments with characteristics such as duration, yield, currency and liquidity that are
tailored to the cash flow characteristics of our property and casualty and life and annuity liabilities.

As of
September 30, 2009, 96.9% of the securities held in our fixed maturities portfolios were rated BBB-/Baa3 or above. Our current policy is not to purchase securities rated lower than BBB-/Baa3 and to maintain a minimum weighted average credit
rating quality of AA/Aa2. At September 30, 2009, the impact on the fixed maturities investment portfolio from an immediate 100 basis point increase in market interest rates would have resulted in an estimated decrease in fair value of 3.1% or
approximately $124.3 million, and the impact on the fixed maturities investment portfolio from an immediate 100 basis point decrease in market interest rates would have resulted in an estimated increase in fair value of 3.7% or approximately $147.8
million.

With respect to our hedge fund portfolio, we consistently and systematically monitor the strategies and funds in
which we are invested. We focus on risk, as opposed to return, in the selection of each of our hedge funds. This causes us to select individual hedge funds that have exhibited attractive risk/reward characteristics and low correlation to other
investments in the portfolio, as opposed to individual investments that have shown the highest return, but also higher volatility of return. We then combine the selected individual hedge funds into a portfolio of hedge funds. By combining
investments that we believe have moderate volatility and low correlations, we aim to achieve a hedge fund portfolio within Max Diversified that has overall lower volatility relative to investing in a common stock portfolio or a typical fund of hedge
funds portfolio.

At September 30, 2009, the estimated impact on the hedge fund portfolio from an immediate 100 basis
point increase in market interest rates would have resulted in an estimated decrease in fair value of 1.1%, or approximately $4.1 million, and the impact on the hedge fund portfolio from an immediate 100 basis point decrease in market interest rates
would have resulted in an estimated increase in fair value of 1.1%, or approximately $4.1 million. Another method that attempts to measure portfolio risk is Value-at-Risk, or VaR. VaR is a statistical risk measure, calculating the level of potential
losses that could be expected to be exceeded, over a specified holding period and at a given level of confidence, in normal market conditions, and is expressed as a percentage of the portfolios initial value. Since the VaR approach is based on
historical positions and market data, VaR results should not be viewed as an absolute and predictive gauge of future financial performance or as a way for us to predict risk. At September 30, 2009, our hedge fund portfolios VaR was
estimated to be 12.0% at the 99.0% level of confidence and with a three-month time horizon.



|ITEM 4. | Controls and Procedures
|------- | -----------------------

Part AEvaluation of Disclosure Controls and Procedures.

Our disclosure controls and procedures
(as defined in Rule 13a-15(e) under the Exchange Act, which we refer to as disclosure controls, are controls and procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the
Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. Disclosure controls are also designed with the objective of ensuring that such
information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There are inherent limitations to the
effectiveness of any control system. A control system, no matter how well conceived and operated, can provide only reasonable assurance that its objectives are met. No evaluation of controls can provide absolute assurance that all control issues and
instances of fraud, if any, within our company have been detected.

As of September 30, 2009, an evaluation was carried
out under the supervision and with the participation of the companys management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls were effective to ensure that material information relating to our company is made known to management,
including the Chief Executive Officer and Chief Financial Officer, particularly during the periods when our periodic reports are being prepared.

Part BInternal Control Over Financial Reporting

Management is
responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our companys internal control system was designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. There are inherent limitations to the effectiveness of any control system. A control system, no matter how well
conceived and operated, can provide only reasonable assurance that its objectives are met. No evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.

Management evaluated whether there was a change in our companys internal control over financial reporting during the
three months ended September 30, 2009 that has materially affected, or is reasonably likely to materially affect, the companys internal control over financial reporting. Based on our evaluation, we believe that there was no such change
during the three months ended September 30, 2009.



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PART II - OTHER INFORMATION



|ITEM 1. | Legal Proceedings
|------- | -----------------

We
are, from time to time, a party to litigation and/or arbitration that arises in the normal course of our business operations. We are also subject to other potential litigation, disputes and regulatory or governmental inquiry.

Antitrust. Two lawsuits filed in the United States District Court for The Northern District of Georgia name Max Bermuda, along with
approximately 100 other insurance companies and brokers. The claims in each case are that the defendants conspired to manipulate bidding practices for insurance policies in certain insurance lines and failed to disclose certain commission
arrangements. The first of these cases was filed on April 4, 2006 by New Cingular Wireless Headquarter LLC and 16 other corporations. The complaint asserts statutory claims under the Sherman Antitrust Act, the Racketeer Influenced and Corrupt
Organization Act, the antitrust laws of several states, as well as common law claims alleging breach of fiduciary duty and fraud. On October 16, 2006, the Judicial Panel on Multidistrict Litigation transferred the case to the U.S. District
Court for the District of New Jersey for pretrial proceedings on a consolidated basis with other lawsuits raising smaller claims. The second action was filed October 12, 2007 by Sears, Roebuck & Co. and two affiliated corporations. The
complaint in this suit charges Max Bermuda and certain other insurance company defendants with violations of the antitrust and consumer fraud laws of Georgia and other states and common law claims of inducement of breach of fiduciary duties,
tortuous interference with contract, unjust enrichment, and aiding and abetting fraud. The Judicial Panel on Multidistrict Litigation transferred this case to the U.S. District Court for the District of New Jersey for consolidated pretrial
proceedings in November 2007. We intend to defend ourselves vigorously in this suit but cannot at this time predict the outcome of the matters described above or estimate the potential costs related to defending the action. No liability has been
established in our unaudited interim consolidated financial statements as of September 30, 2009.

Validus
Litigation. On April 28, 2009, Validus Holdings, Ltd. commenced a lawsuit in the Supreme Court of Bermuda against IPC, IPCs wholly owned subsidiary, IPC Limited, and Max Capital. Subsequent to September 30, 2009 the parties have
settled the dispute and agreed to discontinue the proceedings.

While any proceeding contains an element of uncertainty, we
currently do not believe that the ultimate outcome of all outstanding litigation, arbitrations and inquiries will have a material adverse effect on our consolidated financial condition, future operating results and/or liquidity, although an adverse
resolution of a number of these items could have a material adverse effect on our results of operations in a particular fiscal quarter or year.



|ITEM 1A. | Risk Factors
|-------- | ------------

Reference
is made to the Risk Factors set forth in Part I, Item 1A of our 2008 Annual Report on Form 10-K for the year ended December 31, 2008 filed on February 19, 2009 and updated in Part II, Item 1A of our Quarterly Report on Form 10-Q
for the quarter ending March 31, 2009 filed on May 11, 2009.

The risk factors appearing in the above referenced
Form 10-Q under the headings Risks Related to the Amalgamation and Risks Related to the Combined Entity Following the Amalgamation should be deleted in their entirety.



|ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------

On September 17, 2001, our board of directors approved a share-repurchase program providing for repurchases of up to $15.0 million of Max Capitals common shares. The repurchase program has been
increased from time to time at the election of our board of directors. In December 2007 and February 2008, our board of directors authorized increases to the repurchase program permitting for aggregate repurchases of up to $75.3 million and $100.0
million, respectively. The repurchase program may be conducted from time to time through the market or privately negotiated transactions. During the three months ended September 30, 2009, $4.3 million had been expended to repurchase 211,400
shares.

The table below sets forth the information with respect to purchases made by or on behalf of Max Capital or any
affiliated purchaser (as defined in Rule 10b-18(a)(3) under the Exchange Act), of our common shares during the three months ended September 30, 2009.



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|                                              |  |                               |  |                           |       |                                                                           |         |                                                                                    |   |             
|--------------------------------------------- |  | ----------------------------- |  | ------------------------- | ----- | ------------------------------------------------------------------------- | ------- | ---------------------------------------------------------------------------------- | - | ------------
|Period                                        |  | TotalNumberof SharesPurchased |  | AveragePricePaid perShare |       | Total Numberof SharesPurchased asPart ofPubliclyAnnouncedPlans
orPrograms |         | ApproximateDollar Valueof Shares thatMay Yet
BePurchasedUnder the Plansor Programs
|(July 1, 2009 to July 31, 2009)               |  |                              |  | $                         |      |                                                                           |        |                                                                                    | $ | 67.7 million
|(August 1, 2009 to August 31, 2009)(1)        |  | 211,400                       |  |                           | 20.27 |                                                                           | 211,400 |                                                                                    | $ | 63.4 million
|(September 1, 2009 to September 30, 2009)(1)  |  |                              |  |                           |      |                                                                           |        |                                                                                    | $ | 63.4 million
|                                              |  |                               |  |                           |       |                                                                           |         |                                                                                    |   |             
|Total (July 1, 2009 to September 30, 2009)(1) |  | 211,400                       |  | $                         | 20.27 |                                                                           | 211,400 |                                                                                    | $ | 63.4 million



|(1) | Max Capitals share repurchase policy permits repurchases only during the period commencing three business days following the earnings release for
the prior quarter and lasting until 10 days prior to quarter-end.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 3. | Defaults Upon Senior Securities
|------- | -------------------------------

None.



|ITEM 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

None.



|ITEM 5. | Other Information
|------- | -----------------

None.



|ITEM 6. | Exhibits
|------- | --------



|        |  |                                                                                                                                                                                                                                                                                
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                                    
|        | 
|3.2     |  | Bye-laws                                                                                                                                                                                                                                                                       
|        | 
|10.1    |  | Termination Agreement, dated August 31, 2009 among Canadian Imperial Bank of Commerce, Max Bermuda Ltd. And Max Diversified Strategies Ltd. (incorporated by reference to
Exhibit 10.1 of the Registrants Current Report on Form 8-K filed with the SEC on September 6, 2009).
|        | 
|10.2    |  | Form of Director Restricted Stock Unit Agreement under the 2008 Stock Incentive Plan.                                                                                                                                                                                          
|        | 
|12.1    |  | Computation of Ratio of Earnings to Fixed Charges.                                                                                                                                                                                                                             
|        | 
|31.1    |  | Certification of the Chief Executive Officer filed herewith pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                         
|        | 
|31.2    |  | Certification of the Chief Financial Officer filed herewith pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                         
|        | 
|32.1    |  | Certification of the Chief Executive Officer furnished herewith pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                     
|        | 
|32.2    |  | Certification of the Chief Financial Officer furnished herewith pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                     



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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 behalf
by the undersigned thereunto duly authorized.



|                       |  |                                                     
|---------------------- |  | ----------------------------------------------------
|Max Capital Group Ltd.
|                       | 
|                       |  | /s/    W. MARSTON BECKER                            
|Name:                  |  | W. Marston Becker                                   
|Title:                 |  | Chief Executive Officer                             
|Date:                  |  | November 6, 2009                                    
|                       | 
|                       |  | /s/    JOSEPH W. ROBERTS                            
|Name:                  |  | Joseph W. Roberts                                   
|Title:                 |  | Executive Vice President and Chief Financial Officer
|Date:                  |  | November 6, 2009                                    



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