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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



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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 June 30, 2004



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



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MAX RE CAPITAL LTD.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|BERMUDA                                                        |  | Not Applicable                   
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)



Max Re House

2 Front Street

Hamilton, HM 11

Bermuda

(Address of principal executive offices)

(Zip Code)



(441) 296-8800

(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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes
x No ̈



The number of the Registrants common shares (par value $1.00 per share) outstanding as of July 15, 2004 was 45,737,611.



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##### Table of Contents

MAX RE CAPITAL LTD.



INDEX



|                             |  |                                                                                                                                  |  |     
|---------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                             |  |                                                                                                                                  |  | PAGE
|PART IFINANCIAL INFORMATION |  |                                                                                                                                 
|                             |  |                                                                                                                                 
|ITEM 1.                      |  | Financial Statements                                                                                                             |  | 1   
|                             |  |                                                                                                                                 
|                             |  | Consolidated Balance Sheets as of June 30, 2004 (unaudited) and December 31, 2003                                                |  | 1   
|                             |  |                                                                                                                                 
|                             |  | Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2004 and 2003 (unaudited) |  | 2   
|                             |  |                                                                                                                                 
|                             |  | Consolidated Statements of Changes in Shareholders Equity for the Six Months Ended June 30, 2004 and 2003 (unaudited)           |  | 3   
|                             |  |                                                                                                                                 
|                             |  | Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003 (unaudited)                                |  | 4   
|                             |  |                                                                                                                                 
|                             |  | Notes to the Interim Consolidated Financial Statements (unaudited)                                                               |  | 5   
|                             |  |                                                                                                                                 
|ITEM 2.                      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                            |  | 10  
|                             |  |                                                                                                                                 
|ITEM 3.                      |  | Quantitative and Qualitative Disclosure About Market Risk                                                                        |  | 16  
|                             |  |                                                                                                                                 
|ITEM 4.                      |  | Controls and Procedures                                                                                                          |  | 17  
|                             | 
|PART IIOTHER INFORMATION    |  | 18                                                                                                                              
|                             |  |                                                                                                                                 
|ITEM 1.                      |  | Legal Proceedings                                                                                                                |  | 18  
|                             |  |                                                                                                                                 
|ITEM 2.                      |  | Changes in Securities, Use of Proceeds and Issuer Purchase of Equity Securities                                                  |  | 18  
|                             |  |                                                                                                                                 
|ITEM 3.                      |  | Defaults Upon Senior Securities                                                                                                  |  | 18  
|                             |  |                                                                                                                                 
|ITEM 4.                      |  | Submission of Matters to a Vote of Security Holders                                                                              |  | 18  
|                             |  |                                                                                                                                 
|ITEM 5.                      |  | Other Information                                                                                                                |  | 19  
|                             |  |                                                                                                                                 
|ITEM 6.                      |  | Exhibits and Reports on Form 8-K                                                                                                 |  | 19  
|                             | 
|SIGNATURES                   |  | S-1                                                                                                                             





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##### Table of Contents

PART I. FINANCIAL INFORMATION



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



MAX RE CAPITAL LTD.



CONSOLIDATED BALANCE SHEETS



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



|                                                                                                                        |  |               |           |   |                   |   |           |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ----------------- | - | --------- | -
|                                                                                                                        |  | June 30, 2004 |           |   | December 31, 2003 |  
|                                                                                                                        |  | (Unaudited)   |           |   |                   |  
|ASSETS                                                                                                                  |  |               |           |   |                   |   |           |  
|Cash and cash equivalents                                                                                               |  | $             | 243,294   |   |                   | $ | 201,515   |  
|Fixed maturities, available for sale at fair value                                                                      |  |               | 1,682,150 |   |                   |   | 1,604,430 |  
|Alternative investments, at fair value                                                                                  |  |               | 1,016,221 |   |                   |   | 831,359   |  
|Accrued interest income                                                                                                 |  |               | 16,569    |   |                   |   | 14,608    |  
|Premiums receivable                                                                                                     |  |               | 388,951   |   |                   |   | 389,393   |  
|Losses recoverable from reinsurers                                                                                      |  |               | 330,214   |   |                   |   | 273,711   |  
|Funds withheld                                                                                                          |  |               | 18,070    |   |                   |   | 56        |  
|Deferred acquisition costs                                                                                              |  |               | 111,134   |   |                   |   | 87,116    |  
|Deferred charges                                                                                                        |  |               | 8,827     |   |                   |   | 5,259     |  
|Prepaid reinsurance premiums                                                                                            |  |               | 87,899    |   |                   |   | 67,343    |  
|Other assets                                                                                                            |  |               | 27,715    |   |                   |   | 20,769    |  
|                                                                                                                        |  |               |           |   |                   |   |           |  
|Total assets                                                                                                            |  | $             | 3,931,044 |   |                   | $ | 3,495,559 |  
|                                                                                                                        |  |               |           |   |                   |   |           |  
|LIABILITIES                                                                                                             |  |               |           |   |                   |   |           |  
|Property and casualty losses and experience refunds                                                                     |  | $             | 1,260,923 |   |                   | $ | 991,687   |  
|Life and annuity benefits and experience refunds                                                                        |  |               | 464,486   |   |                   |   | 480,099   |  
|Deposit liabilities                                                                                                     |  |               | 242,505   |   |                   |   | 267,350   |  
|Funds withheld from reinsurers                                                                                          |  |               | 258,740   |   |                   |   | 213,483   |  
|Unearned property and casualty premiums                                                                                 |  |               | 654,150   |   |                   |   | 471,625   |  
|Reinsurance balances payable                                                                                            |  |               | 50,471    |   |                   |   | 74,693    |  
|Accounts payable and accrued expenses                                                                                   |  |               | 23,648    |   |                   |   | 41,392    |  
|Bank loan                                                                                                               |  |               | 150,000   |   |                   |   | 150,000   |  
|                                                                                                                        |  |               |           |   |                   |   |           |  
|Total liabilities                                                                                                       |  |               | 3,104,923 |   |                   |   | 2,690,329 |  
|                                                                                                                        |  |               |           |   |                   |   |           |  
|SHAREHOLDERS EQUITY                                                                                                    |  |               |           |   |                   |   |           |  
|Preferred shares par value $1; 20,000,000 shares authorized; no shares issued or outstanding                            |  |               |          |   |                   |   |          |  
|Common shares par value $1; 200,000,000 shares authorized; 45,737,611 shares issued and outstanding (2003  45,184,611) |  |               | 45,738    |   |                   |   | 45,185    |  
|Additional paid-in capital                                                                                              |  |               | 650,715   |   |                   |   | 637,772   |  
|Loans receivable from common share sales                                                                                |  |               | (10,965   | ) |                   |   | (11,965   | )
|Unearned stock grant compensation                                                                                       |  |               | (14,000   | ) |                   |   | (4,032    | )
|Accumulated other comprehensive income (loss)                                                                           |  |               | (10,737   | ) |                   |   | 25,790    |  
|Retained earnings                                                                                                       |  |               | 165,370   |   |                   |   | 112,480   |  
|                                                                                                                        |  |               |           |   |                   |   |           |  
|Total shareholders equity                                                                                              |  |               | 826,121   |   |                   |   | 805,230   |  
|                                                                                                                        |  |               |           |   |                   |   |           |  
|Total liabilities and shareholders equity                                                                              |  | $             | 3,931,044 |   |                   | $ | 3,495,559 |  
|                                                                                                                        |  |               |           |   |                   |   |           |  



See accompanying notes
to unaudited interim consolidated financial statements.



1



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CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)



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



|                                                                         |  |                           |            |   |                         |   |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------------------------------ |  | ------------------------- | ---------- | - | ----------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                         |  | Three Months EndedJune 30 |            |   | Six Months EndedJune 30 |  
|                                                                         |  | 2004                      |            |   | 2003                    |   |            | 2004 |  |   | 2003       |  
|REVENUES                                                                 |  |                           |            |   |                         |   |            |      |  |   |            |   |  |   |            |  
|Gross premiums written                                                   |  | $                         | 183,654    |   |                         | $ | 165,767    |      |  | $ | 623,185    |   |  | $ | 596,313    |  
|Reinsurance premiums ceded                                               |  |                           | (47,567    | ) |                         |   | (39,186    | )    |  |   | (90,353    | ) |  |   | (71,039    | )
|                                                                         |  |                           |            |   |                         |   |            |      |  |   |            |   |  |   |            |  
|Net premiums written                                                     |  | $                         | 136,087    |   |                         | $ | 126,581    |      |  | $ | 532,832    |   |  | $ | 525,274    |  
|                                                                         |  |                           |            |   |                         |   |            |      |  |   |            |   |  |   |            |  
|Earned premiums                                                          |  | $                         | 206,557    |   |                         | $ | 161,377    |      |  | $ | 439,847    |   |  | $ | 319,441    |  
|Earned premiums ceded                                                    |  |                           | (34,739    | ) |                         |   | (18,072    | )    |  |   | (69,130    | ) |  |   | (32,408    | )
|                                                                         |  |                           |            |   |                         |   |            |      |  |   |            |   |  |   |            |  
|Net premiums earned                                                      |  |                           | 171,818    |   |                         |   | 143,305    |      |  |   | 370,717    |   |  |   | 287,033    |  
|Net investment income                                                    |  |                           | 19,696     |   |                         |   | 15,061     |      |  |   | 38,542     |   |  |   | 29,568     |  
|Net gains on alternative investments                                     |  |                           | 1,038      |   |                         |   | 45,212     |      |  |   | 39,514     |   |  |   | 67,014     |  
|Net realized gains (losses) on sales of fixed maturities                 |  |                           | (2,575     | ) |                         |   | 509        |      |  |   | 3,205      |   |  |   | 2,999      |  
|Other income                                                             |  |                           | 1,211      |   |                         |   | 2,212      |      |  |   | 2,379      |   |  |   | 4,215      |  
|                                                                         |  |                           |            |   |                         |   |            |      |  |   |            |   |  |   |            |  
|Total revenues                                                           |  |                           | 191,188    |   |                         |   | 206,299    |      |  |   | 454,357    |   |  |   | 390,829    |  
|                                                                         |  |                           |            |   |                         |   |            |      |  |   |            |   |  |   |            |  
|LOSSES AND EXPENSES                                                      |  |                           |            |   |                         |   |            |      |  |   |            |   |  |   |            |  
|Losses, benefits and experience refunds                                  |  |                           | 135,305    |   |                         |   | 114,371    |      |  |   | 301,690    |   |  |   | 228,834    |  
|Acquisition costs                                                        |  |                           | 29,199     |   |                         |   | 35,690     |      |  |   | 60,982     |   |  |   | 74,427     |  
|Interest expense                                                         |  |                           | 95         |   |                         |   | 8,953      |      |  |   | 11,937     |   |  |   | 14,934     |  
|General and administrative expenses                                      |  |                           | 13,945     |   |                         |   | 10,785     |      |  |   | 24,115     |   |  |   | 18,981     |  
|                                                                         |  |                           |            |   |                         |   |            |      |  |   |            |   |  |   |            |  
|Total losses and expenses                                                |  |                           | 178,544    |   |                         |   | 169,799    |      |  |   | 398,724    |   |  |   | 337,176    |  
|                                                                         |  |                           |            |   |                         |   |            |      |  |   |            |   |  |   |            |  
|INCOME BEFORE MINORITY INTEREST                                          |  |                           | 12,644     |   |                         |   | 36,500     |      |  |   | 55,633     |   |  |   | 53,653     |  
|Minority interest                                                        |  |                           |           |   |                         |   | (5,651     | )    |  |   |           |   |  |   | (8,241     | )
|                                                                         |  |                           |            |   |                         |   |            |      |  |   |            |   |  |   |            |  
|NET INCOME                                                               |  |                           | 12,644     |   |                         |   | 30,849     |      |  |   | 55,633     |   |  |   | 45,412     |  
|Change in net unrealized appreciation (depreciation) of fixed maturities |  |                           | (55,689    | ) |                         |   | 13,360     |      |  |   | (36,960    | ) |  |   | 12,632     |  
|Foreign currency translation adjustment                                  |  |                           | 572        |   |                         |   |           |      |  |   | 433        |   |  |   |           |  
|                                                                         |  |                           |            |   |                         |   |            |      |  |   |            |   |  |   |            |  
|COMPREHENSIVE INCOME (LOSS)                                              |  | $                         | (42,473    | ) |                         | $ | 44,209     |      |  | $ | 19,106     |   |  | $ | 58,044     |  
|                                                                         |  |                           |            |   |                         |   |            |      |  |   |            |   |  |   |            |  
|Basic earnings per share                                                 |  | $                         | 0.28       |   |                         | $ | 0.81       |      |  | $ | 1.22       |   |  | $ | 1.19       |  
|                                                                         |  |                           |            |   |                         |   |            |      |  |   |            |   |  |   |            |  
|Diluted earnings per share                                               |  | $                         | 0.26       |   |                         | $ | 0.81       |      |  | $ | 1.13       |   |  | $ | 1.19       |  
|                                                                         |  |                           |            |   |                         |   |            |      |  |   |            |   |  |   |            |  
|Weighted average shares outstandingbasic                                |  |                           | 45,725,811 |   |                         |   | 38,129,213 |      |  |   | 45,636,602 |   |  |   | 38,118,783 |  
|                                                                         |  |                           |            |   |                         |   |            |      |  |   |            |   |  |   |            |  
|Weighted average shares outstandingdiluted                              |  |                           | 48,852,992 |   |                         |   | 45,302,798 |      |  |   | 49,092,498 |   |  |   | 45,252,263 |  
|                                                                         |  |                           |            |   |                         |   |            |      |  |   |            |   |  |   |            |  



See accompanying notes
to unaudited interim consolidated financial statements.



2



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##### Table of Contents

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Unaudited)



(Expressed in thousands of United States Dollars)



|                                                             |  |                         |         |   |      |   |         |  
|------------------------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | ------- | -
|                                                             |  | Six Months EndedJune 30 |        
|                                                             |  | 2004                    |         |   | 2003 |  
|Preferred Shares                                             |  |                         |         |   |      |   |         |  
|Balance, beginning and end of period                         |  | $                       |        |   |      | $ |        |  
|                                                             |  |                         |         |   |      |   |         |  
|Common shares                                                |  |                         |         |   |      |   |         |  
|Balance, beginning of period                                 |  |                         | 45,185  |   |      |   | 37,999  |  
|Issuance of shares                                           |  |                         | 553     |   |      |   | 363     |  
|Repurchase of shares                                         |  |                         |        |   |      |   | (275    | )
|                                                             |  |                         |         |   |      |   |         |  
|Balance, end of period                                       |  |                         | 45,738  |   |      |   | 38,087  |  
|                                                             |  |                         |         |   |      |   |         |  
|Additional paid-in capital                                   |  |                         |         |   |      |   |         |  
|Balance, beginning of period                                 |  |                         | 637,772 |   |      |   | 526,582 |  
|Issuance of shares                                           |  |                         | 12,671  |   |      |   | 4,004   |  
|Stock option expense                                         |  |                         | 272     |   |      |   | 127     |  
|Repurchase of shares                                         |  |                         |        |   |      |   | (3,146  | )
|                                                             |  |                         |         |   |      |   |         |  
|Balance, end of period                                       |  |                         | 650,715 |   |      |   | 527,567 |  
|                                                             |  |                         |         |   |      |   |         |  
|Loans receivable from common share sales                     |  |                         |         |   |      |   |         |  
|Balance, beginning of period                                 |  |                         | (11,965 | ) |      |   | (12,575 | )
|Loans repaid                                                 |  |                         | 1,000   |   |      |   | 610     |  
|                                                             |  |                         |         |   |      |   |         |  
|Balance, end of period                                       |  |                         | (10,965 | ) |      |   | (11,965 | )
|                                                             |  |                         |         |   |      |   |         |  
|Unearned stock grant compensation                            |  |                         |         |   |      |   |         |  
|Balance, beginning of period                                 |  |                         | (4,032  | ) |      |   | (2,656  | )
|Stock grants awarded                                         |  |                         | (12,994 | ) |      |   | (3,740  | )
|Amortization                                                 |  |                         | 3,026   |   |      |   | 1,142   |  
|                                                             |  |                         |         |   |      |   |         |  
|Balance, end of period                                       |  |                         | (14,000 | ) |      |   | (5,254  | )
|                                                             |  |                         |         |   |      |   |         |  
|Accumulated other comprehensive income (loss)                |  |                         |         |   |      |   |         |  
|Balance, beginning of period                                 |  |                         | 25,790  |   |      |   | 49,108  |  
|Holding gains (losses) on fixed maturities arising in period |  |                         | (33,755 | ) |      |   | 17,971  |  
|Net realized gains included in net income                    |  |                         | (3,205  | ) |      |   | (2,999  | )
|Currency translation adjustments                             |  |                         | 433     |   |      |   |        |  
|Reallocation to minority interest                            |  |                         |        |   |      |   | (2,340  | )
|                                                             |  |                         |         |   |      |   |         |  
|Balance, end of period                                       |  |                         | (10,737 | ) |      |   | 61,740  |  
|                                                             |  |                         |         |   |      |   |         |  
|Retained earnings (deficit)                                  |  |                         |         |   |      |   |         |  
|Balance, beginning of period                                 |  |                         | 112,480 |   |      |   | (4,299  | )
|Net income                                                   |  |                         | 55,633  |   |      |   | 45,412  |  
|Dividends paid                                               |  |                         | (2,743  | ) |      |   | (1,529  | )
|                                                             |  |                         |         |   |      |   |         |  
|Balance, end of period                                       |  |                         | 165,370 |   |      |   | 39,584  |  
|                                                             |  |                         |         |   |      |   |         |  
|Total shareholders equity                                   |  | $                       | 826,121 |   |      | $ | 649,759 |  
|                                                             |  |                         |         |   |      |   |         |  



See accompanying notes
to unaudited interim consolidated financial statements.



3



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##### Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



(Expressed in thousands of United States Dollars)



|                                                                           |  |                          |          |   |      |   |          |  
|-------------------------------------------------------------------------- |  | ------------------------ | -------- | - | ---- | - | -------- | -
|                                                                           |  | Six Months Ended June 30 |         
|                                                                           |  | 2004                     |          |   | 2003 |  
|OPERATING ACTIVITIES                                                       |  |                          |          |   |      |   |          |  
|Net income                                                                 |  | $                        | 55,633   |   |      | $ | 45,412   |  
|Adjustments to reconcile net income to net cash from operating activities: |  |                          |          |   |      |   |          |  
|Minority share of income                                                   |  |                          |         |   |      |   | 8,241    |  
|Amortization of unearned stock based compensation                          |  |                          | 3,298    |   |      |   | 1,269    |  
|Amortization of discount on fixed maturities                               |  |                          | 4,293    |   |      |   | 2,490    |  
|Net realized gains on sale of fixed maturities                             |  |                          | (3,205   | ) |      |   | (2,999   | )
|Net gains on alternative investments                                       |  |                          | (39,514  | ) |      |   | (67,014  | )
|Accrued interest income                                                    |  |                          | (1,961   | ) |      |   | (444     | )
|Premiums receivable                                                        |  |                          | 442      |   |      |   | (198,565 | )
|Losses recoverable from reinsurers                                         |  |                          | (56,503  | ) |      |   | (27,578  | )
|Funds withheld                                                             |  |                          | (18,014  | ) |      |   | (8,894   | )
|Deferred acquisition costs                                                 |  |                          | (24,018  | ) |      |   | (50,461  | )
|Deferred charges                                                           |  |                          | (3,568   | ) |      |   | 2,345    |  
|Prepaid reinsurance premiums                                               |  |                          | (20,556  | ) |      |   | (38,165  | )
|Other assets                                                               |  |                          | (6,946   | ) |      |   | (6,365   | )
|Property and casualty losses and experience refunds                        |  |                          | 269,236  |   |      |   | 189,877  |  
|Life and annuity benefits and experience refunds                           |  |                          | (15,613  | ) |      |   | (13,317  | )
|Funds withheld from reinsurers                                             |  |                          | 45,257   |   |      |   | 20,253   |  
|Unearned property and casualty premiums                                    |  |                          | 182,525  |   |      |   | 276,892  |  
|Reinsurance balances payable                                               |  |                          | (24,222  | ) |      |   | 38,508   |  
|Accounts payable and accrued expenses                                      |  |                          | (17,744  | ) |      |   | 6,398    |  
|                                                                           |  |                          |          |   |      |   |          |  
|Cash from operating activities                                             |  |                          | 328,820  |   |      |   | 177,883  |  
|                                                                           |  |                          |          |   |      |   |          |  
|INVESTING ACTIVITIES                                                       |  |                          |          |   |      |   |          |  
|Purchases of fixed maturities                                              |  |                          | (615,145 | ) |      |   | (268,630 | )
|Sales (purchases) of alternative investments                               |  |                          | (145,579 | ) |      |   | (98,018  | )
|Sales of fixed maturities                                                  |  |                          | 479,119  |   |      |   | 147,879  |  
|Redemptions of fixed maturities                                            |  |                          | 20,489   |   |      |   | 26,500   |  
|                                                                           |  |                          |          |   |      |   |          |  
|Cash used in investing activities                                          |  |                          | (261,116 | ) |      |   | (192,269 | )
|                                                                           |  |                          |          |   |      |   |          |  
|FINANCING ACTIVITIES                                                       |  |                          |          |   |      |   |          |  
|Net proceeds from issuance of common shares                                |  |                          | 230      |   |      |   | 627      |  
|Repurchases of common shares                                               |  |                          |         |   |      |   | (3,421   | )
|Proceeds from bank loan                                                    |  |                          |         |   |      |   | 50,000   |  
|Dividends paid                                                             |  |                          | (2,743   | ) |      |   | (1,529   | )
|Distributions to minority shareholders                                     |  |                          |         |   |      |   | (285     | )
|Deposit liabilities                                                        |  |                          | (24,845  | ) |      |   | (16,868  | )
|Notes and loans repaid                                                     |  |                          | 1,000    |   |      |   | 610      |  
|                                                                           |  |                          |          |   |      |   |          |  
|Cash from (used in) financing activities                                   |  |                          | (26,358  | ) |      |   | 29,134   |  
|                                                                           |  |                          |          |   |      |   |          |  
|Effect of exchange rate on cash                                            |  |                          | 433      |   |      |   |         |  
|                                                                           |  |                          |          |   |      |   |          |  
|Changes in cash and cash equivalents                                       |  |                          | 41,779   |   |      |   | 14,748   |  
|Cash and cash equivalents, beginning of period                             |  |                          | 201,515  |   |      |   | 92,103   |  
|                                                                           |  |                          |          |   |      |   |          |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                   |  | $                        | 243,294  |   |      | $ | 106,851  |  
|                                                                           |  |                          |          |   |      |   |          |  



SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION



Interest paid totaled $1,992 and $1,560 for the six
months ended June 30, 2004 and 2003, respectively.



See
accompanying notes to unaudited interim consolidated financial statements.



4



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##### Table of Contents

NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



1. GENERAL



The interim
consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America (GAAP) for interim financial information and in accordance with Regulation S-X and include the
accounts of Max Re Capital Ltd. (Max Re Capital), Max Re Ltd. (Max Re), Max Re Managers Ltd. (Max Re Managers), Max Europe Holdings Limited and its subsidiary companies (collectively, Max Europe) and
Max Re Diversified Strategies Ltd. (Max Re Diversified and, collectively with Max Re Capital, Max Re, Max Re Managers and Max Europe, the Company). In the opinion of management, these financial statements reflect all the
normal recurring adjustments necessary for a fair presentation of the Companys financial position and results of operations as of the dates and for the periods presented. The results of operations and cash flows for any interim period are not
necessarily indicative of results for the full year. These consolidated financial statements should be read in conjunction with the Companys audited consolidated financial statements for the year ended December 31, 2003.



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



2. 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.



3. BANK LOAN



In February 2003, Max Re completed a $150.0 million sale of shares of Max Re Diversified to a third party financial institution. Simultaneous with the
sale, Max Re entered into a total return swap with the purchaser of these shares whereby Max Re received the return earned on the Max Re Diversified shares in exchange for a variable rate of interest based on LIBOR plus a spread. Max Re Diversified
shares owned by Max Re with a fair value of $89.9 million at June 30, 2004 were pledged as collateral to which the Company is exposed to credit risk. Under GAAP, these transactions are viewed on a combined basis and are accounted for as a financing
transaction, which results in the recording of a $150.0 million bank loan.



4. SEGMENT INFORMATION



The Company operates
in the reinsurance and insurance business serving two segments: the property and casualty segment and the life and annuity segment, which includes disability products. Within the property and casualty segment, the Company offers three products:
traditional risk transfer reinsurance, alternative risk transfer reinsurance and insurance and traditional risk transfer insurance. As of January 1, 2004, the Company ceased to distinguish between structured risk transfer reinsurance and alternative
risk transfer reinsurance products. Accordingly, since January 1, 2004, the Company has combined these products within the segment disclosure as alternative risk transfer reinsurance products. The Company differentiates its property and casualty
reinsurance products in several ways, including by the amount of aggregate loss cap and/or occurrence limits incorporated into the underlying contracts, with its alternative risk transfer products having lower aggregate loss cap and occurrence
limits, relative to premium received, compared to its traditional risk transfer products. Within the life and annuity segment, the Company currently offers reinsurance products focusing on existing blocks of business, which take the form of
co-insurance transactions. In co-insurance transactions, risks are reinsured on the same basis as the original policies. The Company also has a corporate segment that includes its investment and financing functions. The Company does not allocate
assets by segment.



5



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A summary of operations by segment for the six months ended June 30, 2004 and 2003 is as follows:



(Expressed in thousands of United States Dollars)



|                                                |  |                                |         |   |                  |   |         |                       |  |              |         |   |  |   |         |   |  |   |         |   |  |   |        |  |   |         |  
|----------------------------------------------- |  | ------------------------------ | ------- | - | ---------------- | - | ------- | --------------------- |  | ------------ | ------- | - |  | - | ------- | - |  | - | ------- | - |  | - | ------ |  | - | ------- | -
|                                                |  | Six Months Ended June 30, 2004 |        
|                                                |  | Property & Casualty            |         |   | Life & Annuity   |   |         | Corporate             |  | Consolidated |        
|                                                |  | TraditionalReinsurance         |         |   | Alternative Risk |   |         | Traditional Insurance |  |              | Total   |   |  |   |         |   |  |   |         |  
|Gross premiums written                          |  | $                              | 245,706 |   |                  | $ | 263,435 |                       |  | $            | 111,805 |   |  | $ | 620,946 |   |  | $ | 2,239   |   |  | $ |       |  | $ | 623,185 |  
|Reinsurance premiums ceded                      |  |                                | (12,514 | ) |                  |   | (25,810 | )                     |  |              | (51,581 | ) |  |   | (89,905 | ) |  |   | (448    | ) |  |   |       |  |   | (90,353 | )
|                                                |  |                                |         |   |                  |   |         |                       |  |              |         |   |  |   |         |   |  |   |         |   |  |   |        |  |   |         |  
|Net premiums written                            |  | $                              | 233,192 |   |                  | $ | 237,625 |                       |  | $            | 60,224  |   |  | $ | 531,041 |   |  | $ | 1,791   |   |  | $ |       |  | $ | 532,832 |  
|                                                |  |                                |         |   |                  |   |         |                       |  |              |         |   |  |   |         |   |  |   |         |   |  |   |        |  |   |         |  
|Earned premiums                                 |  | $                              | 152,132 |   |                  | $ | 185,377 |                       |  | $            | 100,099 |   |  | $ | 437,608 |   |  | $ | 2,239   |   |  | $ |       |  | $ | 439,847 |  
|Earned premiums ceded                           |  |                                | (9,385  | ) |                  |   | (19,750 | )                     |  |              | (39,547 | ) |  |   | (68,682 | ) |  |   | (448    | ) |  |   |       |  |   | (69,130 | )
|                                                |  |                                |         |   |                  |   |         |                       |  |              |         |   |  |   |         |   |  |   |         |   |  |   |        |  |   |         |  
|Net premiums earned                             |  |                                | 142,747 |   |                  |   | 165,627 |                       |  |              | 60,552  |   |  |   | 368,926 |   |  |   | 1,791   |   |  |   |       |  |   | 370,717 |  
|Net investment income                           |  |                                |        |   |                  |   |        |                       |  |              |        |   |  |   |        |   |  |   |        |   |  |   | 38,542 |  |   | 38,542  |  
|Net gains on sales of alternative investments   |  |                                |        |   |                  |   |        |                       |  |              |        |   |  |   |        |   |  |   |        |   |  |   | 39,514 |  |   | 39,514  |  
|Net realized gains on sales of fixed maturities |  |                                |        |   |                  |   |        |                       |  |              |        |   |  |   |        |   |  |   |        |   |  |   | 3,205  |  |   | 3,205   |  
|Other income                                    |  |                                |        |   |                  |   |        |                       |  |              |        |   |  |   |        |   |  |   |        |   |  |   | 2,379  |  |   | 2,379   |  
|                                                |  |                                |         |   |                  |   |         |                       |  |              |         |   |  |   |         |   |  |   |         |   |  |   |        |  |   |         |  
|Total revenues                                  |  |                                | 142,747 |   |                  |   | 165,627 |                       |  |              | 60,552  |   |  |   | 368,926 |   |  |   | 1,791   |   |  |   | 83,640 |  |   | 454,357 |  
|                                                |  |                                |         |   |                  |   |         |                       |  |              |         |   |  |   |         |   |  |   |         |   |  |   |        |  |   |         |  
|Losses, benefits and experience refunds         |  |                                | 98,881  |   |                  |   | 141,039 |                       |  |              | 44,929  |   |  |   | 284,849 |   |  |   | 16,841  |   |  |   |       |  |   | 301,690 |  
|Acquisition costs                               |  |                                | 25,820  |   |                  |   | 31,627  |                       |  |              | 2,012   |   |  |   | 59,459  |   |  |   | 1,523   |   |  |   |       |  |   | 60,982  |  
|Interest expense                                |  |                                |        |   |                  |   |        |                       |  |              |        |   |  |   |        |   |  |   |        |   |  |   | 11,937 |  |   | 11,937  |  
|General and administrative expenses             |  |                                | 2,429   |   |                  |   | 3,493   |                       |  |              | 3,040   |   |  |   | 8,962   |   |  |   | 2,204   |   |  |   | 12,949 |  |   | 24,115  |  
|                                                |  |                                |         |   |                  |   |         |                       |  |              |         |   |  |   |         |   |  |   |         |   |  |   |        |  |   |         |  
|Total losses and expenses                       |  |                                | 127,130 |   |                  |   | 176,159 |                       |  |              | 49,981  |   |  |   | 353,270 |   |  |   | 20,568  |   |  |   | 24,886 |  |   | 398,724 |  
|                                                |  |                                |         |   |                  |   |         |                       |  |              |         |   |  |   |         |   |  |   |         |   |  |   |        |  |   |         |  
|Net income (loss) before minority interest      |  | $                              | 15,617  |   |                  | $ | (10,532 | )                     |  | $            | 10,571  |   |  | $ | 15,656  |   |  | $ | (18,777 | ) |  | $ | 58,754 |  | $ | 55,633  |  
|                                                |  |                                |         |   |                  |   |         |                       |  |              |         |   |  |   |         |   |  |   |         |   |  |   |        |  |   |         |  
|Loss Ratio                                      |  |                                | 69.3    | % |                  |   | 85.2    | %                     |  |              | 74.2    | % |  |   | 77.2    | % |  |   |         |   |  |   |        |  |   |         |  
|Combined Ratio                                  |  |                                | 89.1    | % |                  |   | 106.4   | %                     |  |              | 82.5    | % |  |   | 95.8    | % |  |   |         |   |  |   |        |  |   |         |  



The loss ratio is calculated by
dividing losses, benefits and experience refunds by net premiums earned. The combined ratio is calculated by dividing total losses and expenses by net premiums earned. A loss or combined ratio is not provided for life and annuity products as these
ratios are not normally considered appropriate measures for life and annuity underwriting.



6



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(Expressed in thousands of United States Dollars)



|                                                |  |                                |         |   |                 |   |         |                      |  |   |         |   |  |               |         |   |           |   |              |   |  |   |         |  |   |         |  
|----------------------------------------------- |  | ------------------------------ | ------- | - | --------------- | - | ------- | -------------------- |  | - | ------- | - |  | ------------- | ------- | - | --------- | - | ------------ | - |  | - | ------- |  | - | ------- | -
|                                                |  | Six Months Ended June 30, 2003 |        
|                                                |  | Property & Casualty            |         |   |                 |   |         |                      |  |   |        
|                                                |  | TraditionalReinsurance         |         |   | AlternativeRisk |   |         | TraditionalInsurance |  |   | Total   |   |  | Life &Annuity |         |   | Corporate |   | Consolidated |  
|Gross premiums written                          |  | $                              | 176,095 |   |                 | $ | 368,419 |                      |  | $ | 51,799  |   |  | $             | 596,313 |   |           | $ |             |   |  | $ |        |  | $ | 596,313 |  
|Reinsurance premiums ceded                      |  |                                | (12,638 | ) |                 |   | (45,689 | )                    |  |   | (12,712 | ) |  |               | (71,039 | ) |           |   |             |   |  |   |        |  |   | (71,039 | )
|                                                |  |                                |         |   |                 |   |         |                      |  |   |         |   |  |               |         |   |           |   |              |   |  |   |         |  |   |         |  
|Net premiums written                            |  | $                              | 163,457 |   |                 | $ | 322,730 |                      |  | $ | 39,087  |   |  | $             | 525,274 |   |           | $ |             |   |  | $ |        |  | $ | 525,274 |  
|                                                |  |                                |         |   |                 |   |         |                      |  |   |         |   |  |               |         |   |           |   |              |   |  |   |         |  |   |         |  
|Earned premiums                                 |  | $                              | 85,286  |   |                 | $ | 225,399 |                      |  | $ | 8,756   |   |  | $             | 319,441 |   |           | $ |             |   |  | $ |        |  | $ | 319,441 |  
|Earned premiums ceded                           |  |                                | (1,997  | ) |                 |   | (27,468 | )                    |  |   | (2,943  | ) |  |               | (32,408 | ) |           |   |             |   |  |   |        |  |   | (32,408 | )
|                                                |  |                                |         |   |                 |   |         |                      |  |   |         |   |  |               |         |   |           |   |              |   |  |   |         |  |   |         |  
|Net premiums earned                             |  |                                | 83,289  |   |                 |   | 197,931 |                      |  |   | 5,813   |   |  |               | 287,033 |   |           |   |             |   |  |   |        |  |   | 287,033 |  
|Net investment income                           |  |                                |        |   |                 |   |        |                      |  |   |        |   |  |               |        |   |           |   |             |   |  |   | 29,568  |  |   | 29,568  |  
|Net gains on sales of alternative investments   |  |                                |        |   |                 |   |        |                      |  |   |        |   |  |               |        |   |           |   |             |   |  |   | 67,014  |  |   | 67,014  |  
|Net realized gains on sales of fixed maturities |  |                                |        |   |                 |   |        |                      |  |   |        |   |  |               |        |   |           |   |             |   |  |   | 2,999   |  |   | 2,999   |  
|Other income                                    |  |                                |        |   |                 |   | 2,084   |                      |  |   |        |   |  |               | 2,084   |   |           |   |             |   |  |   | 2,131   |  |   | 4,215   |  
|                                                |  |                                |         |   |                 |   |         |                      |  |   |         |   |  |               |         |   |           |   |              |   |  |   |         |  |   |         |  
|Total revenues                                  |  |                                | 83,289  |   |                 |   | 200,015 |                      |  |   | 5,813   |   |  |               | 289,117 |   |           |   |             |   |  |   | 101,712 |  |   | 390,829 |  
|                                                |  |                                |         |   |                 |   |         |                      |  |   |         |   |  |               |         |   |           |   |              |   |  |   |         |  |   |         |  
|Losses, benefits and experience refunds         |  |                                | 53,100  |   |                 |   | 153,390 |                      |  |   | 4,434   |   |  |               | 210,924 |   |           |   | 17,910       |   |  |   |        |  |   | 228,834 |  
|Acquisition costs                               |  |                                | 18,119  |   |                 |   | 55,527  |                      |  |   | 290     |   |  |               | 73,936  |   |           |   | 491          |   |  |   |        |  |   | 74,427  |  
|Interest expense                                |  |                                |        |   |                 |   |        |                      |  |   |        |   |  |               |        |   |           |   |             |   |  |   | 14,934  |  |   | 14,934  |  
|General and administrative expenses             |  |                                | 1,360   |   |                 |   | 2,845   |                      |  |   | 3,157   |   |  |               | 7,362   |   |           |   | 2,765        |   |  |   | 8,854   |  |   | 18,981  |  
|                                                |  |                                |         |   |                 |   |         |                      |  |   |         |   |  |               |         |   |           |   |              |   |  |   |         |  |   |         |  
|Total losses and expenses                       |  |                                | 72,579  |   |                 |   | 211,762 |                      |  |   | 7,881   |   |  |               | 292,222 |   |           |   | 21,166       |   |  |   | 23,788  |  |   | 337,176 |  
|                                                |  |                                |         |   |                 |   |         |                      |  |   |         |   |  |               |         |   |           |   |              |   |  |   |         |  |   |         |  
|Net income (loss) before minority interest      |  | $                              | 10,710  |   |                 | $ | (13,830 | )                    |  | $ | (2,068  | ) |  | $             | (5,188  | ) |           | $ | (21,166      | ) |  | $ | 77,924  |  | $ | 53,653  |  
|                                                |  |                                |         |   |                 |   |         |                      |  |   |         |   |  |               |         |   |           |   |              |   |  |   |         |  |   |         |  
|Loss Ratio                                      |  |                                | 63.8    | % |                 |   | 77.5    | %                    |  |   | 76.3    | % |  |               | 73.5    | % |           |   |              |   |  |   |         |  |   |         |  
|Combined Ratio                                  |  |                                | 87.1    | % |                 |   | 107.0   | %                    |  |   | 135.6   | % |  |               | 101.8   | % |           |   |              |   |  |   |         |  |   |         |  



The Company currently
operates in two geographic regions: North America and Europe.



Financial information relating to gross premiums written and reinsurance premiums ceded by geographic region for the six months ended June 30, 2004 and 2003 were as follows:



|                                |  |                                                  |         |   |      |   |         |  
|------------------------------- |  | ------------------------------------------------ | ------- | - | ---- | - | ------- | -
|                                |  | Six Months EndedJune 30,                         |        
|                                |  | 2004                                             |         |   | 2003 |  
|                                |  | (Expressed in thousands ofUnited States Dollars) |        
|North America                   |  | $                                                | 466,717 |   |      | $ | 321,184 |  
|Europe                          |  |                                                  | 156,468 |   |      |   | 275,129 |  
|Reinsurance CededNorth America |  |                                                  | (65,397 | ) |      |   | (25,733 | )
|Reinsurance CededEurope        |  |                                                  | (24,956 | ) |      |   | (45,306 | )
|                                |  |                                                  |         |   |      |   |         |  
|                                |  | $                                                | 532,832 |   |      | $ | 525,274 |  
|                                |  |                                                  |         |   |      |   |         |  



Three customers
accounted for 24.4%, 18.1% and 7.0%, respectively, of the Companys gross premiums written during the six months ended June 30, 2004. Three customers accounted for 24.5%, 23.2% and 19.3%, respectively, of the Companys gross premiums
written during the six months ended June 30, 2003.



5. EQUITY CAPITAL



Max Re Capitals Board of Directors declared a
dividend of $0.03 per share on each of January 30, 2004 and April 30, 2004, payable to shareholders of record on February 13, 2004 and May 14, 2004, respectively.



The Company did not repurchase any common shares during the six months ended June 30, 2004. As of June 30, 2004, the
remaining authorization under the Companys share repurchase program was approximately $23.2 million.



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##### Table of Contents

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



6. RELATED PARTIES



Grand Central Re Limited



The accompanying consolidated balance sheets and statements of income and comprehensive income include, or are net of, the following amounts related to a
variable quota share retrocession agreement and an aggregate stop loss agreement with Grand Central Re Limited (Grand Central Re), a Bermuda domiciled reinsurance company in which Max Re has a 7.5% equity investment. Although the
variable quota share agreement with Grand Central Re remains in force, the parties have agreed that Max Re will not cede any new business to Grand Central Re for the 2004 year.



|                                        |  |                                                  |         |      |   |        
|--------------------------------------- |  | ------------------------------------------------ | ------- | ---- | - | -------
|                                        |  | June 30,                                        
|                                        |  | 2004                                             |         | 2003
|                                        |  | (Expressed in thousandsof United States Dollars)
|Losses recoverable from reinsurers      |  | $                                                | 185,423 |      | $ | 128,736
|Prepaid reinsurance premiums            |  |                                                  | 19,606  |      |   | 39,120 
|Deposit liabilities                     |  |                                                  | 42,995  |      |   | 47,824 
|Funds withheld from reinsurers          |  |                                                  | 195,238 |      |   | 123,732
|Reinsurance balances payable            |  |                                                  | 8,636   |      |   | 25,684 
|Reinsurance premiums ceded              |  |                                                  | 18,036  |      |   | 45,619 
|Earned premiums ceded                   |  |                                                  | 16,026  |      |   | 26,501 
|Other income                            |  |                                                  | 2,354   |      |   | 2,112  
|Losses, benefits and experience refunds |  |                                                  | 22,505  |      |   | 28,752 
|Interest expense                        |  |                                                  | 651     |      |   | 4,933  



The variable quota
share retrocession agreement with Grand Central Re is written on a funds withheld basis. The rate of return on funds withheld is based on the average of two total return interest rate indices. The interest expense recognized by the Company will
fluctuate from period to period due to changes in the indices. The Company records the change due to these changes in interest expense through the statement of income and comprehensive income on a quarterly basis, in effect marking to market the
funds withheld balance.



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



Alternative Investment Managers



Moore Capital Management, LLC, which is affiliated with certain shareholders
and a director of Max Re Capital, served as fund of funds advisor for Max Re Diversified until April 1, 2004, when such management obligations were assigned, with the consent of the Company, to its subsidiary Alstra Capital Management, LLC (Moore
Capital Management, LLC together with Alstra Capital Management, LLC and its other affiliates hereinafter referred to as Moore Capital).



For the six months ended June 30, 2004 and 2003, Moore Capital earned aggregate management and incentive fees of $1,327 and $2,375, respectively, in
respect of Max Re Diversifieds assets invested in underlying funds managed by Moore Capital. In addition, as the fund of funds advisor for Max Re Diversified, Moore Capital earned $2,903 and $2,182 in fees for the six months ended June 30,
2004 and 2003, respectively.



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



7. COMMITMENTS



Letter of Credit Facilities



The Company has three letter of credit facilities as of June 30, 2004. The Companys primary letter of credit facility provides $300.0 million of
capacity and is with a syndicate of commercial banks, one of which is affiliated with a director of Max Re Capital. In accordance with the facility agreement, the syndicate will issue letters of credit that may total up to $270.0 million secured by
fixed maturities and up to $30.0 million secured by alternative investments. The Company believes that the terms of this letter of credit facility are comparable to the terms that the Company would expect to negotiate with an unrelated party. At
June 30, 2004 and December 31, 2003, letters of credit totaling $196.0 million and $249.9 million, respectively, were issued and outstanding under this



8



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facility. Fixed maturities and cash equivalents with a fair value of $187.7 million and Max Re Diversified shares with a fair value of $77.4 million at June
30, 2004 were pledged as collateral for these letters of credit.



The Company also has a $50.0 million letter of credit facility with the New York branch of Bayerische Hypo- und Vereinsbank AG (HVB), a shareholder of the Company. HVB is the majority shareholder of Grand Central Re, which is
managed by Max Re Managers and in which the Company has 7.5% equity interest. The Company believes that the terms of this letter of credit facility are comparable to the terms that the Company would expect to negotiate at arms length with an
unrelated party. At June 30, 2004 and December 31, 2003, letters of credit totaling $ 6.1 million and $21.1 million, respectively, were issued by HVB under this facility. All letters of credit issued under this facility are collateralized by a
portion of the Companys invested assets. Fixed maturities and cash equivalents with a fair value of $21.2 million and Max Re Diversified shares with a fair value of $84.4 million at June 30, 2004 were pledged as collateral for these letters of
credit.



The Company also has a $1.0 million letter of credit
facility with Fleet National Bank. At June 30, 2004, letters of credit totaling $0.6 million were issued under this facility. All letters of credit issued under this facility are collateralized by a portion of the Companys invested assets.
Fixed maturities and cash equivalents with a fair value of $15.3 million at June 30, 2004 were pledged as collateral for these letters of credit.



Each of the letter of credit facilities requires that the Company and/or certain of its subsidiaries comply with certain covenants, including maintaining
a minimum consolidated tangible net worth, and places restrictions on the payment of dividends. The Company was in compliance with all the covenants of each of its letter of credit facilities at June 30, 2004.



8. STOCK-BASED COMPENSATION



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



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



|                                                                                                    |  |                                                                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|--------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------- | ------ | - | ------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                    |  | Three Months Ended June 30,                                                |        |   | Six Months Ended June 30, |  
|                                                                                                    |  | 2004                                                                       |        |   | 2003                      |   |        | 2004 |  |   | 2003   |  
|                                                                                                    |  | (Expressed in thousands of United Statesdollars, except per share amounts) |       
|Net income, as reported                                                                             |  | $                                                                          | 12,644 |   |                           | $ | 30,849 |      |  | $ | 55,633 |   |  | $ | 45,412 |  
|Add: Stock-based employee compensation expense included in reported net income                      |  |                                                                            | 143    |   |                           |   | 94     |      |  |   | 272    |   |  |   | 127    |  
|Deduct: Stock-based employee compensation expense determined under fair-value method for all awards |  |                                                                            | (740   | ) |                           |   | (574   | )    |  |   | (1,470 | ) |  |   | (1,113 | )
|                                                                                                    |  |                                                                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Pro forma net income                                                                                |  | $                                                                          | 12,047 |   |                           | $ | 30,369 |      |  | $ | 54,435 |   |  | $ | 44,426 |  
|                                                                                                    |  |                                                                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Earnings per share, as reported                                                                     |  |                                                                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                                                               |  | $                                                                          | 0.28   |   |                           | $ | 0.81   |      |  | $ | 1.22   |   |  | $ | 1.19   |  
|Diluted                                                                                             |  |                                                                            | 0.26   |   |                           |   | 0.81   |      |  |   | 1.13   |   |  |   | 1.19   |  
|Earnings per share, pro forma                                                                       |  |                                                                            |        |   |                           |   |        |      |  |   |        |   |  |   |        |  
|Basic                                                                                               |  | $                                                                          | 0.26   |   |                           | $ | 0.80   |      |  | $ | 1.19   |   |  | $ | 1.17   |  
|Diluted                                                                                             |  |                                                                            | 0.25   |   |                           |   | 0.79   |      |  |   | 1.11   |   |  |   | 1.16   |  



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|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 Re Capital and its consolidated subsidiaries.



The following is a discussion and analysis of our results of operations for the three and six month periods ended June 30, 2004 compared to the three and
six month periods ended June 30, 2003 and our financial condition as of June 30, 2004. 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, 2003.



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. 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 it. These forward-looking statements are subject to risks, uncertainties and assumptions. Factors that could cause such forward-looking statements not to be realized (which are described in more detail included or incorporated by reference herein
and in documents filed by us with the Securities and Exchange Commission) include, without limitation, acceptance in the market of our products, general economic conditions and conditions specific to the reinsurance and insurance markets in which we
operate, pricing competition, the amount of underwriting capacity from time to time in the market, material fluctuations in interest rate levels, tax and regulatory changes and conditions, rating agency policies and practices, claims development and
loss of key executives. Other factors such as changes in U.S. and global financial and equity markets resulting from general economic conditions, market disruptions and significant interest rate fluctuations may adversely impact our investment 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 publicly or revise 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 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 paragraph.



Overview



We are a Bermuda-based provider of reinsurance and insurance products for both the property and casualty and the life and
annuity markets. In the past two years, the property and casualty market has presented more opportunities to us than the life and annuity market due to a shortage of reinsurance capacity in the property and casualty market, resulting in improvement
in premium rates, terms and conditions. However, we are beginning to notice premium rates, terms and conditions leveling off as competition has increased in most property and casualty lines of business. With respect to the types of life and annuity
contracts we offer, a weak global economy and corrections in the global capital markets over the last several years continues to result in a pricing gap between buyers and sellers. Notwithstanding the increased property and casualty competition, we
anticipate continuing greater demand for our property and casualty products than for our life and annuity products during 2004.



To manage reinsurance and insurance liability exposure, make investment decisions and assess overall enterprise risk, we model our underwriting and
investing activities on an integrated basis. Our integrated risk management, as well as features of our products, provides flexibility in making decisions regarding investments. Our investments are currently comprised of a high grade fixed
maturities portfolio and an alternative investment portfolio that currently employs 12 strategies invested in approximately 50 underlying trading entities and two strategic reinsurance private equity investments, designed to provide diversification
and to generate positive returns while attempting to reduce the frequency and severity of loss outcomes. Based on fair value at June 30, 2004, the allocation of invested assets was approximately 65.5% in cash and fixed maturities and 34.5% in
alternative investments.



Our principal operating subsidiary is
Max Re. At June 30, 2004, Max Re had $808.6 million of shareholders equity. We conduct our European activities through Max Europe Holdings and its operating subsidiaries, Max Re Europe and Max Insurance Europe. We also provide reinsurance
underwriting and administrative services on a fee basis through Max Re Managers. We hold all of our alternative investments in Max Re Diversified, other than reinsurance private equity investments that are held by Max Re.



Executive Summary



We continued to develop our property and casualty traditional reinsurance and insurance opportunities during the six months
ended June 30, 2004. The strategy resulted in improved underwriting performance, which, combined with our investment performance, enabled us to increase our net income. During the six months ended June 30, 2004 of gross premiums written, we produced
a 4.5% increase in gross premiums written compared to the six months ended June 30, 2003. Although overall production of gross premiums written increased, gross premiums written in our alternative risk transfer product line decreased 28.5%,
principally due to the non-renewal of one large alternative risk transfer



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contract that accounted for $110.0 million in gross premiums written in the six months ended June 30, 2003. Gross premiums written for the traditional
reinsurance and traditional insurance product lines increased by 56.9% to $357.5 million for the six months ended June 30, 2004 compared to $227.9 million for the six months ended June 30, 2003.



We intend to continue to diversify our property and casualty underwriting
business. Our efforts to shift our underwriting focus and hire additional traditional reinsurance underwriting professionals, coupled with the introduction of insurance operations, has expanded our professional liability and general liability
underwriting capability and premium volume. Consequently, we believe our underwriting portfolio is, and will be for the foreseeable future, more diversified than in previous years.



There is a potential for increased volatility in our loss ratio arising from the increase in our traditional reinsurance and
traditional insurance business. By carefully selecting line sizes, diversifying our underlying exposures, establishing contractual caps on our contracts and purchasing reinsurance and retrocessional reinsurance protection we believe we are able to
manage this risk satisfactorily.



The increased premium volume
in traditional reinsurance and traditional insurance has resulted in improved underwriting performance in the first six months of 2004. Our traditional reinsurance and traditional insurance products have generated lower combined ratios than our
alternative risk transfer products. Consequently, our property and casualty combined ratio (total losses and expenses as a percentage of net premiums earned) has improved to 95.8% in the six months ended June 30, 2004, compared to 101.8% in the six
months ended June 30, 2003.



Losses, benefits and experience
refunds represent our largest expense and account for more than 55.6% of total liabilities at June 30, 2004. We establish loss expenses and reserves using a combination of loss reserving techniques and actuarial methods. Loss expenses and reserves
are reviewed regularly to reflect new information that we receive. There were no significant adjustments to reserves relating to prior periods during the six months ended June 30, 2004 resulting from our regular quarterly internal review of
reserves. In addition, the adequacy of our reserves is reviewed annually, in the fourth quarter of the year, by outside actuaries to support managements estimates.



Our investments during the six months ended June 30, 2004 produced a total return of 1.68% compared to 5.43% for the six
months ended June 30, 2003. The cash and fixed maturities portfolio produced a total return of 0.29% during the six months ended June 30, 2004 compared to 3.48% for the six months ended June 30, 2003. This return reflects the portfolios
exposure to interest rate risk during the six months ended June 30, 2004, which significantly impacted the total return on fixed maturities during the period. During the six months ended June 30, 2004 our alternative investments generated a 4.17%
rate of return compared to a 9.12% rate of return for the same period in 2003. The return on the alternative investments is in line with managements planned annual return of 8.0%, but below recent experience. We currently invest in 12
strategies within our alternative investment portfolio.



We
continually assess our liquidity needs by monitoring new business prospects and the development of our existing operations. During the six months ended June 30, 2004, we generated $328.8 million of cash from operations and invested $261.1 million in
fixed maturities and alternative investments. We expect to continue to generate operating cash during the remainder of 2004 through new business and investment returns, which will be partially offset by paid losses on existing reinsurance and
insurance obligations, as well as operating expenses.



Drivers of
Profitability



Revenues



We derive revenues principally from two sources: premiums from reinsurance
and insurance business and income from our investment portfolio.



Reinsurance and insurance premiums are a function of the amount and type of contracts written as well as prevailing market prices. Premiums are earned over the coverage period of the underlying contracts. Each of our reinsurance contracts
contains unique pricing, terms and conditions and expected profit margins. Therefore, the amount of premiums is not necessarily an accurate indicator of our anticipated profitability.



Our net investment income is a function of the average invested assets and the average yield that we earn on those invested
assets. The investment yield on our fixed maturities investments is a function of market interest rates as well as the credit quality and maturity of our fixed maturities portfolio. We recognize the realized capital gains or losses on our fixed
maturities investments at the time of sale. The realized capital gains or losses reflect the results of changing market conditions, including, but not limited to, changes in market interest rates and changes in the markets perception of the
credit quality of our fixed maturities holdings. Our net gains on alternative investments is a function of the success of the funds in which we are invested, which depends on, among other things, the underlying strategies of the funds, the ability
of the fund managers to execute the fund strategies, general economic and investment market conditions and the underlying operating results of our private equity reinsurance investments.



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Expenses



Our principal expenses are losses, benefits and experience refunds, acquisition costs, interest expense and general and administrative expenses. Losses,
benefits and experience refunds are based on the amount and type of reinsurance and insurance contracts written by us during the current reporting period and information received during the current reporting period from ceding clients pertaining to
contracts written in prior years. We record losses, benefits and experience refunds based on an actuarial estimate of the expected losses, benefits and experience refunds to be incurred on each contract written. The ultimate losses, benefits and
experience refunds depend on the actual costs to settle these liabilities. We increase or decrease losses, benefits and experience refunds estimates as actual claim reports are received. Our ability to estimate losses, benefits and experience
refunds accurately at the time of pricing our contracts is a critical factor in determining profitability.



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



Interest expense principally reflects the net interest charge on funds withheld from reinsurers under reinsurance and
retrocessional contracts. Interest is recorded on the funds withheld balances based on various contractual and negotiated rates. The interest expense attributable to the variable quota share retrocession agreement with Grand Central Re is based on
the average of two total return interest rate indices. A charge or credit may be recorded in interest expense on this contract in any given period. As a result, interest expense is expected to vary from period to period with a corresponding entry to
funds withheld. Interest expense on the remaining balance of funds withheld from other reinsurers under reinsurance and retrocessional contracts will vary due only to changes in the balance of funds withheld. In addition, interest expense also
includes interest on the bank loan at a rate based on LIBOR plus a spread.



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



Critical Accounting Policies



Our consolidated financial statements are prepared in accordance with GAAP,
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 three and
six months ended June 30, 2004. We believe that the critical accounting policies set forth in our Form 10-K, filed on February 27, 2004, 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 loss adjustment 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.



Results of OperationsThree months ended June 30, 2004 compared to the three months ended June 30, 2003



Gross premiums written. Gross premiums written for the three months
ended June 30, 2004 were $183.7 million compared to $165.8 million for the three months ended June 30, 2003, an increase of 10.8%. Gross premiums written for property and casualty were $181.4 million for the three months ended June 30, 2004 compared
to $165.8 million for the three months ended June 30, 2003, an increase of 9.4%. Gross premiums written for property and casualty increased principally due to increased production of alternative risk transfer reinsurance and traditional insurance
business. Gross premiums written for life and annuity were $2.2 million for the three months ended June 30, 2004 compared to $Nil for the three months ended June 30, 2003. Gross premiums written for life and annuity increased due to the recognition
of ongoing premium on an existing book of life business already reinsured by the Company.



Reinsurance premiums ceded. Premiums ceded for the three months ended June 30, 2004 were $47.6 million compared to $39.2 million for the three months ended June 30, 2003, an increase of 21.4%. Reinsurance
premiums ceded during the three months ended June 30, 2004 were principally related to our quota-share reinsurance of our traditional insurance business. In addition, we purchased specific reinsurance and retrocessional reinsurance to manage the
risks on a line of business basis and to manage the exposure retained by us on a transaction basis. As we increase our traditional reinsurance and traditional insurance business, we intend to continue to purchase additional reinsurance and
retrocessional reinsurance coverage consistent with our risk management objectives.



Net premiums earned. Net premiums earned were $171.8 million, after the deduction of $34.7 million of earned premiums ceded, for the three months ended June 30, 2004 compared to $143.3 million, after the
deduction of $18.1 million of earned premiums ceded, for the three months ended June 30, 2003, an increase of 19.9%. Net premiums earned for property and casualty were $170.0 million, after the deduction of $34.3 million of earned premiums ceded,
for the three months ended June 30, 2004 compared to $143.3 million, after the deduction of $18.1 million of earned premiums ceded, for the three months ended June 30, 2003, an increase of 18.6%. The increase reflects the earning of increased gross
premiums written over the past eighteen months. Net premiums earned for life and annuity were $1.8 million, after the deduction of $0.4 million of earned premium ceded, for the three months ended June 30,



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2004 compared with $Nil for the three months ended June 30, 2003. The life and annuity business written in the three months ended June 30, 2004 was fully
earned in that period.



Net investment income. Net
investment income was $19.7 million for the three months ended June 30, 2004 compared to $15.1 million for the three months ended June 30, 2003, an increase of 30.5%. The increase was principally attributable to the increase in the amount of cash
and fixed maturities investments held from $1,496.3 million at June 30, 2003 to $1,925.4 million at June 30, 2004, resulting principally from cash received from the collection of premiums written since June 30, 2003. The average annualized
investment yield on cash and fixed maturities investments for the three months ended June 30, 2004 was 4.18% compared to an average yield of 4.12% for the three months ended June 30, 2003.



Net gains on alternative investments. Net gains on the alternative
investment portfolio were $1.0 million, including $2.4 million from our private equity reinsurance investments, for the three months ended June 30, 2004 compared to $45.2 million, including $3.1 million from the our private equity reinsurance
investments, for the three months ended June 30, 2003, a decrease of 97.8%. The decrease was attributable to a 0.10% return on alternative investments for the three months ended June 30, 2004 compared to a 5.84% return for the three months ended
June 30, 2003, reflecting the difficult market conditions for alternative investments during the current quarter.



Losses, benefits and experience refunds. Losses, benefits and experience refunds were $135.3 million for the three months ended June 30, 2004
compared to $114.4 million for the three months ended June 30, 2003, an increase of 18.3%. Property and casualty losses were $126.2 million for the three months ended June 30, 2004 compared to $104.3 million for the three months ended June 30, 2003.
The increase in property and casualty losses was related to the increase in property and casualty premiums earned during the three months ended June 30, 2004 compared to the same period in 2003. The loss ratio for property and casualty business for
the three months ended June 30, 2004 was 74.2% compared to 72.7% for the three months ended June 30, 2003. The increase in loss ratio principally reflects the reduction in aviation premiums earned and increased casualty premiums earned during the
three months ended June 30, 2004 compared to the three months ended June 30, 2003. Loss and loss adjustment expenses incurred for the aviation premium earned are lower than the loss costs for the casualty premiums.



Life and annuity benefits were $9.1 million for the three months ended June
30, 2004, which principally related to the accretion of liability for future benefits on contracts written in prior years, compared to $10.1 million for the three months ended June 30, 2003.



There were no significant adjustments to prior year reserves during the three
months ended June 30, 2004.



Acquisition costs.
Acquisition costs were $29.2 million for the three months ended June 30, 2004 compared to $35.7 million for the three months ended June 30, 2003, a decrease of 18.2%. The decrease in acquisition costs results from a change in property and casualty
product mix away from alternative risk products, which typically have higher acquisition costs. Additionally, our increased use of the reinsurance market on the traditional reinsurance and traditional insurance contracts has enabled us to recover
acquisition costs associated with those contracts from reinsurers and retrocessionaires.



Interest expense. Interest expense was $0.1 million for the three months ended June 30, 2004 compared to $9.0 million for the three months ended June 30, 2003, a decrease of 98.9%. The decrease resulted
principally from interest income recorded on funds withheld due to Grand Central Re in the amount of $4.2 million for the three months ended June 30, 2004 as compared to interest expense recorded in the amount of $3.6 million for the three months
ended June 30, 2003.



General and administrative
expenses. General and administrative expenses were $13.9 million for the three months ended June 30, 2004 compared to $10.8 million for the three months ended June 30, 2003, an increase of 28.7%. The increase resulted principally from additional
personnel costs associated with our traditional insurance and reinsurance operations that were not fully established in the three months ended June 30, 2003 and professional fees related to corporate and regulatory activities.



Net income. Net income for the three months ended June 30, 2004 was
$12.6 million compared to net income of $30.8 million for the three months ended June 30, 2003, a decrease of 59.1%. The results for the three months ended June 30, 2004 are principally attributable to underwriting profits on our traditional risk
transfer reinsurance and traditional insurance products combined with a lower interest expense offset by a significantly lower rate of return on our alternative investments compared to the same period in 2003.



Six months ended June 30, 2004 compared to six months ended June 30, 2003



Gross premiums written.Gross premiums written for the six months
ended June 30, 2004 were $623.2 million compared to $596.3 million for the six months ended June 30, 2003, an increase of 4.5%. Gross premiums written for property and casualty were $620.9 million for the six months ended June 30, 2004 compared to
$596.3 million for the six months ended June 30, 2003, an increase of 4.1%. Gross premiums written for property and casualty increased principally due to increased production of traditional reinsurance and traditional insurance business offset by
the non-renewal of one large alternative reinsurance contract, which accounted for $110.0 million of premium in 2003. The non-renewal of the large alternative reinsurance contract also accounted for the decrease in gross premiums written in Europe
in the six months ended June 30, 2004. Gross premiums written for life and annuity were $2.2 million for the six months ended June 30, 2004 compared to $Nil for the six months ended June 30, 2003. Gross premiums written for



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life and annuity increased due to the recognition of ongoing premium on an existing book of life business already reinsured by the Company.



Reinsurance premiums ceded. Premiums ceded for the six months ended
June 30, 2004 were $90.4 million compared to $71.0 million for the six months ended June 30, 2003, an increase of 27.3%. Reinsurance premiums ceded during the six months ended June 30, 2004 were principally related to our quota-share reinsurance of
our traditional insurance business. In addition, we purchased specific reinsurance and retrocessional reinsurance to manage the risks on a line of business basis and to manage the exposure retained by us on a transaction basis. As we increase our
traditional reinsurance and traditional insurance business, we intend to continue to purchase, additional reinsurance and retrocessional reinsurance coverage consistent with our risk management objectives.



Net premiums earned. Net premiums earned were $370.7 million, after
the deduction of $69.1 million of earned premiums ceded, for the six months ended June 30, 2004 compared to $287.0 million, after the deduction of $32.4 million of earned premiums ceded, for the six months ended June 30, 2003, an increase of 29.2%.
Net premiums earned for property and casualty were $368.9 million, after the deduction of $68.7 million of earned premiums ceded, for the six months ended June 30, 2004 compared to $287.0 million, after the deduction of $32.4 million of earned
premiums ceded, for the six months ended June 30, 2003, an increase of 28.5%. The increase reflects the earning of increased gross premiums written over the past eighteen months. Net premiums earned for life and annuity were $1.8 million, after the
deduction of $0.4 million of earned premium ceded, for the six months ended June 30, 2004 compared with $Nil for the six months ended June 30, 2003. The life and annuity business written in the six months ended June 30, 2004 was fully earned in that
period.



Net investment income. Net investment income
was $38.5 million for the six months ended June 30, 2004 compared to $29.6 million for the six months ended June 30, 2003. The increase was principally attributable to the increase in the amount of cash and fixed maturities investments held from
$1,496.3 million at June 30, 2003 to $1,925.4 million at June 30, 2004, resulting principally from cash received from the collection of premiums written since June 30, 2003. The average annualized investment yield on cash and fixed maturities
investments for the six months ended June 30, 2004 was 4.16% compared to an average yield of 4.14% for the six months ended June 30, 2003.



Net gains on alternative investments. Net gains on the alternative investment portfolio were $39.5 million, including $4.1 million from our private
equity reinsurance investments, for the six months ended June 30, 2004 compared to $67.0 million, including $7.0 million from the our private equity reinsurance investments, for the six months ended June 30, 2003, a decrease of 41.0%. The decrease
was attributable to a lower return of 4.17% on alternative investments for the six months ended June 30, 2004 compared to a 9.12% return for the six months ended June 30, 2003 partially offset by an increase in the size of the alternative investment
portfolio resulting from approximately $198.2 million of additional investments in the alternative investment portfolio during the twelve months ended June 30, 2004. Alternative investment strategies principally contributing to the gains in the
current period were the distressed securities investing, event driven arbitrage, fixed income arbitrage, opportunistic investing and emerging markets.



Losses, benefits and experience refunds.Losses, benefits and experience refunds were $301.7 million for the six months ended June 30, 2004
compared to $228.8 million for the six months ended June 30, 2003, an increase of 31.9%. Property and casualty losses were $284.8 million for the six months ended June 30, 2004 compared to $210.9 million for the six months ended June 30, 2003. The
increase in property and casualty losses is related to the increase in property and casualty premiums earned during the six months ended June 30, 2004 compared to the same period in 2003. The loss ratio for property and casualty business for the six
months ended June 30, 2004 was 77.2% compared to 73.5% for the six months ended June 30, 2003. The increase in loss ratio principally reflects the reduction in aviation premiums earned and increased casualty premiums earned during the six months
ended June 30, 2004 compared to the six months ended June 30, 2003. Loss and loss adjustment expenses incurred for the aviation premium earned are lower than the expected loss costs for the casualty premiums earned.



Acquisition costs.Acquisition costs were $61.0 million for the six
months ended June 30, 2004 compared to $74.4 million for the six months ended June 30, 2003, a decrease of 18.0%. The decrease in acquisition costs resulted from a change in property and casualty product mix away from alternative risk products,
which typically have higher acquisition costs. Additionally, our increased use of the reinsurance market on the traditional reinsurance and traditional insurance contracts enabled us to recover acquisition costs associated with those contracts from
reinsurers and retrocessionaires.



Interest expense.
Interest expense was $11.9 million for the six months ended June 30, 2004 compared to $14.9 million for the six months ended June 30, 2003, a decrease of 20.1%. The decrease resulted principally from interest expense recorded on funds withheld due
to Grand Central Re in the amount of $0.7 million for the six months ended June 30, 2004 as compared to interest expense recorded in the amount of $4.9 million for the six months ended June 30, 2003.



General and administrative expenses.General and administrative
expenses were $24.1 million for the six months ended June 30, 2004 compared to $19.0 million for the six months ended June 30, 2003, an increase of 26.8%. The increase resulted principally from additional personnel costs associated with our
traditional insurance and reinsurance operations that were not fully established in the six months ended June 30, 2003 and professional fees related to corporate and regulatory activities. For the six months ended June 30, 2004 the ratio of general
and administrative expenses to net premiums earned was 6.5% compared to 6.6% for the six months ended June 30, 2003.



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Net income.Net income for the six months ended June 30, 2004 was $55.6 million compared to net
income of $45.4 million for the six months ended June 30, 2003, an increase of 22.5%. The results for the six months ended June 30, 2004 are principally attributable to the elimination of the minority interest, underwriting profits from our
traditional risk transfer reinsurance and traditional insurance products partially offset by a lower rate of return on our alternative investments compared to the same period in 2003.



Financial Condition



Cash and invested assets. Aggregate invested assets, comprising cash and cash equivalents, fixed maturities and
alternative investments were $2,941.7 million at June 30, 2004 compared to $2,637.3 million at December 31, 2003, an increase of 11.5%. The increase in cash and invested assets resulted principally from $328.8 million in cash flows from operations
generated in the first six months of 2004 and the appreciation of the alternative investment portfolio of $39.5 million partially offset with the depreciation of the fixed maturities portfolio of $36.5 million.



Property and casualty losses and experience refunds. Property and
casualty losses and experience refunds totaled $1,260.9 million at June 30, 2004 compared to $991.7 million at December 31, 2003, an increase of 27.1%. The increase in property and casualty losses and experience refunds was principally attributable
to increased premiums earned during the six months ended June 30, 2004, partially offset by losses paid.



Life and annuity benefits and experience refunds. Life and annuity benefits and experience refunds totaled $464.5 million at June 30, 2004 compared
to $480.1 million at December 31, 2003. The decrease in the six months ended June 30, 2004 was principally attributable to benefit payments on existing contracts in force.



Losses recoverable from reinsurers. Losses recoverable from reinsurers totaled $330.2 million at June 30, 2004
compared to $273.7 million at December 31, 2003, an increase of 20.6%, principally reflecting losses ceded under our reinsurance and retrocessional agreements. At June 30, 2004, two retrocessionaires account for 56.2% and 25.4% of our losses
recoverable from reinsurers, respectively. The retrocessionaires have a financial strength rating of A- and A, respectively, by A.M. Best Company. We retain funds from these two retrocessionaires to secure principally all of
their obligations.



Bank loans. In February 2003, Max Re
completed a $150.0 million sale of shares of Max Re Diversified to a third party financial institution. Simultaneous with the sale, Max Re entered into a total return swap with the purchaser of these shares whereby Max Re received the return earned
on the Max Re Diversified shares in exchange for a variable rate of interest based on LIBOR plus a spread. Max Re Diversified shares owned by Max Re with a fair value of $89.9 million at June 30, 2004 were pledged as collateral to which the Company
is exposed to credit risk. Under U.S. GAAP, these transactions are viewed on a combined basis and are accounted for as a financing transaction, which results in the recording of a $150.0 million bank loan.



Shareholders equity. Our shareholders equity increased to
$826.1 million at June 30, 2004 from $805.2 million at December 31, 2003, an increase of 2.6%, principally reflecting income of $55.6 million for the six months ended June 30, 2004, partially offset by unrealized holding losses on fixed maturities
arising during the period of $36.5 million and dividends paid in the amount of $2.7 million.



Liquidity and capital resources. We generated $328.8 million from operations during the six months ended June 30, 2004 compared to $177.9 million for the six months ended June 30, 2003, an increase of 84.8%,
principally reflecting the expansion of our traditional reinsurance and traditional insurance operations which generated increased gross premiums written during the period. We used $26.4 million for financing activities principally for the payment
of deposit liabilities relating to one large contract. The net cash generated from operating and financing activities was applied to our investing activities through the net purchase of $115.5 million in fixed maturities and $145.6 million in
alternative investments.



As a holding company, Max Re
Capitals principal assets are its investments in the common shares of its principal subsidiary, Max Re, and its other subsidiaries. Max Re Capitals principal source of funds is from interest income on cash balances and cash dividends
from its subsidiaries, including Max Re. The payment of dividends is limited under Bermuda insurance laws. In particular, Max Re may not declare or pay any dividends if it is in breach of its minimum solvency or liquidity levels under Bermuda law or
if the declaration or payment of the dividends would cause it to fail to meet the minimum solvency or liquidity levels under Bermuda law. At June 30, 2004, Max Re, which is required to have $265.8 million in statutory capital and surplus in order to
pay dividends, had $689.7 million in statutory capital and surplus.



Capital resources. At June 30, 2004, our capital structure consisted of equity. Total capitalization after deducting loans to employees and including retained earnings and accumulated other comprehensive income (loss) amounted to
$826.1 million as compared to $805.2 million at December 31, 2003, an increase of 2.6%. We have flexibility with respect to capitalization as a result of our access to the debt and equity markets and evaluate various capital alternatives from time
to time. We regularly review our capital adequacy and believe our current level of capital is sufficient to support our current reinsurance and insurance operations.



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. We have three letter of credit facilities as of June 30, 2004 providing $351.0 million of aggregate letter of credit capacity. Each of our letter of credit facilities requires
that we comply with certain



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covenants, including a minimum consolidated tangible net worth and restrictions on the payment of dividends. We were in compliance with all the covenants of
each of its letter of credit facilities at June 30, 2004. Additional information regarding our letter of credit facilities is set forth in note 7 of the interim consolidated financial statements.



On each of January 30, 2004, April 30, 2004 and July 30, 2004, Max Re
Capitals Board of Directors declared a shareholder dividend of $0.03 per share payable to shareholders of record on February 13, 2004, May 14, 2004 and August 13, 2004, 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.



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



No
off-balance sheet arrangements. 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,
which 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 (thousands of dollars)
|Contractual Obligations                                                         |  | Total                                        |         | Less than1 year |   | 1-3years |  | 3-5years |       | More than5 years
|Long-term debt obligations                                                      |  | $                                            | 150,000 |                 | $ | 150,000  |  | $        |      |                  | $ |      |  | $ |     
|Capital lease obligations                                                       |  |                                              |        |                 |   |         |  |          |      |                  |   |      |  |   |     
|Operating lease obligations                                                     |  |                                              | 10,156  |                 |   | 1,113    |  |          | 2,226 |                  |   | 2,435 |  |   | 4,382
|Purchase obligations                                                            |  |                                              |        |                 |   |         |  |          |      |                  |   |      |  |   |     
|Other long-term liabilities reflected on the Companys balance sheet under GAAP |  |                                              |        |                 |   |         |  |          |      |                  |   |      |  |   |     
|                                                                                |  |                                              |         |                 |   |          |  |          |       |                  |   |       |  |   |      
|Total                                                                           |  | $                                            | 160,156 |                 | $ | 151,113  |  | $        | 2,226 |                  | $ | 2,435 |  | $ | 4,382
|                                                                                |  |                                              |         |                 |   |          |  |          |       |                  |   |       |  |   |      



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



We engage in an investment strategy that combines a fixed maturities investment portfolio and an alternative investment 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 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 high credit quality issuers and to limit 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 June 30, 2004, we did not hold any high-yield investments in our fixed
maturities investment portfolio. Our current policy is not to hold securities rated lower than BBB-/BAA- in our fixed maturities investment portfolio. At June 30, 2004, 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 market value of 3.7%, or approximately $71.2 million, and the impact on the fixed maturities investment portfolio from an immediate 100 basis point
decrease in market interest rates would have resulted in an estimated increase in market value of 4.0%, or approximately $77.0 million.



With respect to our alternative investment portfolio, although our fund of funds advisor is contractually obligated to abide by our investment guidelines,
we do not directly control the allocation of our assets to strategies or underlying funds, nor do we control the manner in which they are invested by the our fund managers. However, we consistently and systematically monitor the strategies and funds
in which we are invested, and we believe our overall risk is limited as a result of our selected strategies low volatility and



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low correlation to the bond market, the stock market and each other. At June 30, 2004, the estimated impact on the alternative investment portfolio from an
immediate 100 basis point increase in market interest rates would have resulted in an estimated decrease in market value of 1.9%, or approximately $19.3 million, and the impact on the alternative investment portfolio from an immediate 100 basis
point decrease in market interest rates would have resulted in an estimated increase in market value of 1.9%, or approximately $19.3 million.



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



Disclosure Controls and Internal Controls. Our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act
of 1934, 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, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms. Disclosure controls are also designed with the objective of ensuring
that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Internal control over financial
reporting, which we refer to as internal controls, is a process designed by, or under the supervision of, the Chief Executive Officer and Chief Financial Officer, and effected by the board of directors, management and our employees, with the
objective of providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal controls also
include policies and procedures that:



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



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



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



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



Quarterly evaluation of the Companys Disclosure Controls. As of June 30, 2004, an evaluation was carried out under the supervision and with
the participation of our companys management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of disclosure controls. Based upon that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded, subject to the limitations noted above, that the design and operation of these disclosure controls were effective to ensure that material information relating to our company is made known to management,
including the Chief Executive Officer and Chief Financial Officer, particularly during the period when our periodic reports are being prepared.



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PART II OTHER INFORMATION



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



At June 30, 2004, we were not a party to any material litigation or arbitration We anticipate that we will be subject to litigation and arbitration from
time to time in the ordinary course of business.



|ITEM 2. | Changes in Securities, Use of Proceeds and Issuer Purchase of Equity Securities
|------- | -------------------------------------------------------------------------------



Not applicable.



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



Not applicable.



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



Annual General Meeting of Shareholders. Max Re Capital held its Annual General Meeting of Shareholders on April 29,2004. For more information on
the following proposals, see Max Re Capitals proxy statement dated March 24, 2004.



(1) The shareholders elected four Class 1 directors of Max Re Capital to serve until Max Re Capitals annual general meeting of shareholders in 2007:



|                   |  |            |  |         |  |        
|------------------ |  | ---------- |  | ------- |  | -------
|Director           |  | For        |  | Against |  | Abstain
|John R. Barber     |  | 34,252,197 |  | 107,342 |  | 13,680 
|W. Marston Becker  |  | 34,248,955 |  | 110,121 |  | 14,143 
|Robert J. Cooney   |  | 34,251,271 |  | 108,639 |  | 13,310 
|Mario P. Torsiello |  | 34,292,126 |  | 66,950  |  | 14,143 



The terms of Directors
Zack H. Bacon III, Laurence W. Cheng, William H. Heyman, Willis T. King, Jr., John L. Marion, Steven M. Skala and James L. Zech continued after the meeting.



(2) The shareholders ratified the appointment of KPMG, Hamilton, Bermuda, as the Companys independent auditors for 2004:



|        |  |           
|------- |  | ----------
|For     |  | 34,293,238
|Against |  | 67,289    
|Abstain |  | 12,692    



(3) The shareholders authorized the
election of four Class 1 directors of Max Re to serve until Max Res annual general meeting of shareholders in 2007:



|                   |  |            |  |         |  |        
|------------------ |  | ---------- |  | ------- |  | -------
|Director           |  | For        |  | Against |  | Abstain
|John R. Barber     |  | 34,251,857 |  | 106,971 |  | 14,390 
|W. Marston Becker  |  | 34,348,461 |  | 110,368 |  | 14,390 
|Robert J. Cooney   |  | 34,250,653 |  | 108,886 |  | 13,680 
|Mario P. Torsiello |  | 34,291,632 |  | 67,197  |  | 14,390 



The terms of Directors
Zack H. Bacon III, Laurence W. Cheng, William H. Heyman, Willis T. King, Jr., John L. Marion, Steven M. Skala and James L. Zech continued after the meeting.



(2) The shareholders authorized the ratification of the appointment of KPMG, Hamilton, Bermuda, as the Max Res independent auditors for 2004:



|        |  |           
|------- |  | ----------
|For     |  | 34,347,465
|Against |  | 12,692    
|Abstain |  | 13,063    



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



Not applicable.



|ITEM 6. | Exhibits and Reports on Form 8-K
|------- | --------------------------------



(a) Exhibits



|        |  |                                                                                                                                                                                                                                                
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                    
|        | 
|10.1    |  | Employment Agreement, dated as of July 30, 2004, between Robert J. Cooney and Max Re Capital                                                                                                                                                   
|        | 
|31.1    |  | Certification of the Chief Executive Officer filed herewith pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                         
|        | 
|31.2    |  | Certification of the Chief Financial Officer filed herewith pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                         
|        | 
|32.1    |  | Certification of the Chief Executive Officer furnished herewith pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                     
|        | 
|32.2    |  | Certification of the Chief Financial Officer furnished herewith pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                     
|        | 
|99.1    |  | Factors Affecting Future Financial Results (incorporated by reference to Exhibit 99.1 of the Companys Annual Report on Form 10-K for the year ended December 31, 2003 filed with the
Securities and Exchange Commission on February 27, 2004).
|        | 
|99.2    |  | Charter of the Executive Committee of the Board of Directors, adopted April 30, 2004.                                                                                                                                                          
|        | 
|99.3    |  | Charter of the Finance and Investment Committee of the Board of Directors, adopted July 30, 2004.                                                                                                                                              



(b) Reports on Form
8-K



On May 4, 2004, Max Re Capital filed a Current Report on
Form 8-K reporting its earnings for its first quarter ended March 31, 2004, the declaration on April 30, 2004 of a dividend payable to shareholders of record on May 14, 2004 and its announcement of the election of a new director.



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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 RE CAPITAL LTD./s/ ROBERT J. COONEYName: Robert J. Cooney Title: President and Chief Executive Officer




Date: August 3, 2004



/s/ KEITH S. HYNESName: Keith S. Hynes Title: Executive Vice President andChief Financial Officer




Date: August 3, 2004



S-1