##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



---



FORM 10-Q



(Mark One)

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



For the quarterly period ended September 30, 2003



OR



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



For the transition period from
 to



Commission file number 000-33047



---



MAX RE CAPITAL LTD.

(Exact name of registrant as specified in its charter)



|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 October 15, 2003 was 45,181,611.



---



---

##### Table of Contents

MAX RE CAPITAL LTD.



INDEX



|                             |  |                                                                                                                                       
|---------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------
|                             |  |                                                                                                                                       
|PART IFINANCIAL INFORMATION |  |                                                                                                                                       
|                             |  |                                                                                                                                       
|ITEM 1.                      |  | Financial Statements                                                                                                                  
|                             |  |                                                                                                                                       
|                             |  | Consolidated Balance Sheets as of September 30, 2003 (unaudited) and December 31, 2002                                                
|                             |  |                                                                                                                                       
|                             |  | Consolidated Statements of Income and Comprehensive Income for the Three and Nine Months Ended September 30, 2003 and 2002 (unaudited)
|                             |  |                                                                                                                                       
|                             |  | Consolidated Statements of Changes in Shareholders Equity for the Nine Months Ended September 30, 2003 and 2002 (unaudited)          
|                             |  |                                                                                                                                       
|                             |  | Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002 (unaudited)                               
|                             |  |                                                                                                                                       
|                             |  | Notes to the Interim Consolidated Financial Statements (unaudited)                                                                    
|                             |  |                                                                                                                                       
|ITEM 2.                      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                 
|                             |  |                                                                                                                                       
|ITEM 3.                      |  | Quantitative and Qualitative Disclosure About Market Risk                                                                             
|                             |  |                                                                                                                                       
|ITEM 4.                      |  | Controls and Procedures                                                                                                               
|                             | 
|PART II
OTHER INFORMATION   |  | 17                                                                                                                                    
|                             |  |                                                                                                                                       
|ITEM 1.                      |  | Legal Proceedings                                                                                                                     
|                             |  |                                                                                                                                       
|ITEM 2.                      |  | Changes in Securities                                                                                                                 
|                             |  |                                                                                                                                       
|ITEM 3.                      |  | Defaults Upon Senior Securities                                                                                                       
|                             |  |                                                                                                                                       
|ITEM 4.                      |  | Submission of Matters to a Vote of Security Holders                                                                                   
|                             |  |                                                                                                                                       
|ITEM 5.                      |  | Other Information                                                                                                                     
|                             |  |                                                                                                                                       
|ITEM 6.                      |  | Exhibits and Reports on Form 8-K                                                                                                      
|                             | 
|SIGNATURES                   |  | S-1                                                                                                                                   



---

##### 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)



|                                                                                                         |  | September 30, 2003 |           |   | December 31, 2002 |  
|-------------------------------------------------------------------------------------------------------- |  | ------------------ | --------- | - | ----------------- | -
|                                                                                                         |  | (Unaudited)        |           |   |                   |  
|ASSETS                                                                                                   |  |                    |           |   |                   |  
|Cash and cash equivalents                                                                                |  | $                  | 141,703   |   |                   | $
|Fixed maturities, available for sale at fair value                                                       |  |                    | 1,507,280 |   |                   |  
|Alternative investments, at fair value                                                                   |  |                    | 848,550   |   |                   |  
|Accrued interest income                                                                                  |  |                    | 14,163    |   |                   |  
|Premiums receivable                                                                                      |  |                    | 343,311   |   |                   |  
|Losses recoverable from reinsurers                                                                       |  |                    | 235,678   |   |                   |  
|Funds withheld                                                                                           |  |                    | 61,017    |   |                   |  
|Deferred acquisition costs                                                                               |  |                    | 109,764   |   |                   |  
|Deferred charges                                                                                         |  |                    | 9,152     |   |                   |  
|Prepaid reinsurance premiums                                                                             |  |                    | 65,280    |   |                   |  
|Other assets                                                                                             |  |                    | 18,556    |   |                   |  
|                                                                                                         |  |                    |           |   |                   |  
|Total assets                                                                                             |  | $                  | 3,354,454 |   |                   | $
|                                                                                                         |  |                    |           |   |                   |  
|LIABILITIES                                                                                              |  |                    |           |   |                   |  
|Property and casualty losses and experience refunds                                                      |  | $                  | 927,897   |   |                   | $
|Life and annuity benefits and experience refunds                                                         |  |                    | 383,386   |   |                   |  
|Reinsurance balances payable                                                                             |  |                    | 262,540   |   |                   |  
|Deposit liabilities                                                                                      |  |                    | 261,154   |   |                   |  
|Unearned property and casualty premiums                                                                  |  |                    | 557,668   |   |                   |  
|Accounts payable and accrued expenses                                                                    |  |                    | 22,770    |   |                   |  
|Bank loan                                                                                                |  |                    | 150,000   |   |                   |  
|                                                                                                         |  |                    |           |   |                   |  
|Total liabilities                                                                                        |  |                    | 2,565,415 |   |                   |  
|                                                                                                         |  |                    |           |   |                   |  
|Minority interest                                                                                        |  |                    |          |   |                   |  
|                                                                                                         |  |                    |           |   |                   |  
|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 45,181,611 shares issued and outstanding (2002  37,998,779) |  |                    | 45,182    |   |                   |  
|Additional paid-in capital                                                                               |  |                    | 637,597   |   |                   |  
|Loans receivable from common share sales                                                                 |  |                    | (11,965   | ) |                   |  
|Unearned stock grant compensation                                                                        |  |                    | (4,643    | ) |                   |  
|Accumulated other comprehensive income                                                                   |  |                    | 45,438    |   |                   |  
|Retained earnings (deficit)                                                                              |  |                    | 77,430    |   |                   |  
|                                                                                                         |  |                    |           |   |                   |  
|Total shareholders equity                                                                               |  |                    | 789,039   |   |                   |  
|                                                                                                         |  |                    |           |   |                   |  
|Total liabilities, minority interest and shareholders equity                                            |  | $                  | 3,354,454 |   |                   | $
|                                                                                                         |  |                    |           |   |                   |  



See accompanying notes
to unaudited interim consolidated financial statements.



1



---

##### Table of Contents

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)



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



|                                                          |  | Three Months Ended September 30, |            |   | Nine Months Ended September 30, |  
|--------------------------------------------------------- |  | -------------------------------- | ---------- | - | ------------------------------- | -
|                                                          |  | 2003                             |            |   | 2002                            |  
|REVENUES                                                  |  |                                  |            |   |                                 |  
|Gross premiums written                                    |  | $                                | 188,608    |   |                                 | $
|Reinsurance premiums ceded                                |  |                                  | (31,581    | ) |                                 |  
|                                                          |  |                                  |            |   |                                 |  
|Net premiums written                                      |  | $                                | 157,027    |   |                                 | $
|                                                          |  |                                  |            |   |                                 |  
|Earned premiums                                           |  | $                                | 204,460    |   |                                 | $
|Earned premiums ceded                                     |  |                                  | (25,714    | ) |                                 |  
|                                                          |  |                                  |            |   |                                 |  
|Net premiums earned                                       |  |                                  | 178,746    |   |                                 |  
|                                                          |  |                                  |            |  
|Net investment income                                     |  |                                  | 13,899     |   |                                 |  
|Net gains on alternative investments                      |  |                                  | 28,148     |   |                                 |  
|Net realized gains on sales of fixed maturities           |  |                                  | 11,548     |   |                                 |  
|Other income                                              |  |                                  | 1,122      |   |                                 |  
|                                                          |  |                                  |            |   |                                 |  
|Total revenues                                            |  |                                  | 233,463    |   |                                 |  
|                                                          |  |                                  |            |   |                                 |  
|LOSSES AND EXPENSES                                       |  |                                  |            |   |                                 |  
|Losses, benefits and experience refunds                   |  |                                  | 139,655    |   |                                 |  
|Acquisition costs                                         |  |                                  | 36,696     |   |                                 |  
|Interest expense                                          |  |                                  | 5,382      |   |                                 |  
|General and administrative expenses                       |  |                                  | 10,896     |   |                                 |  
|                                                          |  |                                  |            |   |                                 |  
|Total losses and expenses                                 |  |                                  | 192,629    |   |                                 |  
|                                                          |  |                                  |            |   |                                 |  
|INCOME (LOSS) BEFORE MINORITY INTEREST                    |  |                                  | 40,834     |   |                                 |  
|                                                          |  |                                  |            |  
|Minority interest                                         |  |                                  | (2,083     | ) |                                 |  
|                                                          |  |                                  |            |   |                                 |  
|NET INCOME (LOSS)                                         |  |                                  | 38,751     |   |                                 |  
|                                                          |  |                                  |            |  
|Change in net unrealized appreciation of fixed maturities |  |                                  | (18,999    | ) |                                 |  
|                                                          |  |                                  |            |   |                                 |  
|COMPREHENSIVE INCOME (LOSS)                               |  | $                                | 19,752     |   |                                 | $
|                                                          |  |                                  |            |   |                                 |  
|Basic earnings (loss) per share                           |  | $                                | 0.91       |   |                                 | $
|                                                          |  |                                  |            |   |                                 |  
|Diluted earnings (loss) per share                         |  | $                                | 0.89       |   |                                 | $
|                                                          |  |                                  |            |   |                                 |  
|Weighted average shares outstandingbasic                 |  |                                  | 42,796,564 |   |                                 |  
|                                                          |  |                                  |            |   |                                 |  
|Weighted average shares outstandingdiluted               |  |                                  | 45,701,697 |   |                                 |  
|                                                          |  |                                  |            |   |                                 |  



See accompanying notes
to unaudited interim consolidated financial statements.



2



---

##### Table of Contents

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Unaudited)



(Expressed in thousands of United States Dollars)



|                                                              |  | Nine Months EndedSeptember 30, |        
|------------------------------------------------------------- |  | ------------------------------ | -------
|                                                              |  | 2003                           |        
|Preferred Shares                                              |  |                                |        
|Balance, beginning and end of period                          |  | $                              |       
|                                                              |  |                                |        
|Common shares                                                 |  |                                |        
|Balance, beginning of period                                  |  |                                | 37,999 
|Issuance of shares                                            |  |                                | 368    
|Issuance of shares on elimination of minority interest        |  |                                | 7,120  
|Repurchase of shares                                          |  |                                | (305   
|                                                              |  |                                |        
|Balance, end of period                                        |  |                                | 45,182 
|                                                              |  |                                |        
|Additional paid-in capital                                    |  |                                |        
|Balance, beginning of period                                  |  |                                | 526,582
|Issuance of shares                                            |  |                                | 4,078  
|Issuance of shares on elimination of minority interest        |  |                                | 110,285
|Stock option expense                                          |  |                                | 243    
|Repurchase of shares                                          |  |                                | (3,591 
|Distribution to shareholders                                  |  |                                |       
|                                                              |  |                                |        
|Balance, end of period                                        |  |                                | 637,597
|                                                              |  |                                |        
|Loans receivable from common share sales                      |  |                                |        
|Balance, beginning of period                                  |  |                                | (12,575
|Loans repaid                                                  |  |                                | 610    
|                                                              |  |                                |        
|Balance, end of period                                        |  |                                | (11,965
|                                                              |  |                                |        
|Unearned stock grant compensation                             |  |                                |        
|Balance, beginning of period                                  |  |                                | (2,656 
|Stock grants awarded                                          |  |                                | (3,740 
|Amortization                                                  |  |                                | 1,753  
|                                                              |  |                                |        
|Balance, end of period                                        |  |                                | (4,643 
|                                                              |  |                                |        
|Accumulated other comprehensive income                        |  |                                |        
|Balance, beginning of period                                  |  |                                | 49,108 
|Holding gains on fixed maturities arising in the period       |  |                                | 1,676  
|Net realized gains included in net income                     |  |                                | (14,547
|Allocation to minority interest                               |  |                                | 6,504  
|Holding gains transferred on elimination of minority interest |  |                                | 2,697  
|                                                              |  |                                |        
|Balance, end of period                                        |  |                                | 45,438 
|                                                              |  |                                |        
|Retained earnings (deficit)                                   |  |                                |        
|Balance, beginning of period                                  |  |                                | (4,299 
|Net income (loss)                                             |  |                                | 84,162 
|Dividends paid                                                |  |                                | (2,433 
|                                                              |  |                                |        
|Balance, end of period                                        |  |                                | 77,430 
|                                                              |  |                                |        
|Total shareholders equity                                    |  | $                              | 789,039
|                                                              |  |                                |        



See accompanying notes
to unaudited interim consolidated financial statements.



3



---

##### Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)



(Expressed in thousands of United States Dollars)



|                                                                                  |  | Nine Months Ended September 30, |         
|--------------------------------------------------------------------------------- |  | ------------------------------- | --------
|                                                                                  |  | 2003                            |         
|OPERATING ACTIVITIES                                                              |  |                                 |         
|Net income (loss)                                                                 |  | $                               | 84,162  
|                                                                                  |  |                                
|Adjustments to reconcile net income (loss) to net cash from operating activities: |  |                                 |         
|Minority share of income (loss)                                                   |  |                                 | 10,325  
|Amortization of unearned stock based compensation                                 |  |                                 | 1,996   
|Amortization of discount on fixed maturities                                      |  |                                 | 4,133   
|Net gains on alternative investments                                              |  |                                 | (95,162 
|Net realized gains on sale of fixed maturities                                    |  |                                 | (14,547 
|Accrued interest income                                                           |  |                                 | (1,859  
|Premiums receivable                                                               |  |                                 | (153,097
|Losses recoverable from reinsurers                                                |  |                                 | (47,537 
|Funds withheld                                                                    |  |                                 | (5,741  
|Deferred acquisition costs                                                        |  |                                 | (31,050 
|Deferred charges                                                                  |  |                                 | 3,505   
|Prepaid reinsurance premiums                                                      |  |                                 | (43,916 
|Other assets                                                                      |  |                                 | (6,923  
|Property and casualty losses and experience refunds                               |  |                                 | 310,493 
|Life and annuity benefits and experience refunds                                  |  |                                 | (21,622 
|Reinsurance balances payable                                                      |  |                                 | 68,104  
|Unearned property and casualty premiums                                           |  |                                 | 260,959 
|Accounts payable and accrued expenses                                             |  |                                 | 6,751   
|                                                                                  |  |                                 |         
|Cash from operating activities                                                    |  |                                 | 328,974 
|                                                                                  |  |                                 |         
|INVESTING ACTIVITIES                                                              |  |                                 |         
|Purchases of fixed maturities                                                     |  |                                 | (755,506
|Sales (purchases) of alternative investments, net                                 |  |                                 | (100,461
|Sales of fixed maturities                                                         |  |                                 | 468,072 
|Redemptions of fixed maturities                                                   |  |                                 | 57,500  
|                                                                                  |  |                                 |         
|Cash used in investing activities                                                 |  |                                 | (330,395
|                                                                                  |  |                                 |         
|FINANCING ACTIVITIES                                                              |  |                                 |         
|Net proceeds from issuance of common shares                                       |  |                                 | 706     
|Repurchase of common shares                                                       |  |                                 | (3,896  
|Proceeds from bank loan                                                           |  |                                 | 50,000  
|Dividends and distributions                                                       |  |                                 | (2,433  
|Distributions to / conversion of minority shareholders                            |  |                                 | (285    
|Deposit liabilities, net                                                          |  |                                 | 6,319   
|Notes and loans repaid                                                            |  |                                 | 610     
|                                                                                  |  |                                 |         
|Cash from financing activities                                                    |  |                                 | 51,021  
|                                                                                  |  |                                 |         
|Net increase (decrease) in cash and cash equivalents                              |  |                                 | 49,600  
|Cash and cash equivalents, beginning of period                                    |  |                                 | 92,103  
|                                                                                  |  |                                 |         
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                          |  | $                               | 141,703 
|                                                                                  |  |                                 |         



SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION



Interest paid totaled $2,414 and $1,643 for the nine
months ended September 30, 2003 and 2002, respectively.



A non-cash item that
was an amendment to a reinsurance contract resulted in the following changes in the nine months ended September 30, 2003: decreased property and casualty losses and experience refunds by $160,665, decreased unearned property and casualty premiums by
$26,963, decreased deferred charges by $19,429, decreased losses recoverable from reinsurers by $24,100, decreased prepaid reinsurance premiums by $4,044, decreased deferred acquisition costs by $733 and increased deposit liabilities by $139,322.



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



See accompanying notes to unaudited
interim consolidated financial statements.



4



---

##### 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 (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, 2002.



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 and Max Insurance Europe Limited.



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



On February 18, 2003, the Company and the third party
financial institution mutually terminated the swap transaction described above and, immediately following the termination, the Company completed a $150.0 million sale of shares of Max Re Diversified to the same third party financial institution and
entered into a total return swap with the purchaser on similar terms as the terminated transaction. Max Re Diversified shares owned by Max Re with a fair value of $83.4 million at September 30, 2003 were pledged as collateral to which the Company is
exposed to credit risk. Under GAAP, these transactions are viewed on a combined basis and accounted for as a financing transaction, which resulted in the recording of a $150.0 million bank loan. The swap termination date is February 2005, with
provisions for earlier termination at the Companys option or in the event that the Company fails to comply with certain covenants, including maintaining a minimum financial strength rating and a minimum Max Re Diversified net asset value. At
termination, the purchaser has the option to sell the Max Re Diversified shares to the Company at a price equal to the fair value of the Max Re Diversified shares on the date of repurchase.



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



5



---

##### Table of Contents

A summary of operations by segment for the nine months ended September 30, 2003 and 2002 is as follows:



|                                                |  | Nine Months Ended September 30, 2003 (Expressed in thousands of United States Dollars) |        
|----------------------------------------------- |  | -------------------------------------------------------------------------------------- | -------
|                                                |  | Property & Casualty                                                                    |        
|                                                |  | StructuredReinsurance                                                                  |        
|Gross premiums written                          |  | $                                                                                      | 235,248
|Reinsurance premiums ceded                      |  |                                                                                        | (41,155
|                                                |  |                                                                                        |        
|Net premiums written                            |  | $                                                                                      | 194,093
|                                                |  |                                                                                        |        
|Earned premiums                                 |  | $                                                                                      | 210,194
|Earned premiums ceded                           |  |                                                                                        | (35,836
|                                                |  |                                                                                        |        
|Net premiums earned                             |  |                                                                                        | 174,358
|Net investment income                           |  |                                                                                        |       
|Net gains on sales of alternative investments   |  |                                                                                        |       
|Net realized gains on sales of fixed maturities |  |                                                                                        |       
|Other income                                    |  |                                                                                        | 2,110  
|                                                |  |                                                                                        |        
|Total revenues                                  |  |                                                                                        | 176,468
|                                                |  |                                                                                        |        
|Losses, benefits and experience refunds         |  |                                                                                        | 144,097
|Acquisition costs                               |  |                                                                                        | 52,933 
|Interest expense                                |  |                                                                                        |       
|General and admin expenses                      |  |                                                                                        | 2,314  
|                                                |  |                                                                                        |        
|Total losses and expenses                       |  |                                                                                        | 199,344
|                                                |  |                                                                                        |        
|Net income (loss) before minority interest      |  | $                                                                                      | (22,876
|                                                |  |                                                                                        |        
|Loss Ratio                                      |  |                                                                                        | 82.6   
|Combined Ratio                                  |  |                                                                                        | 114.3  
|                                                | 
|                                                |  | Nine Months Ended September 30, 2002 (Expressed in thousands of United States Dollars) |        
|                                                |  | Property & Casualty                                                                    |        
|                                                |  | StructuredReinsurance                                                                  |        
|Gross premiums written                          |  | $                                                                                      | 270,764
|Reinsurance premiums ceded                      |  |                                                                                        | (42,328
|                                                |  |                                                                                        |        
|Net premiums written                            |  | $                                                                                      | 228,436
|                                                |  |                                                                                        |        
|Earned premiums                                 |  | $                                                                                      | 185,792
|Earned premiums ceded                           |  |                                                                                        | (29,023
|                                                |  |                                                                                        |        
|Net premiums earned                             |  |                                                                                        | 156,769
|Net investment income                           |  |                                                                                        |       
|Net gains on sales of alternative investments   |  |                                                                                        |       
|Net realized gains on sales of fixed maturities |  |                                                                                        |       
|Other income                                    |  |                                                                                        | 2,495  
|                                                |  |                                                                                        |        
|Total revenues                                  |  |                                                                                        | 159,264
|                                                |  |                                                                                        |        
|Losses, benefits and experience refunds         |  |                                                                                        | 137,741
|Acquisition costs                               |  |                                                                                        | 40,236 
|Interest expense                                |  |                                                                                        |       
|General and admin expenses                      |  |                                                                                        | 2,607  
|                                                |  |                                                                                        |        
|Total losses and expenses                       |  |                                                                                        | 180,584
|                                                |  |                                                                                        |        
|Net income (loss) before minority interest      |  | $                                                                                      | (21,320
|                                                |  |                                                                                        |        
|Loss Ratio                                      |  |                                                                                        | 87.9   
|Combined Ratio                                  |  |                                                                                        | 115.2  



6



---

##### Table of Contents

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.



The Company currently operates in two geographic segments: North America, which represents risks written for North American based customers, and Europe, which represents risks written for European based customers.



Financial information relating to gross premiums written by
geographic region for the nine months ended September 30, 2003 and 2002 were as follows:



|                                |  | Nine Months Ended September 30,                   |        
|------------------------------- |  | ------------------------------------------------- | -------
|                                |  | 2003                                              |        
|                                |  | (Expressed in thousands of United States Dollars) |        
|North America                   |  | $                                                 | 446,987
|Europe                          |  |                                                   | 337,934
|Reinsurance CededNorth America |  |                                                   | (44,500
|Reinsurance CededEurope        |  |                                                   | (58,120
|                                |  |                                                   |        
|                                |  | $                                                 | 682,301
|                                |  |                                                   |        



Three customers
accounted for 18.7%, 18.6% and 14.7%, respectively, of the Companys gross premiums written during the nine months ended September 30, 2003. Three customers accounted for 25.2%, 19.9% and 13.2%, respectively, of the Companys gross
premiums written during the nine months ended September 30, 2002.



5. EQUITY
CAPITAL



Max Re Capitals Board of Directors declared
quarterly dividends of $0.02 per share on each of January 31, 2003, May 1, 2003 and July 25, 2003, payable to shareholders of record on February 17, 2003, May 12, 2003 and August 8, 2003, respectively.



The Company repurchased 304,600 common shares at an average price of $12.79
per common share for a total amount of approximately $3.9 million, including costs incurred to effect the repurchases, during the nine months ended September 30, 2003. As of September 30, 2003, the remaining authorization under the Companys
share repurchase program was approximately $23.2 million.



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



6. RELATED PARTIES



Grand Central Re Limited



Pursuant to an insurance management agreement, Max Re Managers provides insurance management services to Grand Central Re Limited, a Bermuda domiciled
reinsurance company in which Max Re has a 7.5% equity investment (Grand Central Re). Fees for such services for each of the nine months ended September 30, 2003 and 2002 were approximately $3.2 million and $2.0 million, respectively, and
are included in other income in the accompanying consolidated statements of income and comprehensive income.



Max Re entered into a quota share retrocession agreement with Grand Central Re, effective as of January 1, 2002, amending the quota share arrangement with
Grand Central Re that was effective as of January 1, 2001. The 2002 quota share reinsurance agreement with Grand Central Re requires each of the Company and Grand Central Re to retrocede a portion of their respective gross premiums written from
certain transactions to the other party in order to participate on a co-insurance basis. Max Re also entered into an aggregate stop loss contract with Grand Central Re, effective as of January 1, 2003, whereby Grand Central Re provided aggregate
reinsurance protection to Max Re on one of its underlying reinsurance contracts.



The accompanying consolidated balance sheets include, or are net of, the following amounts related to the quota share retrocession and aggregate stop loss agreements with Grand Central Re:



|                                   |  | September 30, 2003                                |         | December 31, 2002
|---------------------------------- |  | ------------------------------------------------- | ------- | -----------------
|                                   |  | (Expressed in thousands of United States Dollars)
|Prepaid reinsurance premiums       |  | $                                                 | 28,515  |                  
|Deposit recoverable                |  |                                                   | 49,846  |                  
|Losses recoverable from reinsurers |  |                                                   | 142,122 |                  
|Reinsurance balances payable       |  |                                                   | 154,710 |                  



7



---

##### Table of Contents

The accompanying consolidated statements of income and comprehensive income include, or are net of, the
following amounts related to the quota share retrocession and aggregate stop loss agreements with Grand Central Re:



|                                        |  | Nine Months EndedSeptember 30,                   
|--------------------------------------- |  | -------------------------------------------------
|                                        |  | 2003                                             
|                                        |  | (Expressed in thousands of United States Dollars)
|Reinsurance premiums ceded              |  | $                                                
|Earned premiums ceded                   |  |                                                  
|Losses, benefits and experience refunds |  |                                                  
|Interest expense                        |  |                                                  



Max Re credits Grand
Central Re with interest on reinsurance balances payable at a varying negotiated rate based on published bond indices.



The Company believes that the terms of the insurance management, quota share retrocessional and aggregate stop loss agreements with Grand Central Re are
comparable to the terms that the Company would expect to negotiate in arms length transactions with unrelated parties.



Alternative Investment Managers



For the nine months ended September 30, 2003 and 2002, Moore Capital Management, LLC (MCM), which is affiliated with certain shareholders and
a director of Max Re Capital, earned aggregate management and incentive fees of $3.0 million and $3.4 million, respectively, in respect of Max Re Diversifieds assets invested in underlying funds managed by MCM. In addition, as the trading
manager of Max Re Diversified, MCM earned $4.9 million and $nil in fees for the nine months ended September 30, 2003 and 2002, 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 September 30, 2003.
The Companys primary letter of credit facility is with a syndicate of commercial banks, one of which is affiliated with a director of Max Re Capital. In June 2003, the Company amended the terms of this facility principally to lower the cost of
the facility and reduce the capacity of the facility from $375.0 million to $270.0 million. In accordance with the facility agreement, the syndicate will issue letters of credit that may total up to $243.0 million secured by fixed maturities and up
to $27.0 million secured by alternative investments. The Company believes that the terms of this letter of credit facility are comparable to the terms that the Company would expect to negotiate with an unrelated party. At September 30, 2003 and
December 31, 2002, letters of credit totaling $259.9 million and $284.6 million, respectively, were issued and outstanding under this facility. Fixed maturities and cash equivalents with a fair value of $297.2 million and Max Re Diversified shares
with a fair value of $71.9 million at September 30, 2003 were pledged as collateral for these letters of credit.



The Company also has a $100.0 million letter of credit facility with the New York branch of Bayerische Hypo- und Vereinsbank AG (HVB), a
shareholder of the Company and an affiliate of a director of Max Re Capital. HVB is the majority shareholder of Grand Central Re, which is managed by Max Re Managers and in which the Company has a 7.5% equity interest. The Company believes that the
terms of this letter of credit facility are comparable to the terms that the Company would expect to negotiate at arms length with an unrelated party. At September 30, 2003 and December 31, 2002, letters of credit totaling $79.6 million and
$58.5 million, respectively, were issued by HVB under this facility. All letters of credit issued under this facility are collateralized by a portion of the Companys invested assets. Fixed maturities and cash equivalents with a fair value of
$47.3 million and Max Re Diversified shares with a fair value of $78.4 million at September 30, 2003 were pledged as collateral for these letters of credit.



In September 2003, the Company entered into a $100.0 million letter of credit facility with an independent commercial bank. At September 30, 2003, there
were no letters of credit issued under this letter of credit facility. Fixed maturities and cash equivalents with a fair value of $nil were pledged as collateral for these letters of credit.



Each of the letter of credit facilities requires that the Company and/or
certain of its subsidiaries comply with certain covenants, including a minimum consolidated tangible net worth and restrictions on the payment of dividends. The Company was in compliance with all the covenants of each of its letter of credit
facilities at September 30, 2003.



8. STOCK-BASED COMPENSATION



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



8



---

##### Table of Contents

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 September 30,                                            |        |   | Nine Months Ended September 30, |  
|--------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ------ | - | ------------------------------- | -
|                                                                                                    |  | 2003                                                                        |        |   | 2002                            |  
|                                                                                                    |  | (Expressed in thousands of United States dollars, except per share amounts) |       
|Net income (loss), as reported                                                                      |  | $                                                                           | 38,751 |   |                                 | $
|Add: Stock-based employee compensation expense included in reported net income                      |  |                                                                             | 116    |   |                                 |  
|Deduct: Stock-based employee compensation expense determined under fair-value method for all awards |  |                                                                             | (692   | ) |                                 |  
|                                                                                                    |  |                                                                             |        |   |                                 |  
|Pro forma net income                                                                                |  | $                                                                           | 38,175 |   |                                 | $
|                                                                                                    |  |                                                                             |        |   |                                 |  
|Earnings per share, as reported                                                                     |  |                                                                             |        |   |                                 |  
|Basic                                                                                               |  | $                                                                           | 0.91   |   |                                 | $
|Diluted                                                                                             |  |                                                                             | 0.89   |   |                                 |  
|Earnings per share, pro forma                                                                       |  |                                                                             |        |   |                                 |  
|Basic                                                                                               |  | $                                                                           | 0.90   |   |                                 | $
|Diluted                                                                                             |  |                                                                             | 0.88   |   |                                 |  



9



---

##### Table of Contents

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



The following is a discussion and analysis of the Companys results of operations for the three and nine month periods ended September 30, 2003
compared to the three and nine month periods ended September 30, 2002 and the financial condition of the Company as of September 30, 2003. This discussion and analysis should be read in conjunction with the attached unaudited consolidated financial
statements and related notes and the audited consolidated financial statements and related notes contained in the Companys Annual Report on Form 10-K for the year ended December 31, 2002.



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. The Company intends that the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 apply to these forward-looking
statements. Forward-looking statements are not statements of historical fact but rather reflect the Companys current expectations, estimates and predictions about future results and events. These statements may use words such as
anticipate, believe, estimate, expect, intend, predict, project and similar expressions as they relate to the Company or the Companys management. When the
Company makes forward-looking statements, it is basing them on managements beliefs and assumptions, using information currently available to it. These forward-looking statements are subject to risks, uncertainties and assumptions. Factors that
could cause such forward-looking statements not to be realized (which are described in more detail included or incorporated by reference herein and in documents filed by the Company with the Securities and Exchange Commission) include, without
limitation, acceptance in the market of the Companys products, general economic conditions and conditions specific to the reinsurance and insurance markets in which the Company operates, pricing competition, the amount of underwriting capacity
from time to time in the market, material fluctuations in interest rate levels, tax and regulatory changes and conditions, rating agency policies and practices, claims development and loss of key executives. Other factors such as changes in U.S. and
global financial and equity markets resulting from general economic conditions, market disruptions and significant interest rate fluctuations may adversely impact the Companys investments or impede the Companys access to, or increase the
cost of, financing its operations. The Company cautions that the foregoing list of important factors is not intended to be, and is not, exhaustive. The Company undertakes no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. If one or more risks or uncertainties materialize, or if the Companys underlying assumptions prove to be incorrect, actual results may vary materially from what the Company
projected. Any forward-looking statements in this Form 10-Q reflect the Companys current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the Companys operations,
results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to the Company or individuals acting on the Companys behalf are expressly qualified in their entirety by this
paragraph.



Overview



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



To manage reinsurance and insurance
liability exposure, make investment decisions and assess overall enterprise risk, the Company models its underwriting and investing activities on an integrated basis. The Companys integrated risk management, as well as features of its
products, provides flexibility in making decisions regarding investments. The Companys investments are currently comprised of a high grade fixed maturities portfolio and an alternative investment portfolio that currently employs ten strategies
invested in approximately 45 underlying trading entities designed to provide diversification and to generate positive returns while attempting to reduce the frequency and severity of loss outcomes. The alternative investment portfolio also includes
two strategic reinsurance private equity investments. Based on fair value at September 30, 2003, the allocation of invested assets was approximately 66.0% in cash and fixed maturities and 34.0% in alternative investments.



The Companys principal operating subsidiary is Max Re. At September 30,
2003, Max Re had $778.5 million of shareholders equity. The Company conducts its European activities through Max Europe Holdings Limited and its operating subsidiaries, Max Re Europe Limited and Max Insurance Europe Limited. The Company also
provides reinsurance underwriting and administrative services on a fee basis through Max Re Managers. The Company holds all of its alternative investments in Max Re Diversified, other than reinsurance private equity investments that are held by Max
Re.



10



---

##### Table of Contents

Critical Accounting Policies



The Companys consolidated financial statements are prepared in accordance with GAAP, which require management to make
estimates and assumptions. The Company has performed a current assessment of its critical accounting policies in connection with preparing its consolidated financial statements as of and for the three and nine months ended September 30, 2003. The
Company believes that the critical accounting policies set forth in its Annual Report on Form 10-K for the year ended December 31, 2002, filed on March 20, 2003, continue to describe the more significant judgments and estimates used in the
preparation of its 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 the Companys results of operations and financial condition.



Results of Operations



Three months ended September 30, 2003 compared to three months ended September 30, 2002



Gross premiums written. Gross premiums written for the three months ended September 30, 2003 increased 187.2% to
$188.6 million compared to $65.7 million for the three months ended September 30, 2002. Gross premiums written for each of the three month periods came entirely from property and casualty underwriting. The increase in gross premiums written for
property and casualty is principally attributable to the Companys expansion of its traditional reinsurance operations, which accounted for $86.0 million of the gross premiums written for the three months ended September 30, 2003 compared to
$38.0 million for the same period in 2002. In addition, traditional insurance operations, which commenced in the first quarter of 2003, made a significant contribution to gross premium written, accounting for $54.8 million of the gross premiums
written for the three months ended September 30, 2003.



Reinsurance premiums ceded. Reinsurance premiums ceded for the three months ended September 30, 2003 were $31.6 million compared to $2.6 million for the three months ended September 30, 2002. Reinsurance premiums ceded during the
three months ended September 30, 2003 were principally related to a quota-share retrocession of the Companys insurance business. In addition, the Company purchased specific reinsurance on certain lines of business in the current period. As the
Company and its reinsurance and insurance exposures grow, the Company is purchasing, and expects to continue to purchase, additional retrocessional coverage consistent with its risk management objectives.



Net premiums written. Net premiums written for the three months ended
September 30, 2003 were $157.0 million compared to $63.0 million for the three months ended September 30, 2002 and were entirely related to property and casualty products.



Net premiums earned. Net premiums earned, all pertaining to property and casualty business, for the three months
ended September 30, 2003 were $178.7 million, after the deduction of $25.7 million of earned premiums ceded, compared to $96.9 million, after the deduction of $13.0 million of earned premiums ceded, for the three months ended September 30, 2002.



Net investment income. Net investment income was $13.9
million for the three months ended September 30, 2003 compared to $13.8 million for the three months ended September 30, 2002. The increase was principally attributable to the increase in fixed maturities investments resulting from cash received
from the collection of premiums written since September 30, 2002, partially offset by a decline in the yield on the fixed maturities investments. The average annualized investment yield on fixed maturities investments for the three months ended
September 30, 2003 was 3.54% compared to an average yield of 4.35% for the three months ended September 30, 2002.



Net gains on alternative investments. Net gains on alternative investments were $28.1 million for the three months ended September 30, 2003
compared to $1.1 million for the three months ended September 30, 2002. The increase was attributable to both a 3.35% rate of return on the alternative investments for the three months ended September 30, 2003 compared to a 0.25% rate of return for
the three months ended September 30, 2002 and an increase in the amount of the alternative investments resulting from cash flows generated from operating activities during 2003. Every alternative investment strategy employed by the Company was
profitable during the three months ended September 30, 2003. Alternative investment strategies principally contributing to the gains in the current period were opportunistic, distressed securities, commodity trading advisers, and long/short equity.



Losses, benefits and experience refunds. Losses,
benefits and experience refunds were $139.7 million for the three months ended September 30, 2003 compared to $95.5 million for the three months ended September 30, 2002. Property and casualty losses were $133.9 million for the three months ended
September 30, 2003 compared to $84.5 million for the three months ended September 30, 2002. The increase in property and casualty losses resulted from increased net premiums earned in the current year. Life and annuity benefits and experience
refunds were $5.8 million for the three months ended September 30, 2003, which principally related to the accretion of liability for future benefits on contracts written in prior years, compared to $11.0 million for the three months ended September
30, 2002.



Acquisition costs. Acquisition costs were
$36.7 million for the three months ended September 30, 2003 compared to $22.7 million for the three months ended September 30, 2002. The increase in acquisition costs was principally a result of the Companys increase in property and casualty
gross premiums



11



---

##### Table of Contents

written. Acquisition costs are customarily associated with the type of premium written by the Company. Generally, acquisition costs fluctuate with business
volume and changes in product mix. A significant component of deferred policy acquisition costs are ceding commissions paid to the buyer of the Companys reinsurance products.



Interest expense. Interest expense was $5.4 million for the three months ended September 30, 2003 compared to $7.4
million for the three months ended September 30, 2002. The decrease resulted principally from lower interest expense on funds withheld from reinsurers of the Company and on deposit liabilities, partially offset by a higher principal balance on the
swap transaction accounted for as a bank loan for the three months ended September 30, 2003 compared to the same period in 2002.



General and administrative expenses. General and administrative expenses were $10.9 million for the three months ended September 30, 2003 compared
to $4.9 million for the three months ended September 30, 2002. The increase resulted principally from expenses associated with expanding the Companys traditional reinsurance and insurance operations capabilities through the hiring of
additional staff.



Net income (loss). Net income for the
three months ended September 30, 2003 was $38.8 million compared to a net loss of $14.3 million for the three months ended September 30, 2002. The results for the three months ended September 30, 2003 are principally attributable to underwriting
profits from the Companys traditional risk transfer reinsurance products and improved rate of return on the Companys alternative investments compared to the same period in 2002.



Nine months ended September 30, 2003 compared to nine months ended September 30, 2002



Gross premiums written.Property and casualty
gross premiums written for the nine months ended September 30, 2003 were $784.9 million compared to gross premiums written of $531.1 million, comprised of $516.4 million from property and casualty and $14.7 million from life and annuity, for the
nine months ended September 30, 2002. Gross premiums written for property and casualty increased principally due to increased production of traditional reinsurance business and the commencement of the Companys traditional insurance operations
in the first quarter of 2003.



Reinsurance premiums
ceded. Reinsurance premiums ceded for the nine months ended September 30, 2003 were $102.6 million compared to $53.4 million for the nine months ended September 30, 2002. Reinsurance premiums ceded were principally related to the Companys
quota-share retrocessional and aggregate stop loss agreements with Grand Central Re. In addition during 2003, the Company has purchased specific reinsurance. As the Companys reinsurance and insurance business grows, the Company is purchasing,
and expects to continue to purchase, additional retrocessional coverage consistent with its risk management objectives.



Net premiums earned. Net premiums earned for the nine months ended September 30, 2003 were $465.8 million compared to $247.6 million for the nine
months ended September 30, 2002. Property and casualty accounted for all of the $465.8 million of net premiums earned, after the deduction of $58.1 million of earned premiums ceded, for the nine months ended September 30, 2003 compared to property
and casualty net premiums earned of $235.1 million, after the deduction of $32.0 million of earned premiums ceded, and life and annuity net premiums earned of $12.5 million, after the deduction of $2.2 million of earned premiums ceded, for the nine
months ended September 30, 2002.



Net investment income.
Net investment income was $43.5 million for the nine months ended September 30, 2003 compared to $39.6 million for the nine months ended September 30, 2002. The increase was principally attributable to the increase in fixed maturities investments
resulting from cash provided by the Companys operating and financing activities since September 30, 2002, partially offset by a decline in the yield on the fixed maturities investments.



Net gains on alternative investments. Net gains on alternative
investments were $95.2 million for the nine months ended September 30, 2003 compared to $6.7 million for the nine months ended September 30, 2002. The increase was attributable to both a 12.77% rate of return on the alternative investments for the
nine months ended September 30, 2003 compared to a 1.11% rate of return for the nine months ended September 30, 2002 and an increase in the amount of the alternative investments resulting from cash flows generated from operating activities during
2003. Every alternative investment strategy employed by the Company was profitable during the nine months ended September 30, 2003. Alternative investment strategies principally contributing to income during the nine months ended September 30, 2003
were distressed securities, commodity trading advisers, emerging markets, global macro and event driven arbitrage.



Losses, benefits and experience refunds.Losses, benefits and experience refunds were $368.5 million for the nine months ended September 30, 2003
compared to $229.9 million for the nine months ended September 30, 2002. Property and casualty losses were $344.8 million for the nine months ended September 30, 2003 compared to $195.2 million for the nine months ended September 30, 2002. The
increase in property and casualty losses was related to the increase in property and casualty premiums written and earned during the nine months ended September 30, 2003 compared to the same period in 2002. The loss ratio for property and casualty
business for the nine months ended September 30, 2003 was 74% compared to 83% for the nine months ended September 30, 2002. The decrease is reflective of the increased traditional reinsurance and insurance underwriting production which is currently
producing lower loss ratios. Life and annuity benefits were $23.7 million for the nine months ended September 30, 2003 which principally related to the accretion of liability for future benefits on contracts written in prior years, compared to $34.7
million for the nine months ended September 30, 2002. The decrease was principally attributable to no premiums written and earned during the nine months ended September 30, 2003 compared to $14.7 million of premiums written and $12.5 million of
premiums earned during the same period in 2002.



12



---

##### Table of Contents

Acquisition costs.Acquisition costs were $111.1 million for the nine months ended September 30,
2003 compared to $61.8 million for the nine months ended September 30, 2002. The increase in acquisition costs was principally a result of the Companys increase in property and casualty gross premiums written.



Interest expense. Interest expense was $20.3 million for the nine
months ended September 30, 2003 compared to $15.2 million for the nine months ended September 30, 2002. The increase resulted principally from interest expense on additional funds withheld from reinsurers of the Company and on increased deposit
liabilities and increased interest expense on the swap transaction resulting from a higher principal balance for the nine months ended September 30, 2003 compared to the same period in 2002.



General and administrative expenses.General and administrative
expenses were $29.9 million for the nine months ended September 30, 2003 compared to $15.5 million for the nine months ended September 30, 2002. The increase resulted principally from expenses associated with establishing the Companys
insurance operations and expanding the Companys traditional reinsurance capabilities through the hiring of additional staff. The Companys general and administrative expense ratio to net premiums earned was 6.41% for the nine months ended
September 30, 2003, compared to 6.24% for the same period in 2002.



Net income (loss). Net income for the nine months ended September 30, 2003 was $84.2 million compared to a net loss of $16.7 million for the nine months ended September 30, 2002. The results for the nine months ended September 30,
2003 are principally attributable to underwriting profits from the Companys traditional risk transfer and alternative risk transfer reinsurance products and increased income from the Companys alternative investments compared to the same
period in 2002.



Financial Condition



Cash and invested assets. Aggregate invested assets, comprising cash,
fixed maturities and alternative investments were $2,497.5 million at September 30, 2003 compared to $2,024.8 million at December 31, 2002. The increase in cash and invested assets resulted principally from cash flows from operations of $329.0
million and a $50.0 million increase in the swap transaction accounted for as a bank loan.



Property and casualty losses and experience refunds. Property and casualty losses and experience refunds totaled $927.9 million at September 30, 2003 compared to $778.1 million at December 31, 2002. The
increase in property and casualty losses and experience refunds is from losses and experience refunds related to increased premiums earned during the nine months ended September 30, 2003. The increase is partially offset by a decrease in these
liabilities, resulting from an amendment, effective January 1, 2003, to the terms of a property and casualty contract written in a prior year. The amendment was a material change to the contract, causing the Company to record the amended contract as
a deposit arrangement, thereby reducing the liabilities for property and casualty losses and experience refunds by $160.7 million and increasing the deposit liabilities by a corresponding amount.



Life and annuity benefits and experience refunds. Gross life and
annuity benefits and experience refunds totaled $383.4 million at September 30, 2003 compared to $405.0 million at December 31, 2002. The decrease in the nine months ended September 30, 2003 was principally attributable to benefit payments on
existing contracts in force.



Losses recoverable from
reinsurers. Losses recoverable from reinsurers totaled $235.7 million at September 30, 2003 compared to $212.2 million at December 31, 2002, principally reflecting losses ceded under the Companys retrocessional agreements. At September 30,
2003, two retrocessionaires accounted for 60.3% and 33.4% of the Companys losses recoverable from reinsurers. Both retrocessionaires have a financial strength rating of A by A.M. Best Company.



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



On February 18, 2003, the Company and the third party
financial institution mutually terminated the swap transaction described above and, immediately following the termination, the Company completed a $150.0 million sale of shares of Max Re Diversified to the same third party financial institution and
entered into a total return swap with the purchaser on similar terms as the terminated transaction. Max Re Diversified shares owned by Max Re with a fair value of $83.4 million at September 30, 2003 were pledged as collateral to which the Company is
exposed to credit risk. Under GAAP, these transactions are viewed on a combined basis and accounted for as a financing transaction, which resulted in the recording of a $150.0 million bank loan. The swap termination date is February 2005, with
provisions for earlier termination at the Companys option or in the event that the Company fails to comply with certain covenants, including maintaining a minimum financial strength rating and a minimum Max Re Diversified net asset value. At
termination, the purchaser has the option to sell the Max Re Diversified shares to the Company at a price equal to the fair value of the Max Re Diversified shares on the date of repurchase. The swap transaction enables the Company to transform a
portion of its Max Re Diversified assets into fixed maturities investments that can be held in trusts for the benefit of certain ceding reinsurance companies that require fixed maturity trust assets to meet regulatory requirements.



13



---

##### Table of Contents

Shareholders equity. The Companys shareholders equity increased to $789.0
million at September 30, 2003 from $710.7 million of shareholders equity and minority interest at December 31, 2002 principally reflecting income of $84.2 million for the nine months ended September 30, 2003, partially offset by holding losses
on fixed maturities arising during the period of $3.7 million and dividends paid and minority interest distributions in the amount of $2.4 million.



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



Liquidity and capital resources. As a holding company, Max Re Capitals principal assets are its investments in the voting common shares of its principal subsidiary, Max Re, and the common shares of its
other subsidiaries. The Companys principal source of funds is from interest income on cash balances and cash dividends from its subsidiaries, including Max Re. The payment of dividends is limited under Bermuda insurance laws. In particular,
Max Re may not declare or pay any dividends if it is in breach of its minimum solvency or liquidity levels under Bermuda law or if the declaration or payment of the dividends would cause it to fail to meet the minimum solvency or liquidity levels
under Bermuda laws. At September 30, 2003, Max Re, which is required to have $341.4 million in statutory capital and surplus in order to pay dividends, had $660.7 million in statutory capital and surplus.



Capital resources. At September 30, 2003, the Companys capital
structure consisted of equity. Total capitalization after deducting loans to management and including retained earnings and accumulated other comprehensive income amounted to $789.0 million as compared with $710.7 million at December 31, 2002. The
Company has flexibility with respect to capitalization as the result of its access to the debt and equity markets. The Company regularly reviews its capital adequacy and believes its current level of capital is sufficient to support the
Companys reinsurance and insurance operations. The Company will consider issuing debt, raising additional equity or entering into retrocessional reinsurance contracts if it concludes that additional capital resources are necessary to continue
growing its business.



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



The Company has three letter of credit facilities as of September 30, 2003. The Companys primary letter of credit
facility is with a syndicate of commercial banks, one of which is affiliated with a director of Max Re Capital. In June 2003, the Company amended the terms of this facility principally to lower the cost of the facility and reduced the capacity of
the facility from $375.0 million to $270.0 million. In accordance with the facility agreement, the syndicate will issue letters of credit that may total up to $243.0 million secured by fixed maturities and up to $27.0 million secured by alternative
investments. The Company believes that the terms of this letter of credit facility are comparable to the terms that the Company would expect to negotiate with an unrelated party. At September 30, 2003 and December 31, 2002, letters of credit
totaling $259.9 million and $284.6 million, respectively, were issued and outstanding under this facility. Fixed maturities and cash equivalents with a fair value of $297.2 million and Max Re Diversified shares with a fair value of $71.9 million at
September 30, 2003 were pledged as collateral for these letters of credit.



The Company also has a $100.0 million letter of credit facility with HVB, a shareholder of the Company and an affiliate of a director of Max Re Capital. HVB is the majority shareholder of Grand Central Re, which is
managed by Max Re Managers and in which the Company has a 7.5% equity interest. The Company believes that the terms of this letter of credit facility are comparable to the terms that the Company would expect to negotiate at arms length with an
unrelated party. At September 30, 2003 and December 31, 2002, letters of credit totaling $79.6 million and $58.5 million, respectively, were issued by HVB under this facility. All letters of credit issued under this facility are collateralized by a
portion of the Companys invested assets. Fixed maturities and cash equivalents with a fair value of $47.3 million and Max Re Diversified shares with a fair value of $78.4 million at September 30, 2003 were pledged as collateral for these
letters of credit.



In September 2003, the Company entered into
a $100.0 million letter of credit facility with an independent commercial bank. At September 30, 2003, there were no letters of credit issued under this letter of credit facility. Fixed maturities and cash equivalents with a fair value of $nil were
pledged as collateral for these letters of credit.



Each of the
letter of credit facilities requires that the Company and/or certain of its subsidiaries comply with certain covenants, including a minimum consolidated tangible net worth and restrictions on the payment of dividends. The Company was in compliance
with all the covenants of each of its letter of credit facilities at September 30, 2003.



On each of January 31, 2003, May 1, 2003 and July 25, 2003, Max Re Capitals Board of Directors declared a quarterly shareholder dividend of $0.02 per share payable to shareholders of record on February 17, 2003,
May 12, 2003 and August 8, 2003, respectively. Continuation of cash dividends in the future will be at the discretion of the Board of Directors and will be dependent upon the Companys results of operations and cash flows, and its financial
position and capital requirements, general business conditions, legal, tax, regulatory and any contractual restrictions on the payment of dividends and other factors the Board of Directors deems relevant. On October 31, 2003, the Board of Directors
declared a dividend of $0.03 per share to be paid on November 24, 2003 to shareholders of record on November 14, 2003.



14



---

##### Table of Contents

The Companys insurer financial strength ratings were unchanged during the nine months ended
September 30, 2003. The Companys ratings are A- (Excellent) by A.M. Best Company, Inc. and A (Strong) by Fitch, Inc. These ratings reflect each rating agencys opinion of the Companys financial strength,
operating performance and ability to meet obligations. They are not evaluations directed toward the protection of investors.



New Accounting Pronouncements



FAS Interpretation No. 46Consolidation of Variable Interest Entities



In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46Consolidation of Variable
Interest Entities. This interpretation establishes complex consolidation criteria based on an analysis of risks and rewards, not control, and is a significant modification to previous accounting principles. The interpretation became effective for
all new transactions after January 31, 2003 and is expected to become effective in the Companys fourth quarter of 2003 for all other existing transactions. The Company believes, based on the authoritative literature currently available, that
the adoption of this interpretation will not have a material impact on the Companys financial position, results of operations or cash flows.



ITEM 3. Quantitative and Qualitative Disclosures About Market Risk



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



As of September 30, 2003, the Company did not hold any high-yield investments in its fixed maturities investment portfolio. Currently, the Companys policy is not to hold securities rated lower than BBB-/BAA- in
its fixed maturities investment portfolio. At September 30, 2003, the estimated impact on the fixed maturities investment portfolio from an immediate 100 basis point increase in market interest rates would have resulted in an estimated decrease in
market value of 3.81%, or approximately $62.1 million, and the impact on the fixed maturities investment portfolio from an immediate 100 basis point decrease in market interest rates would have resulted in an estimated increase in market value of
3.94%, or approximately $64.2 million.



With respect to the
Companys alternative investment portfolio, the Company does not directly control the allocation of its assets to strategies or underlying funds, nor does the Company control the manner in which they are invested by the Companys fund
managers. However, the Company consistently and systematically monitors the strategies and funds in which it is invested, and the Company believes its overall risk is limited as a result of its selected strategies low volatility and low
correlation to the bond market, the stock market and each other. At September 30, 2003, the estimated impact on the alternative investment portfolio from an immediate 100 basis point increase in market interest rates would have resulted in an
estimated decrease in market value of 2.2%, or approximately $17.3 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 2.2%, or approximately $17.3 million.



ITEM 4. Controls and Procedures



Disclosure Controls and Internal Controls. The Companys disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, the Exchange Act) (Disclosure Controls)
are controls and other procedures that are designed with the objective of ensuring that information required to be disclosed in the Companys reports filed under the Exchange Act, such as this 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
the Companys management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Internal control over financial reporting (Internal Controls)
is a process designed by, or under the supervision of, the Chief Executive Officer and Chief Financial Officer,



15



---

##### Table of Contents

and effected by the Board, management and other personnel, with the objective of providing reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with 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 the Company;



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



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



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



Quarterly evaluation of the Companys Disclosure Controls. As of September 30, 2003, an evaluation was carried out under the supervision and
with the participation of the Companys management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Companys Disclosure Controls. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded, subject to the limitations noted above, that the design and operation of these Disclosure Controls were effective to ensure that material information relating to the Company is made
known to management, including the Chief Executive Officer and Chief Financial Officer, particularly during the period when the Companys periodic reports are being prepared.



16



---

##### Table of Contents

PART II OTHER INFORMATION



ITEM 1. Legal Proceedings



At
September 30, 2003, the Company was not a party to any material litigation or arbitration. The Company anticipates that it will be subject to litigation and arbitration from time to time in the ordinary course of business.



ITEM 2. Changes in Securities and Use of Proceeds



At a Special Meeting of Shareholders of Max Re Capital on July 30, 2003, the shareholders voted to approve amendments to the Companys bye-laws. Certain of the approved amendments modified the rights of the
holders of the Companys common shares by (a) providing that the Board of Directors of the Company shall, with respect to any matter required to be submitted to a vote of the shareholders of Max Re, be required to submit a proposal relating to
such matters to the shareholders of the Company and shall vote all the shares of Max Re owned by the Company in accordance with and proportional to such vote of the Companys shareholders; (b) reducing from less than 9.9% to less than 9.5% the
limitation on voting rights of the Companys common shares and making certain technical changes to clarify this limitation; (c) reducing from less than 9.9% to less than 9.5% the maximum percentage of the Companys common shares that may
be owned by any person; (d) reducing from 60% to 50% the total issued and outstanding common shares that are required for a quorum at a general meeting of the Company; and (e) making future amendments of the bye-laws subject to the approval of a
majority of the votes cast instead of the majority of the shares entitled to vote.



For more information on the amendments set forth above or the other amendments approved on July 30, 2003, see Max Re Capitals proxy statement dated June 27, 2003.



ITEM 3. Defaults Upon Senior Securities



Not applicable.



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



The description of the Companys Special Meeting of Shareholders held on July 30, 2003 contained in the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2003 is incorporated by
reference herein.



ITEM 5. Other Information



Not
applicable.



ITEM 6. Exhibits and Reports on Form 8-K



(a) Exhibits



|Exhibit |  | Description                                                                                                                                                                                                                                 
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        | 
|3.1     |  | Amended and Restated Bye-laws of Max Re Capital Ltd.                                                                                                                                                                                        
|        | 
|10.1    |  | Letter of Credit Reimbursement Agreement dated as of September 19, 2003 between Max Re Ltd. and Fleet National
Bank.                                                                                                                        
|        | 
|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, 2002 filed with the Securities and Exchange Commission on March 20, 2003).



(b) Reports on Form
8-K



On August 5, 2003, Max Re Capital filed a Current Report
on Form 8-K reporting (i) that its shareholders, at a Special General Meeting of Shareholders held on July 30, 2003, approved certain amendments to the Companys Bye-Laws, (ii) its earnings for its second quarter ended June 30, 2003 and (iii)
the declaration on July 25, 2003 of a dividend payable to shareholders of record on August 8, 2003.



17



---

##### Table of Contents

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 November 3, 2003



/s/    KEITH S.
HYNESName: Keith S. HynesTitle: Executive Vice President and     Chief Financial Officer




Date: November 3, 2003



S-1