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| Bermuda                                                                 |   | 98-0481623                                    |
|-------------------------------------------------------------------------|--------|-----------------------------------------------|
| (State      or Other Jurisdiction ofIncorporation      or Organization) |   | (I.R.S.      EmployerIdentification      No.) |

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

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| Document                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | Part(s) Into WhichIncorporated |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|
| Portions      of the Registrant’s definitive proxy statement to be filed with the      Securities and Exchange Commission pursuant to Regulation 14A under the      Securities Exchange Act of 1934, as amended, relating to the Registrant’s      Annual General Meeting of Shareholders scheduled to be held May 14, 2009      are incorporated by reference into Part III of this report. With the      exception of the portions of the Proxy Statement specifically incorporated      herein by reference, the Proxy Statement is not deemed to be filed as part      of this report. |   | Part      III                            |

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|               |                                                                                                                         |         |          |
|--------------------|------------------------------------------------------------------------------------------------------------------------------|--------------|---------------|
|          |                                                                                                                         |    | Page          |
| PART      I        |                                                                                                                         |         |
| Item 1.       | Business                                                                                                                     |    |   2 |
| Item 1A.      | Risk      Factors                                                                                                            |    | 30            |
| Item 1B.      | Unresolved Staff      Comments                                                                                               |    | 52            |
| Item 2.       | Properties                                                                                                                   |    | 52            |
| Item 3.       | Legal      Proceedings                                                                                                       |    | 52            |
| Item 4.       | Submission of Matters to a      Vote of Security Holders                                                                     |    | 52            |
|               |                                                                                                                         |
| PART      II       |                                                                                                                    |         |
| Item 5.       | Market for Registrant’s      Common Equity, Related Stockholder Matters and Issuer Purchases of      Equity Securities |    | 53            |
| Item 6.       | Selected Financial      Data                                                                                                 |    | 55            |
| Item      7.  | Management’s Discussion and      Analysis of  Financial Condition and Results of      Operations                  |         | 56            |
| Item 7A.      | Quantitative and Qualitative      Disclosures About Market Risk                                                              |    | 95            |
| Item 8.       | Financial Statements and      Supplementary Data                                                                             |    | 98            |
| Item 9.       | Changes in and Disagreements      with Accountants on Accounting and Financial      Disclosure                               |    | 156           |
| Item 9A.      | Controls and      Procedures                                                                                                 |    | 156           |
| Item 9B.      | Other      Information                                                                                                       |    | 159           |
|               |                                                                                                                         |
| PART III      |                                                                                                                    |         |
| Item 10.      | Directors, Executive      Officers and Corporate Governance                                                                  |    | 160           |
| Item 11.      | Executive      Compensation                                                                                                  |    | 160           |
| Item 12.      | Security Ownership of      Certain Beneficial Owners, Management and Related Stockholder      Matters                        |    | 160           |
| Item 13.      | Certain Relationships and      Related Transactions, and Director Independence                                               |    | 160           |
| Item 14.      | Principal Accountant Fees      and Services                                                                                  |    | 160           |
|               |                                                                                                                         |
| PART IV       |                                                                                                                    |         |
| Item 15.      | Exhibits and Financial      Statement Schedules                                                                              |    | 161           |

|   |   |   |   |
|--------|--------|--------|--------|

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|                                   |   | Year      Ended December 31, 2008 |    |   | Year      Ended December 31, 2007 |   |   | Year      Ended December 31, 2006 |   |
|----------------------------------------|--------|-----------------------------------|---------|--------|-----------------------------------|--------|--------|-----------------------------------|--------|
|                                   |   | Gross      premiums written       |    |   | Percentage      of total          |   |   | Gross      premiums written       |   |   | Percentage      of total |   |   | Gross      premiums written |   |   | Percentage      of total |   |
|                                   |   |                              |    |   |                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |
| Line of      business                  |   |                              |    |   |                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |
| Property      catastrophe              |   | $                                 | 457,549 |   |                              |   | 58.5   | %                                 |   | $ | 378,671 |   |   |   | 65.6 | % |   | $ | 219,102 |   |   |   | 72.4 | % |
| Property                               |   |                              | 94,706  |   |                              |   | 12.1   | %                                 |   |   | 94,503 |   |   |   | 16.4 | % |   |   | 56,417 |   |   |   | 18.7 | % |
| Short-tail      specialty and casualty |   |                              | 152,708 |   |                              |   | 19.5   | %                                 |   |   | 71,081 |   |   |   | 12.3 | % |   |   | 26,970 |   |   |   | 8.9 | % |
| Insurance                              |   |                              | 76,926  |   |                              |   | 9.9    | %                                 |   |   | 32,895 |   |   |   | 5.7 | % |   |   | - |   |   |   | 0.0 | % |
| Total                                  |   | $                                 | 781,889 |   |                              |   | 100.0  | %                                 |   | $ | 577,150 |   |   |   | 100.0 | % |   | $ | 302,489 |   |   |   | 100.0 | % |

|                                    |   | Year      Ended December 31, 2008 |    |   | Year      Ended December 31, 2007 |   |   | Year      Ended December 31, 2006 |   |
|-----------------------------------------|--------|-----------------------------------|---------|--------|-----------------------------------|--------|--------|-----------------------------------|--------|
|                                    |   | Gross      premiums written       |    |   | Percentage      of total          |   |   | Gross      premiums written       |   |   | Percentage      of total |   |   | Gross      premiums written |   |   | Percentage      of total |   |
|                                    |   |                              |    |   |                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |
| Geographic area of risk      insured(1) |   |                              |    |   |                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |
| Caribbean(2)                            |   | $                                 | 88,482  |   |                              |   | 11.3   | %                                 |   | $ | 48,103 |   |   |   | 8.3 | % |   | $ | 10,291 |   |   |   | 3.4 | % |
| Europe                                  |   |                              | 104,185 |   |                              |   | 13.4   | %                                 |   |   | 79,894 |   |   |   | 13.8 | % |   |   | 45,737 |   |   |   | 15.1 | % |
| Japan      and Australasia              |   |                              | 47,866  |   |                              |   | 6.1    | %                                 |   |   | 39,547 |   |   |   | 6.9 | % |   |   | 31,690 |   |   |   | 10.5 | % |
| North      America                      |   |                              | 359,684 |   |                              |   | 46.0   | %                                 |   |   | 297,928 |   |   |   | 51.6 | % |   |   | 160,384 |   |   |   | 53.0 | % |
| Worldwide      risks(3)                 |   |                              | 153,442 |   |                              |   | 19.6   | %                                 |   |   | 99,365 |   |   |   | 17.2 | % |   |   | 37,815 |   |   |   | 12.5 | % |
| Other                                   |   |                              | 28,230  |   |                              |   | 3.6    | %                                 |   |   | 12,313 |   |   |   | 2.2 | % |   |   | 16,572 |   |   |   | 5.5 | % |
| Total                                   |   | $                                 | 781,889 |   |                              |   | 100.0  | %                                 |   | $ | 577,150 |   |   |   | 100.0 | % |   | $ | 302,489 |   |   |   | 100.0 | % |

| (1)   | Except      as otherwise noted, each of these categories includes contracts that cover      risks located primarily in the designated geographic  area. |
|-----------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Gross      premiums written related to the Insurance segment are included in the      Caribbean geographic area, where our insurance business is      based. |
|-----------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3)   | This      geographic area includes contracts that cover risks primarily in two or      more geographic zones. |
|-----------------|---------------------------------------------------------------------------------------------------------------|

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| Rating      Agency                   | FinancialStrength      Rating |     |   |   |
|--------------------------------------|-------------------------------|----------|--------|--------|
| A.      M. Best                 |                          | A− |   |   | Excellent      (Stable outlook) |   |
| Moody’s      Investor Services |                          | A3       |   |   | Strong      (Stable outlook) |   |
| Fitch                                |                          | A-       |   |   | Adequate      (Stable outlook) |   |

| Rating      Agency               | FinancialStrength      Rating |   |   |
|----------------------------------|-------------------------------|--------|--------|
| A.      M. Best             |                          | A      |   |   | Excellent      (Stable outlook) |
| Standard      & Poor’s |                          | A+     |   |   | Strong      (Stable outlook) |
| Fitch                            |                          | A+     |   |   | Strong      (Stable outlook) |

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|  ● | focus      on ceding insurers that are leaders in their geographic zone with high      quality underlying data;                                                                                                                                                                                                                                                                                              |
|---------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  ● | devote      significant time and resources to data evaluation and      cleansing;                                                                                                                                                                                                                                                                                                                            |
|  ● | use      multiple analytical models to price each risk, including varying      techniques and vendor models;                                                                                                                                                                                                                                                                                                 |
|  ● | ensure      correct application of vendor model options for each specific risk factor      (such as demand surge, which is the tendency for costs such as      construction to increase following a largecatastrophe);                                                                                                                                                                                       |
|  ● | leverage      our research and development team’s in-depth knowledge of the strengths      and weaknesses of third-party models in pricing and risk      selection;                                                                                                                                                                                                                                    |
|  ● | subject      all risks to peer review, which is the detailed review of each risk we      plan to write by an underwriter other than the individual responsible for      the transaction, and subject large risks to additional approval by the      Chief Executive Officer, the Management Committee, or the Underwriting      Committee of the Board of Directors, depending on the size of the      risk; |
|  ● | quickly      reject risks that do not meet our requirements;                                                                                                                                                                                                                                                                                                                                                 |
|  ● | identify      attractive insurance and reinsurance programs, lines, and markets to      enter; and                                                                                                                                                                                                                                                                                                           |
|  ● | devote      significant time to data evaluation and cleansing or establish state of      the art insurance processes to ensure proper risk classification and      selection.                                                                                                                                                                                                                                |
|          |                                                                                                                                                                                                                                                                                                                                                                                                         |

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| ● | a high      level of technical expertise in the risks we write;                                   |
|---------|--------------------------------------------------------------------------------------------------------|
| ● | rapid      and informed quoting;                                                                       |
| ● | timely      payment of claims;                                                                         |
| ● | large      capacity within our underwriting guidelines on the high quality clients we      target; and |
| ● | clear      indications of the classes of risks we will and will not      write.                   |

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|                |   | Year      Ended December 31, 2008 |    |   | Year      Ended December 31, 2007 |   |   | Year      Ended December 31, 2006 |   |
|---------------------|--------|-----------------------------------|---------|--------|-----------------------------------|--------|--------|-----------------------------------|--------|
|                |   | Gross      premiums written       |    |   | Percentage      of total          |   |   | Gross      premiums written       |   |   | Percentage      of total |   |   | Gross      premiums written |   |   | Percentage      of total |   |
|                |   |                              |    |   |                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |
| Name      of broker |   |                              |    |   |                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |
| Aon      Benfield   |   | $                                 | 369,037 |   |                              |   | 47.2   | %                                 |   | $ | 245,664 |   |   |   | 42.6 | % |   | $ | 141,892 |   |   |   | 46.9 | % |
| Guy      Carpenter  |   |                              | 162,236 |   |                              |   | 20.7   | %                                 |   |   | 153,781 |   |   |   | 26.6 | % |   |   | 49,845 |   |   |   | 16.5 | % |
| Willis      Group   |   |                              | 56,997  |   |                              |   | 7.3    | %                                 |   |   | 77,030 |   |   |   | 13.3 | % |   |   | 72,424 |   |   |   | 23.9 | % |
| Other      brokers  |   |                              | 193,619 |   |                              |   | 24.8   | %                                 |   |   | 100,675 |   |   |   | 17.5 | % |   |   | 38,328 |   |   |   | 12.7 | % |
| Total               |   | $                                 | 781,889 |   |                              |   | 100.0  | %                                 |   | $ | 577,150 |   |   |   | 100.0 | % |   | $ | 302,489 |   |   |   | 100.0 | % |

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|                                                          |   | Year      ended December 31, |
|---------------------------------------------------------------|--------|------------------------------|
|                                                          |   | 2006                         |   |   | 2007 |   |   | 2008 |   |
| Gross      liability for unpaid losses and loss expenses      |   | $                            | 22,516 |   |   | $ | 180,978 |   |   | $ | 411,565 |   |
| Retroceded      liability for unpaid losses and loss expenses |   |                         | - |   |   |   | (1,355 | ) |   |   | (16,422 | ) |
| Net      liability for unpaid losses and loss expenses        |   | $                            | 22,516 |   |   | $ | 179,623 |   |   | $ | 395,143 |   |
|                                                          |   |                         |   |   |   |   |   |   |   |   |   |   |
| Net      reserves re-estimated as of:                         |   |                         |   |   |   |   |   |   |   |   |   |   |
| One      year later                                           |   | $                            | 18,641 |   |   | $ | 163,946 |   |   |   |   |   |
| Two      years later                                          |   |                         | 13,455 |   |   |   |   |   |   |   |   |   |
|                                                          |   |                         |   |   |   |   |   |   |   |   |   |   |
| Cumulative      deficiency (redundancy)                       |   | $                            | (9,061 | ) |   | $ | (15,677 | ) |   |   |   |   |
|                                                          |   |                         |   |   |   |   |   |   |   |   |   |   |
| Cumulative      amount of net liability paid through:         |   |                         |   |   |   |   |   |   |   |   |   |   |
| One      year later                                           |   | $                            | 11,092 |   |   | $ | 117,459 |   |   |   |   |   |
| Two      years later                                          |   |                         | 14,303 |   |   |   |   |   |   |   |   |   |

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| ● | premiums      charged and contractual terms and conditions offered;                                         |
|---------|-------------------------------------------------------------------------------------------------------------|
| ● | services      provided, products offered and scope of business (both by size and      geographic location); |
| ● | strength      of client relationships;                                                                      |
| ● | financial      strength ratings assigned by independent rating  agencies;                                   |
| ● | speed      of claims payment;                                                                               |
| ● | reputation;                                                                                                 |
| ● | perceived      financial strength; and                                                                      |
| ● | experience      of the reinsurer in the line of reinsurance to be  written.                                 |

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| ·   | $100,000,000      Bermuda Dollars; |
|--------------------|------------------------------------|

| ·   | 50%      of net premiums written (being gross premiums written      less any reinsurance premiums ceded (not exceeding 25% of gross      premiums written)); |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | 15%      of net loss and loss expense provisions and other general business      insurance reserves. |
|--------------------|------------------------------------------------------------------------------------------------------|

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| ·   | within      14 days of becoming aware of such failure, to provide a written report to      the BMA regarding why it failed to comply and proposed steps to be taken      to rectify the failure; and |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | within      45 days of becoming aware of such failure, to provide to the      BMA: |
|--------------------|------------------------------------------------------------------------------------|

| ·   | unaudited      interim statutory financialstatements; |
|--------------------|-------------------------------------------------------|

| ·   | the      opinion of a loss reservespecialist; |
|--------------------|-----------------------------------------------|

| ·   | a      general business solvency certificate in respect of those financials;      and |
|--------------------|---------------------------------------------------------------------------------------|

| ·   | a      capital and solvency return reflecting an ECR prepared using post failure      data. |
|--------------------|---------------------------------------------------------------------------------------------|

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| ·  | the      acquisition or holding of land in Bermuda, except land held by way of      lease or tenancy agreement which is required for our business and held for      a term not exceeding 50 years, or which is used to provide accommodation      or recreational facilities for our officers and employees and held with      the consent of the Bermuda Minister of Finance for a term not exceeding 21      years; |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·  | the      taking of mortgages on land in Bermuda in excess of 50,000 Bermuda      dollars; |
|--------------|-------------------------------------------------------------------------------------------|

| ·  | the      acquisition of any bonds or debentures secured by any land in Bermuda,      other than certain types of Bermuda government securities;    or |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·  | subject      to some exceptions, the carrying on of business of any kind in Bermuda for      which we are not licensed inBermuda. |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------|

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| ·  | the      maintenance of a net worth (defined in the Law as the excess of assets,      including any contingent or reserve fund secured to the satisfaction of      CIMA, over liabilities other than liabilities to partners or shareholders)      of at least 100,000 Cayman Islands dollars (which is equal to      approximately US$120,000), subject to increase by CIMA depending on the      type of business undertaken; |
|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·  | to      carry on its insurance business in accordance with the terms of the      license application submitted to CIMA, to seek the prior approval of CIMA      to any proposed change thereto, and annually to file a certificate of      compliance with this requirement, in the prescribed form, signed by an      independent auditor, or other party approved by  CIMA; |
|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·  | to      prepare annual accounts in accordance with generally accepted accounting      principles, audited by an independent auditor approved by      CIMA; |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·  | to      seek the prior approval of CIMA in respect of the appointment of directors      and officers and to provide CIMA with information in connection therewith      and notification of any changesthereto; |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·  | to      notify CIMA as soon as reasonably practicable of any change of control of      Island Heritage; |
|--------------|---------------------------------------------------------------------------------------------------------|

| ·  | to      maintain appropriate business records in the Cayman    Islands; |
|--------------|-------------------------------------------------------------------------|

| ·  | to      pay an annual license feeand; |
|--------------|---------------------------------------|

| ·  | it      may not issue any dividends without prior approval from      CIMA.  In order to obtain approval Island Heritage must      demonstrate that the issuing of dividends would not render Island Heritage      insolvent or affect its ability to pay any future  claims. |
|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | Carry      on its insurance business in accordance with the terms of its      license |
|--------------------|---------------------------------------------------------------------------------------|

| ·   | Must      maintain adequate levels of approved investments to cover its technical      reserves, in line with the approved percentages and free of any burden,      and these must be expressed or liquidated in the appropriate currency      according to the currency matching rules set out in the Insurance      Law. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Must      submit a return of approved investments to the Superintendent of Insurance      quarterly. The return must be in the prescribed format, signed by the      managing director and one other director, or, if there is no managing      director, by a director and the general manager. The returns for the      second and fourth quarters of each financial year must be audited and      signed by the auditors. |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | An      annual return must be submitted within six months of Flagstone Alliance’s      financial year end. The annual return includes detailed analyses in the      prescribed form of assets, liabilities, income and expenses and must be      certified by Flagstone Alliance’s directors and actuary and accompanied by      the auditors’ report. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ITEM 1A.  RISK      FACTORS |   |
|----------------------------------|--------|

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| ● | election      of our directors is staggered, meaning that the members of only one      of the three classes of our directors are elected each year,      thus limiting your ability to replace      directors;  |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ● | the      total voting power of any U.S. shareholder owning more than 9.9% of our      common shares will be reduced below 9.9% of the total voting power of our      common shares; and                                             |

| ● | the      affirmative vote of at least 75% of the directors then in office will be      required to approve any merger, consolidation, amalgamation, continuation      or similar transaction involving theCompany. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ·   | an      exemption for foreign dividends received by large and medium sized groups      on a wide range of ordinary shareholdings, subject to certain targeted      anti-avoidance rules; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | a      restriction on the deductibility of interest costs in computing taxable      profits for UK tax purposes, whereby UK tax deductions for intra-group      financing expenses will be restricted by reference to (if less) the amount      of external finance expenses of the non-UK members of the group, net of      the worldwide external finance income of the group as a whole. This      so-called “worldwide debt cap” is expected to be subject to some      exceptions for, inter alia, certain borrowings by insurance companies to      fund working capital and regulatorycapital. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| ITEM 1B.  UNRESOLVED      STAFF COMMENTS |   |
|-----------------------------------------------|--------|

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

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

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

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EM 5.   MARKET FOR REGISTRANT’S COMMON EQUITY,RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIES

|                                              |   | 2008 |   |   | 2007   |   |
|---------------------------------------------------|--------|------|--------|--------|--------|--------|
|                                              |   | High |   |   | Low    |   |   | High |   |   | Low |   |
| First      quarter (commencing March 30 for 2007) |   | $    | 14.26  |   |   | $      | 11.96 |   |   | $ | 13.70 |   |   | $ | 12.80 |   |
| Second      quarter                               |   | $    | 13.00  |   |   | $      | 11.67 |   |   | $ | 13.90 |   |   | $ | 12.80 |   |
| Third      quarter                                |   | $    | 13.34  |   |   | $      | 10.27 |   |   | $ | 13.80 |   |   | $ | 12.13 |   |
| Fourth      quarter                               |   | $    | 11.10  |   |   | $      | 7.26 |   |   | $ | 14.72 |   |   | $ | 12.30 |   |

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| Period             |   | Total      number ofshares      purchased |    |   | Average      pricepaid      per share |   |    | Total      number of shares purchased as part of publicly announced      program |   |   | Maximum      approximate dollar value ($ millions) of shares that may yet be      purchased |   |
|--------------------|--------|-------------------------------------------|---------|--------|---------------------------------------|--------|---------|----------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------------------|--------|
| October      2008  |   |                                      | 660,429 |   |                                  | $      | 9.52    |                                                                             |   |   | 660,429                                                                                     |   |   | $ | 53.7 |   |
| November      2008 |   |                                      | 37,170  |   |                                  | $      | 8.81    |                                                                             |   |   | 697,599                                                                                     |   |   | $ | 53.4 |   |
| December      2008 |   |                                      | -       |   |                                  |   | -  |                                                                             |   |   | -                                                                                      |   |   |   | -  |   |
|               |   |                                      |    |   |                                  |   |    |                                                                             |   |   |                                                                                        |   |   |   |   |   |
| Total              |   |                                      | 697,599 |   |                                  | $      | 9.48    |                                                                             |   |   | 697,599                                                                                     |   |   | $ | 53.4 |   |

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ITEM 6.    SELECTED FINANCIALDATA

|                                                                  |   | Year      ended December 31, 2008 |      |   | Year      ended December 31, 2007 |   |      | Year      ended December 31, 2006 |   |   | Period      October 4, 2005 through December 31, 2005 |   |
|-----------------------------------------------------------------------|--------|-----------------------------------|-----------|--------|-----------------------------------|--------|-----------|-----------------------------------|--------|--------|-------------------------------------------------------|--------|
| Summary      Statement of Operation Data:                             |   |                              |      |   |                              |   |      |                              |   |   |                                                  |   |
| Net      premiums written                                             |   | $                                 | 694,698   |   |                              | $      | 527,031   |                              |   | $      | 282,498                                               |   |   | $ | - |   |
| Net      (loss) income                                                |   | $                                 | (187,302  | )      |                              | $      | 167,922   |                              |   | $      | 152,338                                               |   |   | $ | (12,384 | ) |
|                                                                  |   |                              |      |   |                              |   |      |                              |   |   |                                                  |   |   |   |   |   |
| Net      (loss) income per common share outstanding—Basic       |   | $                                 | (2.20     | )      |                              | $      | 2.05      |                              |   | $      | 2.17                                                  |   |   | $ | (0.22 | ) |
| Dividends      declared per common share                              |   | $                                 | 0.16      |   |                              | $      | 0.08      |                              |   | $      | -                                                     |   |   | $ | - |   |
|                                                                  |   |                              |      |   |                              |   |      |                              |   |   |                                                  |   |   |   |   |   |
|                                                                  |   |                              |      |   |                              |   |      |                              |   |   |                                                  |   |   |   |   |   |
|                                                                  |   | As      at December 31, 2008      |      |   | As      at December 31, 2007      |   |      | As      at December 31, 2006      |   |   | As      at December 31, 2005                          |   |
|                                                                  |   |                                   |      |   |                              |   |      |
| Summary      Balance Sheet Data:                                      |   |                              |      |   |                              |   |      |                              |   |   |                                                  |   |   |   |   |   |
| Total      assets                                                     |   | $                                 | 2,215,970 |   |                              | $      | 2,103,773 |                              |   | $      | 1,144,502                                             |   |   | $ | 548,356 |   |
| Total      investments, cash and cash equivalents and restricted cash |   | $                                 | 1,700,843 |   |                              | $      | 1,865,698 |                              |   | $      | 1,018,126                                             |   |   | $ | 548,255 |   |
| Long      term obligations                                            |   | $                                 | 252,575   |   |                              | $      | 264,889   |                              |   | $      | 137,159                                               |   |   | $ | - |   |
| Loss      and loss adjustment reserves                                |   | $                                 | 411,565   |   |                              | $      | 180,978   |                              |   | $      | 22,516                                                |   |   | $ | - |   |
| Shareholders'      equity                                             |   | $                                 | 986,013   |   |                              | $      | 1,210,485 |                              |   | $      | 864,519                                               |   |   | $ | 547,634 |   |

----

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| (1)   | Property      Catastrophe Reinsurance. Property catastrophe reinsurance contracts are      typically “all risk” in nature, meaning that they protect against losses      from earthquakes and hurricanes, as well as other natural and man-made      catastrophes such as tornados, wind, fires, winter storms, and floods      (where the contract specifically provides for coverage).  Losses      on these contracts typically stem from direct property damage and business      interruption. To date, property catastrophe reinsurance has been our most      important product.  We write property catastrophe reinsurance      primarily on an excess of loss basis.  In the event of a loss,      most contracts of this type require us to cover a subsequent event and      generally provide for a premium to reinstate the coverage under the      contract, which is referred to as a “reinstatement      premium”.  These contracts typically cover only specific regions      or geographical areas, but may be on a worldwide  basis. |
|-----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Property      Reinsurance. We also provide reinsurance on a pro rata share basis and per      risk excess of loss basis. Per risk reinsurance protects insurance      companies on their primary insurance risks on a single risk basis, for      example, covering a single large building.  All property per      risk and pro rata business is written with loss limitation provisions,      such as per occurrence or per event caps, which serve to limit exposure to      catastrophic events. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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Index

| (3)   | Short-tail      Specialty and Casualty Reinsurance. We also provide short-tail specialty      and casualty reinsurance for risks such as aviation, energy, accident and      health, satellite, marine and workers’ compensation      catastrophe.  Most short-tail specialty and casualty reinsurance      is written with loss limitation provisions. During 2009, we expect to      continue increasing our specialty writings based on our assessment of the      market environment. |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|              ●       | Paid Loss Development      Method.    We estimate ultimate losses by      calculating past paid loss development factors and applying them to      exposure periods with further expected paid loss development. The paid      loss development method assumes that losses are paid at a consistent rate.      It provides an objective test of reported loss projections because paid      losses contain no reserve estimates. For many coverages, claim payments      are made very slowly and it may take years for claims to be fully reported      and settled. This method is a key input into the Bornheutter-Ferguson paid      loss method discussed below.                                                                                                                                                                                                                                                                                   |
|---------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|              ●       | Reported Loss Development      Method.    We estimate ultimate losses by      calculating past reported loss development factors and applying them to      exposure periods with further expected reported loss development. Since      reported losses include payments and case reserves, changes in both of      these amounts are incorporated in this method. This approach provides a      larger volume of data to estimate ultimate losses than paid loss methods.      Thus, reported loss patterns may be less varied than paid loss patterns,      especially for coverages that have historically been paid out over a long      period of time but for which claims are reported relatively early and case      loss reserve estimates established. This method is a key input into the      Bornheutter-Ferguson reported loss method discussed below.                                                                                    |
|              ●       | Expected Loss Ratio      Method.    To estimate ultimate losses under      the expected loss ratio method, we multiply earned premiums by an expected      loss ratio. The expected loss ratio is selected utilizing industry data,      historical company data and professional judgment. The Company uses this      method for lines of business and contracts where there are no historical      losses or where past loss experience is not credible.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|              ●       | Bornheutter-Ferguson Paid Loss      Method.    The Bornheutter-Ferguson paid loss      method is a combination of the paid loss development method and the      expected loss ratio method. The amount of losses yet to be paid is based      upon the expected loss ratios. These expected loss ratios are modified to      the extent paid losses to date differ from what would have been expected      to have been paid based upon the selected paid loss development pattern.      This method avoids some of the distortions that could result from a large      development factor being applied to a small base of paid losses to      calculate ultimate losses. This method will react slowly if actual loss      ratios develop differently because of major changes in rate levels,      retentions or deductibles, the forms and conditions of reinsurance      coverage, the types of risks covered or a variety of other      changes.  |
|              ●  | Bornheutter-Ferguson Reported      Loss Method.    The Bornheutter-Ferguson      reported loss method is similar to the Bornheutter-Ferguson paid loss      method with the exception that it uses reported losses and reported loss      development factors. The Company uses this method for lines of business      and contracts where there are limited historical paid and reported losses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

|   | (i)   | the      cedent’s business practices will proceed as in the past with no material      changes either in submission of accounts or cash flow      receipts;                        |   |
|--------|-------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   | (ii)  | case      reserve reporting practices, particularly the methodologies used to      establish and report case reserves, are unchanged from historical      practices;                     |   |
|   | (iii) | for      the expected loss ratio method, ultimate losses vary proportionately with      premiums;                                                                                        |   |   |   |
|   | (iv)  | historical      levels of claim inflation can be projected into thefuture;                                                                                                               |   |   |   |   |
|   | (v)   | in      cases where benchmarks are used, they are derived from the experience of      similar business; and                                                                              |   |   |
|   | (vi)  | we      form a credible initial expectation of the ultimate loss ratios      through a review of pricing information supplemented by qualitative      information on market events. |

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|                                              |   | For      the year ended December 31, |   |
|---------------------------------------------------|--------|--------------------------------------|--------|
| U.S.      dollar strengthened (weakened) against: |   | 2008                                 |   |   | 2007 |   |
|                                              |   |                                 |   |   |   |   |
| Canadian      dollar                              |   |                                 | 20.1   | % |   |   | -18.1 | % |
| Swiss      franc                                  |   |                                 | -6.4   | % |   |   | -7.7 | % |
| Euro                                              |   |                                 | 4.9    | % |   |   | -10.8 | % |
| British      pound                                |   |                                 | 27.8   | % |   |   | -1.6 | % |
| Indian      rupee                                 |   |                                 | 19.1   | % |   |   | -11.9 | % |
| South      African rand                           |   |                                 | 25.8   | % |   |   | N/A |   |

----

Index

|                                                                                                                                                                                                                 |   | For      the year ended December 31, |     |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------|----------|
|                                                                                                                                                                                                                 |   | 2008                                 |     |   | 2007 |   |   | 2006 |   |
| Highlights:                                                                                                                                                                                                          |   |                                 |     |   |   |   |   |   |   |
| Underwriting      income(1)                                                                                                                                                                                          |   |                                 | 73,385   |   |   |   | 133,953 |   |   |   | 101,656 |   |
| Net      investment income                                                                                                                                                                                           |   |                                 | 51,398   |   |   |   | 73,808 |   |   |   | 34,212 |   |
| Net      realized and unrealized (losses) gains - investments                                                                                                                                                        |   |                                 | (272,206 | ) |   |   | 17,174 |   |   |   | 10,304 |   |
| Net      realized and unrealized gains (losses) - other                                                                                                                                                              |   |                                 | 11,617   |   |   |   | (9,821 | ) |   |   | 1,943 |   |
| Interest      expense                                                                                                                                                                                                |   |                                 | (18,297  | ) |   |   | (18,677 | ) |   |   | (4,648 | ) |
| Net      foreign exchange (losses) gains                                                                                                                                                                             |   |                                 | (21,477  | ) |   |   | 5,289 |   |   |   | 2,079 |   |
| Provision      for income tax                                                                                                                                                                                        |   |                                 | (1,178   | ) |   |   | (783 | ) |   |   | (128 | ) |
| Minority      interest                                                                                                                                                                                               |   |                                 | (13,599  | ) |   |   | (35,794 | ) |   |   | - |   |
| Net      (loss) income                                                                                                                                                                                               |   |                                 | (187,302 | ) |   |   | 167,922 |   |   |   | 152,338 |   |
|                                                                                                                                                                                                                 |   |                                 |     |   |   |   |   |   |   |   |   |   |
| Key      Ratios                                                                                                                                                                                                      |   |                                 |     |   |   |   |   |   |   |   |   |   |
| Loss      ratio(2)                                                                                                                                                                                                   |   |                                 | 58.1     | % |   |   | 40.4 | % |   |   | 13.9 | % |
| Acquisition      cost ratio(3)                                                                                                                                                                                       |   |                                 | 16.2     | % |   |   | 17.2 | % |   |   | 15.6 | % |
| Combined      ratio(4)                                                                                                                                                                                               |   |                                 | 89.4     | % |   |   | 72.8 | % |   |   | 47.6 | % |
|                                                                                                                                                                                                                 |   |                                 |     |   |   |   |   |   |   |   |   |   |
| (1)      Underwriting income is calculated as net premiums earned plus other      reinsurance related income less loss and loss adjustment expenses,      acquisition costs and general and administrative expenses. |   |
| (2)      The loss ratio is calculated by dividing loss and loss adjustment expenses      (including estimates for IBNR losses) by net premiums    earned.                                                            |   |
| (3)      The acquisition ratio is calculated by dividing acquisition costs by net      premiums earned.                                                                                                              |   |                                 |     |   |   |   |   |   |   |
| (4)      The combined ratio is the sum of the loss and loss adjustment expenses,      acquisition costs and general and administration expenses divided by net      premiums earned.                                 |   |

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Index

|                                                                                                                                                                                                                                                           |   | Year      Ended December 31, |      |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|-----------|
|                                                                                                                                                                                                                                                           |   | 2008                         |      |   | 2007 |   |   | 2006 |   |
|                                                                                                                                                                                                                                                           |   | Reinsurance                  |      |   | Insurance |   |   | Inter-segment      Eliminations (1) |   |   | Total |   |   | Reinsurance |   |   | Insurance |   |   | Inter-segment      Eliminations (1) |   |   | Total |   |   | Total |   |
|                                                                                                                                                                                                                                                           |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross      premiums written                                                                                                                                                                                                                                    |   | $                            | 740,169   |   |   | $ | 76,926 |   |   | $ | (35,206 | ) |   | $ | 781,889 |   |   | $ | 544,255 |   |   | $ | 33,026 |   |   | $ | (131 | ) |   | $ | 577,150 |   |   | $ | 302,489 |   |
| Premiums      ceded                                                                                                                                                                                                                                            |   |                         | (46,638   | ) |   |   | (75,759 | ) |   |   | 35,206 |   |   |   | (87,191 | ) |   |   | (30,592 | ) |   |   | (20,375 | ) |   |   | 848 |   |   |   | (50,119 | ) |   |   | (19,991 | ) |
| Net      premiums written                                                                                                                                                                                                                                      |   |                         | 693,531   |   |   |   | 1,167 |   |   |   | - |   |   |   | 694,698 |   |   |   | 513,663 |   |   |   | 12,651 |   |   |   | 717 |   |   |   | 527,031 |   |   |   | 282,498 |   |
| Net      premiums earned                                                                                                                                                                                                                                       |   | $                            | 641,500   |   |   | $ | 12,668 |   |   | $ | - |   |   | $ | 654,168 |   |   | $ | 464,200 |   |   | $ | 13,031 |   |   | $ | (94 | ) |   | $ | 477,137 |   |   | $ | 192,063 |   |
| Other      insurance related income                                                                                                                                                                                                                            |   |                         | 305       |   |   |   | 13,247 |   |   |   | (9,691 | ) |   |   | 3,861 |   |   |   | 1,182 |   |   |   | 3,246 |   |   |   | - |   |   |   | 4,428 |   |   |   | 933 |   |
| Loss      and loss adjustment expenses                                                                                                                                                                                                                         |   |                         | 377,228   |   |   |   | 2,656 |   |   |   | - |   |   |   | 379,884 |   |   |   | 191,269 |   |   |   | 1,590 |   |   |   | - |   |   |   | 192,859 |   |   |   | 26,660 |   |
| Acquisition      costs                                                                                                                                                                                                                                         |   |                         | 101,528   |   |   |   | 13,897 |   |   |   | (9,691 | ) |   |   | 105,734 |   |   |   | 75,880 |   |   |   | 6,506 |   |   |   | (94 | ) |   |   | 82,292 |   |   |   | 29,939 |   |
| General      and administrative expenses                                                                                                                                                                                                                       |   |                         | 90,026    |   |   |   | 9,000 |   |   |   | - |   |   |   | 99,026 |   |   |   | 68,929 |   |   |   | 3,532 |   |   |   | - |   |   |   | 72,461 |   |   |   | 34,741 |   |
| Underwriting      Income                                                                                                                                                                                                                                       |   | $                            | 73,023    |   |   | $ | 362 |   |   | $ | - |   |   | $ | 73,385 |   |   | $ | 129,304 |   |   | $ | 4,649 |   |   | $ | - |   |   | $ | 133,953 |   |   | $ | 101,656 |   |
|                                                                                                                                                                                                                                                           |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss      ratio (2)                                                                                                                                                                                                                                            |   |                         | 58.8      | % |   |   | 10.2 | % |   |   |   |   |   |   | 58.1 | % |   |   | 41.2 | % |   |   | 9.8 | % |   |   |   |   |   |   | 40.4 | % |   |   | 13.9 | % |
| Acquisition      cost ratio (2)                                                                                                                                                                                                                                |   |                         | 15.8      | % |   |   | 53.6 | % |   |   |   |   |   |   | 16.2 | % |   |   | 16.3 | % |   |   | 40.0 | % |   |   |   |   |   |   | 17.2 | % |   |   | 15.6 | % |
| General      and administrative expense ratio (2)                                                                                                                                                                                                              |   |                         | 14.0      | % |   |   | 34.7 | % |   |   |   |   |   |   | 15.1 | % |   |   | 14.9 | % |   |   | 21.7 | % |   |   |   |   |   |   | 15.2 | % |   |   | 18.1 | % |
| Combined      ratio (2)                                                                                                                                                                                                                                        |   |                         | 88.6      | % |   |   | 98.5 | % |   |   |   |   |   |   | 89.4 | % |   |   | 72.4 | % |   |   | 71.5 | % |   |   |   |   |   |   | 72.8 | % |   |   | 47.6 | % |
| Total      assets                                                                                                                                                                                                                                              |   | $                            | 2,167,853 |   |   | $ | 48,117 |   |   |   |   |   |   | $ | 2,215,970 |   |   | $ | 2,034,077 |   |   | $ | 69,696 |   |   |   |   |   |   | $ | 2,103,773 |   |   | $ | 1,144,502 |   |
|                                                                                                                                                                                                                                                           |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reconciliation:                                                                                                                                                                                                                                                |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Underwriting      Income                                                                                                                                                                                                                                       |   |                         |      | $ | 73,385 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 133,953 |   |   | $ | 101,656 |   |
| Net      investment income                                                                                                                                                                                                                                     |   |                         |      |   | 51,398 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 73,808 |   |   |   | 34,212 |   |
| Net      realized and unrealized (losses) gains - investments                                                                                                                                                                                                  |   |                         |      |   | (272,206 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 17,174 |   |   |   | 10,304 |   |
| Net      realized and unrealized gains (losses) - other                                                                                                                                                                                                        |   |                         |      |   | 11,617 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (9,821 | ) |   |   | 1,943 |   |
| Other      income                                                                                                                                                                                                                                              |   |                         |      |   |   |   |   |   |   |   |   |   |   |   | 4,354 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,383 |   |   |   | 5,166 |   |
| Interest      expense                                                                                                                                                                                                                                          |   |                         |      |   |   |   |   |   |   |   |   |   |   |   | (18,297 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (18,677 | ) |   |   | (4,648 | ) |
| Net      foreign exchange (losses) gains                                                                                                                                                                                                                       |   |                         |      |   | (21,477 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 5,289 |   |   |   | 2,079 |   |
| (Loss)      Income before income taxes, minority interest and interest in earnings of      equity investments                                                                                                                                                  |   |                         | $         | (171,226 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 203,109 |   |   | $ | 150,712 |   |
|                                                                                                                                                                                                                                                           |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1)      Inter segment eliminations for 2008 relate to a quota share      arrangement between Flagstone Suisse and Island Heritage. For 2007 the      eliminations relate to reinsurance purchased by Island Heritage from      Flagstone Reinsurance Limited. |   |
| (2)      For insurance segment all ratios calculated using expenses divided by net      premiums earned plus other insurance related income.                                                                                                                   |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

Index

|                                   |   | Year      Ended December 31, 2008 |    |   | Year      Ended December 31, 2007 |   |   | Year      Ended December 31, 2006 |   |
|----------------------------------------|--------|-----------------------------------|---------|--------|-----------------------------------|--------|--------|-----------------------------------|--------|
|                                   |   | Gross      premiums written       |    |   | Percentage      of total          |   |   | Gross      premiums written       |   |   | Percentage      of total |   |   | Gross      premiums written |   |   | Percentage      of total |   |
|                                   |   |                              |    |   |                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |
| Line of      business                  |   |                              |    |   |                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |
| Property      catastrophe              |   | $                                 | 457,549 |   |                              |   | 58.5   | %                                 |   | $ | 378,671 |   |   |   | 65.6 | % |   | $ | 219,102 |   |   |   | 72.4 | % |
| Property                               |   |                              | 94,706  |   |                              |   | 12.1   | %                                 |   |   | 94,503 |   |   |   | 16.4 | % |   |   | 56,417 |   |   |   | 18.7 | % |
| Short-tail      specialty and casualty |   |                              | 152,708 |   |                              |   | 19.5   | %                                 |   |   | 71,081 |   |   |   | 12.3 | % |   |   | 26,970 |   |   |   | 8.9 | % |
| Insurance                              |   |                              | 76,926  |   |                              |   | 9.9    | %                                 |   |   | 32,895 |   |   |   | 5.7 | % |   |   | - |   |   |   | 0.0 | % |
| Total                                  |   | $                                 | 781,889 |   |                              |   | 100.0  | %                                 |   | $ | 577,150 |   |   |   | 100.0 | % |   | $ | 302,489 |   |   |   | 100.0 | % |

----

Index

|                                    |   | Year      Ended December 31, 2008 |    |   | Year      Ended December 31, 2007 |   |   | Year      Ended December 31, 2006 |   |
|-----------------------------------------|--------|-----------------------------------|---------|--------|-----------------------------------|--------|--------|-----------------------------------|--------|
|                                    |   | Gross      premiums written       |    |   | Percentage      of total          |   |   | Gross      premiums written       |   |   | Percentage      of total |   |   | Gross      premiums written |   |   | Percentage      of total |   |
|                                    |   |                              |    |   |                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |
| Geographic area of risk      insured(1) |   |                              |    |   |                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |
| Caribbean(2)                            |   | $                                 | 88,482  |   |                              |   | 11.3   | %                                 |   | $ | 48,103 |   |   |   | 8.3 | % |   | $ | 10,291 |   |   |   | 3.4 | % |
| Europe                                  |   |                              | 104,185 |   |                              |   | 13.4   | %                                 |   |   | 79,894 |   |   |   | 13.8 | % |   |   | 45,737 |   |   |   | 15.1 | % |
| Japan      and Australasia              |   |                              | 47,866  |   |                              |   | 6.1    | %                                 |   |   | 39,547 |   |   |   | 6.9 | % |   |   | 31,690 |   |   |   | 10.5 | % |
| North      America                      |   |                              | 359,684 |   |                              |   | 46.0   | %                                 |   |   | 297,928 |   |   |   | 51.6 | % |   |   | 160,384 |   |   |   | 53.0 | % |
| Worldwide      risks(3)                 |   |                              | 153,442 |   |                              |   | 19.6   | %                                 |   |   | 99,365 |   |   |   | 17.2 | % |   |   | 37,815 |   |   |   | 12.5 | % |
| Other                                   |   |                              | 28,230  |   |                              |   | 3.6    | %                                 |   |   | 12,313 |   |   |   | 2.2 | % |   |   | 16,572 |   |   |   | 5.5 | % |
| Total                                   |   | $                                 | 781,889 |   |                              |   | 100.0  | %                                 |   | $ | 577,150 |   |   |   | 100.0 | % |   | $ | 302,489 |   |   |   | 100.0 | % |

| (1) | Except      as otherwise noted, each of these categories includes contracts that cover      risks located primarily in the designated geographic area. |   |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| (2) | Gross      written premiums related to the Insurance segment are included in the      Caribbean geographic area.                                       |   |
| (3) | This      geographic area includes contracts that cover risks in two or more      geographic zones.                                                    |

----

Index

| a.  | Property      Catastrophe Reinsurance |
|----------|---------------------------------------|

----

Index

| b. | Property      Reinsurance |
|----|---------------------------|

|   | c.                Short-tail Specialty and CasualtyReinsurance |
|--------|------------------------------------------------------------------------------------------------------------------|

----

Index

----

Index

|                                          |   | Year      ended December 31, |   |
|-----------------------------------------------|--------|------------------------------|--------|
|                                          |   | 2008                         |   |   | 2007 |   |   | 2006 |   |
|                                          |   |                         |   |   |   |   |   |   |   |
| Loss      ratio                               |   |                         | 58.8   | % |   |   | 41.2 | % |   |   | 13.9 | % |
| Acquisition      cost ratio                   |   |                         | 15.8   | % |   |   | 16.3 | % |   |   | 15.6 | % |
| General      and administration expense ratio |   |                         | 14.0   | % |   |   | 14.9 | % |   |   | 18.1 | % |
| Combined      ratio                           |   |                         | 88.6   | % |   |   | 72.4 | % |   |   | 47.6 | % |

| a.   | Loss      and Loss Adjustment Expenses |
|----------------|----------------------------------------|

| ● | losses      paid, which are actual cash payments to insureds, net of recoveries, if      any, from our own reinsurers;                                                                                                                                                                                             |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ● | movement      in outstanding loss or case reserves, which represent the change in      management’s best estimate of the likely settlement amount for reported      claims, less the portion that can be recovered from reinsurers;      and                                                                 |
| ● | movement      in IBNR reserves, which are reserves established by us for claims that are      not yet reported but can reasonably be expected to have occurred based on      industry information, management’s experience and actuarial evaluation,      less expected recoveries from reinsurers, if  any. |

----

Index

| b.   | Acquisition      Costs |
|----------------|------------------------|

| c.  | General      and Administrative Expenses |
|----------|------------------------------------------|

----

Index

| a.   | Loss      and Loss Adjustment Expenses |
|----------------|----------------------------------------|

----

Index

| b.   | Acquisition      Costs |
|----------------|------------------------|

| c.   | General      and Administrative Expenses |
|----------------|------------------------------------------|

----

Index

| a.   | Net      investment income |
|----------------|----------------------------|

|                              |   | Year      ended December 31, |   |
|-----------------------------------|--------|------------------------------|--------|
|                              |   | 2008                         |   |   | 2007 |   |   | 2006 |   |
| Interest      and dividend income |   |                         |   |   |   |   |   |   |   |
| Cash      and cash equivalents    |   | $                            | 13,498 |   |   | $ | 12,911 |   |   | $ | 18,176 |   |
| Fixed      maturities             |   |                         | 30,579 |   |   |   | 45,830 |   |   |   | 13,380 |   |
| Short      term                   |   |                         | 138    |   |   |   | 150 |   |   |   | 3,440 |   |
| Equity      investments           |   |                         | 79     |   |   |   | 308 |   |   |   | 381 |   |
| Other      investments            |   |                         | 518    |   |   |   | 7,456 |   |   |   | - |   |
| Amortization      income          |   |                         |   |   |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents    |   |                         | -      |   |   |   | - |   |   |   | 11 |   |
| Fixed      maturities             |   |                         | 11,205 |   |   |   | 8,128 |   |   |   | (155 | ) |
| Short      term                   |   |                         | 428    |   |   |   | 102 |   |   |   | - |   |
| Other      investments            |   |                         | 23     |   |   |   | - |   |   |   | 27 |   |
| Investment      expenses          |   |                         | (5,070 | ) |   |   | (1,077 | ) |   |   | (1,048 | ) |
| Net      investment income        |   | $                            | 51,398 |   |   | $ | 73,808 |   |   | $ | 34,212 |   |

----

Index

|        b.    | Net      realized and unrealized gains and losses –  investments |
|----------------------------------|------------------------------------------------------------------------|

|                                                                                         |   | Year      ended December 31, |     |
|----------------------------------------------------------------------------------------------|--------|------------------------------|----------|
|                                                                                         |   | 2008                         |     |   | 2007 |   |   | 2006 |   |
|                                                                                         |   |                         |     |   |   |   |   |   |   |
| Net      realized losses on fixed maturities                                                 |   | $                            | (9,143   | ) |   | $ | (7,252 | ) |   | $ | (1,274 | ) |
| Net      unrealized (losses) gains on fixed maturities                                       |   |                         | (14,130  | ) |   |   | 15,069 |   |   |   | - |   |
| Net      realized (losses) gains on equities                                                 |   |                         | (52,410  | ) |   |   | 9,362 |   |   |   | 2,207 |   |
| Net      unrealized  (losses) gains on equities                                    |   |                         | (2,401   | ) |   |   | 346 |   |   |   | - |   |
| Net      realized and unrealized (losses) gains on derivative instruments -      investments |   |                         | (164,016 | ) |   |   | (983 | ) |   |   | 8,382 |   |
| Net      realized and unrealized (losses) gains on otherinvestments                          |   |                         | (30,106  | ) |   |   | 632 |   |   |   | 989 |   |
| Total      net realized and unrealized (losses) gains                                        |   | $                            | (272,206 | ) |   | $ | 17,174 |   |   | $ | 10,304 |   |

|                                                                              |   | Year      ended December 31, |     |
|-----------------------------------------------------------------------------------|--------|------------------------------|----------|
|                                                                              |   | 2008                         |     |   | 2007 |   |   | 2006 |   |
|                                                                              |   |                         |     |   |   |   |   |   |   |
| Futures      contracts                                                            |   | $                            | (147,493 | ) |   | $ | 4,416 |   |   | $ | 8,516 |   |
| Swap      contracts                                                               |   |                         | (18,726  | ) |   |   | (4,590 | ) |   |   | - |   |
| Mortgage-backed      securities TBA                                               |   |                         | 2,203    |   |   |   | (809 | ) |   |   | (134 | ) |
| Net      realized and unrealized (losses) gains on derivatives -      investments |   | $                            | (164,016 | ) |   | $ | (983 | ) |   | $ | 8,382 |   |

----

Index

| Net      realized and unrealized gains and losses –other |
|----------------------------------------------------------------|

|                                                                      |   | Year      ended December 31, |   |
|---------------------------------------------------------------------------|--------|------------------------------|--------|
|                                                                      |   | 2008                         |   |   | 2007 |   |   | 2006 |   |
|                                                                      |   |                         |   |   |   |   |   |   |   |
| Swap      contracts                                                       |   | $                            | (2,136 | ) |   | $ | 2,446 |   |   | $ | 1,035 |   |
| Foreign      currency forward contracts                                   |   |                         | 7,095  |   |   |   | (14,016 | ) |   |   | 543 |   |
| Reinsurance      derivatives                                              |   |                         | 6,658  |   |   |   | 1,749 |   |   |   | 365 |   |
| Net      realized and unrealized gains (losses) on derivatives -    other |   | $                            | 11,617 |   |   | $ | (9,821 | ) |   | $ | 1,943 |   |

----

Index

----

Index

----

Index

----

Index

| ·   | Net      cash provided by operating activities of $228.4 million, including net      investment income of $51.4 million; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------|

| ·   | The      addition of $32.4 million of invested assets and cash equivalents      resulting from the consolidation of Flagstone Africa in    2008; |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The      addition of $62.5 million of invested assets and cash equivalents      resulting from the consolidation of Flagstone Alliance in      2008; |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | The      addition of $13.6 million of invested assets and cash equivalents      resulting from the consolidation of Marlborough in  2008; |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Total      net realized and unrealized (losses) gains - investments and net      realized and unrealized (losses) gains - other of $(260.6)      million; |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Net      financing activities of $40.6million; |
|--------------------|------------------------------------------------|

| ·   | Cash      paid for acquisitions of $115.6million; |
|--------------------|---------------------------------------------------|

| ·   | Net      purchase of fixed assets of $19.9million; |
|--------------------|----------------------------------------------------|

| ·   | Decrease      in payable for investments purchased of $34.0 million and an increase in      receivable for investments sold of $9.6 million;  and |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Net      realized and unrealized losses on designated hedges recorded directly into      the currency translation adjustment of $17.0  million. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|

----

Index

|                                       |   | As      at December 31, 2008 |    |
|--------------------------------------------|--------|------------------------------|---------|
|                                       |   |                         |    |   | Gross |   |   | Gross |   |   |   |   |
|                                       |   | Amortized                    |    |   | unrealized |   |   | unrealized |   |   |   |   |
|                                       |   | cost      or cost            |    |   | gains |   |   | losses |   |   | Fair      value |   |
| Fixed      maturities                      |   |                         |    |   |   |   |   |   |   |   |   |   |
| U.S.      government and government agency |   | $                            | 487,667 |   |   | $ | 9,533 |   |   | $ | (10,359 | ) |   | $ | 486,841 |   |
| Other      foreign governments             |   |                         | 15,109  |   |   |   | 104 |   |   |   | (7 | ) |   |   | 15,206 |   |
| Corporates                                 |   |                         | 139,057 |   |   |   | 4,298 |   |   |   | (2,931 | ) |   |   | 140,424 |   |
| Mortgage-backed      securities            |   |                         | 115,478 |   |   |   | 2,406 |   |   |   | (5,810 | ) |   |   | 112,074 |   |
| Asset-backed      securities               |   |                         | 30,481  |   |   |   | 35 |   |   |   | (706 | ) |   |   | 29,810 |   |
| Total      fixed maturities                |   | $                            | 787,792 |   |   | $ | 16,376 |   |   | $ | (19,813 | ) |   | $ | 784,355 |   |
|                                       |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Short      term investments                |   | $                            | 30,491  |   |   | $ | - |   |   | $ | (78 | ) |   | $ | 30,413 |   |
|                                       |   |                         |    |   |   |   |   |   |   |   | . |   |   |   |   |   |
| Equity      investments                    |   | $                            | 16,266  |   |   | $ | 784 |   |   | $ | (11,737 | ) |   | $ | 5,313 |   |

|                                       |   | As      at December 31, 2007 |      |
|--------------------------------------------|--------|------------------------------|-----------|
|                                       |   |                         |      |   | Gross |   |   | Gross |   |   |   |   |
|                                       |   | Amortized                    |      |   | unrealized |   |   | unrealized |   |   |   |   |
|                                       |   | cost      or cost            |      |   | gains |   |   | losses |   |   | Fair      value |   |
| Fixed      maturities                      |   |                         |      |   |   |   |   |   |   |   |   |   |
| U.S.      government and government agency |   | $                            | 479,462   |   |   | $ | 14,508 |   |   | $ | (1 | ) |   | $ | 493,969 |   |
| Other      foreign governments             |   |                         | 545       |   |   |   | 15 |   |   |   | (2 | ) |   |   | 558 |   |
| Corporates                                 |   |                         | 265,569   |   |   |   | 909 |   |   |   | (5,786 | ) |   |   | 260,692 |   |
| Mortgage-backed      securities            |   |                         | 198,242   |   |   |   | 2,807 |   |   |   | (2,315 | ) |   |   | 198,734 |   |
| Asset-backed      securities               |   |                         | 155,331   |   |   |   | 289 |   |   |   | (468 | ) |   |   | 155,152 |   |
| Total      fixed maturities                |   | $                            | 1,099,149 |   |   | $ | 18,528 |   |   | $ | (8,572 | ) |   | $ | 1,109,105 |   |
|                                       |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Short      term investments                |   | $                            | 23,660    |   |   | $ | 5 |   |   | $ | (49 | ) |   | $ | 23,616 |   |
|                                       |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity      investments                    |   | $                            | 73,603    |   |   | $ | 754 |   |   | $ | - |   |   | $ | 74,357 |   |

----

Index

|                               |   | As      at December 31, |   |
|------------------------------------|--------|-------------------------|--------|
|                               |   | 2008                    |   |   | 2007 |   |
|                               |   |                    |   |   |   |   |
| Investment      funds              |   | $                       | 9,805  |   |   | $ | 31,249 |   |
| Catastrophe      bonds             |   |                    | 39,174 |   |   |   | 36,619 |   |
| Real      estate investment trusts |   |                    | -      |   |   |   | 12,204 |   |
| Fixed      income fund             |   |                    | -      |   |   |   | 212,982 |   |
| Other      investments             |   |                    | 5,676  |   |   |   | 112 |   |
| Total      other investments       |   | $                       | 54,655 |   |   | $ | 293,166 |   |

|                        |   |   | As      at December 31, 2008 |   |   | As      at December 31, 2007 |   |
|-----------------------------|--------|--------|------------------------------|--------|--------|------------------------------|--------|
|                        |   |   | %      of Total fixed        |   |   |                         |   |   | %      of Total fixed |   |   |   |   |
|                        |   |   | maturity      investments    |   |   | Fair      values             |   |   | maturity      investments |   |   | Fair      values |   |
| Rating      Category        |   |   |                         |   |   |                         |   |   |   |   |   |   |   |
| AAA                         |   |   |                         | 82.5   | %      |                         | $      | 646,881 |   |   |   | 75.4 | % |   | $ | 836,122 |   |
| AA                          |   |   |                         | 3.2    | %      |                         |   | 24,868 |   |   |   | 9.5 | % |   |   | 105,769 |   |
|                        | A      |   |                         |   | 10.4   | %                            |   |   | 81,849 |   |   |   | 13.0 | % |   |   | 144,416 |   |
| BBB                         |   |   |                         | 3.9    | %      |                         |   | 30,434 |   |   |   | 2.1 | % |   |   | 22,797 |   |
| Below      investment grade |   |   |                         | 0.0    | %      |                         |   | 323 |   |   |   | 0.0 | % |   |   | - |   |
| Total                       |   |   |                         | 100.0  | %      |                         | $      | 784,355 |   |   |   | 100.0 | % |   | $ | 1,109,104 |   |

----

Index

|                                      |   | As      at December 31, |    |
|-------------------------------------------|--------|-------------------------|---------|
|                                      |   | 2008                    |    |   | 2007 |   |
|                                      |   | Amortized      Cost     |    |   | Fair      Value |   |   | Amortized      Cost |   |   | Fair      Value |   |
|                                      |   |                    |    |   |   |   |   |   |   |   |   |   |
| Due      within one year                  |   | $                       | 96,578  |   |   | $ | 96,660 |   |   | $ | 57,039 |   |   | $ | 57,033 |   |
| Due      after 1 through 5 years          |   |                    | 305,089 |   |   |   | 301,166 |   |   |   | 373,643 |   |   |   | 372,338 |   |
| Due      after 5 through 10 years         |   |                    | 142,447 |   |   |   | 142,939 |   |   |   | 202,990 |   |   |   | 209,821 |   |
| Due      after 10 years                   |   |                    | 128,210 |   |   |   | 132,119 |   |   |   | 135,564 |   |   |   | 139,643 |   |
| Mortgage      and asset-backed securities |   |                    | 145,959 |   |   |   | 141,884 |   |   |   | 353,573 |   |   |   | 353,886 |   |
| Total                                     |   | $                       | 818,283 |   |   | $ | 814,768 |   |   | $ | 1,122,809 |   |   | $ | 1,132,721 |   |

|                                                       |   | Year      ended December 31, |    |
|------------------------------------------------------------|--------|------------------------------|---------|
|                                                       |   | 2008                         |    |   | 2007 |   |
|                                                       |   |                         |    |   |   |   |
| Gross      liability at beginning of year                  |   | $                            | 180,978 |   |   | $ | 22,516 |   |
| Reinsurance      recoverable at beginning of year          |   |                         | (1,355  | ) |   |   | - |   |
| Net      liability at beginning of year                    |   |                         | 179,623 |   |   |   | 22,516 |   |
|                                                       |   |                         |    |   |   |   |   |   |
| Net      incurred losses related to:                       |   |                         |    |   |   |   |   |   |
| Current      year                                          |   |                         | 395,561 |   |   |   | 196,734 |   |
| Prior      year                                            |   |                         | (15,677 | ) |   |   | (3,875 | ) |
|                                                       |   |                         | 379,884 |   |   |   | 192,859 |   |
| Net      paid losses related to:                           |   |                         |    |   |   |   |   |   |
| Current      year                                          |   |                         | 137,158 |   |   |   | 32,664 |   |
| Prior      year                                            |   |                         | 73,703  |   |   |   | 6,948 |   |
|                                                       |   |                         | 210,861 |   |   |   | 39,612 |   |
|                                                       |   |                         |    |   |   |   |   |   |
| Effects      of foreign exchange rate changes              |   |                         | (13,685 | ) |   |   | 2,726 |   |
| Net      loss reserve on acquisition of Island Heritage    |   |                         | -       |   |   |   | 1,134 |   |
| Net      loss reserve on acquisition of Flagstone Africa   |   |                         | 7,301   |   |   |   | - |   |
| Net      loss reserve on acquisition of Flagstone Alliance |   |                         | 52,881  |   |   |   | - |   |
| Net      liability at end of year                          |   |                         | 395,143 |   |   |   | 179,623 |   |
| Reinsurance      recoverable at end of year                |   |                         | 16,422  |   |   |   | 1,355 |   |
| Gross      liability at end of year                        |   | $                            | 411,565 |   |   | $ | 180,978 |   |

----

Index

----

Index

|   | ● | is      downgraded by A.M. Best to a financial strength rating below A- and      fails to renew more than 51% of its net premiums written during any      twelve-month period;             |
|--------|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | ● | is      downgraded by A.M. Best to a financial strength rating below A- and sells      more than 51% of its rights to renew net premiums written over the course      of a twelve-month period; |
|   | ● | is      downgraded by A.M. Best to a financial strength rating below B++;      or                                                                                                               |   |
|   | ● | withdraws      its financial strength rating by A.M. Best.                                                                                                                                      |   |

|                      |   | As      at December 31, 2008 |      |   | As      at December 31, 2007 |   |
|---------------------------|--------|------------------------------|-----------|--------|------------------------------|--------|
| Long      term debt       |   | $                            | 252,575   |   |                         |   | 20.4 | % |   | $ | 264,889 |   |   |   | 18.0 | % |
| Shareholders'      equity |   |                         | 986,013   |   |                         |   | 79.6 | % |   |   | 1,210,485 |   |   |   | 82.0 | % |
| Total      Capital        |   | $                            | 1,238,588 |   |                         |   | 100.0 | % |   | $ | 1,475,374 |   |   |   | 100.0 | % |

----

Index

----

Index

----

Index

----

Index

|                                              |   | Less      than |    |   |                    | 1-3    |    |              |   | 3-5    |         |   | More      than |   |    |   |   |
|---------------------------------------------------|--------|----------------|---------|--------|-------------------------|--------|---------|-------------------|--------|--------|--------------|--------|----------------|--------|---------|--------|--------|
|                                              |   | 1      year    |    |   |         years |   |    |        years |   |   | 5      years |   |           | Total  |    |
| Long      term debt - Interest(1)                 |   | $              | 12,182  |   |                    | $      | 24,357  |              |   | $      | 24,357       |   |           | $      | 281,143 |   |   | $ | 342,039 |   |
| Long      term debt - Principal                   |   |           | 755     |   |                    |   | -       |              |   |   | -            |   |           |   | 251,820 |   |   |   | 252,575 |   |
| Lease      obligations                            |   |           | 6,517   |   |                    |   | 11,140  |              |   |   | 9,555        |   |           |   | 11,070  |   |   |   | 38,282 |   |
| Loss      and loss adjustment expense reserves(2) |   |           | 243,038 |   |                    |   | 140,042 |              |   |   | 17,424       |   |           |   | 11,061  |   |   |   | 411,565 |   |
| Capital      commitments(3)                       |   |           | 14,673  |   |                    |   | 9,113   |              |   |   | -            |   |           |   | -       |   |   |   | 23,786 |   |
| Investment      commitments(4)                    |   |           | 4,196   |   |                    |   | -       |              |   |   | -            |   |           |   | -       |   |   |   | 4,196 |   |
| Total      contractual obligations                |   | $              | 281,361 |   |                    | $      | 184,653 |              |   | $      | 51,336       |   |           | $      | 555,094 |   |   | $ | 1,072,443 |   |

----

Index

----

Index

----

Index

----

Index

----

Index

|                                                                                                                                       | PAGE   |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                       |   |
| Report      of Independent Registered Public Accounting Firm                                                                               | 99     |
|                                                                                                                                       |   |
| Consolidated      Balance Sheets as at December 31, 2008 and 2007                                                                | 100    |
|                                                                                                                                       |   |
| Consolidated      Statements of Operations and Comprehensive (Loss) Income for the Years      Ended December 31, 2008, 2007, and 2006 | 101    |
|                                                                                                                                       |   |
| Consolidated      Statements of Changes in Shareholders’ Equity for the Years Ended      December 31, 2008, 2007 and 2006       | 102    |
|                                                                                                                                       |   |
| Consolidated      Statements of Cash Flows for the Years Ended December 31, 2008, 2007      and 2006                                  | 103    |
|                                                                                                                                       |   |
| Notes      to the Consolidated Financial Statements                                                                                        | 104    |
|                                                                                                                                       |   |

----

Index

----

Index

|                                                                                                                                       |   | As      at December 31, 2008 |      |   | As      at December 31, 2007 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|-----------|--------|------------------------------|--------|
|                                                                                                                                       |   |                         |      |   |                         |   |
| ASSETS                                                                                                                                     |   |                         |      |   |                         |   |
| Investments:                                                                                                                               |   |                         |      |   |                         |   |
| Fixed      maturities, at fair value (Amortized cost: 2008 - $787,792; 2007 -      $1,099,149)                                             |   | $                            | 784,355   |   |                         | $      | 1,109,105 |   |
| Short      term investments, at fair value (Amortized cost: 2008 - $30,491; 2007 -      $23,660)                                           |   |                         | 30,413    |   |                         |   | 23,616 |   |
| Equity      investments, at fair value (Cost: 2008 - $16,266; 2007 -      $73,603)                                                    |   |                         | 5,313     |   |                         |   | 74,357 |   |
| Other      investments                                                                                                                     |   |                         | 54,655    |   |                         |   | 293,166 |   |
| Total      Investments                                                                                                                     |   |                         | 874,736   |   |                         |   | 1,500,244 |   |
| Cash      and cash equivalents                                                                                                             |   |                         | 783,705   |   |                         |   | 362,622 |   |
| Restricted      cash                                                                                                                       |   |                         | 42,403    |   |                         |   | 2,832 |   |
| Premium      balances receivable                                                                                                           |   |                         | 218,287   |   |                         |   | 136,555 |   |
| Unearned      premiums ceded                                                                                                               |   |                         | 31,119    |   |                         |   | 14,608 |   |
| Reinsurance      recoverable                                                                                                               |   |                         | 16,422    |   |                         |   | 1,355 |   |
| Accrued      interest receivable                                                                                                           |   |                         | 7,226     |   |                         |   | 9,915 |   |
| Receivable      for investments sold                                                                                                       |   |                         | 9,634     |   |                         |   | - |   |
| Deferred      acquisition costs                                                                                                            |   |                         | 44,601    |   |                         |   | 30,607 |   |
| Funds      withheld                                                                                                                        |   |                         | 14,433    |   |                         |   | 6,666 |   |
| Goodwill                                                                                                                                   |   |                         | 17,141    |   |                         |   | 10,781 |   |
| Intangible      assets                                                                                                                     |   |                         | 32,873    |   |                         |   | 775 |   |
| Other      assets                                                                                                                          |   |                         | 123,390   |   |                         |   | 26,813 |   |
| Total      Assets                                                                                                                          |   | $                            | 2,215,970 |   |                         | $      | 2,103,773 |   |
|                                                                                                                                       |   |                         |      |   |                         |   |   |   |
| LIABILITIES                                                                                                                                |   |                         |      |   |                         |   |   |   |
| Loss      and loss adjustment expense reserves                                                                                             |   | $                            | 411,565   |   |                         | $      | 180,978 |   |
| Unearned      premiums                                                                                                                     |   |                         | 270,891   |   |                         |   | 175,607 |   |
| Insurance      and reinsurance balances payable                                                                                            |   |                         | 31,123    |   |                         |   | 12,088 |   |
| Payable      for investments purchased                                                                                                     |   |                         | 7,776     |   |                         |   | 41,750 |   |
| Long      term debt                                                                                                                        |   |                         | 252,575   |   |                         |   | 264,889 |   |
| Other      liabilities                                                                                                                     |   |                         | 58,577    |   |                         |   | 33,198 |   |
| Total      Liabilities                                                                                                                     |   |                         | 1,032,507 |   |                         |   | 708,510 |   |
|                                                                                                                                       |   |                         |      |   |                         |   |   |   |
| Minority      Interest                                                                                                                     |   |                         | 197,450   |   |                         |   | 184,778 |   |
|                                                                                                                                       |   |                         |      |   |                         |   |   |   |
| Commitments      and contingencies                                                                                                         |   |                         |      |   |                         |   |   |   |
|                                                                                                                                       |   |                         |      |   |                         |   |   |   |
| SHAREHOLDERS'      EQUITY                                                                                                                  |   |                         |      |   |                         |   |   |   |
| Common      voting shares, 150,000,000 authorized, $0.01 par value, issued and      outstanding(2008      - 84,801,732; 2007 - 85,309,107) |   |                         | 848       |   |                         |   | 853 |   |
| Additional      paid-in capital                                                                                                            |   |                         | 897,344   |   |                         |   | 905,316 |   |
| Accumulated      other comprehensive (loss) income                                                                                         |   |                         | (8,271    | )      |                         |   | 7,426 |   |
| Retained      earnings                                                                                                                     |   |                         | 96,092    |   |                         |   | 296,890 |   |
| Total Shareholders'      Equity                                                                                                            |   |                         | 986,013   |   |                         |   | 1,210,485 |   |
|                                                                                                                                       |   |                         |      |   |                         |   |   |   |
| Total      Liabilities, Minority Interest and Shareholders' Equity                                                                         |   | $                            | 2,215,970 |   |                         | $      | 2,103,773 |   |

----

Index

|                                                                                                                 |   | 2008   |       |   | 2007   |   |       | 2006   |   |
|----------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|
|                                                                                                                 |   |   |       |   |   |   |       |   |   |
| REVENUES                                                                                                             |   |   |       |   |   |   |       |   |   |
| Gross      premiums written                                                                                          |   | $      | 781,889    |   |   | $      | 577,150    |   |   | $ | 302,489 |   |
| Premiums      ceded                                                                                                  |   |   | (87,191    | )      |   |   | (50,119    | )      |   |   | (19,991 | ) |
| Net      premiums written                                                                                            |   |   | 694,698    |   |   |   | 527,031    |   |   |   | 282,498 |   |
| Change      in net unearned premiums                                                                                 |   |   | (40,530    | )      |   |   | (49,894    | )      |   |   | (90,435 | ) |
| Net      premiums earned                                                                                             |   |   | 654,168    |   |   |   | 477,137    |   |   |   | 192,063 |   |
| Net      investment income                                                                                           |   |   | 51,398     |   |   |   | 73,808     |   |   |   | 34,212 |   |
| Net      realized and unrealized (losses) gains - investments                                                        |   |   | (272,206   | )      |   |   | 17,174     |   |   |   | 10,304 |   |
| Net      realized and unrealized gains (losses) - other                                                              |   |   | 11,617     |   |   |   | (9,821     | )      |   |   | 1,943 |   |
| Other      income                                                                                                    |   |   | 8,215      |   |   |   | 5,811      |   |   |   | 6,099 |   |
| Total      revenues                                                                                                  |   |   | 453,192    |   |   |   | 564,109    |   |   |   | 244,621 |   |
|                                                                                                                 |   |   |       |   |   |   |       |   |   |   |   |   |
| EXPENSES                                                                                                             |   |   |       |   |   |   |       |   |   |   |   |   |
| Loss      and loss adjustment expenses                                                                               |   |   | 379,884    |   |   |   | 192,859    |   |   |   | 26,660 |   |
| Acquisition      costs                                                                                               |   |   | 105,734    |   |   |   | 82,292     |   |   |   | 29,939 |   |
| General      and administrative expenses                                                                             |   |   | 99,026     |   |   |   | 72,461     |   |   |   | 34,741 |   |
| Interest      expense                                                                                                |   |   | 18,297     |   |   |   | 18,677     |   |   |   | 4,648 |   |
| Net      foreign exchange losses (gains)                                                                             |   |   | 21,477     |   |   |   | (5,289     | )      |   |   | (2,079 | ) |
| Total      expenses                                                                                                  |   |   | 624,418    |   |   |   | 361,000    |   |   |   | 93,909 |   |
| (Loss)      income before income taxes, minority interest and interest in (loss)      earnings of equity investments |   |   | (171,226   | )      |   |   | 203,109    |   |   |   | 150,712 |   |
| Provision      for income tax                                                                                        |   |   | (1,178     | )      |   |   | (783       | )      |   |   | (128 | ) |
| Minority      interest                                                                                               |   |   | (13,599    | )      |   |   | (35,794    | )      |   |   | - |   |
| Interest      in (loss) earnings of equity investments                                                               |   |   | (1,299     | )      |   |   | 1,390      |   |   |   | 1,754 |   |
| NET      (LOSS) INCOME                                                                                               |   | $      | (187,302   | )      |   | $      | 167,922    |   |   | $ | 152,338 |   |
|                                                                                                                 |   |   |       |   |   |   |       |   |   |   |   |   |
| Change      in net unrealized losses                                                                                 |   |   | -          |   |   |   | -          |   |   |   | (4,008 | ) |
| Change      in currency translation adjustment                                                                       |   |   | (14,810    | )      |   |   | 7,945      |   |   |   | (520 | ) |
| Change      in defined benefit pension plan obligation                                                               |   |   | (887       | )      |   |   | -          |   |   |   | - |   |
| COMPREHENSIVE      (LOSS) INCOME                                                                                     |   | $      | (202,999   | )      |   | $      | 175,867    |   |   | $ | 147,810 |   |
|                                                                                                                 |   |   |       |   |   |   |       |   |   |   |   |   |
| Weighted      average common shares outstanding—Basic                                                          |   |   | 85,328,704 |   |   |   | 81,975,384 |   |   |   | 70,054,087 |   |
| Weighted      average common shares outstanding—Diluted                                                        |   |   | 85,328,704 |   |   |   | 82,111,590 |   |   |   | 70,393,821 |   |
| Net      (loss) income per common share outstanding—Basic                                                      |   | $      | (2.20      | )      |   | $      | 2.05       |   |   | $ | 2.17 |   |
| Net      (loss) income per common share outstanding—Diluted                                                    |   | $      | (2.20      | )      |   | $      | 2.05       |   |   | $ | 2.16 |   |
| Dividends      declared per common share                                                                             |   | $      | 0.16       |   |   | $      | 0.08       |   |   | $ | - |   |

----

Index

|                                                                                      |   | 2008   |       |   | 2007   |   |       | 2006   |   |
|-------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|
| Common voting      shares:                                                                |   |   |       |   |   |   |       |   |   |
| Balance      at beginning of year                                                         |   |   | 85,309,107 |   |   |   | 71,547,891 |   |   |   | 55,239,491 |   |
| Issued      during the year                                                               |   |   | -          |   |   |   | 13,750,000 |   |   |   | 16,308,400 |   |
| Conversion      of restricted share units, net                                            |   |   | 190,224    |   |   |   | 11,216     |   |   |   | - |   |
| Shares      repurchased and cancelled                                                     |   |   | (697,599   | )      |   |   | -          |   |   |   | - |   |
| Balance      at end of year                                                               |   |   | 84,801,732 |   |   |   | 85,309,107 |   |   |   | 71,547,891 |   |
|                                                                                      |   |   |       |   |   |   |       |   |   |   |   |   |
| Share      capital:                                                                       |   |   |       |   |   |   |       |   |   |   |   |   |
| Common voting      shares                                                                 |   |   |       |   |   |   |       |   |   |   |   |   |
| Balance      at beginning of year                                                         |   | $      | 853        |   |   | $      | 715        |   |   | $ | 552 |   |
| Issued      during the year, net                                                          |   |   | 2          |   |   |   | 138        |   |   |   | 163 |   |
| Shares      repurchased and cancelled                                                     |   |   | (7         | )      |   |   | -          |   |   |   | - |   |
| Balance      at end of year                                                               |   |   | 848        |   |   |   | 853        |   |   |   | 715 |   |
|                                                                                      |   |   |       |   |   |   |       |   |   |   |   |   |
| Additional paid-in      capital                                                           |   |   |       |   |   |   |       |   |   |   |   |   |
| Balance      at beginning of year                                                         |   |   | 905,316    |   |   |   | 728,378    |   |   |   | 559,466 |   |
| Issue      of shares, net                                                                 |   |   | (750       | )      |   |   | 185,488    |   |   |   | 162,921 |   |
| Shares      repurchased and cancelled                                                     |   |   | (6,641     | )      |   |   | -          |   |   |   | - |   |
| Subsidiary      stock issuance                                                            |   |   | (126       | )      |   |   | -          |   |   |   | - |   |
| Issuance      costs (related party: 2008 - $nil ; 2007 - $3,430; 2006 -      $nil)        |   |   | -          |   |   |   | (16,839    | )      |   |   | (251 | ) |
| Fair      value of issued warrant                                                         |   |   | 3,565      |   |   |   | -          |   |   |   | 3,372 |   |
| Share      based compensation expense                                                     |   |   | (4,020     | )      |   |   | 8,289      |   |   |   | 2,870 |   |
| Balance      at end of year                                                               |   |   | 897,344    |   |   |   | 905,316    |   |   |   | 728,378 |   |
|                                                                                      |   |   |       |   |   |   |       |   |   |   |   |   |
| Accumulated      other comprehensive (loss) income                                        |   |   |       |   |   |   |       |   |   |   |   |   |
| Balance      at beginning of year                                                         |   |   | 7,426      |   |   |   | (4,528     | )      |   |   | - |   |
| Change      in net unrealized losses                                                      |   |   | -          |   |   |   | -          |   |   |   | (4,008 | ) |
| Change      in currency translation adjustment                                            |   |   | (14,810    | )      |   |   | 7,945      |   |   |   | (520 | ) |
| Defined      benefit pension plan obligation                                              |   |   | (887       | )      |   |   | -          |   |   |   | - |   |
| Cumulative      effect adjustment from adoption of new accounting principle SFAS      159 |   |   | -          |   |   |   | 4,009      |   |   |   | - |   |
| Balance      at end of year                                                               |   |   | (8,271     | )      |   |   | 7,426      |   |   |   | (4,528 | ) |
|                                                                                      |   |   |       |   |   |   |       |   |   |   |   |   |
| Retained      earnings (accumulated deficit)                                              |   |   |       |   |   |   |       |   |   |   |   |   |
| Balance      at beginning of year                                                         |   |   | 296,890    |   |   |   | 139,954    |   |   |   | (12,384 | ) |
| Cumulative      effect adjustment from adoption of accounting principle                   |   |   | -          |   |   |   | (4,009     | )      |   |   | - |   |
| Dividends      declared                                                                   |   |   | (13,496    | )      |   |   | (6,977     | )      |   |   | - |   |
| Net      (loss) income for the year                                                       |   |   | (187,302   | )      |   |   | 167,922    |   |   |   | 152,338 |   |
| Balance      at end of year                                                               |   |   | 96,092     |   |   |   | 296,890    |   |   |   | 139,954 |   |
|                                                                                      |   | $      | 986,013    |   |   | $      | 1,210,485  |   |   | $ | 864,519 |   |

----

Index

|                                                                                               |   | 2008   |          |   | 2007   |   |       | 2006   |   |
|----------------------------------------------------------------------------------------------------|--------|--------|---------------|--------|--------|--------|------------|--------|--------|
|                                                                                               |   |   |          |   |   |   |       |   |   |
| Cash flows provided by (used      in) operating activities:                                        |   |   |          |   |   |   |       |   |   |
| Net      (loss) income                                                                             |   | $      | (187,302      | )      |   | $      | 167,922    |   |   | $ | 152,338 |   |
| Adjustments to reconcile net      (loss) income to net cash provided by operating      activities: |   |   |          |   |   |   |       |   |   |   |   |   |
| Net      realized and unrealized losses (gains)                                                    |   |   | 260,589       |   |   |   | (7,353     | )      |   |   | (12,247 | ) |
| Net      unrealized foreign exchange losses (gains)                                                |   |   | 30,792        |   |   |   | 5,718      |   |   |   | (484 | ) |
| Minority      interest                                                                             |   |   | 13,599        |   |   |   | 35,794     |   |   |   | - |   |
| Depreciation      expense                                                                          |   |   | 4,797         |   |   |   | 2,647      |   |   |   | 1,018 |   |
| Share      based compensation expense                                                              |   |   | (325          | )      |   |   | 8,136      |   |   |   | 6,208 |   |
| Interest      in earnings of equity investments                                                    |   |   | 1,299         |   |   |   | (1,390     | )      |   |   | (1,754 | ) |
| Accretion/amortization      on fixed maturities                                                    |   |   | (11,560       | )      |   |   | (8,196     | )      |   |   | 156 |   |
| Changes      in assets and liabilities, excluding net assets acquired:                             |   |   |          |   |   |   |       |   |   |   |   |   |
| Reinsurance      premium receivable                                                                |   |   | (42,773       | )      |   |   | (53,278    | )      |   |   | (68,940 | ) |
| Unearned      premiums ceded                                                                       |   |   | (13,799       | )      |   |   | (9,619     | )      |   |   | (8,224 | ) |
| Deferred      acquisition costs                                                                    |   |   | (6,834        | )      |   |   | (13,549    | )      |   |   | (11,909 | ) |
| Funds      withheld                                                                                |   |   | (7,677        | )      |   |   | (6,666     | )      |   |   | - |   |
| Loss      and loss adjustment expense reserves                                                     |   |   | 165,926       |   |   |   | 158,078    |   |   |   | 22,516 |   |
| Unearned      premiums                                                                             |   |   | 61,038        |   |   |   | 57,942     |   |   |   | 98,659 |   |
| Insurance      and reinsurance balances payable                                                    |   |   | 5,157         |   |   |   | (8,474     | )      |   |   | - |   |
| Resinsurance      recoverable                                                                      |   |   | (6,615        | )      |   |   | (1,355     | )      |   |   | - |   |
| Other      changes in assets and liabilities, net                                                  |   |   | (37,905       | )      |   |   | 9,081      |   |   |   | (5,431 | ) |
| Net      cash provided by operating activities                                                     |   |   | 228,407       |   |   |   | 335,438    |   |   |   | 171,906 |   |
|                                                                                               |   |   |          |   |   |   |       |   |   |   |   |   |
| Cash flows provided by (used      in) investing activities:                                        |   |   |          |   |   |   |       |   |   |   |   |   |
| Net      cash (paid) received in acquisitions of subsidiaries                                      |   |   | (37,344       | )      |   |   | 2,643      |   |   |   | (12,702 | ) |
| Purchases      of fixed income securities                                                          |   |   | (1,313,953    | )      |   |   | (1,699,537 | )      |   |   | (1,712,280 | ) |
| Sales      and maturities of fixed income securities                                               |   |   | 1,610,242     |   |   |   | 1,391,198  |   |   |   | 1,030,738 |   |
| Purchases      of equity securities                                                                |   |   | (121,901      | )      |   |   | (98,774    | )      |   |   | (99,682 | ) |
| Sales      of equity securities                                                                    |   |   | 143,505       |   |   |   | 34,533     |   |   |   | 101,889 |   |
| Purchases      of other investments                                                                |   |   | (579,832      | )      |   |   | (225,156   | )      |   |   | (57,117 | ) |
| Sales      of other investments                                                                    |   |   | 592,083       |   |   |   | 13,872     |   |   |   | - |   |
| Purchases      of fixed assets                                                                     |   |   |  (21,420 | )      |   |   | (9,668     | )      |   |   | (6,023 | ) |
| Sale      of fixed asset under a sale lease-back transaction                                       |   |   | -             |   |   |   | 18,500     |   |   |   | - |   |
| Sale      of fixed asset                                                                           |   |   | 1,550         |   |   |   | -          |   |   |   | - |   |
| Change      in restricted cash                                                                     |   |   | (39,571       | )      |   |   | (2,832     | )      |   |   | - |   |
| Net      cash provided by (used in) investing activities                                           |   |   | 233,359       |   |   |   | (575,221   | )      |   |   | (755,177 | ) |
|                                                                                               |   |   |          |   |   |   |       |   |   |   |   |   |
| Cash flows (used in) provided      by financing activities:                                        |   |   |          |   |   |   |       |   |   |   |   |   |
| Issue      of common shares, net of issuance costs paid                                            |   |   | (885          | )      |   |   | 171,644    |   |   |   | 162,833 |   |
| Shares      repurchased and cancelled                                                              |   |   | (6,641        | )      |   |   | -          |   |   |   | - |   |
| Issue      of notes, net of issuance costs paid                                                    |   |   | -             |   |   |   | 123,673    |   |   |   | 132,810 |   |
| Contribution      of minority interest                                                             |   |   | (415          | )      |   |   | 84,322     |   |   |   | - |   |
| Repurchase      of minority interest                                                               |   |   | (6,639        | )      |   |   | (14,353    | )      |   |   | - |   |
| Dividend      paid on common shares                                                                |   |   | (13,496       | )      |   |   | (6,823     | )      |   |   | - |   |
| Repayment      of long term debt                                                                   |   |   | (9,167        | )      |   |   | -          |   |   |   | - |   |
| Repayment      of loan under a sale lease-back transaction                                         |   |   | -             |   |   |   | (17,063    | )      |   |   | - |   |
| Other                                                                                              |   |   | (3,311        | )      |   |   | (5,166     | )      |   |   | 725 |   |
| Net      cash (used in) provided by financing activities                                           |   |   | (40,554       | )      |   |   | 336,234    |   |   |   | 296,368 |   |
|                                                                                               |   |   |          |   |   |   |       |   |   |   |   |   |
| Effect      of foreign exchange rate on cash                                                       |   |   | (129          | )      |   |   | 4,819      |   |   |   | - |   |
|                                                                                               |   |   |          |   |   |   |       |   |   |   |   |   |
| Increase      (decrease) in cash and cash equivalents                                              |   |   | 421,083       |   |   |   | 101,270    |   |   |   | (286,903 | ) |
| Cash      and cash equivalents - beginning of year                                                 |   |   | 362,622       |   |   |   | 261,352    |   |   |   | 548,255 |   |
| Cash      and cash equivalents - end of year                                                       |   | $      | 783,705       |   |   | $      | 362,622    |   |   | $ | 261,352 |   |
|                                                                                               |   |   |          |   |   |   |       |   |   |   |   |   |
| Supplemental cash flow      information:                                                           |   |   |          |   |   |   |       |   |   |   |   |   |
| Receivable      for investments sold                                                               |   | $      | 9,634         |   |   | $      | -          |   |   | $ | 3,599 |   |
| Payable      for investments purchased                                                             |   | $      | 7,776         |   |   | $      | 41,750     |   |   | $ | 9,531 |   |
| Interest      paid                                                                                 |   | $      | 17,863        |   |   | $      | 16,271     |   |   | $ | 3,861 |   |

----

Index

----

Index

----

Index

----

Index

----

Index

----

Index

----

Index

----

Index

| 3.        ACQUISITIONS |   |
|----------------------------------|--------|

|                                            |   |   |   |   | As      at         |   |
|-------------------------------------------------|--------|--------|--------|--------|--------------------|--------|
|                                            |   |   |   |   | June      26, 2008 |   |
|                                            |   |   |   |   |               |   |
| Total      purchase price                       |   |   |   |   | $                  | 18,631 |   |
| Assets      acquired                            |   |   |   |   |               |   |   |
| Cash      and cash equivalents                  |   | $      | 24,629 |   |               |   |   |   |
| Investments                                     |   |   | 7,757  |   |               |   |   |   |
| Reinsurance      premium balances receivable    |   |   | 1,906  |   |               |   |   |   |
| Unearned      premiums ceded                    |   |   | 2,497  |   |               |   |   |   |
| Deferred      acquisition costs                 |   |   | 189    |   |               |   |   |   |
| Other      assets                               |   |   | 3,360  |   |               |   |   |   |
| Assets      acquired                            |   |   |   |   |               |   | 40,338 |   |
| Liabilities      acquired                       |   |   |   |   |               |   |   |   |
| Loss      reserves                              |   |   | 7,301  |   |               |   |   |   |
| Unearned      premiums                          |   |   | 3,550  |   |               |   |   |   |
| Insurance      and reinsurance balances payable |   |   | 179    |   |               |   |   |   |
| Other      liabilities                          |   |   | 2,368  |   |               |   |   |   |
| Liabilities      acquired                       |   |   |   |   |               |   | 13,398 |   |
| Minority      interest acquired                 |   |   |   |   |               |   | 9,429 |   |
| Excess      purchase price (Goodwill)           |   |   |   |   |               | $      | 1,120 |   |

----

Index

|                                            |   |   |   |   | As      at           |   |
|-------------------------------------------------|--------|--------|--------|--------|----------------------|--------|
|                                            |   |   |   |   | October      1, 2008 |   |
|                                            |   |   |   |   |                 |   |
| Total      purchase price                       |   |   |   |   | $                    | 45,302 |   |
| Assets      acquired                            |   |   |   |   |                 |   |   |
| Cash      and cash equivalents                  |   | $      | 40,066 |   |                 |   |   |   |
| Investments                                     |   |   | 22,488 |   |                 |   |   |   |
| Reinsurance      premium balances receivable    |   |   | 41,916 |   |                 |   |   |   |
| Unearned      premiums ceded                    |   |   | 2,548  |   |                 |   |   |   |
| Reinsurance      recoverable                    |   |   | 8,306  |   |                 |   |   |   |
| Deferred      acquisition costs                 |   |   | 7,930  |   |                 |   |   |   |
| Intangible      asset - indefinite useful life  |   |   | 1,056  |   |                 |   |   |   |
| Fixed      assets                               |   |   | 32,015 |   |                 |   |   |   |
| Other      assets                               |   |   | 1,611  |   |                 |   |   |   |
| Assets      acquired                            |   |   |   |   |                 |   | 157,936 |   |
| Liabilities      acquired                       |   |   |   |   |                 |   |   |   |
| Loss      reserves                              |   |   | 61,187 |   |                 |   |   |   |
| Unearned      premiums                          |   |   | 34,404 |   |                 |   |   |   |
| Insurance      and reinsurance balances payable |   |   | 14,908 |   |                 |   |   |   |
| Other      liabilities                          |   |   | 3,191  |   |                 |   |   |   |
| Liabilities      acquired                       |   |   |   |   |                 |   | 113,690 |   |
| Excess      purchase price (Goodwill)           |   |   |   |   |                 | $      | 1,056 |   |

----

Index

|                                              |   | Year      ended December 31, 2008 (unaudited) |    |   | Year      ended December 31, 2007 (unaudited) |   |   | Year      ended December 31, 2006 (unaudited) |   |
|---------------------------------------------------|--------|-----------------------------------------------|---------|--------|-----------------------------------------------|--------|--------|-----------------------------------------------|--------|
|                                              |   |                                          |    |   |                                          |   |   |                                          |   |
| Revenue                                           |   | $                                             | 36,118  |   |                                          | $      | 42,567 |                                          |   | $ | 36,169 |   |
| Net      (loss) income                            |   | $                                             | (22,666 | )      |                                          | $      | (6,551 | )                                             |   | $ | 2,261 |   |
| Net      (loss) income per common share - Basic   |   | $                                             | (0.27   | )      |                                          | $      | (0.08  | )                                             |   | $ | 0.03 |   |
| Net      (loss) income per common share - Diluted |   | $                                             | (0.27   | )      |                                          | $      | (0.08  | )                                             |   | $ | 0.03 |   |

|                                           |   |   |   |   | As      at             |   |
|------------------------------------------------|--------|--------|--------|--------|------------------------|--------|
|                                           |   |   |   |   | November      18, 2008 |   |
|                                           |   |   |   |   |                   |   |
| Total      purchase price                      |   |   |   |   | $                      | 48,386 |   |
| Assets      acquired                           |   |   |   |   |                   |   |   |
| Cash      and cash equivalents                 |   | $      | 13,562 |   |                   |   |   |   |
| Intangible      asset - indefinite useful life |   |   | 23,480 |   |                   |   |   |   |
| Intangible      asset -finite useful life      |   |   | 8,823  |   |                   |   |   |   |
| Other      assets                              |   |   | 1,948  |   |                   |   |   |   |
| Assets      acquired                           |   |   |   |   |                   |   | 47,813 |   |
| Liabilities      acquired                      |   |   |   |   |                   |   |   |   |
| Accounts      payable and accrued liabilities  |   |   | 2,519  |   |                   |   |   |   |
| Liabilities      acquired                      |   |   |   |   |                   |   | 2,519 |   |
| Excess      purchase price (Goodwill)          |   |   |   |   |                   | $      | 3,092 |   |

----

Index

|                                                                                                              |   | Goodwill |   |   | Intangible      assets with an indefinite life |   |   | Intangible      assets with a finite life |       |
|-------------------------------------------------------------------------------------------------------------------|--------|----------|--------|--------|------------------------------------------------|--------|--------|-------------------------------------------|------------|
| Balance      at December 31, 2006                                                                                 |   | $        | 5,624  |   |                                           | $      | -      |                                      |       | $ | - |   |
| Additions      during the year                                                                                    |   |     | 5,157  |   |                                           |   | 775    |                                      |       |   | - |   |
| Balance      at December 31, 2007                                                                                 |   | $        | 10,781 |   |                                           | $      | 775    |                                      |       | $ | - |   |
| Additions      during the year                                                                                    |   |     | 6,537  |   |                                           |   | 24,536 |                                      |       | $ | 8,823 |   |
| Impact      of foreign exchange                                                                                   |   |     | (177   | )      |                                           |   | (920   | )                                         |       |   | (341 | ) |
| Balance      at December 31, 2008                                                                                 |   | $        | 17,141 |   |                                           | $      | 24,391 |                                      |       | $ | 8,482 |   |
|                                                                                                              |   |     |   |   |                                           |   |   |                                      |       |   |   |   |
|                                                                                                              |   |     |   |   | Year      ended December 31,              |   |
| Goodwill      relates to the following reportable segments:                                                       |   |     |   |   | 2008                                           |   |   |                                      | 2007  |   |
|   Reinsurance                                                                                           |   |     |   |   |                                           | $      | 4,118  |                                      |       |  $ | 2,000  |   |
|   Insurance                                                                                             |   |     |   |   |                                           |   | 10,050 |                                      |       |   | 8,781  |   |
|   Unallocated      (1)                                                                                  |   |     |   |   |                                           |   | 2,973  |                                      |       |   | - |   |
|                                                                                                              |   |     |   |   |                                           | $      | 14,168 |                                      |       |  $ | 10,781  |   |
|                                                                                                              |   |     |   |   |                                           |   |   |                                      |       |   |   |   |
| (1)      Unallocated goodwill relates to the acquisition of Marlborough.      Segment allocation to be finalized. |   |     |

----

Index

|                                       |   | As      at December 31, 2008 |    |
|--------------------------------------------|--------|------------------------------|---------|
|                                       |   |                         |    |   | Gross |   |   | Gross |   |   |   |   |
|                                       |   | Amortized                    |    |   | unrealized |   |   | unrealized |   |   |   |   |
|                                       |   | cost      or cost            |    |   | gains |   |   | losses |   |   | Fair      value |   |
| Fixed      maturities                      |   |                         |    |   |   |   |   |   |   |   |   |   |
| U.S.      government and government agency |   | $                            | 487,667 |   |   | $ | 9,533 |   |   | $ | (10,359 | ) |   | $ | 486,841 |   |
| Other      foreign governments             |   |                         | 15,109  |   |   |   | 104 |   |   |   | (7 | ) |   |   | 15,206 |   |
| Corporates                                 |   |                         | 139,057 |   |   |   | 4,298 |   |   |   | (2,931 | ) |   |   | 140,424 |   |
| Mortgage-backed      securities            |   |                         | 115,478 |   |   |   | 2,406 |   |   |   | (5,810 | ) |   |   | 112,074 |   |
| Asset-backed      securities               |   |                         | 30,481  |   |   |   | 35 |   |   |   | (706 | ) |   |   | 29,810 |   |
| Total      fixed maturities                |   | $                            | 787,792 |   |   | $ | 16,376 |   |   | $ | (19,813 | ) |   | $ | 784,355 |   |
|                                       |   |                         |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Short      term investments                |   | $                            | 30,491  |   |   | $ | - |   |   | $ | (78 | ) |   | $ | 30,413 |   |
|                                       |   |                         |    |   |   |   |   |   |   |   | . |   |   |   |   |   |
| Equity      investments                    |   | $                            | 16,266  |   |   | $ | 784 |   |   | $ | (11,737 | ) |   | $ | 5,313 |   |

----

Index

|                                       |   | As      at December 31, 2007 |      |
|--------------------------------------------|--------|------------------------------|-----------|
|                                       |   |                         |      |   | Gross |   |   | Gross |   |   |   |   |
|                                       |   | Amortized                    |      |   | unrealized |   |   | unrealized |   |   |   |   |
|                                       |   | cost      or cost            |      |   | gains |   |   | losses |   |   | Fair      value |   |
| Fixed      maturities                      |   |                         |      |   |   |   |   |   |   |   |   |   |
| U.S.      government and government agency |   | $                            | 479,462   |   |   | $ | 14,508 |   |   | $ | (1 | ) |   | $ | 493,969 |   |
| Other      foreign governments             |   |                         | 545       |   |   |   | 15 |   |   |   | (2 | ) |   |   | 558 |   |
| Corporates                                 |   |                         | 265,569   |   |   |   | 909 |   |   |   | (5,786 | ) |   |   | 260,692 |   |
| Mortgage-backed      securities            |   |                         | 198,242   |   |   |   | 2,807 |   |   |   | (2,315 | ) |   |   | 198,734 |   |
| Asset-backed      securities               |   |                         | 155,331   |   |   |   | 289 |   |   |   | (468 | ) |   |   | 155,152 |   |
| Total      fixed maturities                |   | $                            | 1,099,149 |   |   | $ | 18,528 |   |   | $ | (8,572 | ) |   | $ | 1,109,105 |   |
|                                       |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Short      term investments                |   | $                            | 23,660    |   |   | $ | 5 |   |   | $ | (49 | ) |   | $ | 23,616 |   |
|                                       |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity      investments                    |   | $                            | 73,603    |   |   | $ | 754 |   |   | $ | - |   |   | $ | 74,357 |   |

|                                      |   | As      at December 31, |    |
|-------------------------------------------|--------|-------------------------|---------|
|                                      |   | 2008                    |    |   | 2007 |   |
|                                      |   | Amortized      cost     |    |   | Fair      value |   |   | Amortized      cost |   |   | Fair      value |   |
|                                      |   |                    |    |   |   |   |   |   |   |   |   |   |
| Due      within one year                  |   | $                       | 96,578  |   |   | $ | 96,660 |   |   | $ | 57,039 |   |   | $ | 57,033 |   |
| Due      after 1 through 5 years          |   |                    | 305,089 |   |   |   | 301,166 |   |   |   | 373,643 |   |   |   | 372,338 |   |
| Due      after 5 through 10 years         |   |                    | 142,447 |   |   |   | 142,939 |   |   |   | 202,990 |   |   |   | 209,821 |   |
| Due      after 10 years                   |   |                    | 128,210 |   |   |   | 132,119 |   |   |   | 135,564 |   |   |   | 139,643 |   |
| Mortgage      and asset-backed securities |   |                    | 145,959 |   |   |   | 141,884 |   |   |   | 353,573 |   |   |   | 353,886 |   |
| Total                                     |   | $                       | 818,283 |   |   | $ | 814,768 |   |   | $ | 1,122,809 |   |   | $ | 1,132,721 |   |

----

Index

|                               |   | As      at December 31, |   |
|------------------------------------|--------|-------------------------|--------|
|                               |   | 2008                    |   |   | 2007 |   |
|                               |   |                    |   |   |   |   |
| Investment      funds              |   | $                       | 9,805  |   |   | $ | 31,249 |   |
| Catastrophe      bonds             |   |                    | 39,174 |   |   |   | 36,619 |   |
| Real      estate investment trusts |   |                    | -      |   |   |   | 12,204 |   |
| Fixed      income fund             |   |                    | -      |   |   |   | 212,982 |   |
| Other      investments             |   |                    | 5,676  |   |   |   | 112 |   |
| Total      other investments       |   | $                       | 54,655 |   |   | $ | 293,166 |   |

----

Index

|                            |   | Fair      Value Measurement at December 31, 2008, using: |    |
|---------------------------------|--------|----------------------------------------------------------|---------|
|                            |   |                                                     |    |   |   |   |   |   |   |   |   |   |
|                            |   |                                                     |    |   | Quoted      Prices in |   |   | Significant      Other |   |   | Significant      Other |   |
|                            |   | Fair      Value                                          |    |   | Active      Markets |   |   | Observable      Inputs |   |   | Unobservable      Inputs |   |
|                            |   | Measurements                                             |    |   | (Level      1) |   |   | (Level      2) |   |   | (Level      3) |   |
| Description                     |   |                                                     |    |   |   |   |   |   |   |   |   |   |
| Fixed      maturity investments |   | $                                                        | 784,355 |   |   | $ | 447,226 |   |   | $ | 336,203 |   |   | $ | 926 |   |
| Short      term investments     |   |                                                     | 30,413  |   |   |   | 30,413 |   |   |   | - |   |   |   | - |   |
| Equity      investments         |   |                                                     | 5,313   |   |   |   | 5,313 |   |   |   | - |   |   |   | - |   |
|                            |   |                                                     | 820,081 |   |   |   | 482,952 |   |   |   | 336,203 |   |   |   | 926 |   |
| Other      Investments          |   |                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Investment      funds           |   |                                                     | 9,805   |   |   |   | - |   |   |   | 647 |   |   |   | 9,158 |   |
| Catastrophe      bonds          |   |                                                     | 39,174  |   |   |   | - |   |   |   | - |   |   |   | 39,174 |   |
|                            |   |                                                     | 48,979  |   |   |   | - |   |   |   | 647 |   |   |   | 48,332 |   |
| Totals                          |   | $                                                        | 869,060 |   |   | $ | 482,952 |   |   | $ | 336,850 |   |   | $ | 49,258 |   |

|                               |   | Fair      Value Measurement at December 31, 2007, using: |      |
|------------------------------------|--------|----------------------------------------------------------|-----------|
|                               |   |                                                     |      |   |   |   |   |   |   |   |   |   |
|                               |   |                                                     |      |   | Quoted      Prices in |   |   | Significant      Other |   |   | Significant      Other |   |
|                               |   | Fair      Value                                          |      |   | Active      Markets |   |   | Observable      Inputs |   |   | Unobservable      Inputs |   |
|                               |   | Measurements                                             |      |   | (Level      1) |   |   | (Level      2) |   |   | (Level      3) |   |
| Description                        |   |                                                     |      |   |   |   |   |   |   |   |   |   |
| Fixed      maturity investments    |   | $                                                        | 1,109,105 |   |   | $ | 471,811 |   |   | $ | 637,294 |   |   | $ | - |   |
| Short      term investments        |   |                                                     | 23,616    |   |   |   | 4,914 |   |   |   | 18,702 |   |   |   | - |   |
| Equity      investments            |   |                                                     | 74,357    |   |   |   | 74,357 |   |   |   | - |   |   |   | - |   |
|                               |   |                                                     | 1,207,078 |   |   |   | 551,082 |   |   |   | 655,996 |   |   |   | - |   |
| Other      Investments             |   |                                                     |      |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Real      estate investment trusts |   |                                                     | 12,204    |   |   |   | - |   |   |   | 12,204 |   |   |   | - |   |
| Investment      funds              |   |                                                     | 31,249    |   |   |   | - |   |   |   | 20,041 |   |   |   | 11,208 |   |
| Catastrophe      bonds             |   |                                                     | 36,619    |   |   |   | - |   |   |   | - |   |   |   | 36,619 |   |
| Fixed      income fund             |   |                                                     | 212,982   |   |   |   | 212,982 |   |   |   | - |   |   |   | - |   |
|                               |   |                                                     | 293,054   |   |   |   | 212,982 |   |   |   | 32,245 |   |   |   | 47,827 |   |
| Totals                             |   | $                                                        | 1,500,132 |   |   | $ | 764,064 |   |   | $ | 688,241 |   |   | $ | 47,827 |   |

----

Index

|                                              |   |  For      the year ended December 31, 2008       |   |
|---------------------------------------------------|--------|-------------------------------------------------------|--------|
|                                              |   | Fixed      maturities investments                     |   |   | Investment      funds |   |   | Catastrophe      bonds |   |
| Description                                       |   |                                                  |   |   |   |   |   |   |   |
| Fair      value, December 31, 2007                |   | $                                                     | -      |   |   | $ | 11,208 |   |   | $ | 36,619 |   |
| Total      realized gains included in earnings    |   |                                                  | -      |   |   |   | 644 |   |   |   | 278 |   |
| Total      unrealized losses included in earnings |   |                                                  | -      |   |   |   | (4,296 | ) |   |   | (1,140 | ) |
| Transfers      in Level 3                         |   |                                                  | 926    |   |   |   | - |   |   |   | - |   |
| Net      purchases and sales                      |   |                                                  | -      |   |   |   | 1,602 |   |   |   | 3,417 |   |
| Fair      value, December 31, 2008                |   | $                                                     | 926    |   |   | $ | 9,158 |   |   | $ | 39,174 |   |
|                                              |   |                                                  |   |   |   |   |   |   |   |   |   |   |
|                                              |   |  For      the year ended December 31, 2007  |
|                                              |   | Fixed      maturities investments                     |   |   | Investment      funds |   |   | Catastrophe      bonds |   |
| Description                                       |   |                                                  |   |   |   |   |   |   |   |   |   |   |
| Fair      value, December 31, 2006                |   | $                                                     | -      |   |   | $ | 8,378 |   |   | $ | 35,847 |   |
| Total      realized gains included in earnings    |   |                                                  | -      |   |   |   | 1,124 |   |   |   | 772 |   |
| Net      purchases and sales                      |   |                                                  | -      |   |   |   | 1,706 |   |   |   | - |   |
| Fair      value, December 31, 2007                |   | $                                                     | -      |   |   | $ | 11,208 |   |   | $ | 36,619 |   |

|                              |   | Year      ended December 31, |   |
|-----------------------------------|--------|------------------------------|--------|
|                              |   | 2008                         |   |   | 2007 |   |   | 2006 |   |
|                              |   |                         |   |   |   |   |   |   |   |
| Interest      and dividend income |   |                         |   |   |   |   |   |   |   |
| Cash      and cash equivalents    |   | $                            | 13,498 |   |   | $ | 12,911 |   |   | $ | 18,176 |   |
| Fixed      maturities             |   |                         | 30,579 |   |   |   | 45,830 |   |   |   | 13,380 |   |
| Short      term                   |   |                         | 138    |   |   |   | 150 |   |   |   | 3,440 |   |
| Equity      investments           |   |                         | 79     |   |   |   | 308 |   |   |   | 381 |   |
| Other      investments            |   |                         | 518    |   |   |   | 7,456 |   |   |   | - |   |
| Amortization      income          |   |                         |   |   |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents    |   |                         | -      |   |   |   | - |   |   |   | 11 |   |
| Fixed      maturities             |   |                         | 11,205 |   |   |   | 8,128 |   |   |   | (155 | ) |
| Short      term                   |   |                         | 428    |   |   |   | 102 |   |   |   | - |   |
| Other      investments            |   |                         | 23     |   |   |   | - |   |   |   | 27 |   |
| Investment      expenses          |   |                         | (5,070 | ) |   |   | (1,077 | ) |   |   | (1,048 | ) |
| Net      investment income        |   | $                            | 51,398 |   |   | $ | 73,808 |   |   | $ | 34,212 |   |

----

Index

|                                           |   | Year      ended December 31, |    |
|------------------------------------------------|--------|------------------------------|---------|
|                                           |   | 2008                         |    |   | 2007 |   |   | 2006 |   |
|                                           |   |                         |    |   |   |   |
| Fixed      maturity and short term investments |   |                         |    |   |   |   |   |   |   |
| Gross      realized gains                      |   | $                            | 29,178  |   |   | $ | 5,854 |   |   | $ | 2,529 |   |
| Gross      realized losses                     |   |                         | (38,321 | ) |   |   | (13,106 | ) |   |   | (3,803 | ) |
| Equities                                       |   |                         |    |   |   |   |   |   |   |   |   |   |
| Gross      realized gains                      |   |                         | 39      |   |   |   | 9,362 |   |   |   | 2,207 |   |
| Gross      realized losses                     |   |                         | (52,449 | ) |   |   | - |   |   |   | - |   |
| Net      realized gains                        |   | $                            | (61,553 | ) |   | $ | 2,110 |   |   | $ | 933 |   |

|                                                                                         |   | Year      ended December 31, |     |
|----------------------------------------------------------------------------------------------|--------|------------------------------|----------|
|                                                                                         |   | 2008                         |     |   | 2007 |   |   | 2006 |   |
|                                                                                         |   |                         |     |   |   |   |   |   |   |
| Net      realized losses on fixed maturities                                                 |   | $                            | (9,143   | ) |   | $ | (7,252 | ) |   | $ | (1,274 | ) |
| Net      unrealized (losses) gains on fixed maturities                                       |   |                         | (14,130  | ) |   |   | 15,069 |   |   |   | - |   |
| Net      realized (losses) gains on equities                                                 |   |                         | (52,410  | ) |   |   | 9,362 |   |   |   | 2,207 |   |
| Net      unrealized  (losses) gains on equities                                    |   |                         | (2,401   | ) |   |   | 346 |   |   |   | - |   |
| Net      realized and unrealized (losses) gains on derivative instruments -      investments |   |                         | (164,016 | ) |   |   | (983 | ) |   |   | 8,382 |   |
| Net      realized and unrealized gains (losses) on derivative instruments -      other       |   |                         | 11,617   |   |   |   | (9,821 | ) |   |   | 1,943 |   |
| Net      realized and unrealized (losses) gains on otherinvestments                          |   |                         | (30,106  | ) |   |   | 632 |   |   |   | 989 |   |
| Total      net realized and unrealized (losses) gains                                        |   | $                            | (260,589 | ) |   | $ | 7,353 |   |   | $ | 12,247 |   |

|                                           |   | As      at             |    |   | As      at             |   |
|------------------------------------------------|--------|------------------------|---------|--------|------------------------|--------|
|                                           |   | December      31, 2008 |    |   | December      31, 2007 |   |
|                                           |   |                   |    |   |                   |   |
| Case      reserves                             |   | $                      | 194,677 |   |                   | $      | 74,693 |   |
| IBNR      reserves                             |   |                   | 216,888 |   |                   |   | 106,285 |   |
| Loss      and loss adjustment expense reserves |   | $                      | 411,565 |   |                   | $      | 180,978 |   |

----

Index

|                                                       |   | Year      ended December 31, |    |
|------------------------------------------------------------|--------|------------------------------|---------|
|                                                       |   | 2008                         |    |   | 2007 |   |
|                                                       |   |                         |    |   |   |   |
| Gross      liability at beginning of year                  |   | $                            | 180,978 |   |   | $ | 22,516 |   |
| Reinsurance      recoverable at beginning of year          |   |                         | (1,355  | ) |   |   | - |   |
| Net      liability at beginning of year                    |   |                         | 179,623 |   |   |   | 22,516 |   |
|                                                       |   |                         |    |   |   |   |   |   |
| Net      incurred losses related to:                       |   |                         |    |   |   |   |   |   |
| Current      year                                          |   |                         | 395,561 |   |   |   | 196,734 |   |
| Prior      year                                            |   |                         | (15,677 | ) |   |   | (3,875 | ) |
|                                                       |   |                         | 379,884 |   |   |   | 192,859 |   |
| Net      paid losses related to:                           |   |                         |    |   |   |   |   |   |
| Current      year                                          |   |                         | 137,158 |   |   |   | 32,664 |   |
| Prior      year                                            |   |                         | 73,703  |   |   |   | 6,948 |   |
|                                                       |   |                         | 210,861 |   |   |   | 39,612 |   |
|                                                       |   |                         |    |   |   |   |   |   |
| Effects      of foreign exchange rate changes              |   |                         | (13,685 | ) |   |   | 2,726 |   |
| Net      loss reserve on acquisition of Island Heritage    |   |                         | -       |   |   |   | 1,134 |   |
| Net      loss reserve on acquisition of Flagstone Africa   |   |                         | 7,301   |   |   |   | - |   |
| Net      loss reserve on acquisition of Flagstone Alliance |   |                         | 52,881  |   |   |   | - |   |
| Net      liability at end of year                          |   |                         | 395,143 |   |   |   | 179,623 |   |
| Reinsurance      recoverable at end of year                |   |                         | 16,422  |   |   |   | 1,355 |   |
| Gross      liability at end of year                        |   | $                            | 411,565 |   |   | $ | 180,978 |   |

----

Index

|    |   | Year      ended December 31, 2008 |    |   | Year      ended December 31, 2007 |   |    | Year      ended December 31, 2006      |   |
|---------|--------|-----------------------------------|---------|--------|-----------------------------------|--------|---------|----------------------------------------|--------|
|    |   | Premiums      written             |    |   | Premiums      earned              |   |    | Loss      and loss adjustment expenses |   |   | Premiums      written |   |   | Premiums      earned |   |   | Loss      and loss adjustment expenses |   |   | Premiums      written |   |   | Premiums      earned |   |   | Loss      and loss adjustment expenses |   |
|    |   |                              |    |   |                              |   |    |                                   |   |   |   |   |
| Assumed |   |                              | 781,889 |   |                              |   | 730,411 |                                   |   |   | 392,535 |   |   |   | 577,150 |   |   |   | 517,902 |   |   |   | 192,859 |   |   |   | 302,489 |   |   |   | 203,831 |   |   |   | 26,660 |   |
| Ceded   |   |                              | (87,191 | )      |                              |   | (76,243 | )                                      |   |   | (12,651 | ) |   |   | (50,119 | ) |   |   | (40,765 | ) |   |   | - |   |   |   | (19,991 | ) |   |   | (11,768 | ) |   |   | - |   |
|    |   |                              |    |   |                              |   |    |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net     |   | $                                 | 694,698 |   |                              | $      | 654,168 |                                   |   | $ | 379,884 |   |   | $ | 527,031 |   |   | $ | 477,137 |   |   | $ | 192,859 |   |   | $ | 282,498 |   |   | $ | 192,063 |   |   | $ | 26,660 |   |

----

Index

----

Index

|                                |   |  Fair      Value Measurement at December 31, 2008, using: |   |
|-------------------------------------|--------|----------------------------------------------------------------|--------|
|                                |   |                                                           |   |   | Quoted      Prices in |   |   | Significant      Other |   |   | Significant      Other |   |
|                                |   | Fair      Value                                                |   |   | Active      Markets |   |   | Observable      Inputs |   |   | Unobservable      Inputs |   |
|                                |   | Measurements                                                   |   |   | (Level      1) |   |   | (Level      2) |   |   | (Level      3) |   |
| Derivatives                         |   |                                                           |   |   |   |   |   |   |   |   |   |   |
| Futures      contracts              |   |                                                           | 143    |   |   |   | 143 |   |   |   | - |   |   |   | - |   |
| Swaps                               |   |                                                           | 3,397  |   |   |   | - |   |   |   | 3,397 |   |   |   | - |   |
| Forward      currency forwards      |   |                                                           | (9,508 | ) |   |   | - |   |   |   | (9,508 | ) |   |   | - |   |
| Mortgage      backed securities TBA |   |                                                           | 648    |   |   |   | - |   |   |   | 648 |   |   |   | - |   |
| Other      reinsurance derivatives  |   |                                                           | (541   | ) |   |   | - |   |   |   | - |   |   |   | (541 | ) |
| Total      derivatives              |   | $                                                              | (5,861 | ) |   | $ | 143 |   |   | $ | (5,463 | ) |   | $ | (541 | ) |

|                                |   |  Fair      Value Measurement at December 31, 2007, using: |    |
|-------------------------------------|--------|----------------------------------------------------------------|---------|
|                                |   |                                                           |    |   | Quoted      Prices in |   |   | Significant      Other |   |   | Significant      Other |   |
|                                |   | Fair      Value                                                |    |   | Active      Markets |   |   | Observable      Inputs |   |   | Unobservable      Inputs |   |
|                                |   | Measurements                                                   |    |   | (Level      1) |   |   | (Level      2) |   |   | (Level      3) |   |
| Derivatives                         |   |                                                           |    |   |   |   |   |   |   |   |   |   |
| Futures      contracts              |   | $                                                              | (2,228  | ) |   | $ | (2,228 | ) |   | $ | - |   |   | $ | - |   |
| Swaps                               |   |                                                           | (153    | ) |   |   | - |   |   |   | (153 | ) |   |   | - |   |
| Forward      currency forwards      |   |                                                           | (7,067  | ) |   |   | - |   |   |   | (7,067 | ) |   |   | - |   |
| Mortgage      backed securities TBA |   |                                                           | 173     |   |   |   | - |   |   |   | 173 |   |   |   | - |   |
| Other      reinsurance derivatives  |   |                                                           | (1,305  | ) |   |   | - |   |   |   | - |   |   |   | (1,305 | ) |
| Total      derivatives              |   | $                                                              | (10,580 | ) |   | $ | (2,228 | ) |   | $ | (7,047 | ) |   | $ | (1,305 | ) |

|                                             |   | Year      ended December 31, |   |
|--------------------------------------------------|--------|------------------------------|--------|
|                                             |   | 2008                         |   |   | 2007 |   |
| Other      reinsurance derivatives               |   |                         |   |   |   |   |
| Opening      fair value                          |   | $                            | (1,305 | ) |   | $ | (197 | ) |
| Total      unrealized gains included in earnings |   |                         | -      |   |   |   | 1,749 |   |
| Total      realized gains included in earnings   |   |                         | 4,140  |   |   |   | - |   |
| Net      purchases and sales                     |   |                         | (3,376 | ) |   |   | (2,857 | ) |
| Closing      fair value                          |   | $                            | (541   | ) |   | $ | (1,305 | ) |

----

Index

|                                  |   | Year      ended December 31, |   |
|---------------------------------------|--------|------------------------------|--------|
|                                  |   | 2008                         |   |   | 2007 |   |   | 2006 |   |
| Current      income tax expense       |   |                         |   |   |   |   |   |   |   |
| Africa                                |   | $                            | -      |   |   | $ | - |   |   | $ | - |   |
| Canada                                |   |                         | 414    |   |   |   | 203 |   |   |   | 128 |   |
| Cyprus                                |   |                         | (69    | ) |   |   | - |   |   |   | - |   |
| India                                 |   |                         | 134    |   |   |   | 43 |   |   |   | - |   |
| Luxembourg                            |   |                         | 4      |   |   |   | - |   |   |   | - |   |
| Mauritius                             |   |                         | 125    |   |   |   | - |   |   |   | - |   |
| Switzerland                           |   |                         | -      |   |   |   | 1 |   |   |   |   |   |
| United      Kingdom                   |   |                         | 90     |   |   |   | 72 |   |   |   | - |   |
| U.S.      Virgin Islands              |   |                         | 1,168  |   |   |   | 464 |   |   |   | - |   |
| Deferred      income tax expense      |   |                         |   |   |   |   |   |   |   |   |   |   |
| Africa                                |   |                         | 36     |   |   |   | - |   |   |   | - |   |
| Cyprus                                |   |                         | (1,083 | ) |   |   | - |   |   |   | - |   |
| India                                 |   |                         | 359    |   |   |   | - |   |   |   | - |   |
| Total      income tax expense         |   | $                            | 1,178  |   |   | $ | 783 |   |   | $ | 128 |   |
|                                  |   |                         |   |   |   |   |   |   |   |   |   |   |
|                                  |   |                         |   |   |   |   |   |   |   |   |   |   |
| Net      current assets (liabilities) |   | $                            | 118    |   |   | $ | (59 | ) |   | $ | (25 | ) |
| Net      deferred tax liabilities     |   |                         | (1,774 | ) |   |   | - |   |   |   | - |   |
| Net      tax liabilities              |   | $                            | (1,656 | ) |   | $ | (59 | ) |   | $ | (25 | ) |

----

Index

|                                                |   | Year      ended December 31, |   |
|-----------------------------------------------------|--------|------------------------------|--------|
| Deferred tax inventory                              |   | 2008                         |   |   | 2007 |   |
| Deferred      tax assets                            |   |                         |   |   |   |   |
| Net      operating loss carryforward                |   | $                            | 8,719  |   |   | $ | 399 |   |
| Valuation      allowance                            |   |                         | (7,273 | ) |   |   | (399 | ) |
| Deferred      tax assets net of valuation allowance |   | $                            | 1,446  |   |   | $ | - |   |
| Deferred      tax liabilities                       |   |                         | (3,220 | ) |   |   | - |   |
| Net      deferred tax liabilities                   |   | $                            | (1,774 | ) |   | $ | - |   |

|                                                                 |   | Year      ended December 31, |     |
|----------------------------------------------------------------------|--------|------------------------------|----------|
|                                                                 |   | 2008                         |     |   | 2007 |   |   | 2006 |   |
| Tax rate reconciliation                                              |   |                         |     |   |   |   |   |   |   |
| Income      before taxes                                             |   | $                            | (186,124 | ) |   | $ | 168,705 |   |   | $ | 152,466 |   |
| Reconciliation      of effective tax rate (% of income before taxes) |   |                         |     |   |   |   |   |   |   |   |   |   |
| Expected      rate                                                   |   |                         | 0.0      | % |   |   | 0.0 | % |   |   | 0.0 | % |
| Foreign      taxes at the local expected rate                        |   |                         | 3.1      | % |   |   | 0.2 | % |   |   | 0.1 | % |
| Valuation      allowance                                             |   |                         | -3.7     | % |   |   | 0.2 | % |   |   | 0.0 | % |
| Other                                                                |   |                         | 0.0      | % |   |   | 0.1 | % |   |   | 0.0 | % |
|                                                                 |   |                         | -0.6     | % |   |   | 0.5 | % |   |   | 0.1 | % |

----

Index

|                                                                   |   | 2008   |   |
|------------------------------------------------------------------------|--------|--------|--------|
| Funded      status                                                     |   |   |   |
| Unfunded      pension obligation on conversion to defined benefit plan |   | $      | 491    |   |
| Change      in pension obligation                                      |   |   |   |   |
| Service      cost                                                      |   |   | 1,559  |   |
| Interest      cost                                                     |   |   | 124    |   |
| Plan      participants’ contributions                            |   |   | 166    |   |
| Actuarial      loss                                                    |   |   | 401    |   |
| Benefits      paid                                                     |   |   | (486   | ) |
| Foreign      currency adjustments                                      |   |   | 237    |   |
| Change      in pension obligation                                      |   |   | 2,001  |   |
| Change      in fair value of plan assets                               |   |   |   |   |
| Actual      return on plan assets                                      |   |   | 99     |   |
| Foreign      currency adjustments                                      |   |   | 211    |   |
| Employer      contributions                                            |   |   | 778    |   |
| Plan      participants’ contributions                            |   |   | 690    |   |
| Benefits      paid                                                     |   |   | (486   | ) |
| Change      in fair value of plan assets                               |   |   | 1,292  |   |
|                                                                   |   |   |   |   |
| Funded      status                                                     |   |   |   |   |
| Unfunded      pension obligation at end of year                        |   | $      | 1,200  |   |

----

Index

| Net      periodic benefit cost                                                                           |   | 2008   |   |
|----------------------------------------------------------------------------------------------------------|--------|--------|--------|
| Service      cost                                                                                        |   | $      | 1,559  |   |
| Interest      cost                                                                                       |   |   | 124    |   |
| Expected      return on plan assets                                                                      |   |   | (105   | ) |
| Transition      obligation amortization                                                                  |   |   | 43     |   |
| Net      periodic benefit cost                                                                           |   | $      | 1,621  |   |
|                                                                                                     |   |   |   |   |
| Other      changes in plan assets and benefit obligations recognized in other      comprehensive income: |   |   |   |   |
| Net      loss                                                                                            |   | $      | 405    |   |
| Amortization      of net transition obligation                                                           |   |   | (43    | ) |
| Currency      impact                                                                                     |   |   | 2      |   |
| Total      recognized in other comprehensive income                                                      |   |   | 364    |   |
| Total      recognized in net periodic benefit cost and other comprehensive      income                   |   | $      | 1,985  |   |

| Debt      securities   |   |   | 72.2  | % |
|------------------------|--------|--------|-------|---|
| Real      estate       |   |   | 11.4  | % |
| Equity      Securities |   |   | 5.8   | % |
| Other                  |   |   | 10.6  | % |
| Total                  |   |   | 100.0 | % |

----

Index

|                                         |   | Pension      obligation |   |   | Net      periodic benefit cost |   |
|----------------------------------------------|--------|-------------------------|--------|--------|--------------------------------|--------|
| Discount      rate                           |   |                    | 3.25   | %      |                           |   | 3.25 | % |
| Rate      of increase in compensation levels |   |                    | 1.50   | %      |                           |   | 1.50 | % |
| Return      on assets                        |   |                    | 3.20   | %      |                           |   | 3.20 | % |

| Period    |   | Estimated      future benefit payments |   |
|-----------|--------|----------------------------------------|--------|
| 2009      |   | $                                      | 357    |   |
| 2010      |   | $                                      | 389    |   |
| 2011      |   | $                                      | 413    |   |
| 2012      |   | $                                      | 433    |   |
| 2013      |   | $                                      | 446    |   |
| 2014-2018 |   | $                                      | 2,039  |   |

|                                               |   |   |     |    |     |                 |            |   |     |   | Outstanding      balance as at |   |
|----------------------------------------------------|--------|--------|----------|---------|----------|----------------------|-----------------|--------|----------|--------|--------------------------------|--------|
| Issue                                              | Issued |   | Notional |    | Interest |                 | First      Call |   | Maturity |   | December      31,              |   |
| Type                                               | In     |   | Amount   |    | Rate     |                 | In              |   | In       |   | 2008                           |   |   | 2007 |   |
| Deferrable      Interest Debentures                | 2006   |   | $        | 120,000 |     | LIBOR      + 3.54%   |            | 2011   |     | 2036   |                           | $      | 120,000 |   |   | $ | 120,000 |   |
| Junior      Subordinated Deferrable Interest Notes | 2006   |   | €  | 13,000  |     | Euribor      + 3.54% |            | 2011   |     | 2036   |                           | $      | 18,070 |   |   | $ | 19,006 |   |
| Junior      Subordinated Deferrable Interest Notes | 2007   |   | $        | 100,000 |     | LIBOR      + 3.00%   |            | 2012   |     | 2037   |                           | $      | 88,750 |   |   | $ | 100,000 |   |
| Junior      Subordinated Deferrable Interest Notes | 2007   |   | $        | 25,000  |     | LIBOR      + 3.10%   |            | 2012   |     | 2037   |                           | $      | 25,000 |   |   | $ | 25,000 |   |
| Other      - IAL King Air                          | 2007   |   | $        | 945     |     | LIBOR      + 1.95%   |            |   | n/a      |   | 2009                           |   | $ | 755 |   |   | $ | 883 |   |
|                                               |   |   |     |    |     |                 |            |   |     |   |                           |   | $ | 252,575 |   |   | $ | 264,889 |   |

----

Index

| Year             |   | Estimated      future principal and interest payments |    |
|------------------|--------|-------------------------------------------------------|---------|
| 2009             |   | $                                                     | 12,937  |   |
| 2010             |   |                                                  | 12,179  |   |
| 2011             |   |                                                  | 12,179  |   |
| 2012             |   |                                                  | 12,179  |   |
| 2013             |   |                                                  | 12,179  |   |
| Later      years |   |                                                  | 532,964 |   |
|             |   |                                                  |    |   |
| Total            |   | $                                                     | 594,617 |   |

----

Index

|                                               |   | Year      ended December 31, |       |
|----------------------------------------------------|--------|------------------------------|------------|
|                                               |   | 2008                         |       |   | 2007 |   |   | 2006 |   |
|                                               |   |                         |       |   |   |   |   |   |   |
| Balance      - beginning of period                 |   |                         | 85,309,107 |   |   |   | 71,547,891 |   |   |   | 55,239,491 |   |
| Conversion      of restricted share units, net (1) |   |                         | 190,224    |   |   |   | 11,216 |   |   |   | - |   |
| Shares      repurchased and cancelled              |   |                         | (697,599   | ) |   |   | - |   |   |   | - |   |
| Issue      of shares                               |   |                         | -          |   |   |   | 13,750,000 |   |   |   | 16,308,400 |   |
| Balance      - end of period                       |   |                         | 84,801,732 |   |   |   | 85,309,107 |   |   |   | 71,547,891 |   |

----

Index

----

Index

|                                  |   | Year      Ended December 31, 2008 |       |   | Year      Ended December 31, 2007           |   |   | Year      Ended December 31, 2006                |   |
|---------------------------------------|--------|-----------------------------------|------------|--------|---------------------------------------------|--------|--------|--------------------------------------------------|--------|
|                                  |   | Number      expected to vest      |       |   | Weighted      average grant date fair value |   |   | Weighted      average remaining contractual term |   |   | Number      expected to vest |   |   | Weighted      average grant date fair value |   |   | Weighted      average remaining contractual term |   |   | Number      expected to vest |   |   | Weighted      average grant date fair value |   |   | Weighted      average remaining contractual term |   |
|                                  |   |                              |       |   |                                        |   |   |                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding      at beginning of year |   |                              | 1,658,700  |   |                                        | $      | 12.07  |                                             |   |   | 1.7 |   |   |   | 713,000 |   |   | $ | 10.03 |   |   |   | 2.0 |   |   |   | 321,000 |   |   | $ | 10.00 |   |   |   | 3.0 |   |
| Granted                               |   |                              | 3,004,940  |   |                                        | $      | 11.09  |                                             |   |   |   |   |   |   | 975,700 |   |   | $ | 13.54 |   |   |   |   |   |   |   | 392,000 |   |   | $ | 10.06 |   |   |   |   |   |
| Forfeited                             |   |                              | (105,000   | )      |                                        | $      | 12.35  |                                             |   |   |   |   |   |   | (30,000 | ) |   | $ | 11.21 |   |   |   |   |   |   |   | - |   |   | $ | - |   |   |   |   |   |
| Cancelled                             |   |                              | (2,368,658 | )      |                                        | $      | 12.61  |                                             |   |   |   |   |   |   | - |   |   | $ | - |   |   |   |   |   |   |   | - |   |   | $ | - |   |   |   |   |   |
| Outstanding      at end of year       |   |                              | 2,189,982  |   |                                        | $      | 10.13  |                                             |   |   | 2.5 |   |   |   | 1,658,700 |   |   | $ | 12.07 |   |   |   | 1.7 |   |   |   | 713,000 |   |   | $ | 10.03 |   |   |   | 2.0 |   |

|                                  |   | Year      Ended December 31, 2008 |     |   | Year      Ended December 31, 2007           |   |   | Year      Ended December 31, 2006                |   |
|---------------------------------------|--------|-----------------------------------|----------|--------|---------------------------------------------|--------|--------|--------------------------------------------------|--------|
|                                  |   | Number      expected to vest      |     |   | Weighted      average grant date fair value |   |   | Weighted      average remaining contractual term |   |   | Number      expected to vest |   |   | Weighted      average grant date fair value |   |   | Weighted      average remaining contractual term |   |   | Number      expected to vest |   |   | Weighted      average grant date fair value |   |   | Weighted      average remaining contractual term |   |
|                                  |   |                              |     |   |                                        |   |   |                                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding      at beginning of year |   |                              | 326,610  |   |                                        | $      | 12.45  |                                             |   |   | 0.6 |   |   |   | 117,727 |   |   | $ | 10.49 |   |   |   | 0.8 |   |   |   | - |   |   | $ | 0.00 |   |   |   |   |
| Granted                               |   |                              | 286,361  |   |                                        | $      | 13.25  |                                             |   |   |   |   |   |   | 250,899 |   |   | $ | 13.31 |   |   |   |   |   |   |   | 123,677 |   |   | $ | 10.49 |   |   |   | 1.1 |   |
| Forfeited                             |   |                              | (74,500  | )      |                                        | $      | 13.65  |                                             |   |   |   |   |   |   | (30,800 | ) |   | $ | 12.15 |   |   |   |   |   |   |   | (5,950 | ) |   | $ | 10.37 |   |   |   |   |   |
| Vested      in the period             |   |                              | (255,595 | )      |                                        | $      | 12.24  |                                             |   |   |   |   |   |   | (11,216 | ) |   | $ | 12.02 |   |   |   |   |   |   |   | - |   |   | $ | - |   |   |   |   |   |
| Outstanding      at end of year       |   |                              | 282,876  |   |                                        | $      | 13.13  |                                             |   |   | 0.5 |   |   |   | 326,610 |   |   | $ | 12.45 |   |   |   | 0.6 |   |   |   | 117,727 |   |   | $ | 10.49 |   |   |   | 0.8 |   |

----

Index

|                                                            |   | Year      ended December 31, |       |
|-----------------------------------------------------------------|--------|------------------------------|------------|
|                                                            |   | 2008                         |       |   | 2007 |   |   | 2006 |   |
|                                                            |   |                         |       |   |   |   |   |   |   |
| Basic earnings per common      share                            |   |                         |       |   |   |   |   |   |   |
| Net      income (loss)                                          |   | $                            | (187,302   | ) |   | $ | 167,922 |   |   | $ | 152,338 |   |
|                                                            |   |                         |       |   |   |   |   |   |   |   |   |   |
| Weighted      average common shares outstanding                 |   |                         | 85,175,484 |   |   |   | 81,882,866 |   |   |   | 70,027,100 |   |
| Weighted      average vested restricted share units             |   |                         | 153,220    |   |   |   | 92,518 |   |   |   | 26,987 |   |
| Weighted      average common shares outstanding—Basic     |   |                         | 85,328,704 |   |   |   | 81,975,384 |   |   |   | 70,054,087 |   |
| Basic      earnings (loss) per common share                     |   | $                            | (2.20      | ) |   | $ | 2.05 |   |   | $ | 2.17 |   |
|                                                            |   |                         |       |   |   |   |   |   |   |   |   |   |
| Diluted earnings per common      share                          |   |                         |       |   |   |   |   |   |   |   |   |   |
| Net      income (loss)                                          |   | $                            | (187,302   | ) |   | $ | 167,922 |   |   | $ | 152,338 |   |
|                                                            |   |                         |       |   |   |   |   |   |   |   |   |   |
| Weighted      average common shares outstanding                 |   |                         | 85,175,484 |   |   |   | 81,882,866 |   |   |   | 70,027,100 |   |
| Weighted      average vested restricted share units outstanding |   |                         | 153,220    |   |   |   | 92,518 |   |   |   | 26,987 |   |
|                                                            |   |                         | 85,328,704 |   |   |   | 81,975,384 |   |   |   | 70,054,087 |   |
| Share      equivalents:                                         |   |                         |       |   |   |   |   |   |   |   |   |   |
| Weighted      unvested restricted share units                   |   |                         | -          |   |   |   | 136,206 |   |   |   | - |   |
| Weighted      unvested performance share units                  |   |                         | -          |   |   |   | - |   |   |   | 339,734 |   |
| Weighted      average common shares outstanding—Diluted   |   |                         | 85,328,704 |   |   |   | 82,111,590 |   |   |   | 70,393,821 |   |
| Diluted      earnings (loss) per common share                   |   | $                            | (2.20      | ) |   | $ | 2.05 |   |   | $ | 2.16 |   |

----

Index

|                                 |   | Year      Ended December 31, |      |
|--------------------------------------|--------|------------------------------|-----------|
|                                 |   | 2008                         |      |   | 2007 |   |   | 2006 |   |
|                                 |   |                         |      |   |   |   |   |   |   |
| Warrant                              |   |                         | 8,585,747 |   |   |   | 8,585,747 |   |   |   | 8,585,747 |   |
| Unvested      restricted share units |   |                         | 147,400   |   |   |   | 221,550 |   |   |   | 63,900 |   |
| Total                                |   |                         | 8,733,147 |   |   |   | 8,807,297 |   |   |   | 8,649,647 |   |

----

Index

----

Index

----

Index

----

Index

| Year      ending December 31,               |   | Rental      Leases |   |   | Aircraft      Leases |   |
|---------------------------------------------|--------|--------------------|--------|--------|----------------------|--------|
| 2009                                        |   |               | 4,225  |   |                 |   | 2,292 |   |
| 2010                                        |   |               | 3,590  |   |                 |   | 2,292 |   |
| 2011                                        |   |               | 2,966  |   |                 |   | 2,292 |   |
| 2012                                        |   |               | 2,591  |   |                 |   | 2,292 |   |
| 2013                                        |   |               | 2,380  |   |                 |   | 2,292 |   |
| 2014      and thereafter                    |   |               | 2,671  |   |                 |   | 8,398 |   |
| Total      minimum future lease commitments |   | $                  | 18,423 |   |                 | $      | 19,858 |   |

----

Index

----

Index

| 1)   | Property      Catastrophe Reinsurance. Property catastrophe reinsurance contracts      are typically “all risk” in nature,      meaning that they protect against losses from earthquakes and hurricanes,      as well as other natural and man-made catastrophes such as tornados, wind,      fires, winter storms, and floods (where the contract specifically provides      for coverage).  Losses on these contracts typically stem from direct      property damage and business interruption. To date, property catastrophe      reinsurance has been our most important product. We write property      catastrophe reinsurance primarily on an excess of loss basis.  In the      event of a loss, most contracts of this type require us to cover a      subsequent event and generally provide for a premium to reinstate the      coverage under the contract, which is referred to as a “reinstatement      premium”.  These contracts typically cover only specific regions      or geographical areas, but may be on a worldwide basis.  |
|----------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2)   | Property      Reinsurance. We also provide reinsurance on a pro rata share basis      and per risk excess of loss basis. Per risk reinsurance protects insurance      companies on their primary insurance risks on a single risk basis, for      example, covering a single large building.  All property per risk and      pro rata business is written with loss limitation provisions, such as per      occurrence or per event caps, which serve to limit exposure to      catastrophic events.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

| 3)   | Short-tail      Specialty and Casualty Reinsurance. We also provide short-tail      specialty and casualty reinsurance for risks such as aviation, energy,      accident and health, satellite, marine and workers’ compensation      catastrophe.  Most short-tail specialty and casualty reinsurance      is written with loss limitation provisions.  |
|----------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

Index

|   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|

|                                                                                                                                                                                                                                                           |   | Year      Ended December 31, |      |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|-----------|
|                                                                                                                                                                                                                                                           |   | 2008                         |      |   | 2007 |   |   | 2006 |   |
|                                                                                                                                                                                                                                                           |   | Reinsurance                  |      |   | Insurance |   |   | Inter-segment      Eliminations (1) |   |   | Total |   |   | Reinsurance |   |   | Insurance |   |   | Inter-segment      Eliminations (1) |   |   | Total |   |   | Total |   |
|                                                                                                                                                                                                                                                           |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross      premiums written                                                                                                                                                                                                                                    |   | $                            | 740,169   |   |   | $ | 76,926 |   |   | $ | (35,206 | ) |   | $ | 781,889 |   |   | $ | 544,255 |   |   | $ | 33,026 |   |   | $ | (131 | ) |   | $ | 577,150 |   |   | $ | 302,489 |   |
| Premiums      ceded                                                                                                                                                                                                                                            |   |                         | (46,638   | ) |   |   | (75,759 | ) |   |   | 35,206 |   |   |   | (87,191 | ) |   |   | (30,592 | ) |   |   | (20,375 | ) |   |   | 848 |   |   |   | (50,119 | ) |   |   | (19,991 | ) |
| Net      premiums written                                                                                                                                                                                                                                      |   |                         | 693,531   |   |   |   | 1,167 |   |   |   | - |   |   |   | 694,698 |   |   |   | 513,663 |   |   |   | 12,651 |   |   |   | 717 |   |   |   | 527,031 |   |   |   | 282,498 |   |
| Net      premiums earned                                                                                                                                                                                                                                       |   | $                            | 641,500   |   |   | $ | 12,668 |   |   | $ | - |   |   | $ | 654,168 |   |   | $ | 464,200 |   |   | $ | 13,031 |   |   | $ | (94 | ) |   | $ | 477,137 |   |   | $ | 192,063 |   |
| Other      insurance related income                                                                                                                                                                                                                            |   |                         | 305       |   |   |   | 13,247 |   |   |   | (9,691 | ) |   |   | 3,861 |   |   |   | 1,182 |   |   |   | 3,246 |   |   |   | - |   |   |   | 4,428 |   |   |   | 933 |   |
| Loss      and loss adjustment expenses                                                                                                                                                                                                                         |   |                         | 377,228   |   |   |   | 2,656 |   |   |   | - |   |   |   | 379,884 |   |   |   | 191,269 |   |   |   | 1,590 |   |   |   | - |   |   |   | 192,859 |   |   |   | 26,660 |   |
| Acquisition      costs                                                                                                                                                                                                                                         |   |                         | 101,528   |   |   |   | 13,897 |   |   |   | (9,691 | ) |   |   | 105,734 |   |   |   | 75,880 |   |   |   | 6,506 |   |   |   | (94 | ) |   |   | 82,292 |   |   |   | 29,939 |   |
| General      and administrative expenses                                                                                                                                                                                                                       |   |                         | 90,026    |   |   |   | 9,000 |   |   |   | - |   |   |   | 99,026 |   |   |   | 68,929 |   |   |   | 3,532 |   |   |   | - |   |   |   | 72,461 |   |   |   | 34,741 |   |
| Underwriting      Income                                                                                                                                                                                                                                       |   | $                            | 73,023    |   |   | $ | 362 |   |   | $ | - |   |   | $ | 73,385 |   |   | $ | 129,304 |   |   | $ | 4,649 |   |   | $ | - |   |   | $ | 133,953 |   |   | $ | 101,656 |   |
|                                                                                                                                                                                                                                                           |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss      ratio (2)                                                                                                                                                                                                                                            |   |                         | 58.8      | % |   |   | 10.2 | % |   |   |   |   |   |   | 58.1 | % |   |   | 41.2 | % |   |   | 9.8 | % |   |   |   |   |   |   | 40.4 | % |   |   | 13.9 | % |
| Acquisition      cost ratio (2)                                                                                                                                                                                                                                |   |                         | 15.8      | % |   |   | 53.6 | % |   |   |   |   |   |   | 16.2 | % |   |   | 16.3 | % |   |   | 40.0 | % |   |   |   |   |   |   | 17.2 | % |   |   | 15.6 | % |
| General      and administrative expense ratio (2)                                                                                                                                                                                                              |   |                         | 14.0      | % |   |   | 34.7 | % |   |   |   |   |   |   | 15.1 | % |   |   | 14.9 | % |   |   | 21.7 | % |   |   |   |   |   |   | 15.2 | % |   |   | 18.1 | % |
| Combined      ratio (2)                                                                                                                                                                                                                                        |   |                         | 88.6      | % |   |   | 98.5 | % |   |   |   |   |   |   | 89.4 | % |   |   | 72.4 | % |   |   | 71.5 | % |   |   |   |   |   |   | 72.8 | % |   |   | 47.6 | % |
| Total      assets                                                                                                                                                                                                                                              |   | $                            | 2,167,853 |   |   | $ | 48,117 |   |   |   |   |   |   | $ | 2,215,970 |   |   | $ | 2,034,077 |   |   | $ | 69,696 |   |   |   |   |   |   | $ | 2,103,773 |   |   | $ | 1,144,502 |   |
|                                                                                                                                                                                                                                                           |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reconciliation:                                                                                                                                                                                                                                                |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Underwriting      Income                                                                                                                                                                                                                                       |   |                         |      | $ | 73,385 |   |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 133,953 |   |   | $ | 101,656 |   |
| Net      investment income                                                                                                                                                                                                                                     |   |                         |      |   |   |   |   |   |   |   |   |   |   |   | 51,398 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 73,808 |   |   |   | 34,212 |   |
| Net      realized and unrealized (losses) gains - investments                                                                                                                                                                                                  |   |                         |      |   | (272,206 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 17,174 |   |   |   | 10,304 |   |
| Net      realized and unrealized gains (losses) - other                                                                                                                                                                                                        |   |                         |      |   |   | 11,617 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (9,821 | ) |   |   | 1,943 |   |
| Other      income                                                                                                                                                                                                                                              |   |                         |      |   |   |   |   |   |   |   |   |   |   |   | 4,354 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 1,383 |   |   |   | 5,166 |   |
| Interest      expense                                                                                                                                                                                                                                          |   |                         |      |   |   |   |   |   |   |   |   |   |   |   | (18,297 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (18,677 | ) |   |   | (4,648 | ) |
| Net      foreign exchange (losses) gains                                                                                                                                                                                                                       |   |                         |      |   | (21,477 | ) |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 5,289 |   |   |   | 2,079 |   |
| (Loss)      Income before income taxes, minority interest and interest in earnings of      equity investments                                                                                                                                                  |   | $                            | (171,226  | ) |   |   |   |   |   |   |   |   |   |   |   |   |   | $ | 203,109 |   |   | $ | 150,712 |   |
|                                                                                                                                                                                                                                                           |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| (1)      Inter segment eliminations for 2008 relate to a quota share      arrangement between Flagstone Suisse and Island Heritage. For 2007 the      eliminations relate to reinsurance purchased by Island Heritage from      Flagstone Reinsurance Limited. |   |
| (2)      For insurance segment all ratios calculated using expenses divided by net      premiums earned plus other insurance related income.                                                                                                                   |   |                         |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

Index

|                                   |   | Year      Ended December 31, 2008 |    |   | Year      Ended December 31, 2007 |   |   | Year      Ended December 31, 2006 |   |
|----------------------------------------|--------|-----------------------------------|---------|--------|-----------------------------------|--------|--------|-----------------------------------|--------|
|                                   |   | Gross      premiums written       |    |   | Percentage      of total          |   |   | Gross      premiums written       |   |   | Percentage      of total |   |   | Gross      premiums written |   |   | Percentage      of total |   |
|                                   |   |                              |    |   |                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |
| Line of      business                  |   |                              |    |   |                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |
| Property      catastrophe              |   | $                                 | 457,549 |   |                              |   | 58.5   | %                                 |   | $ | 378,671 |   |   |   | 65.6 | % |   | $ | 219,102 |   |   |   | 72.4 | % |
| Property                               |   |                              | 94,706  |   |                              |   | 12.1   | %                                 |   |   | 94,503 |   |   |   | 16.4 | % |   |   | 56,417 |   |   |   | 18.7 | % |
| Short-tail      specialty and casualty |   |                              | 152,708 |   |                              |   | 19.5   | %                                 |   |   | 71,081 |   |   |   | 12.3 | % |   |   | 26,970 |   |   |   | 8.9 | % |
| Insurance                              |   |                              | 76,926  |   |                              |   | 9.9    | %                                 |   |   | 32,895 |   |   |   | 5.7 | % |   |   | - |   |   |   | 0.0 | % |
| Total                                  |   | $                                 | 781,889 |   |                              |   | 100.0  | %                                 |   | $ | 577,150 |   |   |   | 100.0 | % |   | $ | 302,489 |   |   |   | 100.0 | % |

|                                    |   | Year      Ended December 31, 2008 |    |   | Year      Ended December 31, 2007 |   |   | Year      Ended December 31, 2006 |   |
|-----------------------------------------|--------|-----------------------------------|---------|--------|-----------------------------------|--------|--------|-----------------------------------|--------|
|                                    |   | Gross      premiums written       |    |   | Percentage      of total          |   |   | Gross      premiums written       |   |   | Percentage      of total |   |   | Gross      premiums written |   |   | Percentage      of total |   |
|                                    |   |                              |    |   |                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |
| Geographic area of risk      insured(1) |   |                              |    |   |                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |
| Caribbean(2)                            |   | $                                 | 88,482  |   |                              |   | 11.3   | %                                 |   | $ | 48,103 |   |   |   | 8.3 | % |   | $ | 10,291 |   |   |   | 3.4 | % |
| Europe                                  |   |                              | 104,185 |   |                              |   | 13.4   | %                                 |   |   | 79,894 |   |   |   | 13.8 | % |   |   | 45,737 |   |   |   | 15.1 | % |
| Japan      and Australasia              |   |                              | 47,866  |   |                              |   | 6.1    | %                                 |   |   | 39,547 |   |   |   | 6.9 | % |   |   | 31,690 |   |   |   | 10.5 | % |
| North      America                      |   |                              | 359,684 |   |                              |   | 46.0   | %                                 |   |   | 297,928 |   |   |   | 51.6 | % |   |   | 160,384 |   |   |   | 53.0 | % |
| Worldwide      risks(3)                 |   |                              | 153,442 |   |                              |   | 19.6   | %                                 |   |   | 99,365 |   |   |   | 17.2 | % |   |   | 37,815 |   |   |   | 12.5 | % |
| Other                                   |   |                              | 28,230  |   |                              |   | 3.6    | %                                 |   |   | 12,313 |   |   |   | 2.2 | % |   |   | 16,572 |   |   |   | 5.5 | % |
| Total                                   |   | $                                 | 781,889 |   |                              |   | 100.0  | %                                 |   | $ | 577,150 |   |   |   | 100.0 | % |   | $ | 302,489 |   |   |   | 100.0 | % |

| (1) | Except      as otherwise noted, each of these categories includes contracts that cover      risks located primarily in the designated geographic area. |   |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| (2) | Gross      written premiums related to the Insurance segment are included in the      Caribbean geographic area.                                       |   |
| (3) | This      geographic area includes contracts that cover risks in two or more      geographic zones.                                                    |

|                |   | Year      Ended December 31, 2008 |    |   | Year      Ended December 31, 2007 |   |   | Year      Ended December 31, 2006 |   |
|---------------------|--------|-----------------------------------|---------|--------|-----------------------------------|--------|--------|-----------------------------------|--------|
|                |   | Gross      premiums written       |    |   | Percentage      of total          |   |   | Gross      premiums written       |   |   | Percentage      of total |   |   | Gross      premiums written |   |   | Percentage      of total |   |
|                |   |                              |    |   |                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |
| Name      of broker |   |                              |    |   |                              |   |   |                              |   |   |   |   |   |   |   |   |   |   |
| Aon      Benfield   |   | $                                 | 369,037 |   |                              |   | 47.2   | %                                 |   | $ | 245,664 |   |   |   | 42.6 | % |   | $ | 141,892 |   |   |   | 46.9 | % |
| Guy      Carpenter  |   |                              | 162,236 |   |                              |   | 20.7   | %                                 |   |   | 153,781 |   |   |   | 26.6 | % |   |   | 49,845 |   |   |   | 16.5 | % |
| Willis      Group   |   |                              | 56,997  |   |                              |   | 7.3    | %                                 |   |   | 77,030 |   |   |   | 13.3 | % |   |   | 72,424 |   |   |   | 23.9 | % |
| Other      brokers  |   |                              | 193,619 |   |                              |   | 24.8   | %                                 |   |   | 100,675 |   |   |   | 17.5 | % |   |   | 38,328 |   |   |   | 12.7 | % |
| Total               |   | $                                 | 781,889 |   |                              |   | 100.0  | %                                 |   | $ | 577,150 |   |   |   | 100.0 | % |   | $ | 302,489 |   |   |   | 100.0 | % |

----

Index

----

Index

|                                                                                                   |   | 2008    |    |
|--------------------------------------------------------------------------------------------------------|--------|---------|---------|
|                                                                                                   |   | Fourth  |    |   | Third |   |   | Second |   |   | First |   |
|                                                                                                   |   | Quarter |    |   | Quarter |   |   | Quarter |   |   | Quarter |   |
|                                                                                                   |   |    |    |   |   |   |   |   |   |   |   |   |
| Net      premiums written                                                                              |   | $       | 84,488  |   |   | $ | 151,235 |   |   | $ | 232,743 |   |   | $ | 226,232 |   |
| Net      premiums earned                                                                               |   |    | 188,503 |   |   |   | 188,641 |   |   |   | 141,767 |   |   |   | 135,257 |   |
| Net      investment income                                                                             |   |    | 3,367   |   |   |   | 16,056 |   |   |   | 13,279 |   |   |   | 18,696 |   |
| Net      realized investment (losses) gains                                                            |   |    | (98,017 | ) |   |   | (139,716 | ) |   |   | 1,793 |   |   |   | (24,649 | ) |
| Other      income                                                                                      |   |    | 2,946   |   |   |   | 1,418 |   |   |   | 2,127 |   |   |   | 1,724 |   |
| Total      revenues                                                                                    |   |    | 96,799  |   |   |   | 66,399 |   |   |   | 158,966 |   |   |   | 131,028 |   |
|                                                                                                   |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss      and loss adjustment expenses                                                                 |   |    | 84,051  |   |   |   | 199,768 |   |   |   | 56,298 |   |   |   | 39,767 |   |
| Acquisition      costs                                                                                 |   |    | 26,907  |   |   |   | 27,452 |   |   |   | 27,210 |   |   |   | 24,165 |   |
| General      and administrative expenses                                                               |   |    | 31,992  |   |   |   | 16,271 |   |   |   | 24,214 |   |   |   | 26,549 |   |
| Interest      expense                                                                                  |   |    | 4,626   |   |   |   | 3,722 |   |   |   | 4,609 |   |   |   | 5,340 |   |
| Net      foreign exchange gains                                                                        |   |    | 18,215  |   |   |   | 8,331 |   |   |   | 1,630 |   |   |   | (6,699 | ) |
| Total      expenses                                                                                    |   |    | 165,791 |   |   |   | 255,544 |   |   |   | 113,961 |   |   |   | 89,122 |   |
| Income      before income taxes, minority interest and interest in earnings of equity      investments |   |    | (68,992 | ) |   |   | (189,145 | ) |   |   | 45,005 |   |   |   | 41,906 |   |
| Provision      for income tax                                                                          |   |    | 714     |   |   |   | (585 | ) |   |   | (442 | ) |   |   | (865 | ) |
| Minority      interest                                                                                 |   |    | (6,460  | ) |   |   | 3,657 |   |   |   | (2,615 | ) |   |   | (8,181 | ) |
| Interest      in earnings of equity investments                                                        |   |    | (824    | ) |   |   | (475 | ) |   |   | - |   |   |   | - |   |
| Net      (loss) income                                                                                 |   | $       | (75,562 | ) |   | $ | (186,548 | ) |   | $ | 41,948 |   |   | $ | 32,860 |   |
|                                                                                                   |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic      net income per common share                                                                 |   | $       | (0.89   | ) |   | $ | (2.18 | ) |   | $ | 0.49 |   |   | $ | 0.38 |   |
| Diluted      net income per common share                                                               |   | $       | (0.89   | ) |   | $ | (2.18 | ) |   | $ | 0.49 |   |   | $ | 0.38 |   |
| Dividends      declared per common share                                                               |   | $       | 0.04    |   |   | $ | 0.04 |   |   | $ | 0.04 |   |   | $ | 0.04 |   |

----

Index

|                                                                                                   |   | 2007    |    |
|--------------------------------------------------------------------------------------------------------|--------|---------|---------|
|                                                                                                   |   | Fourth  |    |   | Third |   |   | Second |   |   | First |   |
|                                                                                                   |   | Quarter |    |   | Quarter |   |   | Quarter |   |   | Quarter |   |
|                                                                                                   |   |    |    |   |   |   |   |   |   |   |   |   |
| Net      premiums written                                                                              |   | $       | 55,786  |   |   | $ | 91,132 |   |   | $ | 181,345 |   |   | $ | 198,768 |   |
| Net      premiums earned                                                                               |   |    | 125,270 |   |   |   | 138,799 |   |   |   | 111,842 |   |   |   | 101,226 |   |
| Net      investment income                                                                             |   |    | 22,624  |   |   |   | 17,022 |   |   |   | 20,531 |   |   |   | 13,631 |   |
| Net      realized investment (losses) gains                                                            |   |    | (3,558  | ) |   |   | 8,298 |   |   |   | (1,901 | ) |   |   | 4,514 |   |
| Other      income                                                                                      |   |    | 2,926   |   |   |   | 1,961 |   |   |   | 251 |   |   |   | 673 |   |
| Total      revenues                                                                                    |   |    | 147,262 |   |   |   | 166,080 |   |   |   | 130,723 |   |   |   | 120,044 |   |
|                                                                                                   |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss      and loss adjustment expenses                                                                 |   |    | 30,415  |   |   |   | 37,439 |   |   |   | 77,257 |   |   |   | 47,748 |   |
| Acquisition      costs                                                                                 |   |    | 26,054  |   |   |   | 28,795 |   |   |   | 14,725 |   |   |   | 12,718 |   |
| General      and administrative expenses                                                               |   |    | 24,229  |   |   |   | 19,763 |   |   |   | 13,800 |   |   |   | 14,669 |   |
| Interest      expense                                                                                  |   |    | 6,020   |   |   |   | 5,873 |   |   |   | 3,520 |   |   |   | 3,264 |   |
| Net      foreign exchange gains                                                                        |   |    | (2,109  | ) |   |   | (1,842 | ) |   |   | (56 | ) |   |   | (1,282 | ) |
| Total      expenses                                                                                    |   |    | 84,609  |   |   |   | 90,028 |   |   |   | 109,246 |   |   |   | 77,117 |   |
| Income      before income taxes, minority interest and interest in earnings of equity      investments |   |    | 62,653  |   |   |   | 76,052 |   |   |   | 21,477 |   |   |   | 42,927 |   |
| Provision      for income tax                                                                          |   |    | (432    | ) |   |   | (229 | ) |   |   | (77 | ) |   |   | (45 | ) |
| Minority      interest                                                                                 |   |    | (10,852 | ) |   |   | (9,317 | ) |   |   | (7,892 | ) |   |   | (7,733 | ) |
| Interest      in earnings of equity investments                                                        |   |    | -       |   |   |   | (257 | ) |   |   | 1,186 |   |   |   | 461 |   |
| Net      income                                                                                        |   | $       | 51,369  |   |   | $ | 66,249 |   |   | $ | 14,694 |   |   | $ | 35,610 |   |
|                                                                                                   |   |    |    |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic      net income per common share                                                                 |   | $       | 0.60    |   |   | $ | 0.78 |   |   | $ | 0.17 |   |   | $ | 0.50 |   |
| Diluted      net income per common share                                                               |   | $       | 0.60    |   |   | $ | 0.77 |   |   | $ | 0.17 |   |   | $ | 0.49 |   |
| Dividends      declared per common share                                                               |   | $       | 0.04    |   |   | $ | 0.04 |   |   | $ | - |   |   | $ | - |   |

----

Index

|  Schedule                                   |   |   |   |  Page      |
|-------------------------------------------------------|--------|--------|--------|-----------------|
|                                                  |   |   |   |            |
| I      Summary of Investments                         |   |   |   |        148 |
| II      Condensed Financial Information of Registrant |   |   |   |        149 |
| III      Supplementary Insurance Information          |   |   |   |        154 |
| IV      Reinsurance                                   |   |   |   |        155 |

----

Index

|                                                                  |   | Amortized         |    |   | Fair   |   |    | Balance      sheet |   |
|-----------------------------------------------------------------------|--------|-------------------|---------|--------|--------|--------|---------|--------------------|--------|
| Type of investments                                                   |   | cost      or cost |    |   | value  |   |    | amount             |   |
| Fixed maturities                                                      |   |              |    |   |   |   |    |               |   |
| Bonds:                                                                |   |              |    |   |   |   |    |               |   |
| Unites      States Government and government agencies and authorities |   | $                 | 487,667 |   |   | $      | 486,841 |               |   | $ | 486,841 |   |
| States,      municipalities and political subdivisions                |   |              | -       |   |   |   | -       |               |   |   | - |   |
| Foreign      government                                               |   |              | 15,109  |   |   |   | 15,206  |               |   |   | 15,206 |   |
| Public      utilities                                                 |   |              | -       |   |   |   | -       |               |   |   | - |   |
| Convertible      and bonds with warrants attached                     |   |              | -       |   |   |   | -       |               |   |   | - |   |
| All      other corporate bonds                                        |   |              | 285,016 |   |   |   | 282,308 |               |   |   | 282,308 |   |
| Certificates      of deposit                                          |   |              | -       |   |   |   | -       |               |   |   | - |   |
| Redeemable      preferred stock                                       |   |              | -       |   |   |   | -       |               |   |   | - |   |
| Total      fixed maturities                                           |   |              | 787,792 |   |   |   | 784,355 |               |   |   | 784,355 |   |
|                                                                  |   |              |    |   |   |   |    |               |   |   |   |   |
| Equities securities:                                                  |   |              |    |   |   |   |    |               |   |   |   |   |
| Common      stocks                                                    |   |              |    |   |   |   |    |               |   |   |   |   |
| Public      utilities                                                 |   |              | -       |   |   |   | -       |               |   |   | - |   |
| Banks,      trust and insurance companies                             |   |              | 998     |   |   |   | 731     |               |   |   | 731 |   |
| Industrial,      miscellaneous and all other                          |   |              | 15,268  |   |   |   | 4,582   |               |   |   | 4,582 |   |
| Nonredeemable      preferred stocks                                   |   |              |    |   |   |   |    |               |   |   | - |   |
| Total      equity securities                                          |   |              | 16,266  |   |   |   | 5,313   |               |   |   | 5,313 |   |
|                                                                  |   |              |    |   |   |   |    |               |   |   |   |   |
| Mortgage      loans on real estate                                    |   |              | -       |   |   |   | -       |               |   |   | - |   |
| Real      estate                                                      |   |              | -       |   |   |   | -       |               |   |   | - |   |
| Policy      loans                                                     |   |              | -       |   |   |   | -       |               |   |   | - |   |
| Other      long-term investments                                      |   |              | 58,282  |   |   |   | 54,655  |               |   |   | 54,655 |   |
| Short-term      investments                                           |   |              | 30,491  |   |   |   | 30,413  |               |   |   | 30,413 |   |
| Total      investments                                                |   | $                 | 892,831 |   |   | $      | 874,736 |               |   | $ | 874,736 |   |

----

Index

|                                                                                                                                   |   | 2008   |      |   | 2007   |   |
|----------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                                                                                                                   |   |   |      |   |   |   |
| ASSETS                                                                                                                                 |   |   |      |   |   |   |
|                                                                                                                                   |   |   |      |   |   |   |
| Cash      and cash equivalents                                                                                                         |   | $      | 4,361     |   |   | $      | 55 |   |
| Investment      in subsidiaries                                                                                                        |   |   | 1,021,781 |   |   |   | 1,394,887 |   |
| Goodwill                                                                                                                               |   |   | 2,000     |   |   |   | 2,000 |   |
| Intercompany      loans receivable                                                                                                     |   |   | 243,435   |   |   |   | - |   |
| Other      assets                                                                                                                      |   |   | 3,019     |   |   |   | 5,848 |   |
| Total      Assets                                                                                                                      |   | $      | 1,274,596 |   |   | $      | 1,402,790 |   |
|                                                                                                                                   |   |   |      |   |   |   |   |   |
| LIABILITIES                                                                                                                            |   |   |      |   |   |   |   |   |
| Due      to subsidiaries                                                                                                               |   | $      | 61,920    |   |   | $      | 30,453 |   |
| Long      term debt                                                                                                                    |   |   | 163,071   |   |   |   | 164,007 |   |
| Accrued      interest payable                                                                                                          |   |   | 433       |   |   |   | 539 |   |
| Intercompany      loans payable                                                                                                        |   |   | 54,364    |   |   |   | - |   |
| Other      liabilities                                                                                                                 |   |   | 3,266     |   |   |   | 723 |   |
| Total      Liabilities                                                                                                                 |   |   | 283,054   |   |   |   | 195,722 |   |
|                                                                                                                                   |   |   |      |   |   |   |   |   |
| SHAREHOLDERS'      EQUITY                                                                                                              |   |   |      |   |   |   |   |   |
| Common      voting shares, 150,000,000 authorized, $0.01 par value, issued and      outstanding (2008 - 84,801,732; 2007 - 85,309,107) |   |   | 848       |   |   |   | 853 |   |
| Additional      paid-in capital                                                                                                        |   |   | 897,344   |   |   |   | 905,316 |   |
| Accumulated      other comprehensive (loss) income                                                                                     |   |   | (6,751    | )      |   |   | - |   |
| Retained      earnings                                                                                                                 |   |   | 100,101   |   |   |   | 300,899 |   |
| Total      Shareholders' Equity                                                                                                        |   |   | 991,542   |   |   |   | 1,207,068 |   |
|                                                                                                                                   |   |   |      |   |   |   |   |   |
| Total      Liabilities and Shareholders' Equity                                                                                        |   | $      | 1,274,596 |   |   | $      | 1,402,790 |   |

----

Index

|                                                                                                          |   | 2008   |     |   | 2007   |   |    | 2006   |   |
|---------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|--------|--------|---------|--------|--------|
|                                                                                                          |   |   |     |   |   |   |    |   |   |
| REVENUES                                                                                                      |   |   |     |   |   |   |    |   |   |
| Net      investment income                                                                                    |   | $      | 3,047    |   |   | $      | 196     |   |   | $ | 415 |   |
| Net      realized and unrealized (losses) gains - investments                                                 |   |   | (2,539   | )      |   |   | 2,228   |   |   |   | 437 |   |
| Dividend      income                                                                                          |   |   | 327,853  |   |   |   | -       |   |   |   | - |   |
| Total      revenues                                                                                           |   |   | 328,361  |   |   |   | 2,424   |   |   |   | 852 |   |
|                                                                                                          |   |   |     |   |   |   |    |   |   |   |   |   |
| EXPENSES                                                                                                      |   |   |     |   |   |   |    |   |   |   |   |   |
| General      and administrative expenses                                                                      |   |   | 6,876    |   |   |   | 2,888   |   |   |   | 1,297 |   |
| Share      based compensation expense                                                                         |   |   | (325     | )      |   |   | 8,136   |   |   |   | 6,208 |   |
| Interest      expense                                                                                         |   |   | 12,579   |   |   |   | 13,856  |   |   |   | 4,648 |   |
| Net      foreign exchange gains                                                                               |   |   | 4,273    |   |   |   | 1,845   |   |   |   | 469 |   |
| Total      expenses                                                                                           |   |   | 23,403   |   |   |   | 26,725  |   |   |   | 12,622 |   |
| Income      (loss) before income taxes, minority interest and interest in earnings of      equity investments |   |   | 304,958  |   |   |   | (24,301 | )      |   |   | (11,770 | ) |
| Interest      in earnings of equity investments                                                               |   |   | (492,260 | )      |   |   | 192,223 |   |   |   | 164,108 |   |
|                                                                                                          |   |   |     |   |   |   |    |   |   |   |   |   |
| NET      (LOSS) INCOME                                                                                        |   | $      | (187,302 | )      |   | $      | 167,922 |   |   | $ | 152,338 |   |

----

Index

|                                                                                  |   | 2008   |     |   | 2007   |   |     | 2006   |   |
|---------------------------------------------------------------------------------------|--------|--------|----------|--------|--------|--------|----------|--------|--------|
| Cash flows (used in) provided      by operating activities:                           |   |   |     |   |   |   |     |   |   |
| Net      (loss) income                                                                |   | $      | (187,302 | )      |   | $      | 167,922  |   |   | $ | 152,338 |   |
| Adjustments to reconcile net      income to net cash provided by operatingactivities: |   |   |     |   |   |   |     |   |   |   |   |   |
| Net      realized and unrealized losses (gains)                                       |   |   | 2,539    |   |   |   | (2,228   | )      |   |   | (437 | ) |
| Net      unrealized (gains) losses foreign exchange                                   |   |   | (2,579   | )      |   |   | -        |   |   |   | - |   |
| Share      based compensation expense                                                 |   |   | (325     | )      |   |   | 8,136    |   |   |   | 6,208 |   |
| Interest      in loss (earnings) of equity investments                                |   |   | 492,260  |   |   |   | (192,223 | )      |   |   | (164,108 | ) |
| Changes      in assets and liabilities, excluding net assets acquired:                |   |   |     |   |   |   |     |   |   |   |   |   |
| Other      assets                                                                     |   |   | (3,315   | )      |   |   | (33      | )      |   |   | (3,150 | ) |
| Due      to subsidiaries                                                              |   |   | (159,674 | )      |   |   | -        |   |   |   | - |   |
| Due      to related parties                                                           |   |   | -        |   |   |   | -        |   |   |   | (42 | ) |
| Accrued      interest payable                                                         |   |   | -        |   |   |   | 11       |   |   |   | 529 |   |
| Other      liabilities                                                                |   |   | 1,310    |   |   |   | (198     | )      |   |   | 677 |   |
| Net      cash provided by operating activities                                        |   |   | 142,914  |   |   |   | (18,613  | )      |   |   | (7,985 | ) |
|                                                                                  |   |   |     |   |   |   |     |   |   |   |   |   |
| Cash flows used in investing      activities:                                         |   |   |     |   |   |   |     |   |   |   |   |   |
| Net      cash paid in acquisitions of subsidiaries                                    |   |   | (119,280 | )      |   |   | (199,244 | )      |   |   | (311,386 | ) |
| Other                                                                                 |   |   | 247      |   |   |   | -        |   |   |   | - |   |
| Net      cash used in investing activities                                            |   |   | (119,033 | )      |   |   | (199,244 | )      |   |   | (311,386 | ) |
|                                                                                  |   |   |     |   |   |   |     |   |   |   |   |   |
| Cash flows (used in) provided      by financing activities:                           |   |   |     |   |   |   |     |   |   |   |   |   |
| Issue      of common shares, net of issuance costs paid                               |   |   | (885     | )      |   |   | 171,644  |   |   |   | 162,833 |   |
| Issue      of notes, net of issuance costs paid                                       |   |   | -        |   |   |   | 24,744   |   |   |   | 132,810 |   |
| Share      repurchase                                                                 |   |   | (6,641   | )      |   |   | -        |   |   |   | - |   |
| Intercompany      financing                                                           |   |   | -        |   |   |   | 23,901   |   |   |   | 6,473 |   |
| Dividend      paid on common shares                                                   |   |   | (13,496  | )      |   |   | (6,824   | )      |   |   | - |   |
| Other                                                                                 |   |   | 1,447    |   |   |   | 2,641    |   |   |   | 729 |   |
| Net      cash (used in) provided by financing activities                              |   |   | (19,575  | )      |   |   | 216,106  |   |   |   | 302,845 |   |
|                                                                                  |   |   |     |   |   |   |     |   |   |   |   |   |
| Decrease      (increase) in cash and cash equivalents                                 |   |   | 4,306    |   |   |   | (1,751   | )      |   |   | (16,526 | ) |
| Cash      and cash equivalents - beginning of year                                    |   |   | 55       |   |   |   | 1,806    |   |   |   | 18,332 |   |
| Cash      and cash equivalents - end of year                                          |   | $      | 4,361    |   |   | $      | 55       |   |   | $ | 1,806 |   |
|                                                                                  |   |   |     |   |   |   |     |   |   |   |   |   |
| Supplemental      cash flow information:                                              |   |   |     |   |   |   |     |   |   |   |   |   |
| Interest      paid                                                                    |   | $      | 11,604   |   |   | $      | 12,913   |   |   | $ | 3,861 |   |
| Dividends      received from subsidiaries                                             |   | $      | 327,853  |   |   | $      | -        |   |   | $ | - |   |

----

Index

|                                               |   |   |     |    |     |                 |     |   | Outstanding      balance as at |   |
|----------------------------------------------------|--------|--------|----------|---------|----------|----------------------|----------|--------|--------------------------------|--------|
| Issue                                              | Issued |   | Notional |    | Interest | First      Call      | Maturity |   | December      31,              |   |
| Type                                               | In     |   | Amount   |    | Rate     | In                   | In       |   | 2008                           |   |   | 2007 |   |
| Deferrable      Interest Debentures                | 2006   |   | $        | 120,000 |     | LIBOR      + 3.54%   | 2011     | 2036   |                           | $      | 120,000 |   |   | $ | 120,000 |   |
| Junior      Subordinated Deferrable Interest Notes | 2006   |   | €  | 13,000  |     | Euribor      + 3.54% | 2011     | 2036   |                           | $      | 18,070 |   |   | $ | 19,006 |   |
| Junior      Subordinated Deferrable Interest Notes | 2007   |   | $        | 25,000  |     | LIBOR      + 3.10%   | 2012     | 2037   |                           | $      | 25,000 |   |   | $ | 25,000 |   |
|                                               |   |   |     |    |     |                 |     |   |                           | $      | 163,070 |   |   | $ | 164,006 |   |

----

Index

| Year             |   | Estimated      furture principal and interest payments |    |
|------------------|--------|--------------------------------------------------------|---------|
| 2009             |   | $                                                      | 8,252   |   |
| 2010             |   |                                                   | 8,252   |   |
| 2011             |   |                                                   | 8,252   |   |
| 2012             |   |                                                   | 8,252   |   |
| 2013             |   |                                                   | 8,252   |   |
| Later      years |   |                                                   | 351,925 |   |
| Total            |   | $                                                      | 393,185 |   |

----

Index

|                            |   | As      at December 31, 2008 |   |   | For      the year ended December 31, 2008 |               |
|---------------------------------|--------|------------------------------|--------|--------|-------------------------------------------|--------------------|
|                            |   |                         |   |   |                                      |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            |   |                         |   |   | Future      policy                        |               |   |   |   |   |   |   |   |   |   |   |   |   |   | Amortization |   |   |   |   |   |   |   |
|                            |   |                         |   |   | benefits,                                 |               |   |   |   |   |   |   |   |   |   |   | Benefits, |   |   | of |   |   |   |   |   |   |   |
|                            |   | Deferred                     |   |   | losses,                                   |               |   |   |   |   |   |   |   |   |   |   | claims, |   |   | deferred |   |   |   |   |   |   |   |
|                            |   | policy                       |   |   | claims      and                           |               |   |   |   |   |   |   |   | Net |   |   | losses      and |   |   | policy |   |   | Other |   |   |   |   |
|                            |   | acquisition                  |   |   | loss                                      |               |   | Unearned |   |   | Premium |   |   | investment |   |   | settlement |   |   | acquisition |   |   | operating |   |   | Premiums |   |
|                            |   | costs                        |   |   | expenses                                  |               |   | premiums |   |   | revenue |   |   | income |   |   | expenses |   |   | costs |   |   | expenses |   |   | written |   |
|                            |   |                         |   |   |                                      |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reinsurance                     |   | $                            | 40,086 |   |                                      | $                  | 400,957 |   |   | $ | 239,529 |   |   | $ | 641,500 |   |   | $ | - |   |   | $ | 377,228 |   |   | $ | 101,528 |   |   | $ | 90,026 |   |   | $ | 740,169 |   |
| Insurance                       |   |                         | 4,515  |   |                                      |               | 10,608 |   |   |   | 31,362 |   |   |   | 12,668 |   |   |   | - |   |   |   | 2,656 |   |   |   | 13,897 |   |   |   | 9,000 |   |   |   | 76,926 |   |
| Inter-segment      Eliminations |   |                         | -      |   |                                      |               | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (9,691 | ) |   |   | - |   |   |   | (35,206 | ) |
| Unallocated                     |   |                         | -      |   |                                      |               | - |   |   |   | - |   |   |   | - |   |   |   | 51,398 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                            |   | $                            | 44,601 |   |                                      | $                  | 411,565 |   |   | $ | 270,891 |   |   | $ | 654,168 |   |   | $ | 51,398 |   |   | $ | 379,884 |   |   | $ | 105,734 |   |   | $ | 99,026 |   |   | $ | 781,889 |   |
|                            |   |                         |   |   |                                      |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            |   | As      at December 31, 2007 |   |   | For      the year ended December 31, 2007 |               |
|                            |   |                         |   |   |                                      |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            |   |                         |   |   |                                      | Future      policy |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Amortization |   |   |   |   |   |   |   |   |   |
|                            |   |                         |   |   |                                      | benefits,          |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Benefits, |   |   | of |   |   |   |   |   |   |   |   |   |
|                            |   | Deferred                     |   |   | losses,                                   |               |   |   |   |   |   |   |   |   |   |   |   |   |   | claims, |   |   | deferred |   |   |   |   |   |   |   |   |   |
|                            |   | policy                       |   |   | claims      and                           |               |   |   |   |   |   |   |   |   |   | Net |   |   | losses      and |   |   | policy |   |   | Other |   |   |   |   |   |
|                            |   | acquisition                  |   |   | loss                                      |               |   | Unearned |   |   | Premium |   |   | investment |   |   | settlement |   |   | acquisition |   |   | operating |   |   | Premiums |   |
|                            |   | costs                        |   |   | expenses                                  |               |   | premiums |   |   | revenue |   |   | income |   |   | expenses |   |   | costs |   |   | expenses |   |   | written |   |
|                            |   |                         |   |   |                                      |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reinsurance                     |   | $                            | 26,367 |   |                                      | $                  | 177,100 |   |   | $ | 157,676 |   |   | $ | 464,200 |   |   | $ | - |   |   | $ | 191,269 |   |   | $ | 75,880 |   |   | $ | 68,929 |   |   | $ | 544,255 |   |
| Insurance                       |   |                         | 4,240  |   |                                      |               | 3,878 |   |   |   | 17,931 |   |   |   | 13,031 |   |   |   | - |   |   |   | 1,590 |   |   |   | 6,506 |   |   |   | 3,532 |   |   |   | 33,026 |   |
| Inter-segment      Eliminations |   |                         | -      |   |                                      |               | - |   |   |   | - |   |   |   | (94 | ) |   |   | - |   |   |   | - |   |   |   | (94 | ) |   |   | - |   |   |   | (131 | ) |
| Unallocated                     |   |                         | -      |   |                                      |               | - |   |   |   | - |   |   |   | - |   |   |   | 73,808 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                            |   | $                            | 30,607 |   |                                      | $                  | 180,978 |   |   | $ | 175,607 |   |   | $ | 477,137 |   |   | $ | 73,808 |   |   | $ | 192,859 |   |   | $ | 82,292 |   |   | $ | 72,461 |   |   | $ | 577,150 |   |
|                            |   |                         |   |   |                                      |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            |   | As      at December 31, 2006 |   |   | For      the year ended December 31, 2006 |               |
|                            |   |                         |   |   |                                      |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            |   |                         |   |   |                                      | Future      policy |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Amortization |   |   |   |   |   |   |   |   |   |
|                            |   |                         |   |   |                                      | benefits,          |   |   |   |   |   |   |   |   |   |   |   |   |   |   | Benefits, |   |   | of |   |   |   |   |   |   |   |   |   |
|                            |   | Deferred                     |   |   | losses,                                   |               |   |   |   |   |   |   |   |   |   |   |   |   |   | claims, |   |   | deferred |   |   |   |   |   |   |   |   |   |
|                            |   | policy                       |   |   | claims      and                           |               |   |   |   |   |   |   |   |   |   | Net |   |   | losses      and |   |   | policy |   |   | Other |   |   |   |   |   |
|                            |   | acquisition                  |   |   | loss                                      |               |   | Unearned |   |   | Premium |   |   | investment |   |   | settlement |   |   | acquisition |   |   | operating |   |   | Premiums |   |
|                            |   | costs                        |   |   | expenses                                  |               |   | premiums |   |   | revenue |   |   | income |   |   | expenses |   |   | costs |   |   | expenses |   |   | written |   |
|                            |   |                         |   |   |                                      |               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reinsurance                     |   | $                            | 11,909 |   |                                      | $                  | 22,516 |   |   | $ | 98,659 |   |   | $ | 192,063 |   |   | $ | - |   |   | $ | 26,660 |   |   | $ | 29,939 |   |   | $ | 34,741 |   |   | $ | 302,489 |   |
| Insurance                       |   |                         | -      |   |                                      |               | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Unallocated                     |   |                         | -      |   |                                      |               | - |   |   |   | - |   |   |   | - |   |   |   | 34,212 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
|                            |   | $                            | 11,909 |   |                                      | $                  | 22,516 |   |   | $ | 98,659 |   |   | $ | 192,063 |   |   | $ | 34,212 |   |   | $ | 26,660 |   |   | $ | 29,939 |   |   | $ | 34,741 |   |   | $ | 302,489 |   |

----

Index

|                              |   | Gross      amount |   |   | Ceded      to other companies |   |   | Assumed      from other companies |   |   | Net      amount |   |   | Percentage      of amount assumed to net |    |
|-----------------------------------|--------|-------------------|--------|--------|-------------------------------|--------|--------|-----------------------------------|--------|--------|-----------------|--------|--------|------------------------------------------|---------|
|                              |   |              |   |   |                          |   |   |                              |   |   |            |   |   |                                     |    |
| 2008      - Property and casualty |   | $                 | -      |   |                          | $      | 87,191 |                              |   | $      | 781,889         |   |   | $                                        | 694,698 |   |   |   | 113 | % |
| 2007      - Property and casualty |   | $                 | -      |   |                          | $      | 50,119 |                              |   | $      | 577,150         |   |   | $                                        | 527,031 |   |   |   | 110 | % |
| 2006      - Property and casualty |   | $                 | -      |   |                          | $      | 19,991 |                              |   | $      | 302,489         |   |   | $                                        | 282,498 |   |   |   | 107 | % |

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Index

ITEM 9A.   CONTROLS AND PROCEDURES

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----

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ITEM9B.    OTHERINFORMATION 

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Index

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERSAND CORPORATE GOVERNANCE

ITEM 11.    EXECUTIVECOMPENSATION

ITEM 12.    SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS, MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13.    CERTAIN RELATIONSHIPS ANDRELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14.    PRINCIPAL ACCOUNTANT FEES ANDSERVICES

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ITEM 15.    EXHIBITS AND FINANCIALSTATEMENT SCHEDULES

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|   | FLAGSTONE      REINSURANCE HOLDINGS LIMITED |                                                               |
|--------|---------------------------------------------|--------------------------------------------------------------------|
|   |                                        |                                                               |   |
|   | By:                                         | /s/      David A. Brown                                            |   |
|   |                                        | Name:       David A. Brown                               |   |
|   |                                        | Title:         Chief Executive Officer and Director |   |

| Signature                       |   | Title                                                                                            |   | Date                |
|---------------------------------|--------|--------------------------------------------------------------------------------------------------|--------|---------------------|
|                            |   |                                                                                             |   |                |
| /s/      Mark J. Byrne          |   | Executive      Chairman and Director                                                             |   | March      13, 2009 |
| Mark      J. Byrne              |   |                                                                                             |   |                |
|                            |   |                                                                                             |   |                |
| /s/      David A. Brown         |   | Chief      Executive Officer (Principal Executive Officer) and    Director                       |   | March      13, 2009 |
| David      A. Brown             |   |                                                                                             |   |                |
|                            |   |                                                                                             |   |                |
|  /s/      Patrick Boisvert |   | Chief      Financial Officer (Principal Financial Officer and Principal Accounting      Officer) |   | March      13, 2009 |
| Patrick      Boisvert           |   |                                                                                             |   |                |
|                            |   |                                                                                             |   |                |
| /s/  Gary      Black  |   | Director                                                                                    |   | March      13, 2009 |
|  Gary      Black           |   |                                                                                             |   |                |
|                            |   |                                                                                             |   |                |
|                            |   | Director                                                                               |   | March      13, 2009 |
| Stephen      Coley              |   |                                                                                             |   |                |
|                            |   |                                                                                             |   |                |
| /s/ Thomas      Dickson    |   | Director                                                                               |   | March      13, 2009 |
| Thomas      Dickson             |   |                                                                                             |   |                |
|                            |   |                                                                                             |   |                |
| /s/      Stewart Gross          |   | Director                                                                                    |   | March      13, 2009 |
| Stewart      Gross              |   |                                                                                             |   |                |
|                            |   |                                                                                             |   |                |
| /s/      E. Daniel James   |   | Director                                                                                    |   | March      13, 2009 |
| E.      Daniel James            |   |                                                                                             |   |                |
|                            |   |                                                                                             |   |                |
| /s/      Tony Knap              |   | Director                                                                                    |   | March      13, 2009 |
| Tony      Knap             |   |                                                                                             |   |                |
|                            |   |                                                                                             |   |                |
| /s/      Anthony Latham         |   | Director                                                                                    |   | March      13, 2009 |
| Anthony      Latham             |   |                                                                                             |   |                |
|                            |   |                                                                                             |   |                |
| /s/      Jan Spiering           |   | Director                                                                                    |   | March      13, 2009 |
| Jan      Spiering               |   |                                                                                             |   |                |
|                            |   |                                                                                             |   |                |
| /s/      Wray T. Thorn          |   | Director                                                                                         |   | March      13, 2009 |
| Wray      T. Thorn              |   |                                                                                             |   |                |
|                            |   |                                                                                             |   |                |
| /s/      Peter Watson           |   | Director                                                                                    |   | March      13, 2009 |
| Peter      Watson               |   |                                                                                             |   |                |

----

| Exhibit      No. |   | Description      of Exhibit |
|------------------|--------|-----------------------------|

| 3.1   | Memorandum      of Association (incorporated by reference to Exhibit 3.1 to Amendment      No. 1 to the registration statement of the Company on Form S-1 (file      no. 333-138182) (the “Registration Statement”) filed December 8,      2006)                                                                  |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.2   | Amended      and Restated Bye-laws (incorporated by reference to Exhibit 3.1 to      the Company’s Quarterly Report on Form 10-Q filed August 9,      2007)                                                                                                                                                                  |
| 3.3   | Certificate      of Deposit of Memorandum of Increase of Share Capital (incorporated by      reference to Exhibit 3.3 to Amendment No. 4 to the Registration      Statement filed February 14, 2007)                                                                                                                               |
| 4.1   | Specimen      Common Share Certificate (incorporated by reference to Exhibit 4.1 to      Amendment No. 4 to the Registration Statement filed February 14,      2007)                                                                                                                                                               |
| 4.2   | Amended      and Restated Warrant dated November 17, 2008 (incorporated by reference to      Exhibit 4.1 to Current Report on Form 8-K filed November 18,      2009)                                                                                                                                                                    |
| 4.3   | Junior      Subordinated Indenture dated as of August 23, 2006 between Flagstone      Reinsurance Holdings Limited and JPMorgan Chase Bank, N.A., as      trustee (incorporated by reference to Exhibit 4.3 to Amendment      No. 1 to the Registration Statement filed December 8,  2006)                                    |
| 4.4   | Indenture,      dated as of June 8, 2007, between Flagstone Finance S.A., as Issuer,      Flagstone Reinsurance Holdings Limited, as Guarantor, and Wilmington      Trust Company, as Trustee (incorporated by reference to Exhibit 4.1      to the Company’s Current Report on Form 8-K dated June 14,      2007) |
| 10.1  | Amended      and Restated Shareholders’ Agreement dated as of November 15, 2006 among      Flagstone Reinsurance Holdings Limited and the shareholders listed      therein (incorporated by reference to Exhibit 10.1 to Amendment No. 1      to the Registration Statement filed December 8, 2006)                     |
| 10.2* | Flagstone      Reinsurance Holdings Limited Performance Share Unit Plan, as amended and      restated (incorporated by reference to Exhibit 10.1 to Quarterly      Report on Form 10-Q filed August 5, 2008)                                                                                                                       |
| 10.3* | Flagstone      Reinsurance Holdings Limited Restricted Share Unit Plan, as amended, dated      May 15, 2008                                                                                                                                                                                                                             |

----

| 10.4   | Pledge      Agreement dated as of August 28, 2006 between Flagstone Reinsurance      Limited and Citibank Ireland Financial Services plc (incorporated by      reference to Exhibit 10.5 to Amendment No. 1 to the Registration      Statement filed December 8, 2006)                                                                             |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.5   | Account      Control Agreement dated as of August 28, 2006 among Flagstone Reinsurance      Limited and Citibank Ireland Financial Services plc (incorporated by      reference to Exhibit 10.6 to Amendment No. 1 to the Registration      Statement filed December 8, 2006)                                                                      |
| 10.6   | Insurance      Letters of Credit—Master Agreement dated as of August 28, 2006 among      Flagstone Reinsurance Limited and Citibank Ireland Financial Services      plc (incorporated by reference to Exhibit 10.7 to Amendment No.      1 to the Registration Statement filed December 8, 2006)                                             |
| 10.7   | Insurance      Letters of Credit—Master Agreement dated as of January 22, 2009 among      Flagstone Réassurance Suisse SA and Citibank Europe Plc (incorporated by      reference to Exhibit 99.1 to Current Report on Form 8-K filed January      28, 2009)                                                                                 |
| 10.8   | Pledge      Agreement dated as of December 17, 2008 between Flagstone Réassurance      Suisse SA, as pledgor, and Citibank  Europe Plc, as pledgee      (incorporated by reference to Exhibit 99.2 to Current Report on Form      8-K filed January 28, 2009)                                                                            |
| 10.9   | Security      Agreement dated as of January 22, 2009 among Citibank Europe Plc,      Flagstone Réassurance Suisse SA and JP Morgan Chase Bank, N.A.      (incorporated by reference to Exhibit 99.3 to Current Report on Form      8-K filed January 28, 2009)                                                                                     |
| 10.10  | Account      Control Agreement dated as of August 28, 2006 among Flagstone Reinsurance      Limited and Citibank Europe plc (incorporated by reference to Exhibit      99.4 to Current Report on Form 8-K filed January 28,  2009)                                                                                                                      |
| 10.11  | $200,000,000      Multi-Currency Letter of Credit Facility Agreement dated as of March 6,      2009 between Flagstone Réassurance Suisse SA, as Borrower, and Barclays      Bank PLC, as Issuing Bank (incorporated by reference to Exhibit 99.1 to      Current Report on Form 8-K filed March 11, 2009)                                               |
| 10.12  | Security      Agreement dated as of March 5, 2009 between Flagstone Réassurance Suisse      SA, as Grantor, and Barclays Bank PLC, as Secured Party (incorporated by      reference to Exhibit 99.2 to Current Report on Form 8-K filed March 11,      2009)                                                                                            |
| 10.13  | Deed      of Charge Over Securities dated March 5, 2009 granted by Flagstone      Réassurance Suisse SA in favor of Barclays Bank PLC (incorporated by      reference to Exhibit 99.3 to Current Report on Form 8-K filed March 11,      2009)                                                                                                          |
| 10.14  | Deed      of Charge Over Credit Balances dated March 5, 2009 granted by Flagstone      Réassurance Suisse SA in favor of Barclays Bank PLC (incorporated by      reference to Exhibit 99.4 to Current Report on Form 8-K filed March 11,      2009)                                                                                                     |
| 10.15  | Securities      Account Control Agreement dated as of March 6, 2009 between Flagstone      Réassurance Suisse SA and JP Morgan Chase Bank, National Association      (incorporated by reference to Exhibit 99.5 to Current Report on Form 8-K      filed March 11, 2009)                                                                                |
| 10.16  | Side      Letter Agreement dated March 5, 2009 in respect of the $200,000,000      Multicurrency Letter of Credit Facility Agreement dated on or about the      date hereof between Flagstone Réassurance Suisse SA and Barclays Bank PLC      (incorporated by reference to Exhibit 99.6 to Current Report on Form 8-K      filed March 11, 2009) |
| 10.17* | Employment      Agreement dated October 18, 2006 between Mark Byrne and Flagstone      Reinsurance Holdings Limited (incorporated by reference      to Exhibit 10.8 to the Registration Statement filed December 8,      2006)                                                                                                                     |
| 10.18* | Employment      Agreement dated October 15, 2006 between David Brown and Flagstone      Reinsurance Holdings Limited (incorporated by reference      to Exhibit 10.9 to the Registration Statement filed October 24,      2006)                                                                                                                    |
| 10.19* | Employment      Agreement dated October 18, 2006 between James O'Shaughnessy and Flagstone      Reinsurance Holdings Limited (incorporated by reference      to Exhibit 10.10 to the Registration Statement filed October 24,      2006)                                                                                                           |
| 10.20* | Employment      Agreement dated August 26, 2008 between Gary Prestia and Flagstone      Réassurance Suisse SA – Bermuda Branch                                                                                                                                                                                                                    |
| 10.21* | Employment      Agreement dated July 20, 2007 between Guy Swayne and Flagstone Réassurance      Suisse SA                                                                                                                                                                                                                                               |
| 10.22* | Secondment      Letter dated July 17, 2007 between Guy Swayne and Flagstone Réassurance      Suisse SA                                                                                                                                                                                                                                                  |
| 10.23* | Employment      Agreement dated April 9, 2008  between Patrick Boisvert and      Flagstone Réassurance Suisse SA                                                                                                                                                                                                                              |
| 10.24* | Amendment      Agreement dated July 1, 2008 between Patrick Boisvert and Flagstone      Réassurance Suisse SA                                                                                                                                                                                                                                           |
| 10.25* | Employment      Agreement dated August 25, 2008 between David Flitman and Flagstone      Réassurance Suisse SA (Bermuda)                                                                                                                                                                                                                                |
| 10.26* | Employment      Agreement dated September 23, 2008 between Brenton Slade and Flagstone      Réassurance Suisse SA (Bermuda)                                                                                                                                                                                                                             |
| 10.27* | Contract      of Employment dated June 30, 2005 between Khader Hemsi and Alliance      International Reinsurance Public Company Limited                                                                                                                                                                                                                      |
| 10.28* | Amendment      to Contract of Employment dated November 14, 2007 between Khader Hemsi and      Alliance International Reinsurance Company Limited                                                                                                                                                                                                            |
| 10.29* | Addendum      to Contract of Employment dated February, 2009 between Khader Hemsi and      Flagstone Alliance Insurance and Reinsurance PLC                                                                                                                                                                                                                  |
| 10.30* | Employment      Agreement dated December 1, 2008 between Thomas Bolt and Marlborough      Underwriting Agency Limited                                                                                                                                                                                                                                        |
| 10.31* | Employment      Agreement dated April 17, 2007 between Frédéric Traimond and Flagstone      Réassurance Suisse SA                                                                                                                                                                                                                             |
| 10.32* | Amendment      Agreement dated March 1, 2008 between Frédéric Traimond and Flagstone      Réassurance Suisse SA                                                                                                                                                                                                                               |
| 10.33* | Employment      Agreement dated August 26, 2008 between William Fawcett and Flagstone      Réassurance Suisse SA (Bermuda)                                                                                                                                                                                                                              |
| 10.34* | Employment      Agreement dated  August 21, 2008 between Venkateswara Mandava      and Flagstone Réassurance Suisse SA (Bermuda)                                                                                                                                                                                                              |
| 10.35  | Charter      agreement dated December 20, 2005 with Longtail Aviation Ltd.      (incorporated by reference to Exhibit 10.14 to Amendment No. 1 to      the Registration Statement filed December 8,  2006)                                                                                                                                         |

----

| 10.36  | Quota      Share Reinsurance Treaty dated August 28, 2006 between Flagstone      Reinsurance Limited and Mont Fort Re Ltd. in respect of its segregated      account, designated as ILW Cell (incorporated by reference      to Exhibit 10.16 to Amendment No. 1 to the Registration Statement      filed December 8, 2006)                             |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.37  | Operational      Support Agreement dated as of December 20, 2005 between Flagstone      Reinsurance Limited and West End Capital Management (Bermuda)      Limited (incorporated by reference to Exhibit 10.18 to Amendment      No. 1 to the Registration Statement filed December 8,  2006)                                                           |
| 10.38  | Letter      agreement dated February 23, 2006 between Lightyear Fund II (Cayman) L.P.      and Flagstone Reinsurance Holdings Limited (incorporated by reference      to Exhibit 10.19 to Amendment No. 1 to the Registration Statement filed      December 8, 2006)                                                                                         |
| 10.39  | 2006      Residential Property Catastrophe Excess of Loss Reinsurance Agreement      between Flagstone Reinsurance Limited and Island Heritage Insurance      Company Limited (incorporated by reference to Exhibit 10.24 to      Amendment No. 1 to the Registration Statement filed December 8,      2006)                                            |
| 10.40  | 2006      Umbrella Property Catastrophe Excess of Loss Reinsurance Agreement between      Flagstone Reinsurance Limited and Island Heritage Insurance      Company Limited (incorporated by reference to Exhibit 10.25 to      Amendment No. 1 to the Registration Statement filed December 8,      2006)                                               |
| 10.41  | Lease      of Office Space dated July 26, 2005 between Crombie Developments Limited      and West End Capital Services (Halifax) Limited (incorporated by reference      to Exhibit 10.27 to Amendment No. 1 to the Registration Statement filed      December 8, 2006)                                                                                           |
| 10.42  | Agreement      to Lease Amendment dated October 30, 2007 between Crombie Developments      Limited, as Landlord and Flagstone Management Services (Halifax) Limited,      as Tenant                                                                                                                                                                               |
| 10.43  | Amending      Agreement dated February 26, 2008 between Crombie Developments Limited, as      Landlord, and Flagstone Management Services (Halifax) Limited, as      Tenant                                                                                                                                                                                       |
| 10.44  | Facultative      Obligatory Surplus Reinsurance Contract effective June 5, 2006 between      Flagstone Reinsurance Limited and Mont Fort Re Ltd. in respect of      its segregated account, designated as ILW Cell (incorporated by      reference to Exhibit 10.28 to Amendment No. 1 to the Registration      Statement filed December 8, 2006)       |
| 10.45  | Quota      Share Reinsurance Treaty dated January 4, 2007 between Flagstone      Reinsurance Limited and Mont Fort Re Ltd. in respect of its segregated      account, designated as ILW 2 Cell (incorporated by reference      to Exhibit 10.30 to Amendment No. 4 to the Registration Statement      filed February 14, 2007)                               |
| 10.46  | Facultative      Obligatory Surplus Reinsurance Contract effective January 1, 2007 between      Flagstone Reinsurance Limited and Mont Fort Re Ltd. in respect of its      segregated account, designated as ILW 2 Cell (incorporated by reference      to Exhibit 10.31 to Amendment No. 4 to the Registration Statement      filed February 14, 2007) |
| 10.47  | Quota      Share Reinsurance Treaty dated January 12, 2007 between Flagstone      Reinsurance Limited and Mont Fort Re Ltd. in respect of its segregated      account, designated as High Layer Cell (incorporated by reference      to Exhibit 10.32 to Amendment No. 4 to the Registration Statement      filed February 14, 2007)                         |
| 10.48  | Facultative      Obligatory Surplus Reinsurance Contract effective January 1, 2007 between      Flagstone Reinsurance Limited and Mont Fort Re Ltd. in respect of its      segregated account, designated as High Layer Cell (incorporated by      reference to Exhibit 10.33 to Amendment No. 4 to the Registration      Statement filed February 14, 2007) |
| 10.49  | Quota      Share Reinsurance Treaty dated January 4, 2007 between Flagstone      Reinsurance Limited and Mont Fort Re Ltd. in respect of its segregated      account, designated as ILW Cell (incorporated by reference to Exhibit      10.30 to Amendment No. 4 to the Registration Statement filed February 14,      2007)                                 |
| 10.50  | Facultative      Obligatory Surplus Reinsurance Contract effective June5, 2006 between      Flagstone Reinsurance Limited and Mont Fort Re Ltd. in respect of its      segregated account, designated as ILW Cell (incorporated by reference      to Exhibit 10.31 to Amendment No. 4 to the Registration Statement      filed February 14, 2007)       |
| 10.51  | Discretionary      Investment Management Agreement dated as of June 5, 2006 between West End      Capital Management (Bermuda) Limited and Mont Fort Re Ltd. ILW Cell      (incorporated by reference to Exhibit 10.34 to Amendment No. 4 to the      Registration Statement filed February 14, 2008)                                                        |
| 10.52  | Discretionary      Investment Management Agreement dated as of January 1, 2007 between      West End Capital Management (Bermuda) Limited and Mont Fort Re Ltd. ILW 2      Cell (incorporated by reference to Exhibit 10.35 to Amendment No. 6      to the Registration Statement filed March 14, 2007)                                                 |
| 10.53  | Discretionary      Investment Management Agreement dated as of January 1, 2007 between      West End Capital Management (Bermuda) Limited and Mont Fort Re Ltd. High      Layer Cell (incorporated by reference to Exhibit 10.35 to Amendment      No. 6 to the Registration Statement filed March 14,  2007)                                           |
| 10.54  | Merger      Agreement dated September 25, 2009 between Flagstone Reinsurance Limited      and Flagstone Réassurance Suisse SA                                                                                                                                                                                                                                |
| 10.55* | Compensation      Philosophy dated June 15, 2006                                                                                                                                                                                                                                                                                                                  |
| 21.1   | Subsidiaries      of the Company                                                                                                                                                                                                                                                                                                                                  |
| 23.1   | Consent      of Deloitte & Touche, Independent Registered Public Accounting      Firm                                                                                                                                                                                                                                                                         |
| 31.1   | Certification      of Principal Executive Officer pursuant to Section 302 of the      Sarbanes-Oxley Act of 2002, with respect to the Company’s Annual Report on      Form 10-K for the year ended December 31, 2008.                                                                                                                                       |
| 31.2   | Certification      of Principal Financial Officer pursuant to Section 302 of the      Sarbanes-Oxley Act of 2002, with respect to the Company’s Annual Report on      Form 10-K for the year ended December 31, 2008.                                                                                                                                       |
| 32.1   | Certification      of Principal Executive Officer pursuant to Section 906 of the      Sarbanes-Oxley Act of 2002, with respect to the Company’s Annual Report on      Form 10-K for the year ended December 31, 2008.                                                                                                                                       |
| 32.2   | Certification      of Principal Financial Officer pursuant to Section 906 of the      Sarbanes-Oxley Act of 2002, with respect to the Company’s Annual Report on      Form 10-K for the year ended December 31,2008.                                                                                                                                        |

| *  | Management contract      or compensatory plan, contract or  arrangement.  |
|---------|-------------------------------------------------------------------------------------|