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UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C.20549

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FORM 10-Q

[X]    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterlyperiod ended June 30, 2005

OR

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

For thetransition period from                 to                .

Commission File Number: 001-32307

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Primus Guaranty,Ltd.

(Exact name of registrant as specified inits charter)

|                                                             |  |                                     |  |  |  |  |
|-------------------------------------------------------------|--|-------------------------------------|--|--|--|--|
| Bermuda                                                     |  | NotRequired                         |
| (State orother jurisdiction ofincorporation ororganization) |  | (I.R.S. Employer IdentificationNo.) |
|                                                             |

Clarendon House 2 Church StreetHamilton HM 11, Bermuda(Address of principal executiveoffices, including zip code)

441-296-0519(Registrant's telephone number, including area code)

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

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule12b-2 of the Exchange Act).    Yes       No   

As of August 5,2005, the number of shares outstanding of the issuer's commonstock, $0.08 par value, was43,121,523.

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Primus Guaranty, Ltd.Form 10-QFor the quarter ended June 30, 2005

|                                |  |                                                                                                   |    |        |    |        |  |  |  |  |
|--------------------------------|--|---------------------------------------------------------------------------------------------------|----|--------|----|--------|--|--|--|--|
| **PartI.**                     |  | **FinancialInformation**                                                                          |    |
| Item 1.                        |  | FinancialStatements                                                                               |    |
|                           |  | Consolidated Statements ofFinancial Condition June 30, 2005 (Unaudited) and December 31,2004      |    |   | 3  |   |
|                           |  | Consolidated Statements ofOperations (Unaudited) Three and six months ended June 30, 2005and 2004 |    |   | 4  |   |
|                           |  | Consolidated Statementsof Cash Flows (Unaudited) Six months ended June 30, 2005 and2004           |    |   | 5  |   |
|                           |  | Notes to ConsolidatedFinancial Statements                                                         |    |   | 6  |   |
| Item2.                         |  | Management's Discussion and Analysis of FinancialCondition and Results of Operations              |    |   | 19 |   |
|                           |  | Cautionary Note Regarding Forward-LookingStatements                                               |    |   | 32 |   |
| Item 3.                        |  | Quantitativeand Qualitative Disclosures about Market Risk                                         |    |   | 34 |   |
| Item 4.                        |  | Controls and Procedures                                                                           |    |   | 35 |   |
| **Part II. Other Information** |  |
| Item 1.                        |  | Legal Proceedings                                                                                 |    |   | 35 |   |
| Item 2.                        |  | Unregistered Sales of Equity Securities andUse of Proceeds                                        |    |   | 35 |   |
| Item 3.                        |  | Defaultsupon Senior Securities                                                                    |    |   | 36 |   |
| Item4.                         |  | Submission of Matters to a Vote of SecurityHolders                                                |    |   | 36 |   |
| Item 5.                        |  | OtherInformation                                                                                  |    |   | 36 |   |
| Item6.                         |  | Exhibits                                                                                          |    |   | 36 |   |
| Signatures                     |  |                                                                                              | 37 |   |
|                                |

2

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PartI.    Financial Information

Item1.    Financial Statements

Primus Guaranty, Ltd.Consolidated Statements of Financial Condition(dollars in 000sexcept per shareamounts)

|                                                                                                                                                                       |  |             |         |                 |  |        |         |        |  |  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|-------------|---------|-----------------|--|--------|---------|--------|--|--|
|                                                                                                                                                                  |  | June30,2005 |         | December31,2004 |
|                                                                                                                                                                  |  | (unaudited) |         |            |
| **Assets**                                                                                                                                                            |  |
| Cashand cashequivalents                                                                                                                                               |  | $           | 200,852 |            |  | $      | 320,989 |   |
| Available-for-saleinvestments                                                                                                                                         |  |        | 286,657 |            |  |   | 161,101 |   |
| Accruedinterestreceivable                                                                                                                                             |  |        | 4,934   |            |  |   | 1,381   |   |
| Accruedpremiums on creditswaps                                                                                                                                        |  |        | 3,287   |            |  |   | 3,349   |   |
| Premiumsreceivable on creditswaps                                                                                                                                     |  |        | 169     |            |  |   | 197     |   |
| Premiums receivable onfinancial guarantees                                                                                                                            |  |        | 500     |            |  |   | 800     |   |
| Assetmanagement feereceivable                                                                                                                                         |  |        | 39      |            |  |   | 15      |   |
| Prepaidexpenses                                                                                                                                                       |  |        | 581     |            |  |   | 868     |   |
| Unrealized gain oncredit swaps, at fairvalue                                                                                                                          |  |        | 17,531  |            |  |   | 46,517  |   |
| Fixed assets,less accumulated depreciation of $626 in 2005 and $493 in2004                                                                                            |  |        | 1,690   |            |  |   | 1,800   |   |
| Internal usesoftware costs, less accumulated amortization of $6,800 in 2005and $5,893 in2004                                                                          |  |        | 3,722   |            |  |   | 4,297   |   |
| Income taxreceivable                                                                                                                                                  |  |        | 279     |            |  |   | 279     |   |
| Debt issuancecosts                                                                                                                                                    |  |        | 1,133   |            |  |   | 1,125   |   |
| Totalassets                                                                                                                                                           |  | $           | 521,374 |            |  | $      | 542,718 |   |
|                                                                                                                                                                  |  |        |    |            |  |   |    |   |
| **Liabilities,preferred securities of subsidiary and shareholders'equity**                                                                                            |  |        |    |            |  |   |    |   |
| Accounts payable andaccruedexpenses                                                                                                                                   |  | $           | 1,365   |            |  | $      | 904     |   |
| Compensationaccrual                                                                                                                                                   |  |        | 2,617   |            |  |   | 5,317   |   |
| Brokerage feespayable                                                                                                                                                 |  |        | 37      |            |  |   | 14      |   |
| Taxespayable                                                                                                                                                          |  |        | 184     |            |  |   | 12      |   |
| Interestpayable                                                                                                                                                       |  |        | 359     |            |  |   | 364     |   |
| Long-termdebt                                                                                                                                                         |  |        | 75,000  |            |  |   | 75,000  |   |
| Unrealized losson credit swaps, at fairvalue                                                                                                                          |  |        | 4,844   |            |  |   | 259     |   |
| Deferred rentpayable                                                                                                                                                  |  |        | 446     |            |  |   | 455     |   |
| Deferred financialguarantee premiums                                                                                                                                  |  |        | 607     |            |  |   | 806     |   |
| Deferredcredit swappremiums                                                                                                                                           |  |        | 57      |            |  |   | 69      |   |
| Totalliabilities                                                                                                                                                      |  |        | 85,516  |            |  |   | 83,200  |   |
| Preferredsecurities ofsubsidiary                                                                                                                                      |  |        | 98,521  |            |  |   | 98,521  |   |
| Shareholders'equity:                                                                                                                                                  |  |        |    |            |  |   |    |   |
| Commonstock, $0.08 par value, 62,500,000 shares authorized, 43,120,064 and42,780,033 shares issued and outstanding at June 30, 2005 and December31, 2004,respectively |  |        | 3,675   |            |  |   | 3,535   |   |
| Additionalpaid-in-capital                                                                                                                                             |  |        | 264,089 |            |  |   | 264,860 |   |
| Warrants                                                                                                                                                              |  |        | 612     |            |  |   | 612     |   |
| Accumulatedother comprehensiveincome                                                                                                                                  |  |        | 5       |            |  |   | — |   |
| Retainedearnings                                                                                                                                                      |  |        | 68,956  |            |  |   | 91,990  |   |
| Totalshareholders'equity                                                                                                                                              |  |        | 337,337 |            |  |   | 360,997 |   |
| Totalliabilities, preferred securities of subsidiary and shareholders'equity                                                                                          |  | $           | 521,374 |            |  | $      | 542,718 |   |
|                                                                                                                                                                       |

Seeaccompanying notes.

3

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Primus Guaranty, Ltd. ConsolidatedStatements of Operations(amounts in 000s except per shareamounts)

|                                                   |  |                           |         |                          |  |        |         |         |  |        |         |         |  |        |         |         |  |  |
|---------------------------------------------------|--|---------------------------|---------|--------------------------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                              |  | ThreeMonths EndedJune 30, |         | Six Months Ended June30, |
|                                              |  | 2005                      |         | 2004                     |  | 2005   |         | 2004    |
|                                              |  | (unaudited)               |
| Revenues                                          |  |                      |    |                     |  |   |    |    |  |   |    |    |  |   |    |    |
| Netcredit swaprevenue                             |  | $                         | (3,579  | )                   |  | $      | 5,865   |    |  | $      | (11,777 | )  |  | $      | 2,835   |    |
| Premiumsearned on financialguarantees             |  |                      | 100     |                     |  |   | 97      |    |  |   | 199     |    |  |   | 196     |    |
| Investmentportfolio realizedgains                 |  |                      | 23      |                     |  |   | — |    |  |   | 23      |    |  |   | — |    |
| Interestincome on investmentportfolio             |  |                      | 2,793   |                     |  |   | 716     |    |  |   | 6,486   |    |  |   | 1,368   |    |
| Rentalincome                                      |  |                      | — |                     |  |   | 13      |    |  |   | — |    |  |   | 40      |    |
| Assetmanagementfees                               |  |                      | 49      |                     |  |   | — |    |  |   | 91      |    |  |   | — |    |
| Foreigncurrencyrevaluation                        |  |                      | (955    | )                   |  |   | (33     | )  |  |   | (1,519  | )  |  |   | (106    | )  |
| Totalnetrevenues                                  |  |                      | (1,569  | )                   |  |   | 6,658   |    |  |   | (6,497  | )  |  |   | 4,333   |    |
|                                              |  |                      |    |                     |  |   |    |    |  |   |    |    |  |   |    |    |
| Expenses                                          |  |                      |    |                     |  |   |    |    |  |   |    |    |  |   |    |    |
| Employeecompensation andbenefits                  |  |                      | 3,406   |                     |  |   | 3,861   |    |  |   | 8,602   |    |  |   | 7,284   |    |
| Professionaland legalfees                         |  |                      | 796     |                     |  |   | 363     |    |  |   | 1,750   |    |  |   | 778     |    |
| Fixedasset depreciation andamortization           |  |                      | 525     |                     |  |   | 485     |    |  |   | 1,041   |    |  |   | 959     |    |
| Technologyanddata                                 |  |                      | 398     |                     |  |   | 364     |    |  |   | 715     |    |  |   | 671     |    |
| Rent                                              |  |                      | 186     |                     |  |   | 184     |    |  |   | 376     |    |  |   | 357     |    |
| Bankand investment managementfees                 |  |                      | 278     |                     |  |   | 79      |    |  |   | 457     |    |  |   | 163     |    |
| Ratingagencyfees                                  |  |                      | 84      |                     |  |   | 75      |    |  |   | 155     |    |  |   | 138     |    |
| Brokerageexpense                                  |  |                      | 56      |                     |  |   | 146     |    |  |   | 89      |    |  |   | 364     |    |
| Interestexpense                                   |  |                      | 497     |                     |  |   | — |    |  |   | 991     |    |  |   | — |    |
| Other                                             |  |                      | 249     |                     |  |   | 277     |    |  |   | 541     |    |  |   | 443     |    |
| Totalexpenses                                     |  |                      | 6,475   |                     |  |   | 5,834   |    |  |   | 14,717  |    |  |   | 11,157  |    |
| Distributionson preferred securities ofsubsidiary |  |                      | (1,127  | )                   |  |   | (605    | )  |  |   | (1,775  | )  |  |   | (1,147  | )  |
| Income/(Loss) before provision for incometaxes    |  |                      | (9,171  | )                   |  |   | 219     |    |  |   | (22,989 | )  |  |   | (7,971  | )  |
| Provisionfor incometaxes                          |  |                      | (9      | )                   |  |   | (45     | )  |  |   | (45     | )  |  |   | (117    | )  |
| **Netincome/ (loss) available to commonshares**   |  | $                         | (9,180  | )                   |  | $      | 174     |    |  | $      | (23,034 | )  |  | $      | (8,088  | )  |
|                                              |  |                      |    |                     |  |   |    |    |  |   |    |    |  |   |    |    |
| Earnings/(loss)per commonshare:                   |  |                      |    |                     |  |   |    |    |  |   |    |    |  |   |    |    |
| Basic                                             |  | $                         | (0.21   | )                   |  | $      | 0.05    |    |  | $      | (0.53   | )  |  | $      | (2.41   | )  |
| Diluted                                           |  | $                         | (0.21   | )                   |  | $      | 0.01    |    |  | $      | (0.53   | )  |  | $      | (2.41   | )  |
| Averagecommon sharesoutstanding:                  |  |                      |    |                     |  |   |    |    |  |   |    |    |  |   |    |    |
| Basic                                             |  |                      | 43,108  |                     |  |   | 3,527   |    |  |   | 43,160  |    |  |   | 3,353   |    |
| Diluted                                           |  |                      | 43,108  |                     |  |   | 34,768  |    |  |   | 43,160  |    |  |   | 3,353   |    |
|                                                   |

Seeaccompanying notes.

4

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Primus Guaranty, Ltd. ConsolidatedStatements of Cash Flows(dollars in000s)

|                                                                               |  |                        |          |         |  |        |         |         |  |  |
|-------------------------------------------------------------------------------|--|------------------------|----------|---------|--|--------|---------|---------|--|--|
|                                                                          |  | Sixmonths endedJune30, |
|                                                                          |  | 2005                   |          | 2004    |
|                                                                          |  | (unaudited)            |
| Cashflows from operatingactivities                                            |  |                   |     |    |  |   |    |    |
| Netloss                                                                       |  | $                      | (23,034  | )  |  | $      | (8,088  | )  |
| Adjustmentsto reconcile net loss to net cash provided by operatingactivities: |  |                   |     |    |  |   |    |    |
| Non-cashitems included in net income(loss):                                   |  |                   |     |    |  |   |    |    |
| Depreciationof fixed assets                                                   |  |                   | 133      |    |  |   | 110     |    |
| Amortizationof internal use software costs                                    |  |                   | 908      |    |  |   | 850     |    |
| Stock compensation                                                            |  |                   | 1,534    |    |  |   | 1,385   |    |
| Net unrealized loss oncredit swapportfolio                                    |  |                   | 33,571   |    |  |   | 20,068  |    |
| Unrealizedloss onsublease                                                     |  |                   | —  |    |  |   | (39     | )  |
| Deferredrent                                                                  |  |                   | (9       | )  |  |   | (7      | )  |
| Amortization of debtissuancecosts                                             |  |                   | 22       |    |  |   | — |    |
| Distributionson preferred securities ofsubsidiary                             |  |                   | 1,775    |    |  |   | 1,147   |    |
| Increase(decrease) in cash resulting from changesin:                          |  |                   |     |    |  |   |    |    |
| Premiums receivable on creditswaps                                            |  |                   | 28       |    |  |   | (742    | )  |
| Accrued premiums oncredit swaps                                               |  |                   | 62       |    |  |   | (78     | )  |
| Deferred creditswap premiums                                                  |  |                   | (12      | )  |  |   | (19     | )  |
| Deferredfinancial guaranteepremiums                                           |  |                   | (199     | )  |  |   | (196    | )  |
| Brokerage feespayable                                                         |  |                   | 23       |    |  |   | 84      |    |
| Accrued interestreceivable                                                    |  |                   | (3,553   | )  |  |   | 78      |    |
| Premiumsreceivable on financialguarantees                                     |  |                   | 300      |    |  |   | 301     |    |
| Prepaidexpenses                                                               |  |                   | 287      |    |  |   | (197    | )  |
| Deferred IPOcosts                                                             |  |                   | —  |    |  |   | (1,934  | )  |
| Assetmanagement feereceivable                                                 |  |                   | (24      | )  |  |   | — |    |
| Accountspayable and accruedexpenses                                           |  |                   | 461      |    |  |   | (254    | )  |
| Compensationaccrual                                                           |  |                   | (2,700   | )  |  |   | (2,432  | )  |
| Interestpayable                                                               |  |                   | (5       | )  |  |   | — |    |
| Taxespayable.                                                                 |  |                   | 172      |    |  |   | 72      |    |
| Netcash provided by operatingactivities                                       |  |                   | 9,740    |    |  |   | 10,109  |    |
| Cashflows from investingactivities                                            |  |                   |     |    |  |   |    |    |
| Fixed assetpurchases.                                                         |  |                   | (24      | )  |  |   | (106    | )  |
| Net sale(purchase) ofinvestments.                                             |  |                   | (125,551 | )  |  |   | 527     |    |
| Otherassetpurchases                                                           |  |                   | (332     | )  |  |   | (329    | )  |
| Netcash (used in)/ provided by investingactivities                            |  |                   | (125,907 | )  |  |   | 92      |    |
| Cashflows from financingactivities                                            |  |                   |     |    |  |   |    |    |
| Retirement of commonshares                                                    |  |                   | (2,397   | )  |  |   | — |    |
| Proceeds fromissuance of commonshares                                         |  |                   | 233      |    |  |   | — |    |
| Debt issuancecosts                                                            |  |                   | (31      | )  |  |   | — |    |
| Exercise ofwarrants                                                           |  |                   | —  |    |  |   | 5,502   |    |
| Net preferreddistributions ofsubsidiary                                       |  |                   | (1,775   | )  |  |   | (1,147  | )  |
| Netcash (used in)/ provided by financingactivities                            |  |                   | (3,970   | )  |  |   | 4,355   |    |
| Net(decrease)/ increase incash                                                |  |                   | (120,137 | )  |  |   | 14,556  |    |
| Cash and cashequivalents at beginning ofperiod                                |  |                   | 320,989  |    |  |   | 257,967 |    |
| Cashand cash equivalents at end ofperiod                                      |  | $                      | 200,852  |    |  | $      | 272,523 |    |
| Supplementaldisclosures                                                       |  |                   |     |    |  |   |    |    |
| Cash paid forinterest                                                         |  | $                      | 482      |    |  | $      | — |    |
| Cash paid fortaxes                                                            |  | $                      | 4        |    |  | $      | 45      |    |
|                                                                               |

Seeaccompanying notes.

5

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PrimusGuaranty, Ltd.Notes to Consolidated Financial StatementsJune30, 2005

1.    Organization and Basis ofPresentation

Primus Guaranty, Ltd. ("PrimusGuaranty" or the "Company"), isa Bermuda holding company and the 100% owner of Primus(Bermuda), Ltd. ("Primus Bermuda"), also aBermuda holding company. The Company considers its legal domicile to bewhere it is incorporated, Bermuda. Primus Bermuda is the 100%owner of Primus Group Holdings, LLC ("Primus GroupHoldings"), a Delaware limited liability company. PrimusGroup Holdings has two principal operating subsidiaries: PrimusFinancial Products, LLC ("Primus Financial"),and Primus Asset Management, Inc. ("Primus AssetManagement"). Primus Financial is a Delaware limitedliability company that maintains a long-term counterparty credit ratingof AAA from Standard & Poor's Rating Services("S&P") and Aaa from Moody'sInvestors Service, Inc. ("Moody's" and,together with S&P, the "RatingAgencies"). Primus Financial is primarily a provider ofcredit risk protection in the form of credit swaps, covering singlename, investment grade corporate and sovereign financial obligations.Primus Financial also sells credit protection referencing portfolioscontaining obligations of multiple reference entities, or tranches.Primus Asset Management is a provider of administrative and technologysupport to Primus Financial and an asset manager for Primus Financialand third parties.

Primus Financial and Primus Asset Managementfunction as separate entities from Primus Group Holdings. Additionally,the obligations of Primus Financial are not the obligations of PrimusBermuda, Primus Group Holdings, or any other of its affiliates, andvice versa. Primus Asset Management wholly owns Primus Re, Ltd.("Primus Re"), a Bermuda company thatoperates as a financial guarantee insurance company and is licensed asa Class 3 Insurer under the Insurance Act of 1978 of Bermuda.

The accompanying unaudited consolidated financial statements ofPrimus Guaranty, Ltd. have been prepared in accordance with U.S.generally accepted accounting principles for interim financialinformation and with the instructions to Form 10-Q and Article 10 ofRegulation S-X. Accordingly, they do not include all of the informationand footnotes required by generally accepted accounting principles forcomplete financial statements. In the opinion of management, alladjustments (consisting of normal recurring accruals) considerednecessary for a fair presentation have been included. Operating resultsfor the periods presented are not necessarily indicative of the resultsthat may be expected for any other interim period or for the year endedDecember 31, 2005. The consolidated financial statements include theaccounts of the Company and its wholly owned subsidiaries. Allsignificant intercompany balances have been eliminated.

Theconsolidated financial statements represent a single reportablesegment, as defined in Statement of Financial Accounting Standards("SFAS") No. 131, Disclosures aboutSegments of an Enterprise and Related Information.

Theconsolidated financial statements are presented in U.S. dollarequivalents. At June 30, 2005 and December 31, 2004, PrimusFinancial's credit swap activities were conducted in U.S. dollarsand Euros.

Certain 2004 amounts have been reclassified to beconsistent with the 2005 presentation.

2.    Summary ofSignificant Accounting Policies

Credit swaps

Creditswaps are over-the-counter ("OTC") derivativefinancial instruments and are recorded at fair value in accordance withSFAS No. 133, Accounting for Derivative Instruments and HedgingActivities. Obtaining the fair value (as such term is defined inSFAS No. 133) for such instruments requires the use of managementjudgment. These instruments are valued using pricing models based onthe net present value of expected future cash flows and observed pricesfor other OTC transactions 

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PrimusGuaranty, Ltd.Notes to Consolidated Financial StatementsJune30, 2005

bearing similar risk characteristics. The fairvalue of these instruments appears on the consolidated statement offinancial condition as unrealized gains or losses on credit swaps. TheCompany does not believe that its credit swaps fall outside the scopeof the guidance of SFAS No. 133 paragraph 10d, as amended by SFAS No.149, Amendment of Statement 133 on Derivative Instruments andHedging Activities, because there is no contractual requirementthat the protection purchaser be exposed to the underlying risk.

Net credit swap revenue includes realized and unrealized gains andlosses on credit swaps and net premiums earned.

Premiums aretaken into income as they are earned over a specified time period.Accrued premiums on credit swaps represent premiums earned but not yetpayable by Primus Financial's counterparty. Premiums receivableon credit swaps represents premiums that are both earned by and payableto Primus Financial.

Financial Guarantee-InsuranceContracts

The Company has undertaken a limited amount offinancial guarantee business through its subsidiary, Primus  Re.Financial guarantees are insurance contracts that contingently requirethe guarantor to make payments to the guaranteed party. The Companydesigns its guarantee contracts to qualify as non-derivatives inaccordance with the scope exception under paragraph 10d of SFAS 133 asamended by SFAS No. 149, Amendment of Statement 133 on DerivativeInstruments and Hedging Activities. This scope exception requiresthat the guaranteed party be exposed to loss both at inception and overthe life of the contract, incurrence of loss must be a precondition forpayment under the contract, and these losses are based on payments tobe made solely to reimburse the guaranteed party for failure of thedebtor to satisfy its required payment obligations under anonderivative contract, either at pre-specified payment dates oraccelerated payment dates as a result of the occurrence of an event ofdefault (as defined in the financial obligation covered by theguarantee contract) or notice of acceleration being made to the debtorby the creditor. Thus, the Company accounts for its financial guaranteecontracts in accordance with SFAS No. 60, Accounting and Reportingby Insurance Enterprises. This requires that premiums are deferredand recognized over the life of the contract and that losses arerecorded in the period that they occur based on an estimate of theultimate cost of losses incurred.

The Company does not activelyoffer financial guarantee insurance. Rather, it is an alternative theCompany has available when a counterparty requests an insurancecontract instead of a credit swap. Generally, a counterparty'schoice of a financial guarantee insurance contract versus a credit swapis determined by economic terms available in the marketplace as well asregulatory and accounting considerations. Also, the purchaser of aninsurance contract cannot submit a claim for payment unless it has aninsurable loss, whereas the purchaser of a credit swap need not haveactual exposure to the underlying risk.

Insurance PremiumsEarned and Receivable and Related Expenses

In exchange forproviding financial guarantee protection to counterparties, Primus Rereceives premiums over the life of the contract. The amount expectedover the life of the policy is reflected in the statement of financialcondition and will be reduced as payments are received quarterly inadvance.

Although Primus Re provides insurance and purchasesoff-setting credit swaps through "separateaccounts" under a private act, those accounts of Primus Reare not deemed to be separate accounts under SOP 03-01, Accounting& Reporting by Insurance Enterprises for Certain NontraditionalLong-Duration Contracts for Separate Accounts, since investmentperformance is not passed through to the contract holder.

7

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PrimusGuaranty, Ltd.Notes to Consolidated Financial StatementsJune30, 2005

Policy acquisition costs include only thoseexpenses that relate primarily to, and vary with, premium production.Such costs generally include compensation of employees involved inunderwriting and policy issuance functions, certain rating agency fees,state premium taxes and certain other underwriting expenses. No costshave been deferred by the Company as of June 30, 2005, as any suchamounts have been immaterial.

Deferred Financial GuaranteePremiums

Unearned premiums related to the financial guaranteeprotection provided are used to establish the liability at inception.This liability is reflected in income on a straight-line basis over theperiod the risk protection is provided.

Unpaid Losses and LossExpenses on Financial Guarantees

Liabilities for unpaid lossesand loss expenses include the accumulation of individual case estimatesfor claims reported as well as estimates of incurred but not reportedclaims and estimates of loss settlement expenses on the obligations ithas insured. Estimates will be based upon historical industry lossexperience modified for current trends as well as prevailing economic,legal and social conditions. Any changes in estimates are reflected inoperating results in the period in which the estimates changed. At June30, 2005 and at December 31, 2004, the Company had no loss reservesrecorded.

Income Taxes

Income tax expense is computedin accordance with the requirements of SFAS No. 109, Accounting forIncome Taxes, which prescribes the asset and liability approach toaccounting for income taxes. The asset and liability approach requiresthe recognition of deferred tax liabilities and assets for the expectedfuture tax consequences of temporary differences between the carryingamounts and the tax bases of assets and liabilities.

EmployeeCompensation Plans

In 2003, the Company adopted the fair valueapproach on a prospective basis for recording stock-based employeecompensation in accordance with the fair value method prescribed bySFAS No. 123, Accounting for Stock-based Compensation, asamended by SFAS No. 148, Accounting for Stock BasedCompensation—Transition and Disclosure. Compensation expenseis recognized based on the fair value of stock options, performanceshares, restricted shares and restricted share units("RSU") granted over the related vestingperiod. The fair value of the stock options granted is determinedthrough the use of an option-pricing model.

Recently IssuedAccounting Standards

In May 2005, the FASB issued SFAS 154,Accounting Changes and Error Corrections – a replacement ofAPB Opinion No. 20 and FASB Statement No. 3. This statementrequires retrospective application to prior periods' financialstatements of changes in accounting principle. SFAS 154 is effectivefor accounting changes and corrections of errors made in fiscal yearsbeginning after December 15, 2005. The adoption of SFAS 154 is notexpected to have a significant impact on the Company's financialstatements.

In December 2004, the FASB issued SFAS 123R, whichreplaces SFAS 123 and supersedes APB 25. SFAS 123R eliminates thechoice of alternative accounting methods, and requires that allentities follow the fair value based method of SFAS 123. Publicentities will be required to apply Statement 123R at the beginning ofthe first fiscal year beginning after June 15, 2005. The adoption ofSFAS 123R is not expected to have a significant impact on theCompany's financial statements.

8

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PrimusGuaranty, Ltd.Notes to Consolidated Financial StatementsJune30, 2005

3.    Cash and Cash Equivalents

The Company and its subsidiaries invest only in obligations of theUnited States of America or direct debt obligations of U.S. Agencies(including government-sponsored enterprises) rated AAA and Aaa by therespective Rating Agencies, commercial paper rated A-1 and P-1 by therespective Rating Agencies and money market funds.

Alloutstanding obligations in this category mature within 90 days.

4.    Available-for-Sale Investments

Available-for-saleinvestments included obligations of the United States of America ordirect debt obligations of U.S. Agencies (includinggovernment-sponsored enterprises) rated AAA and Aaa by the respectiveRating Agencies. Available-for-sale investments have originalmaturities or maturities at time of purchase greater than 91 days. AtJune 30, 2005, no investment has an original maturity or maturity attime of purchase of greater than 3 years.

Available-for-saleinvestments are reported in the balance sheet at their fair value.Changes in fair value are reported in other comprehensive income inshareholders' equity.

During the second quarter of 2005,interest income was adjusted to reflect a reduction attributable to thefourth quarter of 2004 (in the amount of $126,000) and the firstquarter of 2005 (in the amount of $466,000), as the amortization ofpurchased premium on certain investment securities was not chargedagainst interest income for such periods. The unrecorded amortizationwas not material to net income (loss) in either of the previousperiods.

5.     Credit Swap Revenues and Portfolio

Net credit swap revenue, as presented in the consolidated statementof operations, comprises changes in the fair value of credit swaps,realized gains or losses on the termination of credit swaps and premiumincome or expense. The realized gains and losses on credit swapsrepresent realized gains and losses on unwound or assigned creditswaps. The realization of gains or losses on credit swaps willgenerally result in a reduction in unrealized gains or losses andaccrued premium at the point in time realization occurs.

Inexchange for providing credit protection to its counterparties, PrimusFinancial receives premium payments as a series of fixed cash flows.Premiums are taken into income as they are earned over a specified timeperiod. Accrued premiums on credit swaps represent premiums earned butnot yet payable by Primus Financial's counterparty. Premiumsreceivable on credit swaps represents premiums that are both earned byand payable to Primus Financial. When Primus Financial purchases creditprotection from its counterparties, Primus Financial pays premiums as aseries of fixed cash flows. The premium expense is recognized ratablyover the life of the transaction as a component of net credit swaprevenue.

Under the terms of Primus Financial's operatingguidelines, derivatives transactions can only include credit swaps.Credit swaps are derivative transactions that obligate one party to thetransaction (the "Seller") to pay an amountto the other party to the transaction (the"Buyer") should one of a specified group ofevents ("Credit Events") be incurred by anunrelated third party (the "ReferenceEntity") specified in the contract. The amount to be paidby the Seller will either be (a) the notional amount of thetransaction, in exchange for which the Seller must be delivered adefined obligation of the Reference Entity (called physicalsettlement), or (b) the difference between the current market value ofa defined obligation of the Reference Entity and the notional amount ofthe transaction (called cash settlement). In exchange for incurring thepotential of a Credit Event-generated loss, the Seller will receive afixed premium for the term of the contract (or until the occurrence ofa Credit Event). The fixed premium is generally paid quarterly inarrears over the term of the transaction.

9

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PrimusGuaranty, Ltd.Notes to Consolidated Financial StatementsJune30, 2005

Nearly all transactions entered intobetween the Buyer and the Seller are subject to an ISDA masteragreement executed by both parties. The master agreement allows for theconsolidation of the market exposures and termination of alltransactions between the Buyer and Seller in the event a Default (asdefined by the master agreement) is incurred by either party.

Primus Financial is primarily a Seller of credit swaps, although itmay also buy credit swaps. Credit swaps purchased to off-set risks donot qualify as hedges in accordance with SFAS No. 133. In addition,Primus Financial is permitted to purchase credit swaps in order to seekshort-term market appreciation as a limited percentage of its overallportfolio (represented as Credit Swaps Purchased as short-terminvestments in the tables below). The company's operatingguidelines and board authorization limit the notional amount of creditswaps purchased for this purpose to seven and a half percent of thenotional amount of credit swaps sold.

As a general rule, whenthe Company sells credit protection, it intends to maintain thetransaction until maturity. However, there are two sets ofcircumstances in which the Company could elect to terminatetransactions prior to maturity, and the Company monitors its portfolioon a continuing basis to assess whether those circumstances arepresent.

First, whenever the Company receives new informationsuggesting that the credit quality of the underlying risk hasdeteriorated to a material degree, the Company considers thepossibility of terminating the transaction, usually at a loss, to avoidthe larger loss that could result if the credit swap were to remain inplace until a credit event occurs. The principal factor that governsthe Company's decision regarding termination in thesecircumstances is whether the Company believes that the underlying riskhas become substantially greater than the level of risk the Companywould choose to assume in entering into a new sale of credit defaultprotection.

Second, the Company may also elect to terminate atransaction for which it has an unrealized gain based on one or more ofthe following considerations: the likelihood of further gains arisingfrom the position, its view as to whether the capital dedicated to theposition would be profitably reallocated, its total exposure to aparticular Reference Entity, the total size of its portfolio inrelation to its capital and the total size of its swap positions andexposures with a particular counterparty which might be reduced so thatthe counterparty may enter into additional swaps with the Company.

The Company terminates (or offsets) a credit swap in any one ofthree ways. The Company may negotiate an agreed termination through theoriginal counterparty (an unwind). The Company may negotiate anassignment and novation of its rights and obligations under the creditswap to a third party (an assignment). As an alternative to terminatinga transaction, the Company may enter into an equal and oppositetransaction with a third party under which the Company purchases creditdefault protection on terms that match the terms of the originaltransaction (an offset). In this last case, both sides of the positionmay subsequently be unwound or assigned.

In the event of anunwind or assignment, the Company pays or receives a cash settlementnegotiated with the counterparty or assignee, based on the fair valueof the credit swap contract and the accrued premium on the swapcontract at the time of negotiation. The amounts the Company pays orreceives are recorded as a realization of fair value and as arealization of accrued premiums in the period in which the terminationoccurs.

The primary risks inherent in the Company'sactivities are (a) that Reference Entities specified in its credit swaptransactions will incur Credit Events (Credit Events may include any orall of the following: bankruptcy, failure to pay, repudiation ormoratorium, and modified or original restructuring) that will requirePrimus Financial to make payments to the Buyers of the transactions,(b) where Primus Financial is a Buyer of a credit swap and a CreditEvent occurs, the Seller fails to make payment to the Company, and (c)that Buyers of the transactions from Primus Financial will default ontheir required premium payments at times when the fair value of theunderlying transactions are positive to Primus Financial. Sinceinception, none of these events had occurred.

10

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PrimusGuaranty, Ltd.Notes to Consolidated Financial StatementsJune30, 2005

The Company distinguishes among creditswaps sold – single name, credit swaps sold – tranche,credit swaps purchased as short-term investments and credit swapspurchased to offset the credit risk on credit swaps previously sold.Credit swaps sold – single name refers to credit swap protectionrelating to a single reference entity. Credit swaps sold –tranche refers to credit swap protection referencing portfolioscontaining obligations of multiple reference entities, and we beganselling protection of this type during the second quarter of 2005. Allcredit swaps purchased refer to credit swap protection on single namereference entities.

The tables below present the components ofcredit swap revenues for the three and six months ended June 30, 2005and 2004, in thousands.

Net credit swap revenues/ (losses) forthe three months ended June 30, 2005

|                                                                  |  |                         |        |               |  |                  |         |                                   |  |        |         |         |  |        |         |         |  |        |        |         |  |  |
|------------------------------------------------------------------|--|-------------------------|--------|---------------|--|------------------|---------|-----------------------------------|--|--------|---------|---------|--|--------|---------|---------|--|--------|--------|---------|--|--|
|                                                             |  | Premiumincome/(expense) |        | Realizedgains |  | Realized(losses) |         | Changein unrealizedgains/(losses) |  | Total  |
| Credit swaps sold – singlename                             |  | $                       | 12,653 |          |  | $                | 470     |                              |  | $      | (3,019  | )  |  | $      | (14,765 | )  |  | $      | (4,661 | )  |
| Creditswaps sold –tranche                                  |  |                    | 96     |          |  |             | — |                              |  |   | — |    |  |   | 467     |    |  |   | 563    |    |
| Creditswaps purchased as short-terminvestments                   |  |                    | (329   | )        |  |             | 635     |                              |  |   | (23     | )  |  |   | 219     |    |  |   | 502    |    |
| Creditswaps purchased to offset credit risk on certain swapssold |  |                    | (23    | )        |  |             | — |                              |  |   | — |    |  |   | 40      |    |  |   | 17     |    |
| Total                                                            |  | $                       | 12,397 |          |  | $                | 1,105   |                              |  | $      | (3,042  | )  |  | $      | (14,039 | )  |  | $      | (3,579 | )  |
|                                                                  |

Netcredit swap revenues/ (losses) for the six months ended June 30,2005

|                                                                  |  |                         |        |               |  |                  |         |                                   |  |        |         |         |  |        |         |         |  |        |         |         |  |  |
|------------------------------------------------------------------|--|-------------------------|--------|---------------|--|------------------|---------|-----------------------------------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
|                                                             |  | Premiumincome/(expense) |        | Realizedgains |  | Realized(losses) |         | Changein unrealizedgains/(losses) |  | Total  |
| Credit swaps sold – singlename                             |  | $                       | 24,281 |          |  | $                | 589     |                              |  | $      | (3,019  | )  |  | $      | (34,728 | )  |  | $      | (12,877 | )  |
| Creditswaps sold –tranche                                  |  |                    | 96     |          |  |             | — |                              |  |   | — |    |  |   | 467     |    |  |   | 563     |    |
| Creditswaps purchased as short-terminvestments                   |  |                    | (732   | )        |  |             | 656     |                              |  |   | (30     | )  |  |   | 626     |    |  |   | 520     |    |
| Creditswaps purchased to offset credit risk on certain swapssold |  |                    | (46    | )        |  |             | — |                              |  |   | — |    |  |   | 63      |    |  |   | 17      |    |
| Total                                                            |  | $                       | 23,599 |          |  | $                | 1,245   |                              |  | $      | (3,049  | )  |  | $      | (33,572 | )  |  | $      | (11,777 | )  |
|                                                                  |

Netcredit swap revenues/ (losses) for the three months ended June 30,2004

|                                                                  |  |                         |        |               |  |                  |         |                                   |  |        |         |         |  |        |        |         |  |        |       |         |  |  |
|------------------------------------------------------------------|--|-------------------------|--------|---------------|--|------------------|---------|-----------------------------------|--|--------|---------|---------|--|--------|--------|---------|--|--------|-------|---------|--|--|
|                                                             |  | Premiumincome/(expense) |        | Realizedgains |  | Realized(losses) |         | Changein unrealizedgains/(losses) |  | Total  |
| Credit swaps sold – singlename                             |  | $                       | 10,398 |          |  | $                | 936     |                              |  | $      | (1      | )  |  | $      | (5,288 | )  |  | $      | 6,045 |    |
| Creditswaps sold –tranche                                  |  |                    | (126   | )        |  |             | 304     |                              |  |   | (32     | )  |  |   | (313   | )  |  |   | (167  | )  |
| Creditswaps purchased to offset credit risk on certain swapssold |  |                    | (23    | )        |  |             | — |                              |  |   | — |    |  |   | 10     |    |  |   | (13   | )  |
| Total                                                            |  | $                       | 10,249 |          |  | $                | 1,240   |                              |  | $      | (33     | )  |  | $      | (5,591 | )  |  | $      | 5,865 |    |
|                                                                  |

11

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PrimusGuaranty, Ltd.Notes to Consolidated Financial StatementsJune30, 2005

Net credit swap revenues/ (losses) forthe six months ended June 30, 2004

|                                                                  |  |                         |        |               |  |                  |         |                                   |  |        |         |         |  |        |         |         |  |        |       |        |  |  |
|------------------------------------------------------------------|--|-------------------------|--------|---------------|--|------------------|---------|-----------------------------------|--|--------|---------|---------|--|--------|---------|---------|--|--------|-------|--------|--|--|
|                                                             |  | Premiumincome/(expense) |        | Realizedgains |  | Realized(losses) |         | Changein unrealizedgains/(losses) |  | Total  |
| Credit swaps sold – singlename                             |  | $                       | 20,408 |          |  | $                | 2,109   |                              |  | $      | (13     | )  |  | $      | (20,255 | )  |  | $      | 2,249 |   |
| Creditswaps sold –tranche                                  |  |                    | (248   | )        |  |             | 740     |                              |  |   | (47     | )  |  |   | 137     |    |  |   | 582   |   |
| Creditswaps purchased to offset credit risk on certain swapssold |  |                    | (46    | )        |  |             | — |                              |  |   | — |    |  |   | 50      |    |  |   | 4     |   |
| Total                                                            |  | $                       | 20,114 |          |  | $                | 2,849   |                              |  | $      | (60     | )  |  | $      | (20,068 | )  |  | $      | 2,835 |   |
|                                                                  |

Forthe six months ended June 30, 2005, two counterparties each generatedgreater than ten percent of the Company's total premium revenue,and for the six months ended June 30, 2004, three counterparties eachgenerated greater than ten percent of the Company's total premiumrevenue.

In accordance with accounting principles generallyaccepted in the United States, the Company carries its credit swaps onits balance sheet at their fair value. Changes in the fair value of theCompany's credit swap portfolio are recorded as unrealized gainsor losses in the Company's consolidated income statement. If acredit swap has an increase in fair value during a period, the increasewill add to the Company's net credit swap revenues for thatperiod. Conversely, if a credit swap has a decline in fair value duringthe period, the decline will subtract from the Company's netcredit swap revenues for that period. Changes in the fair value of theCompany's credit swap portfolio are a function of the notionalamount and composition of the portfolio and prevailing market creditswap premiums for comparable credit swaps. The Company generally holdsthe credit swaps it sells to maturity, at which point, assuming nocredit event has occurred, the cumulative unrealized gains and losseson each credit swap would equal zero. In general, the Companyaggregates fair values of individual credit swaps by counterparty forpresentation on the Company's statement of condition. If theaggregate total of fair values for a counterparty is a net gain, thetotal is recorded as a component of unrealized gains on credit swaps,at fair value in the statement of financial condition. If the aggregatetotal of fair values for a counterparty is a net loss, the total isrecorded as a component of unrealized losses on credit swaps, at fairvalue in the statement of financial condition. Aggregation bycounterparty is applied where a valid ISDA master agreement is in placewith the counterparty. In instances where the Company does not yet havea valid ISDA master agreement with the counterparty, the fair values ofindividual swap transactions are recorded as components of unrealizedgains or losses on credit swaps, at fair value, dependent upon whetherthe individual contract was at a gain or a loss.

12

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PrimusGuaranty, Ltd.Notes to Consolidated Financial StatementsJune30, 2005

The notional amount, fair value andaverage fair value of open credit swap transactions entered into withthird parties at June 30, 2005 and December 31, 2004 are as follows (inthousands):

|                                      |  |             |            |                 |  |        |            |        |  |  |
|--------------------------------------|--|-------------|------------|-----------------|--|--------|------------|--------|--|--|
|                                 |  | June30,2005 |            | December31,2004 |
| **Gross NotionalAmounts:**           |  |
| Credit swaps sold – singlename |  | $           | 12,227,060 |            |  | $      | 10,544,728 |   |
| Creditswaps sold –tranche      |  |        | 50,000     |            |  |   | —    |   |
| Credit swapspurchased                |  |        | 389,512    |            |  |   | 468,175    |   |
| **Fairvalue:**                       |  |        |       |            |  |   |       |   |
| Asset                                |  |        | 17,511     |            |  |   | 46,517     |   |
| Liability                            |  |        | 4,843      |            |  |   | 259        |   |
| **Averagefairvalue:**                |  |        |       |            |  |   |       |   |
| Asset                                |  |        | 28,866     |            |  |   | 33,778     |   |
| Liability                            |  |        | 4,471      |            |  |   | 392        |   |
|                                      |

"Asset"in the above table represents unrealized gains on credit swaps while"Liability" represents unrealized losses oncredit swaps. All credit swaps that have been contractually establishedwith each counterparty under an ISDA master agreement are subject tonetting arrangements. The notional amounts of the credit swap contractsin the preceding table are presented on a gross basis and the fairvalues of such contracts are presented net by counterparty, where amaster agreement is in place. "Average fairvalue" in the table above represents the averages over thesix months ended June 30, 2005 and the year ended December 31,2004.

The tables below summarize the notional amounts and netfair value by Reference Entities and Counterparties of credit swaptransactions as of June 30, 2005 and December 31, 2004.

Riskoff-set transactions are included in the table above and tables belowas part of Credit Swaps Purchased. The total notional amounts of riskoff-set transactions were $5.0 million at June 30, 2005 andDecember  31, 2004. Fair value of the risk offset transactionsequaled $(142) thousand and $(206) thousand at June 30, 2005 andDecember 31, 2004, respectively.

13

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PrimusGuaranty, Ltd.Notes to Consolidated Financial StatementsJune30, 2005

(in thousands and U.S. dollarequivalent)

|                                      |  |                |            |                 |  |                |        |           |  |        |            |        |  |        |         |         |  |  |
|--------------------------------------|--|----------------|------------|-----------------|--|----------------|--------|-----------|--|--------|------------|--------|--|--------|---------|---------|--|--|
|                                 |  | June30,2005    |            | December31,2004 |
| Moody'sRatingCategory                |  | NotionalAmount |            | FairValue       |  | NotionalAmount |        | FairValue |
| **ReferenceEntity**                  |  |
| Credit Swaps Sold –SingleName: |  |
|     Aaa          |  | $              | 625,540    |            |  | $              | 544    |      |  | $      | 651,270    |   |  | $      | 866     |    |
|     Aa           |  |           | 2,284,290  |            |  |           | 3,197  |      |  |   | 1,917,131  |   |  |   | 5,609   |    |
|     A            |  |           | 4,920,193  |            |  |           | 13,204 |      |  |   | 4,310,452  |   |  |   | 22,511  |    |
|     Baa          |  |           | 4,329,983  |            |  |           | (57    | )    |  |   | 3,642,330  |   |  |   | 19,295  |    |
|     Ba           |  |           | 61,000     |            |  |           | (2,186 | )    |  |   | 23,545     |   |  |   | 179     |    |
|     Caa          |  |           | 6,054      |            |  |           | (905   | )    |  |   | —    |   |  |   | — |    |
| Total                                |  | $              | 12,227,060 |            |  | $              | 13,797 |      |  | $      | 10,544,728 |   |  | $      | 48,460  |    |
| CreditSwaps Sold –Tranche:     |  |
|     Aa           |  | $              | 50,000     |            |  | $              | 467    |      |  | $      | —    |   |  | $      | — |    |
| Total                                |  | $              | 50,000     |            |  | $              | 467    |      |  | $      | —    |   |  | $      | — |    |
| CreditSwapsPurchased:                |  |
| Aaa                                  |  | $              | 44,216     |            |  | $              | (185   | )    |  | $      | 47,090     |   |  | $      | (158    | )  |
| Aa                                   |  |           | 12,108     |            |  |           | (15    | )    |  |   | 13,545     |   |  |   | (44     | )  |
| A                                    |  |           | 200,810    |            |  |           | (585   | )    |  |   | 209,815    |   |  |   | (803    | )  |
| Baa                                  |  |           | 96,054     |            |  |           | (510   | )    |  |   | 160,635    |   |  |   | (969    | )  |
| NR                                   |  |           | 36,324     |            |  |           | (281   | )    |  |   | 37,090     |   |  |   | (228    | )  |
| Total                                |  | $              | 389,512    |            |  | $              | (1,576 | )    |  | $      | 468,175    |   |  | $      | (2,202  | )  |
| **CounterpartyBuyer**                |  |           |       |            |  |
| Credit SwapsSold – SingleName: |  |
| Aaa                                  |  | $              | 5,000      |            |  | $              | 21     |      |  | $      | 5,000      |   |  | $      | 49      |    |
| Aa                                   |  |           | 10,163,957 |            |  |           | 8,321  |      |  |   | 8,304,867  |   |  |   | 35,922  |    |
| A                                    |  |           | 2,058,103  |            |  |           | 5,455  |      |  |   | 2,234,861  |   |  |   | 12,489  |    |
| Total                                |  | $              | 12,227,060 |            |  | $              | 13,797 |      |  | $      | 10,544,728 |   |  | $      | 48,460  |    |
| CreditSwaps Sold –Tranche:     |  |
| Aa                                   |  | $              | 50,000     |            |  | $              | 467    |      |  | $      | —    |   |  | $      | — |    |
| Total                                |  | $              | 50,000     |            |  | $              | 467    |      |  | $      | —    |   |  | $      | — |    |
| **CounterpartySeller**               |  |
| Credit SwapsPurchased:               |  |
| Aa                                   |  | $              | 301,350    |            |  | $              | (1,213 | )    |  | $      | 387,858    |   |  | $      | (1,699  | )  |
| A                                    |  |           | 88,162     |            |  |           | (363   | )    |  |   | 80,317     |   |  |   | (503    | )  |
| Total                                |  | $              | 389,512    |            |  | $              | (1,576 | )    |  | $      | 468,175    |   |  | $      | (2,202  | )  |
|                                      |

14

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PrimusGuaranty, Ltd.Notes to Consolidated Financial StatementsJune30, 2005

|                                      |  |                |            |                  |  |                |        |           |  |        |            |        |  |        |         |         |  |  |
|--------------------------------------|--|----------------|------------|------------------|--|----------------|--------|-----------|--|--------|------------|--------|--|--------|---------|---------|--|--|
|                                 |  | June30, 2005   |            | December 31,2004 |
| S&P RatingCategory               |  | NotionalAmount |            | FairValue        |  | NotionalAmount |        | FairValue |
| **ReferenceEntity**                  |  |
| Credit Swaps Sold −SingleName: |  |
|     AAA          |  | $              | 640,540    |             |  | $              | 448    |      |  | $      | 627,725    |   |  | $      | 822     |    |
|     AA           |  |           | 1,962,182  |             |  |           | 2,388  |      |  |   | 1,826,628  |   |  |   | 4,462   |    |
|     A            |  |           | 5,651,273  |             |  |           | 15,532 |      |  |   | 4,863,204  |   |  |   | 25,569  |    |
|     BBB          |  |           | 3,844,011  |             |  |           | 2,889  |      |  |   | 3,217,171  |   |  |   | 17,536  |    |
|     BB           |  |           | 123,000    |             |  |           | (6,555 | )    |  |   | 10,000     |   |  |   | 71      |    |
|     B            |  |           | 6,054      |             |  |           | (905   | )    |  |   | —    |   |  |   | — |    |
| Total                                |  | $              | 12,227,060 |             |  | $              | 13,797 |      |  | $      | 10,544,728 |   |  | $      | 48,460  |    |
| CreditSwaps Sold −Tranche:     |  |
|     AA           |  | $              | 50,000     |             |  | $              | 467    |      |  | $      | —    |   |  | $      | — |    |
| Total                                |  | $              | 50,000     |             |  | $              | 467    |      |  | $      | —    |   |  | $      | — |    |
| CreditSwapsPurchased:                |  |
|     AAA          |  | $              | 44,216     |             |  | $              | (185   | )    |  | $      | 57,090     |   |  | $      | (198    | )  |
|     AA           |  |           | 24,216     |             |  |           | (61    | )    |  |   | 27,090     |   |  |   | (109    | )  |
|     A            |  |           | 213,702    |             |  |           | (759   | )    |  |   | 216,270    |   |  |   | (940    | )  |
|     BBB          |  |           | 95,270     |             |  |           | (446   | )    |  |   | 167,725    |   |  |   | (955    | )  |
|     N/R          |  |           | 12,108     |             |  |           | (125   | )    |  |   | —    |   |  |   | — |    |
| Total                                |  | $              | 389,512    |             |  | $              | (1,576 | )    |  | $      | 468,175    |   |  | $      | (2,202  | )  |
| **CounterpartyBuyer**                |  |
| Credit Swaps Sold −SingleName: |  |
|     AAA          |  | $              | 29,216     |             |  | $              | (303   | )    |  | $      | 5,000      |   |  | $      | 49      |    |
|     AA           |  |           | 8,224,179  |             |  |           | 6,123  |      |  |   | 6,643,559  |   |  |   | 27,941  |    |
|     A            |  |           | 3,973,665  |             |  |           | 7,977  |      |  |   | 3,896,169  |   |  |   | 20,470  |    |
| Total                                |  | $              | 12,227,060 |             |  | $              | 13,797 |      |  | $      | 10,544,728 |   |  | $      | 48,460  |    |
| CreditSwaps Sold −Tranche:     |  |
|     AA           |  | $              | 50,000     |             |  | $              | 467    |      |  | $      | —    |   |  | $      | — |    |
| Total                                |  | $              | 50,000     |             |  | $              | 467    |      |  | $      | —    |   |  | $      | — |    |
| **CounterpartySeller**               |  |
| Credit SwapsPurchased:               |  |
|     AA           |  | $              | 247,134    |             |  | $              | (1,219 | )    |  | $      | 290,768    |   |  | $      | (1,433  | )  |
|     A            |  |           | 142,378    |             |  |           | (357   | )    |  |   | 177,407    |   |  |   | (769    | )  |
| Total                                |  | $              | 389,512    |             |  | $              | (1,576 | )    |  | $      | 468,175    |   |  | $      | (2,202  | )  |
|                                      |

PrimusFinancial's operating guidelines impose various limits on thegeographical concentration of its business based on the country ofdomicile of each Reference Entity. Additionally, PrimusFinancial's counterparties are global financial institutions, andnearly all have entered into Master Agreements with Primus Financialthat consolidate the counterparty risk to one office of thatcounterparty.

15

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PrimusGuaranty, Ltd.Notes to Consolidated Financial StatementsJune30, 2005

The table below shows the geographicaldistribution of Primus Guaranty's credit swap portfolio bydomicile of the Reference Entity and domicile of the counterparty (inthousands and U.S. dollar equivalent):

|                                          |  |                |            |                 |  |                |        |           |  |        |            |        |  |        |         |         |  |  |
|------------------------------------------|--|----------------|------------|-----------------|--|----------------|--------|-----------|--|--------|------------|--------|--|--------|---------|---------|--|--|
|                                     |  | June30,2005    |            | December31,2004 |
| Country ofDomicile                       |  | NotionalAmount |            | FairValue       |  | NotionalAmount |        | FairValue |
| **Credit Swaps Sold – SingleName** |  |
| By ReferenceEntity:                      |  |
|     NorthAmerica     |  | $              | 7,259,770  |            |  | $              | 2,652  |      |  | $      | 5,798,363  |   |  | $      | 28,926  |    |
|     Europe           |  |           | 4,478,290  |            |  |           | 10,445 |      |  |   | 4,367,365  |   |  |   | 17,733  |    |
|     Pacific          |  |           | 365,000    |            |  |           | 708    |      |  |   | 305,000    |   |  |   | 1,421   |    |
|     Others           |  |           | 124,000    |            |  |           | (8     | )    |  |   | 74,000     |   |  |   | 380     |    |
| Total                                    |  | $              | 12,227,060 |            |  | $              | 13,797 |      |  | $      | 10,544,728 |   |  | $      | 48,460  |    |
| ByCounterparty:                          |  |
|     NorthAmerica     |  | $              | 6,687,777  |            |  | $              | 4,899  |      |  | $      | 5,596,849  |   |  | $      | 23,146  |    |
|     Europe           |  |           | 5,482,283  |            |  |           | 8,808  |      |  |   | 4,885,879  |   |  |   | 25,110  |    |
|     Others           |  |           | 57,000     |            |  |           | 90     |      |  |   | 62,000     |   |  |   | 204     |    |
| Total                                    |  | $              | 12,227,060 |            |  | $              | 13,797 |      |  | $      | 10,544,728 |   |  | $      | 48,460  |    |
| **CreditSwaps Sold – Tranche**     |  |           |       |            |  |
| ByCounterparty:                          |  |
|     U.S.             |  | $              | 50,000     |            |  | $              | 467    |      |  | $      | —    |   |  | $      | — |    |
| Total                                    |  | $              | 50,000     |            |  | $              | 467    |      |  | $      | —    |   |  | $      | — |    |
| **CreditSwaps Purchased**                |  |
| By ReferenceEntity:                      |  |
|     NorthAmerica     |  | $              | 220,000    |            |  | $              | (844   | )    |  | $      | 265,000    |   |  | $      | (1,282  | )  |
|     Europe           |  |           | 169,512    |            |  |           | (732   | )    |  |   | 203,175    |   |  |   | (920    | )  |
| Total                                    |  | $              | 389,512    |            |  | $              | (1,576 | )    |  | $      | 468,175    |   |  | $      | (2,202  | )  |
| ByCounterparty:                          |  |
|     NorthAmerica     |  | $              | 171,324    |            |  | $              | (572   | )    |  | $      | 215,635    |   |  | $      | (935    | )  |
|     Europe           |  |           | 198,188    |            |  |           | (915   | )    |  |   | 232,540    |   |  |   | (1,110  | )  |
|     Others           |  |           | 20,000     |            |  |           | (89    | )    |  |   | 20,000     |   |  |   | (157    | )  |
| Total                                    |  | $              | 389,512    |            |  | $              | (1,576 | )    |  | $      | 468,175    |   |  | $      | (2,202  | )  |
|                                          |

Notionalamount and fair value is not broken out by country for the tranchesold, as it is not applicable.

16

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PrimusGuaranty, Ltd.Notes to Consolidated Financial StatementsJune30, 2005

The table below shows the distribution ofPrimus Guaranty's credit swap portfolio by year of maturity as ofJune 30, 2005 and December 31, 2004 (in thousands and U.S. dollarequivalent):

|                                          |  |                |            |                        |  |                |        |                        |  |        |            |        |  |        |         |         |  |  |
|------------------------------------------|--|----------------|------------|------------------------|--|----------------|--------|------------------------|--|--------|------------|--------|--|--------|---------|---------|--|--|
|                                     |  | June30, 2005   |            | December 31,2004       |
| Country ofDomicile                       |  | NotionalAmount |            | FairValueofTransaction |  | NotionalAmount |        | FairValueofTransaction |
| **CreditSwaps Sold – Single Name** |  |
| Year ofMaturity                          |  |
|     2005             |  | $              | 1,745,638  |                   |  | $              | 908    |                   |  | $      | 2,841,441  |   |  | $      | 3,859   |    |
|     2006             |  |           | 998,562    |                   |  |           | 992    |                   |  |   | 1,014,554  |   |  |   | 1,340   |    |
|     2007             |  |           | 2,512,296  |                   |  |           | 14,750 |                   |  |   | 2,583,503  |   |  |   | 20,442  |    |
|     2008             |  |           | 1,123,383  |                   |  |           | 7,673  |                   |  |   | 1,184,157  |   |  |   | 11,427  |    |
|     2009             |  |           | 2,741,492  |                   |  |           | (1,385 | )                 |  |   | 2,901,073  |   |  |   | 11,423  |    |
|     2010             |  |           | 3,105,689  |                   |  |           | (9,141 | )                 |  |   | 20,000     |   |  |   | (31     | )  |
| Total                                    |  | $              | 12,227,060 |                   |  | $              | 13,797 |                   |  | $      | 10,544,728 |   |  | $      | 48,460  |    |
| **CreditSwaps Sold – Tranche**     |  |
| Year ofMaturity                          |  | $              | 50,000     |                   |  | $              | 467    |                   |  | $      | —    |   |  | $      | — |    |
|     2010             |  | $              | 50,000     |                   |  | $              | 467    |                   |  | $      | —    |   |  | $      | — |    |
| **CreditSwaps Purchased**                |  |
| Year ofMaturity                          |  |
|     2007             |  | $              | 10,000     |                   |  | $              | (47    | )                 |  | $      | 10,000     |   |  | $      | (43     | )  |
|     2008             |  |           | 15,000     |                   |  |           | 74     |                   |  |   | 15,000     |   |  |   | (21     | )  |
|     2009             |  |           | 344,512    |                   |  |           | (1,605 | )                 |  |   | 443,175    |   |  |   | (2,138  | )  |
|     2010             |  |           | 20,000     |                   |  |           | 2      |                   |  |   | —    |   |  |   | — |    |
| Total                                    |  | $              | 389,512    |                   |  | $              | (1,576 | )                 |  | $      | 468,175    |   |  | $      | (2,202  | )  |
|                                          |

6.    LongTerm Debt of Subsidiary

Primus Financial issued $75.0 millionof subordinated deferrable interest notes on July 23, 2004 that maturein July 2034. The notes are subordinated in right of payment to theprior payment in full of all existing and future senior indebtedness ofthe company, including counterparty claims. The rate on the notes isset through a monthly auction process, although the Company has theoption to fix the rate for longer periods of time. The notes areredeemable at the option of Primus Financial, in whole or in part, onany auction date, at a redemption price equal to 100% of theprincipal amount of the notes to be redeemed, plus any accrued andunpaid interest thereon to the redemption date. The interest rate onthe notes was fixed on the issue date at a rate of 2.57% (LIBORplus 20 basis points) for a period of one year, expiring in July of2005, at which point the rate will be set through a monthly auctionprocess. The Company incurred interest expense (excluding amortizationof debt issuance costs) of $487 and $969 thousand on these subordinatednotes for the three and six months ended June 30, 2005,respectively.

Costs associated with the issuance of this debtwere approximately $1.2 million and are shown net of accumulatedamortization in the Company's consolidated statement of financialcondition as debt issuance costs, and amortized over the life of thedebt. Amortization of debt issuance costs is included in interestexpense in the Company's consolidated statement ofoperations.

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PrimusGuaranty, Ltd.Notes to Consolidated Financial StatementsJune30, 2005

7.    Earnings per Share

Basicearnings per share ("EPS") is calculated bydividing earnings available to common stockholders by the weightedaverage number of common shares outstanding. Diluted EPS is similar tobasic EPS, but adjusts for the effect of the potential issuance ofcommon shares. The following table presents the computations of basicand diluted EPS:

|                                                    |  |                           |         |                             |  |        |        |        |  |        |         |                             |  |        |         |                             |  |  |
|----------------------------------------------------|--|---------------------------|---------|-----------------------------|--|--------|--------|--------|--|--------|---------|-----------------------------|--|--------|---------|-----------------------------|--|--|
|                                               |  | Threemonths endedJune 30, |         | Six months ended June30,    |
|                                               |  | 2005                      |         | 2004                        |  | 2005   |        | 2004   |
| Netearnings (loss) available to commonstockholders |  | $                         | (9,180  | )                      |  | $      | 174    |   |  | $      | (23,034 | )                      |  | $      | (8,088  | )                      |
| Weighted-averagebasic sharesoutstanding            |  |                      | 43,108  |                        |  |   | 3,527  |   |  |   | 43,160  |                        |  |   | 3,353   |                        |
| **Effectof dilutive instruments**                  |  |
| Series A PreferredStock                            |  |                      | — |                        |  |   | 29,953 |   |  |   | — |                        |  |   | — |    (a)  |
| Employeestockoptions                               |  |                      | — |    (a)  |  |   | 91     |   |  |   | — |    (a)  |  |   | — |    (a)  |
| Restrictedshareunits                               |  |                      | — |    (a)  |  |   | 426    |   |  |   | — |    (a)  |  |   | — |    (a)  |
| Warrants                                           |  |                      | — |    (a)  |  |   | 771    |   |  |   | — |    (a)  |  |   | — |    (a)  |
| Dilutivepotentialshares                            |  |                      | — |                        |  |   | 31,241 |   |  |   | — |                        |  |   | — |                        |
| Dilutedshares                                      |  |                      | 43,108  |                        |  |   | 34,768 |   |  |   | 43,160  |                        |  |   | 3,353   |                        |
| BasicEPS                                           |  | $                         | (0.21   | )                      |  | $      | 0.05   |   |  | $      | (0.53   | )                      |  | $      | (2.41   | )                      |
| DilutedEPS                                         |  | $                         | (0.21   | )                      |  | $      | 0.01   |   |  | $      | (0.53   | )                      |  | $      | (2.41   | )                      |
|                                                    |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (a) | Securities(including those issuable pursuant to contingent stock agreements) thatcould potentially dilute basic EPS were not included in the computationof diluted EPS because to do so would have been anti-dilutive for theperiods presented. In 2005, employee stock options totaling 157,545 and195,069 shares, restricted share units equal to 396,883 and 415,601shares and warrants representing 868,835 and 898,025 shares of commonstock were excluded, for the three and six months ended June 30, 2005,respectively. For the six months ended June 30, 2004, Series APreferred Stock which converted to 29,953 thousand shares, employeestock options totaling 531,875 shares, restricted share units equaling728,315 shares and warrants representing 2,476 thousand shares ofcommon stock were excluded. |

8.    Stock BasedCompensation

For the six months ended June 30, 2005, thecompany retired common shares in an amount equal to approximately $2.4million, representing the amount withheld to pay employee income taxesdue upon the delivery of common shares to its employees. In addition,for the three and six months ended June 30, 2005, approximately 36thousand and 40 thousand options were exercised,respectively.

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|              |                                                                                      |
|--------------|--------------------------------------------------------------------------------------|
| Item2.  | MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS |

Thefollowing is a discussion and analysis of our financial condition andresults of operations. This discussion should be read in conjunctionwith our consolidated financial statements and accompanying notes whichappear in the Company's Annual Report on Form 10-K. It containsforward-looking statements that involve risks and uncertainties. Ouractual results could differ materially from those anticipated in theseforward-looking statements as a result of various factors, includingthose discussed below and in the Company's Annual Report on Form10-K, particularly under the headings "RiskFactors" and "Cautionary Note RegardingForward-Looking Statements."

BusinessOverview

We, through our principal operating subsidiary, PrimusFinancial, are primarily engaged in selling credit protection againstinvestment grade credit obligations of corporate and sovereignentities. In exchange for a fixed quarterly premium, if a bankruptcy,failure to pay or restructuring occurs with respect to a ReferenceEntity upon which Primus Financial has sold credit protection, PrimusFinancial agrees to pay the notional amount of the credit swap contractto its Counterparty in exchange for delivery of a credit obligation ofthat Reference Entity. We seek to minimize the risk inherent in ourcredit swap portfolio by maintaining a high quality, highly diversifiedcredit swap portfolio across Reference Entities, industries andcountries.

Primus Financial has the highest counterparty creditratings offered by S&P (AAA) and Moody's (Aaa) and is managedby an experienced team of professionals who have expertise in creditanalysis, investing, risk management and market analysis.

PrimusAsset Management manages the credit swap portfolios of Primus Financialand third parties. For such services, Primus Asset Management receivesa management fee.

Primus Re operates as a financial guaranteeinsurance company, and generates revenue by charging a higher insurancepremium for protection sold than the premium it pays for the offsettingprotection it purchases.

Critical Accounting Policies

Valuation of Credit Swaps

From the inception of ourbusiness, we have applied SFAS, 133, "Accounting forDerivative Instruments and Hedging Activities," whichestablished accounting and reporting standards for derivativeinstruments. SFAS 133 requires recognition of all credit swaps on thebalance sheet at fair value. The market credit swap premium levels usedto determine fair value generally take into account the expectation ofsuch events.

The fair value of the credit swaps depends on anumber of factors, primarily the market level of credit swap premiumsassociated with individual Reference Entities and interest rates.Credit swaps are valued using market-standard pricing models whichcalculate the net present value of differences between future premiumson currently quoted market credit swaps and the contractual futurecredit swap premiums on contracts we have undertaken. Our pricing modelhas been internally developed but is benchmarked against amarket-standard model. Generally, our model uses quoted market creditswap premium data on individual Reference Entities that we purchasefrom an independent pricing service. This service takes pricinginformation from a number of prominent brokers and dealers in thecredit swap market across a range of standard maturities andrestructuring terms, and creates average market credit swap premiumquotes on specific Reference Entities.

We believe there are avariety of factors that may influence market credit swap premiumlevels. The principal factor is the market's view of theprobability that a Reference Entity will default over the multi-yearhorizon typical for a credit swap contract. Those views in turn areinfluenced by the state of the economy, the outlook for corporatefinancial health in general as well as the outlook for 

19

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particular industries and companies.Additional factors include the magnitude of debt outstanding and debtpaying capacity within those same industries and companies. One factorspecific to the credit swap market is the capacity of credit swapmarket participants to sell credit swaps. If, for example, commercialbanks are actively buying protection to manage their regulatorycapital, this will tend, other factors being equal, to absorb thecapacity of protection sellers and cause an increase in market creditswap premiums. Conversely, creation of special purpose vehicles thatsell protection create additional protection seller capacity and,absent additional demand, can cause a decrease in market premiums.Absent rapid and steep changes, interest rates have, at most, a limitedeffect on market credit swap premium levels.

FinancialGuarantees

We have undertaken a limited amount of financialguarantee business through our subsidiary, Primus Re. Financialguarantees are insurance contracts that contingently require theguarantor to make payments to the guaranteed party. Primus Re designsits guarantee contracts to qualify as non-derivatives in accordancewith the scope exception under paragraph 10d of SFAS 133, as amended bySFAS No. 149, "Amendment of Statement 133 on DerivativeInstruments and Hedging Activities". We account for ourfinancial guarantee contracts in accordance with SFAS No. 60,"Accounting and Reporting by InsuranceEnterprises". This requires that premiums are deferred andrecognized over the life of the contract and that losses are recordedin the period that they occur based on an estimate of the ultimate costof losses incurred. Policy acquisition costs include only thoseexpenses that relate primarily to, and vary with, premium production.No policy acquisition costs have been deferred by us as of June 30,2005, as any such amounts have been immaterial. As of June 30, 2005,only three contracts had been written.

We do not actively offerfinancial guarantee insurance. Rather, it is an alternative we haveavailable when a counterparty requests an insurance contract instead ofa credit swap. Generally, a counterparty's choice of a financialguarantee insurance contract versus a credit swap is determined byeconomic terms available in the marketplace as well as regulatory andaccounting considerations. Also, the purchaser of an insurance contractcannot submit a claim for payment unless it has an insurable loss,whereas the purchaser of a credit swap need not have actual exposure tothe underlying risk.

Stock-Based Employee CompensationPlans

Prior to 2003, we followed Accounting Principles Board,or APB, No. 25, "Accounting for Stock Issued toEmployees". In 2003, we adopted the fair value approach ona prospective basis for recording stock-based employee compensation inaccordance with the fair value method prescribed in SFAS 123,"Accounting for Stock-Based Compensation", asamended by SFAS 148, "Accounting for Stock-BasedCompensation—Transition and Disclosure". Under theserules, compensation expense is recognized based on the fair value ofstock options, performance shares, restricted shares and restrictedshare units at the time of an award, adjusted and amortized over therelated vesting period. The fair value of the stock options granted isdetermined through the use of a market-standard option-pricing model,which requires judgment as to appropriate volatility and interest ratefactors. Prior to our IPO on September 30, 2004, in the absence of apublic market for our common shares, management and the board ofdirectors estimated the market value of our common shares for alloptions, restricted share units and share issuances based on valuationopinions from independent valuation consultants. After the IPO, thefair value used is the market value of our common shares at the grantdate.

In December 2004, the FASB issued SFAS 123R, whichreplaces SFAS 123 and supersedes APB 25. SFAS 123R eliminates thechoice of alternative accounting methods, and requires that allentities follow the fair value based method of SFAS 123. Publicentities will be required to apply Statement 123R as of the firstannual reporting period that begins after June 15, 2005. The adoptionof SFAS 123R is not expected to have a significant impact on theCompany's financial statements.

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Results of Operations

Overview

During early 2005, market premiumlevels on credit swaps were relatively unchanged from levels as ofDecember 31, 2004. However, from March 2005 through the end of thesecond quarter, we observed significant increases in market premiumlevels, particularly in certain reference entity industry sectors, suchas automobiles and insurance. As a result of the upward movements inmarket premium levels, the fair value of our credit swaps soldportfolio declined; this decline was partially offset by a slightreduction in unrealized losses on our portfolio of credit swapspurchased. During the second quarter we terminated a number of creditswaps sold in order to mitigate our credit risk, resulting in realizedlosses of approximately $2.9 million. In addition, we engaged in ourfirst tranche transaction, whereby we sell credit protectionreferencing portfolios containing obligations of multiple referenceentities. We recorded premium income, as well as an unrealized gain onthe tranche sold during the second quarter of 2005.

Three months ended June 30, 2005 compared with threemonths ended June 30, 2004

We had net income (loss) of $(9.2)million and $174 thousand for the three months ended June 30, 2005 and2004, respectively. The net loss for the quarter ended June 30, 2005was primarily driven by the increase in unrealized losses caused by thedepreciation in the value of the credit swap portfolio during thequarter, coupled with losses realized from the early termination ofcertain credit swaps and increased expenses as a result of our expandedoperations. The results for the quarter ended June 30, 2005 and thequarter ended June 30, 2004, are discussed below.

Net CreditSwap Revenue (Loss)

Net credit swap revenue (loss) was $(3.6)million and $5.9 million for the three months ended June 30, 2005 and2004, respectively. Net credit swap revenue (loss)includes:

|              |                     |
|--------------|---------------------|
| •  | Net premiumsearned; |

|              |                                                 |
|--------------|-------------------------------------------------|
| •  | Net realized gains (losses) oncredit swaps; and |

|              |                                               |
|--------------|-----------------------------------------------|
| •  | Net unrealized gains(losses) on credit swaps. |

The table below shows the componentparts of net credit swap revenue for the three months ended June 30,2005 and2004:

|                                           |  |                           |         |         |  |        |        |         |  |  |
|-------------------------------------------|--|---------------------------|---------|---------|--|--------|--------|---------|--|--|
| ($in thousands)                           |  | Three monthsended June30, |
|                                      |  | 2005                      |         | 2004    |
| Netpremiums earned                        |  | $                         | 12,396  |    |  | $      | 10,249 |    |
| Netrealized gains (losses) on creditswaps |  |                      | (1,937  | )  |  |   | 1,207  |    |
| Net unrealizedlosses on creditswaps       |  |                      | (14,038 | )  |  |   | (5,591 | )  |
| TotalNet Credit Swap Revenue(Loss)        |  | $                         | (3,579  | )  |  | $      | 5,865  |    |
|                                           |

NetPremiums Earned

Net premiums earned were $12.4 million and$10.2 million for the three months ended June 30, 2005 and 2004,respectively. Net premiums earnedinclude:

|              |                                                 |
|--------------|-------------------------------------------------|
| •  | Premium income on credit swapssold-single name; |

|              |                                             |
|--------------|---------------------------------------------|
| •  | Premium income oncredit swaps sold-tranche; |

|              |                                                                        |
|--------------|------------------------------------------------------------------------|
| •  | Premiumexpense on credit swaps purchased as short-term investments;and |

|              |                                                                                              |
|--------------|----------------------------------------------------------------------------------------------|
| •  | Premium expense on credit swapspurchased to offset credit risk on certain credit swaps sold. |

21

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The increase in net premiums earned wasprimarily driven by the increase in the size of the credit swaps soldportfolio from the 2004 period, slightly offset by an increase in thepremiums paid for credit swaps purchased for short-term investmentpurposes in the second quarter of 2005. The table below shows thecomponent parts of net premiums earned for the three months ended June30, 2005 and 2004.

|                                                                                    |  |                           |        |         |  |        |         |         |  |  |
|------------------------------------------------------------------------------------|--|---------------------------|--------|---------|--|--------|---------|---------|--|--|
| ($in thousands)                                                                    |  | Three monthsended June30, |
|                                                                               |  | 2005                      |        | 2004    |
| Premiumincome on credit swaps sold-singlename                                      |  | $                         | 12,653 |    |  | $      | 10,398  |    |
| Premium incomeon credit swapssold-tranche                                          |  |                      | 96     |    |  |   | — |    |
| Premiumexpense on credit swaps purchased as short-terminvestments                  |  |                      | (329   | )  |  |   | (126    | )  |
| Premiumexpense on credit swaps purchased to offset credit risk on certainswapssold |  |                      | (23    | )  |  |   | (23     | )  |
| TotalNet PremiumsEarned                                                            |  | $                         | 12,397 |    |  | $      | 10,249  |    |
|                                                                                    |

Premiumincome on credit swaps sold-single name increased primarily as a resultof the expansion in our credit swaps sold portfolio. The notionalamounts outstanding of credit swaps sold were $12.2 billion and $8.6billion at June 30, 2005 and 2004, respectively.

We began tosell protection in tranche format during the second quarter of 2005,whereby we sell credit swaps referencing portfolios containingobligations of multiple reference entities. Premium income from thetranche sold was $96 thousand for the second quarter of 2005, and thetotal notional amount outstanding was $50 million at June 30, 2005.

The premium expense on credit swaps purchased as short-terminvestments was $329 thousand and $126 thousand for the three monthsended June 30, 2005 and 2004, respectively. The notional amountsoutstanding on credit swaps purchased as short-term investments were$389.5 million and $217.1 million at June 30, 2005 and 2004,respectively.

The notional amounts of credit swaps that we hadpurchased to offset credit risk on certain credit swaps sold were $5.0million and $5.0 million at June 30, 2005 and 2004.

NetRealized Gains (Losses) on Credit Swaps

Our business strategyis generally to hold swaps we sell until maturity. However, there arecircumstances in which we may terminate a credit swap prior tomaturity, either as a result of credit considerations or in order torealize gains. We cannot identify at the outset of any credit swaptransaction whether the credit swap will be terminated or otherwisedisposed of prior to its maturity. If the credit swaps we terminate areat attractive market values, we are able to realize gains. Terminatingtransactions also allows us to accelerate premium receipts and providesfor additional growth capacity within our credit swap portfolio.

In certain circumstances we will terminate a credit swap at arealized loss. In general, we terminate credit swaps at a loss where weperceive that the credit quality of the underlying reference entityrisk has deteriorated, and we wish to reduce or eliminate our exposureto the reference entity. We may also terminate a credit swap at a lossin order to create opportunity to rebalance our portfolio. Weterminated $245.1 million and $70.0 million notional amount of creditswaps sold for the three months ended June 30, 2005 and 2004,respectively. Net realized gains (losses) from the early termination ofcredit swaps were $(1.9) million and $1.2 million for the three monthsended June 30, 2005 and 2004, respectively. The net realized lossesincurred during the second quarter of 2005 was primarily the result ofour decision to mitigate our exposure to a limited number of referenceentities, which had become the subject of leveraged buy-outs whichincreased the credit risk of those reference entities.

Werealized gains of $470 thousand and $936 thousand for the three monthsended June 30, 2005 and 2004, respectively. The decrease in realizedgains is due to smaller gains on terminations that took 

22

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place in the 2005 period. We realized lossesof $3.0 million and $1 thousand for the three months ended June 30,2005, and 2004, respectively, of which $2.9 million was caused by thetermination of credit swaps to mitigate our credit exposure.

Where we have purchased credit protection as a short-terminvestment, early termination of the credit swaps is a fundamental partof the business strategy. We terminated $83 million and $115 millionnotional amount of credit swaps purchased during the three months endedJune 30, 2005 and 2004, respectively, realizing a net gain of $612thousand and $272 thousand, respectively.

Net realized gains(losses) for the three months ended June 30, 2005 and 2004 aresummarizedbelow:

|                                                                              |  |                          |        |         |  |        |       |         |  |  |
|------------------------------------------------------------------------------|--|--------------------------|--------|---------|--|--------|-------|---------|--|--|
| ($in thousands)                                                              |  | Three monthsendedJune30, |
|                                                                         |  | 2005                     |        | 2004    |
| Realizedgains on terminated credit swaps sold – singlename             |  | $                        | 470    |    |  | $      | 936   |    |
| Realized losses onterminated credit swaps sold – singlename            |  |                     | (3,019 | )  |  |   | (1    | )  |
| Realized gains onterminated credit swaps purchased as short-terminvestments  |  |                     | 635    |    |  |   | 304   |    |
| Realized losseson terminated credit swaps purchased as short-terminvestments |  |                     | (23    | )  |  |   | (32   | )  |
| TotalNet Realized Gains (Losses) on terminated creditswaps                   |  | $                        | (1,937 | )  |  | $      | 1,207 |    |
|                                                                              |

NetUnrealized Gains (Losses) on Credit Swaps

Net unrealized losseson credit swaps were $14.0  million for the three months endedJune 30, 2005 as compared with $5.6 million for the three months endedJune 30, 2004. The increase in unrealized losses on credit swapsreflects the change in the fair value of our credit swap portfolio, andis partially due to the increase in market credit swap premium levelsexperienced during the quarters ended June 30, 2005 and 2004. In 2005,we also recorded unrealized losses on certain reference entities whichwere downgraded or were the subject of leveraged buy-outs during theperiod. The unrealized losses on credit swaps sold-single name, creditswaps sold-tranche and credit swaps purchased as short-term investmentsand for credit risk offset purposes for the three months ended June 30,2005 and 2004 are summarizedbelow:

|                                                                                                |  |                           |         |         |  |        |         |         |  |  |
|------------------------------------------------------------------------------------------------|--|---------------------------|---------|---------|--|--------|---------|---------|--|--|
| ($in thousands)                                                                                |  | Three monthsended June30, |
|                                                                                           |  | 2005                      |         | 2004    |
| Netunrealized losses on credit swaps sold-singlename                                           |  |                      | (14,765 | )  |  | $      | (5,288  | )  |
| Netunrealized gains on credit swapssold-tranche                                                |  |                      | 467     |    |  |   | — |    |
| Netunrealized gains (losses) on credit swaps purchased as short-terminvestments                |  |                      | 219     |    |  |   | (313    | )  |
| Net unrealizedgains on credit swaps purchased to offset credit risk on certain creditswapssold |  |                      | 40      |    |  |   | 10      |    |
| TotalNet Unrealized Losses on creditswaps                                                      |  | $                         | (14,039 | )  |  | $      | (5,591  | )  |
|                                                                                                |

AssetManagement Fees

We commenced our third party asset managementactivity during the latter part of 2004. For the three months endedJune 30, 2005, we recognized $49 thousand of asset management fees. Ourasset management contracts also provide for contingent performancefees, none of which have been earned or accrued at June 30, 2005.

Interest Income on Investment Portfolio

We had interestincome of approximately $2.8 million and $716  thousand for thethree months ended June 30, 2005 and 2004, respectively. The increasedinterest income is attributable to higher 

23

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average invested balances subsequent to theJuly 2004 issuance of subordinated debt and the raising of additionalequity through our IPO, coupled with higher yields in the cashequivalents and investment accounts as compared with the three monthperiod ended June 30, 2004. Interest income for the second quarter hasbeen adjusted to reflect a reduction of interest income attributable tothe fourth quarter of 2004 (in the amount of $126,000) and the firstquarter of 2005 (in the amount of $466,000), as the amortization ofpurchased premium on certain investment securities was not chargedagainst interest income for such periods. The unrecorded amortizationwas not material to net income (loss) in either of the previousperiods. Average yields on the cash equivalents and available-for-saleinvestments were 2.79% for the three month period ended June 30,2005 (excluding the above adjustment) compared with 1.06% forthe three month period ended June 30, 2004. The increase in averageyields is primarily due to a general increase in market interest rates,coupled with an extension in the average duration of our investmentportfolio in the second quarter of 2005. Our total cash, cashequivalents and available-for-sale securities were approximately $487.5million and $276.0 million as of June 30, 2005 and 2004,respectively.

Foreign Currency Revaluation

We startedselling Euro-denominated credit swaps in February 2003 and at June 30,2005, Euro-denominated credit swaps comprise 26.9% of thenotional amount of our credit swaps sold portfolio. The Euro haddepreciated in value against the U.S. dollar by approximately6.6% and 0.9 % during the second quarter of 2005 and2004, respectively, and this depreciation resulted in a net loss of$955 thousand and $33 thousand for the three months ended June 30, 2005and 2004, respectively.

Operating Expenses

Ouroperating expenses (excluding financing costs) were $5.9  millionand $5.8 million for the three months ending June 30, 2005 and 2004,respectively, as summarized below:

|                                               |  |                           |       |        |  |        |       |        |  |  |
|-----------------------------------------------|--|---------------------------|-------|--------|--|--------|-------|--------|--|--|
| ($in thousands)                               |  | Three monthsended June30, |
|                                          |  | 2005                      |       | 2004   |
| Employeecompensation                          |  | $                         | 3,406 |   |  | $      | 3,861 |   |
| Professionaland legal fees                    |  |                      | 796   |   |  |   | 363   |   |
| Fixed assetdepreciation andamortization       |  |                      | 525   |   |  |   | 485   |   |
| Technology anddata                            |  |                      | 398   |   |  |   | 364   |   |
| Other                                         |  |                      | 853   |   |  |   | 761   |   |
| TotalOperatingExpenses                        |  | $                         | 5,978 |   |  | $      | 5,834 |   |
| Numberof full-time employees, at end ofperiod |  |                      | 34    |   |  |   | 31    |   |
|                                               |

The decrease inemployee compensation over these periods was primarily due to thedecrease in the accrual for performance bonuses and performance-relatedstock compensation. This decrease was offset by a slight increase insalaries expense, due to the increase in number of employees as thebusiness expanded its operations. The increase in professional fees isrelated to the increased insurance expenses, and the increased costsassociated with the requirements of being a public company. Otheroperating expenses include rent, bank fees and investment managementfees, rating agency fees, brokerage expense, travel and entertainment,exchange fees and other administrative expenses. The increase in otheroperating expenses is partially due to an increase in bank fees andasset management fees, as our cash, cash equivalents and investmentbalances were higher during second quarter 2005 as compared with the2004 period. This was partially offset by a decrease in brokerage fees,as we restricted our use of brokers during 2005. The remainder of theother operating expenses increased over the prior period primarily dueto expanded operations and our status as a public Company.

Interest Expense and Preferred Distributions

For the threemonths ended June 30, 2005, we incurred $487 thousand of interestexpense on the $75.0 million 30-year subordinated debt that was issuedby Primus Financial in July 2004. The interest 

24

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rate for the 30-year subordinated debt isfixed at 2.57% for a period of one year from the issuance date.Primus Financial also made net distributions of $1.1 million and $605thousand during the three months ended June 30, 2005 and 2004,respectively, on the Primus Financial Cumulative Preferred Stock issuedin December 2002. The average rates paid on these securities was3.97% and 1.75% during the three months ended June 30,2005 and 2004, respectively.

Income Taxes

Provision forincome taxes was $9 thousand and $45 thousand for the three monthsended June 30, 2005 and 2004, respectively. Primus Guaranty had a netdeferred tax asset fully offset by a valuation allowance of $9.3million and $5.9 million as of June 30, 2005 and 2004, respectively.The change in the deferred tax asset and valuation allowance resultedfrom Primus Asset Management's estimated net operating loss. Aspreviously discussed, it is expected that only the income of PrimusAsset Management and its subsidiary, Primus Re, are likely to besubject to United States federal and local income taxes. However, werePrimus Bermuda to be subject to income tax, at a combined United Statesfederal, New York State and New York City income tax rate of46%, on its United States GAAP income, then its income taxexpense (excluding interest and penalties) since inception, would havebeen approximately $40.6 million through June 30, 2005, and a benefitof approximately $3.6 million for the three months ended June 30, 2005.These figures assume that Primus Financial is not deemed to be makingdistributions to Primus Bermuda; such distributions would subjectPrimus Bermuda to an additional United States federal branch profitstax.

Six months ended June 30, 2005 compared withsix months ended June 30, 2004

We had a net loss of $23.0million and $8.1 million for the six months ended June 30, 2005 and2004, respectively. The net loss in the 2005 period was primarilydriven by the increase in unrealized losses caused by the depreciationin the value of our credit swap portfolio, coupled with losses realizedfrom the early termination of credit swaps, and increased expenses as aresult of our expanded operations and costs associated with being apublic company.

Net Credit Swap Revenue (Loss)

Netcredit swap revenue (loss) was $(11.8) million and $2.8 million for thesix months ended June 30, 2005 and 2004, respectively. Net credit swaprevenue (loss) includes:

|              |                     |
|--------------|---------------------|
| •  | Net premiumsearned; |

|              |                                                 |
|--------------|-------------------------------------------------|
| •  | Net realized gains (losses) oncredit swaps; and |

|              |                                               |
|--------------|-----------------------------------------------|
| •  | Net unrealized gains(losses) on credit swaps. |

The table below shows the componentparts of net credit swap revenue (loss) for the six months ended June30, 2005 and2004:

|                                           |  |                         |         |         |  |        |         |         |  |  |
|-------------------------------------------|--|-------------------------|---------|---------|--|--------|---------|---------|--|--|
| ($in thousands)                           |  | Six months endedJune30, |
|                                      |  | 2005                    |         | 2004    |
| Netpremiums earned                        |  | $                       | 23,599  |    |  | $      | 20,114  |    |
| Netrealized gains (losses) on creditswaps |  |                    | (1,804  | )  |  |   | 2,789   |    |
| Net unrealizedlosses on creditswaps       |  |                    | (33,572 | )  |  |   | (20,068 | )  |
| TotalNet Credit Swap Revenue(Loss)        |  | $                       | (11,777 | )  |  | $      | 2,835   |    |
|                                           |

NetPremiums Earned

Net premiums earned were $23.6 million and$20.1 million for the six months ended June 30, 2005 and 2004,respectively. Net premiums earnedinclude:

|              |                                                         |
|--------------|---------------------------------------------------------|
| •  | Premium income on credit swapssold – single name; |

25

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|              |                                                    |
|--------------|----------------------------------------------------|
| •  | Premium income oncredit swaps sold –tranche; |

|              |                                                                        |
|--------------|------------------------------------------------------------------------|
| •  | Premium expense on credit swapspurchased as short-term investments;and |

|              |                                                                                              |
|--------------|----------------------------------------------------------------------------------------------|
| •  | Premium expense on credit swapspurchased to offset credit risk on certain credit swaps sold. |

The increase in net premiums earned was primarily driven by theincrease in the size of the credit swaps sold portfolio from the 2004period, slightly offset by an increase in the premiums paid for creditswaps purchased for short-term investment purposes. The table belowshows the component parts of net premiums earned for the six monthsended June 30, 2005 and2004.

|                                                                                    |  |                         |        |         |  |        |         |         |  |  |
|------------------------------------------------------------------------------------|--|-------------------------|--------|---------|--|--------|---------|---------|--|--|
| ($in thousands)                                                                    |  | Six months endedJune30, |
|                                                                               |  | 2005                    |        | 2004    |
| Premiumincome on credit swaps sold-singlename                                      |  | $                       | 24,281 |    |  | $      | 20,408  |    |
| Premium incomeon credit swapssold-tranche                                          |  |                    | 96     |    |  |   | — |    |
| Premiumexpense on credit swaps purchased as short-terminvestments                  |  |                    | (732   | )  |  |   | (248    | )  |
| Premiumexpense on credit swaps purchased to offset credit risk on certainswapssold |  |                    | (46    | )  |  |   | (46     | )  |
| TotalNet PremiumsEarned                                                            |  | $                       | 23,599 |    |  | $      | 20,114  |    |
|                                                                                    |

Premiumincome on credit swaps sold-single name increased primarily as a resultof the expansion in our credit swap portfolio. The notional amountsoutstanding of credit swaps sold were $12.2 billion and $8.6 billion atJune 30, 2005 and 2004, respectively.

We began to sellprotection in tranche format during the second quarter of 2005, wherebywe sell credit swaps referencing portfolios containing obligations ofmultiple reference entities. Premium income from the tranche sold was$96 thousand for the six months ended June 30, 2005, and the notionalamount outstanding was $50 million at June 30, 2005.

The premiumexpense on credit swaps purchased as short-term investments was $732thousand and $248 thousand for the six months ended June 30, 2005 and2004, respectively. The notional amounts outstanding on credit swapspurchased as short-term investments were $389.5 million and $217.1million at June 30, 2005 and 2004, respectively.

Net RealizedGains (Losses) on Credit Swaps

Our business strategy isgenerally to hold swaps we sell until maturity. However, there arecircumstances in which we may terminate a credit swap prior tomaturity, either as a result of credit considerations or in order torealize gains. We cannot identify at the outset of any credit swaptransaction whether the credit swap will be terminated or otherwisedisposed of prior to its maturity. If the credit swaps we terminate areat attractive market values, we are able to realize gains. Terminatingtransactions also allows us to accelerate premium receipts and providesfor additional growth capacity within our credit swap portfolio.

In certain circumstances we will terminate a credit swap at arealized loss. In general, we terminate credit swaps at a loss where weperceive that the credit quality of the underlying reference entityrisk has deteriorated, and we wish to reduce or eliminate our exposureto the reference entity. We may also terminate a credit swap at a lossin order to create opportunity to rebalance our exposure to a referenceentity. We terminated $250.1 million and $224.3 million notional amountof credit swaps sold for the six months ended June 30, 2005 and 2004,respectively. Net realized gains/ (losses) on the early termination ofcredit swaps were $(1.8) million and $2.8 million for the six monthsended June 30, 2005 and 2004, respectively. The net realized lossesincurred during 2005 were primarily the result of our decision tomitigate our exposure to a limited number of reference entities, whichhad become the subject of leveraged buy-outs which increased the creditrisk of those reference entities.

We realized gains of $589thousand and $2.1 million for the six months ended June 30, 2005 and2004, respectively. The decrease in realized gains is due to thesmaller gains on terminations that took 

26

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place in the 2005 period. We realized lossesof $3.0 million for the six months ended June 30, 2005, of which $2.9million was caused by the termination of credit swaps to mitigate ourcredit exposure, and $13 thousand for the six months ended June 30,2004.

Where we have purchased credit protection as a short-terminvestment, early termination of the credit swaps is a fundamental partof the business strategy. We terminated $93.0 million and $189.0million notional amount of credit swaps purchased during the six monthsended June 30, 2005 and 2004, respectively, realizing a net gain of$626 thousand and $693 thousand, respectively.

Net realizedgains (losses) for the six months ended June 30, 2005 and 2004 aresummarized below:

|                                                                              |  |                        |        |         |  |        |       |         |  |  |
|------------------------------------------------------------------------------|--|------------------------|--------|---------|--|--------|-------|---------|--|--|
| ($in thousands)                                                              |  | Six monthsendedJune30, |
|                                                                         |  | 2005                   |        | 2004    |
| Realizedgains on terminated credit swaps sold – singlename             |  | $                      | 589    |    |  | $      | 2,109 |    |
| Realized losses onterminated credit swaps sold – singlename            |  |                   | (3,019 | )  |  |   | (13   | )  |
| Realized gains onterminated credit swaps purchased as short-terminvestments  |  |                   | 656    |    |  |   | 740   |    |
| Realized losseson terminated credit swaps purchased as short-terminvestments |  |                   | (30    | )  |  |   | (47   | )  |
| TotalNet Realized Gains (Losses) on terminated creditswaps                   |  | $                      | (1,804 | )  |  | $      | 2,789 |    |
|                                                                              |

NetUnrealized Losses on Credit Swaps

Net unrealized losses oncredit swaps were $33.6  million for the six months ended June30, 2005 as compared with $20.1  million for the six months endedJune 30, 2004. The change in unrealized losses on credit swaps reflectsthe change in the fair value of our credit swap portfolio, and thelosses are partially due to the increase in market credit swap premiumlevels experienced during the six months ended June 30, 2005 and 2004.In 2005, we also recorded unrealized losses on certain referenceentities which had become downgraded or were the subject of leveragedbuy-outs during the period. The unrealized gains and losses on creditswaps sold-single name, credit swaps sold-tranche and credit swapspurchased as short-term investments and for credit risk offset purposesfor the six months ended June 30, 2005 and 2004 are summarizedbelow:

|                                                                                                |  |                         |         |         |  |        |         |         |  |  |
|------------------------------------------------------------------------------------------------|--|-------------------------|---------|---------|--|--------|---------|---------|--|--|
| ($in thousands)                                                                                |  | Six months endedJune30, |
|                                                                                           |  | 2005                    |         | 2004    |
| Netunrealized losses on credit swaps sold – singlename                                   |  | $                       | (34,728 | )  |  | $      | (20,255 | )  |
| Netunrealized gains on credit swapssold-tranche                                                |  |                    | 467     |    |  |   | — |    |
| Netunrealized gains on credit swaps purchased as short-terminvestments                         |  |                    | 626     |    |  |   | 137     |    |
| Net unrealizedgains on credit swaps purchased to offset credit risk on certaincredit swapssold |  |                    | 63      |    |  |   | 50      |    |
| NetUnrealized Losses on creditswaps                                                            |  | $                       | (33,572 | )  |  | $      | (20,068 | )  |
|                                                                                                |

AssetManagement Fees

We commenced our third party asset managementactivity during the latter part of 2004. For the six months ended June30, 2005, we recognized $91 thousand of asset management fees. Ourasset management contracts also provide for contingent performancefees, none of which have been earned or accrued at June 30, 2005.

Interest Income on Investment Portfolio

We had interestincome of $6.5 million and $1.4 million for the six months ended June30, 2005 and 2004, respectively. The increased interest income isattributable to higher average invested 

27

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balances subsequent to the July 2004issuance of subordinated debt and the raising of additional equitythrough our IPO, coupled with higher yields in the cash equivalents andinvestment accounts, as compared with the six month period ended June30, 2004. Average yields on the cash equivalents and available-for-saleinvestments were 2.92% in the six months ended June 30, 2005compared with 1.02 % in the six months ended June 30, 2004. Thisincrease is primarily due to a general increase in market interestrates, coupled with an extension in the average duration of ourinvestment portfolio during the second quarter of 2005. Our total cash,cash equivalents and available-for-sale investments were approximately$487.5 million and $276.0 million as of June 30, 2005 and 2004,respectively.

Foreign Currency Revaluation

We startedselling Euro-denominated credit swaps in February 2003 and by June 30,2004, Euro-denominated credit swaps comprised 26.9% of thenotional amount of our credit swaps sold portfolio. The Euro haddepreciated in value against the U.S. dollar by approximately 10.6% and 3.0% during the first half of 2005 and 2004,respectively, and this depreciation resulted in a net loss of $1.5million and $106 thousand for the six months ended June 30, 2005 and2004, respectively.

Operating Expenses

Our operatingexpenses (excluding financing costs) were approximately $13.7million and $11.2 million for the six months ending June 30, 2005 and2004, respectively, as summarized below:

|                                               |  |                         |        |        |  |        |        |        |  |  |
|-----------------------------------------------|--|-------------------------|--------|--------|--|--------|--------|--------|--|--|
| ($in thousands)                               |  | Six months endedJune30, |
|                                          |  | 2005                    |        | 2004   |
| Employeecompensation                          |  | $                       | 8,602  |   |  | $      | 7,284  |   |
| Professionaland legal fees                    |  |                    | 1,750  |   |  |   | 778    |   |
| Fixed assetdepreciation andamortization       |  |                    | 1,041  |   |  |   | 959    |   |
| Technologyanddata                             |  |                    | 715    |   |  |   | 671    |   |
| Other                                         |  |                    | 1,618  |   |  |   | 1,465  |   |
| TotalOperatingExpenses                        |  | $                       | 13,726 |   |  | $      | 11,157 |   |
| Numberof full-time employees, at end ofperiod |  |                    | 34     |   |  |   | 31     |   |
|                                               |

The increase inemployee compensation over these periods was partially due to theincrease in the number of employees as the business expanded itsoperations. In addition, in the first quarter of 2005 we accrued anadditional expense of approximately $800 thousand for the acceleratedcompensation expenses and accelerated vesting of stock related to thedeparture of former employees. Professional and legal fees expenseincludes audit and tax advisor expenses, legal costs and insuranceexpenses. The increase in professional fees is related to increasedcosts associated with the requirements of being a public company. Otheroperating expenses include rent, bank fees and investment managementfees, rating agency fees, brokerage expense, travel and entertainment,exchange fees and other administrative expenses. The increase in otheroperating expenses is partially due to an increase in bank fees andasset management fees, as our cash, cash equivalents and investmentbalances are higher than the 2004 period. This was partially offset bya decrease in brokerage fees, as we restricted our use of brokersduring 2005. The remainder of the other operating expenses increasedover the prior period primarily due to expanded operations and ourstatus as a public company.

Interest Expense and PreferredDistributions

For the six months ended June 30, 2005, weincurred $969 thousand of interest expense on the $75.0 million 30-yearsubordinated debt that was issued by Primus Financial in July 2004. Theinterest rate for the 30-year subordinated debt is fixed at2.57% for a period of one year from the issuance date. PrimusFinancial also made net distributions of $1.8 million and $1.1 millionduring the six months ended June 30, 2005 and 2004, respectively, onthe Primus Financial Cumulative Preferred Stock issued in December2002. The average rates paid on these securities was 3.46% and1.75% during the six months ended June 30, 2005 and 2004,respectively.

28

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Income Taxes

Provision forincome taxes was $45 thousand and $117 thousand for the six monthsended June 30, 2005 and 2004, respectively. Primus Guaranty had a netdeferred tax asset fully offset by a valuation allowance of $9.3million and $5.9 million as of June 30, 2005 and 2004, respectively.The change in the deferred tax asset and valuation allowance resultedfrom Primus Asset Management's estimated net operating loss. Aspreviously discussed, it is expected that only the income of PrimusAsset Management and its subsidiary, Primus Re, are likely to besubject to United States federal and local income taxes. However, werePrimus Bermuda to be subject to income tax, at a combined United Statesfederal, New York State and New York City income tax rate of46%, on its United States GAAP income, then its income taxexpense (excluding interest and penalties) since inception, would havebeen approximately $40.6 million through June 30, 2005, and a benefitof approximately $9.4 million for the six months ended June 30, 2005.These figures assume that Primus Financial is not deemed to be makingdistributions to Primus Bermuda; such distributions would subjectPrimus Bermuda to an additional United States federal branch profitstax.

Contractual Obligations

The following tablesummarizes our contractual obligations at June 30, 2005 and the effectthat those obligations are expected to have on our liquidity and cashflows in futureperiods:

|                                      |  |                     |        |                |  |           |         |           |  |                  |         |           |  |        |         |           |  |        |        |        |  |  |
|--------------------------------------|--|---------------------|--------|----------------|--|-----------|---------|-----------|--|------------------|---------|-----------|--|--------|---------|-----------|--|--------|--------|--------|--|--|
|                                 |  | Paymentdue byperiod |
|                                 |  | Total               |        | Lessthan1 year |  | 1-3 years |         | 3-5 years |  | Morethan 5 years |
| PropertyLease                        |  | $                   | 5,395  |           |  | $         | 753     |      |  | $                | 1,512   |      |  | $      | 1,545   |      |  | $      | 1,585  |   |
| Subordinateddeferrable interestnotes |  |                | 75,000 |           |  |      | — | (a)  |  |             | — | (a)  |  |   | — | (a)  |  |   | 75,000 |   |
| Total                                |  | $                   | 80,395 |           |  | $         | 753     |      |  | $                | 1,512   |      |  | $      | 1,545   |      |  | $      | 76,585 |   |
|                                      |

|  |
|--|
|  |  |
|  |

|     |                                                                                                                                         |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------|
| (a) | Payments on the subordinated deferrable interest notes for thenext five years cannot be determined, as it is an auction rateobligation. |

Property Lease:    Primus Financialhas leased its premises at 360 Madison Avenue, New York, New York fromMadison 45 LLC at a fixed yearly rental (subject to certain escalationsspecified in the lease) until August 1, 2012. There are no materialrestrictions imposed by the lease agreement and the lease iscategorized as an operating lease.

Subordinated deferrableinterest notes:    For information on the terms of oursubordinated deferrable interest notes, see Note 6 to our consolidatedfinancial statements.

We have no other material long-termcontractual obligations.

Liquidity and Capital Resources

Capital Strategy

Primus Financial, in order tosupport its AAA/Aaa ratings, is required to maintain capital in anamount determined by the capital models it has agreed upon with S&Pand Moody's. The capital required is primarily a function ofPrimus Financial's credit swap portfolio characteristics,operating expenses and tax position. Retained cash flow and proceedsfrom financings to increase our capital resources to support our creditswap business.

In connection with the commencement of ouroperations on March 14, 2002, we were capitalized with $155.0 millionfrom the issuance of our Series A preferred stock to two subsidiariesof XL Capital Ltd, or XL, Transamerica Life Insurance Company, asubsidiary of AEGON USA, Pacific Corporate Group/CalPERS and RadianGroup Inc., or Radian. In connection with the issuance of the Series Apreferred stock, we issued warrants to Radian enabling them to purchase1,061,059 common 

29

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shares at a exercise price of $5.18 pershare. On May 15, 2004, Radian exercised these warrants, as a result ofwhich we received $5.5 million. Upon completion of our IPO, all of theSeries A preferred stock were converted into common shares of thecompany.

Primus Financial issued $110.0 million of PrimusFinancial Cumulative Preferred Stock on December 19, 2002 in twoseries, Series I and Series II, to a trust, ("theTrust"). In conjunction with the receipt of thesecurities, the Trust issued $100.0 million of Money Market PreferredSecurities Custodial Receipts, or MMP Receipts, in two series, Series Aand Series B, to various institutional investors in a privateplacement. The Trust also issued $10.0 million of Variable InversePreferred Securities Custodial Receipts that were retained by PrimusFinancial. One series of MMP Receipts pays distributions every 28 daysbased on an auction rate set on the prior business day and the otherseries makes payments quarterly, based on an auction rate, which iscurrently set annually, and was last set in January 2005. AfterDecember 19, 2012, Primus Financial may redeem the securities, in wholeor in part, on any distribution date at the face amount plusaccumulated and unpaid dividends. However, Primus Financial is notrequired to redeem the securities, nor is it required to establish asinking fund. For the three months ended June 30, 2005 and 2004, PrimusFinancial made net distributions to the Trust's MMP Receipts of$1.1 million and $605 thousand, respectively. For the six months endedJune 30, 2005 and 2004, Primus Financial made net distributions to theTrust's MMP Receipts of $1.8 million and $1.1 million,respectively.

Primus Financial issued $75.0 million ofsubordinated deferrable interest notes on July 23, 2004. The notes aresubordinated in right of payment to the prior payment in full of allexisting and future senior indebtedness of the company, includingcounterparty claims. The notes are redeemable at the option of PrimusFinancial, in whole or in part, on any auction date, at a redemptionprice equal to 100% of the principal amount of the notes to beredeemed, plus any accrued and unpaid interest thereon to theredemption date. The interest rate on the notes is fixed at a rate of2.57% for a period of one year, expiring in July of 2005, atwhich point the rate will be set through a monthly auction process. Thenotes mature in July 2034.

Primus Guaranty completed an IPO onOctober 5, 2004, listing its shares on the NYSE. The company issued9,143,493 shares at a price of $13.50. Proceeds to the company were$110.7 million, net of the underwriting discount and offering expenses.Primus Guaranty concurrently contributed $60.0 million of the IPOproceeds to Primus Financial to support the growth of its credit swapbusiness. Primus Guaranty has invested the remaining net proceeds inshort-term money market instruments, pending utilization in its creditswap business and/or other businesses related to the creditmarkets.

Additionally, as required by our operating guidelines,Primus Financial maintains a $37.5 million liquidity facility withHarris Trust and Savings Bank, or Harris Trust. The purpose of theliquidity facility is to provide Primus Financial with cash in theevent it is obligated to purchase a Reference Entity's debtobligation as the result of a credit event and could not liquidate itsinvestments in order to settle a purchase on a timely basis. Theliquidity facility requires that Primus Financial have United Statesgovernment securities available to pledge as collateral on any advancesmade under the facility. The facility is renewable on an annual basisat the option of Primus Financial or Harris Trust. The facility has amaturity date of March 31, 2006. We intend to request an extension ofthis facility or replace it with a similar facility with another lenderat each annual maturity date so long as we are required to do so by theoperating guidelines. We have applied to the rating agencies forpermission to terminate this facility. As of June 30, 2005, there havebeen no credit events and there have been no borrowings under thefacility.

We receive cash from the receipt of credit swappremiums, the net proceeds from the early termination of credit swaps,interest income earned on our investment portfolio and capital raisingactivities. Cash has been used to pay our operating expenses,administrative expenses, premiums on credit swaps we have purchased andpreferred share distributions. Our cash, cash equivalents andavailable-for-sale investments were approximately $487.5 million and$482.1  million as of June 30, 2005 and December 31, 2004,respectively.

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Cash Flows

Cash flowsfrom operating activities – Net cash provided by operatingactivities was $9.7 million and $10.1 million for the six months endedJune 30, 2005 and 2004, respectively. In 2005 we had higher premiumincome as compared with the 2004 period, due to the increased size ofour credit swaps sold portfolio. However, this increase was offset bynet realized losses in the first half of 2005 of $1.8 million, ascompared with net realized gains of $2.8 million in the first half of2004. Additionally, there was an increase in operating expenses in thesix months ended June 30, 2005 as compared with the same period of2004, due to our expanded operations and costs associated with being apublic company.

Cash flows from investing activities –Net cash (used in) provided by investing activities was $(125.9)million and $92 thousand for the six months ended June 30, 2005 and2004, respectively. The main reason for this increase in use of cashwas the purchases of available-for-sale securities during the firsthalf of 2005.

Cash flows from financing activities –Net cash (used in) provided by financing activities was $(4.0)million and $4.4 million for the six months ended June 30, 2005 and2004, respectively. This increase in use of cash is primarily due tothe payment of $2.5 million in the first quarter of 2005, representingthe amount withheld to pay employee income taxes due upon the deliveryof common shares to our employees, coupled with an increase inpreferred distributions of a subsidiary in the six months ended June30, 2005. In addition, during the six months ended June 30, 2004, wereceived $5.5 million as proceeds from the exercise of warrants.

With our current capital resources and anticipated future creditswap premium receipts and interest income, we believe we havesufficient liquidity to pay our operating expenses and preferreddistributions over at least the next twelve months.

AdditionalInformation

U.S. GAAP applicable to derivative contractsrequires us to account for the credit swaps that we buy or sell at fairvalue. The fair value of credit swaps is primarily determined by marketcredit swap premium levels, as well as the size and tenor of our swaps,and interest rates used to discount future cash flows. Premium levels,in turn, are driven by a number of factors, including the number andsize of market participants willing to buy or sell credit protection atany given time and the market's perception of credit risk overthe life of a particular credit swap. The latter is in turn a functionof macroeconomic factors such as the overall state of the economy,corporate financial health and leverage, and geopolitical concerns. Asa general matter, given our strategy of holding credit swaps sold untilmaturity, we do not seek to manage our overall exposure to marketcredit swap premium levels by terminating credit swaps prior to theirmaturity. Accordingly, we expect fluctuations in the fair value of ourcredit swap portfolio as a result of changes in credit swap premiumsover time. These period-to-period changes in value have no significanteffect on our business, our economic performance or cash flow. However,reflecting our credit swap portfolio at fair value produces significantchanges in our revenue and net income from period to period as themarket values of our credit swaps fluctuate.

Despite ourstrategy of holding credit swaps sold to maturity, we occasionallydispose of credit swaps prior to maturity, but only in circumstanceswhere we believe that the underlying risk related to the credit swaphas increased beyond our risk tolerance or where we seek to rebalanceour portfolio and create greater capacity for other credit swaps. UnderUnited States GAAP, the full amount of any realized gains and losses onthe termination of credit swaps is included in our revenueimmediately.

In managing our business and assessing its growthand profitability from a strategic and financial planning perspective,we believe it is appropriate to consider both our United States GAAPfinancial results as well as the impact on those results of fair valueaccounting and the termination of credit swaps. Therefore, we evaluatewhat our economic results would have been if we excluded from revenuethe amounts of any unrealized gains and losses on our portfolio ofcredit swaps sold, and any realized gains from terminations of creditswaps sold prior to maturity, although we amortize those 

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realized gains over the remaining originallives of the terminated contracts. Our board of directors also usesthese results in assessing our management's performance anddetermining compensation.

For the three months ended June 30,2005 and 2004, we realized $470 thousand and $936 thousand of gains,respectively, from the early termination of credit swaps sold. Theamortized gains for those periods were $1.7  million and $1.5million, respectively. For the six months ended June 30, 2005 and 2004,we realized $589 million and $2.1 million of gains, respectively, fromthe early termination of credit swaps sold. The amortized gains forthose periods were $3.3  million and $3.0 million, respectively.At June 30, 2005, future amortization of gains from all credit swapsterminated prior to that date will be recognized as follows (inthousands):

|                              |  |        |       |        |  |  |
|------------------------------|--|--------|-------|--------|--|--|
| Yearending December 31, 2005 |  | $      | 6,701 |   |
| Year endingDecember 31, 2006 |  |   | 6,713 |   |
| Year endingDecember 31, 2007 |  |   | 4,599 |   |
| Year endingDecember 31, 2008 |  |   | 431   |   |
| Year ending December31, 2009 |  |   | 15    |   |
|                              |

Recent AccountingPronouncements

In May 2005, the FASB issued SFAS 154,Accounting Changes and Error Corrections – a replacement ofAPB Opinion No. 20 and FASB Statement No. 3. This statementrequires retrospective application to prior periods' financialstatements of changes in accounting principle. SFAS 154 is effectivefor accounting changes and corrections of errors made in fiscal yearsbeginning after December 15, 2005. The adoption of SFAS 154 is notexpected to have a significant impact on the Company's financialstatements.

In December 2004, the FASB issued SFAS 123R"Share-Based Payment." SFAS 123R replacesFASB Statement No. 123, "Accounting for Stock-BasedCompensation", and supersedes APB Opinion No. 25,"Accounting for Stock Issued to Employee."SFAS 123R eliminates the choice of alternative accounting methods, andrequires that all entities follow the fair value based method of SFAS123. Public entities will be required to apply Statement 123R as of thefirst annual reporting period that begins after June 15, 2005. Theadoption of SFAS 123R is not expected to have a significant impact onour financial statements.

Cautionary Note RegardingForward-Looking Statements

This quarterly report of PrimusGuaranty includes statements that are not historical or current factsand are "forward-looking statements" madepursuant to the safe harbor provisions of the Private SecuritiesLitigation Reform Act of 1995. The words"believe,""anticipate,""project," "plan,""expect," "intend,""will likely result," "lookingforward" or "will continue," andsimilar expressions identify forward-looking statements. Thesestatements are subject to certain risks and uncertainties that couldcause actual results to differ materially from historical earnings andthose presently anticipated or projected. Primus Guaranty cautionsreaders not to place undue reliance on any such forward-lookingstatements, which speak only to their respective dates. The followingare some of the factors that could affect financial performance orcould cause actual results to differ materially from estimatescontained in or underlying the Company's forward-lookingstatements:

|              |                                                                                                                           |
|--------------|---------------------------------------------------------------------------------------------------------------------------|
| •  | fluctuations in theeconomic, credit, interest rate or foreign currency environment in theUnited States (U.S.) and abroad; |

|              |                                                                           |
|--------------|---------------------------------------------------------------------------|
| •  | thelevel of activity within the national and international creditmarkets; |

|              |                                           |
|--------------|-------------------------------------------|
| •  | competitive conditions andpricing levels; |

|              |                                         |
|--------------|-----------------------------------------|
| •  | legislative andregulatory developments; |

|              |                            |
|--------------|----------------------------|
| •  | technologicaldevelopments; |

|              |                     |
|--------------|---------------------|
| •  | changes in taxlaws; |

|              |                                                                                                       |
|--------------|-------------------------------------------------------------------------------------------------------|
| •  | changes in international ornational political or economic conditions, including any terroristattacks; |

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|              |                                                          |
|--------------|----------------------------------------------------------|
| •  | uncertaintiesthat have not been identified at this time. |

The Companyundertakes no obligation to publicly correct or update anyforward-looking statement if it later becomes aware that such resultsare not likely to be achieved.

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Item3.    Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the potential for losses that may result fromchanges in the value of a financial instrument as a consequence ofmarket conditions. Our primary market risk is increasing or decreasingmarket credit swap premium levels, which increase or decrease the fairvalue of our credit swap portfolio. Market credit swap premium levelschange as a result of specific events or news related to a ReferenceEntity, such as a change in a credit rating by any of the ratingagencies. Additionally, market credit swap premium levels can vary as aresult of changes in market sentiment. As a general matter, given ourstrategy of holding credit swaps sold until maturity, we do not seek tomanage our overall exposure to market credit swap premium levels, andwe expect fluctuations in the fair value of our credit swap portfolioas a result of these changes. In cases where we purchase credit swapsas short-term investments, we incur the cost of paying premiums untilwe terminate the purchased credit protection. We undertake thesetransactions in the expectation that the market credit swap premiumlevel for the Reference Entity will rise subsequent to our purchase ofprotection, but any gains realized upon termination may not suffice tooffset the premium expense we have incurred while holding the purchasedcredit protection. Indeed, the market credit swap premium level for theReference Entity may fall and we may incur termination losses as wellas premium expense as a result. The fair value of our credit swapspurchased will be affected by market credit swap premium levels, whichwill affect our net income. Currently, we purchase a limited amount ofcredit protection, relative to the size of our portfolio of creditswaps sold, and the cost of purchased credit protection does notmaterially impact our overall operating margin. The notional amountoutstanding on credit swaps we purchased as short-term investments was$389.5 million at June 30, 2005.

We face other market risks,which are likely to have a lesser impact upon our net income than thoseassociated with market credit swap premium level risk. These otherrisks include interest rate risk associated with market interest ratemovements. These movements may affect the value of our credit swapportfolio as our pricing model includes an interest rate component,which is used to discount future expected cash flows. Interest ratemovements may also affect the carrying value of our investments.

The Primus Financial Cumulative Preferred Stock pays distributionsthat are based upon the auction rate preferred market. A differencebetween the rates we pay in the auction rate preferred market and theinterest rates we receive on our investments may result in anadditional cost to our company. Assuming that auction results withrespect to the Primus Financial Cumulative Preferred Stock reflectprevailing short-term interest rates, each 25 basis point increase ordecrease in the level of those rates would increase or decrease PrimusFinancial's annual distribution cost by approximately $125thousand for each of the Series A and Series B MMP Receipts, but wouldnot affect distributions on the Series B MMP Receipts as the interestand auction rate for such MMP Receipts were set for a one year periodon January 20, 2005.

In addition, interest rate movements mayincrease or decrease the interest expense we incur on our $75 millionof subordinated deferrable interest notes. A 25 basis point increase ordecrease in the level of those rates would have increased or decreasedPrimus Financial's interest expense by $47 thousand and $94thousand for the three and six months ended June 30, 2005, however,during those periods the interest rate on the subordinated deferrableinterest notes was fixed for a one year period expiring in July of2005, at which point the rate will be set through a monthly auctionprocess. We also have exposure to currency rates as we have soldEuro-denominated credit swaps. As of June 30, 2005, we have kept thepremiums received from these transactions in Euro-denominated moneymarket accounts. The value of the cash Euro balances is translated intoUnited States dollars at current spot rates. Changes in the value ofthe Euro compared with the United States dollar may have an impact onour net income. We do not hedge any interest rate or currency marketrisks.

Counterparty risk represents the potential for lossshould one or more of our counterparties be unable to meet itsobligations due to bankruptcy or a similar event, which could adverselyaffect our results of operations. Our counterparties generally haveinvestment grade credit ratings. At June 30, 2005 and 2004, thenotional amount of credit swaps outstanding with respect to ourcounterparties that had credit ratings of below investment grade were$5.0 million and $6.0 million, respectively. The 

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fair value of the above-mentioned creditswaps at June 30, 2005 and 2004 were $21 thousand and $27 thousand,respectively. The premiums on these transactions were fully prepaid bythe counterparty.

Item 4.    Controls and Procedures

The company has carried out an evaluation, under the supervision andwith the participation of the company's management, including theChief Executive Officer and Chief Financial Officer, of theeffectiveness of disclosure controls and procedures pursuant to rules13a-15 and 15-15d promulgated under the Securities and Exchange Act of1934 as of the end of the period covered by this report. Based on thatevaluation, the Chief Executive Officer and the Chief Financial Officerconcluded that the disclosure controls and procedures are effective toprovide reasonable assurance that all material information relating tothe company required to be filed in this report have been made known tothem in a timely fashion. There have been no changes in internalcontrol over financial reporting that occurred during the most recentfiscal quarter that have materially affected, or are reasonably likelyto affect, internal control over financial reporting.

Thecompany's management, including the Chief Executive Officer andthe Chief Financial Officer, does not expect that the company'sdisclosure controls or its internal controls can prevent all errors andall fraud. Further, the design of a control system must reflect thefact that there are resource constraints, and the benefits of controlsmust be considered relative to their costs. As a result of the inherentlimitations in all control systems, no evaluation of controls canprovide absolute assurance that all control issues and instances offraud, if any, within the company have been detected. These inherentlimitations include the realities that judgments in decision-making arefaulty, and that breakdowns can occur because of simple error ormistake. As a result of the inherent limitations in a cost-effectivecontrol system, misstatements due to error or fraud may occur and notbe detected. Accordingly, the company's disclosure controls andprocedures are designed to provide reasonable, not absolute, assurancethat the disclosure controls and procedures are met.

PartII.    Other Information

Item 1.    Legal Proceedings

In the ordinary course of operating our business, we may encounter asignificant risk of litigation from time to time. However, we are notparty to nor currently aware of any material pending litigation.

Item 2.    Unregistered Sales of Equity Securities and Use ofProceeds

Use of Proceeds of Initial PublicOffering

The effective date of our registration statement(Registration No. 333-114818) filed on Form S-1 relating to our IPO ofcommon shares was September 29, 2004. In our IPO, we registered andsold 9,143,493 common shares, par value $.08 per share, at a price of$13.50 per share and an aggregate public offering price of $123,437,156for the account of the Company. In addition, there were registered andsold, for the account of certain selling shareholders identified in theregistration statement, 1,201,335 common shares at a price of $13.50per share and an aggregate public offering price of $16,218,022. OurIPO was managed and underwritten by Lehman Brothers Inc., MorganStanley & Co. Incorporated, Credit Suisse First Boston LLC, UBSInvestment Bank, William Blair & Company L.L.C. and Keefe Bruyette& Woods, Inc. The offering commenced on September 29, 2004 andclosed on October 5, 2004. Proceeds to us from our IPO, after deductionof the underwriting discounts and commissions payable by the company ofapproximately $8.64 million and offering costs payable by the companyof $4.1 million, totaled approximately $110.7 million. None of theexpenses incurred and paid by us in our IPO were direct or indirectpayments to our directors, officers, general partners or theirassociates, to persons owning 10% or more of any class of ourequity securities or, except as described below, to our affiliates. Ofthe $110.7 million raised for the account of the company, approximately$60.0 million has been used to provide additional working capital toour 

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affiliate, Primus Financial, in order toincrease its capacity to sell additional credit swaps. Primus Financialhas invested this additional capital in accordance with its operatingguidelines in United States government agencies and money marketinstruments. We continue to expect that the remainder of the proceedsfrom the offering will be used as working capital and for generalcorporate purposes, including providing additional capital to PrimusFinancial to enable it to further expand its credit swap business andto pursue opportunities in complementary businesses, such as assetmanagement for third parties and selling credit swaps referencing abroader range of obligations, although specific amounts have not beenallocated for these additional purposes. Pending such uses, the balanceof $50.7 million has been invested by the company in United Statesgovernment agencies and money market instruments. The occurrence ofunforeseen events, opportunities or changed business conditions,however, could cause us to use the net proceeds of our IPO in a mannerother than as described above.

Item 3.    Defaults uponSenior Securities

None.

Item 4.    Submission ofMatters to a Vote of Security Holders

Our annual meeting ofstockholders was held on May  5, 2005. At that meeting, thefollowing matters were submitted to a vote of our stockholders:

Item  No.  1

To approve the election andre-election as directors of the Company to serve three-year termsexpiring at the Annual Meeting in 2008 and until their successors areduly elected and qualified.

|                  |  |        |            |          |  |        |        |        |  |  |
|------------------|--|--------|------------|----------|--|--------|--------|--------|--|--|
|             |  | For    |            | Withheld |
| PaulS. Giordano  |  |   | 41,776,250 |     |  |   | 70,550 |   |
| RobertR. Lusardi |  |   | 41,776,250 |     |  |   | 70,550 |   |
| John A.WardIII   |  |   | 41,751,177 |     |  |   | 95,623 |   |
|                  |

ItemNo.  2

To approve the appointment of Ernst & Young LLPas independent auditors for the Company for the fiscal year endingDecember  31, 2005.

|         |  |        |            |        |  |  |
|---------|--|--------|------------|--------|--|--|
| For     |  |   | 41,824,595 |   |
| Against |  |   | 3,425      |   |
| Abstain |  |   | 18,780     |   |
|         |

Item5.    Other Information

None.

Item6.    Exhibits

|      |  |                                                                                                           |  |  |  |  |
|------|--|-----------------------------------------------------------------------------------------------------------|--|--|--|--|
| 31.1 |  | Rule13a–14(a)/15d–14(a) Certification                                                         |
| 31.2 |  | Rule 13a–14(a)/15d–14(a)Certification                                                         |
| 32.1 |  | Certification Pursuant to18 U.S.C. Section 1350, as Added By Section 906 of the Sarbanes-OxleyAct of 2002 |
|      |

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SIGNATURES

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this Report to be signed on its behalf by the undersigned,thereunto duly authorized.

|        |  |                                                                                                 |  |  |  |  |
|--------|--|-------------------------------------------------------------------------------------------------|--|--|--|--|
|   |  | PRIMUSGUARANTY, LTD.                                                                            |
|   |  | /s/ RichardClaiden                                                                              |
|   |  | RichardClaiden Chief Financial Officer (Duly Authorized Officer andPrincipal Financial Officer) |
|        |

Date: August12, 2005

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