##### Table of Contents



UNITED STATES
 SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
    Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File Number
    001-31468
 Montpelier Re Holdings
    Ltd.
 (Exact Name of Registrant as
    Specified in Its Charter)
  Bermuda(State or Other
    Jurisdiction of
    Incorporation or Organization)


98-0428969(I.R.S. Employer
    Identification No.
)   Montpelier House
 94 Pitts Bay Road
 Pembroke HM 08
 Bermuda
 (Address of Principal Executive
    Offices)
 Registrants telephone number, including area code:
 (441) 296-5550
 8 Par-La-Ville Road
 Hamilton HM 08
 Bermuda
 (Former Address)
 Securities registered pursuant to Section 12(g) of the
    Act:
 Common Shares, par value
    1/6
    cent per share
 Name of exchange on which registered:
 New York Stock Exchange
 Securities registered pursuant to Section 12(g) of the
    Act: None
  þ o
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
 þ o o
  Rule 12b-2 o þ
      Documents
    Incorporated by Reference
  Form 10-K. Form 10-K.




---



##### 



MONTPELIER
    RE HOLDINGS LTD.
  INDEX TO
    FORM 10-K
  PagePART IItem 1.


Business


1Item 1A.


Risk Factors


15Item 1B.


Unresolved Staff
    Comments


29Item 2.


Properties


29Item 3.


Legal Proceedings


29Item 4.


Submission of
    Matters to a Vote of Security Holders


29PART IIItem 5.


Market for
    Registrants Common Equity, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


30Item 6.


Selected Financial
    Data


34Item 7.


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


35Item 7A.


Quantitative and
    Qualitative Disclosures About Market Risk


67Item 8.


Financial
    Statements and Supplementary Data


68Item 9.


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


69Item 9A.


Controls and
    Procedures


69Item 9B.


Other Information


70PART IIIItem 10.


Directors,
    Executive Officers and Corporate Governance of the Registrant


70Item 11.


Executive
    Compensation


70Item 12.


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


70Item 13.


Certain
    Relationships and Related Transactions, and Director Independence


70Item 14.


Principal
    Accounting Fees and Services


70PART IVItem 15.


Exhibits, Financial
    Statement Schedules


71EX-21.1: SUBSIDIARIESEX-23.1: CONSENT OF PRICEWATERHOUSECOOPERSEX-31.1: CERTIFICATIONEX-32.1: CERTIFICATION




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##### Table of Contents



PART I
  Cautionary
    Statement under Safe Harbor Provision of the Private
    Securities Litigation Reform Act of 1995.
  Form 10-K
      Item 1.
    Business  General
  and/or
 1




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##### Table of Contents



Segment
    Information
  Financial Statements and
    Supplementary Data.
    
    The property specialty category includes risk excess of loss,
    property pro-rata and direct insurance and facultative
    reinsurance business.
    Property catastrophe reinsurance contracts are typically
    all risk in nature and provide protection against
    losses from earthquakes and hurricanes, as well as other natural
    or man-made catastrophes such as floods, tornadoes, fires and
    storms. Prior to 2006 the property catastrophe category also
    included property catastrophe retrocessional contracts, which
    are catastrophe reinsurance protections of other reinsurers,
    also called retrocedants. Since January 2006 property
    catastrophe retrocessional business has been written through
    Blue Ocean Re only.
    Our other specialty category includes aviation, marine, personal
    accident catastrophe, workers compensation catastrophe,
    terrorism, other casualty and other reinsurance business. In
    2006, we significantly reduced our catastrophe-exposed offshore
    marine class of business.     2




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Corporate
    Strategy
    Maintaining a Strong Balance Sheet.
  Enhancing Our Lead Position With Brokers and
    Cedants.
  Combining Subjective Underwriting Methods With Objective
    Modeling Tools.
  Developing and Maintaining a Balanced Portfolio of
    Reinsurance Risks.
  Deliver Customized, Innovative and Timely Reinsurance and
    Insurance Solutions for Our Clients.
  Reinsurance
    and Insurance Products
  General. case-by-case
     3




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##### Table of Contents



Managements Discussion and Analysis of Financial
    Condition and Result of Operations.
  Property Specialty.
      Property Catastrophe.
   4




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Other Specialty.
         5




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##### Table of Contents



Qualifying Quota Share.
  Ratings
    FinancialRating Agency

Strength RatingA.M. Best


A−



Excellent (Stable outlook
)Standard & Poors


A−



Strong (Negative outlook
)Moodys Investor Services


Baa1



Adequate (Stable outlook
)         Geographic
    Breakdown
    Gross
    Premiums Written by Geographic Area of Risks Insured
  Years Ended December 31,2006


2005


2004Rated Reinsurance and Insurance
    BusinessUSA and Canada

$
373.9



59.1
%

$
460.5



47.0
%

$
375.6



44.9
%Worldwide(1)


126.4



20.0



332.4



34.0



249.7



29.8Japan


30.1



4.8



37.3



3.8



36.5



4.4Worldwide, excluding USA and
    Canada(2)


25.7



4.1



23.4



2.4



29.9



3.6Western Europe, excluding the
    United Kingdom and Ireland


25.6



4.0



28.1



2.9



36.1



4.3United Kingdom and Ireland


11.9



1.9



50.8



5.2



58.9



7.0Others (1.5% or less)


39.1



6.1



46.2



4.7



50.3



6.0Total

$
632.7



100.0
%

$
978.7



100.0
%

$
837.0



100.0
%   6




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##### Table of Contents



Years Ended December 31,2006


2005(3)


2004(3)Collateralized Property
    Catastrophe Retrocessional
    BusinessWorldwide(1)

$
49.7



52.4
%

$



$



$



$
USA and Canada


25.2



26.6















USA/Caribbean


11.9



12.6















Worldwide, excluding USA and
    Canada(2)


8.0



8.4















Total

$
94.8



100.0
%

$



$



$



$
     (1)
    
    Worldwide comprises insurance and reinsurance
    contracts that insure or reinsure risks in more than one
    geographic area and do not specifically exclude the USA and
    Canada.(2)
    
    Worldwide, excluding USA and Canada comprises
    insurance and reinsurance contracts that insure or reinsure
    risks in more than one geographic area but specifically exclude
    the USA and Canada.(3)
    
    Prior to January 2006, we operated through a single reporting
    segment and therefore, no comparative figures are presented.  Retrocessions
  Managements Discussion
    and Analysis of Financial Condition and Results of
    Operations.
  Underwriting
    Risk Management
      
    Write only those risks which we expect will generate an
    acceptable return on allocated capital;
    Limit the scope of coverage on regular property classes to
    traditional perils and generally exclude perils or
    causes of loss that are difficult to measure such as cyber
    risks, pollution and nuclear, biological and chemical acts of
    terrorism;
    Entertain difficult risks such as terrorism but only on a
    specific basis whereby exposures are controlled through limits,
    terms and conditions and are appropriately priced;
    Generally exclude single risk exposure from
    catastrophe and retrocessional business; and
    Use risk assessment models from third party commercial vendors
    as well as our proprietary technology, CATM, to assist in the
    underwriting process and the quantification of our catastrophe
    aggregate exposures.    
    The reputation of the proposed cedant and the likelihood of
    establishing a long-term relationship with the cedant; 7




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
    The geographical location of the cedants original risks;
    Historical loss data of the cedant and, where available, of the
    industry as a whole in the relevant regions, in order to compare
    the cedants historical catastrophe loss experience to
    industry averages; and
    The perceived financial strength of the cedant.        Marketing
      Gross
    Premiums Written by Broker
  Years Ended December 31,2006


2005


2004Marsh

$
225.7



32.3
%

$
272.8



30.3
%

$
188.7



24.8
%Benfield


131.8



18.8



170.7



19.0



133.9



17.6Willis Group


108.7



15.5



134.7



15.0



104.1



13.7Aon


94.5



13.5



168.5



18.7



166.9



21.9Other brokers


139.6



19.9



153.0



17.0



167.2



22.0Total brokers


700.3



100.0
%


899.7



100.0
%


760.8



100.0
%Direct (no broker)


27.2







79.0







76.2Total

$
727.5






$
978.7






$
837.0    8




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Claims
    Management
    Loss and
    Loss Adjustment Expense Reserves
        Managements Discussion and Analysis of Financial
    Condition and Results of Operations.
  Investments
   9




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As at December 31,2006


2005


2004Fixed maturities, available for
    sale, at fair value

$
2,167,011


$
2,307,054


$
2,325,273Fixed maturities, trading, at fair
    value


340,406







Equity investments, available for
    sale, at fair value


203,146



113,553



143,435Other investments, at estimated
    fair value


27,127



31,569



19,373Cash and cash equivalents,
    unrestricted


313,093



450,146



110,576Cash and cash equivalents,
    restricted


35,512







Total Invested Assets

$
3,086,295


$
2,902,322


$
2,598,657         Years Ended December 31,2006


2005


2004Fixed maturities

$
124,037


$
89,980


$
82,180Net amortization of
    premium/discount


(5,136
)


(7,995
)


(14,640
)Equity investments


5,477



1,689



1,300Cash and cash equivalents


6,368



6,238



2,270Securities lending


468



551



588131,214



90,463



71,698Net investment expenses


(5,396
)


(3,458
)


(2,626
)$
125,818


$
87,005


$
69,072    10




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Managements Discussion and Analysis of Financial
    Condition and Results of Operations Financial Statements and Supplementary Data.
  Competition
      
    Premiums charged and other terms and conditions offered;
    Services provided;
    Financial ratings assigned by independent rating agencies;
    Speed of claims payment;
    Reputation;
    Perceived financial strength; and
    The experience of the underwriter in the line of insurance or
    reinsurance to be written.    Bermuda
    Insurance Regulation
    The Insurance Act.
 11




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day-to-day
  sub-committees
    Classification of Insurers.
  Cancellation of Insurers
    Registration.
  Principal Representative.
  Independent Approved Auditor.
  Loss Reserve Specialist.
  Statutory Financial Statements.
 12




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Annual Statutory Financial Return.
  Minimum Solvency Margin and Restrictions on Dividends and
    Distributions.
                and/or
 13




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Minimum Liquidity Ratio.
  Supervision, Investigation and
    Intervention.
    and/or
  Disclosure of Information.
  Notification by shareholder controller of new or increased
    control.
  Objection to existing shareholder
    controller.
 14




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Employees
      Additional
    Information
  Form 10-K, Form 10-Q, Form 8-K,
  Item 1A.
    Risk
    Factors.  Form 10-K
  Risks
    Related to Our Company
  Our future performance is difficult to predict because of
    changes in perceived catastrophe risk and industry capital
    requirements.
    Our
    Standard & Poors rating has a negative
    outlook.
   15




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A.M. Best:
    
    A− (Excellent), fourth highest of fifteen
    rating levels, stable outlook;Standard & Poors:
    
    A− (Strong), seventh highest of twenty-one
    rating levels, negative outlook;Moodys:
    
    Baa1 (Adequate), eighth highest rating of twenty-one
    rating levels, stable outlook.      We could
    be adversely affected by the loss of one or more principal
    employees or by an inability to attract and retain
    staff.
      Our
    ability to conduct our business may be adversely affected by
    Bermuda employment restrictions.
   16




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We could
    face unanticipated losses from war, terrorism and political
    unrest, and these or other unanticipated losses could have a
    material adverse effect on our financial condition and results
    of operations.
    Our
    financial condition could be adversely affected by the
    occurrence of disasters.
    Emerging
    claim and coverage issues could adversely affect our
    business.
   17




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If actual
    claims exceed our loss reserves, our financial results could be
    significantly adversely affected.
              The
    failure of any of the loss limitation methods we employ could
    have a material adverse effect on our financial condition or our
    results of operations.
   18




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Our
    ability to pay dividends may be constrained by our holding
    company structure and the limitations on payment of dividends
    Bermuda law and regulations impose on us.
    We may
    encounter difficulties in maintaining the information technology
    systems necessary to run our business.
      Certain
    of our directors and officers may have conflicts of interest
    with us.
      We may be
    unable to purchase reinsurance protection to the extent we
    desire on acceptable terms; we are subject to the risk of
    non-payment by our reinsurers.
     19




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Since we
    depend on a few reinsurance brokers for a large portion of our
    revenues, loss of business they provide could adversely affect
    us.
    Our
    reliance on reinsurance brokers subjects us to their credit
    risk.
    Our
    investment performance may affect our financial results and
    ability to conduct business.
        Our
    operating results may be adversely affected by currency
    fluctuations.
   20




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We may
    require additional capital in the future.
    If our
    subsidiary is unable to obtain the necessary credit, we may not
    be able to offer reinsurance in certain markets.
      Credit Line


Usage


Expiry DateSecured operational LOC
    facility  syndicated facility Tranche B

$
225.0


$
200.0



Aug 2010Syndicated
    5-Year
    facility

$
500.0


$
83.9



June 2011Syndicated 364 Day facility

$
500.0


$
329.3



June 2007Bilateral facility A

$
100.0


$
70.6



N/ABlue Ocean Re  Bank of
    New York facility

$
250.0


$
50.0



N/ABlue Ocean Re  Merrill
    Lynch facility

$
50.0


$
20.0



May 2007       364-day 5-year
     21




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Risks
    Related to Our Industry
  Substantial
    new capital inflows into the reinsurance industry will increase
    competition.
  non-U.S. reinsurers,
  Events
    may result in political, regulatory and industry initiatives,
    which could adversely affect our business.
     22




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##### Table of Contents




    Providing insurance and reinsurance capacity in markets and to
    consumers that we target;
    Requiring our participation in industry pools and guaranty
    associations;
    Expanding the scope of coverage under existing policies;
    Regulating the terms of insurance and reinsurance
    policies; or
    Disproportionately benefiting the companies of one country over
    those of another.      Current
    legal and regulatory activities relating to insurance brokers
    and agents, contingent commissions and certain finite-risk
    insurance products could affect our business, results of
    operations and financial condition.
      Competition
    in the insurance industry could reduce our operating
    margins.
    The
    reinsurance business is historically cyclical and we expect to
    experience periods with excess underwriting capacity and
    unfavorable premiums.
   23




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We may be
    adversely affected by interest rate changes.
    Quantitative and Qualitative Disclosures About Market
    Risk.
  Risks
    Related to Our Common Shares
  Future
    sales of common shares may affect their market price.
    There are
    provisions in our charter documents which restrict the voting
    rights of our common shares.
    U.S. persons
    who own our common shares may have more difficulty in protecting
    their interests than U.S. persons who are shareholders of a
    U.S. corporation.
    Interested Directors.
  
    the material facts as to such interested directors
    relationship or interests were disclosed or were known to the
    board of directors and the board had in good faith authorized
    the transaction by the affirmative vote of a majority of the
    disinterested directors;
    such material facts were disclosed or were known to the
    stockholders entitled to vote on such transaction and the
    transaction were specifically approved in good faith by vote of
    the majority of shares entitled to vote thereon; or
    the transaction were fair as to the corporation as of the time
    it was authorized, approved or ratified. 24




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Business Transactions with Large Shareholders or
    Affiliates.
  Shareholders Suits.
  Indemnification of Directors.
  Anti-takeover provisions in our bye-laws could impede an
    attempt to replace or remove our directors, which could diminish
    the value of our common shares.
    
    election of our directors is staggered, meaning that the members
    of only one of three classes of our directors are elected each
    year; 25




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
    shareholders have limited ability to remove directors;
    the total voting power of any shareholder owning more than 9.5%
    of our common shares will be reduced to 9.5% of the total voting
    power of our common shares; and
    our directors may decline to record the transfer of any common
    shares on our share register if they believe that registration
    of the transfer is required under any federal or state
    securities law or under the laws of any other jurisdiction and
    the registration has not yet been effected.  You may
    have difficulty effecting service of process on us or enforcing
    judgments against us in the United States.
    
    a holder of our common shares would be able to enforce, in the
    courts of Bermuda, judgments of United States courts based upon
    the civil liability provisions of the United States federal
    securities laws;
    a holder of our common shares would be able to bring an original
    action in the Bermuda courts to enforce liabilities against us
    or our directors and officers, as well as the experts named in
    this 10-K,
    who reside outside the United States based solely upon United
    States federal securities laws.    We may
    require our shareholders to sell us their common
    shares.
    Risks
    Related to Taxation
  Montpelier
    Re Holdings Ltd. and Montpelier Reinsurance Ltd. may be
    subject to U.S. tax.
    U.S. persons
    who hold common shares may be subject to U.S. income
    taxation at ordinary income rates on their proportionate share
    of our related party insurance income
    (RPII).
   26




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##### Table of Contents



U.S. persons
    who hold common shares will be subject to adverse tax
    consequences if we are considered a passive foreign investment
    company for U.S. federal income tax purposes.
    We may
    become subject to adverse U.S. tax legislation concerning
    Bermuda companies.
    We may
    become subject to taxes in Bermuda after 2016, which may have a
    material adverse effect on our financial condition.
   27




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The
    impact of Bermudas commitment to the Organization for
    Economic Cooperation and Development to eliminate harmful tax
    practices is uncertain and could adversely affect our tax status
    in Bermuda.
    After
    December 31, 2010, qualified dividends on our common shares
    may no longer be taxed at the rate applicable for long-term
    capital gains unless Congress enacts legislation providing
    otherwise.
    Risks
    Related to Regulation
  If we
    become subject to insurance statutes and regulations in
    jurisdictions other than Bermuda or there is a change to Bermuda
    law or regulations or application of Bermuda law or regulations,
    there could be a significant and negative impact on our
    business.
    
    maintain a minimum level of capital, surplus and liquidity;
    satisfy solvency standards;
    restrict dividends and distributions;
    obtain prior approval of ownership and transfer of shares;
    maintain a principal office and appoint and maintain a principal
    representative in Bermuda; and
    provide for the performance of certain periodic examinations of
    Montpelier Re and its financial condition.     28




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Item 1B.
    Unresolved
    Staff Comments.    Item 2.
    Properties.    Item 3.
    Legal
    Proceedings.    Item 4.
    Submission
    of Matters to a Vote of Security Holders.   29




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##### Table of Contents



PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities.    Price Range ofCommon SharesPeriod

High


Low2005First Quarter

$
43.10


$
33.85Second Quarter

$
35.75


$
32.45Third Quarter

$
36.35


$
22.28Fourth Quarter

$
24.87


$
16.332006First Quarter

$
20.84


$
15.85Second Quarter

$
17.54


$
14.26Third Quarter

$
20.14


$
16.63Fourth Quarter

$
20.07


$
17.392007First Quarter through
    February 23, 2007

$
18.88


$
17.34     Dividend
    Policy
  Bermuda Insurance Regulation.
   30




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Unregistered
    Sales of Equity Securities and Use of Proceeds
    (c)


(d)Total Number of


Approximate Dollar(a)





Shares Purchased


Value of SharesTotal Number


(b)


as Part of


that May Yet Beof Shares


Average Price


Publicly Announced


Purchased Under thePurchased


Paid Per Share


Plans or Programs(1)


Plans or Programs(1)October 1, 2006 through
    October 31, 2006





$







$
84,521,657November 1, 2006 through
    November 30, 2006














December 1, 2006 through
    December 31, 2006














Total





$







$
84,521,657     (1)
    
    On May 26, 2004, the Companys Board of Directors
    approved a plan to repurchase up to $150.0 million of the
    Companys shares from time to time depending on market
    conditions during a period of up to 24 months.  Equity
    Compensation Plan Information
    Number of SecuritiesRemaining Available forNumber of Securities





Future Issuance Underto be Issued


Weighted-Average


Equity CompensationUpon Exercise of


Exercise Price of


Plans (ExcludingOutstanding Options,


Outstanding Options,


Securities Reflected inWarrants and Rights


Warrants and Rights


Column (a))Plan Category

(a)


(b)


(c)Equity compensation plans approved
    by security holders(1)


1,600,000
(1)


0
(1)


2,400,000Equity compensation plans not
    approved by security holders(2)


17,939



0



0Total


1,617,939



0



2,400,000     (1)
    
    Consists of 1,144,000 Common Shares underlying Performance
    Shares outstanding and 456,000 RSUs under the Long-Term
    Incentive Plan. The number of Common Shares subject to the
    Performance Share awards shown in the table represents the
    maximum number of Common Shares that may be issued if the
    performance targets applicable to such units are achieved at the
    maximum level. If target performance
    levels are achieved, only half of these shares would be issued.
    The Compensation and Nominating Committee of the Board has
    discretion to settle the Performance Share awards in cash,
    Common Shares or a combination of cash and Common Shares. The
    RSU payment is equal to the value of the RSUs subject to the
    award if vesting conditions are satisfied. Neither the
    Performance Shares or the RSUs require the payment of an
    exercise price. Accordingly, there is no weighted average
    exercise price for either of these awards.(2)
    
    See below for a description of the Directors Share Plan.    Montpelier Long-Term Incentive Plan
    (LTIP).
 31




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2005-2007 2006-2008
  2005-2007 2005-2007
  2006-2008 2006-2008
    2006-2008
  Directors
    Incentive Plan
   32




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Shareholders
    Agreement
      Form S-3
 33




---



##### Table of Contents



Item 6.  Selected
    Financial Data.  Financial Statements and
    Supplementary Data Managements Discussion and Analysis of Financial
    Condition and Results of Operations
  2006


2005


2004


2003


2002Income Statement DataGross premiums written

$
727,518


$
978,730


$
837,051


$
809,733


$
607,688Reinsurance premiums ceded


148,872



221,735



87,735



31,758



41,779Net premiums written


578,646



756,995



749,316



777,975



565,909Net premiums earned


583,064



848,486



787,515



705,333



329,926Net investment income


125,818



87,005



69,072



50,148



39,748Net realized gains on investments


3,979



41,605



7,248



7,631



7,716Net foreign exchange gains (losses)


13,279



(10,039
)


6,999



8,310



1,681Loss and loss adjustment expenses


172,649



1,510,701



404,802



164,107



133,310Acquisition costs and general and
    administrative expenses


178,848



192,214



208,073



190,412



89,204Financing expense


28,235



17,827



17,534



9,688



4,460Other income (expense)


(4,176
)


806











Income (loss) before minority
    interest and taxes


342,232



(752,879
)


240,425



407,215



152,097Minority interest  Blue
    Ocean income (loss)


39,316



(13
)










Net income (loss)

$
302,860


$
(752,902
)

$
240,281


$
407,178


$
152,045Basic earnings (loss) per share(1)

$
3.25


$
(10.49
)

$
3.84


$
6.42


$
2.76Diluted earnings (loss) per share(1)

$
3.23


$
(10.49
)

$
3.55


$
6.05


$
2.74Weighted average number of common
    shares outstanding  basic(2)


108,899,581



71,757,651



62,633,467



63,392,597



55,178,150Weighted average number of common
    shares outstanding  diluted(2)


109,405,435



71,757,651



67,706,972



67,275,287



55,457,141Cash dividends per share

$
0.30


$
6.655


$
1.36


$
0.34


$
Balance Sheet DataFixed maturities

$
2,507,417


$
2,307,054


$
2,325,273


$
1,976,165


$
1,354,845Equity investments


203,146



113,553



143,435



37,564



Other investments


27,127



31,569



19,373



84,354



63,691Cash and cash equivalents


348,605



450,146



110,576



139,587



162,925Total Assets


3,898,756



4,059,706



3,398,113



2,552,589



1,833,918Net loss and loss adjustment
    expense reserves


891,932



1,476,195



454,841



242,064



129,459Debt


427,298



249,084



248,963



248,843



150,000Minority Interest  Blue
    Ocean  Preferred


61,586



54,166











Minority Interest  Blue
    Ocean  Common


176,792



109,722











Shareholders Equity

$
1,492,915


$
1,057,659


$
1,751,944


$
1,657,705


$
1,252,535Operating Ratios and Other
    MeasuresLoss ratio(3)


29.6
%


178.0
%


51.4
%


23.3
%


40.4
%Expense ratio(4)


30.7
%


22.7
%


26.4
%


27.0
%


27.0
%Combined ratio(5)


60.3
%


200.7
%


77.8
%


50.3
%


67.4
%Book value per share(6)

$
15.54


$
11.86


$
28.20


$
26.15


$
19.76Fully converted book value per
    share(7)

$
15.46


$
11.86


$
26.75


$
24.92


$
19.39  34




---



##### Table of Contents



(1)
    
    Basic earnings (loss) per share is calculated using the basic
    weighted average number of common shares. Diluted earnings
    (loss) per share assumes the exercise of all dilutive warrants
    and options, using the treasury stock method.(2)
    
    For 2006 the calculation of basic and diluted earnings per share
    excludes 15,694,800 common shares subject to the share issuance
    agreement.(3)
    
    The loss ratio is calculated by dividing loss and loss
    adjustment expenses by net premiums earned.(4)
    
    The expense ratio is calculated by dividing acquisition costs
    plus general and administrative expenses by net premiums earned.(5)
    
    The combined ratio is the sum of the loss ratio and the expense
    ratio.(6)
    
    Book value per share is calculated using total
    shareholders equity divided by basic shares outstanding
    less 15,694,800 common shares subject to the share issuance
    agreement as described below.(7)
    
    Fully converted book value per share is based on total
    shareholders equity divided by common shares outstanding
    of 111,775,682 less 15,694,800 common shares subject to the
    share issuance agreement entered into in connection with, and
    contemporaneously with, the forward sale agreements discussed in
    the Capital Resourcessection below, plus common shares
    issuable upon conversion of outstanding share equivalents of
    473,771 at December 31, 2006. At December 31, 2005,
    fully converted book value per share is based on total
    shareholders equity divided by common shares outstanding
    of 89,178,490 plus common shares issuable upon conversion of
    outstanding share equivalents of 9,170. Warrants outstanding at
    December 31, 2006 and 2005 are not included as the exercise
    price of $16.67 per common share is greater than book value
    per share. At December 31, 2004 fully converted book value
    per share is based on total shareholders equity plus the
    assumed proceeds from the exercise of outstanding options and
    warrants of $157.5 million for the year ended
    December 31, 2004 and $168.1 million, for the years
    ended December 31, 2003 and 2002 divided by the sum of
    shares, outstanding options and warrants (assuming their
    exercise) of 71,372,892 shares at December 31, 2004,
    73,261,757 shares at December 31, 2003 and 2002. We
    believe that fully converted book value per share more
    accurately reflects the value attributable to a common share.  Item 7.  Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations.
  Overview
    Cautionary Statement under Safe Harbor
    Provision of the Private Securities Litigation Reform Act of
    1995. Risk Factors
  Executive
    Overview
     35




---



##### Table of Contents



Property Specialty
      Property Catastrophe
  Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations.
  Other Specialty
  Qualifying Quota Share (QQS)
       36




---



##### Table of Contents



Summary
    of Critical Accounting Estimates
  Loss and Loss Adjustment Expense Reserves.
           37




---



##### Table of Contents



contract-by-contract
         38




---



##### Table of Contents



39




---



##### Table of Contents



 Results of Operations  Loss
    and Loss Adjustment Expenses
       Results of Operations  Loss and
    Loss Adjustment Expenses
         40




---



##### Table of Contents



Gross Loss and LossAdjustment ExpenseGross IBNR at


Gross Case Reserves at


Reserves atDecember 31, 2006


December 31, 2006


December 31, 2006Property Specialty

$
132.9


$
240.0


$
372.9Property Catastrophe


165.7



222.9



388.6Other Specialty


183.9



143.8



327.7Total

$
482.5


$
606.7


$
1,089.2   Premiums.
     41




---



##### Table of Contents



Loss and Loss Adjustment Expense Reserves
      Reinsurance Ceded.
      EITF 99-2
   42




---



##### Table of Contents



Loss and Loss Adjustment Expense
    Reserves
  Montpelier Long-Term Incentive Plan
    (LTIP).
    2005-2007 2006-2008
  2005-2007 2005-2007
  2006-2008 2006-2008
    2006-2008
 43




---



##### Table of Contents



Outlook
    and Trends
        Results
    of Operations
  Years
    Ended December 31, 2006, 2005 and 2004
    
    The low level of catastrophes that occurred during 2006 which
    resulted in a $1,338.1 million decrease in loss and loss
    adjustment expenses in 2006 as compared to 2005; and
    A significant increase in net investment income of
    $38.7 million over 2005.    
    A decrease in net premiums earned mainly as a result of the
    reduction in gross premiums written and an increase in
    reinsurance premiums ceded earned;
    An increase in incentive compensation over 2005 as a result of
    the increase in our net income during 2006; and
    An increase in financing and other operating expenses due
    interest paid on the junior subordinated debt securities and
    contract payments related to the catastrophe bond.    
    Hurricanes Katrina, Rita and Wilma, which resulted in
    $1,202.8 million of net losses incurred at
    December 31, 2005 compared to net losses incurred related
    to the 2004 hurricanes for the year ended December 31, 2004
    of $261.6 million;
    An increase in outwards reinstatement premiums as a result of
    the 2005 hurricanes; and
    A reduction in net premiums written and earned from the purchase
    of additional retrocessional protection, particularly during the
    fourth quarter of 2005. 44




---



##### Table of Contents




    An increase in reinstatement premium written as a result of the
    2005 hurricanes;
    A decrease in incentive compensation and profit commission
    expenses as a result of the 2005 hurricanes;
    An increase in net investment income as a result of our higher
    portfolio balance; and
    An increase in realized gains, principally due to gains on the
    sale of the remainder of our Aspen holdings.    As at December 31,2006


2005


2004Book value per share(1)

$
15.54


$
11.86


$
28.20Fully converted book value per
    share(2)

$
15.46


$
11.86


$
26.75     (1)
    
    Based on total shareholders equity divided by basic shares
    outstanding, excluding the common shares issued and outstanding
    under the share issuance agreement discussed in the Capital
    Resourcessection below.(2)
    
    Fully converted book value per share at December 31, 2006
    is based on total shareholders equity divided by common
    shares outstanding of 111,775,682 less 15,694,800 common shares
    subject to the share issuance agreement entered into in
    connection with, and contemporaneously with, the forward sale
    agreements discussed in the Capital Resourcessection
    below, plus common shares issuable upon conversion of
    outstanding share equivalents of 473,771 at December 31,
    2006. At December 31, 2005, fully converted book value per
    share is based on total shareholders equity divided by
    common shares outstanding of 89,178,490 plus common shares
    issuable upon conversion of outstanding share equivalents of
    9,170. At December 31, 2004 fully converted book value per
    share is based on total shareholders equity plus the
    assumed proceeds from the exercise of outstanding options and
    warrants of $157.5 million divided by the sum of shares,
    options and outstanding warrants (assuming their exercise) of
    71,372,892. Warrants outstanding at December 31, 2006 and
    2005 are not included as the exercise price of $16.67 per
    common share is greater than book value per share.  Capital Resources
     45




---



##### Table of Contents



Years Ended December 31,CollateralizedRated


PropertyReinsurance


Catastropheand Insurance


Retrocessional


Consolidation/Business


Business


Elimination


Total


Total


Total2006


2006


2006


2006


2005


2004Gross premiums written

$
632.7


$
94.8






$
727.5


$
978.7


$
837.0Gross premiums earned


698.3



72.9







771.2



1,003.4



868.2Reinsurance premiums ceded earned


188.1











188.1



154.9



80.7Net premiums earned


510.2



72.9







583.1



848.5



787.5Loss and loss adjustment expenses


172.6











172.6



1,510.7



404.8Acquisition costs


107.4



5.4







112.8



166.3



152.8General and administrative expenses


64.8



16.1



(14.9
)


66.0



26.0



55.3Underwriting income
    (loss)


165.4



51.4



14.9



231.7



(854.5
)


174.6Net investment income


112.8



16.6



(3.6
)


125.8



87.1



69.1Financing expense


27.6



0.6







28.2



17.8



17.5Other income


47.5







(38.0
)


9.5



0.8



Other operating expense


13.8











13.8







Net income (loss) before
    realized losses and foreign exchange


284.3



67.4



(26.7
)


325.0



(784.4
)


226.2Net realized (losses) gains on
    investments


6.1



(2.1
)






4.0



42.4



7.2Net foreign exchange gains (losses)


12.6



0.7







13.3



(11.0
)


6.9Net income (loss) before
    minority interest

$
303.0


$
66.0


$
(26.7
)

$
342.3


$
(753.0
)

$
240.3Minority interest
    expense  Blue Ocean














39.3







Net income (loss)













$
303.0


$
(753.0
)

$
240.3Net change in unrealized gains
    (losses) on investments and foreign exchange translation(1)














58.6



(64.1
)


1.4Comprehensive income
    (loss)













$
361.6


$
(817.1
)

$
241.7     (1)
    
    Relates to the Rated Reinsurance and Insurance Business
    reporting segment only. 46




---



##### Table of Contents



Gross
    Premiums Written
    Years Ended December 31,2006


2005


2004Rated Reinsurance and Insurance
    BusinessProperty Specialty

$
206.9



28.4
%

$
357.9



36.6
%

$
314.0



37.5
%Property Catastrophe


301.8



41.5



420.3



42.9



330.3



39.5Other Specialty


124.3



17.1



200.4



20.5



186.8



22.3Qualifying Quota Share


(0.3
)






0.1







5.9



0.7632.7



87.0
%


978.7



100.0
%


837.0



100.0
%Collateralized Property
    Catastrophe Retrocession Business


94.8



13.0
%







%







%Total

$
727.5



100.0
%

$
978.7



100.0
%

$
837.0



100.0
%Reinstatement premiums(1)


16.3







129.3







24.0Total excluding reinstatement
    premiums

$
711.2






$
849.4






$
813.0     (1)
    
    For 2005 $116.3 million related to the 2005 hurricanes and
    the remainder to the 2004 catastrophes.    
    A substantially lower amount of reinstatement premium recorded
    during the year ended December 31, 2006 as compared to 2005
    due to the lack of natural catastrophes which occurred during
    2006 compared to 2005;
    The conversion on renewal of certain Florida proportional quota
    share contracts into lower premium excess of loss contracts.
    Further, gross premiums written for proportional contracts is
    spread evenly over the contract period compared to gross
    premiums written for excess of loss contracts, which is recorded
    as written when the contract is bound. These factors have caused
    a decrease in gross premiums written for the Property
    Catastrophe line during 2006;
    A decrease in gross premiums written relating to the expiration
    of our agreements with Aspen affiliates as at December 31,
    2005 of approximately $60.0 million, which affected the
    property catastrophe and other specialty lines of business;
    A decrease in risk excess of loss business due to inadequate
    pricing and tighter
    risk-to-capital
    constraints, resulting in a reduction in our exposures in most
    U.S. peak zones; and
    the non-renewal of certain large excess of loss and proportional
    contracts.  and/or
   47




---



##### Table of Contents



Reinsurance
    Premiums Ceded
  Years Ended December 31,2006


2005


2004($ in millions)Rated Reinsurance and Insurance
    BusinessReinsurance premiums ceded

$
148.9


$
221.7


$
87.7Reinstatement premiums


5.3



54.4



19.4Total excluding reinstatement
    premium

$
143.6


$
167.3


$
68.3    48




---



##### Table of Contents



and/or 99-2,
 49




---



##### Table of Contents



Net
    Premiums Earned
  Years Ended December 31,2006


2005


2004($ in millions)Gross premiums earned 
    Rated Reinsurance and Insurance Business

$
698.3


$
1,003.4


$
868.2Gross premiums earned 
    Collateralized Property Catastrophe Retrocessional Business


72.9







Reinsurance premiums ceded
    earned  Rated Reinsurance and Insurance Business


188.1



154.9



80.7Net premiums earned

$
583.1


$
848.5


$
787.5       Loss
    and Loss Adjustment Expenses
      Years Ended December 31,2006


2005


2004Loss ratio


29.6
%


178.0
%


51.4
%Expense ratio


30.7
%


22.7
%


26.4
%Combined ratio


60.3
%


200.7
%


77.8
%      50




---



##### Table of Contents



Years Ended December 31,2006


2005


2004Net Loss Ratios:Rated Reinsurance and Insurance
    Business:Property Specialty


32.2
%


142.4
%


51.5
%Property Catastrophe


29.4



242.8



50.3Other Specialty


45.4



120.3



61.7Qualifying Quota Share(1)


N/M



145.6



18.9Overall Net Loss Ratio


29.6
%


178.0
%


51.4
%Overall Gross Loss Ratio


26.4
%


182.8
%


56.8
%     (1)
    
    Because we stopped writing QQS business in 2004 earned premium
    for these periods is minimal and as a consequence, the net loss
    ratio is no longer a meaningful measurement for this category.        Gross
    Loss and Loss Adjustment Expense Reserves
  EstimatedUltimateChange in





LossesGross


Prior Years





for the 2006


GrossReserves at


Estimates


Paid Losses


Year at


Reserves atDecember 31,


During


During


December 31,


December 31,2005


2006


2006


2006


2006Property Specialty

$
540.7


$
(9.6
)

$
(261.6
)

$
103.4


$
372.9Property Catastrophe


868.9



37.8



(538.4
)


20.3



388.6Other Specialty


353.5



(24.5
)


(82.4
)


81.1



327.7Qualifying Quota Share


18.8



(4.6
)


(14.2
)






Total

$
1,781.9


$
(0.9
)

$
(896.6
)

$
204.8


$
1,089.2  51




---



##### Table of Contents



Net Loss
    and Loss Adjustment Expense Reserves
  EstimatedUltimateChange in





LossesNet


Prior Years





for the 2006


NetReserves at


Estimates


Paid Losses


Year at


Reserves atDecember 31,


During


During


December 31,


December 31,2005


2006


2006


2006


2006Property Specialty

$
398.4


$
(30.6
)

$
(197.8
)

$
101.6


$
271.6Property Catastrophe


719.8



30.2



(465.6
)


18.5



302.9Other Specialty


341.3



(19.9
)


(80.3
)


76.3



317.4Qualifying Quota Share


16.7



(3.5
)


(13.2
)






Total

$
1,476.2


$
(23.8
)

$
(756.9
)

$
196.4


$
891.9       
    In the Property Specialty category, our gross estimated ultimate
    losses for prior years decreased by $9.6 million while our
    net estimated ultimate losses decreased by $30.6 million
    during the year ended December 31, 2006. Gross loss
    estimates for the 2005 hurricanes increased by
    $15.8 million during the year for Property Specialty.
    However estimated ceded losses for the hurricanes increased by
    $22.5 million, so on a net basis there was favorable
    development of $6.7 million from the hurricanes. Most of
    the improvement on the remainder of the Property Specialty prior
    year losses was on our proportional book of business. The losses
    for this business developed less than we had projected at the
    end of 2005.
    Property Catastrophe gross ultimate losses as at
    December 31, 2005 increased by $37.8 million during
    the year ended December 31, 2006 and net ultimate losses
    increased by $30.2 million during that period. The increase
    in ultimate losses for the year was principally driven by
    changes in our estimated ultimate loss for Wilma. In particular,
    the projected gross losses on our assumed retrocessional
    business for Hurricane Wilma increased by $37.8 million as
    the estimated total industry losses increased during the year.
    For Hurricanes Katrina and Rita, we experienced some smaller
    increases in our retrocessional business losses partially offset
    by decreases in our Property Catastrophe losses.
    Other Specialty gross ultimate losses decreased by
    $24.5 million during the year ended December 31, 2006
    while net losses decreased by $19.9 million during the
    year. A significant portion of this improvement was related to
    commutations of a related group of contracts. Approximately
    $6.1 million of the realized benefit was due to the fact
    that the loss reserves were held on an undiscounted basis and on
    commutation a discount was applied. As this business has
    matured, we have given more weight to the actual loss experience
    compared to the initial expected loss ratios in our reserving
    process. The low level of loss development experienced during
    the year resulted in reduced projections for prior accident
    years and lower selected net loss ratios.
    We commuted all three of the 2002 QQS contracts during the
    second quarter of 2005 and as expected we commuted the three
    2003 contracts in 2006. The final commutation terms resulted in
    a benefit of $4.6 million to gross losses and
    $3.5 million on a net basis.   52




---



##### Table of Contents



In the Property Specialty and Other Specialty categories, the
    frequency and severity of reported losses were lower than the
    assumed reporting pattern of losses established for these
    classes at December 31, 2003. In 2004 we placed more weight
    in the loss reserving process on our actual loss experience
    compared with the initial loss ratio expectation, and this
    change generated a combined reduction of $69.4 million in the
    ultimate loss projection during 2004.Property Catastrophe estimated ultimate losses associated with
    the European Floods of 2002, as well as Hurricane Isabel and the
    California wildfires, both of which occurred in 2003, decreased
    during 2004.          Net
    Foreign Exchange Gains (Losses)
  non-U.S. dollar non-U.S. dollar
  Underwriting
    Expenses
  Years Ended December 31,2006


2005


2004($ in millions)Acquisition costs (including
    profit commission)(1)

$
112.8


$
166.3


$
152.8General and administrative
    expenses(1)

$
66.0


$
26.0


$
55.3Expense Ratio (including profit
    commission)


30.7
%


22.7
%


26.4
%Expense Ratio (excluding profit
    commission)


30.0
%


21.9
%


25.4
%     (1)
    
    The Collateralized Property Catastrophe Retrocessional segment
    incurred $5.4 million in acquisition costs and
    $16.1 million in general and administrative expenses for
    the year ended December 31, 2006 which are included above.   53




---



##### Table of Contents



Years Ended December 31,2006


2005


2004Fixed expenses, excluding share
    options

$
45.2


$
38.9


$
34.2Current and deferred incentive
    compensation


20.8



(14.2
)


18.8Fair value of share options expense






1.3



2.3Total General and Administrative
    expenses

$
66.0


$
26.0


$
55.3       2006-2008
  2006-2008
 54




---



##### Table of Contents



2004-2006 2005-2007
    Net
    Investment Income
 Years Ended December 31,2006


2005


2004($ in millions)Net investment income(1)

$
125.8


$
87.1


$
69.1Accretion (amortization) of
    premium/(discount) on bonds

$
5.1


$
8.0


$
14.6Investment management, accounting
    and custodian fees

$
5.4


$
3.5


$
2.6     (1)
    
    Includes $16.6 million in interest income related to the
    collateralized property catastrophe retrocessional business for
    the year ended December 31, 2006.      Years Ended December 31,]2006


2005


2004Total investment return


6.7
%


2.1
%


3.4
%Weighted average investment
    portfolio balance (in millions)

$
3,076


$
2,576


$
2,486          55




---



##### Table of Contents



Years Ended December 31,2006


2005


2004($ in millions)Proceeds from sales of available
    for sale securities

$
1,967.9


$
2,112.1


$
1,135.2Gross realized losses 
    other than temporary impairment fixed maturities

$
14.3


$
5.8


$
Gross realized losses 
    other than temporary impairment equity investments

$
5.5


$
1.3


$
0.1Aggregate fair value of securities
    in unrealized loss position

$
1,277.0


$
1,807.2


$
1,354.0Aggregate fair value of securities
    in unrealized loss position(> 12 months)

$
839.5


$
491.1


$
8.3       Financing
    Expense
  Years EndedDecember 31,2006


2005


2004($ in millions)Interest  Senior Notes

$
15.4


$
15.4


$
15.4Interest on trust preferred
    securities


8.6







Fees  letter of credit
    facilities


3.3



1.6



1.7Interest  Long-term
    debt Blue Ocean


0.5







Fees  trust preferred
    securities


0.4







Other






0.8



0.4Total Financing Expense

$
28.2


$
17.8


$
17.5   Capital
    Resources
   56




---



##### Table of Contents



Other
    Income
  Years EndedDecember 31,2006


2005


2004($ in millions)Rockridge ceding and incentive
    fees & equity earnings

$
3.3


$
0.8


$
Catastrophe Bond Total Rate of
    Return Swap Facility


1.3







Advanced funds interest


4.9







Total Other Income

$
9.5


$
0.8


$
     mark-to-market
  Other
    Operating Expense
  Years EndedDecember 31,2006


2005


2004($ in millions)Contract payments 
    catastrophe bond

$
11.9


$



$
Fees 
    set-up
    catastrophe bond


1.9







Total Other Operating Expense

$
13.8


$



$
   set-up
 57




---



##### Table of Contents



Net
    Realized Gains (Losses) on Investments
  Years Ended December 31,2006


2005(1)


2004($ in millions)Rated Reinsurance and Insurance
    Business 
    Available-For-SaleNet realized gains 
    available-for-sale
    fixed maturities and equity investments

$
13.2


$
48.7


$
7.1Other than temporary
    impairment  fixed maturities


(4.7
)


(5.8
)


Other than temporary
    impairment  equity investments


(2.4
)


(1.3
)


0.1Collateralized Property
    Catastrophe Retrocessional
    Business  TradingNet realized losses 
    fixed maturities


(1.7
)


Net unrealized gains
    (losses)  fixed maturities


(0.4
)






Net realized gains (losses)

$
4.0


$
41.6


$
7.2     (1)
    
    During the year ended December 31, 2005 net realized
    gains from the sale of available-for sale fixed maturities and
    equity investments included $44.5 million in realized gains
    from the sales of Aspen shares.  Years Ended December 31,2006


2005


2004($ in millions)Proceeds from sales and maturities
    of
    available-for-sale
    securities

$
1,967.9


$
2,112.1


$
1,135.2Aggregate fair value of securities
    in unrealized loss position,
    available-for-sale

$
1,277.0


$
1,807.2


$
1,354.0Aggregate fair value of securities
    in unrealized loss position,
    available-for-sale
    (>12 months)

$
840.0


$
491.1


$
8.3   Minority
    Interest
    Financial
    Condition and Liquidity
  Business
  Capital
    Resources
   58




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##### Table of Contents



Contractual
    Obligations and Commitments
  Due in


Due in 1-





Due inLess than


3 Years


Due in 3-


More thanTotal


1 Year


($ in thousands)


5 Years


5 YearsDebt:Senior Notes

$
351,482


$
15,313


$
30,625


$
30,625


$
274,919Junior Subordinated Debt Securities


350,222



8,550



17,100



17,100



307,472Long-Term Debt


84,130



5,490



78,640







Gross loss and loss adjustment
    expense reserves


1,089,235



518,388



355,668



138,010



77,169Letter of credit fees


3,229



3,229











Catastrophe bond fees


23,567



11,767



11,800







Operating leases


34,209



4,401



7,469



6,677



15,662Total

$
1,936,074


$
567,138


$
501,302


$
192,412


$
675,222   Senior
    Notes
    Junior
    Subordinated Debt Securities
  3-month
   59




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##### Table of Contents



Blue
    Ocean Long-Term Debt
    Gross
    Loss and Loss Adjustment Expenses
  Loss and Loss Adjustment Expense Reserves
  Letter of
    Credit Fees
  Letter of Credit Facilities
  Catastrophe
    Bond Fees
  and/or 99-2,
  Operating
    Leases
    Other
    Contractual Obligations and Commitments
   60




---



##### Table of Contents



Form S-3 and/or
  Forward
    Sale Agreements and Share Issuance Agreement
                 61




---



##### Table of Contents




    if the volume-weighted average price of our common shares on the
    valuation date for such component, calculated pursuant to the
    agreement, is less than or equal to the forward floor price,
    $4,567,695 (which is the forward floor price multiplied by the
    maximum number of common shares underlying such component);
    if such volume-weighted average price is greater than the
    forward floor price but less than the forward cap price, such
    volume-weighted average price multiplied by the maximum number
    of shares underlying such component; and
    if such volume-weighted average price is greater than or equal
    to the forward cap price, $7,178,084 (which is the forward cap
    price multiplied by the maximum number of shares underlying such
    component).           62




---



##### Table of Contents



Letter of
    Credit Facilities
      Credit Line


Usage


Expiry DateSecured operational LOC
    facility  syndicated facility Tranche B

$
225.0


$
200.0



Aug. 2010Syndicated
    5-Year
    facility

$
500.0


$
83.9



Jun. 2011Syndicated 364 Day facility

$
500.0


$
329.3



Jun. 2007Bilateral facility A

$
100.0


$
70.6



N/ABlue Ocean Re  Bank of
    New York

$
250.0


$
50.0



N/ABlue Ocean Re  Merrill
    Lynch

$
50.0


$
20.0



May 2007       364-day 5-year
       63




---



##### Table of Contents



Trust Agreements
    Ratings
    FinancialRating Agency

Strength RatingA.M. Best


A-



Excellent (Stable outlook
)Standard & Poors


A-



Strong (Negative outlook
)Moodys Investor Services


Baa1



Adequate (Stable outlook
)         Off-Balance
    Sheet Arrangements
   64




---



##### Table of Contents



Investments
    Years Ended December 31,2006


2005($ in thousands)Fixed maturities, available for
    sale, at fair value

$
2,167,011


$
2,307,054Fixed maturities, trading, at fair
    value


340,406



Equity investments, available for
    sale, at fair value


203,146



113,553Other investments, at estimated
    fair value


27,127



31,569Cash and cash equivalents,
    unrestricted


313,093



450,146Cash and cash equivalents,
    restricted


35,512



Total Invested Assets

$
3,086,295


$
2,902,322       Years EndedDecember 31,2006


2005($ in thousands)U.S. government securities

$
250,349


$
298,563U.S. government-sponsored
    enterprises securities


580,489



596,631Corporate debt securities


543,423



750,477Mortgage-backed and asset-backed
    securities


771,021



632,569Non U.S. government securities


21,729



28,814Total fixed maturity investments

$
2,167,011


$
2,307,054     Years ended December 31,2006


2005($ in thousands)U.S. government securities

$
177,678


$
U.S. government-sponsored
    enterprises securities


73,463



Corporate debt securities


85,268



Mortgage-backed and asset-backed
    securities


3,997



Total fixed maturity investments

$
340,406


$
  65




---



##### Table of Contents



Cash
    Flows
             66




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk.      Interest Rate Risk.
          Foreign Currency Risk.
 67




---



##### Table of Contents



Credit Risk.
  Equity
    Price Risk
    Effects
    of Inflation
      Item 8.
    Financial
    Statements and Supplementary Data.   68




---



##### Table of Contents



Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure.    Item 9A.
    Controls
    and Procedures.  Evaluation
    of disclosure controls and procedures.
  §§240.13a-15(e) 240.15d-15(e)
  Managements
    Report on Internal Control Over Financial Reporting
  Rules 13a-15(f) 15d-15(f)
  
    Pertain to the maintenance of records that in reasonable detail
    accurately and fairly reflect the transactions and dispositions
    of the assets of the company;
    Provide reasonable assurance that transactions are recorded as
    necessary to permit preparation of financial statements in
    accordance with generally accepted accounting principles, and
    that receipts and expenditures of the company are being made
    only in accordance with authorizations of management and
    directors of the company; and
    Provide reasonable assurance regarding prevention or timely
    detection of unauthorized acquisition, use or disposition of the
    companys assets that could have a material effect on the
    financial statements.      page F-2.
 69




---



##### Table of Contents



Changes
    in internal controls.
    Item 9B.
    Other
    Information.   PART III  Item 10.
    Directors
    and Executive Officers of the Registrant.    Item 11.
    Executive
    Compensation.    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters.    Item 13.
    Certain
    Relationships and Related Transactions.    Item 14.
    Principal
    Accounting Fees and Services.   70




---



##### Table of Contents



PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules.    1.
    Financial
    Statements    2.
    Financial
    Statement Schedules    3.
    Exhibits    ExhibitNumber

Description of Document3
.1

Memorandum of Association
    (incorporated herein by reference to Exhibit 3.1 to the
    Companys Registration Statement on
    Form S-1
    (Registration
    No. 333-89408)).3
.2

Amended and Restated Bye-Laws
    (incorporated herein by reference to Exhibit 3.1 to the
    Companys Current Report on
    Form 8-K
    dated May 20, 2003).4
.1

Specimen Ordinary Share
    Certificate (incorporated herein by reference to
    Exhibit 4.1 to the Companys Registration Statement on
    Form S-1
    (Registration
    No. 333-89408)).4
.3

Share Purchase Warrant, dated
    January 3, 2002, between the Registrant and entities
    affiliated with White Mountains Insurance Group (originally
    issued to Benfield Group plc), as amended by Amendment, dated as
    of February 11, 2002, as further amended by Amendment,
    dated as of July 1, 2002 (incorporated herein by reference
    to Exhibit 4.3 to the Companys Registration Statement
    on
    Form S-1
    (Registration
    No. 333-89408)),
    as further amended by Amendment 3 dated as of March 31,
    2003 (incorporated herein by reference to Exhibit 4.5 to
    the Companys Quarterly Report on
    Form 10-Q
    for the period ended March 31, 2003).4
.4

Share Purchase Warrant, dated
    January 3, 2002, between the Registrant and White Mountains
    Insurance Group, Ltd., as amended by Amendment, dated as of
    February 11, 2002, as further amended by Amendment, dated
    as of July 1, 2002 (incorporated herein by reference to
    Exhibit 4.4 to the Companys Registration Statement on
    Form S-1
    (Registration
    No. 333-89408)),
    as further amended by Amendment 3 dated as of March 31,
    2003 (incorporated herein by reference to Exhibit 4.5 to
    the Companys Quarterly Report on
    Form 10-Q
    for the period ended March 31, 2003).4
.5

Senior Indenture, dated as of
    July 15, 2003, between the Company, as Issuer, and The Bank
    of New York, as Trustee (incorporated herein by reference to
    Exhibit 4.1 to the Companys Registration Statement on
    Form S-1
    (Registration
    No. 333-106919)).4
.6

First Supplemental Indenture to
    Senior Indenture, dated as of July 30, 2003, between the
    Company, as Issuer, and The Bank of New York, as Trustee
    (incorporated herein by reference to Exhibit 4.2 to the
    Companys Registration Statement on
    Form S-1
    (Registration
    No. 333-106919)).10
.1

Shareholders Agreement, dated as
    of December 12, 2001, among the Registrant and each of the
    persons listed on schedule 1 thereto, as amended by
    Amendment No. 1, dated December 24, 2001 (incorporated
    herein by reference to Exhibit 10.1 to the Companys
    Registration Statement on
    Form S-1
    (Registration
    No. 333-89408)).10
.2

Service Agreement, dated as of
    December 12, 2001, between Anthony Taylor, the Registrant
    and Montpelier Reinsurance Ltd. (incorporated herein by
    reference to Exhibit 10.2 to the Companys
    Registration Statement on
    Form S-1
    (Registration
    No. 333-89408)),
    as further amended by Amendment dated as of August 27, 2004
    (incorporated herein by reference to Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed September 1, 2004). 71




---



##### Table of Contents



ExhibitNumber

Description of Document10
.3

Service Agreement, dated as of
    January 24, 2002, between Anthony Taylor and Montpelier
    Marketing Services (UK) Limited (incorporated herein by
    reference to Exhibit 10.3 to the Companys
    Registration Statement on
    Form S-1
    (Registration
    No. 333-89408)).10
.4

Service Agreement, dated as of
    January 1, 2002, between C. Russell Fletcher, III and
    Montpelier Reinsurance Ltd. (incorporated herein by reference to
    Exhibit 10.4 to the Companys Registration Statement
    on
    Form S-1
    (Registration
    No. 333-89408)).10
.5

Service Agreement, dated as of
    January 1, 2002, between Thomas George Story Busher and
    Montpelier Reinsurance Ltd. (incorporated herein by reference to
    Exhibit 10.5 to the Companys Registration Statement
    on
    Form S-1
    (Registration
    No. 333-89408)).10
.6

Service Agreement, dated as of
    January 24, 2002, between Thomas George Story Busher and
    Montpelier Marketing Services (UK) Limited (incorporated herein
    by reference to Exhibit 10.6 to the Companys
    Registration Statement on
    Form S-1
    (Registration
    No. 333-89408)).10
.7

Service Agreement, dated as of
    January 24, 2002, between Nicholas Newman-Young and
    Montpelier Marketing Services (UK) Limited (incorporated herein
    by reference to Exhibit 10.6 to the Companys
    Registration Statement on
    Form S-1
    (Registration
    No. 333-89408)).10
.9

Share Option Plan, as amended
    August 27, 2004 (incorporated herein by reference to
    Exhibit 10.7 to the Companys Current Report on
    Form 8-K
    filed September 1, 2004).10
.10

Performance Unit Plan as amended
    August 27, 2004 (incorporated herein by reference to
    Exhibit 10.6 to the Companys Current Report on
    Form 8-K
    filed September 1, 2004).10
.11

Long-Term Incentive Plan as
    amended August 27, 2004 (incorporated herein by reference
    to Exhibit 10.5 to the Companys Current Report on
    Form 8-K
    filed September 1, 2004).10
.12

Second Amended and Restated Letter
    of Credit Reimbursement and Pledge Agreement, among the Company
    and Bank of America, N.A. and a syndicate of lending
    institutions, dated as of August 4, 2005 (incorporated
    herein by reference to Exhibit 10.12 to the Companys
    Quarterly Report on
    Form 10-Q
    filed August 9, 2005).10
.13

Service Agreement, dated as of
    August 27, 2004, between Anthony Taylor and Montpelier Re
    Holdings Ltd. (incorporated herein by reference to
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K
    filed September 1, 2004).10
.14

Service Agreement, dated as of
    August 27, 2004, between Anthony Taylor and Montpelier
    Marketing Services (UK) Limited (incorporated herein by
    reference to Exhibit 10.3 to the Companys Current
    Report on
    Form 8-K
    filed September  1, 2004).10
.15

Severance Plan, dated as of
    August 27, 2004, among certain Executives and the Company
    (incorporated herein by reference to Exhibit 10.4 to the
    Companys Current Report on
    Form 8-K
    filed September 1, 2004).10
.16

Service Agreement, dated as of
    September 8, 2004, between Kernan V. Oberting and
    Montpelier Reinsurance Ltd. (incorporated herein by reference to
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K
    filed September 9, 2004).10
.17

Letter of Credit Reimbursement and
    Pledge Agreement, between Montpelier Reinsurance Ltd. and HSBC
    Bank USA, National Association, dated December 23, 2004
    (incorporated herein by reference to Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed on December 23, 2004).10
.18

Form of Performance Share Award
    under the Montpelier Re Holdings Ltd. Long-Term Incentive Plan
    (incorporated herein by reference to Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed February 28, 2005).10
.19

Montpelier Re Holdings Ltd. 2005
    Annual Bonus Plan (incorporated herein by reference to
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K
    filed February 28, 2005).10
.20

Montpelier Re Holdings Ltd.
    Directors Share Plan (incorporated herein by reference to
    Exhibit 10.3 to the Companys Current Report on
    Form 8-K
    filed February 28, 2005).10
.21

Net Share Settlement Agreement
    between Montpelier Re Holdings Ltd. and Anthony Taylor
    (incorporated herein by reference to Exhibit 10.25 to the
    Companys Annual Report on
    Form 10-K
    filed March 4, 2005). 72




---



##### Table of Contents



ExhibitNumber

Description of Document10
.22

Net Share Settlement Agreement
    between Montpelier Re Holdings Ltd. and Thomas George Story
    Busher (incorporated herein by reference to Exhibit 10.22
    to the Companys Annual Report on
    Form 10-K
    filed March 4, 2005).10
.23

Net Share Settlement Agreement
    between Montpelier Re Holdings Ltd. and C. Russell
    Fletcher III (incorporated herein by reference to
    Exhibit 10.23 to the Companys Annual Report on
    Form 10-K
    filed March 4, 2005).10
.24

Net Share Settlement Agreement
    between Montpelier Re Holdings Ltd. and Nicholas Newman-Young
    (incorporated herein by reference to Exhibit 10.24 to the
    Companys Annual Report on
    Form 10-K
    filed March 4, 2005).10
.25

Montpelier Reinsurance Ltd.
    Amended and Restated Deferred Compensation Plan (incorporated
    herein by reference to Exhibit 10.25 to the Companys
    Annual Report on
    Form 10-K
    filed March 4, 2005).10
.26

Letter of Credit Reimbursement and
    Pledge Agreement among Montpelier Reinsurance Ltd., the lenders
    named therein, Bank of America, N.A., as Administrative Agent,
    and the other agents named therein (incorporated herein by
    reference to Exhibit 10.1 to the Companys Current
    Report on
    Form 8-K
    filed November 18, 2005).10
.27

Standing Agreement for Letters of
    Credit between Montpelier Reinsurance Ltd. and the Bank of
    New York (incorporated herein by reference to
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K
    filed November 18, 2005).10
.28

Form of Performance Share and
    Restricted Share Unit Award Agreement under Montpeliers
    Long-Term Incentive Plan (incorporated herein by reference to
    Exhibit 10.28 to the Companys Annual Report on
    Form 10-K
    filed March 14, 2006).10
.29

Montpelier Re Holdings Ltd. 2006
    Annual Bonus Plan (incorporated herein by reference to
    Exhibit 10.2 to the Companys Current Report on
    Form 8-K
    filed November 21, 2005).10
.30

Purchase Agreement among
    Montpelier Re Holdings Ltd., WLR Recovery Fund, II, L.P.
    and WLR Recovery Fund, III, L.P. (incorporated herein by
    reference to Exhibit 10.1 to the Companys Current
    Report on
    Form 8-K
    filed June 1, 2006).10
.31

Registration Rights Agreement
    among Montpelier Re Holdings Ltd., WLR Recovery Fund, II,
    L.P. and WLR Recovery Fund, III, L.P. (incorporated herein by
    reference to Exhibit 10.2 to the Companys Current
    Report on
    Form 8-K
    filed June 1, 2006).10
.32

Forward Sale Agreement, among
    Montpelier Re Holdings Ltd. and Credit Suisse International
    (incorporated herein by reference to Exhibit 10.1 to the
    Companys Current Report on
    Form 8-K
    filed June 2, 2006).10
.33

Amendment to the Forward Sale
    Agreement, among Montpelier Re Holdings Ltd. and Credit Suisse
    International (incorporated herein by reference to
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K
    filed January 3, 2007).10
.34

Forward Sale Agreement, among
    Montpelier Re Holdings Ltd. and Credit Suisse International
    (incorporated herein by reference to Exhibit 10.2 to the
    Companys Current Report on
    Form 8-K
    filed June 2, 2006).10
.35

Share Issuance Agreement, among
    Montpelier Re Holdings Ltd., Credit Suisse Securities (USA) LLC
    and Credit Suisse International (incorporated herein by
    reference to Exhibit 10.3 to the Companys Current
    Report on
    Form 8-K
    filed September 2, 2006).10
.36

Amended and Restated Letter of
    Credit Reimbursement and Pledge Agreement among Montpelier
    Reinsurance Ltd., the lenders thereto, Bank of America, N.A., as
    administrative agent and HSBC Bank USA, National Association as
    syndication agent (incorporated herein by reference to
    Exhibit 10.1 to the Companys Current Report on
    Form 8-K
    filed June 13, 2006).10
.37

First Amendment to the Second
    Amended and Restated Letter of Credit Reimbursement and Pledge
    Agreement, among Montpelier Reinsurance Ltd., Montpelier Re
    Holdings Ltd., the various financial institutions party thereto
    and Bank of America, N.A., as administrative agent (incorporated
    herein by reference to Exhibit 10.2 to the Companys
    Current Report on
    Form 8-K
    filed June 13, 2006). 73




---



##### Table of Contents



ExhibitNumber

Description of Document10
.38

Separation Agreement, dated as of
    October 1, 2006, between C. Russell Fletcher III, and
    Montpelier Reinsurance Ltd., (incorporated herein by reference
    to Exhibit 10.37 to the Companys Quarterly Report on Form
    10-Q filed November 8, 2006).21
.1

Subsidiaries of the Registrant,
    filed with this report.23
.1

Consent of PricewaterhouseCoopers,
    filed with this report.31
.1

Officer Certifications of Anthony
    Taylor, Chief Executive Officer of Montpelier Re Holdings Ltd.,
    and Kernan Oberting, Chief Financial Officer of Montpelier Re
    Holdings Ltd., as adopted pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002, filed with this report.32
.1

Officer Certifications of Anthony
    Taylor, Chief Executive Officer of Montpelier Re Holdings Ltd.,
    and Kernan Oberting, Chief Financial Officer of Montpelier Re
    Holdings Ltd., pursuant to 18 U.S.C. Section 1350, as
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002, submitted with this report.    74




---



##### Table of Contents



SIGNATURES
  Form 10-K
  Montpelier Re Holdings
    Ltd.
  By:
    /s/  Anthony
    Taylor  Anthony Taylor
 Title:
    Chairman and Chief Executive Officer 75




---



##### Table of Contents



POWER OF
    ATTORNEY
  Form 10-K attorneys-in-fact Form 10-K attorneys-in-fact attorneys-in-fact
  Form 10-K
  Signature

Title/s/  Anthony
    TaylorAnthony
    Taylor

Chairman and Chief Executive
    Officer and
    Director (Principal Executive Officer)/s/  Kernan
    V. ObertingKernan
    V. Oberting

Chief Financial Officer
    (Principal Financial Officer)/s/  Neil
    W.
    GreenspanNeil
    W. Greenspan

Chief Accounting Officer
    (Principal Accounting Officer)/s/  Morgan
    W. DavisMorgan
    W. Davis

Director/s/  Clement
    S. Dwyer
    Jr.Clement
    S. Dwyer Jr.

Director/s/  Allan
    W.
    FulkersonAllan
    W. Fulkerson

Director/s/  K.
    Thomas KempK.
    Thomas Kemp

Director/s/  Wilbur
    L.
    Ross, Jr.Wilbur
    L. Ross, Jr.

Director/s/  Raymond
    M. SalterRaymond
    M. Salter

Director/s/  John
    F.
    Shettle, Jr.John
    F. Shettle, Jr.

Director/s/  Candace
    L. StraightCandace
    L. Straight

Director  76




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##### Table of Contents



INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  PageReport of
    Independent Registered Public Accounting Firm


F-2Consolidated
    Balance Sheets as at December 31, 2006 and 2005


F-4Consolidated
    Statements of Operations and Comprehensive Income (Loss) for the
    years ended December 31, 2006, 2005 and 2004


F-5Consolidated
    Statements of Shareholders Equity for the years ended
    December 31, 2006, 2005 and 2004


F-6Consolidated
    Statement of Cash Flows for the years ended December 31,
    2006, 2005 and 2004


F-7Notes to
    Consolidated Financial Statements


F-8  F-1




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM      Consolidated
    financial statements and financial statement schedules
    Internal
    control over financial reporting
  Internal Control  Integrated
    Framework Internal Control  Integrated
    Framework
   F-2




---



##### Table of Contents



PricewaterhouseCoopers
  PricewaterhouseCoopers
    F-3




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.CONSOLIDATED BALANCE SHEETS
    As at December 31, 2006 and 2005
    (Expressed in thousands of United States Dollars, except share
    amounts)
  2006


2005ASSETSFixed maturities, at fair value:Available-for-sale
    (amortized cost: 2006  $2,167,161;
    2005  $2,334,314)

$
2,167,011


$
2,307,054Trading (cost: 2006 
    $340,799; 2005  $Nil)


340,406



Equity investments, at fair value
    (cost: 2006  $157,540, 2005  $96,982)


203,146



113,553Other investments, at estimated
    fair value (cost: 2006  $23,093; 2005 
    $30,000)


27,127



31,569Total investments


2,737,690



2,452,176Cash and cash equivalents


313,093



450,146Restricted cash


35,512



Unearned premium ceded


44,511



83,777Premiums receivable


171,690



270,947Securities lending collateral


315,663



315,591Investment trades pending


134



4,747Funds withheld


1,473



1,456Deferred acquisition costs


30,297



53,445Reinsurance receivable on paid
    losses


7,749



55,570Reinsurance recoverable on unpaid
    losses


197,303



305,745Accrued investment income


22,624



22,087Other assets


21,017



44,019Total Assets

$
3,898,756


$
4,059,706LIABILITIESLoss and loss adjustment expense
    reserves


1,089,235



1,781,940Unearned premium


219,166



262,850Reinsurance balances payable


77,222



205,094Securities lending payable


315,663



315,591Debt


427,298



249,084Accounts payable, accrued expenses
    and other liabilities


29,924



16,374Dividends payable


8,955



7,226Total Liabilities


2,167,463



2,838,159Minority Interest  Blue
    Ocean preferred shares


61,586



54,166Minority Interest  Blue
    Ocean common shares


176,792



109,722Total Minority Interest


238,378



163,888Commitments and Contingent
    Liabilities (Note 14)






SHAREHOLDERS
    EQUITYCommon voting shares: 1/6 cent par
    value; authorized 1,200,000,000 shares; issued and
    outstanding at December 31, 2006; 111,775,682 shares
    (2005  89,178,490 )


186



149Additional paid-in capital


1,819,220



1,714,904Accumulated other comprehensive
    income (loss)


49,555



(9,081
)Retained deficit


(376,046
)


(648,313
)Total Shareholders Equity


1,492,915



1,057,659Total Liabilities, Minority
    Interest and Shareholders Equity

$
3,898,756


$
4,059,706     F-4




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.CONSOLIDATED STATEMENTS OF OPERATIONS AND
    COMPREHENSIVE INCOME
    For the Years Ended December 31, 2006, 2005 and 2004
    (Expressed in thousands of United States Dollars, except share
    amounts)
  2006


2005


2004REVENUESGross premiums written

$
727,518


$
978,730


$
837,051Reinsurance premiums ceded


(148,872
)


(221,735
)


(87,735
)Net premiums written


578,646



756,995



749,316Change in net unearned premiums


4,418



91,491



38,199Net premiums earned


583,064



848,486



787,515Net investment income


125,818



87,005



69,072Net realized gains on investments


3,979



41,605



7,248Net foreign exchange gains (losses)


13,279



(10,039
)


6,999Other income


9,567



806



Total Revenues


735,707



967,863



870,834EXPENSESLoss and loss adjustment expenses


172,649



1,510,701



404,802Acquisition costs


112,811



166,271



152,779General and administrative expenses


66,037



25,943



55,294Financing expense


28,235



17,827



17,534Other operating expense


13,743







Total Expenses


393,475



1,720,742



630,409Income (loss) before minority
    interest and taxes


342,232



(752,879
)


240,425Minority interest (income)
    expense  Blue Ocean


(39,316
)


13



Income tax expense


56



36



144NET INCOME (LOSS)

$
302,860


$
(752,902
)

$
240,281COMPREHENSIVE INCOME
    (LOSS)Net income (loss)

$
302,860


$
(752,902
)

$
240,281Other comprehensive income (loss)


58,636



(64,175
)


1,363Comprehensive income (loss)

$
361,496


$
(817,077
)

$
241,644Per share dataWeighted average number of common
    and common equivalent shares outstanding:Basic


108,899,581



71,757,651



62,633,467Diluted


109,405,435



71,757,651



67,706,972Basic earnings (loss) per common
    share

$
3.25


$
(10.49
)

$
3.84Diluted earnings (loss) per common
    share

$
3.23


$
(10.49
)

$
3.55     F-5




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.CONSOLIDATED STATEMENTS OF SHAREHOLDERS
    EQUITY
    For the Years Ended December 31, 2006, 2005 and 2004
    (Expressed in thousands of United States Dollars)
  2006


2005


2004Common voting sharesBalance  beginning of
    year

$
149


$
104


$
106Issue of common shares


37



45



1Repurchase of common shares










(3
)Balance  end of year


186



149



104Additional
    paid-in-capitalBalance  beginning of
    year


1,714,904



1,111,735



1,130,305Issue of common shares


99,989



622,120



10,612Repurchase of common shares










(31,487
)Direct equity offering expenses


(767
)


(20,423
)


Compensation recognized under
    stock option plan






1,244



2,305Share-based compensation


4,833







Director participation in
    directors share plan


261



228



Balance  end of year


1,819,220



1,714,904



1,111,735Accumulated other comprehensive
    income (loss)Balance  beginning of
    year


(9,081
)


55,094



53,731Net change in unrealized gains
    (losses) on investments


58,536



(64,110
)


1,309Net change in currency translation
    adjustments


100



(65
)


54Balance  end of year


49,555



(9,081
)


55,094Retained earnings
    (deficit)Balance  beginning of
    year


(648,313
)


585,011



473,563Net income (loss)


302,860



(752,902
)


240,281Repurchase of common shares










(33,989
)Dividends on common shares


(30,593
)


(480,422
)


(94,844
)Balance  end of year


(376,046
)


(648,313
)


585,011Total Shareholders
    Equity

$
1,492,915


$
1,057,659


$
1,751,944     F-6




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.CONSOLIDATED STATEMENTS OF CASH FLOWS
    For the Years Ended December 31, 2006, 2005 and 2004
    (Expressed in thousands of United States Dollars)
  2006


2005


2004Cash flows (used in) provided by
    operating activities:Net income (loss)

$
302,860


$
(752,902
)

$
240,281Adjustments to reconcile net income
    (loss) to net cash (used in) provided by operating activities:Accretion (amortization) of
    premium/(discount) on fixed maturities


3,896



7,995



14,640Depreciation


1,317



1,365



1,808Equity in earnings of other ventures


(1,006
)


(42
)


Share-based compensation


4,833







Compensation recognized under stock
    option plan






1,244



2,305Net realized gains on
    available-for-sale
    investments


(6,107
)


(41,605
)


(7,248
)Net realized foreign exchange
    (gains) losses on investments


(2,147
)


1,136



472Net foreign exchange (gains) losses
    on cash and cash equivalents


(7,935
)


3,125



(4,440
)Net realized losses on trading
    portfolio


1,736







Net unrealized losses on trading
    portfolio


393







Net unrealized gain on derivatives


(122
)






Net realized loss (gain) on
    disposal of equipment


51







(68
)Amortization of deferred financing
    costs


75







Accretion of Senior Notes


121



121



120Change in:Unearned premium ceded


39,266



(66,795
)


(7,072
)Premiums receivable


99,257



(97,184
)


34,138Restricted cash


(35,512
)






Funds withheld


(16
)


3,674



(1,406
)Deferred acquisition costs


23,148



5,586



786Reinsurance receivable on paid
    losses


47,821



(55,570
)


Reinsurance recoverable on unpaid
    losses


108,442



(211,045
)


(86,973
)Accrued investment income


(537
)


1,735



(3,156
)Other assets


4,702



(9,249
)


496Loss and loss adjustment expense
    reserves


(692,705
)


1,232,399



299,750Unearned premium


(43,684
)


(24,696
)


(31,127
)Reinsurance balances payable


(127,872
)


130,185



49,974Accounts payable, accrued expenses
    and other liabilities


13,549



(24,238
)


12,388Minority interest in undistributed
    net income (loss) of Blue Ocean


39,316



(13
)


Purchases of trading securities


(746,713
)






Proceeds from sale of trading
    securities


405,013







Other


97



(66
)


54Net cash (used in) provided by
    operating activities


(568,462
)


105,160



515,722Cash flows provided by (used in)
    investing activities:Purchases of fixed
    maturities 
    available-for-sale


(1,739,270
)


(2,008,785
)


(1,501,642
)Purchases of equity investments


(102,875
)


(93,880
)


(10,338
)Purchases of other investments


(1,280
)


(10,000
)


(20,000
)Proceeds from sale of fixed
    maturities 
    available-for-sale


1,501,617



1,447,665



590,276Proceeds from maturity of fixed
    maturities 
    available-for-sale


400,602



517,240



533,134Proceeds from sale of equity
    investments


65,711



147,196



11,769Investment of securities lending
    collateral


(72
)


105,265



(66,332
)Purchase of equipment


(11,432
)


(963
)


(2,993
)Sale of equipment


1,132







759Net cash provided by (used in)
    investing activities


114,133



103,738



(465,367
)Cash flows provided by (used in)
    provided by financing activities:Net proceeds from minority interest


66,455



133,901



Issue of common shares, net


100,287



622,393



10,612Repurchase of common shares










(65,476
)Securities lending collateral
    received


72



(105,265
)


66,332Direct equity offering expenses


(767
)


(20,423
)


Dividends paid


(30,041
)


(496,809
)


(95,274
)Proceeds from issuance of junior
    subordinated debt securities


100,000







Proceeds from issuance of long-term
    debt


73,335







Net cash provided by (used in)
    financing activities


309,341



133,797



(83,806
)Effects of exchange rate changes on
    foreign currency cash


7,935



(3,125
)


4,440(Decrease) increase in cash and
    cash equivalents


(137,053
)


339,570



(29,011
)Cash and cash
    equivalents  Beginning of year


450,146



110,576



139,587Cash and cash
    equivalents  End of year

$
313,093


$
450,146


$
110,576     F-7




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2006 and 2005
 (Expressed in thousands of United States Dollars,
 except per share amounts or as where otherwise described)
  1.
    General  and/or
    2.
    Significant
    Accounting Policies  Basis
    of Presentation and Use of Estimates
   F-8




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Premiums
    and related costs
              Reinsurance
    Ceded
       F-9




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      EITF 99-2
     Loss and Loss Adjustment Expense
    Reserves
  case-by-case
  Funds
    Withheld
    Equity
    Accounting
    Investments
    and cash
  available-for-sale
 F-10




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  available-for-sale
      first-in,
        Loss
    and Loss Adjustment Expense Reserves
     F-11




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Earnings
    (Loss) Per Share
    Foreign
    Currency Translation
      Variable
    Interest Entities
    Employee
    Incentive Plans
  Share-Based Payment
 F-12




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Montpelier Long-Term Incentive Plan
    (LTIP).
  Performance Unit Plan (the
    PUP).
      Option Plan.
  Deferred Compensation Plan.
  Directors
    Incentive Plan
   F-13




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Recent
    Accounting Pronouncements
    available-for-sale
    Considering the Effects of Prior
    Year Misstatements when Quantifying Misstatements in Current
    Year Financial Statements
 F-14




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Accounting
    for Certain Hybrid Financial Instruments  an
    amendment of FASB Statements No. 133
    (FAS 133) and 140
    (FAS 140).
  FSP
    FAS 115-1,
    The Meaning of
    Other-Than-Temporary
    Impairment and Its Application to Certain Investments 03-1, other-than-temporary, 03-1s other-than-temporary, 03-1s 03-1s other-than-temporary, 03-1s
  Accounting Changes and Error Corrections
 F-15




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   3.
    Investments    Cost or


Gross


GrossAmortized


Unrealized


Unrealized


EstimatedAs at December 31, 2006

Cost


Gains


Losses


Fair ValueFixed maturities:U.S. government

$
251,269


$
333


$
1,253


$
250,349U.S. government-sponsored
    enterprises


588,202



34



7,747



580,489Non U.S. government


22,288







559



21,729Corporate debt securities


531,845



12,042



465



543,422Mortgage-backed and asset-backed
    securities


773,557



1,331



3,866



771,0222,167,161



13,740



13,890



2,167,011Equity investments


157,540



46,176



570



203,146Total

$
2,324,701


$
59,916


$
14,460


$
2,370,157   Cost or


Gross


GrossAmortized


Unrealized


Unrealized


EstimatedAs at December 31, 2005

Cost


Gains


Losses


Fair ValueFixed maturities:U.S. government

$
301,901


$
241


$
3,579


$
298,563U.S. government-sponsored
    enterprises


607,676



12



11,057



596,631Non U.S. government


30,484







1,670



28,814Corporate debt securities


757,087



5,690



12,300



750,477Mortgage-backed and asset-backed
    securities


637,166



144



4,741



632,5692,334,314



6,087



33,347



2,307,054Equity investments


96,982



18,602



2,031



113,553Total

$
2,431,296


$
24,689


$
35,378


$
2,420,607     EstimatedAs at December 31, 2006

Fair ValueFixed maturities:U.S. government

$
177,678U.S. government-sponsored
    enterprises


73,463Non U.S. government


Corporate debt securities


85,268Mortgage-backed and asset-backed
    securities


3,997Total

$
340,406  F-16




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2006


2005Cost or





Cost orAmortized





AmortizedCost


%


Cost


%RatingsU.S. government

$
251,269



11.7
%

$
301,901



13.0
%U.S. government-sponsored
    enterprises


588,202



27.1



607,676



26.0Non U.S. government


22,288



1.0



30,484



1.3AAA


748,421



34.5



592,361



25.4AA


135,878



6.3



119,645



5.1A


260,819



12.0



284,582



12.2BBB


142,481



6.6



375,806



16.1BB


8,701



0.4



7,486



0.3B


4,712



0.2



2,458



0.1Other


4,390



0.2



11,915



0.5$
2,167,161



100
%

$
2,334,314



100
%     2006


2005Cost or





Cost orAmortized





AmortizedYears Ended December 31,

Cost


Fair Value


Cost


Fair ValueDue within one year

$
319,836


$
319,101


$
154,983


$
152,646Due after one year through five
    years


792,554



794,036



1,105,871



1,087,550Due after five years through ten
    years


216,772



214,648



399,811



392,392Due after ten years


64,442



68,204



36,483



41,897Mortgage-backed and asset-backed
    securities


773,557



771,022



637,166



632,569$
2,167,161


$
2,167,011


$
2,334,314


$
2,307,054    F-17




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Years Ended December 31,2006


2005


2004Gross realized gains on
    investments  available for sale

$
25,883


$
63,590


$
9,312Gross realized losses on
    investments  available for sale


(19,775
)


(21,985
)


(2,064
)Gross realized gains on trading
    securities


47







Gross realized losses on trading
    securities


(1,783
)






Change in unrealized gains and
    losses on trading securities


(393
)






Net realized gains (losses) on
    investments


3,979



41,605



7,248Net unrealized gains (losses)


58,536



(64,110
)


1,309Total realized and unrealized
    gains (losses) on investments

$
62,515


$
(22,505
)

$
8,557     Years Ended December 31,2006


2005


2004Fixed maturities

$
124,036


$
89,980


$
82,180Net amortization of
    premium/discount


(5,135
)


(7,995
)


(14,640
)Equity investments


5,477



1,689



1,300Cash and cash equivalents


6,368



6,238



2,270Securities lending


468



551



588131,214



90,463



71,698Net investment expenses(1)


(5,396
)


(3,458
)


(2,626
)$
125,818


$
87,005


$
69,072     (1)
    
    $2.0 million, $2.9 million and $2.4 million
    relates to White Mountains Advisors LLC for 2006, 2005 and 2004,
    respectively.    Equal to or greaterLess than 12 months


than 12 monthsGross





GrossUnrealized





UnrealizedMarket Value


Losses


Market Value


LossesFixed Maturities:U.S. government

$
60,378


$
468


$
113,786


$
785U.S. government-sponsored
    enterprises










508,457



7,747Non U.S. government










21,729



559Corporate debt securities


68,731



465







Mortgage-backed and asset-backed
    securities


291,222



715



195,549



3,151Equity investments


16,716



570







Total available for sale

$
437,047


$
2,218


$
839,521


$
12,242  F-18




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Equal to or GreaterLess than 12 Months


than 12 MonthsGross





GrossUnrealized





UnrealizedMarket Value


Losses


Market Value


LossesFixed Maturities:U.S. government

$
117,287


$
1,450


$
130,051


$
2,129U.S. government-sponsored
    enterprises


343,517



6,338



232,102



4,719Non U.S. government


9,367



1,125



19,447



545Corporate debt securities


405,405



10,184



55,624



2,117Mortgage-backed and asset-backed
    securities


425,430



3,632



53,901



1,108Equity investments


16,856



2,031







Total available for sale

$
1,317,862


$
24,760


$
491,125


$
10,618   Years Ended December 31,2006


2005


2004($ in millions)Proceeds from sales of available
    for sale securities

$
1,967.9


$
2,112.1


$
1,135.2Gross realized losses 
    other than temporary impairment  fixed maturities

$
14.3


$
5.8


$
Gross realized losses 
    other than temporary impairment  equity investments

$
5.5


$
1.3


$
0.1Aggregate fair value of securities
    in unrealized loss position, available for sale

$
1,277.0


$
1,807.2


$
1,354.0Aggregate fair value of securities
    in unrealized loss position (>12 months), available for
    sale

$
839.5


$
491.1


$
8.3     Debt and Financing
    Arrangements
     F-19




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Securities
    Lending
    Other
    Investments
      Related Party Transactions
  4.
    Loss and
    Loss Adjustment Expense Reserves     F-20




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Years Ended December 31,2006


2005


2004Net reserves at January 1

$
1,476,195


$
454,841


$
242,064Net losses incurred (released)
    related to:Current year


196,430



1,527,846



502,341Prior years


(23,781
)


(17,145
)


(97,538
)Total net incurred losses


172,649



1,510,701



404,803Net paid losses related to:Current year


40,775



275,139



150,737Prior years


716,137



214,208



41,289Total net paid losses


756,912



489,347



192,026Total net reserves as at
    December 31


891,932



1,476,195



454,841Losses recoverable as at
    December 31


197,303



305,745



94,700Total gross reserves as at
    December 31

$
1,089,235


$
1,781,940


$
549,541       Property Specialty:
  Property Catastrophe:
  Other Specialty:
    Property Specialty:
  Property Catastrophe:
 F-21




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Other Specialty:
    Property Specialty:
  Property Catastrophe:
  Other Specialty:
  QQS:
  5.
    Reinsurance      Rating

Amount


% of TotalA+

$
1,264



16.3
%A


5,196



67.1A−


1,289



16.6Total reinsurance receivable on
    paid losses

$
7,749



100.0
%     Rating

Amount


% of TotalA++

$
65,779



33.3
%A+


20,156



10.2A


85,066



43.1A−


13,154



6.7Not Rated


13,148



6.7Total reinsurance recoverable on
    unpaid losses

$
197,303



100.0
%    F-22




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   and/or 99-2,
  6.
    Debt and
    Financing Arrangements  Senior
    Notes
      Junior
    Subordinated Debt Securities
  3-month
 F-23




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Blue
    Ocean Long-Term Debt
    Letter
    of Credit Facilities
      Credit Line


Usage


Expiry DateSecured operational LOC
    facility  syndicated facility Tranche B

$
225.0


$
200.0



Aug. 2010Syndicated
    5-Year
    facility

$
500.0


$
83.9



Jun. 2011Syndicated 364 Day facility

$
500.0


$
329.3



Jun. 2007Bilateral facility A

$
100.0


$
70.6



N/ABlue Ocean Re  Bank of
    New York

$
250.0


$
50.0



N/ABlue Ocean Re  Merrill
    Lynch

$
50.0


$
20.0



May 2007        F-24




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  364-day 5-year
          Trust Agreements
    7.
    Related
    Party Transactions     F-25




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Years EndedDecember 31,2006


2005


2004($ in millions)Investment manager fees expensed

$
2.0


$
2.9


$
2.4Investment manager fees payable

$
0.5


$
1.6


$
0.7             8.
    Minority
    Interest     F-26




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        As at December 31,2006


2005Balance  Beginning of
    year

$
54,166


$
Issue of preference shares


1



55Additional
    paid-in-capital


255



54,945Offering expenses






(834
)Dividends payable


7,164



Balance  end of year

$
61,586


$
54,166     As at December 31,2006


2005Balance  Beginning of
    year

$
109,722


$
Issue of common shares


3



11Additional
    paid-in-capital


35,179



111,989Offering expenses


(170
)


(2,265
)Retained earnings (deficit)


32,058



(13
)Balance  end of year

$
176,792


$
109,722   9.
    Shareholders
    Equity  Authorized
    and Issued
   F-27




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     As at December 31,2006


2005


2004Balance  beginning of
    year


89,178,490



62,131,232



63,392,597Issue of common shares


6,896,552



25,850,926



Exercise of options






1,107,676



627,500Directors share unit conversion


5,840







Warrant conversion






88,656



Share repurchases










(1,888,865
)Common shares issued under forward
    sale agreements and share issuance agreement


15,694,800







Balance  end of year


111,775,682



89,178,490



62,131,232       Form S-3 and/or
  Form S-3
       F-28




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Rule 10b5-1
    Forward
    Sale Agreements and Share Issuance Agreement
             F-29




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        
    if the volume-weighted average price of our common shares on the
    valuation date for such component, calculated pursuant to the
    agreement, is less than or equal to the forward floor price,
    $4,567,695 (which is the forward floor price multiplied by the
    maximum number of common shares underlying such component);
    if such volume-weighted average price is greater than the
    forward floor price but less than the forward cap price, such
    volume-weighted average price multiplied by the maximum number
    of shares underlying such component; and
    if such volume-weighted average price is greater than or equal
    to the forward cap price, $7,178,084 (which is the forward cap
    price multiplied by the maximum number of shares underlying such
    component).         F-30




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Warrants
    00-19: paid-in-capital
      Dividends
   F-31




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      10.
    Cat Bond
    Total Rate of Return Swap Facility  mark-to-market gains/losses
  11.
    Foreign
    Currency Exchange Contracts      12.
    Segment
    Reporting      2006


2005Rated Reinsurance and Insurance
    Business

$
3,388,548


$
3,759,653Collateralized Property
    Catastrophe Retrocessional Business


510,208



300,053Total

$
3,898,756


$
4,059,706  F-32




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    CollateralizedRated


PropertyReinsurance


Catastropheand Insurance


Retrocessional


Consolidation/Years Ended December 31,

Business


Business


Elimination


Total 2006


Total 2005


Total 2004Gross premiums written

$
632.7


$
94.8


$



$
727.5


$
978.7


$
837.0Gross premiums earned


698.3



72.9







771.2



1,003.4



868.2Reinsurance premiums ceded earned


188.1











188.1



154.9



80.7Net premiums earned


510.2



72.9







583.1



848.5



787.5Loss and loss adjustment expenses


172.6











172.6



1,510.7



404.8Acquisition costs


107.4



5.4







112.8



166.3



152.8General and administrative expenses


64.8



16.1



(14.9
)


66.0



26.0



55.3Underwriting income
    (loss)


165.4



51.4



(14.9
)


231.7



(854.5
)


174.6Net investment income


112.8



16.6



(3.6
)


125.8



87.1



69.1Financing expense


27.6



0.6







28.2



17.8



17.5Other income


47.5







(38.0
)


9.5



0.8



Other operating expense


13.8











13.8







Net income (loss) before
    realized losses and foreign exchange


284.3



67.4



(26.7
)


325.0



(784.4
)


226.1Net realized gains (losses) on
    investments


6.1



(2.1
)






4.0



42.4



7.2Net foreign exchange gains (losses)


12.6



0.7







13.3



(11.0
)


6.9Net income (loss) before
    minority interest

$
303.0


$
66.0


$
(26.7
)

$
342.3


$
(753.0
)

$
240.3Minority interest
    expense  Blue Ocean














39.3







Net income (loss)













$
303.0


$
(753.0
)

$
240.3Net change in unrealized gains
    (losses) on investments and foreign exchange translation(1)














58.6



(64.1
)


1.4Comprehensive income
    (loss)













$
361.6


$
(817.1
)

$
241.7     (1)
    
    Relates to the Rated Reinsurance and Insurance Business
    reporting segment only. F-33




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Years Ended December 31,2006


2005


2004Rated Reinsurance and Insurance
    BusinessProperty Specialty

$
206.9



28.4
%

$
357.9



36.6
%

$
314.0



37.5
%Property Catastrophe


301.8



41.5



420.3



42.9



330.3



39.5Other Specialty


124.3



17.1



200.4



20.5



186.8



22.3Qualifying Quota Share


(0.3
)






0.1







5.9



0.7632.7



87.0
%


978.7



100.0
%


837.0



100.0
%Collateralized Property
    Catastrophe Retrocessional Business


94.8



13.0
%







%







%Total

$
727.5



100.0
%

$
978.7



100.0
%

$
837.0



100.0
%   Years Ended December 31,2006


2005


2004Rated Reinsurance and Insurance
    BusinessUSA and Canada

$
373.9



59.1
%

$
460.5



47.0
%

$
375.6



44.9
%Worldwide(1)


126.4



20.0



332.4



34.0



249.7



29.8Japan


30.1



4.8



37.3



3.8



36.5



4.4Worldwide, excluding USA and
    Canada(2)


25.7



4.1



23.4



2.4



29.9



3.6Western Europe, excluding the
    United Kingdom and Ireland


25.6



4.0



28.1



2.9



36.1



4.3United Kingdom and Ireland


11.9



1.9



50.8



5.2



58.9



7.0Others (1.5% or less)


39.1



6.1



46.2



4.7



50.3



6.0Total

$
632.7



100.0
%

$
978.7



100.0
%

$
837.0



100.0
%   Years Ended December 31,2006


2005


2004Collateralized Property
    Catastrophe Retrocessional BusinessWorldwide(1)

$
49.7



52.4
%

$





%

$





%USA and Canada


25.2



26.6















USA/Caribbean


11.9



12.6















Worldwide, excluding USA and
    Canada(2)


8.0



8.4















Total

$
94.8



100.0
%

$





%

$





%     (1)
    
    Worldwide comprises insurance and reinsurance
    contracts that insure or reinsure risks in more than one
    geographic area and do not specifically exclude the USA and
    Canada.(2)
    
    Worldwide, excluding USA and Canada comprises
    insurance and reinsurance contracts that insure or reinsure
    risks in more than one geographic area but specifically exclude
    the USA and Canada. F-34




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   13.
    Earnings
    (Loss) Per Share    Years Ended December 31,2006


2005


2004Basic earnings (loss) per
    common share:Net income (loss) available to
    common shareholders

$
302,860


$
(752,902
)

$
240,281Weighted average common shares
    outstanding


108,899,581



71,757,651



62,633,467Effect of common shares issued
    under share issuance agreement(1)


(15,694,800
)






Weighted average common shares
    outstanding  Basic


93,204,781



71,757,651



62,633,467Basic earnings (loss) per
    common share

$
3.25


$
(10.49
)

$
3.84Diluted earnings (loss) per
    common share:Net income (loss) available to
    common shareholders

$
302,860


$
(752,902
)

$
240,281Weighted average common shares
    outstanding


108,899,581



71,757,651



62,633,467Effect of common shares issued
    under share issuance agreement(1)


(15,694,800
)






Weighted average common shares
    outstanding  Basic


93,204,781



71,757,651



62,633,467Dilutive effect of warrants(2)


368,561







3,967,866Dilutive effect of share options










1,105,639Dilutive effect of share
    equivalents(2)


122,103







Dilutive effect of shares issuable
    in connection with forward sale agreements


15,190







Weighted average common and common
    equivalent shares outstanding  Diluted


93,710,635



71,757,651



67,706,972Diluted earnings (loss) per
    common share

$
3.23


$
(10.49
)

$
3.55     (1)
    
    Shares outstanding issued under the share issuance agreement are
    discussed in the shareholders equity section above.(2)
    
    Outstanding warrants and share equivalents were not dilutive for
    the year ended December 31, 2005 as the strike price of the
    warrants was higher than the average market price of the
    Companys shares.  14.
    Commitments
    and Contingent Liabilities  Concentrations
    of Credit Risk
   F-35




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     Litigation
    Lease
    Commitments
    15.
    Employee
    Incentive Plans  Montpelier
    Long-Term Incentive Plan (LTIP)
      2005-2007 2006-2008
  2005-2007 2005-2007
 F-36




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   2006-2008 2006-2008 2006-2008
  2006RSUs for


AverageCommon


ExerciseShares


PriceUnvested restricted stock at
    beginning of year





$
Granted


441,500



18.27Vested


145,444



Forfeited


5,168



Unvested restricted stock at end
    of quarter


290,888


$
18.27       Performance
    Unit Plan (PUP)
    2002-2004 2003-2004
  2003-2005
  Option
    Plan
  Rule 10b5-1
 F-37




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      2006


2005


2004Options for


Average


Options for


Average


Options for


AverageCommon


Exercise


Common


Exercise


Common


ExerciseShares


Price


Shares


Price


Shares


PriceOutstanding beginning of year





$




1,922,500


$
18.47



2,550,000


$
18.08Options granted






















Options exercised










1,922,500



18.47



627,500



16.91Options forfeited






















Options expired






















Outstanding end of year





$







$




1,922,500


$
18.47       Deferred
    Compensation Plan (DCP)
    16.
    Taxation  Bermuda
    United
    States
   F-38




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Other
    17.
    Statutory
    Requirements         F-39




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   18.
    Unaudited
    Quarterly Financial Data  March 31,


June 30,


September 30,


December 31,Quarters Ended

2006


2006


2006


2006Gross premiums written

$
224,918


$
296,238


$
121,027


$
85,335Net premiums written


145,704



271,894



107,817



53,231Net premiums earned


131,443



151,319



151,452



148,850Net investment income


28,777



30,446



33,056



33,539Net realized (losses) gains on
    investments


(6,836
)


(2,474
)


7,035



6,254Net foreign exchange gains


549



6,583



720



5,427Other income


286



2,578



2,489



4,214Total revenues


154,219



188,452



194,752



198,284Loss and loss adjustment expenses


50,889



65,440



43,162



13,158Acquisition costs


33,947



29,905



27,262



21,697General & administrative
    expenses


14,678



15,032



17,916



18,411Financing expense


7,103



6,996



6,788



7,348Other operating expense


4,825



2,958



3,303



2,657Total expenses


111,442



120,331



98,431



63,271Income (loss) before minority
    interest and taxes


42,777



68,121



96,321



135,013Minority interest
    expense  Blue Ocean


2,921



10,477



12,990



12,928Income tax expense (recovery)


40



(18
)


17



17Net income (loss)

$
39,816


$
57,662


$
83,314


$
122,068Basic earnings (loss) per common
    share

$
0.45


$
0.63


$
0.87


$
1.27Diluted earnings (loss) per common
    share

$
0.44


$
0.63


$
0.86


$
1.26Weighted average
    shares  basic


89,179,101



91,478,258



96,080,882



96,080,882Weighted average
    shares  diluted


89,905,682



91,557,521



96,908,358



96,919,219Loss ratio


38.7
%


43.2
%


28.5
%


8.8
%Expense ratio


37.0
%


29.7
%


29.8
%


26.9
%Combined ratio


75.7
%


72.9
%


58.3
%


35.7
%    F-40




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  March 31,


June 30,


September 30,


December 31,Quarters Ended

2005


2005


2005


2005Gross premiums written

$
306,273


$
275,648


$
289,995


$
106,814Net premiums written


279,437



231,634



237,657



8,267Net premiums earned


180,531



227,107



281,331



159,517Net investment income


21,414



19,060



20,550



25,981Net realized gains (losses) on
    investments


12,338



16,876



17,079



(4,688
)Net foreign exchange losses


(3,355
)


(3,758
)


(781
)


(2,145
)Other income














806Total revenues


210,928



259,285



318,179



178,498Loss and loss adjustment expenses


79,524



81,523



1,159,423



190,231Acquisition costs


37,364



49,941



43,186



35,780General & administrative
    expenses


15,238



15,206



(13,316
)


8,815Financing expense


4,267



3,890



4,068



5,602Total expenses


136,393



150,560



1,193,361



239,455Income (loss) before minority
    interest and taxes


74,535



108,725



(875,182
)


(60,957
)Minority Interest  Blue
    Ocean














13Income tax expense (recovery)


30



18



(34
)


22Net income (loss)

$
74,505


$
108,707


$
(875,148
)

$
(60,966
)Basic earnings (loss) per common
    share

$
1.19


$
1.72


$
(12.16
)

$
(0.68
)Diluted earnings (loss) per common
    share

$
1.11


$
1.62


$
(12.16
)

$
(0.68
)Weighted average
    shares  basic


62,580,009



63,327,564



71,944,539



89,178,490Weighted average
    shares  diluted


67,729,778



66,949,587



71,944,539



89,178,490Loss ratio


44.1
%


35.9
%


412.0
%


119.2
%Expense ratio


29.1
%


28.7
%


10.7
%


28.0
%Combined ratio


73.2
%


64.6
%


422.7
%


147.2
%    F-41




---



##### Table of Contents



INDEX TO
    FINANCIAL STATEMENT SCHEDULES
  SchedulePage


NumberSummary of Investments 
    Other than Investments in Related Parties as at
    December 31, 2006


S-2



ICondensed Financial Information of
    Registrant


S-3



IISupplementary Insurance
    Information for the years ended December 31, 2006, 2005,
    and 2004


S-6



IIIReinsurance for the years ended
    December 31, 2006, 2005 and 2004


S-7



IV    S-1




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  SCHEDULE I
    Summary of Investments
    Other than Investments in Related Parties
    As at December 31, 2006
    (Expressed in thousands of United States dollars)
  Amount ShownCost or


Estimated


in theType of Investment

Amortized Cost


Fair Value


Balance SheetFixed maturities:U.S. government


429,019



428,027



428,027U.S. government-sponsored
    enterprises


661,806



653,952



653,952Non U.S. government


22,288



21,729



21,729Corporate debt securities


617,290



628,691



628,691Mortgage-backed and asset-backed
    securities


777,557



775,018



775,018Total fixed maturities


2,507,960



2,507,417



2,507,417Equity investments:


157,540



203,146



203,146Other investments:


23,093



27,127



27,127Cash and cash equivalents,
    unrestricted


35,512



35,512



35,512Cash and cash equivalents,
    restricted


313,093



313,093



313,093Total investments, cash and cash
    equivalents


3,037,198



3,086,295



3,086,295  S-2




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  SCHEDULE II
    Condensed Financial Information of Registrant
    Condensed Balance Sheets  Parent Company only
    As at December 31, 2006 and 2005
    (Expressed in thousands of United States dollars)
  2006


2005ASSETSCash and cash equivalents, at fair
    value

$
4,621


$
4,996Investment in consolidated
    subsidiaries, on an equity basis


1,978,007



1,332,341Intercompany receivables


4,851



Other assets


6,139



1,236Total Assets

$
1,993,618


$
1,338,573LIABILITIESAccounts payable and accrued
    expenses


6,450



6,573Debt


352,298



249,084Dividends payable


8,955



7,226Other liabilities


133,000



18,031Total Liabilities

$
500,703


$
280,914SHAREHOLDERS
    EQUITYCommon voting shares: 1/6 cent par
    value; authorized 1,200,000,000 shares; issued and
    outstanding at December 31, 2006; 111,775,682 shares
    (2005  89,178,490)


186



149Additional paid-in capital


1,819,220



1,714,904Accumulated other comprehensive
    income (loss)


49,555



(9,081
)Retained earnings (deficit)


(376,046
)


(648,313
)Total Shareholders Equity


1,492,915



1,057,659Total Liabilities and
    Shareholders Equity

$
1,993,618


$
1,338,573  S-3




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  SCHEDULE II
    Condensed Financial Information of Registrant
    Statements of Operations
    For the Years Ended December 31, 2006, 2005 and 2004
    (Expressed in thousands of United States Dollars, except share
    amounts)
  2006


2005


2004REVENUESEquity in net earnings (loss) of
    subsidiaries

$
329,808


$
(731,579
)

$
261,871Management fee from subsidiary










Other income


4,075



164



331Total Revenue


333,883



(731,415
)


262,202EXPENSESFinancing expense


24,447



15,433



15,433Other expenses


6,577



6,054



6,488Total Expenses


31,024



21,487



21,921NET INCOME (LOSS) AVAILABLE TO
    COMMON SHAREHOLDERS

$
302,859


$
(752,902
)

$
240,281  S-4




---



##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  SCHEDULE II
    Condensed Financial Information of Registrant
    Statements of Cash Flows  Parent company only
    For the Years Ended December 31, 2006, 2005 and 2004
    (Expressed in thousands of United States dollars)
  2006


2005


2004Cash flows provided by operating
    activities:Net income (loss)

$
302,860


$
(752,902
)

$
240,281Adjustments to reconcile net
    income to net cash provided by (used in) operating activities:Equity in net earnings (loss) of
    subsidiaries


(329,808
)


731,579



(261,871
)Compensation recognized under
    stock option plan






1,244



2,305Accretion of Senior Notes


121



121



120Operating dividends received from
    subsidiaries






437,000



123,122Change in:Other assets and liabilities


111,102



18,170



220Net cash provided by operating
    activities


84,275



435,212



104,177Cash flows used in investing
    activities:Capital contribution to
    subsidiaries


(288,292
)


(600,000
)


(212
)Investing dividends received from
    subsidiaries


34,163



52,000



Net cash used in investing
    activities


(254,129
)


(548,000
)


(212
)Cash flows provided by (used in)
    financing activities:Issue of common shares


100,287



622,393



10,612Repurchase of common shares










(65,476
)Net proceeds received from
    issuance of junior subordinated debt


100,000







Dividends paid


(30,041
)


(496,808
)


(95,274
)Direct equity offering expenses


(767
)


(20,423
)


Net cash provided by (used in)
    financing activities


169,479



105,162



(150,138
)Decrease in cash and cash
    equivalents


(375
)


(7,626
)


(46,173
)Cash and cash
    equivalents  Beginning of year


4,996



12,622



58,795Cash and cash
    equivalents  End of year

$
4,621


$
4,996


$
12,622     Dividends received from the Companys subsidiaries are
    classified as investing activities when they represent a return
    of capital and as operating activities when they represent a
    return on capital from operations. In 2006, due to Montpelier
    Reinsurance Ltd.s current cumulative operating deficit,
    the dividends are classified appropriately as investing
    activities, with conforming changes made to the classification
    in accordance with the policy above to 2005 and 2004 which were
    previously reported as investing activities. S-5




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##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  SCHEDULE III
    Supplementary Insurance Information
    As at and for the Periods Ended December 31, 2006, 2005,
    and 2004
    (Expressed in thousands of United States dollars)
  Future Policy











Net Benefits,


AmortizationDeferred


Benefits,











Claims, Losses


of DeferredPolicy


Losses, Claims





Net


Net


and


Policy


Other


GrossAcquisition


and Loss


Unearned


Premiums


Investment


Settlement


Acquisition


Operating


PremiumsCosts


Expenses


Premiums


Earned


Income


Expenses


Costs


Expenses


Written2006  Property and
    Casualty

$
30,297


$
1,089,235


$
219,166


$
583,064


$
125,818


$
172,649


$
108,983


$
66,037


$
727,5182005  Property and
    Casualty

$
53,445


$
1,781,940


$
262,850


$
848,486


$
87,005


$
1,510,701


$
159,465


$
25,943


$
978,7302004  Property and
    Casualty

$
59,031


$
549,541


$
287,546


$
787,515


$
69,072


$
404,802


$
145,184


$
55,294


$
837,051  S-6




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##### Table of Contents



MONTPELIER
    RE HOLDINGS LTD.
  SCHEDULE IV
    Reinsurance
    As at and for the Periods Ended December 31, 2006, 2005 and
    2004
    (Expressed in thousands of United States dollars)
  Ceded to


Assumed from





Percentage ofDirect


Other


Other





Amount AssumedAmount(1)


Companies


Companies(1)


Net Amount


to Net2006  Property and
    Casualty

$
44,763


$
148,872


$
682,755


$
578,645



118
%2005  Property and
    Casualty

$
38,678


$
221,735


$
940,052


$
756,995



124
%2004  Property and
    Casualty

$
49,409


$
87,735


$
787,641


$
749,316



105
%     (1)
    
    During 2005, the Company refined the classification of gross
    premiums written between direct insurance and reinsurance
    assumed from other companies for prior years. There was no
    effect on total gross premiums written. S-7