UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, ~~2004~~2005

Commission file number 001-31721

AXIS CAPITAL HOLDINGS LIMITED

(Exact name of registrant as specified in its charter)

Bermuda		98-0395986
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

106 Pitts Bay Road, Pembroke HM 08, Bermuda

(Address of principal executive offices and zip code)

(441) 296-2600

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes oý No ýo

As of May ~~3, 2004,~~4, 2005, there were ~~154,913,914~~142,932,819 Common Shares, $0.0125 par value per share, of the registrant outstanding.

AXIS CAPITAL HOLDINGS LIMITED

INDEX TO FORM 10-Q

	PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as at March 31, ~~2004~~2005 (Unaudited) and December 31, ~~2003~~2004

	Condensed Consolidated Statements of Operations and Comprehensive Income for the Quarters Ended March 31, ~~2004~~2005 and ~~2003~~2004 (Unaudited)

	Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Quarters Ended March 31, ~~2004~~2005 and ~~2003~~2004 (Unaudited)

	Condensed Consolidated Statements of Cash Flows for the Quarters Ended March 31, ~~2004~~2005 and ~~2003~~2004 (Unaudited)

	Notes to Unaudited Condensed Consolidated Financial Statements

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.	Quantitative and Qualitative Disclosure about Market Risk

Item 4.	Controls and Procedures

	PART II. OTHER INFORMATION

Item 1.	Legal Proceedings

Item 6.2.	~~Exhibits~~Unregistered Sales of Equity Securities and ~~Reports on Form 8-K~~Use of Proceeds

~~Signatures~~Item 5.	Other Information

Item 6.	Exhibits

Signatures

PART 1 - FINANCIAL INFORMATION

Item 11.. Financial Statements

~~AXIS CAPITAL HOLDINGS LIMITED~~

~~CONDENSED CONSOLIDATED BALANCE SHEETS~~

~~As at March 31, 2004 and December 31, 2003~~

~~(Expressed in thousands of U.S. dollars, except share and per share amounts)~~

March 31, 2004

December 31, 2003

(Unaudited)

Assets

Cash and cash equivalents

$
802,129

$
605,175

Investments at fair market value
(Amortized cost 2004: $3,633,957; 2003: $3,359,102)

3,692,455

3,385,576

Other investments

9,332

—

Accrued interest receivable

30,564

29,530

Net receivable for investments sold

—

3,371

Securities lending collateral

505,186

—

Insurance and reinsurance premium balances receivable

1,019,195

660,530

Deferred acquisition costs

219,113

136,281

Prepaid reinsurance premiums

213,994

164,999

Reinsurance recoverable

190,917

124,899

Intangible assets

24,204

24,579

Other assets

39,899

37,333

Total Assets

$
6,746,988

$
5,172,273

Liabilities

Reserve for losses and loss expenses

$
1,261,094

$
992,846

Unearned premiums

1,620,384

1,143,447

Insurance and reinsurance balances payable

193,252

151,381

Accounts payable and accrued expenses

39,456

67,451

Securities lending payable

504,730

—

Net payable for investments purchased

121,509

—

Total Liabilities

3,740,425

2,355,125

Shareholders’ Equity

Share capital
(Authorized 800,000,000 common shares, par value$0.0125; issued and outstanding 2004: 152,480,904; 2003:152,474,011)

1,906

1,906

Additional paid-in capital

2,005,425

2,000,731

Accumulated other comprehensive income, net of tax

53,906

25,164

Retained earnings

945,326

789,347

Total Shareholders’ Equity

3,006,563

2,817,148

Total Liabilities & Shareholders’ Equity

$
6,746,988

$
5,172,273

~~See accompanying notes to Unaudited Condensed Consolidated Financial Statements~~

AXIS CAPITAL HOLDINGS LIMITED

CONDENSED CONSOLIDATED ~~STATEMENTS OF OPERATIONS AND~~ BALANCE SHEETS
~~COMPREHENSIVE INCOME~~

~~For the quarters ended~~As at March 31, ~~2004~~2005 and ~~March~~December 31, ~~2003~~2004
(Expressed in thousands of U.S. dollars, except share and per share amounts)

Quarters ended

March 31, 2004

March 31, 2003

(Unaudited)

(Unaudited)

Revenues

Gross premiums written

$
1,044,123

$
608,587

Premiums ceded

(144,933
)
(68,443
)
Change in unearned premiums

(427,942
)
(237,717
)
Net premiums earned

471,248

302,427

Net investment income

31,259

11,352

Net realized gains

10,097

11,198

Other insurance related income

288

1,106

Total revenues

512,892

326,083

Expenses

Net losses and loss expenses

242,600

146,335

Acquisition costs
(related party 2004: $24,698; 2003: $17,972)

56,963

44,251

General and administrative expenses

41,888

30,362

Foreign exchange

1,145

(1,887
)
Total expenses

342,596

219,061

Income before income taxes

170,296

107,022

Income tax (expense) recovery

(3,510
)
97

Net Income

166,786

107,119

Other comprehensive income

Unrealized gains arising during the period

31,792

12,558

Adjustment for re-classification of gains realized in income, net of tax

(3,050
)
(7,163
)
Comprehensive income, net of tax

$
195,528

$
112,514

Weighted average common shares and common share equivalents - basic

152,480,904

136,381,025

Weighted average common shares and common share equivalents - diluted

167,252,826

142,785,514

Net income per share - basic

$
1.09

$
0.79

Net income per share - diluted

$
1.00

$
0.75

	March 31, 2005				December 31, 2004
	(Unaudited)				(Unaudited)
Assets
Cash and cash equivalents	$		746,065		$	632,329
Fixed maturity investments at fair market value
(Amortized cost 2005: $5,144,671; 2004: $5,114,997)			5,088,487			5,128,345
Other investments	329,514				271,344
Accrued interest receivable	41,361				47,487
Securities lending collateral	963,411				865,311
Insurance and reinsurance premium balances receivable	1,309,636				914,562
Deferred acquisition costs	277,469				211,082
Prepaid reinsurance premiums	272,313				271,187
Reinsurance recoverable balances	633,338				588,649
Reinsurance recoverable balances on paid losses	7,765				7,650
Intangible assets	30,847				31,734
Other assets	90,294				68,605
Total Assets	$		9,790,500		$	9,038,285

Liabilities
Reserve for losses and loss expenses	$	2,719,247			$		2,404,560
Unearned premiums	2,082,377				1,644,771
Insurance and reinsurance balances payable	287,094				247,940
Accounts payable and accrued expenses	94,859				89,804
Securities lending payable	960,581				864,354
Net payable for investments purchased	185,355				49,854
Debt	498,965				498,938
Total Liabilities	6,828,478				5,800,221

Shareholders’ Equity
Share capital
(Authorized 800,000,000 common shares, par value $0.0125; issued and outstanding 2005: 140,139,501; 2004:152,764,917)	1,752				1,910
Additional paid-in capital	1,673,409				2,017,144
Accumulated other comprehensive (loss) income	(49,394			)	12,915
Retained earnings	1,336,255				1,206,095
Total Shareholders’ Equity	2,962,022				3,238,064

Total Liabilities & Shareholders’ Equity	$	9,790,500			$		9,038,285

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

AXIS CAPITAL HOLDINGS LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
For the quarters ended March 31, 2005 and 2004
(Expressed in thousands of U.S. dollars, except share and per share amounts)

	Quarters ended
	March 31, 2005			March 31, 2004
	(Unaudited)			(Unaudited)
Revenues
Gross premiums written	$	1,198,699		$	1,044,123
Premiums ceded	(136,628		)	(144,933		)
Change in unearned premiums	(436,481		)	(427,942		)
Net premiums earned	625,590			471,248
Net investment income	52,758			31,259
Net realized (losses) gains	(1,393		)	10,097
Other insurance related (loss) income	(68		)	288
Total revenues	$	676,887		$	512,892

Expenses
Net losses and loss expenses	$	344,290		$	242,600
Acquisition costs (related party 2005: $32,945; 2004: $24,698)	91,301			56,963
General and administrative expenses	54,302			41,850
Foreign exchange losses	23,418			1,145
Interest expense	8,078			38
Total expenses	521,389			342,596

Income before income taxes	155,498			170,296
Income tax expense	(3,699		)	(3,510		)
Net Income	$	151,799		$	166,786

Other comprehensive income, net of tax
Unrealized (losses) gains arising during the period	(58,066		)	31,792
Adjustment for re-classification of gains realized in income	(4,243		)	(3,050		)

Comprehensive income	$	89,490		$	195,528

Weighted average common shares outstanding - basic	146,635,717			152,480,904
Weighted average common shares and common share equivalents - diluted	160,429,657			167,252,826

Earnings per share - basic	$	1.04		$	1.09

Earnings per share - diluted	$	0.95		$	1.00

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

AXIS CAPITAL HOLDINGS LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY

For the quarters ended March 31, ~~2004~~2005 and ~~March 31, 2003~~2004
(Expressed in thousands of U.S. dollars)

	Quarters ended						Quarters ended
	March 31, 2004			March 31, 2003			March 31, 2005			March 31, 2004
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Share capital
Balance at beginning of period	$	1,906		$	1,727		$	1,910		$	1,906
Issued during period	—			2
Shares issued during period							2			—
Repurchased during period							(160		)	—
Balance at end of period	$	1,906		$	1,729		$	1,752		$	1,906

Additional paid-in capital
Balance at beginning of period	$	2,000,731		$	1,686,599		$	2,017,144		$	2,000,731
Shares issued, net of costs	58			3,339
Shares issued during period, net of costs							(152		)	58
Repurchased during period							(349,840		)	—
Stock options exercised							187			—
Stock option expense	772			—			1,103			772
Stock compensation expense	3,864			—			4,967			3,864
Balance at end of period	$	2,005,425		$	1,689,938		$	1,673,409		$	2,005,425

Deferred compensation
Accumulated other comprehensive (loss) income
Balance at beginning of period	$	—		$	(20,576	)	$	12,915		$	25,164
Issue of restricted shares	—			(1,004		)
Amortization of deferred compensation	—			2,055
Balance at end of period	$	—		$	(19,525	)

Accumulated other comprehensive income, net of tax
Balance at beginning of period	$	25,164		$	25,484
Change in unrealized gain	32,048			5,395
Change in unrealized (losses) gains							(68,249		)	32,048
Change in deferred taxes	(3,306		)	—			5,940			(3,306		)
Balance at end of period	$	53,906		$	30,879		$	(49,394	)	$	53,906

Retained earnings
Balance at beginning of period	$	789,347		$	267,799		$	1,206,095		$	789,347
Dividends paid	(10,807		)	—			(21,639		)	(10,807		)
Net income for period	166,786			107,119			151,799			166,786
Balance at end of period	$	945,326		$	374,918		$	1,336,255		$	945,326

Total Shareholders’ Equity	$	3,006,563		$	2,077,939		$	2,962,022		$	3,006,563

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

AXIS CAPITAL HOLDINGS LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the quarters ended March 31, ~~2004~~2005 and ~~March 31, 2003~~2004
(Expressed in thousands of U.S. dollars)

	Quarters ended						Quarters ended
	March 31, 2004			March 31, 2003			March 31, 2005			March 31, 2004
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Cash flows provided by operating activities:
Net income	$	166,786		$	107,119		$	151,799		$	166,786
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Net realized gains on sales of investments	(10,097		)	(11,198		)
Amortization of discounts on fixed maturities	8,589			12,445
Amortization of deferred compensation	4,636			2,055
Net realized gains (losses) on sales of investments							1,393			(10,097		)
Net amortization on fixed maturities							7,511			8,589
Amortization of deferred compensation and option expense							6,070			4,636
Amortization of intangible assets	375			—			382			375
Amortization of deferred debt expenses							163			—
Accrued interest receivable	(1,034		)	1,919			6,126			(1,034		)
Insurance and reinsurance premium balances receivable	(358,666		)	(196,736		)	(395,074		)	(358,666		)
Deferred acquisition costs	(82,832		)	(41,159		)	(66,387		)	(82,832		)
Prepaid reinsurance premiums	(48,995		)	(53,831		)	(1,126		)	(48,995		)
Reinsurance recoverable	(66,018		)	(17,362		)
Reinsurance recoverable balances							(44,689		)	(66,018		)
Reinsurance recoverable balances on paid losses							(115		)	—
Intangible assets							505			—
Other assets	(2,567		)	(4,795		)	(15,885		)	(2,567		)
Reserve for losses and loss expenses	268,248			135,442			314,687			268,248
Unearned premiums	476,937			291,549			437,606			476,937
Insurance and reinsurance balances payable	41,871			37,985			39,154			41,871
Accounts payable and accrued expenses	(31,757		)	1,005			3,182			(31,757		)
Total adjustments	198,690			157,319			293,503			198,690
Net cash provided by operating activities	365,476			264,438			445,302			365,476
Cash flows provided by (used in) investing activities:
Net cash paid in acquisition of subsidiaries	—			(34,664		)
Purchases of other investments	(9,332		)	—			(57,871		)	(9,332		)
Purchases of available-for-sale securities	(1,520,577		)	(1,913,047		)	(1,238,492		)	(1,520,577		)
Sales of available-for-sale securities	1,372,134			1,829,950
Net cash used in investing activities	(157,775		)	(117,761		)
Sales and maturities of available-for-sale securities							1,336,399			1,372,134
Net cash provided by (used in) investing activities							40,036			(157,775		)
Cash flows provided by (used in) financing activities:
Dividend	(10,807		)	—			(21,639		)	(10,807		)
Repurchase of shares, net							(350,000		)	—
Issue of shares, net	60			6,575			37			60
Net cash (used in) provided by financing activities	(10,747		)	6,575
Net cash used in financing activities							(371,602		)	(10,747		)
Increase in cash and cash equivalents	196,954			153,252			113,736			196,954
Cash and cash equivalents - beginning of period	605,175			729,296
Cash and cash equivalents – beginning of period							632,329			605,175
Cash and cash equivalents - end of period	$	802,129		$	882,548		$	746,065		$	802,129

See accompanying notes to Unaudited Condensed Consolidated Financial Statements

AXIS CAPITAL HOLDINGS LIMITED

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Expressed in thousands of U.S. dollars, except share and per share amounts)

1. Basis of Preparation and Consolidation

These unaudited condensed consolidated financial statements include the accounts of AXIS Capital Holdings Limited (“AXIS Capital”) and ~~all of~~ its subsidiaries ~~(collectively referred to as~~(together, the “Company”) and have been prepared in accordance with U.S. ~~generally accepted accounting principles~~Generally Accepted Accounting Principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial position and results of operations as at the end of and for the periods presented. The results of operations for any interim period are not necessarily indicative of the results for a full year. All significant intercompany accounts and transactions have been eliminated. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The major estimates reflected in the Company’s condensed consolidated financial statements include ~~but are not limited to,~~ the reserve for losses and loss expenses, premium estimates for business written on a line slip or proportional basis, the estimation of accruals for amounts due under incentive commission agreements and the estimation of fair values for ~~contracts that meet~~derivative contracts. The terms “FAS” and “FASB” used in these notes refer to Statements of Financial Accounting Standards issued by the ~~definition of derivatives under FAS 133. Some items in the financial statements~~United States Financial Accounting Standards Board. To facilitate period-to-period comparisons, reclassifications have been ~~reclassified~~made to prior period consolidated financial statement amounts to conform to current period presentation. There was no effect on net income from these changes in presentation.

This Quarterly Report in Form 10-Q should be read in conjunction with the ~~current year classification.~~Company’s Annual Report in Form 10-K filed March 1, 2005.

2. New Accounting Pronouncements

In September 2004, the FASB issued Emerging Issues Taskforce (“EITF”) Issue 03-1-1, which delayed the effective date of paragraphs 10-20 of EITF Issue No 03-1. Paragraphs 10-20 of EITF Issue No. 03-1 give guidance on how to evaluate and recognize an impairment loss that is other than temporary. Application of these paragraphs is deferred pending issuance of proposed FSP EITF Issue 03-1-a. The proposed FSP states: (1) an investor should assert its ability and intent to hold an investment until a forecasted recovery at an individual security level; (2) minor impairments caused by interest-rate and /or sector-spread increases can be considered temporary and would not create the need for an assertion about the ability and intent to hold an investment until a forecasted recovery; (3) an impairment is considered other than temporary when the investor’s assertion to hold an investment until a forecasted recovery changes; and (4) there are circumstances in which a sale of an interest-rate impaired or sector-spread impaired security, for which an investor had asserted its ability and intent to hold until a forecasted recovery, may not necessarily call into question the investor’s ability and intent to hold other securities to recovery. Pursuant to the Company’s current policy on other-than-temporary impairments, the Company generally does not consider impairments of debt securities to be other-than-temporary when the impairment is caused solely by temporary market changes, such as interest rates and/or sector spreads for debt securities. Once EITF 03-1-a is finalized, the Company will complete an evaluation

as to the impact on its policy and process for determining other-than-temporary impairments for investments. Adoption of this standard is not expected to have a material impact on shareholders’ equity since fluctuations in fair value of available-for-sale securities are already recorded in accumulated other comprehensive income; however, it could have a material effect on results of operations.

On ~~March 31, 2003,~~December 16, 2004, the FASB issued Statement No 123 (revised 2004), Share-Based Payment (“FAS ~~No.148~~123R”). FAS 123R replaces FASB Statement No. 123 “Accounting for Stock-Based ~~Compensation – Transition~~Compensation” and ~~Disclosure.” FAS 148 amends FAS 123~~supersedes APB opinion No.25 “Accounting for Stock Issued to ~~provide alternative methods of transition for a voluntary change~~Employees”. The statement requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments granted to employees and is effective for the first quarter of 2006. The Company already records compensation expense for awards of stock options and restricted stock to employees based ~~method of accounting for stock-based employee compensation. In addition, FAS 148 amends~~on the ~~existing disclosure to require more prominent disclosure in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect~~fair value of the ~~method used~~awards, consequently this statement will not have a material impact on ~~reported results.~~ the Company’s results of operations or financial condition.

3. Stock-Based Compensation

The ~~additional disclosure requirements are effective~~Company accounts for ~~fiscal quarters ended after December 15, 2002.~~ stock compensation in accordance with FAS No. 123, “Accounting for Stock-Based Compensation.” Compensation expense for stock options and for restricted stock awards granted to employees is recorded over the vesting period using the fair value method. The Company adopted FAS No. 123 effective January 1, 2003 by applying the prospective method permitted under FAS No. ~~148.~~148 “Accounting for Stock Based Compensation – Transition and Disclosure”. Prior to 2003, the Company followed Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees” and related interpretations in accounting for its employee stock compensation. ~~With respect to unvested restricted stock awards, the amount of deferred compensation is eliminated from share capital and additional paid in capital.~~ The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of FAS 123 to stock-based ~~compensation.~~compensation prior to January 1, 2003.

										Quarters ended
			For the quarters ended							March 31, 2005				March 31, 2004
			March 31, 2004			March 31, 2003
Net income, as reported	Net income, as reported		$	166,786		$	107,119		Net income, as reported	$	151,799			$		166,786
Add:		Stock-based employee compensation expense included in net income, net of related tax effects	4,057			2,055			Stock-based employee compensation expense included in net income, net of related tax effects	5,057				4,057
Deduct:		Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects	(4,741		)	(3,586		)	Total stock-based employee compensation expense determined under fair value based methods for all awards, net of related tax effects	(5,236			)	(4,741			)

Pro-forma net income	Pro-forma net income		$	166,102		$	105,588		Pro-forma net income	$	151,620			$	166,102
Net income per share:	Net income per share:								Net income per share:
Basic – as reported									Basic – as reported	$		1.04		$	1.09
Basic – pro forma.									Basic – pro forma.	$		1.03		$	1.09
Diluted – as reported									Diluted – as reported	$		0.95		$	1.00
Diluted – pro forma									Diluted – pro forma	$		0.95		$	0.99
		Basic – as reported	$	1.09		$	0.79
		Basic – pro forma	$	1.09		$	0.77
		Diluted – as reported	$	1.00		$	0.75
		Diluted – pro forma	$	0.99		$	0.74

3.4. Segment Information

Through December 31, 2004 the Company’s business consisted of five reportable operating segments: global insurance; global reinsurance; U.S. insurance; U.S. reinsurance; and corporate. Effective January 1, 2005, the Company created two distinct global underwriting platforms, AXIS Insurance and AXIS Re. Following this strategic realignment of its organizational structure, the

Company has re-evaluated its operating and reportable segments and determined that it has three reportable operating segments: insurance, reinsurance and corporate. The Company’s ~~business consists of four underwriting segments:~~insurance segment is further divided into two sub-segments: global ~~insurance, global reinsurance, U.S.~~ insurance and U.S. ~~reinsurance.~~ insurance. The Company’s segments and sub-segments have been determined on the basis of underlying business units that are homogenous in terms of markets, clients, products, distribution channels and approaches to risk management.

The Company evaluates the performance of ~~each underwriting segment~~its insurance and reinsurance segments based on underwriting results. With effect from January 1, 2004, the Company included the personnel expenses of its underwriters in general and administrative expenses; prior to that date they were included in acquisition costs. Disclosures relating to prior periods have been restated to reflect this change. In addition, with effect from January 1, 2004 the Company allocated all of its general and administrative costs, except for its corporate expenses, to each of its underwriting segments. The Company’s corporate costs include some holding company costs necessary to support the Company’s worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company. Prior periods have not been restated to reflect the full allocation of general and administrative costs, as the Company’s business segments were not fully operational throughout 2003. The Company ~~does not allocate its assets by segment as it evaluates the underwriting results of each segment separately from the results of its investment portfolio.~~

~~Certain~~writes business ~~written by the Company~~that has loss experience generally characterized as low frequency and high severity. This may result in volatility in both the Company’s and an individual segment’s operating results and cash flows. The Company does not allocate its assets by segment as it evaluates the underwriting results of each segment separately from the results of its investment portfolio.

~~Global~~ Insurance

The Company’s insurance segment provides insurance coverage on a world wide basis and is subdivided into two sub-segments: global insurance ~~segment principally consists~~and U.S. insurance.

Global insurance accesses a broad spread of global specialty lines, ~~business sourced primarily outside of~~predominantly through the ~~U.S. but covering exposures throughout the world. In this segment, the Company offers clients tailored solutions in order to respond to their distinctive risk characteristics. Since most of the~~London broker network. The principal specialty lines in this segment are ~~for~~ property, marine, terrorism and ~~not for casualty coverage, the segment is principally short to medium tail business. This means that claims are generally made~~war risk, aviation and ~~settled earlier than in long tail business, which facilitates the Company’s reserving process for this segment.~~

~~Global Reinsurance~~

The Company’s global reinsurance segment consists of treaty reinsurance business sourced outside of the U.S. and underwritten in its Bermuda and Zurich offices. The Company’s Bermuda office sources business from clients outside of continental Europe whereas the Zurich office sources business from clients based in continental Europe. The Company’s Bermuda-based portfolio consists of short tail severity driven products that principally cover property exposures. The Company’s Zurich-based portfolio consists not only of short tail property exposures but also more medium tail exposures such as motor excess of loss and trade credit lines of business.

~~U.S. Insurance~~

~~The Company’s U.S. insurance segment principally consists of specialty lines business sourced in the U.S. and primarily includes the following~~aerospace, political risk ~~classifications: commercial property, commercial liability~~ and professional lines.

U.S. ~~Reinsurance~~

~~The Company’s U.S. reinsurance segment principally consists~~insurance accesses specialty lines of ~~treaty reinsurance~~ business ~~sourced~~through a variety of channels in the U.S. and ~~focuses almost exclusively on~~covers exposures predominantly in the U.S. The ~~underlying~~principal lines in this segment are property, professional lines and liability. Many of its property and casualty ~~business classes covered by the treaties written~~insurance products are for non-standard and complex risks and are offered through wholesale brokers. U.S. insurance also writes risks that are unique and difficult to place in the standard market, but which must remain with an admitted insurance company for marketing and regulatory purposes.

Reinsurance

The Company’s ~~U.S.~~ reinsurance segment ~~include: professional lines, liability,~~provides treaty property ~~marine~~ and ~~aviation. These~~casualty reinsurance to insurance companies on a worldwide basis. Treaty reinsurance contracts are contractual arrangements that provide for automatic reinsuring of a type of category of risk underwritten by our clients. Contracts can be written on ~~either~~ an excess of loss basis or a ~~proportional basis.~~pro rata basis, also known as proportional. The principal lines in this segment are catastrophe, property, professional liability, credit and bond, motor and liability.

The following tables summarize the underwriting results, income before income taxes, ratios and the reserves for losses and loss expenses for the ~~four business segments as of and for the~~ quarters ended March 31, ~~2004~~2005 and March 31, ~~2003.~~2004.

Quarter ended March 31, 2005

	Global Insurance			U.S. Insurance			Total Insurance			Reinsurance			Corporate			Total
Revenues:
Gross premiums written	$	252,323		$	176,926		$	429,249		$	769,450		$	—		$	1,198,699
Net premiums written	203,430			91,232			294,662			767,409			—			1,062,071
Net premiums earned	216,858			106,501			323,359			302,231			—			625,590
Other insurance related (loss) income	(238		)	20			(218		)	150			—			(68		)
Expenses:
Net losses and loss expenses	(65,895		)	(71,718		)	(137,613		)	(206,677		)	—			(344,290		)
Acquisition costs	(33,082		)	(3,044		)	(36,126		)	(55,175		)	—			(91,301		)
General and administrative expenses	(9,852		)	(20,311		)	(30,163		)	(12,301		)	—			(42,464		)
Underwriting income (a)	107,791			11,448			119,239			28,228			—			147,467

Corporate expenses													(11,838		)	(11,838		)
Net investment income													52,758			52,758
Realized losses on investments													(1,393		)	(1,393		)
Foreign exchange losses													(23,418		)	(23,418		)
Interest expense													(8,078		)	(8,078		)
Income before income taxes																$	155,498

Net loss and loss expense ratio	30.4		%	67.3		%	42.6		%	68.4		%				55.0		%
Acquisition cost ratio	15.3		%	2.9		%	11.2		%	18.3		%				14.6		%
General and administrative expense ratio	4.5		%	19.1		%	9.3		%	4.1		%	1.9		%	8.7		%
Combined ratio	50.2		%	89.3		%	63.1		%	90.8		%	1.9		%	78.3		%

Reserve for losses and loss expenses	$	924,888		$	858,994		$	1,783,882		$	935,365		n/a			$	2,719,247

(a) The Company utilizes underwriting income as a measure of underwriting profitability as it evaluates profitability solely on underwriting related revenues and costs. Items not considered to be part of underwriting include: corporate expenses, investment income, realized losses and gains on the sale of investments, foreign exchange and interest expense. These items are evaluated separately from our underwriting results. Underwriting income takes into account net premiums earned and other insurance related income as revenue and net losses and loss expenses, acquisition costs and underwriting related general and administrative expenses as expenses. Underwriting income is the difference between the revenue and expense items.

Quarter ended March 31, 2004

Global
Insurance

Global
Reinsurance

U.S.
Insurance

U.S.
Reinsurance

Corporate

Total

Revenues:

Gross premiums written

$
300,408

$
429,075

$
148,343

$
166,297

—

$
1,044,123

Net premiums written

232,539

420,175

80,824

165,652

—

899,190

Net premiums earned

199,716

144,994

73,904

52,634

—

471,248

Other insurance related income

179

109

—

—

—

288

Expenses:

Net losses and loss expenses

98,527

55,141

49,617

39,315

—

242,600

Acquisition costs

26,041

20,791

173

9,958

—

56,963

General and administrative expenses

8,190

6,507

15,593

2,595

—

32,885

Underwriting profit

67,137

62,664

8,521

766

—

139,088

Corporate expenses

(9,003
)
(9,003
)
Net investment income

31,259

31,259

Realized gains on investments

10,097

10,097

Foreign exchange

(1,145
)
(1,145
)
Income before income taxes

$
170,296

Ratios:

Net loss and loss expense ratio

49.3
%
38.0
%
67.1
%
74.7
%

51.5
%
Acquisition cost ratio

13.0
%
14.3
%
0.2
%
18.9
%

12.1
%
General and administrative expense ratio

4.1
%
4.5
%
21.1
%
4.9
%
1.9
%
8.9
%
Combined ratio

66.4
%
56.8
%
88.4
%
98.5
%
1.9
%
72.5
%

Reserve for losses and loss expenses as at March 31, 2004

$
571,787

$
274,694

$
315,212

$
99,401

n/a

$
1,261,094

~~Quarter ended March 31, 2003~~

	Global Insurance			Global Reinsurance			U.S. Insurance			U.S. Reinsurance			Corporate		Total			Global Insurance			U.S. Insurance			Total Insurance			Reinsurance			Corporate		Total
Revenues:
Gross premiums written	$	243,647		$	211,499		$	91,912		$	61,529		—		$	608,587		$	300,408		$	148,343		$	448,751		$	595,372		—		$	1,044,123
Net premiums written	225,814			206,666			46,135			61,529			—		540,144			232,539			80,824			313,363			585,827			—		899,190
Net premiums earned	181,864			93,685			16,046			10,832			—		302,427			199,716			73,904			273,620			197,628			—		471,248
Other insurance related income	1,106			—			—			—			—		1,106			179			—			179			109			—		288
Expenses:
Net losses and loss expenses	85,892			44,438			9,617			6,388			—		146,335			(98,527		)	(49,617		)	(148,144		)	(94,456		)	—		(242,600		)
Acquisition costs	23,851			17,013			469			2,918			—		44,251			(26,041		)	(173		)	(26,214		)	(30,749		)	—		(56,963		)
General and administrative expenses ~~(1)~~	2,956			1,478			3,649			701			—		8,784			(8,190		)	(15,593		)	(23,783		)	(9,102		)	—		(32,885		)
Underwriting profit	70,271			30,756			2,311			825			—		104,163
Underwriting income (a)																		67,137			8,521			75,658			63,430			—		139,088

Corporate expenses ~~(1)~~													(21,578	)	(21,578		)													(8,965	)	(8,965		)
Net investment income													11,352		11,352															31,259		31,259
Realized gains on investments													11,198		11,198															10,097		10,097
Foreign exchange													1,887		1,887
Foreign exchange losses																														(1,145	)	(1,145		)
Interest expense																														(38	)	(38		)
Income before income taxes															$	107,022																$	170,296

Ratios:
Net loss and loss expense ratio	47.2		%	47.4		%	59.9		%	59.0		%			48.4		%	49.3		%	67.1		%	54.1		%	47.8		%			51.5		%
Acquisition cost ratio	13.1		%	18.2		%	2.9		%	26.9		%			14.7		%	13.0		%	0.2		%	9.6		%	15.6		%			12.1		%
General and administrative expense ratio ~~(1)~~	1.6		%	1.6		%	22.7		%	6.5		%	7.1	%	10.0		%	4.1		%	21.1		%	8.7		%	4.6		%	1.9	%	8.9		%
Combined ratio	61.9		%	67.2		%	85.5		%	92.4		%			73.1		%	66.4		%	88.4		%	72.4		%	68.0		%	1.9	%	72.5		%

Reserve for losses and loss expenses as at March 31, 2003	$	196,969		$	118,825		$	28,561		$	7,021		n/a		$	351,376
Reserve for losses and loss expenses																		$	571,787		$	315,212		$	886,999		$	374,095		n/a		$	1,261,094

~~(1)~~ ~~For~~(a) The Company utilizes underwriting income as a measure of underwriting profitability as it evaluates profitability solely on underwriting related revenues and costs. Items not considered to be part of underwriting include: corporate expenses, investment income, realized losses and gains on the ~~quarter ended March 31, 2003, the Company did not allocate any~~sale of ~~its~~investments, foreign exchange and interest expense. These items are evaluated separately from our underwriting results. Underwriting income takes into account net premiums earned and other insurance related income as revenue and net losses and loss expenses, acquisition costs and underwriting related general and administrative expenses ~~except for~~as expenses. Underwriting income is the ~~personnel expenses of its underwriters.~~

4.~~Securities Lending~~

~~The Company participates in a securities lending program whereby~~difference between the Company’s securities, which are included in investments, are loaned to third parties, primarily major brokerage firms. The Company maintains control over the securities it lends, retains the earningsrevenue and cash flows associated with the loaned securities and receives a fee from the borrower for the temporary use of the securities. Collateral in the form of cash, government securities and letters of credit is required at a rate of 102% of the market value of the loaned securities and is monitored and maintained by the lending agent. The Company had $494.8 million and $nil million in securities on loan at March 31, 2004 and December 31, 2003, respectively.expense items.

5. ~~Other Investments~~Benefit Plans

The ~~Company invested $9.3 million~~following table shows the components of expense for the quarters ended March 31, 2005 and 2004 and the amounts included in the ~~senior preferred shares~~Company’s Condensed Consolidated Balance Sheet as of ~~a collateralized loan obligation over which~~March 31, 2005 and December 31, 2004 for the ~~Company does not have significant influence~~supplemental retirement plans (“SERPS”):

	March 31, 2005			December 31, 2004

Change in benefit obligation
Benefit obligation amendment	$	11,371		$	10,728
Interest cost	171			643
Benefit obligation at end of period	$	11,542		$	11,371
Reconciliation of Funded Status
Funded Status	$	(11,542	)	$	(11,371	)
Unrecognized prior service cost	8,046			8,582
Accrued benefit cost	$	(3,496	)	$	(2,789	)

	Quarters Ended
	March 31, 2005		March 31, 2004
Components of pension expense
Amortization of prior service cost	$	536	$	536
Interest cost	171		161
Amortization of prior service cost	$	707	$	697

The weighted-average assumptions used to determine net periodic pension cost and in whose management the Company does not participate. The collateral manager is Blackstone Debt Advisors L.P., which is a related party as it has an indirect shareholding in the Company. The Company currently carries this investment at cost as the investment is unquoted. The Company will re-evaluate this policy as required.benefit obligations were:

	Quarters Ended
	March 31, 2005		March 31, 2004
Discount rate	6.0	%	6.0	%
Expected return on plan assets	6.0	%	6.0	%

6. ~~Benefit Plans~~Debt and Financing Arrangements

~~The following table presents the components of the Company’s defined benefit pension expense for the three months ended March 31, 2004.~~

Quarter ended
March 31, 2004

Quarter ended
March 31, 2003

($ in thousands)

Interest costs

161

—

Amortization of prior service costs

536

—

Total pension expense

$
697

$
—

7.a) ~~Commitments and contingencies~~Senior Notes

On ~~March 25,~~November 15, 2004, the Company ~~renewed its~~issued $500.0 million of senior unsecured debt (“Senior Notes”) at an issue price of 99.785%, generating net proceeds of $495.7 million. The Senior Notes bear interest at a rate of 5.75% payable semi-annually in arrears on June 1 and December 1 of each year, beginning on June 1, 2005. Unless previously redeemed, the Senior Notes will mature on December 1, 2014. The Company may redeem the Senior Notes at any time, in whole or in part, at a “make-whole” redemption price, however, the Company has no current intentions of calling the Senior Notes. The Senior Notes contain various covenants, including limitations on liens on the stock of restricted subsidiaries, restriction as to the disposition of the stock of restricted subsidiaries, and limitations on mergers and consolidations. The Company was in compliance with the related covenants at March 31, 2005. The market value of the Senior Notes at March 31, 2005 was $498.7 million. For the quarter ended March 31, 2005, the Company incurred interest expense of $7.2 million for the Senior Notes. Interest payments commence on June 1, 2005.

b)Credit Facilities

As at March 31, 2005, the Company had a $750 million revolving credit facility ~~by entering into a three-year $750 million credit facility with~~available from a syndicate of commercial ~~banks led by JPMorgan Chase Bank, as administrative agent and lender. Under the terms of the new credit facility, up~~banks. Up to $750 million may be used ~~by the Company and its subsiduaries, AXIS Specialty Limited, AXIS Re Limited and AXIS Specialty Europe Limited,~~ to issue letters of credit and up to $300 million ~~may be used by these entities~~ for general corporate purposes with total ~~borrowings~~borrowing not to exceed $750 million. The Company anticipates that additional subsidiaries, AXIS Reinsurance Company, AXIS Specialty Insurance Company and AXIS Surplus Insurance Company, will become parties to the new credit facility upon receipt of regulatory approvals from their respective state insurance authorities. The credit facility contains various loan covenants with which the Company must comply, including limitations on the incurrence of future indebtedness, future liens, fundamental changes, investments and certain transactions with affiliates. The credit facility also requires that the Company maintain (A) a minimum amount of consolidated shareholders’ equity equal to or greater than the sum of $1.975 billion plus (1) 50% of consolidated net income for each fiscal quarter beginning with the fiscal quarter endingAs at March 31, 2005, ~~and (2) 100%~~the Company had letters of ~~the net cash proceeds received after March 25, 2004 from any issuance~~credit of our capital stock, and (B) a debt to total capitalization ratio not greater than 0.35:1.00. The credit facility contains restrictions on the Company’s ability to make acquisitions, except that it may, among other things, acquire assets and entities in the insurance and reinsurance business for consideration in an aggregate amount not in excess of $250 million. The Company’s ability to pay dividends or make other restricted payments is also limited, except that it may, among other things, pay cash dividends to shareholders in an amount not exceeding $150$433.7 million ~~for any fiscal year and it may repurchase shares of its capital stock for consideration in an aggregate amount not exceeding $500 million.~~(2004: $421.7 million) outstanding. There was no debt outstanding under the credit facility as at March 31, ~~2004~~2005 or December 31, ~~2003. At~~2004. The credit facility contains various loan covenants that include, among other things, the requirement that the Company maintain a minimum level of capital and surplus and a maximum debt to total capitalization ratio. The Company was in compliance with all covenants contained in the credit facility at March 31, ~~2004,~~2005.

7.Share repurchase

On February 16, 2005, we repurchased 12,783,094 common shares owned by initial investors at the formation of the Company ~~had letters of credit of $120.9 million outstanding under its then existing credit facility. At December 31, 2003,~~pursuant to our repurchase program. The average purchase price was $27.38 per common share and the ~~Company had letters of credit of $127.3 million outstanding under its then existing credit facility.~~

~~In February 2004,~~ the Company invested in a collateralized loan obligation with a carrying value of $9.3 million included in other investments. See note (5). In connection with this investment, the Company has commitments that may require additional funding of up to $15.7 million over the next two years.aggregate price was $350.0 million.

8. ~~Net income per share~~Earnings Per Share

The following table sets forth the calculation of basic and diluted earnings per share:

	Quarter ended				Quarters ended
	March 31, 2004		March 31, 2003		March 31, 2005			March 31, 2004

Net income per share - basic
Basic earnings per share
Net income	$	166,786	$	107,119	$	151,799		$	166,786
Weighted average common shares outstanding	152,480,904		136,381,025		146,635,717			152,480,904
Net income per share - basic	$	1.09	$	0.79
Basic earnings per share					$		1.04	$	1.09

Net income per share - diluted
Diluted earnings per share
Net income					$	151,799		$		166,786
Weighted average common shares outstanding	152,480,904		136,381,025		146,635,717			152,480,904
Share equivalents
Warrants	11,451,811		5,098,395		10,825,954			11,451,811
Options	2,405,306		1,037,145		2,263,801			2,405,306
Restricted stock	914,805		268,949		704,185			914,805
Weighted average common shares outstanding – diluted	167,252,826		142,785,514
Weighted average common shares and common share equivalents outstanding – diluted					160,429,657			167,252,826
Net income per share - diluted	$	1.00	$	0.75	$	0.95		$		1.00

Item 22.. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business Overview

~~Business Overview~~

~~We underwrite insurance~~The following is a discussion of the Company’s financial condition, liquidity and ~~reinsurance~~results of operations. This discussion should be read in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations and the audited Consolidated Financial Statements and notes thereto presented under Item 7 and Item 8, respectively, of the Company’s Annual Report on a global basis. Our business consists of four segments: global insurance, global reinsurance, U.S. insurance and U.S. reinsurance. On July 7, 2003, we completed an initial public offering of 15.4 million newly issued common shares and 9.3 million common shares offered by selling shareholders. Net proceeds to the Company from the offering were $316.0 million and have been credited to shareholders’ equity.Form 10-K filed March 1, 2005.

The markets in which we operate have historically been cyclical. During periods of excess underwriting capacity, as defined by availability of capital, competition can result in lower pricing and less favorable policy terms and conditions for insurers and reinsurers. During periods of reduced underwriting capacity, pricing and policy terms and conditions are generally more ~~favorable.~~favorable for insurers and reinsurers. Historically, underwriting capacity has been impacted by several factors, including industry losses, catastrophes, changes in legal and regulatory guidelines, investment results and the ratings and financial strength of competitors. During 2003, many companies operating in our markets were recovering from the consequences of a prolonged period of excess underwriting capacity, which generally produced favorable pricing, terms and conditions for the risks we underwrite.

We believe that we ~~will benefit from continued underwriting discipline~~are currently operating in a marketplace that, with appropriate risk selection, can offer favorable pricing and/or terms and conditions in our business segments. In general, pricing in our insurance segment is stable to declining for many classes of business. Terms and conditions, however, remain relatively attractive. In our reinsurance segment, we have experienced moderate price softening, particularly in short-tail lines of business. Terms and conditions have remained firm across most lines of ~~business and from insurers seeking to move their business from insurers and reinsurers with legacy balance sheet issues and reserving shortfalls to financially stronger insurers and reinsurers.~~business.

We derive our revenues primarily from the sale of our insurance policies and reinsurance contracts. Insurance and reinsurance premiums are a function of the number and type of contracts we write, as well as prevailing market prices.

Renewal dates for our business segments depend upon the underlying line of business. For the majority of business in our global insurance and U.S. insurance segments, gross premiums are written throughout the year. An exception to this is the business written in our aviation and aviation war accounts, which is predominantly written in the last quarter of the calendar year. For our global reinsurance segment, a significant portion of our gross premiums is written in the first quarter of the calendar year, with the remainder primarily split between the second and third quarters. For the majority of business written in our U.S. reinsurance segment, gross premiums are written primarily in the first and third quarters of the calendar year.

Our premium income is supplemented by the income we generate from our investment portfolio. Our investment portfolio consists primarily of fixed income investments that are held as available for sale. Under GAAP, these investments are carried at fair market value and unrealized gains and losses on the investments are not included in our statement of operations. Rather, these unrealized gains and losses are included on our balance sheet in accumulated other comprehensive income as a separate component of shareholders’ equity. Our current investment strategy seeks to preserve principal and maintain liquidity while trying to maximize investment return through a high-quality, diversified portfolio. The volatility of claims and the interest rate environment can affect the returns we generate on our investment portfolio.

Our expenses primarily consist of net losses and loss expenses, acquisition costs, ~~and~~ general and administrative ~~expenses. Net losses~~expenses and loss expenses are management’s best estimate of the ultimate cost of claims incurred during a reporting period. Many aspects of our business have loss experience characterized as low frequency and high severity, which may cause volatility to our results of operations from period to period. Also, we have substantial exposure to unexpected losses resulting from natural disasters, man-made catastrophes and other catastrophic events. The incidence and occurrence of suchinterest expense.

Financial Measures
catastrophes are inherently unpredictable and our losses from catastrophes could be substantial. Although we attempt to manage our exposure to such events across the organization in a variety of ways, including transfer of risk to other reinsurers, a single catastrophic event could affect multiple business segments and the frequency or severity of a catastrophic event could exceed our estimates.
Acquisition costs relate to the fees, commissions and taxes paid to obtain business. Typically, these are based on a percentage of the premium written and will vary by each line of business that we underwrite.

General and administrative expenses consist primarily of personnel and general operating expenses. With effect from January 1, 2004, we included the personnel expenses of our underwriters in general and administrative expenses; prior to that date they were included in acquisition costs. Disclosures relating to prior periods have been restated to reflect this change. In addition, with effect from January 1, 2004 we allocated all of our general and administrative costs, except for corporate expenses, to each of our underwriting segments. Our corporate costs include some holding company costs necessary to support our worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company. Prior periods have not been restated to reflect the full allocation of general and administrative costs, as our business segments were not fully operational throughout 2003. We do not allocate our assets by segment as we evaluate the underwriting results of each segment separately from the results of its investment portfolio.

Our ~~ultimate~~ objective as an insurance and reinsurance company is to generate superior returns on capital that appropriately reward us for the risks we assume and to grow revenue only when we deem ~~it profitable.~~the returns meet or exceed our requirements. To achieve this objective, we must be able to accurately assess the potential losses associated with the risks that we insure and reinsure, ~~across the organization,~~ to manage our investment portfolio risk appropriately, and to control acquisition costs and infrastructure throughout the organization. ~~Two~~Three financial measures that are meaningful in analyzing our performance are return on equity, combined ratio and ~~combined ratio.~~underwriting income. Our return on equity calculation is based on the level of net income generated from the average of the opening and closing shareholders’ equity during the period. The combined ratio is a formula used by insurance and reinsurance companies to relate net premiums earned during a period to net losses and loss expenses, acquisition costs and general and administrative expenses during a period. A combined ratio above 100% indicates that a company is incurring more in net losses and loss expenses, acquisition costs and general and administrative expenses than it is earning in net premiums. We consider the combined ratio an appropriate indicator of our underwriting performance, particularly given the relatively short tail orientation of our overall portfolio of risks. Underwriting income is a measure of underwriting profitability that takes into account net premiums earned and other insurance related income as revenue and net losses and loss expenses, acquisition costs and underwriting related general and administrative expenses as expenses. Underwriting income is the difference between these revenue and expense items.

The following table details our key performance ~~indicators:~~indicators for the periods indicated:

							Quarters ended
	Quarter Ended March 31, 2004			Quarter Ended March 31, 2003			March 31, 2005			March 31, 2004
							($ in thousands, except share and per share amounts)
Gross premiums written	$	1,044,123		$	608,587		$	1,198,699		$	1,044,123
Net premiums earned	471,248			302,427			625,590			471,248
Underwriting income							147,467			139,088
Net income	166,786			107,119			151,799			166,786
Net loss and loss expense ratio	51.5		%	48.4		%	55.0		%	51.5		%
Acquisition cost ratio							14.6		%	12.1		%
General and administrative expense ratio							8.7		%	8.9		%
Combined ratio	72.5		%	73.1		%	78.3		%	72.5		%
Return on average equity							19.6		%	22.9		%

Annualized return on average equity	22.9		%	21.2		%

Because we have a limited operating history ~~period~~and are exposed to ~~period~~volatility in our results of operations, period-to-period comparisons of our results of operations may not be ~~meaningful and there may be volatility in both our results of operations and financial condition.~~meaningful. In addition, the amount of premiums written with respect to any particular segment or

line of business may vary from quarter to quarter ~~and year to year~~ as a result of changes in market ~~conditions.~~

~~Acquisition History~~

~~On February 28, 2003, we completed~~conditions and our view of the ~~acquisition~~long-term profit potential of ~~Sheffield Insurance Corporation for $34.7 million and subsequently renamed it AXIS Surplus Insurance Company. At the time~~individual lines of purchase, Sheffield Insurance Company was licensed to write insurance in Illinois and Alabama and eligible to write surplus lines insurance in 39 states and the District of Columbia. In addition, we added a team of insurance professionals from Combined Specialty Group, Inc. In the first half of 2003, we acquired the renewal rights to a book of directors’ and officers’ liability insurance and related lines business written by the Financial Insurance Solutions (“FIS”) group of The Kemper Insurance Companies (“Kemper”) in exchange for an agreement to make an override payment. The override payment is based on a percentage of gross written premiums of all FIS accounts that are renewed by the Company. We purchased this company and agreed to acquire these rights as the foundation for commencing our U.S. insurance operations.business.

Critical Accounting Policies

The Company’s critical accounting policies are discussed in Managements’ Discussion and Analysis of Results of Operations and Financial Condition contained in our Annual Report on Form 10-K ~~dated February 26, 2004.~~filed March 1, 2005.

Results of Operations

Quarters ended March 31, ~~2004~~2005 and ~~2003~~2004

Premiums. In the quarter ended March 31, ~~2004,~~2005, gross premiums written were ~~$1.1 billion~~$1,198.7 million compared with ~~$608.6~~$1,044.1 million for the quarter ended March 31, ~~2003,~~2004, an increase of ~~$435.5~~$154.6 million. ~~Of this~~The increase ~~50%~~ was generated by our ~~global~~ reinsurance segment, ~~24% by our U.S. reinsurance segment, 13% by our global insurance segment and 13% by our U.S. insurance segment. The~~which experienced an increase in gross premiums written ~~in our global reinsurance segment was primarily driven by our expansion into continental Europe in November 2003. The increases in gross premiums written in our U.S. segments were~~of $174.1 million, primarily due to greater market penetration ~~and~~in Continental Europe. This increase in gross premiums written was partially offset by a reduction of $19.5 million in gross premiums written by our ~~ability~~insurance segment. This was primarily due to ~~participate fully~~a reduction in the ~~first quarter’s renewal season. We expect the mix~~level of ~~business within and between our segments to change over time based on market conditions and our view of the long term profit potential of individual lines of business.~~gross premiums written in global insurance.

Premiums ceded for the quarter ended March 31, ~~2004~~2005 were ~~$144.9~~$136.6 million compared with ~~$68.4~~$144.9 million for the quarter ended March 31, ~~2003, an increase~~2004, a decrease of ~~$76.5~~$8.3 million. ~~We purchase~~The decrease was due to a decrease in the level of reinsurance purchased by global insurance. The level of reinsurance purchased by global insurance varies on a quarterly basis depending upon market opportunities. Our insurance segment purchases most of our reinsurance to reduce our exposure to risk of loss on some lines of business ~~written primarily within our global insurance and U.S. insurance segments. The increase in ceded premiums was generated primarily within these segments.~~written.

Net premiums earned for the quarter ended March 31, ~~2004~~2005 were ~~$471.2~~$625.6 million compared with ~~$302.4~~$471.2 million for the quarter ended March 31, ~~2003,~~2004, an increase of ~~$168.8~~$154.4 million. Premiums are earned over the term of the policies in proportion to the risks to which they relate. As the level of net premiums written increases, the level of net premiums earned also increases. As we experienced an increase in net premiums written ~~in all of our segments~~ over athe rolling ~~twelve month~~twelve-month period ended March 31, ~~2004~~2005 compared to the rolling ~~twelve month~~twelve-month period ended March 31, ~~2003,~~2004, our net premiums earned increased.

1413

Net Investment Income and Net Realized Gains. Net investment income, including realized gains, for the quarter ended March 31, 2004 was $41.4 million compared with $22.6 million for the quarter ended March 31, 2003, an increase of $18.8 million.

Net Investment Income. Net investment income for the quarter ended March 31, ~~2004~~2005 was ~~$31.3~~$52.8 million compared with ~~$11.4~~$31.3 million for the quarter ended March 31, ~~2003,~~2004, an increase of ~~$19.9~~$21.5 million. This was due to a combination of higher investment balances and higher investment yields. ~~The 2003 amount also included an additional charge to the amortization expense on our mortgage-backed securities portfolio.~~ Net investment income for the quarter ended March 31, 2005 consisted ~~primarily~~of $51.5 million of interest on cash and fixed maturity investments and $2.9 million of income ~~securities that was partially~~from other investments, offset by $1.6 million of net investment ~~management, accounting and custody fees of $1.7 million~~expenses. Net investment income for the quarter ended March 31, 2004 ~~compared with $1.2~~consisted of $32.9 million ~~for the quarter ended March 31, 2003. The higher fees were a result~~ of ~~an increase in our assets managed~~interest on cash and fixed maturity investments and $0.1 million of income from other investments, offset by ~~external portfolio managers.~~$1.7 million of net investment expenses.

The annualized effective yield (calculated by dividing the net investment income generated from invested assets by the average balance of the assets managed by our portfolio managers) for the quarter ended March 31, ~~2004~~2005 was ~~3.3%~~3.8% compared with ~~2.0%~~3.3% for the quarter ended March 31, ~~2003.~~2004. The increase in the effective yield was primarily due to higher U.S. interest rates at the ~~movement~~short end of the yield curve. The yield may vary significantly from period to period due primarily to the timing of cash ~~balances into longer duration investments. The 2003 yield also was reduced by the additional charge to the amortization expense on our mortgage-backed securities portfolio.~~flows, changes in interest rates and changes in asset allocation.

Net Realized Losses/Gains. Net realized losses for the quarter ended March 31, 2005 were $1.4 million compared with gains of $10.1 million for the quarter ended March 31, 2004, ~~were $10.1 million compared with $11.2 million for the quarter ended March 31, 2003,~~ a decrease of ~~$1.1~~$11.5 million. We invest our portfolios to produce a total return. In assessing returns under this approach, we include investment income, realized gains and losses and unrealized gains and losses generated by the investment portfolios. As a result, there can be significant changes in the levels of our net realized gains (losses) from quarter to quarter. Some of our mortgage-backed securities are required to be classified as derivatives; included within net realized gains was $0.1 million in realized losses and a negligible amount in unrealized gains relating to these securities.

The total return for our investment portfolio (calculated using beginning and ending market portfolio values, adjusted for external cash flows) for the quarter ended March 31, ~~2004~~2005 was ~~2.0%~~(0.3)% compared with ~~1.2%~~2.0% for the quarter ended March 31, ~~2003.~~2004. The total return for an investment portfolio consists of price and income return. These components are primarily affected by the timing of cash flows, changes in interest rates and changes in asset allocation. Our total return was ~~higher in 2004~~lower during the quarter ended March 31, 2005 primarily due to ~~a combination of higher absolute yields achieved resulting in a higher income return and a positive price return due to a decline~~changes in U.S. interest rates ~~during~~that negatively impacted the ~~quarter.~~price of fixed income securities. This was partially offset by higher investment yields.

Other Insurance Related ~~Income.~~Income/Loss. Other insurance related loss for the quarter ended March 31, 2005 was $0.1 million compared with income of $0.3 million for the quarter ended March 31, 2004, ~~was $0.3 million compared with income of $1.1 million for the quarter ended March 31, 2003,~~ a decrease of ~~$0.8~~$0.4 million. This ~~income~~decrease primarily related to the movement in the fair value of our insurance and reinsurance contracts that meet the definition of a derivative.

Net Losses and Loss Expenses. Net losses and loss expenses for the quarter ended March 31, ~~2004~~2005 were ~~$242.6~~$344.3 million compared to ~~$146.3~~$242.6 million for the quarter ended March 31, ~~2003,~~2004, an increase of ~~$96.3~~$101.7 million. ~~This increase was a result of the increase in the volume of net premiums earned.~~ The net loss and loss expense ratio for the quarter ended March 31, ~~2004~~2005 was ~~51.5%~~55.0% compared to ~~48.4%~~51.5% for the quarter ended March 31, ~~2003. This~~2004. The increase in net losses and loss expenses was ~~a result of~~generated by our reinsurance segment, which experienced losses from worldwide catastrophic events during the ~~change in~~quarter ended March 31, 2005 compared to limited catastrophic activity during the ~~mix of business due to the~~quarter ended March 31, 2004. We experienced favorable prior period development of ~~our U.S. operations.~~$66.7 million, or 10.7 percentage points, for the quarter ended March 31, 2005 compared to $48.6 million, or 10.3 percentage points, for the quarter ended March 31, 2004.

Acquisition Costs. Acquisition costs for the quarter ended March 31, ~~2004~~2005 were ~~$57.0~~$91.3 million compared to ~~$44.3~~$57.0 million for the quarter ended March 31, ~~2003,~~2004, an increase of ~~$12.7~~$34.3 million. This increase ~~was a result of the~~primarily resulted from an increase in the volume of ~~net~~gross premiums earned. The acquisition cost ratio for

the quarter ended March 31, ~~2004~~2005 was ~~12.1%~~14.6% compared to ~~14.7%~~12.1% for the quarter ended March 31, ~~2003. This decrease resulted primarily from~~2004. The increase in the ~~effects~~ratio was principally a result of a change in our business ~~mix;~~mix, with a higher percentage of net earned premiums generated by our ~~U.S. insurance~~ reinsurance

segment, which ~~began underwriting in 2003,~~ has a ~~lower~~higher acquisition cost ~~ratio than our other segments~~ratio. As we have not entered into any incentive commission arrangements with brokers for 2005, we have not accrued any fees regarding these arrangements for the quarter ended March 31, 2005. We have accrued liabilities for amounts due under incentive arrangements with brokers entered into for 2004; however, given the uncertainties that exist surrounding the calculation and payment of these incentive commissions, this estimate is subject to ~~the receipt of ceding commissions on some outward reinsurance contracts that are recorded as an offset to acquisition costs.~~ With effect from January 1, 2004, we included the personnel expenses of our underwriters in general and administrative expenses; prior to that date they were included in acquisition costs. Our disclosures for prior periods have been restated to reflect this change.

General and Administrative Expenses. General and administrative expenses for the quarter ended March 31, ~~2004~~2005 were ~~$41.9~~$54.3 million compared to ~~$30.4~~$41.9 million for the quarter ended March 31, ~~2003,~~2004, an increase of ~~$11.5~~$12.4 million. ~~This increase was primarily driven by the establishment and expansion of operations in the U.S. and Europe.~~ The general and administrative expense ratio for the quarter ended March 31, ~~2004~~2005 was ~~8.9%~~8.7% compared to ~~10.0%~~8.9% for the quarter ended March 31, ~~2003. The reduction in the ratio was caused by an increase in the volume of net premiums earned.~~2004.

Foreign ~~Exchange Gains.~~Exchange. Our functional currency is the U.S. dollar; however, some of our business is written in other currencies. For the quarter ended March 31, ~~2004,~~2005, we experienced a foreign exchange loss of ~~$1.1~~$23.4 million compared to a ~~gain~~loss of ~~$1.9~~$1.1 million for the quarter ended March 31, ~~2003,~~2004, a decrease of ~~$3.0~~$22.3 million. ~~This decrease~~The loss was principally attributable to the decline of the Euro against the U.S. dollar and an increase in our asset balances denominated in Euros following an increase in the level of gross premiums written in this currency in our ~~global~~ reinsurance segment. ~~The Euro depreciated by 2.1%, against~~

Interest Expense.Interest expense for the ~~U.S. dollar from January 1, 2004 to~~quarter ended March 31, 2005 was $8.1 million compared to a negligible amount for the quarter ended March 31, 2004. Interest expense consists of interest due on outstanding debt, the amortization of debt offering expenses and offering discounts, and fees relating to our credit facility. The increase of $8.0 million was primarily due to the issuance of senior unsecured debt in November 2004, which bears interest at 5.75% per annum.

Income Tax ~~(Expense) Recovery.~~Expense. The income tax expense for the quarter ended March 31, ~~2004~~2005 was $3.7 million compared to $3.5 million ~~and~~ for the quarter ended March 31, ~~2003 we had~~2004, an ~~overall tax benefit~~increase of ~~$0.1~~$0.2 million.

Net Income. Net income for the quarter ended March 31, ~~2004~~2005 was ~~$166.8~~$151.8 million compared to ~~$107.1~~$166.8 million, ~~an increase~~a decrease of ~~$59.7~~$15.0 million. Net income for the quarter ended March 31, 2005 consisted of net underwriting income of $147.4 million, net investment income and net realized gains of $51.4 million, reduced by corporate expenses of $11.8 million, foreign exchange losses of $23.4 million, interest expense of $8.1 million and tax expense of $3.7 million. Net income for the quarter ended March 31, 2004 consisted of net underwriting income of ~~$130.0~~$139.1 million and net investment income and net realized gains of ~~$41.4~~$41.3 million, reduced by corporate expenses of $9.0 million, foreign exchange losses of $1.1 million and a tax expense of $3.5 million. ~~Net~~

Comprehensive Income. Comprehensive income was $89.5 million for the quarter ended March 31, ~~2003 consisted of net underwriting income of $82.6~~2005 compared to $195.5 million ~~net investment income and net realized gains of $22.6 million, foreign exchange gains of $1.9 million and an overall tax benefit of $0.1 million.~~

~~Comprehensive Income. Comprehensive income~~ for the quarter ended March 31, 2004, ~~was $195.5 million compared to $112.5 million for the quarter ended March 31, 2003, an increase~~a decrease of ~~$83.0~~$106.0 million. Comprehensive income represents net income adjusted for changes in the unrealized position in our investment portfolio. For the quarter ended March 31, ~~2004,~~2005, we experienced ~~an increase~~a decrease of ~~$28.7~~$62.3 million in the unrealized position in our investment portfolio compared to an increase of ~~$5.4~~$28.7 million during the quarter ended March 31, ~~2003.~~2004.

Underwriting Results by Segment

Our business consists of ~~four~~two underwriting segments: ~~global~~ insurance and reinsurance. Our insurance segment is further divided into two sub-segments: global ~~reinsurance, U.S.~~ insurance and U.S. ~~reinsurance.~~insurance.

We evaluate the performance of each underwriting segment based on underwriting results. With effect from January 1, 2004, we included the personnel expenses of our underwriters in general and administrative expenses; prior to that date they were included in acquisition costs. Disclosures relating to prior periods have been restated to reflect this change. In addition, with effect from January 1, 2004, we allocatedWe allocate all of our general and administrative costs, except ~~for~~our corporate expenses, to ~~each of~~ our

underwriting segments. Our corporate costs include ~~some~~ holding company costs necessary to support

our worldwide insurance and reinsurance operations and costs associated with operating as a publicly-traded company. We do not allocate our assets by segment as we evaluate the underwriting results of each segment separately from the results of our investment portfolio.

~~Global~~ Insurance

Our ~~global~~ insurance segment ~~principally consists of~~provides specialty lines of business ~~sourced outside~~on a world wide basis.

Global insurance provides coverage predominantly through the London broker network with product lines comprising, property, marine, terrorism and war risk, aviation and aerospace, political risk, professional lines and other specialty risks.

The terrorism and war risk line of the U.S. but covering exposures throughout the world. In this segment, we offer clients tailored solutions in order to respond to their distinctive risk characteristics. Since most of the lines in this segment arebusiness includes coverage for physical damage and ~~related perils~~associated business interruption of an insured following an act of terrorism and ~~not~~specific war coverage for the interests otherwise covered in our aviation and marine hull and liability business.

The property line of business provides physical damage and business interruption coverage for industrial properties and physical damage, business interruption and liability coverage for onshore energy property and operations. Coverage relates to both catastrophic and non-catastrophic events.

The marine line of business provides coverage for hull, liability, cargo and specie and recreational marine risks. These risks include property damage to ships, pollution damage caused by vessels on a sudden and accidental basis and protection for general cargo and the ~~segment is principally short~~contents of armored cars, vaults, exhibitions and museums. This line of business also provides physical damage, business interruption and liability coverage for offshore energy property and operations.

The aviation and aerospace line of business includes hull and liability coverage for passenger and cargo airlines and privately owned aircraft, select aviation product liability coverage, physical damage coverage on satellite launches and liability.

The political risk line of business generally provides protection against sovereign default or other sovereign actions resulting in impairment of cross-border investments for banks and major corporations in industries such as energy and mining.

The professional lines and other specialty line of business primarily consist of directors’ and officers’ liability coverage.

U.S. insurance provides coverage through a variety of channels in the U.S., covering exposures predominantly in the U.S. The principal lines of business are property, professional lines and liability. Many of its property and casualty insurance products are for nonstandard and complex risks and are offered through wholesale brokers. U.S. insurance also writes risks that are unique and difficult to ~~medium tail business. This means~~place in the standard market, but must remain with an admitted insurance company for marketing and regulatory purposes.

The property line of business provides coverage for physical damage and business interruption primarily with respect to commercial properties. The book consists of both primary and excess risks, some of which are catastrophe-exposed.

The professional lines business primarily consists of coverage for directors’ and officers’ liability, errors and omission liability and employment practices liability.

The liability line of business primarily targets casualty risks in the U.S. excess and surplus lines markets. Target classes include mercantile, manufacturing and building/premises, with

particular emphasis on commercial and consumer products, commercial construction and miscellaneous general liability.

The other specialty book currently consists of a product that ~~claims are generally made~~indemnifies self-insured, small and ~~settled earlier than in long tail business, which facilitates our reserving process~~midsized employers for ~~this segment.~~excess losses associated with their employees’ medical plans.

Quarters ended March 31, ~~2004~~2005 and March 31, ~~2003~~2004

The following table summarizes the underwriting results and ratios for the insurance segment for the quarters ended March 31, ~~2004~~2005 and ~~March 31, 2003:~~2004:

Quarter ended
March 31,
2004

Quarter ended
March 31,
2003

Change

($ in thousands)

Revenues:

Gross premiums written

$
300,408

$
243,647

$
56,761

Net premiums written

232,539

225,814

6,725

Net premiums earned

199,716

181,864

17,852

Other insurance related income

179

1,106

(927
)
Expenses:

Net losses and loss expenses

98,527

85,892

12,635

Acquisition costs

26,041

23,851

2,190

General and administrative expenses (1)

8,190

2,956

5,234

Underwriting profit

$
67,137

$
70,271

$
(3,134
)
Ratios:

Net loss and loss expense ratio

49.3
%
47.2
%
2.1
%
Acquisition cost ratio

13.0
%
13.1
%
(0.1
)%
General and administrative expense ratio (1)

4.1
%
1.6
%
2.5
%
Combined ratio

66.4
%
61.9
%
4.5
%

~~(1)~~ For the quarter ended March 31, 2003, we did not allocate any of our general and administrative expenses, except for the personnel expenses of our underwriters; therefore, the general and administrative amounts and expense ratios for the two periods are not comparable.

	Quarters ended
	March 31, 2005			March 31, 2004			Change			% Change
	($ in thousands)
Revenues:
Gross premiums written	$	429,249		$	448,751		$	(19,502	)	(4.3	)%
Net premiums written	294,662			313,363			(18,701		)	(6.0	)%
Net premiums earned	323,359			273,620			49,739			18.2	%
Other insurance related (loss) income	(218		)	179			(397		)	(221.8	)%
Expenses:
Net losses and loss expenses	137,613			148,144			(10,531		)	(7.1	)%
Acquisition costs	36,126			26,214			9,912			37.8	%
General and administrative expenses	30,163			23,783			6,380			26.8	%
Underwriting income	$	119,239		$	75,658		$	43,581		57.6	%
Ratios:
Net loss and loss expense ratio	42.6		%	54.1		%	(11.5		)%
Acquisition cost ratio	11.2		%	9.6		%	1.6		%
General and administrative expense ratio	9.3		%	8.7		%	0.6		%
Combined ratio	63.1		%	72.4		%	(9.3		)%

Premiums. ~~In the quarter ended March 31, 2004,~~ The decrease in gross premiums written ~~were $300.4 million compared~~was principally due to ~~$243.6 million for the quarter ended March 31, 2003,~~a decrease in gross written premiums in global insurance that was partially offset by an increase ~~of $56.8 million.~~ in gross premiums written in U.S. insurance.

The table below shows gross premiums written in global insurance by line of ~~business:~~business for the quarters ended March 31, 2005 and March 31, 2004:

	Quarter ended March 31, 2004		Quarter ended March 31, 2003		Quarters ended
	($ in thousands)		($ in thousands)		March 31, 2005		March 31, 2004		Change			% Change
					($ in thousands)
Property					$	45,377	$	54,314	$	(8,937	)	(16.5	)%
Marine	$	43,621	$	45,455	75,663		78,989		(3,326		)	(4.2	)%
Onshore and Offshore Energy	55,145		63,324
Terrorism and War Risk					75,734		89,609		(13,875		)	(15.5	)%
Aviation and Aerospace	23,188		23,724		14,898		23,188		(8,290		)	(35.8	)%
Commercial Property	34,537		25,141
Specialty Risks	143,917		86,003
Political Risk					25,284		48,677		(23,393		)	(48.1	)%
Professional Lines and Other Specialty					15,367		5,631		9,736			172.9	%
Total	$	300,408	$	243,647	$	252,323	$	300,408	$	(48,085	)	(16.0	)%

~~During~~The reduction in gross premiums written in global insurance was primarily driven by our political risk and our terrorism and war risk lines of business. Our political risk book is not

characterized by predictable renewal patterns, as it is largely dependent upon the levels of foreign direct investment and consequently there can be some variability in the level of our gross premium writings for comparable periods. The reduction in gross premiums written in our terrorism and war risk lines of business was principally due to a decline in the level of terrorism business. This was primarily driven by certain contracts written in 2004 not renewing in 2005 due to the non-recurring nature of some events covered by this line of business and to the fact that some policies provided coverage for a period of up to two years. Our aviation and aerospace line of business experienced a reduction in gross premiums written that was primarily a function of timings of renewals. The vast majority of this business is renewed in the last calendar quarter, however, some policies can take longer to place, which results in the binding of risks in the first calendar quarter. Our property account experienced a reduction in gross premiums written due to a general deterioration in the pricing environment, which resulted in fewer risks meeting our underwriting criteria. The increase in gross premiums written in our professional lines and other specialty book of business was due to the addition of a professional lines underwriting team in early 2004. Consequently, only a small amount of business was written in the quarter ended March 31, ~~2004, we increased our~~2004.

The table below shows gross premiums written in U.S. insurance by ~~23.3% compared to~~line of business for the ~~quarter~~quarters ended March 31, ~~2003.~~ 2005 and March 31, 2004:

	Quarters ended
	March 31, 2005		March 31, 2004		Change		% Change
	($ in thousands)
Property	$	61,931	$	53,018	$	8,913	16.8	%
Liability	63,022		49,783		13,239		26.6	%
Professional Lines	50,958		45,542		5,416		11.9	%
Other Specialty	1,015		—		1,015		nm
Total	$	176,926	$	148,343	$	28,583	19.3	%

* nm – not meaningful

The increase onin gross premiums written was primarily driven by our ~~specialty risks book,~~liability line of business. We wrote more umbrella and excess liability insurance following our decision to target this class of business and increase the number of dedicated underwriters. The increase in our property account was largely driven by our inland marine builders risk business, which ~~generated~~benefited from increased marketing in late 2004. We experienced an increase ~~of $57.9 million~~ in gross premiums ~~written. This was due to~~written in our professional lines business driven by an increase in ~~the level of political risk~~ gross premiums written of ~~$43.4~~$9.5 million ~~following~~in errors and omissions insurance. The underwriting team for this product line was hired in late 2003 and only wrote a ~~rise~~small amount of business in the ~~level~~first quarter of ~~direct foreign investment and increased targeting of this business. Also, our aviation war~~2004. This increase was offset by reduced gross ~~premiums written increased $6.5 million due primarily to increased participations on renewed business and new business. Gross~~ premiums written in our ~~property book increased $9.4 million during the quarter ended March 31, 2004 compared with the quarter ended March 31, 2003. This was primarily a result of some new~~directors’ and officers’ business ~~offsetting some rate reductions. The reduction in the level of gross premiums written of $8.2 million in our onshore and offshore energy book was~~ due to a ~~movement in renewal dates on some large accounts as well as some~~declining rate ~~reductions.~~environment.

Premiums ceded for the quarter ended March 31, ~~2004~~2005 were ~~$67.9~~$134.6 million compared to ~~$17.8~~$135.4 million for the quarter ended March 31, ~~2003, an increase~~2004, a decrease of ~~$50.1~~$0.8 million. The ~~increase~~decrease was ~~primarily~~ due to ~~the timing~~a reduction of ~~the renewal of a contract that originally had a sixteen month coverage period. In addition, we have increased~~$19.0 million in the level of ~~reinsurance purchased~~premiums ceded in ~~order~~global insurance, which varies on a quarterly basis dependant upon market opportunities. Premiums ceded for U.S. insurance increased in line with increased gross premiums written. The ratio of premiums ceded to ~~take advantage of attractive market opportunities~~gross premiums written remained relatively consistent at 48.4% for the quarter ended March 31, 2005 and ~~to mitigate volatility as our portfolio grows.~~45.5% for the quarter ended March 31, 2004.

The following table shows the derivation of net premiums earned in our insurance segment for the quarters ended March 31, ~~2004~~2005 and March 31, ~~2003:~~2004:

							Quarters ended
	Quarter ended March 31, 2004			Quarter ended March 31, 2003			March 31, 2005			March 31, 2004			Change			% Change
	($ in thousands)			($ in thousands)			($ in thousands)
Gross premiums earned	$	219,341		$	198,003		$	454,053		$	366,643		$	87,410		23.8	%
Ceded premiums amortized	(19,625		)	(16,139		)	(130,694		)	(93,023		)	(37,671		)	(40.5	)%
Net premiums earned	$	199,716		$	181,864		$	323,359		$	273,620		$	49,739		18.2	%

Gross premiums are earned over the period of the insured risk. ~~Consequently~~As the level of ~~gross~~net premiums ~~earned has increased as~~written increases, the level of net premiums earned also increases. As we experienced an increase in gross premiums written ~~has~~over the rolling twelve-month period ended March 31, 2005 compared to the rolling twelve-month period ended March 31, 2004, our gross premiums earned increased.

Ceded premiums are amortized over the contract term. Consequently, the level of amortized ceded premium has increased in ~~2004~~2005 as premiums ceded in ~~2003~~2004 continue to be amortized in ~~2004.~~2005.

Other Insurance Related (Loss) Income. Other insurance related (loss) income ~~was $0.2 million compared to income of $1.1 million for the quarter ended March 31, 2003, a decrease of $0.9 million. Other insurance related income~~primarily related to the movement in the fair value of our insurance contracts that meet the definition of a derivative. These contracts typically insure a portfolio of sovereign debt securities against the risk of default.

Net Losses and Loss Expenses. Net losses and loss expenses incurred were ~~$98.5~~$137.6 million for the quarter ended March 31, 2005 compared to $148.1 million for the quarter ended March 31, 2004, ~~compared~~a decrease of $10.5 million. This decrease was primarily due to ~~$85.9 million for the quarter ended March 31, 2003, an increase of $12.6 million. The following table shows the components of net losses~~favorable development on prior year loss and loss ~~expenses incurred:~~reserves of $62.1 million.

Quarter ended
March 31, 2004

Quarter ended
March 31, 2003

($ in thousands)

($ in thousands)

Losses paid

$
26,650

$
20,705

Change in reported case reserves

45,313

(3,589
)
Change in IBNR

43,729

70,250

Reinsurance recoveries

(17,165
)
(1,474
)
Net losses and loss expenses

$
98,527

$
85,892

The net loss and loss expense ratio for the quarter ended March 31, ~~2004~~2005 was ~~49.3%~~42.6% compared to ~~47.2%~~54.1% for the quarter ended March 31, ~~2003. During~~2004, a decrease of 11.5%. The decrease in the ~~quarter ended March 31, 2004, we incurred a significant loss on our marine hull book of business that was partially offset by reinsurance recoveries. The~~ net loss ~~added 5.9 percentage points to our~~and loss ~~ratio. In addition, we experienced positive development on our 2003 underwriting year of $33.8 million, which effected~~expense ratio was caused by a reduction in the net loss and loss expense ratio for global insurance.

The following table shows the components of net loss and loss expenses incurred in global insurance for the quarters ended March 31, 2005 and March, 2004:

	Quarters ended
	March 31, 2005			March 31, 2004			Change			% Change
	($ in thousands)
Gross losses paid	$	32,293		$	26,650		$	5,643		21.2	%
Reinsurance recoveries received	(1,641		)	(633		)	(1,008		)	159.2	%
Net Losses paid	30,652			26,017			4,635			17.8	%
Change in reported case reserves	23,663			45,313			(21,650		)	(47.8	)%
Change in IBNR	21,333			43,729			(22,396		)	(51.2	)%
Reinsurance recoveries on unpaid loss and loss expense reserves	(9,753		)	(16,532		)	6,779			(41.0	)%
	$	65,895		$	98,527		$	(32,632	)	(33.1	)%
Net loss and loss expense ratio	30.4		%	49.3		%	18.9		%

The reduction in the net loss and loss expense ratio was primarily due to favorable prior period loss development of $63.2 million during the quarter ended March 31, 2005 compared to

$33.8 million during the quarter ended March 31, 2004. This reduced the net loss ratio by 29.1 percentage points for the quarter ended March 31, 2005 and 16.9 percentage ~~points. This reduction was largely generated by our marine, aviation war, and terrorism lines~~points for the quarter ended March 31, 2004. In estimating the ultimate cost of ~~business. We~~losses, we primarily use the Bornhuetter-Ferguson ~~method to estimate the ultimate cost of losses; it~~method. It takes as a starting point an ~~assumed ultimate~~initial expected loss and loss expense ratio and blends in the loss and loss expense ratio implied by ~~the~~our experience to date. Given our limited operating history, the initial expected loss and loss expense ratio was primarily based on industry data. As our favorable loss experience has emerged, the expected ultimate loss has been reduced and, therefore, has generated favorable prior period loss development. After adjusting for this development, the accident year net loss and loss expense ratio was 59.5% for the quarter ended March 31, 2005 compared to 66.2% for the quarter ended March 31, 2004. The change was not only due to a change in the mix of business but also to the aforementioned favorable experience, which has led to greater utilization of company specific loss information in establishing initial expected net loss and loss expense ratios on some short tail lines of business.

The following table shows the components of net loss and loss expenses incurred in U.S. insurance for the quarters ended March 31, 2005 and March 31, 2004:

	Quarters ended
	March 31, 2005			March 31, 2004			Change			% Change
	($ in thousands)
Gross losses paid	$	37,755		$	7,814		$	29,941		nm
Reinsurance recoveries received	(20,787		)	(947		)	(19,840		)	nm
Net Losses paid	16,968			6,867			10,101			147.1	%
Change in reported case reserves	50,499			2,331			48,168			nm
Change in IBNR	47,899			89,117			(41,218		)	(46.3	)%
Reinsurance recoveries on unpaid loss and loss expense reserves	(43,648		)	(48,698		)	5,050			10.4	%
	$	71,718		$	49,617		$	22,101		44.5	%
Net loss and loss expense ratio	67.3		%	67.1		%	0.2		%

* nm – not meaningful

During the quarter ended March 31, ~~2004, the lack~~2005, we experienced adverse prior year development of ~~reported claims on our marine, aviation war, and terrorism lines of business produced a favorable impact on our experience~~$1.1 million, or 1.0 percentage points, compared to ~~date, which caused a reduction~~no prior year development in ~~the expected ultimate losses for these lines of business. During~~ the quarter ended March 31, ~~2003, we experienced positive development of $7.9 million on our 2002 underwriting year, which generated a 4.3 percentage point reduction in the~~2004. The net loss ~~ratio.~~

~~Acquisition Costs. Acquisition costs~~and loss expense ratio for the accident year reduced from 67.1% for the quarter ended March 31, 2004 ~~were $26.0 million compared~~ to ~~$23.9 million~~66.3% for the quarter ended March 31, ~~2003,~~2005. This was caused by a shift in the business mix away from professional lines to property. Typically, our property line of business has a lower initial expected net loss and loss expense ratio than our professional lines business.

Acquisition Costs. The increase in the acquisition cost ratio was driven by an increase ~~of $2.1 million. The~~in the acquisition cost ~~ratio~~ratios of both global and U.S insurance.

Acquisition costs in global insurance were $33.1 million or 15.3% of net premiums earned for the quarter ended March 31, ~~2004~~2005 compared to $26.0 million, or 13.0%, of net premiums earned for the quarter ended March 31, 2004. The increase in the acquisition cost ratio was ~~13.0% compared with~~partially caused by higher amortized reinsurance costs, which reduced the level of net premiums earned. As a percentage of gross premiums earned, the level of acquisition costs was 13.1% for the quarter ended March 31, ~~2003.~~

~~General~~2005 and ~~Administrative Expenses. General and administrative expenses~~11.9% for the quarter ended March 31, ~~2004~~2004. The increase of 1.2 percentage points in the level of gross acquisition ratio was primarily due to increased acquisition costs in our terrorism and war risk and property accounts.

U.S. insurance acquisition costs were ~~$8.2~~$3.0 million ~~compared to $3.0 million~~or 2.9% of net premiums earned for the quarter ended March 31, ~~2003, an increase~~2005 compared to $0.2 million and 0.2% of ~~$5.2 million. The general and administrative expenses ratio~~net premiums earned for the quarter ended March 31, ~~2004~~2004. As a percentage of gross premiums earned, the acquisition cost ratio was ~~4.1% compared with 1.6%~~1.5% for the quarter ended March 31, ~~2003. As we did not allocate any~~2005 compared to 0.2% for the quarter ended March 31, 2004. The increase of 1.3 percentage points was primarily driven by a reduction in the level of commissions received on ceded premiums, which are offset against acquisition costs. This reduction was due to our decision to maintain a higher net retention on our professional lines business. Excluding the impact of commissions received on ceded premiums, the acquisition cost ratio as a percentage of gross premiums earned was consistent at 14.0% for the quarter ended March 31, 2005 and 14.1% for the quarter ended March 31, 2004.

General and Administrative Expenses. The increase in our general and administrative expenses ~~except for the personnel expenses~~ratio was due to a greater percentage of ~~our underwriters, prior to January 1, 2004, these amounts~~net premiums earned generated by U.S. insurance, which has a higher general and ~~ratios are not comparable.~~administrative expense ratio.

~~Global~~ Reinsurance

Our ~~global~~ reinsurance segment ~~consists~~provides treaty property and casualty reinsurance to insurance companies on a worldwide basis. Treaty reinsurance contracts are contractual arrangements that provide for automatic reinsuring of ~~treaty reinsurance business sourced outside~~a type of ~~the U.S. and~~category of risk underwritten inby our Bermuda and Zurich offices. Our Bermuda office sources business from clients based outside continental Europe whereas our Zurich office sources business from clients based in continental Europe. Our Bermuda based portfolio consists of short tail severity driven products that principally cover property exposures. Our Zurich-based portfolio consists not only of short tail property exposures but also more medium tail exposures such as motor excess of loss and trade credit lines of business. As the majority of this business is short tail in nature, it typically allows us to determine the ultimate loss experience within a relatively short period of time after a contract has expired. Our contractsclients. Contracts can be written on ~~either~~ an excess of loss basis or a ~~pro-rata~~pro rata basis, also known as proportional. The principal lines in this segment are catastrophe, property, professional liability, credit and bond, motor and liability.

The catastrophe reinsurance line of business provides protection for most catastrophic losses that are covered in the underlying insurance policies written by our ceding company clients. The underlying insurance policies in the catastrophe reinsurance line of business primarily cover property exposures; this business also consists of contracts covering non-property exposures, including workers compensation, personal accident and life. The principal perils in this portfolio are hurricane and windstorm, earthquake, flood, tornado, hail and fire. In some instances, terrorism may be a covered peril or the only peril.

The property reinsurance line of business includes treaty reinsurance written on both a pro rata and a per risk basis and covers underlying personal lines and commercial property exposures. Property pro rata treaty reinsurance covers a cedent’s aggregate losses from all events in the covered period on a proportional basis. Property per risk treaty reinsurance business reinsures a portfolio of particular property risks of ceding companies on an excess of loss basis.

The professional liability treaty reinsurance book covers directors’ and officers’, employment practices liability, medical malpractice and miscellaneous errors and omissions insurance risks.

The credit and bond treaty reinsurance book consists principally of reinsurance of trade credit insurance products and includes both proportional and excess-of loss structures. The underlying insurance indemnifies sellers of goods and services against a payment default by the buyer of those goods and services. Also included in this book is coverage for ceding insurers against losses arising from a broad array of surety bonds issued by bond insurers principally to satisfy regulatory demands in a variety of jurisdictions around the world, but predominantly in Europe.

The motor liability reinsurance line of business provides coverage to insurers for motor liability losses arising out of any one occurrence. The occurrence can involve one or many claimants where the ceding insurer aggregates the claims from the occurrence.

The liability reinsurance line of business provides coverage to insurers of standard casualty lines, including auto liability, general liability, personal and commercial umbrella and workers compensation.

The other reinsurance line of business currently covers claims arising from aviation, marine and crop reinsurance.

Quarters ended March 31, ~~2004~~2005 and March 31, ~~2003~~2004

The following table summarizes the underwriting results and ratios in our reinsurance segment for the quarters ended March 31, ~~2004~~2005 and ~~March 31, 2003:~~2004:

Quarter ended
March 31, 2004

Quarter ended
March 31, 2003

Change

($ in thousands)

Revenues:

Gross premiums written

$
429,075

$
211,499

$
217,576

Net premiums written

420,175

206,666

213,509

Net premiums earned

144,994

93,685

51,309

Other insurance related income

109

—

109

Expenses:

Net losses and loss expenses

55,141

44,438

10,703

Acquisition costs

20,791

17,013

3,778

General and administrative expenses (1)

6,507

1,478

5,029

Underwriting profit

$
62,664

$
30,756

$
31,908

Ratios:

Net loss and loss expense ratio

38.0
%
47.4
%
(9.4
)%
Acquisition cost ratio

14.3
%
18.2
%
(3.9
)%
General and administrative expenses ratio (1)

4.5
%
1.6
%
2.9
%
Combined ratio

56.8
%
67.2
%
(10.4
)%

	Quarters ended
	March 31, 2005			March 31, 2004			Change			% Change
	($ in thousands)
Revenues:
Gross premiums written	$	769,450		$	595,372		$	174,078		29.2	%
Net premiums written	767,409			585,827			181,582			31.0	%
Net premiums earned	302,231			197,628			104,603			52.9	%
Other insurance related income	150			109			41			37.6	%
Expenses:
Net losses and loss expenses	206,677			94,456			112,221			118.8	%
Acquisition costs	55,175			30,749			24,426			79.4	%
General and administrative expenses	12,301			9,102			3,199			35.1	%
Underwriting income	$	28,228		$	63,430		$	(35,202	)	(55.5	)%

Ratios:
Net loss and loss expense ratio	68.4		%	47.8		%	20.6		%
Acquisition cost ratio	18.3		%	15.6		%	2.7		%
General and administrative expenses ratio	4.1		%	4.6		%	(0.5		)%
Combined ratio	90.8		%	68.0		%	22.8		%

Premiums. ~~In the quarter ended March 31, 2004, gross premiums written were $429.1 million compared to $211.5 million for the quarter ended March 31, 2003, an increase of $217.6 million.~~ The table below shows gross premiums written by line of ~~business:~~business in our reinsurance segment for the quarters March 31, 2005 and March 31, 2004:

	Quarters ended
	March 31, 2005		March 31, 2004		Change			% Change
	($ in thousands)
Catastrophe	$	267,798	$	244,147	$	23,651		9.7	%
Property	149,843		87,707		62,136			70.8	%
Professional lines	87,336		115,085		(27,749		)	(24.1	)%
Credit and bond	94,630		67,582		27,048			40.0	%
Motor	72,041		29,883		42,158			141.1	%
Liability	86,625		48,574		38,051			78.3	%
Other	11,177		2,394		8,783			366.9	%
Total	$	769,450	$	595,372	$	174,078		29.2	%

The increase in our property account was driven by two factors. First, we increased the level of prorata reinsurance of U.S. homeowners’ business in select regions. Second, we achieved greater market penetration in Continental Europe following a significant marketing effort that commenced in 2004. Our motor account increased due to new business written, primarily in the French and U.K. motor insurance markets. Our credit and bond account was affected by our ability to increase our share on renewal business and our ability to penetrate new markets and accounts in Continental Europe. The increase in our liability account was primarily driven by the

2022

Quarter ended
March 31, 2004

Quarter ended
March 31, 2003

($ in thousands)

($ in thousands)

Catastrophe

$
238,037

$
186,017

Property Pro Rata

52,649

14,582

Property Per Risk

24,560

10,181

Credit and Bond

67,582

—

Motor and General Liability

40,635

—

Other

5,612

719

Total

$
429,075

$
211,499

~~During~~timing of a renewal for a large contract, which in 2003 was renewed in the second calendar quarter, and by significant new general liability umbrella excess reinsurance business. We experienced rate decreases in our catastrophe book; however, we wrote more business focusing primarily on U.S. exposures where rate reductions were less severe than those for non-U.S. business. We experienced rate increases on some national clients who had suffered hurricane losses in 2004. The decrease in our professional lines account was primarily driven by the non-renewal of a significant treaty where the client decided to retain the exposure.

The strengthening of the Euro against the U.S. dollar during the quarter ended March 31, ~~2004, our gross premiums written increased by 102.9%~~2005 compared to the quarter ended March 31 ~~2003. This was due to our expansion into continental Europe and an~~2004 accounted for approximately a $13.3 million increase in ~~the level of catastrophe premiums. During~~gross premiums written for the quarter ended March 31, 2004, our Zurich office generated $179.7 million of gross premiums written writing catastrophe, property pro rata and property per risk and three new lines of business: credit and bond; motor; and general liability. The majority of the credit and bond business was whole-turnover trade credit, which effectively provides protection for receivable balances. Losses are generally triggered by the insolvency of the debtor. Our motor portfolio consists of excess of loss coverage for third party liability and property damage. The increase in our catastrophe gross premiums written was driven by a trend toward counterparty diversification in our target markets, thereby enabling us to participate on a greater number of programs than in the prior year; this offset some moderate rate reductions. Other business principally includes crop business. During2005 from the quarter ended March 31, ~~2004, we wrote $4.5 million of crop business. In 2003 our crop business was written in the second quarter and, therefore, other gross premiums written are not comparable to those of the prior quarter.~~2004.

Premiums ceded for the quarter ~~ended~~ March 31, ~~2004~~2005 were ~~$8.9~~$2.0 million compared to ~~$4.8~~$9.5 million for the quarter ended March 31, ~~2003, an increase~~2004, a decrease of ~~$4.1~~$7.5 million. ~~All of these coverages provide reinsurance protection~~This was due to changes in the ~~event~~timing of ~~a large industry loss or series~~the renewal of ~~losses.~~ceded reinsurance contracts. Following the losses generated by the hurricanes in September 2004, we exhausted our reinsurance coverage and purchased new protection that will expire in the latter part of 2005.

The following table shows the derivation of net premiums earned in our reinsurance segment for the quarters ended March 31, ~~2004~~2005 and March 31, ~~2003:~~2004:

							Quarters ended
	Quarter ended March 31, 2004			Quarter ended March 31, 2003			March 31, 2005			March 31, 2004			Change			% Change
	($ in thousands)			($ in thousands)			($ in thousands)
Gross premiums earned	$	147,103		$	94,094		$	307,039		$	200,544		$	106,495		53.1	%
Ceded premiums amortized	(2,159		)	(409		)	(4,808		)	(2,916		)	(1,892		)	64.9	%
Net premiums earned	$	144,944		$	93,685		$	302,231		$	197,628		$	104,603		52.9	%

Gross premiums are earned over the period of the reinsured risk. Consequently, the level of gross premiums earned has increased as the level of gross premiums written has increased.

Ceded premiums are amortized over the contract term. Consequently, the level of ~~amortized~~ ceded ~~premium has~~premiums amortized increased in ~~2004~~2005 as premiums ceded in ~~2003 continue~~2004 continued to be amortized in ~~2004.~~2005.

Other Insurance Related Income. Other insurance related ~~income was $0.1 million for the quarter ended March 31, 2004. The~~ income related to the movement in the fair value of a reinsurance contract that meets the definition of a derivative. ~~We did not record any other insurance related income in the quarter ended March 31, 2003.~~

Net Losses and Loss Expenses. ~~Net losses and loss expenses were $55.1 million for the quarter ended March 31, 2004 compared to $44.4 million for the quarter ended March 31, 2003, an increase of $10.7 million.~~ The following table shows the components of net losses and loss expenses ~~incurred:~~incurred in our reinsurance segment for the quarters ended March 31, 2005 and March 31, 2004:

	Quarter ended March 31, 2004		Quarter ended March 31, 2003			Quarters ended
	($ in thousands)		($ in thousands)			March 31, 2005			March 31, 2004			Change			% Change
Losses paid	$	7,875	$	8,705
						($ in thousands)
Gross losses paid						$	32,261		$	8,345		$	23,916		286.6	%
Reinsurance recoveries received						(9,531		)	—			(9,531		)	nm
Net Losses paid						22,730			8,345			14,385			172.4	%
Change in reported case reserves	5,918		(3,360		)	54,062			7,213			46,849			nm
Change in IBNR	41,348		39,093			121,172			79,453			41,719			52.5	%
Reinsurance recoveries	—		—
Reinsurance recoveries on unpaid loss and loss expense reserves						8,713			(555		)	9,268			nm
Net losses and loss expenses	$	55,141	$	44,438		$	206,677		$	94,456		$	112,221		118.8	%
Net loss and loss expense ratio						68.4		%	47.8		%	20.6		%

* nm – not meaningful

The net loss and loss expense ratio for the quarter ended March 31, ~~2004~~2005 was ~~38.0%~~68.4% compared to ~~47.4%~~47.8% for the quarter ended March 31, 2003. During the quarter ended March 31, 2004, we experienced positive development of $14.7 million on our 2003 underwriting year, which generated a 10.2 percentage point reduction in the net loss ratio. This reduction was primarily experienced in our catastrophe and other books of business. During the quarter ended March 31, 2003, we experienced positive development of $2.3 million on our 2002 underwriting year, which generated a 2.5 percentage point reduction in the net loss ratio. We primarily use the Bornhuetter-Ferguson method to estimate the ultimate cost of losses; it takes as a starting point an assumed ultimate loss and loss expense ratio and blends in the loss and loss expense ratio implied by the experience to date. During the quarter ended March 31, 2004, the lack of reported claims produced a favorable impact on our experience to date, which caused a reduction in the expected ultimate losses for these lines of business. Our global reinsurance segment has loss experience categorized as low frequency but high severity in nature and, therefore, our loss experience can be volatile. During the quarter ended March 31, 2004 and March 31, 2003, our loss experience benefited from the lack of major catastrophes.

Acquisition Costs. Acquisition costs for the quarter ended March 31, 2004 were $20.8 million compared to $17.0 million for the quarter ended March 31, 2003, an increase of $3.8 million. The acquisition cost ratio for the quarter ended March 31, 2004 was 14.3% compared with 18.2% for the quarter ended March 31, 2003. This decrease was primarily due to a reduction in the level of commissions incurred.

General and Administrative Expenses. General and administrative expenses for the quarter ended March 31, 2004 were $6.5 million compared to $1.5 million for the quarter ended March 31, 2003, an increase of $5.0 million. The general and administrative expenses ratio for the quarter ended March 31, 2004 was 4.5% compared with 1.6% for the quarter ended March 31, 2003. As we did not allocate any of our general and administrative expenses, except for the personnel expenses of our underwriters, prior to January 1, 2004, these amounts and ratios are not comparable.

~~U.S. Insurance~~

~~Our U.S. insurance segment principally consists of specialty lines business sourced in the U.S. and includes the following risk classifications: property, liability and professional lines.~~

~~Quarters ended March 31, 2004 and March 31, 2003~~

~~The following table summarizes the underwriting results and ratios for the quarters ended March 31, 2004 and March 31, 2003:~~

Quarter ended
March 31, 2004

Quarter ended
March 31, 2003

Change

($ in thousands)

Revenues:

Gross premiums written

$
148,343

$
91,912

$
56,431

Net premiums written

80,824

46,135

34,689

Net premiums earned

73,904

16,046

57,858

Expenses:

Net losses and loss expenses

49,617

9,617

40,000

Acquisition costs

173

469

(296
)
General and administrative expenses (1)

15,593

3,649

11,944

Underwriting profit

$
8,521

$
2,311

$
6,210

Ratios:

Net loss and loss expense ratio

67.1
%
59.9
%
7.2
%
Acquisition cost ratio

0.2
%
2.9
%
(2.7
)%
General and administrative expense ratio(1)

21.1
%
22.7
%
(1.6
)%
Combined ratio

88.4
%
85.5
%
2.9
%

Premiums. In the quarter ended March 31, 2004, gross premiums written were $148.3 million compared to $91.9 million for the quarter ended March 31, 2003, an increase of $56.4 million. The table below shows gross premiums written by line of business:

Quarter ended
March 31, 2004

Quarter ended
March 31, 2003

($ in thousands)

($ in thousands)

Property

$
51,742

$
31,862

Liability

51,059

29,122

Professional Lines

45,542

30,928

Total

$
148,343

$
91,912

~~Gross premiums written for the quarter ended March 31, 2004 increased by 61.4%. This was primarily driven by an increase in the level of underwriting staff and increased marketing efforts.~~

~~Our property book generated gross premiums written of $51.7 million during~~ the quarter ended March 31, 2004, an increase of 62.4% over the quarter ended March 31, 2003. This was primarily due to three reasons: firstly, we introduced a new product line in mid-2003; secondly, we increased our maximum line sizes, which enabled our underwriters to access more business; and thirdly, we increased the number of States in which we were able to write business on an admitted basis.

Our liability book generated gross premiums written of $51.1 million during the quarter ended March 31, 2004, an increase of 75.3% over the quarter ended March 31, 2003. This was primarily driven by an increase in our maximum line size for our umbrella and excess coverages, which enabled our underwriters to access more business.

Our professional lines book generated gross premiums written of $45.5 million during the quarter ended March 31, 2004, an increase of 47.3% over the quarter ended March 31, 2003. This was primarily driven by the fact that we did not acquire the renewal rights of a book of directors’ and officers’ liability insurance and related lines of business written by the FIS group of Kemper until February 17, 2003. In addition, we introduced a new unit writing errors and omissions insurance in late 2003, which began to write business in the quarter ended March 31, 2004.

Premiums ceded for the quarter ended March 31, 2004 were $67.5 million compared to $45.8 million for the quarter ended March 31, 2003, an increase of $21.7 million. Our U.S. insurance segment purchases significant proportional and excess of loss reinsurance on both a treaty and facultative basis that is designed to reduce the volatility in our severity driven classes of business and, therefore, as the total of our gross premiums written increases so does the total of premiums ceded.

~~The following table shows the derivation of net premiums earned:~~

Quarter ended
March 31, 2004

Quarter ended
March 31, 2003

($ in thousands)

($ in thousands)

Gross premiums earned

$
147,302

$
28,710

Ceded premiums amortized

(73,398
)
(12,664
)
Net premiums earned

$
73,904

$
16,046

~~Gross premiums are earned over the period of the insured risk. Consequently, the level of earned premiums has increased as premiums written throughout 2003 continued to be earned in 2004.~~

~~Ceded premiums are amortized over the contract term. Consequently, the level of ceded premiums amortized has increased in 2004 as premiums ceded in 2003 continued to be amortized in 2004.~~

Net Losses and Loss Expenses. Net losses and loss expenses were $49.6 million for the quarter ended March 31, 2004 compared to $9.6 million for the quarter ended March 31, 2003, an increase of $40.0 million. This segment purchases significant reinsurance coverage, therefore, we have recorded reinsurance recoveries in our incurred but not reported loss reserves. The following table shows the components of net losses and loss expenses incurred:

Quarter ended
March 31, 2004

Quarter ended
March 31, 2003

($ in thousands)

($ in thousands)

Losses paid

$
7,786

$
8,535

Change in reported case reserves

2,331

(8,595
)
Change in IBNR

89,117

11,738

Reinsurance recoveries

(49,617
)
(2,061
)
Net losses and loss expenses

$
49,617

$
9,617

~~The net loss and loss expense ratio for the quarter ended March 31, 2004 was 67.1% compared to 59.9% for the quarter ended March 31, 2003.~~20.6%. The increase in the net loss and loss expense ratio was caused by several factors. During the quarter ended March 31, 2005, we experienced favorable prior period development of $4.6 million, or 1.5 percentage points, compared to $14.7 million, or 7.4 percentage points, for the quarter ended March 31, 2004. After adjusting for this development, the current accident year net loss and loss expense ratio increased from 55.2% for the quarter ended March 31, 2004 to 69.9% for the quarter ended March 31, 2005. The increase was primarily generated by losses from catastrophic events during the quarter notably windstorm Erwin from which we incurred net losses and loss expenses of $30.6 million, however, during the quarter ended March 31, 2004, our loss experience benefited from the lack of major catastrophes. Our loss ratio also increased as a result of a change in the mix of business written in our reinsurance segment. During the quarter ended March 31, 2005, 63% of our gross premiums earned was derived from property reinsurance compared to 68% for the quarter ended March 31, 2004. Excluding catastrophic events, our property reinsurance business generally has a lower net loss and loss expense ratio than other reinsurance business we write.

Acquisition Costs. The increase in the acquisition cost ratio was primarily due to a change in the business mix with more business coming from non-catastrophe excess of ~~business following the~~loss product lines, which typically have higher acquisition ~~of the renewal rights of a book of directors’ and officers’ liability insurance and related lines of business in the first quarter of 2003.~~costs.

Acquisition Costs. Acquisition costs for the quarter ended March 31, 2004 were $0.2 million compared to $0.5 million for the quarter ended March 31, 2003, a decrease of $0.3 million. The acquisition cost ratio for the quarter ended March 31, 2004 was 0.2% compared to 2.9% for the quarter ended March 31, 2003. Override commissions received on ceded premiums offset other acquisition costs. During the quarter ended March 31, 2004, override commission were $20.5 million, which had a positive impact on the acquisition cost ratio of 27.7% compared to $3.9 million and 24.4% for the quarter ended March 31, 2003.

General and Administrative Expenses. ~~General and administrative expenses for the quarter ended March 31, 2004 were $15.6 million compared to $3.6 million for the quarter ended March 31, 2003, an increase of $12.0 million.~~ The general and administrative expenses ratio for the quarter ended March 31, 2004 was 21.1% compared with 22.7% for the quarter ended March 31, 2003. As we did not allocate any of our general and administrative expenses, except for the personnel expenses of our underwriters, prior to January 1, 2004, these amounts and ratios are not comparable.

~~U.S. Reinsurance~~

~~Our U.S. reinsurance segment principally consists of treaty reinsurance business sourced~~decrease in the U.S. and focuses almost exclusively on exposures in the U.S. The underlying property and casualty business classes covered by the treaties we write in our U.S. reinsurance segment include: professional lines, liability, property, marine and aviation. Our contracts are written on either an excess of loss or a proportional basis.

~~Quarters Ended March 31, 2004 and March 31, 2003~~

~~The following table summarizes the underwriting results and ratios for the quarters ended March 31, 2004 and March 31, 2003:~~

Quarter ended
March 31, 2004

Quarter ended
March 31, 2003

Change

($ in thousands)

Revenues:

Gross premiums written

$
166,297

$
61,529

$
104,768

Net premiums written

165,652

61,529

104,123

Net premiums earned

52,634

10,832

41,802

Expenses:

Net losses and loss expenses

39,315

6,388

32,927

Acquisition costs

9,958

2,918

7,040

General and administrative expenses (1)

2,595

701

1,894

Underwriting profit

$
766

$
825

$
(59
)

Ratios:

Net loss and loss expense ratio

74.7
%
59.0
%
15.7
%
Acquisition cost ratio

18.9
%
26.9
%
(8.0
)%
General and administrative expense ratio (1)

4.9
%
6.5
%
(1.6
)%
Combined ratio

98.5
%
92.4
%
6.1
%

~~(1)~~ ~~For the quarter ended March 31, 2003, we did not allocate any of our general and administrative expenses, except for the personnel expenses of our underwriters; therefore,~~ the general and administrative ~~amounts and~~ expense ~~ratios for the two periods are not comparable.~~

~~Premiums. In the quarter ended March 31, 2004, gross premiums written were $166.3 million compared~~ratio was due to ~~$61.5 million for the quarter ended March 31, 2003,~~ an increase ~~of $104.8 million. The table below shows gross premiums written by line of business:~~

Quarter ended
March 31, 2004

Quarter ended
March 31, 2003

($ in thousands)

($ in thousands)

Professional Lines

$
115,085

$
50,371

Liability

37,822

9,491

Property

10,500

—

Marine and Aviation

2,890

1,667

Total

$
166,297

$
61,529

Our professional lines book generated gross premiums written of $115.1 million during the quarter ended March 31, 2004, an increase of 128.5% over the quarter ended March 31, 2003. Our liability book generated gross premiums written of $37.8 million during the quarter ended March 31, 2004, an increase of 298.5% over the quarter ended March 31, 2003. These increases were primarily generated by our ability to quote and write the contracts that came up for renewal on January 1, 2004. In 2003, we did not receive regulatory approvals until mid-December 2002, which caused us to miss the opportunity to take part in the ~~January 2003 renewals. In addition, we increased the statutory capital of AXIS Reinsurance Company in excess of $500 million, which enabled us to participate on more business.~~

~~We wrote $10.5 million of gross premiums relating to property reinsurance during the quarter ended March 31, 2004. This was driven by the recruitment of a property underwriter in 2003.~~

~~Premiums ceded for the quarter ended March 31, 2004 were $0.6 million and related to our professional lines business. There were no premiums ceded for the quarter ended March 31, 2003.~~

~~The following table shows the derivation~~volume of net premiums ~~earned:~~

Quarter ended
March 31, 2004

Quarter ended
March 31, 2003

($ in thousands)

($ in thousands)

Gross premiums earned

$
53,441

$
10,832

Ceded premiums amortized

(807
)
—

Net premiums earned

$
52,634

$
10,832

Gross premiums are earned over the period of the insured risk. Consequently, the level of earned premiums generally has increased as premiums written throughout 2003 continued to be earned in 2004. In addition, a large portion of premiums written in 2003 were on a risk-attaching basis, for which the earning period is twice the underlying contract period. Consequently, a significant proportion of the gross premiums will be earned on these contracts in 2004.earned.

Net Losses and Loss Expenses. Net losses and loss expenses were $39.3 million for the quarter ended March 31, 2004 compared to $6.4 million for the quarter ended March 31, 2003, an increase of $32.9 million. The following table shows the components of net losses and loss expenses incurred:

Quarter ended
March 31, 2004

Quarter ended
March 31, 2003

($ in thousands)

($ in thousands)

Losses paid

$
470

$
—

Change in reported case reserves

1,295

—

Change in IBNR

38,105

6,388

Reinsurance recoveries

(555
)
—

Net losses and loss expenses

$
39,315

$
6,388

The net loss and loss expense ratio for the quarter ended March 31, 2004 was 74.7% compared to 59.0% for the quarter ended March 31, 2003. Given the limited number of accounts written and the small amount of net premium earned by the U.S. reinsurance segment, and the commencement of its operations during the quarter ended March 31, 2003, any comparison of loss ratios between these quarters is not meaningful.

Acquisition Costs. Acquisition costs for the quarter ended March 31, 2004 were $10.0 million compared to $2.9 million for the quarter ended March 31, 2003, an increase of $7.1 million. The acquisition cost ratio for the quarter ended March 31, 2004 was 18.9% compared to 26.9% for the quarter ended March 31, 2003. The decrease was due to a reduction in the level of commissions incurred.

General and Administrative Expenses. General and administrative expenses for the quarter ended March 31, 2004 were $2.6 million compared to $0.7 million for the quarter ended March 31, 2003, an increase of $1.9 million. The general and administrative expenses ratio for the quarter ended March 31, 2004 was 4.9% compared with 6.5% for the quarter ended March 31, 2003. As we did not allocate any of our general and administrative expenses, except for the personnel expenses of our underwriters, prior to January 1, 2004, these amounts and ratios are not comparable.

Financial Condition, Liquidity and ~~Liquidity~~Capital Resources

We are a holding company and have no substantial operations of our own. Our assets consist primarily of our investments in subsidiaries. At March 31, ~~2004,~~2005, we had operating subsidiaries in Bermuda, Ireland and the United States, a branch ~~and representative office~~ in the United Kingdom, ~~and~~ a branch in ~~Switzerland.~~Switzerland and a representative office in Singapore. Accordingly, our future cash flows depend upon the availability of dividends or other statutorily permissible payments from our subsidiaries. The ability to pay dividends is limited by the applicable laws and regulations of Bermuda, Ireland and the United States, ~~and Ireland,~~ which subject our insurance subsidiaries to significant regulatory restrictions. These laws and regulations require, among other things, some of our insurance subsidiaries to maintain minimum solvency requirements and limit the amount of dividends that these subsidiaries can pay to us, which in turn may limit our ability to pay dividends and make other payments.

~~Additionally,~~In addition, we are subject to Bermuda regulatory constraints that affect our ability to pay dividends on our common shares and make other payments. Under the Bermuda Companies Act 1981, as amended, AXIS Capital ~~and AXIS Specialty Limited~~ may declare or pay a dividend or make a distribution out of contributed surplus only if it has no reasonable grounds for believing that it is, or would after the payment be, unable to pay its liabilities as they become due or that the realizable value of its assets would thereby be less than the aggregate of our liabilities and issued share capital and share premium accounts. In addition, pursuant to the terms of our credit agreement, we cannot pay cash dividends to our shareholders in excess of ~~$150~~$150.0 million in the aggregate during any fiscal year. ~~Furthermore, in order to reduce its total statutory capital by 15% or more, AXIS Specialty Limited would require the prior approval of the Bermuda Monetary Authority.~~

At March 31, ~~2004,~~2005, the maximum amount of distributions that our subsidiaries could pay to AXIS Capital under applicable laws and regulations without prior regulatory approval was approximately ~~$952.4 million.~~$1.1 billion.

Financial Condition

At March 31, ~~2004,~~2005, our total investments at fair market value, accrued interest receivable and cash net of unsettled investment trades were ~~$4.4~~$6.0 billion, compared to ~~$4.0~~$6.0 billion at December 31, ~~2003.~~2004. Our investment portfolio consisted primarily of fixed income securities at March 31, ~~2004~~2005 and was managed by several external investment management firms. At March 31, ~~2004,~~2005, all of these fixed income securities were investment grade, with ~~80.2%~~84.5% rated Aa3 or AA- or better by an internationally recognized rating agency. The weighted-average rating of our fixed income portfolio was AA+ based on ratings assigned by Standard & Poor’s. The net payable for investments purchased at March 31, ~~2004~~2005 was ~~$121.5~~$185.4 million compared to ~~a net receivable of $3.4~~$49.9 million at December 31, ~~2003.~~2004. Net receivables/payables are a result of timing differences only, as investments are accounted for on a trade date basis.

~~At March 31, 2004, we had $1.0 billion of insurance and reinsurance premium balances receivable compared to $660.5 million at December 31, 2003. This increase was due to~~Following the significant level of gross premium written during the quarter ended March 31, 2005, our insurance and reinsurance premium balances receivable, deferred acquisition costs and unearned premium increased by $395.1 million, $66.4 million and $437.6 million, respectively, over those balances at December 31, 2004. At March 31, ~~2004,~~2005, we had ~~prepaid~~ reinsurance recoverable balances and reinsurance recoverable balances on paid losses of ~~$214.0 million and $190.9~~$641.1 million, of ~~reinsurance recoverables under these contracts. These balances have increased since December 31, 2003~~which 97.9% was due from reinsurers rated the equivalent of A- or better by ~~$49.0 million and $66.0 million, respectively.~~internationally recognized rating agencies.

At March 31, ~~2004,~~2005, we had ~~$1.3~~$2.7 billion of reserves for loss and loss expenses compared to ~~$992.8 million~~$2.4 billion at December 31, ~~2003,~~2004, an increase of ~~$268.2 million.~~$0.3 billion. Of this balance, ~~$1,025.3 million,~~$2.0 billion, or ~~81.3%~~73.9%, was incurred but not reported reserves.

At March 31, ~~2004,~~2005, our shareholders’ equity was $3.0 billion compared to ~~$2.8~~$3.2 billion at December 31, ~~2003, an increase~~2004, a decrease of ~~6.7%.~~$0.2 billion. This ~~increase~~decrease was primarily due to ~~net income~~the repurchase of ~~$166.8~~$350.0 million ~~and an increase~~ of ~~$28.7 million in the unrealized appreciation on~~common shares pursuant to our ~~investment portfolio, for the quarter ended March 31, 2004.~~repurchase program.

Liquidity

In the quarter ended March 31, 2004, we generated a net operating cash inflow of $365.5 million, primarily relating to premiums received and investment income. During the same period, we paid losses of $42.8 million. We invested a net cash amount of $157.8 million during the period, and at March 31, 2004 had a cash balance of $802.1 million. For the quarter ended March 31, 2004, our cash flows from operations provided us with sufficient liquidity to meet our operating requirements.

In the quarter ended March 31, 2003, we generated a net operating cash inflow of $264.4 million, primarily relating to premiums received and investment income. During the same period we paid losses of $37.9 million. We invested a net cash amount of $117.8 million, and at March 31, 2003 had a cash balance of $882.5 million.

On an ongoing basis, our sources of funds primarily consist of premiums written, investment income and proceeds from sales and redemptions of investments. Cash is used primarily to pay losses and loss expenses, reinsurance, acquisition costs and general and administrative expenses and to purchase new investments.

Our cash flows from operations generally represent the difference between: (1) premiums collected, reinsurance recoveries and investment earnings realized; and (2) losses and loss expenses paid, reinsurance purchased and underwriting and other expenses ~~paid and investment losses realized.~~paid. Cash flows from operations may differ substantially, however, from net income. ~~To date, we have invested all cash flows not required for operating purposes.~~ The potential for a large claim under one of our insurance or reinsurance contracts means that substantial and unpredictable payments may need to be made within relatively short periods of time.

During the quarter ended March 31, 2005, we generated a net operating cash inflow of $445.3 million, primarily related to premiums received and investment income. During the same period, we paid gross losses of $102.3 million and received reinsurance recoveries of $32.0 million. At March 31, 2005 we had a cash balance of $746.1 million. During the quarter ended March 31, 2005, net cash of $371.6 million was used for financing activities. On February 16, 2005, we repurchased 12,783,094 common shares owned by initial investors at the formation of the Company pursuant to our repurchase program. The average purchase price was $27.38 per common share and the aggregate purchase price was $350.0 million. During the quarter ended March 31, 2005, we paid dividends of $21.6 million.

During the quarter ended March 31, 2004, we generated a net operating cash inflow of $365.5 million, primarily relating to premiums received and investment income. During the same period, we paid gross losses of $42.8 million. At March 31, 2004, we had a cash balance of

$802.1 million. During the quarter ended March 31, 2004, we invested a net cash amount of $157.8 million.

On March ~~15, 2004,~~31, 2005, we declared a quarterly dividend of ~~$0.125~~$0.15 per common share to shareholders of record at March 31, ~~2004.~~2005. The dividend was ~~payable~~paid on April 14, ~~2004.~~2005.

~~In April 2004, the Company announced that it intended~~On an ongoing basis, our sources of funds primarily consist of premiums written, reinsurance recoveries, investment income and proceeds from sales and redemptions of investments. Cash is used primarily to pursue a secondary offering of up to 20,000,000 of its common shares on behalf of some of its founding shareholders. On April 16, 2004, it announced that the offering of 20,000,000 common shares had been priced at $27.91 per share. In addition, the selling shareholders granted the underwriters an optionpay losses and loss expenses, reinsurance premiums, acquisition costs and general and administrative expenses and to purchase an additional 3,000,000 common shares to cover over-allotments. On April 23, 2004, the underwriters exercised the over-allotment option. We did not sell any common shares in connection with the registrationnew investments and ~~have not received any proceeds from the offering.~~fund dividend, share repurchases and interest payments.

Capital Resources

On March 25, 2004, we renewed our credit facility by entering into a three-year $750 million credit facility with a syndicate of commercial banks led by JPMorgan Chase Bank, as administrative agent and lender. Under the terms of the new credit facility, up to $750 million may be used by ~~the Company,~~ AXIS ~~Specialty Limited, AXIS Re Limited~~Capital and ~~AXIS Specialty Europe Limited~~its operating subsidiaries to issue letters of credit and up to $300 million may be used by these entities for general corporate purposes, with total borrowings not to exceed $750 million. ~~We anticipate that AXIS Reinsurance Company, AXIS Specialty~~

~~Insurance Company and AXIS Surplus Insurance Company will become parties to the new credit facility upon receipt of regulatory approvals from their respective state insurance authorities.~~ The credit facility contains various loan covenants with which we must comply, including limitations on the incurrence of future indebtedness, future liens, fundamental changes, investments and certain transactions with affiliates. The credit facility also requires that we maintain ~~(A)~~(1) a minimum amount of consolidated shareholders’ equity equal to or greater than the sum of $1.975 billion plus ~~(1)~~(A) 50% of consolidated net income for each fiscal quarter beginning with the fiscal quarter ending March 31, 2005 and ~~(2)~~(B) 100% of the net cash proceeds received after March 25, 2004 from any issuance of our capital stock, and ~~(B)~~(2) a debt to total capitalization ratio not greater than 0.35:1.00. The credit facility contains restrictions on our ability to make acquisitions, except that we may, among other things, acquire assets and entities in the insurance and reinsurance business for consideration in an aggregate amount not in excess of $250 million. Our ability to pay dividends or make other restricted payments is also limited, except that we may, among other things, pay cash dividends to our shareholders in an amount not exceeding $150 million for any fiscal year and we may repurchase shares of our capital stock for consideration in an aggregate amount not exceeding $500 million. ~~There was~~At March 31, 2005, we had no ~~debt~~outstanding indebtedness and letters of credit of $433.7 million outstanding under the credit ~~facility~~facility. As at March 31, ~~2004 or December 31, 2003. At March 31, 2004,~~2005, we ~~had letters of credit of $120.9 million outstanding under our then existing credit facility. At December 31, 2003, we had letters of credit of $127.3 million outstanding under our then existing~~were in compliance with all covenants contained in the credit facility.

On November 15, 2004, we completed a public offering of $500 million of senior notes. The notes bear interest at 5.75%, payable semi-annually and, unless previously redeemed, will mature on December 1, 2014.

On March 14, 2005, we announced that our Board had authorized an additional repurchase program for up to $150 million of our common shares.

Contractual Commitments

We did not make any significant capital expenditures during the quarter ended March 31, ~~2004.~~2005. We currently expect capital expenditures for ~~2004~~2005 to be less than $50 million.

On April 29, 2005, we executed a definitive agreement to acquire all of the outstanding common stock of a Wisconsin domiciled admitted insurance company. The ~~following table provides an analysis~~purchase price will be based on the book value of ~~our contractual obligations~~the statutory capital and surplus at ~~March 31, 2004:~~the date of acquisition and a sum

Payment due by period
Expressed in thousands of U.S. dollars

Total

Less than
1 year

1-3
years

3-5
years

More than
5 years

Operating Lease Obligations

$
21,888

$
4,036

$
5,704

$
4,277

$
7,871

~~We invested in a collateralized loan obligation with a carrying~~equating to the value of ~~$9.3 million. In connection with this investment, we have commitments that may require additional funding~~the number of upinsurance licenses acquired. The acquisition is subject to ~~$15.7 million through February 2006.~~obtaining necessary regulatory approvals.

Item 33.. Quantitative and Qualitative Disclosure about Market Risk

We are exposed to potential loss on our investment portfolio from various market risks, including changes in interest rates and foreign currency exchange rates, and from credit risk. Our investment portfolio primarily consists of fixed income securities denominated in both U.S. and foreign currencies. External investment professionals manage our portfolio under the direction of our management in accordance with detailed investment guidelines provided by us. Our guidelines do not currently permit the use of derivatives other than foreign currency forward contracts. In the future, we may change our guidelines to permit the use of derivatives. ~~We do not enter into risk sensitive instruments for trading purposes.~~

Interest Rate Risk. Fluctuations in interest rates have a direct impact on the market valuation of fixed income securities included in our investment portfolio. As interest rates rise, the market value of our fixed income portfolio falls, and the converse is also true. We manage interest rate risk by selecting

investments with characteristics such as duration, yield, currency and liquidity tailored to the anticipated cash outflow characteristics of our insurance and reinsurance liabilities.

Our current duration target for our investments is two to four years. The duration of an investment is based on the maturity of the security and also reflects the payment of interest and the possibility of early principal payment of such security. We seek to utilize investment benchmarks that reflect this duration target. ~~Management~~We periodically ~~revises~~revise our investment benchmarks based on business and economic conditions, including the average duration of our potential liabilities. At March 31, ~~2004,~~2005, our invested assets (assets under management by external investment managers) had an approximate duration of ~~2.9~~3.0 years.

At March 31, ~~2004,~~2005, we held ~~$1,112.0~~$1,755.3 million at fair market value, or ~~28.8%~~33.6% of our total invested assets, in mortgage-backed securities compared to ~~$1,012.9~~$1,714.8 million, or ~~28.2%~~32.0%, at December 31, ~~2003.~~2004. When interest rates decline, these assets are exposed to prepayment risk, which occurs when holders of underlying mortgages increase the frequency with which they prepay the outstanding principal before the maturity date and refinance at a lower interest rate cost. When interest rates increase, these assets are exposed to extension risk, which occurs when holders of underlying mortgages reduce the frequency onwith which they prepay the outstanding principal before the maturity date and delay any refinancing of the outstanding principal.

We have calculated the effect that an immediate parallel shift in the U.S. interest rate yield curve would have on our assets under management by third party investment managers at March 31, ~~2004.~~2005. The modeling of this effect was performed on each security individually using the security’s effective duration and changes in prepayment expectations for mortgage-backed and asset-backed securities. The results of this analysis are summarized in the table below.

Interest Rate Movement Analysis on Market Value of Assets under Management by External Investment Managers

													Interest Rate Shift in Basis Points
	Interest Rate Shift in Basis Points (Expressed in thousands of U.S. dollars)												(Expressed in thousands of U.S. dollars)
	-100		-50		0		+50		+100		+200		-100		-50		0		+50		+100
Total Market Value	4,004,641		3,951,580		3,897,249		3,840,183		3,780,626		3,657,702		5,402,770		5,332,016		5,255,928		5,175,813		5,093,374
Market Value Change from Base	2.76	%	1.39	%	0.0	%	-1.46	%	-2.99	%	-6.15	%	2.79	%	1.45	%	0	%	-1.52	%	-3.09	%
Change in Unrealized Value	107,392		54, 331		0		(57,066	)	(116,623	)	(239,547	)	146,842		76,088		—		(80,115	)	(162,554	)

Foreign Currency Risk. Fluctuations in foreign currency exchange rates have a direct impact on the market valuation of fixed income securities included in our investment portfolio that are

denominated in those currencies. Therefore, we attempt to manage our foreign currency risk by seeking to match our liabilities under insurance and reinsurance policies that are payable in foreign currencies with investments that are denominated in such currencies. Furthermore, we may use foreign currency forward contracts in an effort to hedge against movements in the value of foreign currencies relative to the U.S. dollar and to gain exposure to interest rate differentials between differing market rates. A foreign currency forward contract involves an obligation to purchase or sell a specified currency at a future date at a price set at the time of the contract. Foreign currency forward contracts will not eliminate fluctuations in the value of our assets and liabilities denominated in foreign currencies but rather allow us to establish a rate of exchange for a future point in time. We do not expect to enter into such contracts with respect to a material amount of our assets. Foreign currency forward contracts purchased are not specifically identifiable against cash, any single security or any groups of securities and, therefore, do not qualify and are not designated as a hedge for financial reporting purposes. All realized gains and losses and unrealized gains and losses on foreign currency forward contracts are recognized in our statements of operations and comprehensive income. At March 31, 2005, the net contractual amount of foreign currency forward contracts was $61.6 million with an unrealized gain of $1.6 million. At December 31, 2004, the net contractual amount of foreign currency forward contracts was

~~$22.3~~ $30.0 million with ~~a negligible fair market value. At December 31, 2003, the net contractual amount~~an unrealized loss of ~~foreign currency forward contracts was $3.8 million with a negligible fair market value.~~$0.1 million.

At March 31, ~~2004,~~2005, we had insurance and reinsurance premium balances receivable of ~~$1,019.2~~$1,309.6 million compared to ~~$660.5~~$914.6 million at December 31, ~~2003.~~2004. Of this balance, ~~79.0%~~69.1% was denominated in U.S. dollars. Of the remaining balance, ~~13.6%~~19.0% was denominated in Euro and ~~3.7%~~9.1% in Sterling. A 5%10% increase or decrease in the value of the Euro and Sterling currencies against the U.S. dollar would produce a gain or loss of approximately ~~$8.8~~$36.8 million at March 31, 2005 compared to ~~$1.0~~$11.7 million at December 31, ~~2003.~~2004.

Credit Risk. We have exposure to credit risk primarily as a holder of fixed income securities. Our risk management strategy and investment policy is to invest in debt instruments of high credit quality issuers and to limit the amount of credit exposure with respect to particular ratings categories and any one issuer. We attempt to limit our credit exposure by purchasing fixed income investments rated BBB-/Baa3 or higher. In addition, we have limited our exposure to any single corporate issuer to 5% or less of our portfolio for securities rated A-/A3 or above and 2% or less of our portfolio for securities rated between BBB-/Baa3 and BBB+/Baa1. At March 31, ~~2004,~~2005, we did not have an aggregate exposure to any single issuer of more than 2% of our portfolio, other than with respect to U.S. government and agency securities. In addition, we have credit risk under some contracts where we receive premiums in return for assuming the risk of default on pre-determined portfolios of sovereign and corporate obligations.

Value-at-Risk. Our management uses Value-at-Risk (“VaR”) as one of its tools to measure potential losses in fair market values of our investment portfolio. The VaR calculation is calculated by a third party provider and reviewed by management. VaR uses a Monte Carlo simulation to project many different prices of fixed income securities, derivatives and currencies taking into account, among other things, the volatility and the correlation between security price changes over various forecast horizons. The VaR of our investment portfolio at March 31, ~~2004~~2005 was approximately ~~$157.1~~$190.8 million compared to ~~$174.1~~$180.4 million at December 31, ~~2003,~~2004, which represents the potential loss in fair market value of our investment portfolio over a one ~~quarter~~year time horizon within a 95% confidence level. This ~~decrease~~increase was primarily due to a ~~more defensive posture taken by our investment managers offset by higher overall investment balances.~~slight extension of the portfolio duration. The VaR computation is a risk analysis tool and does not purport to represent actual losses in fair market value. We cannot predict actual future movements in market rates and do not present these results to be indicative of future movements in such market rates or to be representative of any actual impact that future changes in market rates may have on our future results of operations or financial position.

Effects of Inflation

We do not believe that inflation has had a material effect on our ~~consolidated~~ results of operations, except insofar as inflation may affect interest rates. The potential exists, after a catastrophe loss, for the development of inflationary pressures in a local economy. The anticipated effects on us are considered in our catastrophe loss models. The effects of inflation are also considered in pricing and in estimating reserves for unpaid claims and claim expenses. The actual effects of inflation on our results of operations cannot be accurately known until claims are ultimately settled.

Cautionary Note Regarding Forward-Looking ~~Statement~~Statements

This report contains certain forward-looking statements within the meaning of the U.S. federal securities laws. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in the federal securities laws. In some cases, these statements can be identified by the use of forward-looking words such as “may,” ~~“will,”~~ “should,” “could,” “anticipate,” “estimate,” “expect,” “plan,” “believe,” “predict,” ~~“ potential”~~“potential” and “intend.” Forward-looking statements contained in this report include information regarding our expectations regarding pricing and other market conditions, our growth prospects, the ~~benefits from continued underwriting discipline~~amount of our net losses and ~~from insureds seeking to move their business to financially stronger insurers and reinsurers,~~loss reserves, the ~~mix~~projected amount of ~~businesses within and between~~ our ~~business segments,~~capital expenditures, managing interest rate and foreign currency risks, valuations of potential interest rate shifts, foreign currency rate changes and measurements of potential losses in fair market values of our investment portfolio. Forward-looking statements only reflect our expectations and are not guarantees of performance. These statements involve risks, uncertainties and assumptions. Actual events or results may differ materially from our expectations. Important factors that could cause actual events or results to be materially different from our expectations include (1) our limited operating history, (2) the occurrence of natural and man-made disasters, (3) actual claims exceeding our loss reserves, (4), failure of any of the loss limitation methods we employ, (5) the effects of emerging claims and coverage issues, (6) the failure of our cedents to adequately evaluate risks, (7) the loss of one or more key executives, (8) a decline in our ratings with ~~Standard & Poor’s and A.M. Best,~~rating agencies, (9) loss of business provided to us by our major brokers, (10) changes in governmental regulations, (11) increased competition, ~~and~~ (12) general economic ~~conditions. The Company undertakes~~conditions and (13) the other matters set forth under Item 8, “Management’s Discussions and Analysis of Financial Condition and Results of Operations - Risk Factors” included in our Annual Report on Form 10-K dated in March 1, 2005. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

3329

Item 44.. Controls and Procedures

~~Our~~The Company’s management has ~~carried out~~performed an evaluation, with the participation of ~~our~~the Company’s Chief Executive Officer and ~~our~~the Company’s Chief Financial Officer, of the effectiveness of ~~our~~the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the ~~U.S.~~ Securities Exchange Act of 1934 (the “Exchange Act”)) as of ~~the end of the period covered by this report.~~March 31, 2005. Based upon that evaluation, ~~our~~the Company’s Chief Executive Officer and ~~our~~the Company’s Chief Financial Officer concluded that ~~our~~the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that ~~we file~~it files or ~~submit~~submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

~~Our~~The Company’s management ishas performed an evaluation, with the participation of the Company’s Chief Executive Officer and the Company’s Chief Financial Officer, of changes in the Company’s internal control over financial reporting that occurred during the quarter ended March 31, 2005. Based upon that evaluation, the Company’s management has not ~~aware of~~identified any change in its internal control over financial reporting that occurred during ~~the period covered by this report~~quarter ended March 31, 2005 that has materially affected, or is reasonably likely to materially affect, ~~our~~the Company’s internal control over financial reporting.

3430

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

WeExcept as set forth below, we are not currently ~~not~~ a party to any material legal proceedings. From time to time, we are subject to routine legal proceedings, including arbitrations, arising in the ordinary course of business. ~~Those~~These legal proceedings generally ~~relate~~related to claims asserted by or against us in the ordinary course of our insurance ~~and~~or reinsurance operations.

Our U.S. holding company has received subpoenas from the Office of the Attorney General of the State of New York seeking information regarding incentive commission agreements, fictitious and inflated quotes and related matters and conditioning direct insurance on the placement of reinsurance. In addition, our U.S. insurance companies have received subpoenas and requests for information from various state insurance regulators regarding these same matters. These inquiries are part of industry-wide investigations in these jurisdictions and we understand that officials from other jurisdictions in which we do business have also initiated investigations into similar matters. Accordingly, we may in the future receive additional subpoenas and requests for information. We are cooperating fully with the Attorney General of the State of New York and the other state regulators in their investigations and intend to cooperate fully with any future investigations.

In connection with these inquiries, we have conducted an internal investigation, led by outside counsel, to determine whether we have engaged in any of the improper business practices that are the focus of the inquiries. Our internal investigation is nearing completion and has uncovered no evidence indicating that we engaged in bid rigging, fictitious or inflated quotes or related matters or conditioning direct insurance on the placement of reinsurance. Consistent with long-standing and wide-spread industry practice, we have in the past entered into incentive commission arrangements with brokers; however, we have not entered into any of these arrangements with respect to 2005.

We are aware that two purported shareholders class action lawsuits have been filed against us and some of our executive officers relating to the practices being investigated by the Attorney General of the State of New York and other state regulators. James Dolan v. AXIS Capital Holdings Limited, Michael A. Butt and John R. Charman was filed on October 28, 2004 in the United States District Court, Southern District of New York. Robert Schimpf v. AXIS Capital Holdings Limited, Michael A. Butt, Andrew Cook and John R. Charman was filed on November 5, 2004 in the United States District Court, Southern District of New York. On April 13, 2005, these lawsuits were consolidated and will now be known as In re AXIS Capital Holdings Ltd. Securities Litigation. The lawsuit alleges securities violations in connection with the failure to disclose payments made pursuant to contingent commission arrangements and seeks damages in an unspecified amount. We believe that the lawsuit is completely without merit and intend to vigorously defend against it.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

On December 9, 2004, we announced that our Board of Directors had approved the repurchase of up to $350 million of our common shares to be effected from time to time in open market or privately negotiated transactions. The repurchase program was authorized to continue until December 2006 but was exhausted in February 2005. On March 14, 2005, we announced that our Board of Directors had approved the repurchase of up to an additional $150 million of our common shares to be effected from time to time in open market or privately negotiated transactions. The repurchase program is authorized to continue until December 2006. The following table sets forth information regarding the number of shares we repurchased during each month in the quarter ended March 31, 2005.

ISSUER PURCHASES OF EQUITY SECURITIES

Period	Total Number of Shares Purchased (a)	Average Price Paid Per Share		Total Number Of Shares Purchased as Part Of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Announced Plans or Programs
January 2005	18,965	$	27.36	0	$	350,000,000
February 2005	0	$	27.38	12,783,094	$	0
March 2005	0	0		0	$	150,000,000
Total	18,965	$	27.38	12,783,094	$	150,000,000

(a) Comprises shares withheld to pay the exercise price upon the exercise of options, and to satisfy tax liabilities upon the vesting of restricted stock, awarded under our 2003 Long Term Equity Compensation Plan. These shares are not included in our repurchase program.

Item 5.Other Information

On May 5, 2005, Mr. Robert J. Newhouse, Jr., the Chairman of the Company’s Executive Committee and former Chairman of the Board, retired as a director and executive officer of the Company. In connection with his retirement, the Service Agreement between Mr. Newhouse and AXIS Specialty Limited, dated as of November 20, 2001 and as amended on September 19, 2002, was terminated. Under this agreement, Mr. Newhouse’s term of service would have continued until November 19, 2005 followed by automatic one-year renewals unless notice of termination of his employment was provided by either party at least 90 days prior to the end of the term.

On May 6, 2005, Ms. Lorraine S. Mariano, the Company’s Chief Human Resources Officer, notified the Company that she is leaving the Company effective December 31, 2005. In connection with her leaving, the Employment Agreement between Ms. Mariano and AXIS Specialty U.S. Services Inc., dated as of April 1, 2004, will be terminated. Under this agreement, Ms. Mariano’s term of service would have continued until March 30, 2006 followed by automatic one-year renewals unless notice of termination of her employment was provided by either party at least six months prior to the end of the term.

Item 6. Exhibits

(a) Exhibits

1.1 Underwriting Agreement, dated March 9, 2005, between the Company and ~~Reports~~Merrill Lynch, Pierce, Fenner & Smith Incorporated.

3.1 Certificate of Incorporation and Memorandum of Association (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form ~~8-K~~S-1 (Amendment No.1) (Registration No. 333-103620) filed on April 16, 2003).

~~(a)~~		~~Exhibits~~

~~3.1~~		Certificate of Incorporation and Memorandum of Association (incorporated by reference from Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (Amendment No.1) (Registration No. 333-103620) filed on April 16, 2003).

~~3.2~~		~~Bye-Laws (incorporated by reference from Exhibit 3.2 to the Company’s Registration Statement on Form S-1 (Amendment No.3) (Registration No. 333-103620) filed on June 10, 2003).~~

~~10.1~~		Credit Agreement among AXIS Capital Holdings Limited, the Subsidiary account parties thereto, various lending institutions and JPMorgan Chase Bank as Administrative Agent, dated as of March 25, 2004 (incorporated by reference from Exhibit 10.11 to the Company’s Registration Statement on Form S-1 (Amendment No. 1) (Registration No. 333-113951) filed on April 6, 3.2 Bye-Laws (incorporated by reference to Exhibit 3.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004).

~~10.2~~		~~Employment Agreement between Andrew Cook and AXIS Specialty Limited dated as of January 1, 2004.~~

~~10.3~~		~~Employment Agreement between William A. Fischer and AXIS Specialty Limited dated as of January 1, 2004.~~

~~10.4~~		~~Employment Agreement between Mike E. Morrill and AXIS Specialty U.S. Services Inc. dated as of January 1, 2004.~~

~~10.5~~		~~Employment Agreement between Dennis B. Reding and AXIS Specialty U.S. Services Inc. dated as of January 1, 2004.~~

~~10.6~~		~~Employment Agreement between Carol S. Rivers and AXIS Specialty Limited dated as of August 1, 2003.~~

~~10.7~~		~~Supplemental Executive Retirement Agreement between AXIS Specialty Limited and Michael A. Butt dated as of January 1, 2004.~~

~~10.8~~		~~Supplemental Executive Retirement Agreement between AXIS Specialty Limited and John R. Charman dated as of January 1, 2004.~~
~~31.1~~		~~Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002~~

~~32.2~~		~~Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002~~

3531.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

~~(b)~~		~~Reports on Form 8-K~~

		The Company filed a report on Form 8-K on February 11, 2004 pursuant to Item 12 reporting the issuance by the Company of the press release reporting the Company’s results for the year ended December 31, 2003.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: May 6, 2005

~~Dated: May 4, 2004~~		AXIS CAPITAL HOLDINGS LIMITED
	~~AXIS CAPITAL HOLDINGS LIMITED~~


	By:	/s/John R. Charman
		John R. Charman
		President and Chief Executive Officer
		(Authorized Officer)


		/s/Andrew Cook
		Andrew Cook
		Chief Financial Officer
		(Principal Financial Officer)

3633

	March 31, 2004		December 31, 2003
	(Unaudited)
Assets
Cash and cash equivalents	$	802,129	$	605,175
Investments at fair market value (Amortized cost 2004: $3,633,957; 2003: $3,359,102)	3,692,455		3,385,576
Other investments	9,332		—
Accrued interest receivable	30,564		29,530
Net receivable for investments sold	—		3,371
Securities lending collateral	505,186		—
Insurance and reinsurance premium balances receivable	1,019,195		660,530
Deferred acquisition costs	219,113		136,281
Prepaid reinsurance premiums	213,994		164,999
Reinsurance recoverable	190,917		124,899
Intangible assets	24,204		24,579
Other assets	39,899		37,333
Total Assets	$	6,746,988	$	5,172,273

Liabilities
Reserve for losses and loss expenses	$	1,261,094	$	992,846
Unearned premiums	1,620,384		1,143,447
Insurance and reinsurance balances payable	193,252		151,381
Accounts payable and accrued expenses	39,456		67,451
Securities lending payable	504,730		—
Net payable for investments purchased	121,509		—
Total Liabilities	3,740,425		2,355,125

Shareholders’ Equity
Share capital (Authorized 800,000,000 common shares, par value$0.0125; issued and outstanding 2004: 152,480,904; 2003:152,474,011)	1,906		1,906
Additional paid-in capital	2,005,425		2,000,731
Accumulated other comprehensive income, net of tax	53,906		25,164
Retained earnings	945,326		789,347
Total Shareholders’ Equity	3,006,563		2,817,148

Total Liabilities & Shareholders’ Equity	$	6,746,988	$	5,172,273

	Payment due by period Expressed in thousands of U.S. dollars
	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Operating Lease Obligations	$	21,888	$	4,036	$	5,704	$	4,277	$	7,871