Alterra Capital 10-K/A 2005 FY Annual report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

Form 10-K/A

(Amendment No. 2)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

Commission file number 000-33047

MAX RE CAPITAL LTD.

(Exact name of registrant as specified in its charter)

Bermuda	Not Applicable
(State of or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Max Re House

2 Front Street

Hamilton, HM 11

Bermuda

(441) 296-8800

(Address and telephone number, including area code, of registrant’s principal executive offices)

Securities Registered Pursuant to Section 12(b) of the Act:

None

Name of each exchange on which registered

None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Shares, Par Value $1.00 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in any definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer    x        Accelerated filer    ¨        Non-accelerated filer    ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.).    Yes  ¨    No  x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2005 was $737,636,549, based on the closing price of the registrant’s common shares on June 30, 2005, the last business day of the registrant’s most recently completed second fiscal quarter. Solely for the purpose of this calculation and for no other purpose, the non-affiliates of the registrant are assumed to be all shareholders of the registrant other than (i) directors of the registrant, (ii) executive officers of the registrant who are identified as “named executive officers” pursuant to Item 11 of this Form 10-K, (iii) any shareholder that beneficially owns 10% or more of the registrant’s common shares and (iv) any shareholder that has one or more of its affiliates on the registrant’s board of directors. Such exclusion is not intended, nor shall it be deemed, to be an admission that such persons are affiliates of the registrant.

The number of shares of the registrant’s common shares outstanding as of January 31, 2006 was 58,837,354.

DOCUMENTS INCORPORATED BY REFERENCE: None

Explanatory Note

This second amendment on Form 10-K/A amends our Annual Report on Form 10-K/A (Amendment No. 1) for the year ended December 31, 2005, which we filed with the Securities and Exchange Commission (the “SEC”) on June 7, 2006 in order to amend our Annual Report on Form 10-K for the year ended December 31, 2005, which we filed with the SEC on February 15, 2006. We have restated our consolidated financial statements for the years ended December 31, 2005, 2004, 2003, 2002 and 2001 and are filing this amendment to reflect the restated amounts. In addition, we will restate our unaudited interim consolidated financial statements for the periods ended March 31, and June 30, 2006. Our previously issued financial statements for the restated periods should no longer be relied upon.

We previously restated our consolidated financial statements in June 2006 following an internal investigation into the accounting treatment of three finite property and casualty retrocessional contracts purchased in 2001 and 2003. The current restatement reflects our determination to reflect no risk transfer for two of the three contracts, both of which were purchased in 2001, after receiving additional information that was unknown and unavailable to us at the conclusion of the initial internal investigation. The additional information does not relate to the third contract reviewed in the initial internal investigation, which is with a different counter-party, and the accounting for that contract remains unchanged from that reported on our Form 10-K/A (Amendment No. 1) filed on June 7, 2006. With this decision to restate, the Audit and Risk Management Committee (“ARMC”) has concluded its internal investigation. The cumulative effect of the restatement is a reduction of shareholders equity by $13.1 million as at December 31, 2005.

The aggregate effect of the restatement to net income is to increase 2005 net income by $3.2 million; to increase 2004 net income by $6.4 million; to increase 2003 net income by $8.3 million; to increase 2002 net income by $3.6 million and to decrease 2001 net income by $29.6 million.

The restatement, and the reasons for and events leading to the restatement, along with a discussion of the reasons for and events leading to our previous restatement, are described in more detail in Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 2 to our Consolidated Financial Statements—Restatement of Financial Statements. This restatement affects the following areas of the report:

• Item 1—Business;

• Item 6—Selected Financial Data;

• Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations;

• Item 9A—Controls and Procedures;

• Item 15—Financial Statement Schedules as described in Note 2 to our Consolidated Financial Statements—Restatement of Financial Statements.

• Exhibit 99.1—Risk Factors

The information in the following tables in Items 1, 6 and 7 has not been affected by the restatement:

• Business Segments pg 7

• Reserve Components by Segment pg 12

• Aggregate Portfolio Results pg 17

• Alternative Investment Portfolio allocation pg 20

• Market Information pg 24

• Securities Authorized for Issuance Under Equity Compensation Plans pg 25

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• Property and Casualty Insurance Segment Three Year Comparison pg 37

• Life and Annuity Reinsurance Segment Three Year Comparison pg 39

• Contractual Obligations pg 45

Except for the foregoing amended disclosures, the information in this Form 10-K/A (Amendment No. 2) generally has not been updated to reflect events that occurred after February 15, 2006, the original filing date of our Annual Report on Form 10-K, although the discussion with respect to legal proceedings contained in Item 3 and related matters has been updated.

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		Page
PART I		5
ITEM 1.	BUSINESS	5
ITEM 2.	PROPERTIES	23
ITEM 3.	LEGAL PROCEEDINGS	23
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	23
PART II		24
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES	24
ITEM 6.	SELECTED FINANCIAL DATA	26
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	27
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	46
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	47
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	47
ITEM 9A.	CONTROLS AND PROCEDURES	47
PART III		49
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	49
ITEM 11.	EXECUTIVE COMPENSATION	54
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	59
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	63
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	65
PART IV		66
ITEM 15.	FINANCIAL STATEMENT SCHEDULES	66

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PART I

ITEM 1. BUSINESS

Unless otherwise indicated or unless the context otherwise requires, all references in this Annual Report on Form 10-K/A (Amendment No. 2) to “we,” “us,” “our” and similar expressions are references to Max Re Capital Ltd. and its consolidated subsidiaries. Unless otherwise indicated or unless the context otherwise requires, all references in this annual report to “Max Re Capital” are solely to Max Re Capital Ltd., references to “Max Re” are solely to our subsidiary Max Re Ltd., references to “Max Europe” are solely to our Irish subsidiaries Max Europe Holdings Limited, Max Re Europe Limited and Max Insurance Europe Limited collectively, references to “Max Europe Holdings” are solely to our subsidiary Max Europe Holdings Limited, references to “Max Re Europe” are solely to our subsidiary Max Re Europe Limited, references to “Max Insurance Europe” are solely to our subsidiary Max Insurance Europe Limited, references to “Max Re Diversified” are solely to our subsidiary Max Re Diversified Strategies Ltd. and references to “Max Re Managers” are solely to our subsidiary Max Re Managers Ltd.

Safe Harbor Disclosure

This Form 10-K/A (Amendment No. 2) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend that the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 apply to these forward-looking statements. Forward-looking statements are not statements of historical fact but rather reflect our current expectations, estimates and predictions about future results and events. These statements may use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,” “project” and similar expressions as they relate to us or our management. When we make forward-looking statements, we are basing them on management’s beliefs and assumptions, using information currently available to us. These forward-looking statements are subject to risks, uncertainties and assumptions. Factors that could cause such forward-looking statements not to be realized (which are described in more detail included or incorporated by reference herein and in documents filed by us with the SEC) include, without limitation:

• the risk that the SEC’s view of the accounting treatment for three finite retrocessional contracts purchased in 2001 and 2003 may differ materially from that treatment adopted by us following a reopened internal review by the Audit and Risk Management Committee of our Board of Directors that caused us to determine to restate our financial statements for the years ended December 31, 2005, 2004, 2003, 2002 and 2001 and the periods ended March 31, 2006 and June 30, 2006, which restatements are described in this Annual Report on Form 10-K/A (Amendment No. 2) for the year ended December 31, 2005 and the soon to be filed Forms 10-Q/A for the three months ended March 31, 2006 and June 30, 2006.

• acceptance in the market of our products;

• general economic conditions and conditions specific to the reinsurance and insurance markets in which we operate;

• pricing competition;

• the amount of underwriting capacity from time to time in the market;

• material fluctuations in interest rates;

• unexpected volatility associated with our alternative investments;

• tax and regulatory changes and conditions;

• rating agency policies and practices;

• claims development and;

• loss of key executives.

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Other factors such as changes in U.S. and global financial and equity markets resulting from general economic conditions, market disruptions and significant interest rate fluctuations and changes in credit spreads may adversely impact our investments or impede our access to, or increase the cost of, financing our operations. We caution that the foregoing list of important factors is not intended to be, and is not, exhaustive. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. If one or more risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. Any forward-looking statements in this Form 10-K/A (Amendment No. 2) reflect our current view with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. All subsequent written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by this paragraph.

General Description

Max Re Capital is a holding company formed in July 1999 under the laws of Bermuda that commenced operations in January 2000. Through Max Re Capital’s subsidiaries, Max Re, Max Re Europe and Max Insurance Europe, we provide multi-line reinsurance and insurance products. Max Re Managers provides reinsurance underwriting and administrative services on a fee basis. Max Re Diversified holds all of our alternative investments, other than reinsurance private equity investments that are held by Max Re. Max Europe Holdings is the holding company for our European operating subsidiaries and was formed in June 2003 under the laws of Ireland.

In December 1999, we raised gross proceeds of $331 million from an initial private placement of Max Re Capital common shares and Max Re non-voting common shares. In March 2000, Max Re Capital completed a second private placement of common shares, which raised an additional $180 million of gross proceeds. We used substantially all of the net proceeds of these offerings to capitalize and commence our reinsurance operations.

On August 14, 2001, Max Re Capital raised gross proceeds of $192 million in an initial public offering of common shares. Total proceeds received, net of underwriting discounts and commissions, were $179.5 million. Substantially all of the net proceeds were contributed to Max Re in support of its reinsurance operations. Max Re Capital’s common shares are listed on the Nasdaq Global Select Market under the symbol MXRE and the Bermuda Stock Exchange under the symbol MXRE BH.

On July 30, 2003, all holders of Max Re non-voting common shares and warrants to acquire Max Re non-voting common shares exchanged such shares and warrants for Max Re Capital common shares and warrants to acquire Max Re Capital common shares. The result of this exchange was the elimination of minority interest and increase in shareholders’ equity of equal amounts as of the date of the exchange.

On October 17, 2005, Max Re Capital raised gross proceeds of $258.5 million in a public offering of common shares. Total proceeds received, net of underwriting discounts and commissions, were $246.0 million. As part of the offering, Max Re Capital granted the underwriters a 30 day option to purchase up to 1.65 million additional common shares. On November 4, 2005, the underwriters exercised their option in full, resulting in additional net proceeds to Max Re Capital of $38.1 million. Substantially all of the proceeds were contributed to Max Re in support of its insurance and reinsurance operations.

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Business Segments

We operate in the reinsurance and insurance business serving three segments: the property and casualty reinsurance segment, the property and casualty insurance segment and the life and annuity reinsurance segment. The table below sets forth gross premiums written by type of risk for the years ended December 31, 2005, 2004 and 2003.

	2005				2004				2003
	Gross Premiums Written		Percentage of Total Premiums Written		Gross Premiums Written		Percentage of Total Premiums Written		Gross Premiums Written		Percentage of Total Premiums Written
	(in thousands)				(in thousands)				(in thousands)
Property and Casualty Reinsurance:
Accident and Health	$	7,790	0.6	%	$	56,784	5.4	%	$	94,165	9.3	%
Aviation		42,945	3.4			70,838	6.8			63,400	6.3
General Liability		39,878	3.2			16,305	1.6			50,491	5.0
Medical Malpractice		40,744	3.3			43,367	4.2			13,708	1.4
Other		8,196	0.7			—	—			2,682	0.3
Professional Liability		102,620	8.2			144,931	13.9			197,014	19.5
Property, Marine & Energy		74,354	6.0			52,901	5.1			34,689	3.4
Whole Account		177,563	14.2			114,998	11.0			201,792	20.0
Workers’ Compensation		121,630	9.8			83,109	8.0			80,375	8.0
Total P&C Reinsurance		615,720	49.4			583,234	55.9			738,316	73.1
Property and Casualty Insurance:
General Liability		176,947	14.2			131,187	12.6			84,262	8.3
Professional Liability		144,082	11.5			114,685	11.0			78,951	7.8
Property		34,267	2.8			2,197	0.2			—	—
Total P&C Insurance		355,296	28.5			248,068	23.8			163,213	16.2
Aggregate Property and Casualty	$	971,016	77.9		$	831,302	79.7		$	901,529	89.3
Life and Annuity Reinsurance:
Annuity	$	235,012	18.9		$	196,463	18.8		$	—	—
Health		32,657	2.6			12,300	1.2			—	—
Life		7,346	0.6			3,536	0.3			108,250	10.7
Aggregate L&A Reinsurance	$	275,015	22.1		$	212,299	20.3		$	108,250	10.7
Aggregate Property and Casualty and Life and Annuity	$	1,246,031	100.0	%	$	1,043,601	100.0	%	$	1,009,779	100.0	%

Additional information about our business segments is set forth in Item 7—Managements Discussion and Analysis and Note 17 to our audited consolidated financial statements included herein.

The majority of our clients are insurers, reinsurers and companies located in the United States. During the years ended December 31, 2005, 2004 and 2003, we derived approximately 65.2%, 59.4% and 62.9%, respectively, of gross premiums written from clients located in the United States. We also source business throughout Europe, which represented approximately 34.8%, 40.6% and 37.1% of gross premiums written for the years ended December 31, 2005, 2004 and 2003, respectively.

During the last three fiscal years, gross premiums written in each of our business segments has fluctuated. Due to continual changes in our industry, specifically with regard to the relative market pricing conditions in

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property and casualty and life and annuity products, and other changes in global economic conditions, we anticipate that the percentages of premiums that we write will fluctuate regularly between our property and casualty products and our life and annuity products.

Description of Business

We are a Bermuda-based provider of reinsurance and insurance for both the property and casualty and life and annuity markets with approximately $1,185.7 million in consolidated shareholders’ equity as of December 31, 2005. We differentiate our company from our competitors by offering reinsurance and insurance products covering exposures in several areas of both markets and by targeting superior risk-adjusted returns from our diversified investment portfolio. We model our assets and liabilities on an integrated basis to better manage our reinsurance and insurance liability exposure, structure our investment portfolio and assess our overall risk.

We believe that our diversified products and exposure base, together with our integrated risk management, provide us with flexibility in making decisions regarding our investments because they permit us to undertake investment strategies that have greater liquidity constraints than publicly traded stocks and bonds. This flexibility, as well as a greater flexibility provided under Bermuda law to make various types of investments including alternative investments, allows us to invest our assets in both a portfolio of high grade fixed maturity securities, which we refer to in this Form 10-K/A (Amendment No. 2) as “fixed maturities,” and an alternative investment portfolio.

Property and Casualty Reinsurance

We offer excess of loss and quota share products in the property and casualty reinsurance market. Generally, our reinsurance products are written on market terms with participation by other reinsurers. Our primary focus is on the casualty risk classes, such as workers’ compensation, general liability, professional liability, and medical malpractice. Whole account coverage provides integrated coverage across a client’s multi-line portfolio of risk and may include some or all of the classes described above. We generally underwrite whole account coverages focused on casualty risk exposures. Due to anticipated price increases for property products following the severe hurricane loss events of 2004 and 2005, we plan to increase our volume of property reinsurance in 2006. To that end, in December 2005, we hired additional property underwriters to write more property and property catastrophe reinsurance.

We typically write our property and casualty reinsurance products in the form of treaty reinsurance contracts, which are contractual arrangements that provide for automatic reinsuring of a type or category of risk underwritten by our clients. With treaty reinsurance contracts, we do not separately evaluate each of the individual risks assumed under the contracts and are largely dependent on the individual underwriting decisions made by the ceding client. Accordingly, we carefully review and analyze the ceding client’s risk management and underwriting practices in deciding whether to provide treaty reinsurance and in appropriately pricing the treaty reinsurance contract.

Our property and casualty reinsurance contracts are written on either a quota share, also known as proportional or pro rata, basis or on an excess of loss basis. With respect to quota share reinsurance, we share the premiums as well as the losses and expenses in an agreed proportion with the ceding client. With respect to excess of loss reinsurance, we indemnify the ceding client against all or a specified portion of losses and expenses in excess of a specified dollar or percentage amount. In both types of contracts, we may provide a ceding commission to the client. Our reinsurance products may include features such as contractual provisions that require the client share in a portion of losses resulting from its ceded risks, may require payment of additional premium amounts if we incur greater losses than those projected at the time of the execution of the contract and may provide for premium refunds if the losses we incur are less than those projected at the time of the execution of the contract.

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During the years ended December 31, 2005, 2004 and 2003, we wrote $183.8 million, $182.2 million and $302.3 million, respectively, or 29.9%, 31.2% and 40.9%, respectively, of property and casualty reinsurance gross premiums written on a quota share basis and $431.9 million, $401.0 million and $436.0 million, or 70.1%, 68.8% and 59.1%, respectively, on an excess of loss basis.

Property and Casualty Insurance

In 2003, we began offering excess liability and professional lines insurance products, primarily to Fortune 1000 companies. Our excess liability products are excess umbrella liability insurance, excess product liability insurance, excess medical malpractice insurance and excess product recall insurance. Our professional lines products include directors and officers insurance, errors and omissions insurance and employment practices liability insurance. Our insurance products are underwritten in Bermuda and Ireland. In September 2004, we began offering property insurance to the same company base to which we offer our casualty insurance products. Because of anticipated price increases for property insurance products following the severe hurricane loss events of 2004 and 2005, we plan to increase our volume of property insurance in 2006. To that end, in December 2005, we hired additional property insurance underwriters within our property insurance team and began writing more property and property catastrophe insurance.

We underwrite our insurance products on an individual risk basis, which, in many cases, includes holding an in-person meeting with the client in Bermuda or Ireland. Excess liability, professional liability and property premiums accounted for 49.8%, 40.6% and 9.6%, respectively, of the gross premiums written for insurance products during the year ended December 31, 2005 and the ratio of excess liability to professional liability premiums is approximately consistent with the premium exposure written in the years ended December 31, 2004 and 2003.

Life and Annuity Reinsurance

Our life and annuity reinsurance products focus on existing blocks of business and typically take the form of co-insurance structures, where the risk is generally reinsured on the same basis as that of the original policy. In a co-insurance transaction, we receive a percentage of the gross premium charged to the policyholder by the client, less an expense allowance that we grant to the client, as the primary insurer. By accepting the transfer of liabilities and the related assets from our clients in these co-insurance transactions, we seek to enable these clients to achieve capital relief and improved returns on equity. We seek to write life and annuity reinsurance agreements with respect to individual and group disability, whole life, universal life, corporate owned life, term life, fixed annuities, annuities in payment and structured settlements.

The life reinsurance risks that we underwrite include mortality and investment risks and, to a lesser extent, early surrender and lapse risks. The annuity products that we underwrite include longevity and investment risks. The disability products that we underwrite include morbidity risk and, to a lesser extent, early surrender and lapse risks. Mortality risk measures the sensitivity of the insurance company’s liability to higher mortality rates than were assumed in setting the premium. Longevity risk measures the sensitivity of the insurance company’s liability to future mortality improvement being greater than expected. Morbidity risk measures the sensitivity of the insurance company’s liability for higher illness, sickness and disease rates than were assumed in setting the premium. Early surrender and lapse risks measure the sensitivity of the insurance company’s liability to early or changing policy surrender distributions. Our co-insurance structures typically involve a higher level of investment risk, with our company investing the premium received.

Pricing of our life and annuity reinsurance products is based on actuarial models that incorporate a number of factors, including assumptions for mortality, longevity, morbidity, expenses, demographics, persistency, investment returns, certain macroeconomic factors, such as inflation, and certain regulatory factors, such as taxation and minimum surplus requirements.

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Underwriting and Risk Management

We attempt to manage our underwriting exposures in both the property and casualty and life and annuity markets by diversifying across many underlying insureds with small policy limits per insured. Our largest underlying exposure in the property and casualty reinsurance business is workers’ compensation (including reinsurance written as such and workers’ compensation exposure embedded in other types of contracts such as whole account), which has attractive features of payments over many years and low statutorily defined cash payout amounts. With respect to our life and annuity reinsurance products, our focus is on reinsuring blocks of business having small underlying policy limits spread across a large population of insureds and avoiding high policy limit exposures.

We seek to reduce the volatility arising out of the underlying risks assumed through our written business by setting and maintaining overall aggregate limits on liabilities, sub-limits on liabilities, attachment points for liabilities and contract terms providing for additional premium where losses are greater than expected.

We manage the duration and volatility of our asset mix in relation to our liabilities in an attempt to manage our overall risk. We believe that our portfolio of underwriting risks benefits from diversification and we tailor our investment strategy accordingly.

We use a series of proprietary and non-proprietary actuarial and financial models in order to analyze the underlying risk characteristics of our liabilities and assets. We conduct both transaction-by-transaction modeling as well as portfolio aggregation modeling and then analyze these modeled results on an integrated basis in an effort to determine the aggregation of our underwriting risks and investment risks and the ultimate impact that adverse events might have on our surplus.

We utilize dynamic financial analysis to examine the possible effects of future variables, such as the effect of inflation on the cost of losses, using multiple scenarios to predict the range of outcomes and prices of our products. In addition, we attempt to manage capital adequacy by incorporating value at risk and risk based capital analyses into our modeling. Through the use of dynamic financial analysis, we seek to measure the risk inherent in each underwriting transaction as well as our overall asset and liability risk, and the potential for adverse scenarios producing projected losses and potential adverse cash flow. Additionally, by employing a risk based capital analysis rather than using premium income as a measure of risk, we are able to obtain an estimate of the amount of capital to be allocated to each transaction and our overall asset and liability portfolio. We believe that our actuarial analysis of loss payment patterns enables us to generate meaningful projections of the total and interim cash flows of our overall liability portfolios, and then use these projections to determine the profile of liquidity and investment returns required of our investment portfolio. We believe that this integrated approach allows us to optimize the use of our capital by providing a dynamic measurement of risk and return to evaluate competing reinsurance, insurance and investment opportunities.

Due Diligence

We perform due diligence as we believe appropriate on every material transaction that we consider underwriting, and perform regular monitoring and periodic due diligence on the transactions that we complete. Generally, we complement our internal skills with reputable third party service providers, including actuaries, attorneys, claim adjusters and other professionals. These third-parties perform on-site client due diligence on our behalf and assist us in modeling transactions and provide legal advice on contract documentation.

Retrocessional and Balance Sheet Protections

As part of the underwriting process, we reinsure or retrocede portions of certain risks for which we have accepted liability. In these transactions, we cede to another counterparty reinsurer or retrocessionaire, all or part of the risk that we have assumed. However, these arrangements do not legally discharge our liability with respect

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to the obligations that we have insured or reinsured. Like other insurance and reinsurance companies, we cede risks to reinsurers and retrocessionaires for the following reasons:

• reduce net liability on individual risks;

• protect against catastrophic losses;

• stabilize financial ratios;

• obtain additional underwriting capacity; and

• enhance underwriting pricing margins.

When we reinsure portions of risk, we utilize reinsurance arrangements, such as quota share reinsurance, excess of loss reinsurance and stop-loss contracts that are available in the reinsurance and retrocessional market as a means to manage risk on the products that we write. In quota share reinsurance arrangements, the reinsurer or retrocessionaire shares a proportional part of our premiums and losses associated with the risks being reinsured. Under the terms of excess of loss reinsurance and stop-loss contracts, the reinsurer or retrocessionaire agrees to cover losses in excess of the amount of risk that we have retained, subject to negotiated limits. Our reinsurance strategy includes purchasing reinsurance to limit losses on a single risk or transaction and on a whole portfolio basis as the need arises.

The amount of risk that we retain differs across our portfolio of liabilities. We generally retain higher amounts of net risk on transactions where we believe that we can monitor outcomes with a higher degree of predictability or where larger blocks of business offer us the possibility of higher returns without retaining excessive risk. Our underwriting policy is to retain a maximum net exposure of not more than 5% of our shareholders’ equity for any individual contract we write.

Credit Risk

Our reinsurance and retrocessional arrangements do not legally discharge our liability with respect to obligations that we have insured or reinsured. We remain liable with respect to the liabilities that we cede even if a counterparty is unable to meet its obligations assumed under a reinsurance or retrocessional agreement. Accordingly, we evaluate and monitor the financial strength of each of our counterparties.

In connection with our retrocessional arrangements, we prefer to cede risk on a funds withheld basis, which allows us to cede risk while retaining collateral to secure our reinsurer’s or retrocessionaire’s obligation. Grand Central Re Limited, a Bermuda domiciled reinsurance company in which Max Re has a 7.5% equity investment (“Grand Central Re”) is our largest retrocessionaire and accounted for 52.3% of our losses recoverable at December 31, 2005. In September 2004, Grand Central Re requested that A.M. Best Company withdraw its financial strength rating. Consequently, A.M. Best Company has assigned a financial strength rating of “NR-4” to Grand Central Re. We retain funds from Grand Central Re amounting to approximately 89.2% of its loss recoverable obligations.

Our reinsurance programs for our property and casualty insurance risks are generally written on a funds transferred basis and therefore we have greater credit risk exposure. Since we are liable with respect to the reinsurance that we cede even if a reinsurer is unable to meet its obligations assumed under a reinsurance agreement, we evaluate and monitor the financial strength of each of our reinsurers. The aggregate amount due from reinsurers of our property and casualty insurance risks represents 39.9% of losses recoverable at December 31, 2005 and all of these reinsurers were rated “A-”or above by A.M. Best Company at December 31, 2005.

Loss and Benefit Reserves

We regularly review and update our methods of determining estimates for reported and unreported losses and benefits and related reinsurance recoverables. Adjustments resulting from this review are reflected in our net

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income during the period in which we determine these adjustments. In connection with the process of estimating our loss reserves, we rely upon the basic assumption that past experience, adjusted for the effect of current developments and likely trends, is an appropriate basis for predicting future events. However, estimation of loss and benefit reserves is a difficult process, particularly in light of changes in the legal environment that affect the payment of losses and benefits. As a result, we frequently supplement quantitative techniques with subjective considerations and managerial judgment.

In accordance with accounting principles generally accepted in the United States of America, which we refer to as GAAP, we establish and carry as liabilities actuarially determined reserves calculated to meet our estimated future obligations. The adequacy of our reserves is reviewed annually by outside actuaries in order to corroborate management’s estimates. We maintain our reserves on a GAAP basis. Future losses and benefits comprise the majority of our financial obligations.

Reserves do not represent an exact calculation of liability. Rather, reserves represent our estimate of the expected cost of the ultimate settlement and administration of our claims. Although actuarial methods for establishing reserves have been developed over time, some of the major assumptions about anticipated loss emergence patterns are subject to unanticipated fluctuation. These estimates, which generally involve actuarial projections, are based upon our assessment of facts and circumstances then known, as well as estimates of future trends in claims severity and frequency, mortality, judicial theories of liability and other factors, including the actions of third parties, that are beyond our control.

Losses and benefits, net of related reinsurance recoverables, are charged to income as incurred. Unpaid losses represent the accumulation of:

• claims reported but not yet paid, which we refer to as case reserves;

• reserves for claims incurred but not reported, or IBNR;

• estimated expenses of adjusting and settling claims, including legal and other fees, (which we refer to as loss adjustment expenses); and

• experience refunds payable to clients under contract provisions.

The table below breaks our reserves as of December 31, 2005 into these components by segment.

In millions of U.S. Dollars	Property and casualty reinsurance		Property and casualty insurance		Life and annuity reinsurance
Case reserves	$	745,615	$	120,930	$	854,224
IBNR		804,353		335,134		—
Total	$	1,549,968	$	456,064	$	854,224

The table above makes certain assumptions regarding the split of case reserves and IBNR on property and casualty reinsurance loss reserves. Reinsureds provide loss data in various formats, with some reinsureds providing an analysis of case reserves and IBNR, while other reinsureds provide one reserve number encompassing all reserves and without a specific analysis of the component parts. Where reinsureds provide one reserve number, we calculate the split of IBNR and case reserves based on general industry patterns.

Property and Casualty Insurance Loss Reserve Process

Our casualty insurance loss reserves, which include case reserves, amounts for IBNR reserves and loss adjustment expenses, are compiled on a book of business basis and are computed on an undiscounted basis. The majority of the insurance business we have written is casualty business. Historically, losses associated with

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casualty business have had a long claim-tail, the time period between the occurrence of a loss and the time it is settled by the insurer. Casualty losses are also generally more susceptible to litigation and can be significantly affected by changing contract interpretations and a changing legal environment. Due to the long claim-tail nature of casualty business, a high degree of judgment is involved in establishing loss reserves.

Our property insurance loss reserves, which include case reserves, amounts for IBNR reserves and loss adjustment expenses, are compiled on a book of business basis and are computed on an undiscounted basis. These reserves are adjusted for losses reported by our clients and for our estimate of losses resulting from catastrophe events, based on a detailed, location specific analysis of our clients properties impacted by the events.

In connection with our ongoing analysis of our property and casualty insurance loss reserves, we review loss reports received from our clients to confirm that submitted claims are covered under the contract terms, establish loss reserves on an individual loss basis and take into account industry loss activity and industry loss trends. We also consider historical data, legal developments, changes in social attitudes and economic conditions, including the effects of inflation. As additional data becomes available and is reviewed, we revise our property and casualty insurance reserve estimates to reflect this additional data, which may result in increases or decreases to reserves for insured events of prior years. These adjustments are recorded in the period they are determined.

We establish and review our property and casualty insurance loss reserves on a regular basis. The process for adjusting our property and casualty insurance loss reserves is based upon loss reports received from clients, which are analyzed by our actuarial models. We use a variety of actuarial techniques and methods in estimating our ultimate liability for property and casualty insurance losses and loss expenses. These methods include paid loss development, incurred loss development, paid and incurred Bornhuetter-Ferguson methods and frequency and severity methods. This actuarial data is analyzed by product, type of risk, coverage and accident or policy year. Industry loss experience is also used to supplement our own data in selecting “tail factors” and in areas where our own data is limited.

Property and Casualty Reinsurance Loss Reserve Process

Our property and casualty reinsurance loss reserves include case reserves, amounts for IBNR reserves and loss adjustment expenses. The reserves are compiled on a transaction-by-transaction basis and are computed on an undiscounted basis. The majority of our reinsurance property and casualty business is casualty business. Historically, losses associated with casualty business have had a long claim-tail, the time period between the occurrence of a loss and the time it is settled by the insurer we reinsure. Casualty losses are also more susceptible to litigation and can be significantly affected by changing contract interpretations and a changing legal environment. Due to the long claim-tail nature of casualty business, a high degree of judgment is involved in establishing loss reserves.

Our property reinsurance loss reserves are adjusted on a transaction-by-transaction basis, based on losses reported by clients and our assessment of potential losses from catastrophe events based on catastrophe model aggregate assessments and location specific assessments when available.

We establish and review our property and casualty reinsurance loss reserves on a regular basis. The process for establishing our property and casualty reinsurance loss reserves is based upon internally generated actuarial analysis of loss data provided by clients. We use a variety of actuarial techniques and methods in estimating our ultimate liability for property and casualty reinsurance losses and loss expenses. These methods include paid loss development, incurred loss development, paid and incurred Bornhuetter-Ferguson methods and frequency and severity methods. This actuarial data is analyzed by product, type of risk, coverage and accident or policy year, as appropriate. Industry loss experience is also used to supplement our own data in selecting “tail factors” and in areas where our own data is limited.

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As a reinsurer, we rely on reserve estimates reported by our clients. Our clients use a wide variety of actuarial techniques to establish their reserves. The quality of the reserve estimation process varies from client to client. In addition, there is often a time lag between our clients establishing case reserves and re-estimating their reserves, and notifying us of the revised case reserves and re-estimated reserve balances. We analyze information from our clients as it is received and there is no backlog of processing client information received. It is likely, however, that our property and casualty reinsurance reserves will have larger re-estimation adjustments, which will be made over a longer period of time, compared to our property and casualty insurance reserves, where we receive loss information directly.

In connection with an ongoing analysis of our property and casualty reinsurance loss reserves, we review loss reports received from our clients to confirm that submitted claims are covered under the contract terms. As disputes with clients arise in the ordinary course of business, we typically resolve them through negotiation. We also consider additional historical data, industry loss trends, legal developments, changes in social attitudes and economic conditions, including the effects of inflation. As additional data becomes available and is reviewed, we revise our property and casualty reserve estimates to reflect this additional data, which may result in increases or decreases to reserves for insured events of prior years. These adjustments are recorded in the period they are determined.

Life and Annuity Reinsurance Benefit Reserve Process

Our life and annuity reinsurance benefit reserves are compiled on a transaction-by-transaction basis and are computed on a discounted basis. We establish and review our life and annuity reinsurance benefit reserves regularly based upon cash flow projection models utilizing data provided by clients and actuarial models. We establish and maintain our life and annuity reinsurance reserves at a level that we estimate will, when taken together with future premium payments and interest income expected to be earned in respect of reserves, be sufficient to support all future cash flow benefit and third party servicing obligations as they become payable.

Since the development of our life and annuity reinsurance benefit reserves is based upon cash flow projection models, we must make estimates and assumptions regarding mortality, morbidity, lapse, expense and investment experience. We establish these estimates based upon transaction specific historical experience, information provided by ceding companies and industry experience studies. Actual results could differ materially from these estimates. We monitor actual experience and, where circumstances warrant, revise our assumptions and the related life and annuity reinsurance reserve estimates. We record these revisions in the period they are determined.

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Property and Casualty Loss Reserve Development

The following table represents the development of balance sheet property and casualty loss reserves calculated in accordance with GAAP, as of December 31, 2000 through December 31, 2005. This table does not present accident or policy year development data. The top line of the table shows the gross reserves at the balance sheet date for each of the indicated years and is reconciled to the net reserve by adjusting for reinsurance recoverables. This represents the estimated amount of net claims and claim expenses arising in the current year and all prior years that are unpaid at the balance sheet date, including IBNR reserves. The table also shows the re-estimated amount of the previously recorded reserves as adjusted for new information received as of the end of each succeeding year. The estimate changes as more information becomes known about the frequency and severity of claims for individual years. The “net cumulative redundancy (deficiency)” represents the aggregate change to date from the original estimate on the third line of the table “reserve for property and casualty losses, originally stated, net of reinsurance.” The “gross cumulative redundancy (deficiency)” represents the aggregate change to date from the original gross estimate on the top line of the table. The table also shows the cumulative net paid amounts as of successive years with respect to the net reserve liability.

	As of December 31,
	2000			2001			2002			2003			2004			2005
				(Restated)			(Restated)			(Restated)			(Restated)			(Restated)
				(1)			(1)
Gross reserve for property and casualty losses	$	136,338		$	456,377		$	617,404		$	991,687		$	1,455,099		$	2,006,032
Reinsurance recoverable		(5,370	)		(51,838	)		(80,407	)		(163,348	)		(293,512	)		(409,229	)
Reserve for property and casualty losses originally stated, net of reinsurance		130,968			404,539			536,997			828,339			1,161,587			1,596,803
Cumulative net paid losses
1 year later		7,752			136,734			106,076			119,269			217,637			—
2 years later		117,230			202,134			165,539			257,182			—			—
3 years later		141,134			242,681			244,578			—			—			—
4 years later		150,212			285,166			—			—			—			—
5 years later		158,738			—			—			—			—			—
Reserves re-estimated as of
1 year later		150,154			442,101			554,795			826,799			1,296,558			—
2 years later		178,460			439,490			563,469			975,441			—			—
3 years later		175,057			444,348			666,781			—			—			—
4 years later		175,057			496,631			—			—			—			—
5 years later		175,057			—			—			—			—			—
Net cumulative redundancy (deficiency)		(44,089	)		(92,092	)		(129,784	)		(147,101	)		(134,970	)(2)
Gross cumulative redundancy (deficiency)		(44,089	)		(104,303	)		(153,858	)		(176,704	)		(163,215	)

(1) Adjusted for reclassification of a contract to deposit liabilities.

(2) The difference between the loss development included above and that reflected in the reconciliation of losses and loss adjustment expenses in Note 5 to the consolidated financial statements of $4,407 relates to amortization of deferred charges on retroactive reinsurance contracts assumed.

Our balance sheet date reserves for 2001 and each subsequent balance sheet date shown in the above table were increased in 2005 by the development on two specific contracts. The first contract increased 2001 reserves by $50.2 million with the recording of such increased losses, triggering additional premiums and interest on additional premiums of $49.3 million, which are not reflected in the table above. The second contract increased

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2002 reserves by $49.6 million, 2003 reserves by $64.8 million and 2004 reserves by $15.3 million, for a total increase of $129.7 million. The adverse development triggered additional premiums and interest on such additional premiums of $105.3 million, which are not reflected in the table above.

For additional information on our reserves, including a reconciliation of losses and loss adjustment expense reserves for the years ended December 31, 2005, 2004 and 2003, please refer to Note 5 of our audited consolidated financial statements included herein.

Marketing

We believe that diversity in our sources of business reduces the potential adverse effects arising from the termination of any one of our business relationships. Our marketing plan calls for the development of relationships with brokers and potential clients that we or brokers believe have a need for reinsurance or insurance, based on regulatory filings, industry knowledge and market trends.

During the years ended December 31, 2005, 2004 and 2003, brokered transactions accounted for the majority of our gross premiums written. During the years ended December 31, 2005, 2004 and 2003, the top three independent producing intermediaries and brokerage firms accounted for 33%, 23% and 8%; 27%, 25% and 10%; and 36%, 15% and 11%, respectively, of gross premiums written.

In addition, we attempt to capitalize on existing relationships with reinsurance and insurance companies, large global corporations and financial intermediaries to develop and underwrite business.

Overview of Investments

We seek to earn a superior risk-adjusted total return on our assets by engaging in an investment strategy that combines fixed maturities and alternative investments that employ strategies intended to manage investment risk. We diversify our portfolio to limit volatility and attempt to maintain adequate liquidity in our fixed maturities and alternative investments to fund operations and protect against losses from unexpected events. We seek to manage our credit risk through industry and issuer diversification and interest rate risk by monitoring the duration and structure of the investment portfolio relative to the duration and structure of the liability portfolio. The finance and investment committee of our board of directors approves and monitors performance of the managers of our fixed maturities investments and alternative investments. The finance and investment committee also periodically reviews our investment guidelines in light of prevailing market conditions and amends them from time to time as it deems appropriate. Based on fair values at December 31, 2005, approximately 70.9% of our investment portfolio was invested in cash and fixed maturities and approximately 29.1% was invested in alternative investments. We seek to allocate between 60% and 80% of our investment portfolio in cash and fixed maturities and between 20% and 40% of our investment portfolio in alternative investments. However, this allocation can vary from the targeted amounts because of cash flows, market value variations and liability exposures at specific points in time.

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Aggregate Portfolio Results

The table below shows the annual total rate of return of our cash and fixed maturities investments, alternative investments and aggregate investment portfolio for the years ended December 31, 2005, 2004 and 2003 (1).

	Year Ended December 31,
	2005		2004		2003
Cash and Fixed Maturities Investments	3.83	%	4.22	%	3.26	%
Alternative Investments—Max Re Diversified(2)	5.88		9.81		16.67
Alternative Investments—Reinsurance Private Equity(2)	(43.00	)	(11.06	)	15.81
Alternative Investments—Total	3.34		8.23		16.57
Aggregate Portfolio(3)	3.66		5.63		7.74

(1) Annual total rate of return means the annual total rate of return calculated by compounding the 12 consecutive monthly rates of return that are calculated by dividing monthly net performance by the beginning net asset value of that month. One is then subtracted from the product and the result is multiplied by 100.

(2) Max Re Diversified holds all of our alternative investments other than reinsurance private equity investments, which are held by Max Re.

(3) Consists of cash and fixed maturities and our alternative investments.

This annual total rate of return information for our investment portfolio should not be relied upon as a representation of future results. Future results may vary and these variations may be significant.

Fixed Maturities Investments

Based on fair values at December 31, 2005, approximately 70.9% of our total investment portfolio was invested in cash and fixed maturities and was managed by General Re-New England Asset Management, Inc., Conning Asset Management and Asset Allocation and Management. Our fixed maturities investments are comprised of liquid, high quality securities. As of December 31, 2005, our fixed maturities investments had a dollar-weighted average rating of “AA,” an average duration of approximately 4.6 years and an average book yield to maturity of 4.27%.

The investment strategy and guidelines for our fixed maturities investments emphasize diversification and preservation of principal. Under our current fixed maturities investment guidelines, securities in our fixed maturities portfolio must have a minimum rating of BAA3/BBB-, or its equivalent, from at least one nationally recognized statistical rating organization. In addition, a minimum weighted average credit quality rating of AA2/Aa, or its equivalent, must be maintained for our fixed maturities investment portfolio as a whole. Our fixed maturities investment guidelines also provide that we cannot leverage our fixed maturities investments.

Our cash and fixed maturities investments provide liquidity for day-to-day operations. We believe that we will be able to satisfy our foreseeable cash needs from our cash and fixed maturities investments. Accordingly, we believe that our cash and fixed maturities investment guidelines reduce the likelihood of having to liquidate any portion of the alternative investments to meet near term cash flow needs.

Additional information about our fixed maturities investments can be found in Notes 3 and 4 to our audited consolidated financial statements included herein.

Alternative Investments

Overview.Based on fair values at December 31, 2005, approximately 29.1% (Max Re Diversified—28.3% and reinsurance private equity—0.8%, respectively) of our investment portfolio was invested in alternative investments. Max Re Diversified holds all of our alternative investments other than reinsurance private equity

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investments that are held by Max Re. Alstra Capital Management, LLC, an affiliate of one of our directors and which we refer to as Alstra, has served as fund of funds advisor for Max Re Diversified since April 1, 2004. As of December 31, 2005, Max Re Diversified was invested in approximately 50 underlying alternative investment funds representing the following investment strategies: Commodities Trading, Convertible Arbitrage, Distressed Securities Investing, Diversified Arbitrage, Emerging Markets, Event Driven Arbitrage, Fixed Income Arbitrage, Global Macro, Long/Short Credit, Long/Short Equities and Opportunistic Investing. These strategies were selected because of their low correlation with the stock market, the bond market and each other. Our alternative investment guidelines also provide that Max Re Diversified may be invested in Merger Arbitrage.

Our alternative investments are invested in accordance with our investment guidelines, which may be amended from time to time by our board of directors. Our investment guidelines currently mandate, among other things, that:

• funds must be invested in a minimum of five distinct alternative investment strategies;

• investments in any single strategy may not be made if it would cause the single strategy to exceed 25% of the value of our alternative investment portfolio, with further concentration limits imposed on certain strategies;

• investments with less than quarterly liquidity may not exceed 20% of our alternative investment portfolio; and

• investments in any single underlying fund may not be made if it would cause the single underlying fund to exceed 5% of the value of our alternative investment portfolio.

Under the terms of our customer agreement and trading authorization contract with Alstra, Alstra may make discretionary investment determinations so long as those determinations comply with our alternative investment guidelines and are in underlying funds approved by the finance and investment committee of the board of directors. Currently Max Re Diversified pays Alstra a management fee of 70 basis points plus an incentive fee of 7.5% of the return in excess of a 10% threshold on the net asset value of the funds in which Max Re Diversified had invested.

Alternative Investment Strategies.The following is a summary of the underlying strategies of funds in which we may invest our alternative investments:

Commodities Trading. Commodities trading advisors seek to make returns by trading futures, options and other securities in the over-the-counter market and on the regulated commodities exchanges.

Convertible Arbitrage. This strategy typically entails the simultaneous purchase of a convertible bond and a short sale of the underlying common stock, which results in an offsetting hedged position. This strategy generates returns from equity market volatility in either up or down directions. Income is also earned from the coupon interest payment on the convertible bond and from the short sale rebate, which is effectively interest paid on balances generated from the short sale of the underlying common stock. The principal risk of this strategy is a decline in the price of the convertible bond due to interest rate movements or credit quality changes that are not offset by an increase in the value of the corresponding common stock short position.

Distressed Securities Investing. Funds that pursue a distressed investing strategy purchase securities of companies experiencing financial distress. Typically, these companies are engaged in out-of-court debt restructurings or bankruptcy proceedings.

Diversified Arbitrage. This strategy typically entails simultaneously pursuing a variety of market-neutral strategies such as convertible arbitrage and event-driven arbitrage. By combining multiple skill sets within the same fund, these managers are able to allocate resources from one market neutral strategy to another in an effort to focus opportunistically on the strategies that are perceived as offering the greatest potential for returns in any given environment.

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Emerging Markets. Emerging market funds seek to generate returns by employing fundamental analysis of emerging market countries and investing in government and corporate securities of emerging market countries.

Event-Driven Arbitrage. This strategy typically entails the purchase of securities of a company involved in a significant corporate event. Event-driven arbitrage funds will typically employ merger arbitrage techniques along with additional arbitrage techniques for companies that are spinning off divisions, going through reorganizations or undergoing other significant corporate events.

Fixed Income Arbitrage. Fixed income arbitrage funds seek to make returns by arbitraging fixed income securities. Principal trading activities include making arbitrage trades based on aberrations in the yield curve, credit spreads or between sectors in the fixed maturity market, such as between mortgage backed securities and asset backed securities.

Global Macro. Funds that pursue a global macro strategy typically participate in directional trading of bonds, stocks and currencies in an attempt to take advantage of perceived changes in macroeconomic conditions. A global macro fund will typically buy or sell securities such as Treasury bills and government notes and bonds, corporate bonds, foreign currencies and common stocks of individual companies or futures contracts on stock indices such as the S&P 500 Index^®. A global macro fund typically purchases both securities, such as common stock or government bonds, as well as derivatives of these securities, including futures, forward contracts and options. The principal risk of this strategy is that funds pursuing the strategy may incorrectly predict macroeconomic trends.

Long/Short Credit. Funds that pursue a long/short credit strategy seek opportunities to invest primarily in high grade, high yield and distressed fixed maturities based on the identification of imbalance in valuation and capital allocation across credit ratings, industry sectors and geographic regions.

Long/Short Equities. Funds that pursue a long/short strategy typically purchase common stock (go long) of companies in a particular sector with perceived strong fundamentals and sell common stock (go short) of companies in the same sector that are perceived to have deteriorating fundamentals. The strategy attempts to create investment returns through superior stock selection based upon fundamental analysis rather than creating returns based simply upon an upward price direction of the overall stock market. While this strategy can profit from either positive or negative price trends in the overall stock market, investment managers of long/short equity funds generally have a net long position and returns tend to benefit from upward movement in the stock market and be negatively affected by declines in the stock market. Funds that pursue this strategy generally purchase and sell common stock of publicly-traded companies.

Merger Arbitrage. This strategy typically entails the simultaneous purchase of common stock of a company being acquired or merged and a short sale of the common stock of the acquiring company.

Opportunistic Investing. Our principal opportunistic investment focuses on investing in distressed loan portfolios in Japan. These loans tend to be collateralized by real estate and are typically purchased for a small fraction of the original loan amount. This strategy involves analysis of the value of the real estate collateral underlying each loan. The fund then attempts to reach an agreement with the debtor under each of the individual loans to satisfy the indebtedness for an amount greater than the purchase price of the loan. Securities purchased pursuant to this strategy are normally private debt obligations for which there is no public market.

Reinsurance Private Equity. In addition to Max Re Diversified’s investments in alternative investment funds, Max Re has made private equity investments in two reinsurance companies: Grand Central Re and DaVinci Re Holdings Ltd., and its operating subsidiary DaVinci Reinsurance Ltd., a Bermuda property catastrophe reinsurer.

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Alternative Investment Portfolio.As of December 31, 2005 and 2004, our alternative investment portfolio was allocated as follows:

	As of December 31,
	2005				2004
	Fair Value		Percentage of Total Alternative Investment Portfolio		Fair Value		Percentage of Total Alternative Investment Portfolio
	(in thousands)				(in thousands)
Commodities trading	$	78,782	6.4	%	$	55,946	5.0	%
Convertible arbitrage		41,445	3.4			90,275	8.1
Distressed securities investing		194,499	15.8			154,196	13.8
Diversified arbitrage		179,952	14.6			170,408	15.2
Emerging markets		97,625	7.9			68,584	6.1
Event driven arbitrage		212,172	17.2			94,554	8.4
Fixed income arbitrage		22,937	1.9			86,175	7.7
Global macro		100,765	8.2			139,110	12.4
Long/short credit		118,059	9.6			70,797	6.3
Long/short equity		127,512	10.4			99,084	8.9
Opportunistic investing		23,744	1.9			24,221	2.2
Total Max Re Diversified		1,197,492	97.3			1,053,350	94.1
Reinsurance private equity		33,397	2.7			65,678	5.9
Total alternative investment portfolio	$	1,230,889	100.0	%	$	1,119,028	100.0	%

Alternative Investment Portfolio Liquidity.We are able to liquidate our alternative investments held through Max Re Diversified on the same terms that the underlying funds can be liquidated. In general, the funds in which our alternative investments are invested require 30 days notice of liquidation, and may be liquidated on a monthly, quarterly or longer basis. In accordance with our investment guidelines, a minimum of 80% of our alternative investment portfolio must be maintained in funds with monthly or quarterly liquidity. As of December 31, 2005, the liquidity profile of our alternative investments held through Max Re Diversified was as follows:

Monthly	10.0	%
Quarterly	80.6	%
Other	9.4	%

Once a notice of withdrawal is given, we could be subject to periods extending up to 60 days before the cash proceeds are returned by an investment fund. Although we believe that our fixed maturities investments provide sufficient liquidity to satisfy the claims of our insureds and ceding clients, in the event that we were required to access assets invested in the alternative investments, our ability to do so may be impaired by these liquidity constraints.

Additional information about the alternative investments can be found in Notes 3 and 4 to our audited consolidated financial statements included herein.

Competition

The reinsurance and insurance industry is highly competitive. Competition in the types of business that we currently underwrite and intend to underwrite in the future is based principally on:

• premium rates;

• ability to obtain terms and conditions appropriate with the risk we are assuming and in accordance with our underwriting guidelines;

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• the general reputation and perceived financial strength of the insurer or reinsurer;

• relationships with reinsurance and insurance intermediaries;

• ratings assigned by independent rating agencies;

• speed of claims payment and administrative activities; and

• experience in the particular line of insurance or reinsurance to be underwritten.

We compete directly with numerous independent reinsurance companies, captive insurance companies, insurance companies, subsidiaries or affiliates of established insurance companies or newly formed companies, reinsurance departments of primary insurance companies and underwriting syndicates from countries throughout the world in our chosen product lines. Many of these competitors are well established, have significant operating histories and have developed longstanding customer relationships. Our worldwide insurance and reinsurance competitors include ACE Limited, American International Group, Inc., Berkshire Hathaway, Inc., Swiss Reinsurance Company and XL Capital Ltd., all larger companies, with higher credit ratings and greater credit capacity. Additionally, competitors such as AXIS Capital Holdings Limited, Arch Capital Group Ltd., Endurance Specialty Insurance Ltd. and Platinum Underwriters Reinsurance, Inc. compete in many of our property and casualty markets. In the aftermath of the significant losses experienced by the insurance and reinsurance industry as a result of several hurricanes in the United States in 2005, a number of highly capitalized start-up companies have entered the market. We believe these competitors are likely to concentrate on the property market, an area into which we intend to expand further subsequent to the hurricanes.

Ratings

Ratings are an important factor in establishing the competitive position of reinsurance and insurance companies and are important to our ability to market our products. Max Re is currently rated “A-(excellent)” by A.M. Best Company and “A (strong)” by Fitch, Inc. These ratings reflect each rating agency’s opinion of Max Re’s financial strength, operating performance and ability to meet obligations. They are not evaluations directed toward the protection of investors in securities issued by Max Re Capital.

Administration

We provide most of our own management and administrative services and establish and administer our loss reserves and policy benefits. Our underwriters, financial staff, chief risk officer and actuaries assist our claims personnel in performing traditional claims tasks such as monitoring claims and reserving. We also engage third parties to administer certain reinsurance claims. In addition, when we write highly specialized business we from time to time hire third-party claims specialists to assist in evaluating loss exposure and establishing reserving practices and claims-paying procedures. We self-manage and administer the claims activity associated with our insurance operations and utilize both internal resources and external experts in the reserving and settlement of insurance claims.

In connection with the administration of the life and annuity benefit payments of our clients’ primary insureds that are covered on certain reinsurance transactions, our company, together with the client, will select an independent third-party claims administrator. We and our client then enter into a contract with the third-party administrator that will typically contain a provision requiring a significant amount of advance notice in order to terminate the contract. We are responsible for the loss and benefit payment expense charged by the third party administrator.

Regulation

Bermuda

The Insurance Act 1978 of Bermuda and its related regulations, which we refer to collectively as the Bermuda Insurance Act, regulates the reinsurance and insurance business of Max Re and the reinsurance and

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insurance management business of Max Re Managers. The Bermuda Insurance Act imposes solvency and liquidity standards and auditing and reporting requirements on Max Re and grants to the Bermuda Monetary Authority powers to supervise, investigate and intervene in the affairs of Bermuda reinsurance and insurance companies. Max Re is required to prepare annual statutory financial statements, file an annual statutory financial return and have its statutory reserves actuarially certified. In addition, Max Re Capital, Max Re, Max Re Managers and Max Re Diversified are each required to comply with the provisions of the Companies Act 1981 of Bermuda, which we refer to as the Bermuda Companies Act, regulating, among other things, the payment of dividends and making of distributions from contributed surplus.

Ireland

Our Irish operating subsidiaries, Max Insurance Europe and Max Re Europe, are subject to regulation by the Irish Financial Services Regulatory Authority, or IFSRA, under the Irish Insurance Acts 1909 to 2000, regulations promulgated thereunder, regulations relating to insurance business promulgated under the European Communities Act 1972, directions issued under regulations and guidelines issued by IFSRA.

Max Insurance Europe is required to maintain statutory reserves in respect of underwriting liabilities and a solvency margin as provided for in the Insurance Acts and regulations. Assets constituting statutory reserves must comply with admissibility, diversification, localization and currency matching rules, and statutory reserves must be actuarially certified annually.

United States and Other Jurisdictions

We are not currently licensed or admitted as an insurer in any jurisdiction except Bermuda and Ireland. The insurance laws of each state in the United States and of many other jurisdictions regulate the sale of reinsurance and insurance within their jurisdiction by insurers, such as Max Re, which are not licensed or admitted to do business within such jurisdictions. We conduct our business through our Bermuda and Dublin, Ireland offices and do not intend to conduct any activities that may constitute the transaction of the business of insurance in any jurisdiction in which we are not licensed or otherwise authorized to engage in such activities.

In addition to the regulatory requirements imposed by the jurisdictions in which a reinsurer is licensed, a reinsurer’s business operations are affected by regulatory requirements governing credit for reinsurance in other jurisdictions in which its ceding companies are located. In general, a ceding company that obtains reinsurance from a reinsurer that is licensed, accredited or approved by the jurisdiction in which the ceding company files statutory financial statements is permitted to reflect in its statutory financial statements a credit in an aggregate amount equal to the liability for unearned premiums and loss reserves and loss expense reserves ceded to the reinsurer. Many jurisdictions also permit ceding companies to take credit on their statutory financial statements for reinsurance obtained from unlicensed or non-admitted reinsurers if certain prescribed security arrangements are made. Because Max Re is not licensed, accredited or approved in any jurisdiction other than Bermuda and Ireland, in certain instances our reinsurance customers require us to obtain a letter of credit or enter into other security arrangements.

Employees

As of December 31, 2005, we had 82 employees.

Available Information

Our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports and the Proxy Statement for our Annual General Meeting of Shareholders are made available, free of charge, on our web site, http://www.maxre.bm, as soon as reasonably practicable after such reports have been filed with or furnished to the SEC. In addition, our Code of Business Conduct and Ethics is available on our web site.

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ITEM 2. PROPERTIES

We lease office space in Hamilton, Bermuda and Dublin, Ireland, the locations in which we operate. We lease office space on a long-term basis, which we believe will be adequate for anticipated future operations. The property and casualty and life and annuity segments use both locations, although the life and annuity segment primarily works from our Bermuda office.

ITEM 3. LEGAL PROCEEDINGS

We are, from time to time, a party to litigation and/or arbitration that arises in the normal course of our business operations. We are also subject to other potential litigation, disputes, and regulatory or governmental inquiry.

SEC Inquiry. As previously disclosed, in connection with an internal review of three finite property and casualty retrocessional contracts, we voluntarily contacted the SEC in March 2006. Subsequently, in connection with the SEC’s industry-wide investigation into non-traditional, or loss mitigation, (re)insurance products, we received a subpoena for certain information and interviews with a number of our employees relating to our business practice review and our determination to restate our financial statements for the fiscal years ended December 31, 2005, 2004, 2003, 2002 and 2001. Additionally, we are aware that certain former and current officers of our company have been served with subpoenas. We will continue to cooperate fully with the SEC and expect that the former and current officers will also cooperate. We cannot predict the ultimate impact, if any, this investigation may have on our business or operations. It is possible that the SEC investigation may result in penalties and relief, including without limitation injunctive relief and/or civil monetary penalties, or require remediation. The nature of the relief or remedies or remediation that the SEC may seek cannot be predicted at this time. If an enforcement action is brought by the SEC, it could have a material adverse effect on us.

Other Actions.On April 4, 2006, a complaint was filed in the U.S. District Court for the Northern District of Georgia on behalf of New Cingular Wireless Headquarters LLC and 16 other corporations against approximately 100 insurance entity defendants, including insurance brokers Marsh Inc. and Aon, as well as Max Re. On October 16, 2006, the Judicial Panel on Multidistrict Litigation transferred the case to the U.S. District Court for the District of New Jersey for pretrial proceedings on a consolidated basis with other lawsuits raising similar claims. The complaint alleges that the defendant insurance companies and insurance brokers conspired to manipulate bidding practices for insurance policies in certain insurance lines and failed to disclose certain commission arrangements. The named plaintiffs have asserted statutory claims under the Sherman Act, the Racketeer Influenced and Corrupt Organizations Act, as well as common law claims alleging breach of fiduciary duty, inducement to breach fiduciary duty, unjust enrichment and fraud. We intend to defend ourselves vigorously in this suit but cannot at this time predict the outcome of the matters described above or estimate the potential costs related to defending the action. No liability has been established in our audited consolidated financial statements for the year ended December 31, 2005.

While any proceeding contains an element of uncertainty, we currently do not believe that the ultimate outcome of all outstanding litigation, arbitrations and inquiries will have a material adverse effect on our consolidated financial condition, future operating results and/or liquidity, although an adverse response from the SEC or adverse resolution of a number of these items could have a material adverse effect on our results of operations in any particular fiscal quarter or year.

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

No matters were submitted to a vote of shareholders during the fourth quarter of the fiscal year ended December 31, 2005.

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PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF EQUITY SECURITIES

(A) Market Information

Our common shares began trading on the Nasdaq National Market under the symbol MXRE on August 14, 2001. Prior to that time, there was no trading market for Max Re Capital common shares. The following table sets forth for the periods indicated the high and low reported sale price of our common shares on the Nasdaq National Market.

	2005				2004
	High		Low		High		Low
First Quarter	$	24.40	$	20.69	$	24.60	$	21.00
Second Quarter	$	23.93	$	21.00	$	23.50	$	18.38
Third Quarter	$	25.52	$	22.10	$	20.00	$	17.45
Fourth Quarter	$	27.00	$	22.40	$	21.48	$	18.01

Our common shares began trading on the Bermuda Stock Exchange (“BSX”) under the symbol MXRE BH on December 17, 2001. The last day a closing price was reported by the BSX was $15.50 on December 18, 2001.

(B) Holders

As of January 31, 2006, the number of holders of record of our common shares was approximately 124.

(C) Dividends

We have paid a quarterly cash dividend of $0.05 ($0.20 annually) per common share since the second quarter of 2005. From the fourth quarter of 2003 through the first quarter of 2005, we paid a quarterly cash dividend of $0.03 per common share ($0.12 annually). From the fourth quarter of 2001 through the third quarter of 2003, we paid a quarterly cash dividend of $0.02 per common share ($0.08 annually). Prior to that time, we had not declared or paid any dividends on our common shares. Any determination to pay cash dividends is at the discretion of our board of directors and is dependent upon the results of operations and cash flows, the financial position and capital requirements, general business conditions, legal, tax, regulatory and any contractual restrictions on the payment of dividends and other factors the board of directors deems relevant.

Max Re Capital’s ability to pay dividends depends, in part, on the ability of its subsidiaries to pay dividends to it. Max Re is subject to Bermuda regulatory constraints that affect its ability to pay dividends to Max Re Capital. Under the Bermuda Insurance Act, Max Re must maintain a minimum solvency margin and minimum liquidity ratio and is prohibited from declaring or paying dividends if it does not comply or such action would result in noncompliance with the Bermuda Insurance Act. In addition, as a long-term insurer Max Re must maintain long-term business assets of a value of at least $250,000 greater than its long-term business liabilities and is prohibited from declaring or paying dividends unless the value of its long-term business assets exceeds the amount of its long-term business liabilities, as certified by its approved actuary, by the amount of the dividend and at least $250,000. Additionally, the amounts of any such dividend shall not exceed the aggregate of that excess and other funds properly available for the payment of dividends, being funds arising out of its business, other than its long-term business.

Under the Bermuda Companies Act, each of Max Re Capital, Max Re, Max Re Managers and Max Re Diversified may only declare or pay a dividend if, among other matters, there are reasonable grounds for believing that it is, or would after the payment be, able to pay its respective liabilities as they become due. Under the Irish Insurance Acts and regulations, each of Max Europe Holdings, Max Re Europe and Max Insurance Europe may only declare a dividend if, among other matters, such payment would not reduce its statutory surplus

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below the required minimum. Accordingly, we cannot assure shareholders that we will declare or pay dividends in the future. In addition, each of Max Re’s three letter of credit facilities prohibits Max Re from paying dividends at any time that it is in default under the respective facility, which will occur if Max Re Capital’s shareholders’ equity or Max Re’s shareholders’ equity is less than a specified amount as well as in certain other circumstances.

(D) Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information as of December 31, 2005 about Max Re Capital’s common shares that may be issued upon the exercise of options, warrants and rights granted to employees, consultants or members of the board of directors under all of our existing equity compensation plans, including the Incentive Plan, each as amended.

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders	3,915,279	(1)	$	15.45	3,763,615	(2)
Equity compensation plans not approved by security holders	—			—	—
Total	3,915,279	(1)	$	15.45	3,763,615	(2)

(1) Includes 2,066,869 common shares issuable upon the exercise of options that were outstanding under the Incentive Plan as of December 31, 2005. The Incentive Plan was approved by the shareholders of Max Re Capital at the Annual General Meeting of Shareholders in 2000 and amendments to the Incentive Plan were approved by shareholders at the Annual General Meeting of Shareholders in 2002 and in 2005. Also includes 1,848,410 common shares issuable upon the exercise of warrants granted in 1999, 2000 and 2001 to the Named Executive Officers and certain other employees pursuant to their respective employment agreements. The terms in the employment agreements providing for the granting of these warrants were approved by written shareholder resolution in December 1999.

(2) Represents the difference between the number of securities issuable under the Incentive Plan 8,000,000 and the number of securities issued under the Incentive Plan as of December 31, 2005, 4,236,385, which consist of options to acquire 2,066,869 common shares (net of exercises of 223,733 and forfeitures of 19,000) as well as 1,926,783 restricted shares.

(E) Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Purchase of Equity Securities

The table below sets forth the information with respect to purchases made by or on behalf of Max Re Capital or any “affiliated purchase” (as defined in Rule 10b-18(a)(3) under the Exchange Act), of our common shares during the three months ended December 31, 2005.

Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
(October 1, 2005 to October 31, 2005)(1)	—	—	—	$	36.0 million
(November 1, 2005 to November 30, 2005)	—	—	—	$	36.0 million
(December 1, 2005 to December 31, 2005)	—	—	—	$	36.0 million
Total	—	—	—	$	36.0 million

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(1) As a matter of policy, we do not repurchase our common shares during a self-imposed quarterly “black-out” period extending from the last business day of the quarter to three business days following the earnings release for such quarter.

(2) On September 17, 2001, we announced that our board of directors had approved a share repurchase program, pursuant to which up to $15.0 million of our common shares may be repurchased. This repurchase program was increased by an aggregate of $75.0 million of common shares by resolutions of our board of directors adopted on September 27, 2001, July 26, 2002 and July 29, 2005. The repurchase program is being effected from time to time, depending on market conditions and other factors, through open market purchases and privately negotiated transactions. The total remaining authorization under the repurchase program was $36.0 million as of January 31, 2006. The repurchase program has no set expiration or termination date.

ITEM 6.SELECTED FINANCIAL DATA

The following table of selected financial data should be read in conjunction with our audited consolidated financial statements and the notes thereto and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” each contained herein. As further described in Note 2 to the consolidated financial statements, we have restated our consolidated Financial statements as of and for the years ended December 31, 2005, 2004, 2003, 2002 and 2001. The following selected financial data includes the effects of the restatement adjustments:

	Year Ended December 31,
	2005			2004			2003			2002			2001
(Restated)	(dollars in millions, except percentages and per share data)
Gross premiums written	$	1,246.0		$	1,043.6		$	1,009.8		$	647.4		$	710.6
Net premiums earned		1,053.5			899.9			714.5			388.7			509.6
Net investment income		106.8			82.8			60.1			64.4			43.9
Net gains on alternative investments		39.9			81.6			124.0			32.1			29.8
Income (loss) before minority interest		9.5			141.8			137.9			(2.9	)		(50.9	)
Fixed maturities and cash		2,996.9			2,395.2			1,805.9			1,371.7			982.4
Alternative investments		1,230.9			1,119.0			831.4			653.2			627.8
Total assets		5,305.2			4,319.4			3,452.6			2,565.8			1,977.2
Shareholders’ equity(1)		1,185.7			902.7			762.9			661.4			646.1
Book value per share(1)		20.16			19.70			16.88			14.61			13.75
Diluted earnings (loss) per share		0.18			2.92			3.00			(0.06	)		(1.27	)
Cash dividends per share		0.18			0.12			0.09			0.08			0.02
Return on average combined equity		0.9	%		17.0	%		19.1	%		(0.4	)%		(8.8	)%

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The following table of selected financial data includes information as previously reported on Form 10 K/A (Amendment No. 1) prior to the restatement adjustments:

	Year Ended December 31,
	2005			2004			2003			2002			2001
(As Previously Reported)	(dollars in millions, except percentages and per share data)
Gross premiums written	$	1,246.0		$	1,043.6		$	1,009.8		$	647.4		$	710.6
Net premiums earned		1,024.4			896.1			712.9			378.7			430.5
Net investment income		106.8			82.8			60.1			64.4			43.9
Net gains on alternative investments		39.9			81.6			124.0			32.1			29.8
Income (loss) before minority interest		6.3			135.3			128.5			(7.1	)		(14.6	)
Fixed maturities and cash		2,996.9			2,395.2			1,805.9			1,371.7			982.4
Alternative investments		1,230.9			1,119.0			831.4			653.2			627.8
Total assets		5,498.2			4,487.8			3,643.0			2,755.1			2,156.4
Shareholders’ equity(1)		1,198.9			919.0			785.6			693.5			682.5
Book value per share(1)		20.38			20.05			17.39			15.37			14.55
Diluted earnings (loss) per share		0.12			2.79			2.79			(0.15	)		(0.36	)
Cash dividends per share		0.18			0.12			0.09			0.08			0.02
Return on average combined equity		0.6	%		15.9	%		17.4	%		(1.0	)%		(2.4	)%

(1) Formerly shown as combined shareholders’ equity (shareholders’ equity and minority interest) and combined book value per share. On July 30, 2003, the holders of Max Re non-voting common shares and warrants to acquire Max Re non-voting common shares exchanged such shares and warrants for Max Re Capital common shares and warrants to acquire Max Re Capital common shares. The result of this exchange was the elimination of minority interest and an increase in shareholders’ equity of equal amounts as of the date of the exchange.

ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of our results of operations for the year ended December 31, 2005 compared to the year ended December 31, 2004 and for the year ended December 31, 2004 compared to the year ended December 31, 2003, and also a discussion of our financial condition as of December 31, 2005. This discussion and analysis should be read in conjunction with the audited consolidated financial statements and related notes that are included in this annual report.

Overview

We are a Bermuda-based provider of reinsurance and insurance products for both the property and casualty and the life and annuity markets. Since 2001, the property and casualty market has presented more opportunities to us than the life and annuity market due to a shortage of reinsurance capacity in the property and casualty market, resulting in improvement in premium rates, terms and conditions. However, prior to the severe hurricane activity in 2005, we observed a decrease in attractive property and casualty opportunities as competition increased in most property and casualty lines of business that we write. We anticipate that hurricanes Katrina, Rita and Wilma will result in improved premium rates, terms and conditions in the property and property catastrophe reinsurance and insurance markets. As a result we are growing our short-tail property and property catastrophe reinsurance and insurance premium volume, including through an expansion of the underwriting of property and property catastrophe reinsurance. With respect to the types of life and annuity reinsurance contracts we offer, we have seen more opportunities in the market and increased production in 2005 compared to 2004. We remain cautious about whether these opportunities will continue to result in additional business for us in the near term.

To manage reinsurance and insurance liability exposure, make investment decisions and assess overall enterprise risk, we model our underwriting and investing activities on an integrated basis. Our integrated risk

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management, as well as terms and conditions of our products, provides flexibility in making decisions regarding investments. Our investments are currently comprised of a high grade fixed maturities portfolio and an alternative investment portfolio that currently employs 11 strategies invested in approximately 50 underlying trading entities and two strategic reinsurance private equity investments. Our investment portfolio is designed to provide diversification and to generate positive returns while attempting to reduce the frequency and severity of loss outcomes. Based on fair value at December 31, 2005, the allocation of invested assets was approximately 70.9% in cash and fixed maturities and 29.1% in alternative investments.

Our principal operating subsidiary is Max Re. At December 31, 2005, Max Re had $1,134.3 million of shareholders’ equity. We conduct our European activities through Max Europe Holdings and its operating subsidiaries, Max Re Europe and Max Insurance Europe. We also provide underwriting and administrative services on a fee basis through Max Re Managers. We hold all of our alternative investments in Max Re Diversified, other than reinsurance private equity investments that are held by Max Re.

Restatement of Financial Statements

On October 29, 2006, subsequent to the filing on June 7, 2006 of our Amendment No. 1 to Annual Report on Form 10-K/A and the filing on February 15, 2006 of our Annual Report on Form 10-K for the year ended December 31, 2005, we announced that the ARMC had reopened its previously announced internal investigation that centered on a review three finite property and casualty retrocessional contracts purchased in 2001 and 2003. The review was initiated to consider whether these three contracts were properly accounted for by us, principally with respect to whether they contained sufficient risk transfer to meet the requirements of Statement of Financial Accounting Standard No. 113 (“SFAS 113”) to be accounted for as reinsurance. The ARMC engaged its own law firm, which was assisted by accounting and actuarial consultants, to advise it in performing the internal review. In connection with the internal review, the ARMC voluntarily contacted the SEC. In May 2006, the ARMC concluded its internal investigation and found that the review supported our original determination that the three contracts in question contained sufficient risk transfer to meet the requirements of SFAS 113 to be accounted for as reinsurance. However, the review caused us to re-evaluate other accounting aspects of the three contracts. This re-evaluation led us to conclude that a restatement of our consolidated financial statements for the years ended December 31, 2005, 2004, 2003, 2002 and 2001 was warranted. Specifically, we restated to account for the bifurcation of the retrocessional contracts into retroactive and prospective components and to account for an additional contractual feature on a gross basis as more fully described in our restated consolidated financial statements for the years ended December 31, 2005, 2004, and 2003 in our Annual Report on Form 10-K/A (Amendment No.1) filed on June 7, 2006.

In October 2006, however, the ARMC received from the counter-party to two of these contracts additional information that was unknown and unavailable to us at the May 2006 conclusion of the initial internal investigation. The ARMC immediately reopened its internal investigation to determine whether, in light of this additional information, these two contracts, which were entered into in 2001, still satisfied the risk transfer requirements of SFAS 113. The additional information raised the possibility of the existence of an oral agreement that would negate risk transfer. The available evidence does not allow for a definitive conclusion as to the existence of such an oral agreement. However, because some of the evidence suggests such an agreement, we believe that there is an insufficient basis to conclude that there was risk transfer with respect to these two contracts and, accordingly, we have determined that it is appropriate to restate our financial statements for the years ending December 31, 2001 through 2005 and for each of the periods ended March 31, 2006 and June 30, 2006 to reflect no risk transfer for these two contracts. The additional information does not relate to the third contract reviewed in the initial internal investigation, which is with a different counter-party, and the accounting for that contract remains unchanged from that reported on our Form 10-K/A (Amendment No. 1) filed on June 7, 2006. With this decision to restate, the ARMC has concluded its internal investigation.

Our previously issued financial statements for these periods should no longer be relied upon. The restated amounts for the years ended December 31, 2005, 2004, and 2003 are reflected throughout this report. Management and the ARMC have discussed the decision to restate with our independent auditors.

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As previously reported, we have voluntarily contacted the SEC and are continuing to cooperate with the SEC’s related investigation.

As further described in Note 2 to the consolidated financial statements, the effect of this restatement on previously reported financial statements is to increase 2005 net income by $3.2 million; to increase 2004 net income by $6.4 million; to increase 2003 net income by $8.3 million; to increase 2002 net income by $3.6 million and to decrease 2001 net income by $29.6 million. The cumulative adjustment to shareholders’ equity and minority interest at January 1, 2003 is a decrease of $32.1 million.

Information on our accounting controls and procedures is described in Item 9A—Controls and Procedures.

Executive Summary

Our financial results for the year ended December 31, 2005 were significantly impacted by Hurricanes Katrina and Wilma and, to a lesser extent, Hurricane Rita and other natural catastrophes. As a result, our overall property and casualty underwriting results produced a 106.0% combined ratio (total losses and expenses as a percentage of net premiums earned) compared to 93.8% in the year ended December 31, 2004. We recognized approximately $123.4 million in underwriting losses as a result of hurricanes and a further $34.0 million in reinsurance private equity investment losses associated with hurricanes during the year. Net income for the year is $9.5 million after recording a reduction in net income of $157.4 million from hurricane related activity.

During the year ended December 31, 2005, our total gross premiums written increased 19.4% compared with the year ended December 31, 2004. Our property and casualty reinsurance, property and casualty insurance and life and annuity reinsurance business all contributed to our volume growth.

Gross premiums written for the property and casualty reinsurance segment increased by 5.6% to $615.7 million for the year ended December 31, 2005 compared to $583.2 million for the year ended December 31, 2004. The increase in gross premiums written in this segment includes additional premium of $182.0 million stemming from additional losses on two contracts written in prior periods, which was largely offset by the non-renewal of four reinsurance contracts with an aggregate premium of approximately $174.5 million in 2004.

We expanded our customer base and renewed the contracts we desired to renew in the property and casualty insurance segment, resulting in a 43.2% increase in gross premiums written to $355.3 million, for the year ended December 31, 2005 compared to $248.1 million for the year ended December 31, 2004.

Gross premiums written for the life and annuity reinsurance segment increased to $275.0 million during the year ended December 31, 2005 compared to $212.3 million during the year 2004, principally due to increased premium production during the year. We recognized $311.2 million in benefit expenses during the year ended December 31, 2005 compared to $238.2 million for the year ended December 31, 2004. The increase in benefits is principally due to the life and annuity reinsurance transactions written during the year ended December 31, 2005.

In 2005, we continued to emphasize casualty lines in our property and casualty reinsurance and insurance segments, with the largest portion of gross premiums written coming from professional liability and general liability. We intend to continue to diversify our property and casualty reinsurance and insurance underwriting by writing business with a greater number of clients and by varying the underlying exposures assumed. We are continually reviewing our business strategy in relation to the underwriting environment and we expect that the recent hurricanes in the United States will result in a more attractive market environment for short-tail property and property catastrophe reinsurance and insurance. In order to position ourselves to take advantage of these anticipated opportunities, we sold 11.0 million common shares and 1.65 million common shares on October 17, 2005 and November 4, 2005, respectively, at a price of $23.50 per share in an underwritten public offering, resulting in aggregate net proceeds of approximately $284.1 million.

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We operate in a business where we expect volatility in our underwriting results arising from our reinsurance and insurance businesses. However, by carefully selecting line sizes of business assumed, diversifying our underlying exposures, establishing contractual liability caps on our contracts and purchasing reinsurance and retrocessional reinsurance protection, we believe we manage, and will continue to manage, this volatility effectively. During the year ended December 31, 2005, Hurricane Katrina, likely to be the most costly natural disaster ever seen in the property and casualty industry, Hurricane Rita and Hurricane Wilma, collectively resulted in an industry estimated $45 billion to $80 billion in insured losses. We believe that events such as these demonstrate that our risk management and diversification strategy is operating effectively, as we recorded $9.5 million in net income for the year ended December 31, 2005, despite an aggregate $157.4 million negative impact to net income from natural catastrophes. The $157.4 million negative impact is composed of $73.4 million in property and casualty reinsurance losses, $50.0 million of property and casualty insurance losses and $34.0 million in investment losses recorded under the equity method of accounting from our investment in DaVinci Re Holdings Ltd. and its operating subsidiary DaVinci Reinsurance Ltd. (“DaVinci”).

Losses and benefits represented our largest expense and accounted for 69.4% of total liabilities at December 31, 2005. We establish loss expenses and reserves using a combination of loss reserving techniques and actuarial methods. Loss expenses and reserves are reviewed regularly to reflect new information that we receive. We conduct regular quarterly internal reviews of reserves and, in addition, the adequacy of our reserves is reviewed annually, during the fourth quarter of the year, by independent actuaries to corroborate management’s estimates. As a result of new information received and settling certain contracts with clients during the year ended December 31, 2005, we recognized approximately $139.4 million in net adverse development on prior year reinsurance reserves. The adverse development includes $179.9 million attributable to two property and casualty reinsurance contracts, partially offset by $40.5 million in favorable development on remaining property and casualty reinsurance contracts. The notification of additional losses on these contracts triggered additional premiums written and ceded, together with interest on such premiums, in the net amount of $154.6 million, which is recorded as premium in our financial statements.

Net income for the year ended December 31, 2005 was $9.5 million compared to $141.8 million for the year ended December 31, 2004. The decline in net income is principally attributable to the losses associated with hurricanes Katrina, Rita and Wilma and lower income from our alternative investment portfolio offset by higher interest income from our fixed maturities portfolio compared to the year ended December 31, 2004.

In 2004, the New York State Attorney General and other regulatory authorities launched an investigation into broker conduct and the accounting of certain types of finite risk reinsurance transactions. During the year ended December 31, 2005, we settled all outstanding balances with insurance brokers in relation to Placements Service Agreements (PSAs), which we had terminated with effect from September 30, 2004. In April 2006, we were named a party to litigation in connection with broker conduct, as more fully described in Item 3—Legal Proceedings, and our ARMC has recently concluded its re-opened internal investigation with respect to the accounting for certain of our finite risk property and casualty retrocessional contracts, as more fully described above and in Note 2 to our Consolidated Financial Statements—Restatement of Financial Statements

Our investments during the year ended December 31, 2005 produced a total return of 3.66% compared to 5.63% for the year ended December 31, 2004. The cash and fixed maturities portfolio produced a total return of 3.83% during the year ended December 31, 2005 compared to 4.22% for the year ended December 31, 2004. The decrease in total return was driven by changes in market interest rates that led to a decrease in unrealized holding gains on fixed maturities, which are a component of accumulated other comprehensive income. During the year ended December 31, 2005, our alternative investments generated a 3.34% rate of return compared to an 8.23% rate of return for the year ended December 31, 2004. Our alternative investments owned by Max Re Diversified generated a 5.88% rate of return compared to 9.81% in 2004. In both years the return of the alternative investment portfolio has been negatively impacted by our private equity reinsurance investment in DaVinci, which experienced investment losses of approximately $34.0 million from Hurricane Katrina and other natural catastrophes in 2005 and approximately $15.0 million from hurricanes Charley, Frances, Ivan and Jeanne in 2004. DaVinci is a property

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catastrophe reinsurer and, therefore, it is expected that losses will be incurred during periods where there are severe or frequent catastrophes. In December 2005, DaVinci raised additional share capital and we chose not to participate in the transaction. As a result, our investment in DaVinci has declined to approximately 5% of its share capital at December 31, 2005.

We continually assess our liquidity needs by monitoring and evaluating new business prospects and opportunities and the development of our existing operations. During the year ended December 31, 2005, we generated $389.9 million of cash from operations and invested $549.8 million in fixed maturities. We expect to continue to generate positive operating cash flow through premium receipts and investment returns, which will be partially offset by paid losses on reinsurance and insurance obligations, as well as operating expenses. Further, we raised approximately $284.1 million of additional cash in October and November 2005 in connection with a public offering of our common shares, which we used to increase the capital and surplus of our operating subsidiaries, to expand underwriting capacity, particularly in property and property catastrophe reinsurance and insurance lines and for general corporate purposes.

Drivers of Profitability

Revenues

We derive operating revenues from premiums from our reinsurance and insurance businesses. Additionally, we recognize returns from our investment portfolio.

Reinsurance and insurance premiums are a function of the amount and type of contracts written as well as prevailing market prices. Property and casualty premiums are earned over the terms of the underlying contracts. Life and annuity reinsurance premiums are generally earned when the premium is due from policyholders. Each of our reinsurance contracts contains unique pricing, terms and conditions and expected profit margins. Therefore, the amount of premiums is not necessarily an accurate indicator of our anticipated profitability. Premium estimates are based upon information in underlying contracts, data received from clients and from premium audits. Changes in premium estimates are expected and may result in significant adjustments in any period. These estimates change over time as additional information regarding the underlying business volume of our clients is obtained. There is often a delay in the receipt of updated premium information from clients due to the time lag in preparing and reporting the data to us. After review by our underwriters, we increase or decrease premium estimates as updated information from our clients is received.

Our net investment income is a function of the average invested assets and the average yield that we earn on those invested assets. The investment yield on our fixed maturities investments is a function of market interest rates as well as the credit quality and maturity of our fixed maturities portfolio. We recognize realized capital gains or losses on our fixed maturities investments at the time of sale. The realized capital gains or losses reflect the results of changing market conditions, including changes in market interest rates and changes in the market’s perception of the credit quality of our fixed maturities holdings. Our net gains on alternative investments are a function of the success of the funds in which we are invested, which depends on, among other things, the underlying strategies of the funds, the ability of the fund managers to execute the fund strategies, general economic and investment market conditions and the underlying operating results of our private equity reinsurance investments.

Expenses

Our principal expenses are losses and benefits, acquisition costs, interest expense and general and administrative expenses. Losses and benefits are based on the amount and type of reinsurance and insurance contracts written by us during the current reporting period and information received during the current reporting period from clients pertaining to contracts written in prior years. We record losses and benefits based on actuarial estimates of the expected losses and benefits to be incurred on each contract written. The ultimate losses and benefits depend on the actual costs to settle these liabilities. We increase or decrease losses and benefits estimates as actual claim reports are received. Our ability to estimate losses and benefits accurately at the time of pricing our contracts is a critical factor in determining profitability.

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Acquisition costs consist principally of ceding commissions paid to ceding clients and brokerage expenses, and typically represent a negotiated percentage of the premiums on reinsurance and insurance contracts written. The acquisition costs are net of ceding commissions associated with premiums ceded to our quota share partners on our reinsurance and insurance business. These ceding commissions are designed to compensate us for the costs of producing the portfolio of risks ceded to our reinsurers. We defer and amortize these costs over the period in which the related premiums are earned.

Interest expense principally reflects the net interest charge on funds withheld from reinsurers under reinsurance and retrocessional contracts. Interest is recorded on the funds withheld balances based on various contractual and negotiated rates. The interest expense attributable to the funds withheld under a variable quota share retrocession agreement with Grand Central Re, our largest funds withheld balance, is based on the average of two total return fixed maturity indices. A charge or credit may be recorded in interest expense on this contract in any given period. As a result, interest expense is expected to vary from period to period with a corresponding entry to funds withheld. Interest expense on the remaining balance of funds withheld from other reinsurers under reinsurance and retrocessional contracts will vary principally due to changes in the balance of funds withheld. In addition, interest expense also includes interest on deposit contracts and interest on the bank loan at a rate based on LIBOR plus a spread.

General and administrative expenses are principally employee salaries and related personnel costs, office rent, amortization of leasehold improvements and other operating costs. These costs are primarily fixed in nature and do not vary with the amount of premiums written.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with GAAP, which require management to make estimates and assumptions. We believe that the following accounting policies affect the more significant judgments and estimates used in the preparation of our consolidated financial statements.

Revenue recognition

We follow SFAS No. 60, “Accounting and Reporting by Insurance Enterprises,” SFAS No. 97, “Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and Realized Gains and Losses from the Sale of Investments,” and SFAS No. 113, “Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts,” in determining the accounting for our reinsurance and insurance products. Assessing whether or not the contracts we write meet the conditions for risk transfer requires judgment. The determination of risk transfer is fundamental to our determination of gross premiums written and is based, in part, on the use of actuarial and pricing models and assumptions.

Property and casualty insurance revenue recognition

Our property and casualty insurance premiums are recorded at the inception of each contract, based upon contract terms. The amount of minimum and/or deposit premium is usually contractually documented at inception, and variances between deposit premium and final premium are generally small. An adjustment is posted to amend the minimum and/or deposit premium as data regarding the underlying exposure is provided to us by our insureds. Premiums are earned on a pro rata basis over the coverage period.

We also accrue for reinstatement and additional premiums resulting from losses. Such accruals are based upon contractual terms, and the only element of management judgment involved is with respect to the amount of losses. Reinstatement and additional premiums are recognized at the time we receive and book loss notifications. Reinstatement premiums are the premiums for the restoration of the insurance limit of a contract to its full amount after a loss occurrence by the insured. Additional premiums are premiums based on loss experience during the policy term or coverage period.

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Property and casualty reinsurance revenue recognition

Our property and casualty reinsurance premiums are recorded at the inception of each contract, based upon contract terms and information received from ceding clients and their brokers. For excess of loss contracts, the amount of minimum and/or deposit premium is usually contractually documented at inception, and variances between deposit premium and final premium are generally small. An adjustment is posted to amend the minimum and/or deposit premium as data regarding the underlying exposure is provided to us by our ceding clients. For quota share or proportional property and casualty reinsurance contracts, gross premiums written are normally estimated at inception by the ceding client. We generally account for such premiums using the client’s initial estimates, and then adjust them as advised by our ceding clients. We believe that the ceding clients’ estimate of the volume of business they expect to cede to us represents the best estimate of gross premium written at the beginning of the contract. As the contract progresses, we monitor actual premium received in conjunction with correspondence from the ceding client in order to refine our estimate. Variances from original premium estimates can be greater for quota share contracts than excess of loss contracts. Premiums are earned on a pro rata basis over the coverage period.

We also accrue for reinstatement and additional premiums resulting from losses. Such accruals are based upon contractual terms, and the only element of management judgment involved is with respect to the amount of losses. Reinstatement and additional premiums are recognized at the time we re-estimate losses. Reinstatement premiums are the premiums for the restoration of the reinsurance limit of a contract to its full amount after a loss occurrence by the reinsured. Additional premiums are premiums based on loss experience during the policy term or coverage period.

Life and annuity reinsurance premium

Our life and annuity reinsurance premiums are recorded at the inception of the contract based on actual premiums received and are fully earned at that time. We may periodically receive additional premiums which are recorded and earned when received. Additional premium receipts are generally small.

Premiums receivable

For quota share or proportional contracts we are entitled to receive premium as the ceding client collects the premium under contractual reporting and payment terms, which are usually quarterly. Premiums are usually collected over a two year period on our quota share or proportional contracts. For excess of loss contracts, premium is generally paid in contractually stipulated installments with payment terms ranging from payment at the inception of the contract to four quarterly payments. As a result of recognizing the estimated gross premium written at the inception of the policy and collecting that premium over an extended period, we include a premium receivable asset on our balance sheet. We actively monitor our premium receivable asset to consider whether we need an allowance for doubtful accounts. As part of this process we consider the credit quality of our cedants and monitor premium receipts versus expectations. We also seek to include a right of offset in the contract terms. Since commencing our operations, we have not written off any premiums receivable and, currently, no premiums receivables are significantly beyond their due dates or in dispute.

Losses and benefits

Under GAAP, we are not permitted to establish loss reserves until the occurrence of an event that may give rise to a loss. Once such an event occurs, we establish reserves based upon loss reports from insureds and estimates of total losses incurred by the ceding client as a result of the event and our estimate of the portion of such loss we cover. As a result, only loss reserves applicable to losses incurred up to the reporting date may be recorded, with no allowance for the provision of a contingency reserve to account for expected future losses.

Setting appropriate reserves for losses and benefits is an inherently uncertain process. Losses and benefit reserves represent estimates, at a given point in time, of the ultimate settlement costs of losses incurred

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(including IBNR losses, which are losses that have been incurred but not yet reported to us). Our IBNR reserves are largely comprised of casualty exposures and therefore these claims are subject to a higher degree of estimation volatility as a result of changes in the legal environment, jury awards, medical cost trends and general inflation. We regularly review and update these estimates using the most current information available and employing various actuarial methods. The ultimate liability for a loss is likely to differ from the original estimate due to the factors discussed above. Whenever we determine that an existing reserve for losses and benefits needs adjustment, we are required to record a change in estimate, increasing or decreasing the reserve with a corresponding reduction or increase, which could be material, in our operating results in the period in which the deficiency or redundancy is identified. Adjustments resulting from changes in our estimates are recorded in the period such adjustments are determined. The establishment of reserves, or the adjustment of reserves for reported losses, could result in significant upward or downward changes to our financial condition or results of our operations in the period such amounts are reported.

The development of policy benefit reserves requires management to make estimates and assumptions regarding mortality, morbidity, lapse expense and investment experience. Such estimates are primarily based on historical experience and information provided by ceding companies. Actual results could differ materially from these estimates. We monitor actual experience and, where circumstances warrant, will revise our assumptions and the related reserve estimates. These revisions are recorded in the period they are determined.

Our reinsurance and insurance reserves are actuarial projections as of the balance sheet date of the ultimate unpaid losses and benefits associated with our reinsurance and insurance contracts. Considerable judgment is required in the evaluation of losses and benefits and the establishment of liabilities for losses and benefits. We employ a variety of actuarial loss reserving techniques and several models to assist in the setting and reviewing of reserves. The actuarial loss reserves techniques and models employed include paid loss development, incurred loss development, paid and incurred Bornhuetter-Ferguson methods and frequency and severity methods. Further, we retain an independent actuarial firm to review annually the adequacy of the reserves as determined by management. Additional information regarding losses and benefit amounts incurred will become available over time and the estimates of such amounts may need to be revised, resulting in gains and losses in the periods determined.

Investments

Our investments are carried at fair value or amounts that approximate fair value. Fair value for our investments in fixed maturities is generally based on quoted market prices or pricing models. At December 31, 2005, the valuation of approximately 95% of our fixed maturities investments was based on quoted market prices. Fair value for our alternative investments is generally based on the net asset value reported by the respective investment fund managers or, for our reinsurance equity investments, based on the carried amount under the equity method of accounting. The investment fund managers generally carry their trading positions and investments at fair value. We rely on the financial reports from these entities for recording the net gains on alternative investments in our statement of income.

Investments in unquoted equities, where we have a meaningful ownership position and significant influence over operating and financial policies of the investee, are carried under the equity method of accounting. Under this method, we initially record the investments at cost and periodically adjust the carrying values to recognize our proportionate share of income or loss and dividends from these investments. Future adverse changes in general market, global and economic conditions, changes to the interest and currency rate environment or poor operating results by our investments carried under the equity method of accounting could result in losses.

See Note 3 to our audited consolidated financial statements included herein for our significant accounting policies.

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Results of Operations

We operate in three segments: property and casualty reinsurance, property and casualty insurance and life and annuity reinsurance. We consider the property and casualty reinsurance and the property and casualty insurance segments separately, following organizational changes that were made in the second quarter of 2005. Previously, we viewed reinsurance and insurance as being two products within the property and casualty segment. Within the property and casualty reinsurance segment, we offer quota share and excess of loss capacity providing coverage for a portfolio of underlying risks written by our clients. In the property and casualty insurance segment, we generally offer excess of loss capacity on specific risks related to one insured. Within the life and annuity reinsurance segment, we currently offer reinsurance products focusing on existing blocks of business, which take the form of co-insurance transactions. In co-insurance transactions, risks are reinsured on the same basis as the original policies. We also have a corporate function that includes our investment and financing activities. We do not allocate assets by segment.

Results of Underwriting Operations

Property and Casualty Reinsurance Segment

	2005			% change		2004			% change		2003
	In millions of US Dollars
	(Restated)					(Restated)					(Restated)
Gross premiums written	$	615.7		5.6	%	$	583.2		(21.0	)%	$	738.3
Reinsurance premiums ceded		(51.8	)	8.8	%		(47.6	)	(55.3	)%		(106.6	)
Net premiums written		563.9		5.3	%		535.6		(15.2	)%		631.7
Net premiums earned(a)		607.1		7.6	%		564.3		(3.0	)%		582.0
Losses(b)		552.8		30.8	%		422.6		(2.5	)%		433.4
Acquisition costs		73.6		(33.6	)%		110.8		(23.4	)%		144.6
General and administrative expenses		15.0		24.0	%		12.1		28.7	%		9.4
Total losses and expenses(c)		641.4		17.6	%		545.5		(7.1	)%		587.4
Net income (loss)		(34.3	)	n/a			18.8		n/a			(5.4	)
Loss ratio(b)/(a)		91.1	%				74.9	%				74.5	%
Combined ratio(c)/(a)		105.7	%				96.7	%				100.9	%

Our segment results do not include investment income or interest expense, which are included in the corporate function.

The loss ratio (“loss ratio”) is calculated by dividing losses(shown as (b)) by net premium earned(shown as (a)). The combined ratio (“combined ratio”) is calculated by dividing total losses and expenses(shown as (c)) by net premiums earned(shown as (a)).

Gross premiums written. Gross premiums written for the property and casualty reinsurance segment for the year ended December 31, 2005 were $615.7 million compared to $583.2 million for the year ended December 31, 2004, an increase of 5.6%. This increase included additional premiums of $182.0 million arising from the notification of additional losses on two contracts written in prior years. This increase was largely offset by the non-renewal of four reinsurance contracts that accounted for approximately $174.5 million of premium in the year ended December 31, 2004. We chose not to renew these contracts as the renewal terms and conditions did not meet our current underwriting criteria. There were no other significant changes to premium estimates on prior period contracts.

Gross premiums written for the property and casualty reinsurance segment for the year ended December 31, 2004 were $583.2 million compared to $738.3 million for the year ended December 31, 2003, a decrease of 21.0%. The decline in premiums written reflects the non-renewal of one reinsurance contract that accounted for

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$110.0 million of premium in the year ended December 31, 2003. In addition, we terminated an accident and health reinsurance contract during its term, which resulted in us writing $50.0 million less premium in the 2004 year compared to the same period in 2003. We also had $37.3 million of decreases in premium estimates relating to contracts written in prior periods. The premium estimate changes resulted principally from changes in two ceding clients’ operations due to a rating agency downgrade in one instance and the loss of key members of the client’s underwriting team in the second instance, with both items leading to lower premium production for the ceding clients.

Reinsurance premiums ceded. Reinsurance premiums ceded for property and casualty reinsurance for the year ended December 31, 2005 were $51.8 million compared to $47.6 million for the year ended December 31, 2004, an increase of 8.8%. The increase included $27.3 million of reinsurance premiums ceded which were directly related to the $182.0 million of additional premiums written on two contracts written in a prior year, as described above. Reinsurance premiums ceded were principally related to our purchase of specific reinsurance to manage the risks associated with our reinsurance underwriting and to manage the exposure retained by us on certain transactions, therefore the ratio of gross premiums written to reinsurance premiums ceded may fluctuate based on our assessment of exposure and the availability of reinsurance capacity at attractive prices.

Reinsurance premiums ceded for property and casualty reinsurance for the year ended December 31, 2004 were $47.6 million compared to $106.6 million for the year ended December 31, 2003, a decrease of 55.3%. The majority of the premium ceded relates to our quota share and aggregate stop loss agreements with Grand Central Re. Effective January 1, 2004, Grand Central Re stopped accepting new business and, accordingly, there is a decline in premium ceded in the year ended December 31, 2004 as compared to 2003, with the 2004 amounts relating to additional premiums ceded on contracts written in prior years.

Net premiums earned. Net premiums earned for property and casualty reinsurance increased by 7.6% to $607.1 million for the year ended December 31, 2005 despite the non-renewal of four reinsurance contracts that accounted for approximately $173.2 million of net premiums earned in the year ended December 31, 2004. The non-renewals were largely offset by $154.6 million of additional net premiums earned on two contracts written in a prior years.

Net premiums earned for property and casualty reinsurance decreased by 3.0% to $564.3 million for the year ended December 31, 2004 as compared to the year ended December 31, 2003. The decrease is correlated to the reduced gross premiums written during the same period.

Losses. Losses relating to property and casualty reinsurance were $552.8 million for the year ended December 31, 2005 compared to $422.6 million for the year ended December 31, 2004, an increase of 30.8%. The losses for the year ended December 31, 2005 include $73.4 million of losses attributable to the hurricanes in the United States and $179.9 million of net losses pertaining to additional losses notified on two contracts written in a prior year. The loss ratio for our property and casualty reinsurance segment for the year ended December 31, 2005 was 91.1% compared to 74.9% for the year ended December 31, 2004. Excluding hurricane losses in 2005, the adjusted loss ratio for our property and casualty reinsurance segment is 79.0%, which is higher than in 2004 due to the additional losses posted on prior period contracts.

Losses relating to property and casualty reinsurance were $422.6 million for the year ended December 31, 2004 compared to $433.4 million for the year ended December 31, 2003, a decrease of 2.5%, which is comparable to the decrease in our premiums earned for this segment. The loss ratio for our property and casualty reinsurance segment for the year ended December 31, 2004 was 74.9% compared to 74.5% for the year ended December 31, 2003.

Acquisition costs. Acquisition costs were $73.6 million for the year ended December 31, 2005 compared to $110.9 million for the year ended December 31, 2004, a decrease of 33.6%. The decrease in acquisition costs for the year ended December 31, 2005 is due to lower average acquisition costs on premiums earned and to the

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$141.3 million of additional net premiums written and earned on two contracts written in a prior year, which did not attract any further acquisition costs. Acquisition costs vary from contract to contract depending on characteristics such as the type of business, the clients’ cost to administer the underlying contracts and the involvement of a broker. These factors may result in differences in the ratio of acquisition costs to net premiums earned from period to period.

Acquisition costs were $110.9 million for the year ended December 31, 2004 compared to $144.6 million for the year ended December 31, 2003, a decrease of 23.3%. The decrease in acquisition costs for the year ended December 31, 2004 is due to lower average acquisition costs on premiums earned derived from a change in mix of property and casualty business written and earned.

General and administrative expenses. General and administrative expenses were $15.0 million for the year ended December 31, 2005 compared to $12.1 million for the year ended December 31, 2004, an increase of 24.0%. The increase resulted principally from ongoing personnel costs associated with our reinsurance staff, including hiring additional property underwriters. The general and administrative expense to net premiums earned ratio was 2.5% for the year ended December 31, 2005 compared to 2.1% for the year ended December 31, 2004.

General and administrative expenses were $9.4 million for the year ended December 31, 2003, resulting in a general and administrative expense to net premiums earned ratio of 1.6%, lower than in the years ended December 31, 2004 and 2005 due principally to lower personnel costs in 2003.

Net income (loss). Net loss attributable to property and casualty reinsurance for the year ended December 31, 2005 was $34.3 million compared to $18.8 million of income for the year ended December 31, 2004. The net loss for the year ended December 31, 2005 was principally attributable to $73.4 million of losses recognized due to Hurricanes Katrina, Rita and Wilma compared to $6.0 million for hurricanes in 2004.

Net income attributable to property and casualty reinsurance for the year ended December 31, 2004 was $18.8 million compared to a loss of $5.4 million for the year ended December 31, 2004. The increase in net income was principally attributable to a lower combined ratio due to reduced acquisition costs derived from a change in mix of property and casualty business written and earned.

Property and Casualty Insurance Segment

	2005			% change		2004			% change		2003
	In millions of US Dollars
Gross premiums written	$	355.3		43.2	%	$	248.1		52.0	%	$	163.2
Reinsurance premiums ceded		(145.7	)	27.5	%		(114.3	)	100.5	%		(57.0	)
Net premiums written		209.6		56.7	%		133.8		26.0	%		106.2
Net premiums earned(a)		172.9		39.4	%		124.0		170.2	%		45.9
Losses(b)		175.5		93.7	%		90.6		161.9	%		34.6
Acquisition costs		0.1		(96.0	)%		2.5		(19.4	)%		3.1
General and administrative expenses		9.9		45.6	%		6.8		38.8	%		4.9
Total losses and expenses(c)		185.5		85.7	%		99.9		134.5	%		42.6
Net income (loss)		(12.6	)	n/a			24.1		630.3	%		3.3
Loss ratio(b)/(a)		101.5	%				73.0	%				75.4	%
Combined ratio(c)/(a)		107.3	%				80.5	%				92.8	%

Our segment results do not include investment income or interest expense, which are included in the corporate function.

The loss ratio (“loss ratio”) is calculated by dividing losses(shown as (b)) by net premium earned(shown as (a)). The combined ratio (“combined ratio”) is calculated by dividing total losses and expenses(shown as (c)) by net premiums earned(shown as (a)).

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Gross premiums written. Gross premiums written for the property and casualty insurance segment for the year ended December 31, 2005 were $355.3 million compared to $248.1 million for the year ended December 31, 2004, an increase of 43.2%. The increase is the result of the continued expansion of this segment, including new business coming from the addition of our property underwriting team in 2004. Typically, insurance business is written on an individual risk excess of loss basis with contractually defined premiums rather than estimates, which results in no material premium adjustments.

Gross premiums written for the property and casualty insurance segment for the year ended December 31, 2004 were $248.1 million compared to $163.2 million for the year ended December 31, 2003, an increase of 52.0%. Our first full year of production for our insurance team was 2004.

Reinsurance premiums ceded. Reinsurance premiums ceded for insurance for the year ended December 31, 2005 were $145.7 million compared to $114.2 million for the year ended December 31, 2004, an increase of 27.6%. Reinsurance premiums ceded were principally related to our quota share treaties that are utilized to manage our retained exposure and, therefore, will tend to increase when gross premiums written increase. The ratio of reinsurance premiums ceded to gross premiums written for the year ended December 31, 2005 was 41.0% compared to 46.0% for the year ended December 31, 2004. Not all of the contracts we write qualify for inclusion in our quota share treaties and, accordingly, there may be differences in the ratio of gross premiums written to reinsurance premiums ceded from period to period.

Reinsurance premiums ceded for insurance for the year ended December 31, 2004 were $114.2 million compared to $57.0 million for the year ended December 31, 2003, an increase of 100.4%. Reinsurance premiums ceded were principally related to our quota share treaties, utilized to manage our retained exposure, and line sizes on our insurance products, which were put in place in the latter half of 2003. The ratio of reinsurance premiums ceded to gross premium written for the year ended December 31, 2003 was 34.9%.

Net premiums earned. Net premiums earned on insurance increased by 39.4% to $172.9 million for the year ended December 31, 2005 compared to the year ended December 31, 2004 and by 170.2% to $124.0 million for the year ended December 31, 2004 from $45.9 million for the year ended December 31, 2003. The increases are attributable to our expansion of the insurance product line over the past three years, including developing our property insurance product. The increase also reflects the earning pattern of a larger and increasingly mature portfolio of insurance contracts.

Losses. Losses relating to insurance were $175.5 million for the year ended December 31, 2005 compared to $90.6 million for the year ended December 31, 2004, an increase of 93.7%, and includes $50.0 million in losses recorded related to the hurricanes in the United States. The loss ratio for our insurance segment for the year ended December 31, 2005 was 101.5% compared to 73.0% for 2004. Excluding hurricane losses in 2005, the adjusted loss ratio for our property and casualty insurance segment is 72.6%. As our portfolio of insurance contracts matures and we receive more reports and updates of losses, we will continue to refine our estimated reserves. Our present estimate of reserves are based on client specific historic loss data, supplemented with industry loss data and reported losses. During the year ended December 31, 2005, there were no increases in loss reserves relating to prior year contracts.

Losses relating to insurance were $90.6 million for the year ended December 31, 2004 compared to $34.6 million for the year ended December 31, 2003, an increase of 161.9%, which is consistent with the increase in our premiums earned for the year 2004. The loss ratio for insurance for the year ended December 31, 2003 was 75.4%.

Acquisition costs. Acquisition costs were $0.1 million for the year ended December 31, 2005 compared to $2.5 million for the year ended December 31, 2004. The decline in acquisition costs principally results from the current year settlement of our 2004 PSA obligations to brokers at $1.5 million less than our accrued liability. The acquisition costs are net of ceding commissions associated with premiums ceded to our quota share partners. These ceding commissions are designed to compensate us for the costs of producing the portfolio of risks ceded to our reinsurers.

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Acquisition costs were $2.5 million for the year ended December 31, 2004 compared to $3.1 million for the year ended December 31, 2003. The decline in acquisition costs principally reflects the increase in acquisition costs recovered from our quota share partners.

General and administrative expenses. General and administrative expenses were $9.9 million for the year ended December 31, 2005 compared to $6.8 million for the year ended December 31, 2004, an increase of 45.6%. The increase resulted principally from expenses associated with additional staff, including an expanded property underwriting team. The general and administrative expense to net premiums earned ratio was 5.7% for the year ended December 31, 2005 compared to 5.5% for the year ended December 31, 2004.

General and administrative expenses were $6.8 million for the year ended December 31, 2004 compared to $4.9 million for the year ended December 31, 2003, an increase of 38.8%. The increase resulted principally from expenses associated with additional staff within our excess liability and professional lines teams.

Net income (loss). Net loss attributable to the property and casualty insurance segment for the year ended December 31, 2005 was $12.6 million compared to $24.1 million of income for the year ended December 31, 2004. The net loss for the year ended December 31, 2005 relates principally to the $50.0 million in losses from Hurricanes Katrina, Rita and Wilma.

Net income attributable to the property and casualty insurance segment was $3.3 million for the year ended December 31, 2003.

Life and Annuity Reinsurance Segment

	2005			% change		2004			% change		2003
	In millions of US Dollars
Gross premiums written	$	275.0		29.5	%	$	212.3		96.0	%	$	108.3
Reinsurance premiums ceded		(1.5	)	114.3	%		(0.7	)	(96.8	)%		(21.7	)
Net premiums written		273.5		29.3	%		211.6		144.3	%		86.6
Net premiums earned		273.5		29.3	%		211.6		144.3	%		86.6
Benefits		311.2		30.6	%		238.3		107.4	%		114.9
Acquisition costs		2.5		(28.6	)%		3.5		84.2	%		1.9
General and administrative expenses		3.5		(22.2	)%		4.5		0.0	%		4.5
Total benefits and expenses		317.2		28.8	%		246.3		103.1	%		121.3
Net loss		(43.7	)	25.9	%		(34.7	)	0.0	%		(34.7	)

Our segment results do not include investment income or interest expense, which are included in the corporate function.

The nature of life and annuity reinsurance transactions that we consider results in a limited number of transactions actually bound with potentially large variations in quarterly and annual premium volume. Consequently, components of our underwriting results, such as premiums written, premiums earned and benefits can be volatile and, accordingly, period to period comparisons are not representative of future trends.

Gross premiums written. Gross premiums written for the life and annuity reinsurance segment for the year ended December 31, 2005 were $275.0 million compared to $212.3 million for the year ended December 31, 2004, an increase of 29.5%. We wrote two contracts with European based clients for premium of $235.0 million and one contract with a North American based client for premium of $32.5 million during the year ended December 31, 2005. In addition we received additional premium on contracts that were written in prior years, during the year ended December 31, 2005. We wrote one large annuity contract as well as a small life transaction in 2004.

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Gross premiums written for the life and annuity reinsurance segment for the year ended December 31, 2004 were $212.3 million compared to $108.3 million for the year ended December 31, 2003, an increase of 96.0%. We wrote two medium-sized life transactions in 2003. The level of business written in future periods will vary, perhaps materially, based upon market conditions and the opportunities presented to us.

Reinsurance premiums ceded. Gross reinsurance premiums ceded for the life and annuity reinsurance segment were $1.5 million for the year ended December 31, 2005 and $0.7 million for the year ended December 31, 2004, an increase of 114.3%. Gross reinsurance premiums ceded for the life and annuity reinsurance segment were $21.7 million for the year ended December 31, 2003. The life and annuity reinsurance premium ceded relates to our quota share agreement with Grand Central Re. Effective January 2004, Grand Central Re stopped accepting new business and, accordingly, there has been a decline in premium ceded in 2005 and 2004 with the $1.5 million and $0.7 million relating to additional premiums ceded on contracts written in prior years.

Net premiums earned. Life and annuity reinsurance business written in each respective year was fully earned in that year.

Benefits. Benefits relating to the life and annuity reinsurance segment were $311.2 million for the year ended December 31, 2005 compared to $238.3 million for the year ended December 31, 2004, an increase of 30.6%. The increase was principally due to the recognition of losses associated with the premiums written and earned in the current year.

Benefits relating to the life and annuity reinsurance segment increased 107.3% to $238.3 million for the year ended December 31, 2004 from $114.9 million for the year ended December 31, 2003. The increase was largely due to the recognition of losses associated with the premiums written and earned in the year ended December 31, 2004, as well as loss accretion on benefit reserves.

Acquisition costs. Acquisition costs were $2.5 million for the year ended December 31, 2005 compared to $3.5 million for the year ended December 31, 2004 and $1.9 million for the year ended December 31, 2003. The acquisition costs on the life and annuity reinsurance transactions that we bind will vary from period to period depending on brokerage rates.

General and administrative expenses. General and administrative expenses were $3.5 million for the year ended December 31, 2005 compared to $4.5 million for the year ended December 31, 2004 and $4.5 million for the year ended December 31, 2003. General and administrative expenses have varied in proportion to staffing levels in each of the years.

Net loss. Although we expect to incur underwriting losses in connection with our life and annuity reinsurance contracts, we seek to achieve sufficient investment income from premiums received to fund benefit payments as they occur and provide for a profit margin. Net loss attributable to the life and annuity reinsurance segment for the year ended December 31, 2005 was $43.7 million compared to $34.7 million for the year ended December 31, 2004, reflecting the additional business we have written and earned. The results are driven by the accretion of life and annuity reinsurance benefits over time.

Net loss attributable to the life and annuity reinsurance segment was $34.7 million for the year ended December 31, 2004 compared to $34.7 million for the year ended December 31, 2003 despite increased premium volume in the year 2004. Additional benefit charges were recorded in 2003 as reserve estimates were updated with no corresponding increase in 2004.

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Corporate Function

	2005			% change		2004			% change		2003
	In millions of US Dollars
	(Restated)					(Restated)					(Restated)
Net investment income	$	106.8		29.0	%	$	82.8		37.8	%	$	60.1
Net gains on alternative assets		39.9		(51.1	)%		81.6		(34.2	)%		124.0
Net realized gains (losses) on sale of fixed maturities		(0.7	)	n/a			10.4		(46.1	)%		19.3
Other income		4.6		(6.1	)%		4.9		(54.2	)%		10.7
Interest expense		(22.8	)	10.7	%		(20.6	)	12.0	%		(18.4	)
General and administrative expenses not included in segment results		(27.8	)	8.6	%		(25.6	)	21.3	%		(21.1	)
Net income excluding segment results		100.0		(25.1	)%		133.5		(23.5	)%		174.6

Net investment income. Net investment income, excluding realized and unrealized gains and losses, for the year ended December 31, 2005 increased $24.0 million to $106.8 million compared to $82.8 million for the year ended December 31, 2004, an increase of 29.0%. The increase was principally attributable to the growth in the fixed maturities portfolio from $2,156.0 million at December 31, 2004 to $2,682.9 million at December 31, 2005, resulting from cash flow from operations since December 31, 2004 and the additional capital we raised in October and November 2005 in connection with a public offering of our common shares. The average annualized investment yield on the cash, fixed maturities investments and funds withheld by clients for the year ended December 31, 2005 was 4.2% compared to 4.2% for the year ended December 31, 2004.

Net investment income, excluding realized and unrealized gains and losses, for the year ended December 31, 2004 increased $22.7 million to $82.8 million compared to $60.1 million for the year ended December 31, 2003, an increase of 37.8%. The increase was principally attributable to the growth in the fixed maturities portfolio from $1,604.4 million to $2,156.0 million, resulting from cash flow from operations since December 31, 2003. The average investment yield on the cash, fixed maturities investments and funds withheld by clients for the year ended December 31, 2004 was 4.2% compared to an average yield of 3.8% for the year ended December 31, 2003.

Net gains on alternative investments. Net gains on the alternative investment portfolio were $39.9 million, or 3.34%, including a loss of $26.2 million from our private equity reinsurance investments, for the year ended December 31, 2005 compared to $81.6 million, or 8.23%, including a loss of $8.1 million from our private equity reinsurance investments, for the year ended December 31, 2004. Our investment in DaVinci has been impacted by losses from hurricanes Katrina, Rita and Wilma in the year ended December 31, 2005 and by losses from hurricanes Charley, Frances, Ivan and Jeanne in the year ended December 31, 2004. DaVinci is a property catastrophe reinsurer and therefore, it is expected that losses will be incurred during periods where there are severe or frequent catastrophes. For 2005, the return from our Max Re Diversified fund of funds portfolio was 5.88%. This return reflected the mediocre returns available in the capital markets as represented by the average money market fund returning 3.0%, the Lehman Brothers Intermediate Aggregate Bond Index returning 2.0% and the Standard & Poors 500 Index returning 3.0%.

Net gains on the alternative investment portfolio were $81.6 million, including a loss of $8.1 million from our private equity reinsurance investments, for the year ended December 31, 2004 compared to $124.0 million, including a gain of $12.1 million from our private equity reinsurance investments, for the year ended December 31, 2003. Returns in the investment markets were closer to long-term historic averages in 2004, with the Standard & Poors 500 Index up 10.87% in 2004 compared to 28.67% in 2003. Interest rates and credit spreads were relatively stable for the full year 2004. These market conditions resulted in a return of 9.81% for

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our Max Re Diversified fund of funds portfolio in 2004 compared to a return of 16.67% in 2003. In addition, we had a (11.06%) return from our private equity reinsurance investments in 2004 compared to a return of 15.81% in 2003. The decrease was principally attributable to losses from Hurricanes Charley, Frances, Ivan and Jeanne through our investment in DaVinci.

Net realized gains on sale of fixed maturities. Our fixed maturities investment strategy is not intended to generate realized gains and losses as more fully discussed below. The realized gains (losses) for the year ended December 31, 2005 and December 31, 2004 of $(0.7) million and $10.4 million, respectively, are the result of the sale of fixed maturities in connection with normal portfolio rebalancing transactions. The realized gains in the year ended December 31, 2003 of $19.3 million are the result of hiring two additional fixed maturities managers and the resulting changes to the portfolio based on individual manager recommendations.

We own a portfolio of investment grade fixed maturities that are available for sale and, as a result, we record the investments at fair value on our balance sheet. The unrealized gain or loss associated with the difference between the fair value and the amortized cost of the investments is recorded in other comprehensive income in the equity section of our balance sheet. Fixed maturities are subject to fluctuations in fair value due to changes in the interest rates, changes in issuer specific circumstances such as credit rating and changes in industry specific circumstances such as movements in credit spreads based on the markets perception of industry risks. As a result of these potential fluctuations, it is possible to have significant unrealized gains or losses on a security. Our strategy for our fixed maturities portfolio is to tailor the maturities of the portfolio to the timing of expected loss and benefit payments. At maturity, a fixed maturity’s amortized cost will equal its fair value and no realized gain or loss will be recognized in income. If, due to an unforeseen change in loss payment patterns, we need to sell investments before maturity, we could realize significant gains or losses in any period, which could result in a meaningful effect on reported net income for such period.

Interest expense. Interest expense was $22.8 million for the year ended December 31, 2005 compared to $20.6 million for the year ended December 31, 2004, an increase of 10.7%. Interest expense includes $7.4 million of interest expense pertaining to the Grand Central Re quota share funds withheld for the year ended December 31, 2005 compared to $8.1 million for the year ended December 31, 2004. The interest expense on the Grand Central Re funds withheld is based on the average of two total return fixed maturity indices that had a lower total return for the year ended December 31, 2005 compared to 2004.

Interest expense for the year ended December 31, 2004 increased 12.0% over the interest expense for the year ended December 31, 2003. The increase resulted principally from interest expense on additional funds withheld from our reinsurers for the year ended December 31, 2004 compared to the same period in 2003.

General and administrative costs.The increase in general and administrative costs over the last three years resulted principally from expenses associated with the expansion of our corporate staff. Our total general and administrative expenses to net premiums earned ratio was 5.4% for the year ended December 31, 2005 compared to 5.3% for the year ended December 31, 2004 and 5.5% for the year ended December 31, 2003.

Financial Condition

Cash and invested assets. Aggregate invested assets, comprising cash and cash equivalents, fixed maturities and alternative investments, were $4,227.8 million at December 31, 2005 compared to $3,514.2 million at December 31, 2004, an increase of 20.3%. The increase in cash and invested assets resulted principally from $389.9 million in cash flows from operations generated in the year ended December 31, 2005, which is net of $72.5 million of additional investments in alternative assets and the appreciation of the alternative investment portfolio of $39.9 million. A further source of cash and invested assets was our sale of 11.0 million common shares and 1.65 million common shares on October 17, 2005 and November 4, 2005, respectively, at a price of $23.50 per share in an underwritten public offering. These common share sales resulted in net proceeds of approximately $284.1 million. The increases were partially offset by a decrease in accumulated other comprehensive income of $17.2 million, net payments of deposit liabilities of $41.2 million, common share repurchases of $7.4 million and dividends paid of $9.0 million.

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Liabilities for property and casualty losses. Property and casualty losses totaled $2,006.0 million at December 31, 2005 compared to $1,455.1 million at December 31, 2004, an increase of 37.9%. The increase in property and casualty losses was principally attributable to estimated losses associated with premiums earned during the year ended December 31, 2005, an increase of $211.6 million in loss reserves on two prior period contracts and $133.7 million in losses related to hurricanes Katrina, Rita and Wilma, partially offset by losses paid and changes in reserve estimates on carried property and casualty losses.

Liabilities for life and annuity benefits. Life and annuity benefits totaled $854.2 million at December 31, 2005 compared to $666.1 million at December 31, 2004. The increase in the year ended December 31, 2005 was principally attributable to reinsurance transactions written and earned during the year ended December 31, 2005, partially offset by benefit payments on existing contracts in force.

Losses and benefits recoverable from reinsurers. Losses and benefits recoverable from reinsurers totaled $453.6 million at December 31, 2005 compared to $340.1 million at December 31, 2004, an increase of 33.4%, principally reflecting losses ceded under our reinsurance and retrocessional agreements. Grand Central Re, our largest retrocessionaire, accounted for 52.3% of our losses and benefits recoverable at December 31, 2005 compared to 68.8% of our losses and benefits recoverable at December 31, 2004. In September 2004, Grand Central Re requested that A.M. Best Company withdraw its financial strength rating. Consequently, A.M. Best Company has assigned a financial strength rating of “NR-4” to Grand Central Re. We retain funds from Grand Central Re amounting to approximately 89.2% of its loss recoverable obligations.

The principal component of the remainder of losses recoverable relates to amounts due from reinsurers of our property and casualty insurance risks. The loss recoverable from these reinsurers represent 39.9% of losses recoverable at December 31, 2005 and all of these reinsurers were rated “A-”or above by A.M. Best Company at December 31, 2005.

Bank loans. In February 2003, Max Re completed a $150.0 million sale of shares of Max Re Diversified to a third party financial institution. Simultaneous with the sale, Max Re entered into a total return swap with the purchaser of these shares whereby Max Re receives the return earned on the Max Re Diversified shares in exchange for a variable rate of interest based on LIBOR plus a spread. Max Re Diversified shares owned by Max Re with a fair value of $100.4 million at December 31, 2005 were pledged as collateral to which we are exposed to credit risk. Under GAAP, these transactions are viewed on a combined basis and are accounted for as a financing transaction, which results in the recording of a $150.0 million bank loan. In February 2005, the parties amended the swap transaction principally to extend the swap termination date to February 2007, with provisions for earlier termination in the event that we fail to comply with certain covenants. We were in compliance with all covenants of our bank loan at December 31, 2005.

Shareholders’ equity. Our shareholders’ equity increased to $1,185.7 million at December 31, 2005 from $902.7 million at December 31, 2004, an increase of 31.4%, principally reflecting our sale of common shares in an underwritten public offering that resulted in net proceeds of approximately $284.1 million combined with net income of $9.5 million partially offset by a decrease in accumulated other comprehensive income of $17.2 million for the year ended December 31, 2005. Additionally, $10.1 million of loans receivable from common share sales were repaid during the year ended December 31, 2005.

Liquidity. We generated $389.9 million of cash from operations during the year ended December 31, 2005 compared to $597.7 million for the year ended December 31, 2004. The decrease in operating cash flow principally reflects the commutation of a large reinsurance contract. Two principal factors impacting our operating cash flow are premium collections and timing of loss and benefit payments. We principally write casualty business, which generally has a long claim-tail and it is expected that we will generate significant operating cash flow as we build loss and benefit reserves on our balance sheet. We believe that our reserves currently have an average duration of approximately five years and we expect to see increases in the amount of expected loss payments in future periods with a resulting decrease in operating cash flow. We do not expect loss

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payments to exceed the premiums generated and therefore expect to have continued positive cash flow. However, actual premiums written and collected and losses paid in any period could vary from our expectations and could have a meaningful effect on operating cash flow.

While we tailor our fixed maturities portfolio to expected loss payments, increased loss amounts or settlement of losses earlier than anticipated can result in greater cash needs. We maintain a meaningful working cash balance (typically greater than $100.0 million), have generated positive cash flow from operations in each of our six years of operating history and can access our credit facility described in Note 16 of our audited consolidated financial statements. We believe that we currently maintain sufficient liquidity to cover existing requirements and provide for contingent liquidity. Nonetheless, it is possible that significant deviations in expected loss payments can occur, potentially requiring us to liquidate a portion of our fixed maturities portfolio at a gain or loss.

As a holding company, Max Re Capital’s principal assets are its investments in the common shares of its principal subsidiary, Max Re, and its other subsidiaries. Max Re Capital’s principal source of funds is from interest income on cash balances and cash dividends from its subsidiaries, including Max Re. The payment of dividends is limited under Bermuda insurance laws. In particular, Max Re may not declare or pay any dividends if it is in breach of its minimum solvency or liquidity levels under Bermuda law or if the declaration or payment of the dividends would cause it to fail to meet the minimum solvency or liquidity levels under Bermuda law. At December 31, 2005, Max Re, which is required to have approximately $380.0 million in statutory capital and surplus in order to pay dividends, had approximately $1,055.0 million in statutory capital and surplus.

In the ordinary course of business, we are required to provide letters of credit or other regulatory approved security to certain of our clients to meet contractual and regulatory requirements. We have three credit facilities as of December 31, 2005 providing an aggregate of $520.0 million of letter of credit capacity. Each of our credit facilities requires that we comply with certain substantially similar covenants, including a minimum consolidated tangible net worth, a minimum insurer financial strength rating and restrictions on the payment of dividends. We were in compliance with all the covenants of each of our credit facilities at December 31, 2005.

Capital resources. At December 31, 2005, our capital structure consisted of common equity. Total capitalization amounted to $1,185.7 million as compared to $902.7 million at December 31, 2004, an increase of 31.4%. Our unallocated universal shelf registration filed on Form S-3 with the SEC on September 26, 2005 is no longer effective due to our failure to file our Form 10-K/A (Amendment No. 1) by the prescribed due date. However, we continue to believe we have flexibility with respect to capitalization as a result of our access to the debt and equity markets.

On October 11, 2005 we sold 11.0 million common shares at $23.50 per share in an underwritten public common share offering which resulted in net proceeds to Max Re Capital of approximately $246.0 million. As part of the offering, Max Re Capital granted the underwriters a 30 day option to purchase up to 1.65 million additional common shares. On November 4, 2005, the underwriters exercised their option in full, resulting in additional net proceeds to Max Re Capital of approximately $38.1 million. Substantially all of the net proceeds were contributed to our reinsurance operating subsidiaries to support expanded underwriting capacity, particularly in property insurance and property catastrophe reinsurance lines, in 2006 and for general corporate purposes.

Max Re Capital’s Board of Directors declared a dividend of $0.03 per share on February 4, 2005 and $0.05 per share on each of April 28, 2005, July 29, 2005 and October 27, 2005, payable to shareholders of record on February 14, 2005, May 13, 2005, August 12, 2005 and November 11, 2005, respectively. Continuation of cash dividends in the future will be at the discretion of the board of directors and will be dependent upon our results of operations and cash flows, and our financial position and capital requirements, general business conditions, legal, tax, regulatory and any contractual restrictions on the payment of dividends and other factors the board of directors deems relevant. On February 10, 2006, Max Re Capital’s Board of Directors declared a dividend of $0.05 per share to be paid on March 10, 2006 to shareholders of record on February 24, 2006.

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We have been assigned an insurer financial strength rating of “A- (Excellent)” by A.M. Best Company, Inc. and an insurer financial strength rating of “A (Strong)” by Fitch, Inc. These ratings reflect each rating agency’s opinion of our financial strength, operating performance and ability to meet obligations. If an independent rating agency downgrades or withdraws any of our ratings, we could be severely limited or prevented from writing any new insurance or reinsurance contracts, which would significantly and negatively affect our business. To date, our ratings have been affirmed by A.M. Best and Fitch on each rating review. Insurer financial strength ratings are based upon factors relevant to policyholders and are not directed toward the protection of investors.

No off-balance sheet arrangements. We do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

Contractual Obligations

	Payment due by period (thousands of dollars)
Contractual Obligations	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Bank loan obligations	$	150,000	$	—	$	150,000	$	—	$	—
Operating lease obligations		12,914		1,687		3,630		3,769		3,828
Property and casualty losses		2,006,032		543,241		778,661		346,223		337,907
Life and annuity benefits		1,378,309		82,889		152,484		134,957		1,007,979
Deposit liabilities		292,486		56,015		45,821		66,807		123,843
Total	$	3,839,741	$	683,832	$	1,130,596	$	551,756	$	1,473,557

The reserves for losses and benefits together with deposit liabilities represent management’s estimate of the ultimate cost of settling losses, benefits and deposit liabilities. As more fully discussed in our “Critical Accounting Policies—Losses and benefits” above, the estimation of losses and benefits is based on various complex and subjective judgments. Actual losses and benefits paid may differ, perhaps significantly, from the reserve estimates reflected in our financial statements. Similarly, the timing of payment of our estimated losses and benefits is not fixed and there may be significant changes in actual payment activity. The assumptions used in estimating the likely payments due by period are based on our historical claims payment experience and industry payment patterns, but due to the inherent uncertainty in the process of estimating the timing of such payments, there is a risk that the amounts paid in any such period can be significantly different than the amounts disclosed above.

The amounts in this table represent our gross estimates of known liabilities as of December 31, 2005 and do not include any allowance for claims for future events within the time period specified. Accordingly, it is highly likely that the total amounts paid out in the time periods shown will be greater than that indicated in the table.

Furthermore, life and annuity benefits recorded in the financial statements at December 31, 2005 are computed on a discounted basis, whereas the expected payments by period in the table above are the estimated payments at a future time and do not reflect a discount of the amount payable.

New Accounting Pronouncements

Financial Accounting Standard No. 123 (revised 2004)—Share-Based Payment

In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS 123(R)—Share-Based Payment(SFAS 123(R)), a revision of SFAS No. 123—Accounting for Stock-Based Compensation(SFAS 123). Both statements supersede APB Opinion No. 25,Accounting for Stock Issued to Employees. SFAS 123(R) requires companies to recognize the cost of employee services received in share-based payment transactions, thereby reflecting the economic effect of those transactions in the financial statements. SFAS 123(R) also eliminates alternative methods of accounting for stock-based compensation in order to allow for greater comparability between companies. We have adopted the new standard using a modified prospective method.

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Under the modified prospective method, we are required to record compensation costs for new and modified awards over the related vesting period of such awards prospectively and record compensation cost prospectively for the unvested portion, at the date of adoption, of previously issued and outstanding awards over the remaining vesting period of such awards. On January 1, 2003 we adopted the expense recognition provision of SFAS 123 for all stock options granted on or after January 1, 2003. The calculation of fair value is similar under SFAS 123 and SFAS 123(R), but the revised statement requires, among other things, estimates of the number of awards that are expected to vest, no decrease in recognition of compensation cost if vested awards expire without being exercised and the adjustment of future expense based on revisions to fair value due to award modifications after grant date. The effective date for SFAS 123(R) has been deferred from periods beginning after June 15, 2005 to the first interim reporting period of the first fiscal year beginning after June 15, 2005. We believe that the amount of additional share-based compensation expense to be recognized by us under the provisions of SFAS 123(R) is not material.

In November 2005, FASB finalized FSP FAS 115-1—The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments. The FSP provides guidance on the recognition of impairments deemed other-than-temporary. FSP 115-1 is effective for other-than-temporary impairment analysis conducted in periods beginning after December 15, 2005. We believe that our current policy on other-than-temporary impairments complies with FSP 115-1. Accordingly, the adoption of this standard will not have a material effect on the consolidated financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

As of December 31, 2005, all securities held in our fixed maturities portfolio were rated BBB-/Baa3 or above. Our current policy is not to hold securities rated lower than BBB-/Baa3 in our fixed maturities investment portfolio. At December 31, 2005, the impact on the fixed maturities investment portfolio from an immediate 100 basis point increase in market interest rates would have resulted in an estimated decrease in market value of 4.24%, or approximately $113.8 million, and the impact on the fixed maturities investment portfolio from an immediate 100 basis point decrease in market interest rates would have resulted in an estimated increase in market value of 4.98%, or approximately $133.6 million.

With respect to our alternative investment portfolio, although our fund of funds advisor is contractually obligated to abide by our investment guidelines, we do not directly control the allocation of our assets to strategies or underlying funds, nor do we control the manner in which they are invested by the fund managers. However, we consistently and systematically monitor the strategies and funds in which we are invested, and we believe our overall risk is limited as a result of our selected strategies’ low volatility and low correlation to the bond market, the stock market and each other. At December 31, 2005, the estimated impact on the alternative investment portfolio from an immediate 100 basis point increase in market interest rates would have resulted in an estimated decrease in market value of 1.75%, or approximately $21.5 million, and the impact on the alternative investment portfolio from an immediate 100 basis point decrease in market interest rates would have resulted in an estimated increase in market value of 1.75%, or approximately $21.5 million.

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ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information with respect to this item is set forth under Item 15.

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.CONTROLS AND PROCEDURES

Part A. Restatement of the Consolidated Financial Statements

As discussed in Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 2 to our consolidated financial statements, we have further restated our previously issued financial statements as at December 31, 2005 and 2004, and for each of the years in the three-year period ended December 31, 2005, and the financial results in each of the quarterly periods in 2005, 2004 and 2003.

Our decision to further restate our financial statements follows a re-evaluation, caused by an initial internal investigation by the ARMC, and the subsequent re-opening of the internal investigation, of three finite property and casualty retrocessional contracts purchased by Max Re in 2001 and 2003.

Part B. Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, the “Exchange Act”), which we refer to as disclosure controls, are controls and procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this annual report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. There are inherent limitations to the effectiveness of any control system. A control system, no matter how well conceived and operated, can provide only reasonable assurance that its objectives are met. No evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.

In connection with the preparation of our amended annual Report on Form 10-K/A (Amendment No. 2) for the year ended December 31, 2005, our company’s management, including our current Chief Executive Officer and Chief Financial Officer, re-evaluated the effectiveness of the design and operation of disclosure controls as of the end of the period covered by the amended Annual Report. Based upon that re-evaluation, and solely because of the material weakness described in Part C below, the current Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls were not effective at December 31, 2005, and such disclosure controls did not ensure that material information relating to our company was made known to management, including the current Chief Executive Officer and Chief Financial Officer, particularly during the period when our periodic reports are being prepared.

Part C. Management’s Report on Internal Control Over Financial Reporting (as restated)

Management is responsible for establishing and maintaining effective internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our company’s internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. There are inherent limitations to the effectiveness of any control system. A control system, no matter how well conceived and operated, can provide only reasonable assurance that its objectives are met. No evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected.

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A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

In our originally filed Annual Report on Form 10-K for the year ended December 31, 2005, management concluded that our internal control over financial reporting as of December 31, 2005 was effective based upon criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. However, on May 30, 2006 and October 26, 2006, we determined that we needed to restate our previously issued financial statements. As a result of such financial statement restatements, management reassessed our internal control over financial reporting using the COSO criteria and identified the following control deficiencies:

• We did not maintain effective controls to bifurcate retroactive and prospective elements of coverage within reinsurance contracts purchased, in accordance with SFAS 113, where the dates of agreement in principle of substantial terms and coverage inception differed.

• We did not maintain effective controls over the appropriate accounting for the specific contractual feature contained within the three complex retrocessional contracts purchased.

• We did not maintain effective controls to identify potential extra-contractual agreements, including oral agreements, related to our retrocessional contracts purchased to allow for an appropriate determination of risk transfer.

These control deficiencies resulted in the restatement of our financial statements as described in Part A to correct premiums ceded, net premiums written, earned premiums ceded, net earned premiums, losses and benefits, interest expense and related balance sheet accounts. In connection with management’s reassessment of internal control over financial reporting, management determined that these control deficiencies constitute a material weakness within the meaning of Auditing Standards No. 2 of the Public Company Accounting Oversight Board, (PCAOB.)

As a result of the aforementioned material weakness as of December 31, 2005, management has revised its previously reported assessment of the effectiveness of internal control over financial reporting and has concluded that, as of December 31, 2005, our internal control over financial reporting was not effective.

Management’s restated assessment of the effectiveness of internal control over financial reporting as of December 31, 2005 has been audited by KPMG Bermuda as stated in their attestation report on management’s assessment of the company’s internal control over financial reporting that appears on page F-2 hereof.

Part D. Changes in Internal Control Over Financial Reporting

During the process of restating our previously issued financial statements, we have implemented controls to remediate the deficiencies identified in Part C. Specifically we have:

• Instituted a review process to be performed by our finance department to compare the inception dates of reinsurance purchased against documentation providing evidence of agreement in principle of substantial terms and bifurcate retroactive versus prospective elements of coverage in accordance with SFAS 113;

• Established underwriting guidelines that preclude us from purchasing reinsurance containing the specific contractual feature.

• Established guidelines that require senior management certification that there are no extra-contractual agreements, including oral agreements, related to retrocessional contracts purchased.

We believe that, as of the date of this filing, we have taken steps that remediate the control deficiencies that created the material weakness (as described in Part C above) in our disclosure controls and our internal control over financial reporting.

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PART III

ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors

Name	Age	Position(s)
Zack H. Bacon, III	53	Deputy Chairman and Director
John R. Barber	44	Director
W. Marston Becker	53	Director
Laurence W. Cheng	58	Director
Robert J. Cooney	51	Chairman, President and Chief Executive Officer
William H. Heyman	58	Director
Willis T. King, Jr.	61	Director
Peter A. Minton	47	Director, Executive Vice President and Chief Risk Officer
Steven M. Skala	50	Director
Mario P. Torsiello	50	Director
James L. Zech	48	Director

Zack H. Bacon III, 53, has served as a director of Max Re Capital and Max Re since their formation in July 1999 and also serves as Deputy Chairman of Max Re Capital and Max Re. Since 2003, Mr. Bacon has served as the Chief Executive Officer, Chief Investment Officer and Managing Director of Alstra Capital Management, LLC, which we refer to as Alstra, our fund of funds advisor. From October 1998 to September 2005, Mr. Bacon was a member of the Board of Directors and a Managing Director of each of Moore Capital Management, LLC, which we refer to as Moore Capital, and Moore Capital Advisors, L.L.C. Mr. Bacon was also a member of the Investment Advisory Committee of Moore Capital. From 1985 to 1998, Mr. Bacon ran his own asset management firm. From 1983 to 1985, Mr. Bacon managed the non-equity portfolio of Soros Fund Management Company. Prior to 1983, Mr. Bacon was a Vice President at Goldman, Sachs & Co.

John R. Barber, 45, has served as a director of Max Re Capital and Max Re since March 2002. Since January 2002, Mr. Barber has served as the Managing Partner of Citigroup Private Equity, a division of Citigroup Investments Inc., a subsidiary of Citigroup Inc. From September 2000 to January 2002, Mr. Barber served at Salomon Smith Barney Inc. as Co-Head of Citigroup Employee Fund of Funds and Salomon Smith Barney Capital Partners. From January 1995 to September 2000, Mr. Barber served as Deputy Head of the Financial Entrepreneurs Group, as a senior member of the Equity Capital Markets Group and as a member of the Commitment Committee at Salomon Smith Barney Inc. Mr. Barber joined Salomon Smith Barney Inc. in 1995 as a Managing Director. Prior to 1995 he was Managing Director and Head of the Equity Capital Markets Group at Kidder Peabody & Co.

W. Marston Becker, 53, has served as a director of Max Re Capital and Max Re since April 2004. Mr. Becker currently is an advisor/consultant in the insurance industry and also serves as Chairman and General Partner of West Virginia Media Holdings, which he co-founded in 2001. Since 2002, Mr. Becker has also served as Chairman and Chief Executive Officer of the run-off for LaSalle Re Holdings Limited, a Bermuda insurance company. Since May 2006, Mr. Becker has served as a director of Beazley Group plc (BEZ.L). Mr. Becker served as Chairman of the Board and Chief Executive Officer of Trenwick Group, Ltd., a Bermuda insurance company, from August 2002 until January 2005. In August 2003, Trenwick Group, Ltd. filed for protection under chapter 11 of the U.S. bankruptcy code. Mr. Becker served as Chairman of Hales & Company, a banking firm specializing in insurance and financial services, from July 2000 until April 2005. From November 1999 to December 2000, Mr. Becker served as Vice Chairman and a director of Royal & SunAlliance USA following their acquisition at Orion Capital Corporation, where from 1997 to 1999 Mr. Becker served as its Chairman of the Board and Chief Executive Officer and from 1994 to 1996 as President and Chief Executive Officer of its subsidiary. Mr. Becker is Chairman and a director of ICAT Holdings, LLC, an MGA specializing in property

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catastrophe insurance and a director of Selective Insurance Group, Inc. (Nasdaq: SIGI). He is also an Advisory Board member of the Conning Funds and American Securities Funds. Mr. Becker is licensed as a certified public accountant and an admitted attorney in West Virginia.

Laurence W. Cheng, 58, has served as a director of Max Re Capital and Max Re since September 1999. He is a partner and co-founder of Capital Z Partners, L.P., which we refer to as Capital Z Partners. Prior to forming Capital Z Partners in 1998, Mr. Cheng was, from 1997, the Chief Investment Officer and member of the Corporate Executive Board of the Zurich Financial Services Group, a global insurance and financial services company. From 1996 until 1997, Mr. Cheng was President and Chief Executive Officer of Zurich Investment Management Ltd., an asset manager for institutional customers. From 1988 until 1996, Mr. Cheng was the President and Chief Executive Officer of Zurich Bermuda, and in 1992 was also named Chief Financial Officer of the Centre Re Group. Throughout his 23-year tenure with the Zurich Financial Services Group, Mr. Cheng served in a number of different roles, including managing, accounting, actuarial, taxation and investment functions.

Robert J. Cooney, 52, has served as a director of Max Re Capital and Max Re since their formation in July 1999, as President and Chief Executive Officer of Max Re Capital and Max Re since September 1999 and as Chairman of Max Re Capital and Max Re since November 1999. Mr. Cooney has served as a director of Max Europe Holdings and Max Insurance Europe since June 2003, Max Re Diversified since October 2001, Grand Central Re Limited, which we refer to as Grand Central Re since May 2001, Max Re Managers since January 2001 and Max Re Europe since April 2000. From 1987 to 1999, Mr. Cooney held various senior management positions at XL Insurance Ltd., one of the principal insurance operating units of XL Capital Ltd. (NYSE: XL), a Bermuda-based, multi-line insurer. In 1998, Mr. Cooney became President and Chief Executive Officer of XL Insurance Ltd. and Executive Vice President of XL Capital Ltd. From 1995 to 1998, Mr. Cooney was President and Chief Operating Officer of XL Insurance Ltd. From 1983 to 1987, Mr. Cooney held various senior management positions at Trenwick Group, Inc., a U.S. based insurer and reinsurer, and its Bermuda-based subsidiary, Trenwick Services, Ltd., including the position of President of Trenwick Services, Ltd. From 1980 to 1983, Mr. Cooney was a partner at Wypich Illsley & Associates, a management consulting and executive search firm. Prior to 1980, Mr. Cooney was employed as a facultative underwriter at General Reinsurance Corp.

William H. Heyman, 58, has served as a director of Max Re Capital and Max Re since May 2000. Mr. Heyman is Vice Chairman and Chief Investment Officer of The St. Paul Travelers Companies, a position he has held since May 2005. Since January, 2005, Mr. Heyman has been a member of the Board of Governors of the NASD. From May 2002 to May 2005, Mr. Heyman was Executive Vice President and Chief Investment Officer of The St. Paul Travelers Companies. From 2000 to March 2002, Mr. Heyman was Chairman of Citigroup Investments Inc., a subsidiary of Citigroup Inc. From 1995 until February 2001, Mr. Heyman held various positions with Citigroup Investments Inc., and its predecessor, Travelers Investment Group. Mr. Heyman also was Chief Executive Officer of Tribeca Investments, L.L.C., a Citigroup subsidiary (and member firm of the New York Stock Exchange), which conducted proprietary trading and investment activities, including merger arbitrage, convertible hedging (domestic and international) and distressed securities investing, as well as Chief Executive Officer of Tribeca Management, L.L.C., a registered investment advisor. From 1993 to 1995, Mr. Heyman was a managing director and head of the private investment department of Salomon Brothers Inc. From 1991 to 1993, Mr. Heyman served as the Director of the Division of Market Regulation of the U.S. Securities and Exchange Commission in Washington, D.C.

Willis T. King, Jr., 62, has served as a director of Max Re Capital and Max Re since September 1999. Mr. King serves as Chairman of First Protective Insurance Company, Lake Mary, Florida, a position he has held since March 1998. From June 1999 to November 2001, Mr. King served as Chairman of the Board and Chief Executive Officer of Highlands Insurance Group. In October 2002, Highlands Insurance Group filed for protection under chapter 11 of the U.S. bankruptcy code. Mr. King has served as a director of SCPIE Holdings, Inc. (NYSE: SKP), a medical malpractice insurance company, since 1997. From 1997 to June 1999, Mr. King was a Vice Chairman of Guy Carpenter & Co. From 1984 to 1997, Mr. King held various positions at Willcox, Inc., including Chairman and Chief Executive Officer. From 1987 to 1997, Mr. King was a director of

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Johnson & Higgins, which was subsequently merged into Marsh & McLennan. Mr. King is a member of the Advisory Council, School of Public Health, The University of North Carolina, Chapel Hill.

Peter A. Minton, 47, has served as a director of Max Re Capital and Max Re since July 2004, and as Executive Vice President and Chief Risk Officer since February 2001. Mr. Minton joined Max Re Capital and Max Re in April 2000 as Senior Vice President and Chief Risk Officer. Mr. Minton has served as a director of Max Re Diversified since October 2001. From 1999 to 2000, Mr. Minton served as Managing Director and Head of Fixed Income Research for Scudder Kemper Investments. From 1996 to 1999, Mr. Minton served as a Senior Vice President of Investments at General Reinsurance Company. From 1991 to 1996, Mr. Minton held the position of Principal and Head of Fixed Income Strategy at Morgan Stanley & Co. Incorporated. From 1984 to 1991, Mr. Minton served as Vice President and Portfolio Manager at CMB Investment Counselors. Prior to joining CMB Investment Counselors, Mr. Minton served as a tax planner in the Tax Department of Ernst & Whinney between 1981 and 1984.

Steven M. Skala, 50, has served as a director of Max Re Capital and Max Re since May 2000. Mr. Skala serves as Vice Chairman of Deutsche Bank, AG, Australia and New Zealand, a position he has held since September 2004. Mr. Skala was a solicitor and a partner of Arnold Bloch Leibler, Melbourne, Australia, from 1985 to 2004, and was a partner of Morris Fletcher & Cross, Brisbane, Australia from 1982 to 1985. Mr. Skala was appointed Chairman and a non-executive director of Hexima Limited in May 2002, and Live Events Wireless Pty Ltd in February 2003. In June 2004, Mr. Skala became a non-executive director of Film Australia Limited, and in September 2004 he became its Chairman. Mr. Skala serves as a non-executive director of Wilson HTM Limited, the Center for Independent Studies and the Australian Broadcasting Corporation. He is a Member of the International Council of the Museum of Modern Art (New York), Vice President of The Walter & Eliza Hall Institute for Medical Research and is also a non-executive director of the Australian Ballet, whose audit committee he chairs.

Mario P. Torsiello, 50, has served as a director of Max Re Capital and Max Re since March 2000. Since November 2001, Mr. Torsiello has served as President and Chief Executive Officer of Torsiello Capital Advisors Inc. and Torsiello Capital Partners, LLC (and their predecessor companies), advisory and investment banking firms specializing in insurance, asset management and other financial services. From September 2000 to November 2001, Mr. Torsiello served as Managing Director and Head of North American Insurance Practice of Dresdner Kleinwort Wasserstein, Inc. (formerly known as Wasserstein Perella & Co. Inc.). From December 1999 to September 2000, Mr. Torsiello served as President and a director of INDC Group Inc., a California-based insurance company formed to offer a broad line of consumer orientated insurance products through the Internet. From 1987 to 1999, Mr. Torsiello was an investment banker at Salomon Smith Barney Inc., having served as Managing Director from 1995 and Co-Head of the Insurance Group from 1997 to 1999. Mr. Torsiello also served as a member of the firm’s Capital Commitments Committee from 1995 to 1999. Prior to joining Salomon Smith Barney, Mr. Torsiello was a Senior Manager in KPMG’s New York insurance accounting and audit services unit. Mr. Torsiello is a member of the Board of Advisors of Fordham College of Business Administration. Mr. Torsiello is licensed as a Certified Public Accountant and as a reinsurance broker in the State of New York.

James L. Zech, 48, has served as a director of Max Re Capital and Max Re since December 1999. He has been a principal and the President and Investment Manager of High Ridge Capital, L.L.C., which we refer to as High Ridge, since its formation in 1995. In addition, in 2005 he became a partner in Northaven Management, Inc., a private investment firm focused on the financial services industry. From 1992 to 1995, Mr. Zech was an investment banker at S.G. Warburg & Co., Inc., where he was responsible for forming the U.S. Insurance Group as part of Warburg’s worldwide financial institutions practice. From 1988 to 1992, Mr. Zech was a member of the Insurance Investment Banking Group of Donaldson, Lufkin & Jenrette Securities Corporation.

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Executive Officers Who Are Not Directors

Set forth below is biographical information concerning each executive officer of the Company who is not a director.

John P. Doucette, 40, has served as Executive Vice President of Max Re since February 2003 and also as President and Chief Underwriting Officer of the Property and Casualty Reinsurance Division of Max Re since February 2005. Mr. Doucette joined Max Re in January 2000 as Senior Vice President, Underwriter. From 1997 to 2000, Mr. Doucette held various pricing, structuring, underwriting and actuarial positions in the Swiss Re New Markets division of the Swiss Re Group in connection with that company’s alternative risk transfer and structured finance products. He served as a consultant with Tillinghast between 1989 and 1997, where he was involved in a number of actuarial, valuation and computer modeling projects in the United States, Europe and Bermuda. Mr. Doucette holds the professional designations of FCAS and MAAA.

Angelo M. Guagliano, 52, joined Max Re in January 2003 as an Executive Vice President, and has also served as President and Chief Underwriting Officer of the Insurance Division of Max Re since March 2005. Mr. Guagliano held various management positions at XL Insurance (Bermuda) Ltd., including Executive Vice President, Country Manager and Chief Excess Liability Underwriter and Manager, from January 1995 to December 2002. From 1988 to 1995, Mr. Guagliano worked for Reliance National in New York in their E&S Primary Unit. From 1981 to 1988, Mr. Guagliano worked as a Casualty Facultative Underwriter for Prudential Reinsurance Corporation and as an Excess Liability Underwriter for the Royal Insurance Company. Mr. Guagliano began his underwriting career with Harford Insurance Company in 1979.

Keith S. Hynes, 53, has served as Executive Vice President and Chief Financial Officer of Max Re Capital and Max Re since September 1999. Mr. Hynes has served as President of Grand Central Re since May 2001, a director of Max Europe Holdings and Max Insurance Europe since June 2003, a director of Max Re Diversified since October 2001, a director of Max Re Managers since January 2001 and a director of Max Re Europe since April 2000. From 1994 to 1999, Mr. Hynes held various senior management positions at RenaissanceRe Holdings, Ltd. (NYSE: RNR), a Bermuda reinsurer and insurer that he co-founded, and its subsidiaries. For RenaissanceRe Holdings, Ltd., Mr. Hynes acted as Executive Vice President—Primary Operations from 1997 to 1999 and Senior Vice President and Chief Financial Officer from 1994 to 1997. Prior to joining RenaissanceRe Holdings, Ltd., Mr. Hynes held various positions at Hartford Steam Boiler Inspection and Insurance Co., a Connecticut insurance company, from 1983 to 1994, including the position of Senior Vice President and Chief Financial Officer from 1992 to 1994. From 1978 to 1983, he held various positions at Aetna Life and Casualty Company. Mr. Hynes has served as a director of DaVinciRe Holdings Ltd. since 2001 and as a director of CRM Holdings Ltd. (NASDAQ: CRMH) since November 2005. In addition, Mr. Hynes holds the professional designation of CFA.

Identification of Audit and Risk Management Committee

The ARMC is composed entirely of non-management directors, each of whom the board of directors has determined is independent in accordance with Nasdaq National Market listing standards and applicable rules and regulations promulgated under the Exchange Act. The ARMC consists of Messrs. Heyman, Becker, Torsiello and Zech. The ARMC is governed by a written charter approved by our board of directors. The primary purpose of the ARMC is to assist the board of directors in fulfilling its responsibilities to oversee the participation of management in our financial reporting process and the role and responsibilities of our independent auditors. The ARMC is responsible for, among other things: (i) monitoring the integrity of the our financial statements; (ii) assessing our independent auditor’s qualifications, performance and independence, and in connection therewith, has the sole authority to appoint or replace our independent auditors; (iii) reviewing our internal audit process, including our internal controls and accounting systems; and (iv) overseeing our compliance with legal and regulatory requirements. Each of Messrs. Becker, Torsiello, and Zech have been designated as an “audit committee financial expert” as defined in Section 407 of the Sarbanes-Oxley Act of 2002. The ARMC met five times in 2005.

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Compliance with Section 16(a) of the Exchange Act

The U.S. federal securities laws require the filing of certain reports by officers, directors and beneficial owners of more than ten percent (10%) of Max Re Capital’s securities with the SEC. Specific due dates have been established and we are required to disclose in this Amendment any failure to file by these dates. Based solely on a review of copies of the filings furnished to us, we believe that during fiscal year 2005, our officers, directors and 10% shareholders satisfied all such filing requirements with the exception of one Form 4 filed 15 days late by Mr. Zech.

Code of Business Conduct and Ethics

We have adopted a written code of ethics, the “Max Re Capital Ltd. Code of Business Conduct and Ethics,” that is applicable to all our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller and other executive officers identified pursuant to this Item 10 who perform similar functions (collectively, the “Selected Officers”). In accordance with the rules and regulations of the SEC, a copy of the code was filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, and is available on our website. We will disclose any changes in or waivers from our code of ethics applicable to any Selected Officer on our website at http://www.maxre.bm or by filing a Form 8-K.

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ITEM 11.EXECUTIVE COMPENSATION

Summary Compensation Table

The following Summary Compensation Table sets forth information concerning the compensation paid during the years ended December 31, 2005, 2004 and 2003 to each of Max Re Capital’s Chief Executive Officer and the other four most highly compensated Section 16(a) filers, whom we refer to collectively as Named Executive Officers, for the fiscal year 2005.

Summary Compensation Table

	Annual Compensation							Long Term Compensation
	Year	Salary		Bonus(1)		Other Annual Compensation (2)		Restricted Share Awards(3)		Securities Underlying Options (3)	All Other Compensation (4)
Robert J. Cooney     Chairman, President and Chief Executive Officer	2005 2004 2003	$ $ $	675,000 631,250 600,000	$ $ $	325,000 1,350,000 1,200,000	$ $ $	160,000 215,639 167,245	$ $ $	1,593,900 2,834,560 2,016,540	—   —   —	$ $ $	67,500 63,125 60,000
John P. Doucette     Executive Vice President and President, Reinsurance	2005 2004 2003	$ $ $	375,000 335,000 325,000	$ $ $	210,000 400,000 500,000	$ $ $	193,755 160,424 144,310	$ $ $	417,450 375,756 648,270	—   —   —	$ $ $	37,500 33,500 32,500
Angelo Guagliano     Executive Vice President and President, Insurance	2005 2004 2003	$ $ $	350,000 330,000 315,208	$ $ $	300,000 375,000 450,000	$ $ $	163,866 163,820 589,875	$ $ $	493,350 495,216 540,225	—   —   —	$ $ $	35,000 33,000 31,521
Keith S. Hynes     Executive Vice President Chief Financial Officer	2005 2004 2003	$ $ $	415,000 415,000 400,000	$ $ $	300,000 550,000 500,000	$ $ $	159,258 199,209 147,353	$ $ $	506,000 325,800 720,300	—   —	$ $ $	41,500 41,500 40,000
Peter A. Minton     Executive Vice President and Chief Risk Officer	2005 2004 2003	$ $ $	450,000 425,000 400,000	$ $ $	425,000 600,000 750,000	$ $ $	196,835 161,835 133,835	$ $ $	676,775 1,591,040 1,080,450	—   —   —	$ $ $	45,000 42,500 40,000

^1. Bonus amounts for 2005 were paid in February 2006. Bonus amounts for 2004 were paid in February 2005. Bonus amounts for 2003 were paid in February 2004.

^2. The 2005 amounts consist of housing allowances of $120,000 for each of Messrs. Cooney, Doucette, Guagliano, Hynes and Minton and a travel allowance, automobile expenses, club dues, financial planning and tax preparation costs totaling $40,000, $73,755, $43,866, $39,258 and $76,835, respectively. The 2004 amounts consist of housing allowances of $120,000 for each of Messrs. Cooney, Doucette, Guagliano, Hynes and Minton and a travel allowance, automobile expenses, club dues, financial planning and tax preparation costs totaling $95,639, $40,424, $43,820, $79,209 and $41,835, respectively. The 2003 amounts consist of housing allowances for Messrs. Cooney, Doucette, Guagliano, Hynes and Minton of $120,000, $120,000, $116,000, $108,000 and $120,000, respectively, and a travel allowance, automobile expenses, club dues, financial planning and tax preparation costs totaling $47,245, $24,310, $23,875, $39,353 and $13,835, respectively. The 2003 amount also includes a hiring bonus of $450,000 for Mr. Guagliano. The amounts shown do not include expenses, which were not in excess of $10,000 per officer per year, for accompanying family members for one trip to a meeting of the board of directors per year.

^3. The presentation of awards has been modified from prior years to report the awards in the year in which they were earned rather than the year of grant. The presentations of prior year awards has been revised to reflect this change in presentation. Messrs. Cooney, Doucette, Guagliano, Hynes and Minton held 277,000, 68,300, 57,300, 66,000 and 155,200 of our restricted common shares (par value $1.00), respectively, with an aggregate value of $7,193,690, $1,773,751, $1,488,081, $1,714,020 and $4,030,544, respectively, based on a price per common share of $25.97 on December 31, 2005. None of these shares are vested.

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The restricted common shares awards for 2005 represent grants of 63,000, 16,500, 19,500, 20,000 and 26,750 to Messrs. Cooney, Doucette, Guagliano, Hynes and Minton, respectively, and were granted on February 16, 2006. The awards had a value at grant of $25.30 per share. The awards are subject to three year cliff vesting and, accordingly, vest in their entirety on February 16, 2009, subject to certain conditions and restrictions relating to, among other things, forfeiture in the event of termination of employment and transferability.

The restricted common shares awards for 2004 represent grants of 148,000, 17,300, 22,800, 15,000 and 82,000 to Messrs Cooney, Doucette, Guagliano, Hynes and Minton, respectively, and were granted on February 7, 2005, with the exception of grants for Messrs. Cooney and Minton. Mr. Cooney received 48,000 restricted common shares on February 7, 2005 and 100,000 restricted common shares on August 1, 2004. Mr. Minton received 32,000 restricted common shares on February 7, 2005 and 50,000 restricted common shares on August 1, 2004. The awards had a value at grant of $21.72 per share on February 7, 2005 and $17.92 per share on August 1, 2004. The February 7, 2005 grants are subject to three year cliff vesting and, accordingly, vest in their entirety on February 7, 2008, and the shares awarded to Messrs. Cooney and Minton on August 1, 2004 are subject to the performance measures described in Mr. Cooney’s Employment Agreement filed with the SEC in August 2004.

The restricted common shares awards for 2003 represent grants of 84,000, 27,000, 22,500, 30,000 and 45,000 to Messrs. Cooney, Doucette, Guagliano, Hynes and Minton, respectively, and were granted on January 30, 2004. The awards had a value at the date of grant of $24.01 per share. The awards are subject to three year cliff vesting and, accordingly, vest in their entirety on January 30, 2007, subject to certain conditions and restrictions relating to, among other things, forfeiture in the event of termination of employment and transferability.

Under the Max Re Capital 2000 Stock Incentive Plan, as amended and which we refer to as the Incentive Plan, Messrs. Cooney, Doucette, Guagliano, Hynes and Minton are eligible to receive dividends on their restricted common shares if Max Re Capital declares dividends on its common shares generally.

^4. Represents a defined contribution by Max Re, pursuant to the terms of the Max Re 401k and Deferred Compensation Plans.

Warrant and Option Grants in Last Fiscal Year

There were no warrants granted to the Named Executive Officers during fiscal year 2005. In connection with the exercise of vested options, Mr. Hynes received a reload option to acquire common shares as set forth in the table below. There were no other options granted to the Named Executive Officers during fiscal year 2005.

	Individual Grants							Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term				Alternative to (f) and (g): Grant Date Value
Name (a)	Number of Securities Underlying Option Granted (#) (b)		Percent of Total Options Granted to Employees in Fiscal Year (c)		Exercise of Base Price ($/Sh) (d)		Expiration Date (e)	5% ($) (f)		10% ($) (g)		Grant Date Present Value ($) (h)
Keith S. Hynes	4,819	(1)	7.5	%	$	26.56	January 1, 2011	$	35,362	$	78,141

⁽¹⁾ Represents grant of nonqualified stock options that are fully vested, and, except for the exercise price, are subject to the terms and conditions set forth in the original grant date January 1, 2001.

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Aggregated Warrant and Option Exercises in Last Fiscal Year

The following table sets forth information regarding the exercise of warrants and options by each of the Named Executive Officers during 2005. The table also shows the number and value of unexercised warrants and options held by each of the Named Executive Officers as of December 31, 2005. The value of unexercised options is based on a fair market value of $25.97 per share as of December 31, 2005.

Name	Shares Acquired On Exercise	Value Realized		Number of Securities Underlying Unexercised Options at Fiscal Year End Exercisable/Unexercisable (1)	Value of Unexercised In-the-money Options At Fiscal Year End Exercisable/Unexercisable
Robert J. Cooney	—		—	1,100,281/32,000	$	11,609,522/$329,920
John P. Doucette	—		—	130,000/5,000	$	1,362,900/$  51,550
Angelo Guagliano	—		—	60,000/40,000	$	868,200/$578,800
Keith S. Hynes	3,181	$	84,487	293,471/10,000	$	3,023,366/$103,100
Peter A. Minton	—		—	216,652/10,000	$	2,235,526/$103,100

¹ Represents warrants to purchase 882,281, 75,000, 186,652 and 116,652 common shares held by Messrs. Cooney, Doucette, Hynes and Minton, respectively, and options to purchase 250,000, 60,000, 100,000, 116,819 and 110,000 common shares granted under the Incentive Plan, held by Messrs. Cooney, Doucette, Guagliano, Hynes and Minton, respectively.

Other Compensation—Deferred Compensation Plans

We maintain three defined contribution plans for our employees: the Max Re Bermuda Pension Plan for Bermudian employees and employees whose spouses are Bermudian; the Max Re Deferred Compensation Plan for non-Bermudian employees, including, as of January 2005, a 401(k) plan for U.S. citizens; and the Max Re Europe Pension Plan for employees of the operating subsidiaries in Ireland. The Max Re Bermuda Pension Plan, which became effective on January 1, 2000, is a defined contribution plan established to comply with the National Pension Scheme (Occupational Pensions) Act 1998. The Max Re Deferred Compensation Plan, which became effective on July 1, 1999, and the Max Re Europe Pension Plan, which became effective on May 1, 2000, are also defined contribution plans. We made the following contributions to the respective plans in 2005, 2004 and 2003:

Plan	Company Contributions
	2005		2004		2003
Max Re Bermuda Pension Plan	$	230,000	$	158,000	$	87,000
Max Re Deferred Compensation Plan	$	313,000	$	836,000	$	734,000
401(k) Plan	$	532,000		—		—
Max Re Europe Pension Plan	$	447,000	$	171,000	$	97,000

Compensation of Directors

Following the 2005 Annual General Meeting, each non-employee director (except as otherwise provided below) received a $30,000 annual retainer, the ARMC Chair received a $7,000 retainer and each other committee chair received a $4,000 retainer. In addition, each non-employee director (except as otherwise provided below) received a $2,000 fee per board of directors or committee meeting attended and an additional $500 per committee meeting chaired.

Effective for meetings after February 10, 2006, following the Annual General Meeting, each non-employee director (except as otherwise provided below) receives a $30,000 annual retainer, the ARMC Chair receives a $10,000 retainer and each other committee chair receives a $5,000 retainer. In addition, each non-employee director (except as otherwise provided below) receives a $2,500 fee per board of directors or committee meeting attended.

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Mr. Barber does not receive compensation and Mr. Cheng’s compensation is paid to Capital Z Investments, L.P., which we refer to as Cap Z. All directors are reimbursed for travel and all other expenses incurred in attending meetings of the board of directors or committees thereof, including expenses (not in excess of $10,000 per director) for accompanying family members to one meeting per year.

On the day after the Annual General Meeting each non-employee director, with the exception of Mr. Barber, is granted 2,000 restricted shares.

The compensation of the directors is reviewed annually and future grants to the non-employee directors will be made upon the recommendation of the Nominating and Corporate Governance Committee, subject to such conditions or restrictions, if any, that they or the Compensation Committee may determine.

Employment Contracts and Termination of Employment and Change-In-Control Arrangements

Robert J. Cooney

We previously entered into an employment agreement with Robert J. Cooney with an initial term expiring on August 1, 2004. Effective August 1, 2004, we entered into an amended and restated employment agreement under which Mr. Cooney agreed to continue to serve as Chief Executive Officer and President and Chairman of the board of directors for an initial term of five (5) years, and for one year terms thereafter, subject to 90 days advance written notice by either party of a decision not to renew the employment agreement. Pursuant to the terms of the employment agreement, Mr. Cooney is entitled to receive an initial annual base salary of $675,000 (subject to increase at our discretion) and an annual performance-based target bonus of 100% of his base salary. This bonus may in actuality range from 0% to 250% of his base salary, depending on the achievement of annual performance criteria. Mr. Cooney is also entitled to certain employee benefits and perquisites, including a housing allowance currently totaling $120,000 annually, as well as a travel allowance, club dues, financial planning and tax preparation costs that collectively totaled $40,000 in 2005.

Pursuant to the terms of Mr. Cooney’s employment agreement, Mr. Cooney received a grant of 100,000 restricted common shares on July 31, 2004, which vest ratably over three years provided that annual performance thresholds are met during each of the ensuing three years. In the event Mr. Cooney’s employment is terminated by us without Cause, by Mr. Cooney for Good Reason, on or following a Change in Control or in the event of Mr. Cooney’s retirement at the end of the initial term (each as defined in the employment agreement), all of the unvested restricted shares granted under the employment agreement, as well as any future equity awards granted to Mr. Cooney, shall become immediately vested in full upon such termination. In the event Mr. Cooney dies or his employment is terminated by us for Disability (as defined in the employment agreement) at any time during the term, all unvested restricted shares granted under the employment agreement shall become immediately vested upon such termination.

In the event Mr. Cooney’s employment is terminated by us without Cause, by Mr. Cooney for Good Reason or if we elect not to extend the term of the employment agreement, Mr. Cooney will be entitled to a cash severance payment equal to a pro-rata amount, calculated on a daily basis, between $675,000 and $1,850,000 with $1,850,000 corresponding to a termination on August 1, 2004 and $675,000 corresponding to a termination on August 1, 2009. If the term of the employment agreement is renewed at the end of the initial term, and Mr. Cooney’s employment is terminated for the above reasons thereafter, the severance payment shall be $675,000 for any such termination following August 1, 2009. Notwithstanding the foregoing, if Mr. Cooney’s employment is terminated by us without Cause, by Mr. Cooney for Good Reason or if we elect not to renew the term following a Change in Control, in lieu of the severance payment, Mr. Cooney will be entitled to receive a lump-sum payment equal to three times his then current base salary and last paid bonus. In addition, in the event such payments are subject to golden parachute excise taxes under Section 4999 of the U.S. Internal Revenue Code of 1986, as amended, Mr. Cooney will receive a tax gross-up payment for the full amount of such excise tax. Mr. Cooney’s employment agreement also contains provisions relating to confidentiality, non-solicitation and non-disparagement.

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Other Members of Management

In December 1999, we entered into a four-year employment agreement with Keith S. Hynes. Mr. Hynes serves as Executive Vice President and Chief Financial Officer. In April 2000, we entered into a three-year employment agreement with Mr. Peter A. Minton, pursuant to which Mr. Minton initially served as Senior Vice President and Chief Risk Officer. Since February 2001, Mr. Minton has held the position of Executive Vice President and Chief Risk Officer. Each of the foregoing employment agreements automatically renews for successive one-year terms unless either party to the agreement provides written notice not to renew at least 90 days prior to the expiration of the term or renewal term. In addition, each of the employment agreements contains provisions relating to confidentiality, non-solicitation and non-disparagement.

These employment agreements provide for severance payments consisting of a continued payment of salary for 24 months following a termination of employment for Good Reason by the employee or without Cause by the Company; provided, however, that in the event of a termination for such reasons following a Change in Control, each executive will receive two times his base salary and his last bonus paid.

Max Re entered into letter agreements with each of Messrs. Doucette and Guagliano upon the commencement of their employment in January 2000 and November 2002, respectively. Although the letter agreements outline certain basic employment terms, including provisions for severance payments consisting of a continued payment of salary for 24 months and other perquisites detailed in the compensation table herein, their compensation packages are reviewed and subject to adjustment on an annual basis.

Each of Messrs. Doucette, Guagliano, Hynes, and Minton are paid annual salaries with annual performance-based target bonuses of 75% of their respective base salaries. Such bonuses may in actuality range from 0% to 200% depending on the achievement of performance targets established by the Compensation Committee.

Compensation Committee Interlocks and Insider Participation

The Compensation Committee consists of Messrs. Cheng, King, Skala and Torsiello, each of whom the board of directors has determined is independent in accordance with Nasdaq National Market listing standards. No member of the Compensation Committee of 2005 is or was formerly an officer or employee of the Company or any of its subsidiaries. During 2005, no executive officer of the Company served on the compensation committee (or equivalent), or the board of directors, of another entity whose executive officer(s) served on the Company’s Compensation Committee or Board of Directors.

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ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information as of March 31, 2006 with respect to the beneficial ownership, as defined in Rule 13(d) under the Exchange Act, of our common shares and the applicable voting rights attached to such share ownership in accordance with our bye-laws by (i) each person known by us to beneficially own, as defined in Rule 13d-3 under the Exchange Act, 5% or more of the outstanding our common shares; (ii) each director; (iii) each Named Executive Officer; and (iv) all Named Executive Officers, directors and nominee directors as a group. As of March 31, 2006, there were 59,372,778 common shares issued and outstanding. For purposes of the following table and the footnotes thereto, the term “currently exercisable” means exercisable as of March 31, 2006 or within 60 days following such date.

	Beneficial Ownership as of March 31, 2006		Percent of Class (2)
Name and Address of Beneficial Owner (1)	Number of Common Shares
Capital Z Investments, L.P. 54 Thompson Street New York, NY 10012 USA	5,539,058	(3)	9.0	%
FRM Corp. (“FRM”) 82 Devonshire Street Boston, MA 02109 USA	2,963,859	(4)	5.0	%
Louis Moore Bacon Moore Holdings, LLC (“Moore Holdings”) 1251 Avenue of the Americas, 53rd Floor New York, NY 10020 USA	11,078,119	(5)	17.4	%
Entities affiliated with Moore Capital Management, LLC (other than Moore Holdings, LLC) 1251 Avenue of the Americas, 53rd Floor New York, NY 10020 USA	2,333,334	(6)	3.9	%
T. Rowe Price Associates, Inc. (“Price Associates”) 100 East Pratt Street Baltimore, MD 21202 USA	3,184,600	(7)	5.4	%
Western General Insurance Ltd. (“Western General”) Swan Building, 2nd Floor 26 Victoria Street Hamilton HM 11 Bermuda	4,428,894	(8)	7.4	%
Robert J. Cooney	1,915,560	(9)	3.2	%
John P. Doucette	207,294	(10)	*
Angelo Guagliano	127,500	(11)	*
Keith S. Hynes	592,652	(12)	1.0	%
Peter A. Minton	328,985	(13)	*
Zack H. Bacon, III	200,000	(14)	*
John R. Barber	0		0	%
W. Marston Becker	15,667	(15)	*

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	Beneficial Ownership as of March 31, 2006		Percent of Class (2)
Name and Address of Beneficial Owner (1)	Number of Common Shares
.Laurence W. Cheng	4,256	(3)	*
William H. Heyman	22,533	(16)	*
Willis T. King, Jr.	57,333	(17)	*
Steven M. Skala	43,999	(18)	*
Mario P. Torsiello	57,333	(19)	*
James L. Zech	42,333	(20)	*
All directors, nominees and named executive officers, as a group (15 persons)	3,607,425	(21)	5.9	%

*   Less than 1%

1. Unless otherwise stated, the address for each beneficial owner is c/o Max Re Capital Ltd., Max Re House, 2 Front Street, Hamilton HM 11, Bermuda.

2. Computed on the basis of 59,372,778 shares outstanding as of March 31, 2006, plus the number of options exercisable within 60 days thereafter. Our bye-laws reduce the total voting power of any U.S. shareholder owning, directly or indirectly, beneficially or otherwise, as described in our bye-laws, 9.5% or more of the common shares to less than 9.5% of the total voting power of our capital stock unless otherwise waived at the discretion of the board of directors. As a result of the application of our bye-laws, the combined voting power of each of Cap Z and Moore Holdings, together with its affiliates, Moore Global Investments, Ltd. and Remington Investment Strategies, L.P., which we refer to collectively as the Moore Group, respectively, is now limited to less than 9.5%, which results in the increase of the voting power of other shareholders. Pursuant to our bye-laws, the voting power of other shareholders, in aggregate, is increased by the same number of votes held by the Moore Group and Cap Z that are subject to the voting limitation. Such increase applies to each of the other shareholders in proportion to its voting power as determined on any applicable record date, provided that such increase will be limited to the extent necessary to avoid causing any shareholder to have 9.5% or more voting power. Our bye-laws also limit to less than 9.5% the percentage of our common shares that may be owned by any person, unless otherwise waived by the board of directors. The board of directors has waived this ownership limitation with respect to Cap Z and the Moore Group.

3. Includes warrants to acquire 2,205,725 common shares. Capital Z Investment Management, L.P., a Bermuda limited partnership, is the general partner of Cap Z and exercises voting and investment power with respect to Cap Z’s portfolio assets. As the general partner of Capital Z Investment Management, L.P., Capital Z Investment Management, Ltd., a Bermuda limited liability company, exercises voting and investment power with respect to Cap Z’s portfolio assets at the direction of the investment committee of Capital Z Investment Management, Ltd. Mr. Cheng is a member of the investment committee of Capital Z Investment Management, L.P. Mr. Cheng, a director of our company and an officer and director of the ultimate general partner of Cap Z and the management company of Cap Z, has a beneficial interest in 4,256 common shares owned by Cap Z through his investment in Capital Z Management, L.P. Also does not include 2,000 restricted common shares issued under the Incentive Plan that remain subject to vesting provisions.

4. FRM’s beneficial ownership of common shares is based solely on a Form 13G filed by FRM on February 14, 2006. FRM’s percentage ownership based on common shares outstanding at March 31, 2006 was 4.992%.

5. Includes warrants to acquire 4,411,452 common shares beneficially owned by Moore Holdings. Does not include 1,666,667 common shares beneficially owned by Moore Global Investments, Ltd., which we refer to as MGI, or 666,667 common shares beneficially owned by Remington Investment Strategies, L.P., which we refer to as Remington. Does not include 235,333 common shares owned by family members of Mr. Louis Bacon including 200,000 common shares owned by Mr. Zack Bacon, his brother. Mr. Louis Bacon, as the controlling member of Moore Holdings, may be deemed to beneficially own the common shares and warrants to acquire common shares beneficially owned by Moore Holdings.

6. Consists of 1,666,667 common shares held of record or beneficially by MGI and 666,667 common shares held of record or beneficially by Remington. Moore Capital exercises voting and investment power with respect to portfolio assets held for the account of MGI. Moore Capital Advisors, L.L.C. is the sole general partner of Remington. Mr. Louis Bacon is the majority shareholder of Moore Capital and is the majority

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equity holder of Moore Capital Advisors, L.L.C. As a result, Mr. Bacon may be deemed to be the beneficial owner of the aggregate shares held of record or beneficially by MGI and Remington. Does not include 6,666,667 common shares or warrants to acquire 4,411,452 common shares beneficially owned by Moore Holdings as described in footnote 5.

7. Price Associates’ beneficial ownership of our common shares is based solely on a Form 13G filed by Price Associates on February 14, 2006. Price Associates’ common shares are owned by various individual and institutional investors through T. Rowe Price Mutual Funds, for which Price Associates serves as investment advisor with power to direct investments and/or sole power to vote the common shares. For purposes of the reporting requirements of the Exchange Act, Price Associates is deemed to be a beneficial owner of these common shares; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such common shares.

8. Includes 3,756,270 common shares owned by Western General and warrants that are currently exercisable to acquire 672,624 common shares.

9. Includes (i) warrants that are currently exercisable to acquire 882,281 common shares; (ii) 200,279 common shares owned by Yenooc Ltd. as to which Mr. Cooney, as sole director, claims beneficial ownership; and (iii) 250,000 common shares issuable upon the exercise of options issued under the Incentive Plan that are currently exercisable. Does not include 295,000 restricted common shares issued under the Incentive Plan that remain subject to vesting provisions.

10. Includes (i) warrants that are currently exercisable to acquire 75,000 common shares; and (ii) 60,000 common shares issuable upon the exercise of options issued under the Incentive Plan that are currently exercisable. Does not include 60,800 restricted common shares issued under the Incentive Plan that remain subject to vesting provisions.

11. Includes 75,980 common shares issuable upon the exercise of options issued under the Incentive Plan that are currently exercisable. Does not include (i) 20,000 common shares issuable upon the exercise of options issued under the Incentive Plan that are not currently exercisable; or (ii) 70,800 restricted common shares issued under the Incentive Plan that remain subject to vesting provisions.

12. Includes (i) warrants that are currently exercisable to acquire 186,652 common shares; and (ii) 116,819 common shares issuable upon the exercise of options issued under the Incentive Plan that are currently exercisable. Does not include 65,000 restricted common shares issued under the Incentive Plan that remain subject to vesting provisions.

13. Includes (i) warrants that are currently exercisable to acquire 116,652 common shares; and (ii) 110,000 common shares issuable upon the exercise of options issued under the Incentive Plan that are currently exercisable. Does not include 153,950 restricted common shares issued under the Incentive Plan that remain subject to vesting provisions.

14. 200,000 common shares beneficially owned by Mr. Zack Bacon have been pledged to HSBC Bank USA pursuant to that certain Pledge and Hypothecation Agreement dated March 12, 2002. Mr. Bacon disclaims any beneficial interest in the common shares beneficially owned by Mr. Louis Bacon, Moore Holdings and entities affiliated with Moore Capital. Does not include 2,000 restricted common shares issued under the Incentive Plan that remain subject to vesting provisions.

15. Includes 7,000 common shares owned by Mr. Becker and 2,000 common shares owned by the Becker Family Limited Partnership, of which Mr. Becker is a controlling partner. Includes 6,667 common shares issuable upon the exercise of options issued under the Incentive Plan that are currently exercisable. Does not include (i) 3,333 common shares issuable upon the exercise of options under the Incentive Plan that are not currently exercisable and (ii) 2,000 restricted common shares issued under the Incentive Plan that remain subject to vesting provisions.

16. Includes 13,333 common shares issuable upon the exercise of options issued under the Incentive Plan that are currently exercisable. Does not include (i) 667 common shares issuable upon the exercise of options under the Incentive Plan that are not currently exercisable and (ii) 2,000 restricted common shares issued under the Incentive Plan that remain subject to vesting provisions. Does not include 1,058,833 common shares beneficially owned by a subsidiary of The St. Paul Travelers Companies, as to which Mr. Heyman, as an affiliate thereof, disclaims any beneficial interest.

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17. Includes 17,333 common shares issuable upon the exercise of options issued under the Incentive Plan that are currently exercisable. Does not include (i) 667 common shares issuable upon the exercise of options under the Incentive Plan that are not currently exercisable and (ii) 2,000 restricted common shares issued under the Incentive Plan that remain subject to vesting restrictions.

18. Includes 26,666 common shares beneficially owned by Stockmoor Pty. Ltd., as to which Mr. Skala has a beneficial interest as the sole director thereof and as a beneficiary of a trust, the trustee of which is a shareholder in the ultimate holding company of Stockmoor Pty. Ltd. Includes 17,333 common shares issuable upon the exercise of options issued under the Incentive Plan that are currently exercisable. Does not include (i) 667 common shares issuable upon the exercise of options under the Incentive Plan that are not currently exercisable and (ii) 2,000 restricted common shares issued under the Incentive Plan that remain subject to vesting provisions.

19. Includes 17,333 common shares issuable upon the exercise of options issued under the Incentive Plan that are currently exercisable. Does not include (i) 667 common shares issuable upon the exercise of options under the Incentive Plan that are not currently exercisable and (ii) 2,000 restricted common shares issued under the Incentive Plan that remain subject to vesting provisions.

20. Includes 17,333 common shares issuable upon the exercise of options issued under the Incentive Plan that are currently exercisable. Does not include (i) 667 common shares issuable upon the exercise of options under the Incentive Plan that are not currently exercisable and (ii) 2,000 restricted common shares issued under the Incentive Plan that remain subject to vesting provisions. Also does not include (A) 1,010,000 common shares owned by High Ridge Capital Partners II, L.P., to which Mr. Zech, as a partner thereof, disclaims any beneficial interest and (B) 624,550 common shares owned by funds managed by Northaven Management, Inc.

21. Includes (i) warrants that are currently exercisable to acquire 1,260,585 common shares and (ii) options to acquire 702,131 common shares that are currently exercisable. Does not include (A) options to acquire 26,668 common shares that are not currently exercisable and (B) 661,550 restricted common shares issued under the Incentive Plan that remain subject to vesting provisions.

Equity Compensation Plan Information

The following table provides information as of December 31, 2005 about our common shares that may be issued upon the exercise of options, warrants and rights granted to employees, consultants or members of the board of directors under all of our existing equity compensation plans, including the Incentive Plan, each as amended.

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders	3,915,279	(1)	$	15.45	3,763,615	(2)
Equity compensation plans not approved by security holders	—			—	—
Total	3,915,279	(1)	$	15.45	3,763,615	(2)

⁽¹⁾ Includes 2,066,869 common shares issuable upon the exercise of options that were outstanding under the Incentive Plan as of December 31, 2005. The Incentive Plan was approved by the shareholders of Max Re Capital at the Annual General Meeting of Shareholders in 2000 and an amendment to the Incentive Plan was approved by shareholders at the Annual General Meeting of Shareholders in 2002 and in 2005. Also includes 1,848,410 common shares issuable upon the exercise of warrants granted in 1999, 2000 and 2001 to the Named Executive Officers and certain other employees pursuant to their respective employment

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agreements. The terms in the employment agreements providing for the granting of these warrants were approved by written shareholder resolution in December 1999.

⁽²⁾ Represents the difference between the number of securities issuable under the Incentive Plan (8,000,000) and the number of securities issued under the Incentive Plan as of December 31, 2005 (4,236,385), which consist of options to acquire 2,066,869 common shares (net of exercises of 223,733 and forfeitures of 19,000) as well as 1,926,783 restricted common shares).

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Described below are transactions we have entered into with parties that are related to us. We believe that each of the transactions described below was on terms no less favorable to us than we could have obtained from unrelated parties.

Transactions and Relationships with Strategic Investors and Underwriters

Alstra, an affiliate of Mr. Bacon, has served as fund of funds advisor for Max Re Diversified since April 1, 2004. Prior to October 1, 2005, Alstra was a subsidiary of Moore Capital, an affiliate of one of our significant shareholders. As of October 1, 2005, the senior management team of Alstra became the majority shareholders of Alstra. Mr. Bacon is a member of the Finance and Investment Committee of our board of directors, which is responsible for, among other things, making recommendations to the board of directors regarding the selection of investment managers and custodians for our investable assets. Mr. Bacon may have interests that are different from, or in addition to, our interests.

For the year ended December 31, 2005, Alstra received $7.9 million in fees as the fund of funds advisor for Max Re Diversified. Max Re Diversified pays Alstra a fee of 70 basis points plus 7.5% of the return in excess of a 10% threshold on the net asset value of funds in which Max Re Diversified is invested. Max Re Diversified has approximately $36.2 million invested in funds managed directly by Moore Capital or its affiliates and approximately $1,157.3 million invested in other funds as of December 31, 2005. Moore Capital received aggregate management and incentive fees of $3.9 million in respect of Max Re Diversified’s assets invested in underlying funds managed by Moore Capital or its affiliates for the year ended December 31, 2005.

Mr. Laurence W. Cheng, a director of our company, is an officer and director of the ultimate general partner of Cap Z, one of our principal shareholders.

Mr. William H. Heyman, a director of our company, currently serves as Vice Chairman and Chief Investment Officer of The St. Paul Travelers Companies, a subsidiary of which is one of our shareholders.

Mr. James L. Zech, a director of our company, currently serves as a principal of High Ridge, an affiliate of High Ridge Capital Partners II, L.P., one of our shareholders, and is an employee of Northaven Management Inc. and a member of Northaven Associates, LLC, the manager and general partner, respectively, of four of our shareholders.

Citibank, N.A. participates in our syndicated $450 million credit facility. Citibank, N.A. has committed $75 million to the facility. Citibank, N.A. also acted as an underwriter for Max Re Capital’s public offering of common shares in October and November 2005 for which it received $4.4 million in fees. Mr. John R. Barber, a director of our company, serves as Managing Partner of Citigroup Private Equity, a division of Citigroup Investments Inc., an affiliate of Citibank, N.A.

Transactions with Bayerische Hypo- und Vereinsbank AG and Grand Central Re

In May 2001, in connection with the formation and capitalization of Grand Central Re, Bayerische Hypo-und Vereinsbank AG, which we refer to as HVB, made a $15 million investment in our common shares and in January 2002, entered into a $100 million letter of credit facility with us. Effective January 2004, the capacity under this letter of credit facility was reduced to $50 million.

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Mr. Cooney, a director of our company, is a member of the board of directors of Grand Central Re. For services under Max Re Managers insurance management agreement with Grand Central Re, Max Re Managers received fees of $4.6 million in the year ended December 31, 2005. Max Re Managers expects to receive fees between $0.4 million and $1.3 million for such services in 2006.

Max Re entered into a quota share retrocession agreement with Grand Central Re, effective as of January 1, 2002, that requires each of Max Re and Grand Central Re to retrocede a portion of their respective gross premiums written from certain transactions to the other party in order to participate on a co-insurance basis. Max Re also entered into an aggregate stop loss contract with Grand Central Re, effective January 1, 2003, whereby Grand Central Re provides aggregate reinsurance protection to Max Re on one of its underlying reinsurance contracts. Effective January 1, 2004, the quota share arrangement with Grand Central was amended to suspend new business. In December 2004, Grand Central Re applied to the Bermuda Monetary Authority to change its status from a Class 4 composite insurer to a Class 3 composite insurer and currently has no plans to continue business.

Loans to Management

During 1999 and 2000, Messrs. Cooney, Doucette, Hynes and Minton purchased an aggregate of 443,333 common shares from Max Re Capital. Max Re Capital made loans during 1999 and 2000 to Messrs. Cooney, Doucette, Hynes, and Minton in the amounts of $4.5 million, $300,000, $1.4 million, and $450,000, respectively, to partially finance such purchases. Such loans bore interest at the Applicable Federal Rate, which is published by the U.S. Internal Revenue Service. As of March 31, 2005, these loans and applicable interest were repaid to Max Re Capital.

Shareholders’ Agreement and Registration Rights

Each of our private placement shareholders is a party to a shareholders’ agreement dated as of December 22, 1999. Under the shareholders’ agreement, among other things, each of Moore Holdings and Cap Z is entitled to require us to register our common shares under the Securities Act of 1933. These investors will be permitted to demand up to three registrations on Form S-1, or similar long-form registrations, and an unlimited number of demand registrations under Forms S-2 or S-3, or similar short-form registrations, provided that we will not be required to effect more than two demand registrations in any 12-month period. In addition, each long-form registration must have an aggregate offering price of at least $50 million, which amount includes the aggregate offering price of common shares included in such registration by any other shareholders. Certain private placement shareholders also have unlimited piggyback rights to include their shares in registration statements covering shares to be offered by Max Re Capital or other shareholders, subject to cutbacks as further described in the shareholders’ agreement. The exercise of demand and piggyback rights are subject to such other limitations and conditions as are customary in registration rights agreements.

Ownership and Voting Limitations

Pursuant to Max Re Capital’s bye-laws, less than 9.5% of the common shares may be owned by any person, which we refer to as the Ownership Limitation, or voted by any U.S. shareholder, which we refer to as the Voting Limitation, unless otherwise waived by our board of directors.

The board of directors has waived the Ownership Limitation with respect to two of its principal shareholders, Cap Z and the Moore Group. Pursuant to the Voting Limitation, however, the voting power of each of Cap Z and the Moore Group is limited to less than 9.5%.

Other

Since May 2005, Mr. William H. Heyman, a director of our company, has served as Vice Chairman and Chief Investment Officer of The St. Paul Travelers Companies; and from May 2002 he served as Executive Vice President and Chief Investment Officer. A portion of our directors and officers’ liability insurance has been underwritten by The St. Paul Travelers Companies since our company’s inception. We paid premiums of

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approximately $0.4 million for such insurance in 2005. In addition, pursuant to a reinsurance transaction executed in the ordinary course of business with Discover Reinsurance Company, a subsidiary of The St. Paul Travelers Companies, Max Re recorded approximately $5.6 million in premium written in 2005.

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

The aggregate amount of fees billed by KPMG for professional services rendered for the audit of our financial statements for the fiscal years ended December 31, 2005 and December 31, 2004 and for the review of the financial statements included in our Quarterly Reports on Form 10-Q in 2005 and 2004 were $948,260 and $990,514, respectively. In 2005 and 2004, audit fees also included fees for professional services rendered in connection with the audit of management’s assessment of the effectiveness of internal control over financial reporting and to express an opinion on the effectiveness of our internal control over financial reporting based upon the audit. Such fees do not include amounts paid for reimbursement of expenses.

Audit-Related Fees

The aggregate fees billed by KPMG for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements (and are not included in the Audit Fees reported above) for the fiscal year ended on December 31, 2005 were $194,573 and for the fiscal year ended December 31, 2004 were $122,408. Audit-related fees included $19,573 (2004:$18,828) in connection with the review of regulatory returns and $175,000 in connection with Max Re Capital’s public offering of common shares in October and November 2005. In addition, audit-related fees included $103,580 in 2004 relating to technical accounting advice.

Tax Fees

The aggregate fees billed by KPMG for professional services rendered for tax compliance and tax advice for the fiscal years ended December 31, 2005 and December 31, 2004, were $111,544 and $50,777, respectively. These fees represent fees for professional services related to the preparation of returns and tax compliance.

All Other Fees

There were no fees billed by KPMG for services rendered to us for the fiscal years ended December 31, 2005 and December 31, 2004 other than for services described under “Audit Fees,” “Audit-Related Fees” and “Tax Fees” above.

General

The ARMC has considered whether the provision of non-audit services performed by the independent auditors is compatible with maintaining KPMG’s independence and has concluded that services to be performed by KPMG will be limited to audit and tax services.

Pre-Approval of Audit and Non-Audit Services

In 2003, the ARMC adopted a policy concerning the approval of audit and non-audit services to be provided to us by the independent auditor. The policy requires that all services KPMG, our independent auditor, may provide to us, including audit services and permitted audit-related and non-audit services, be pre-approved by the ARMC, except that we may, without such pre-approval, spend an amount on non-audit services of not more than 10% of the total amount of fees paid by us to our auditor during the fiscal year in which the non-audit services are performed. The ARMC approved all audit and non-audit services and tax services provided by KPMG during 2005.

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PART IV

ITEM 15.FINANCIAL STATEMENT SCHEDULES

		Page
(a)(1)	Financial Statements
	Report of the Independent Registered Public Accounting Firm (on the consolidated financial statements)	F-1
	Report of the Independent Registered Public Accounting Firm (on internal control over financial reporting)	F-2
	Consolidated Balance Sheets as of December 31, 2005 and 2004	F-4
	Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2005, 2004 and 2003	F-5
	Consolidated Statements of Changes in Shareholders’ Equity for the Years Ended December 31, 2005, 2004 and 2003	F-6
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003	F-7
	Notes to Consolidated Financial Statements	F-8
(a)(2)	Financial Statement Schedules:
	Schedule II—Condensed Financial Information of Registrant	F-35
	Schedule III—Supplementary Insurance Information	F-38
	Schedule IV—Supplementary Reinsurance Information	F-39
(a)(3)	Exhibits
Exhibit	Description
3(i)	Memorandum of Association. (incorporated by reference to Exhibit 3.1 of Max Re Capital’s Registration Statement No. 333-62006)
3(ii)	Amended and Restated Bye-laws of Max Re Capital Ltd. (incorporated by reference to Exhibit 3.1 of Max Re Capital’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2003)
4.1	Specimen Common Share Certificate. (incorporated by reference to Exhibit 4.1 of Max Re Capital’s Registration Statement No. 333-62006)
4.2	Form of Warrant. (incorporated by reference to Exhibit 4.2 of Max Re Capital’s Registration Statement No. 333-62006)
10.1	Form of Shareholders’ Agreement, dated as of December 22, 1999, among Max Re Capital Ltd., Max Re Ltd. and certain other signatories. (incorporated by reference to Exhibit 10.1 of Max Re Capital’s Registration Statement No. 333-62006)
10.2	Employment Agreement, dated as of July 30, 2004, between Robert J. Cooney and Max Re Capital Ltd. (incorporated by reference to Exhibit 10.1 of Max Re Capital’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004)
10.3	Employment Agreement, dated as of December 15, 1999, between Keith S. Hynes and Max Re Capital Ltd. (incorporated by reference to Exhibit 10.5 of Max Re Capital’s Registration Statement No. 333-62006)
10.4	Employment Agreement, dated as of April, 2000, between Peter Minton and Max Re Capital Ltd. (incorporated by reference to Exhibit 10.6 of Max Re Capital’s Registration Statement No. 333-62006)

66

Exhibit	Description
10.5	2000 Stock Incentive Plan. (incorporated by reference to Exhibit 10.7 of Max Re Capital’s Registration Statement No. 333-62006)
10.6	Amendment to the 2000 Stock Incentive Plan, approved in May 2002 (incorporated by reference to Exhibit 10.8 of Max Re Capital’s Annual Report on Form 10-K for the year ended December 31, 2002)
10.7*	Amendment to the 2000 Stock Incentive Plan, approved in April 2005.
10.8	Securities Purchase Agreement, dated as of December 22, 1999, among Moore Holdings, LLC, Max Re Ltd. and Max Re Capital Ltd. (incorporated by reference to Exhibit 10.8 of Max Re Capital’s Registration Statement No. 333-62006)
10.9	Securities Purchase Agreement, dated as of December 22, 1999, among Capital Z Investments, LP, Max Re Ltd. and Max Re Capital Ltd. (incorporated by reference to Exhibit 10.9 of Max Re Capital’s Registration Statement No. 333-62006)
10.10	Subscription Agreement, dated as of December 22, 1999, between Western General Insurance, Ltd. and Max Re Capital Ltd. (incorporated by reference to Exhibit 10.10 of Max Re Capital’s Registration Statement No. 333-62006)
10.11	Credit Agreement, dated as of June 1, 2005, among Max Re Capital Ltd. and Max Re Ltd., as borrowers, various financial institutions, as lenders, and ING Bank N.V., London Branch and Citibank, N.A., as co-syndication agents and Bank of America, N.A., as fronting bank and as administrative agent (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on June 3, 2005)
10.12	Letter of Credit Reimbursement Agreement, dated as of January 14, 2002, among Max Re Ltd., as the borrower, various financial institutions, as the lenders, and Bayerische Hypo- und Vereinsbank AG, as fronting bank and as administrative agent for the lenders. (incorporated by reference to Exhibit 10.1 of Max Re Capital’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002)
10.13	Letter of Credit Reimbursement Agreement, dated as of November 23, 2004, between Max Re Ltd. and ING Bank N.V., London Branch. (incorporated by reference to Exhibit 10.1 of Max Re Capital’s Current Report on Form 8-K filed on November 29, 2004)
10.14	Investment Management Agreement dated as of May 1, 2000, between General Re-New England Asset Management, Inc. and Max Re Ltd. (incorporated by reference to Exhibit 10.13 of Max Re Capital’s Registration Statement No. 333-62006)
10.15	Insurance Management Agreement among Max Re Managers Ltd., Max Re Capital Ltd., Bayerische Hypo- und Vereinsbank AG and Grand Central Re Limited dated as of May 10, 2001. (incorporated by reference to Exhibit 10.15 of Max Re Capital’s Registration Statement No. 333-62006)
10.16	Total Return Swap Confirmation, dated as of February 18, 2003, between Max Re Ltd. and Canadian Imperial Bank of Commerce. (incorporated by reference to Exhibit 10.19 of Max Re Capital’s Annual Report on Form 10-K for the year ended December 31, 2002)
10.17	Exchange Agreement, dated as of June 13, 2003, between Moore Holdings, LLC and Max Re Capital Ltd. (incorporated by reference to Exhibit 10.20 of Max Re Capital’s Annual Report on Form 10-K for the year ended December 31, 2003)
10.18	Exchange Agreement, dated as of June 13, 2003, between Capital Z Investments, L.P. and Max Re Capital Ltd. (incorporated by reference to Exhibit 10.21 of Max Re Capital’s Annual Report on Form 10-K for the year ended December 31, 2003)
10.19*	Second Amended and Restated Customer Agreement and Trading Authorization, dated as of February 14, 2006, between Max Re Diversified Strategies Ltd. and Alstra Capital Management, LLC

67

Exhibit	Description
14.1	Max Re Capital Ltd. Code of Business Conduct and Ethics. (incorporated by reference to Exhibit 99.1 of Max Re Capital’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2003)
21.1	Schedule of Group Companies. (incorporated by reference to Exhibit 21.1 of Max Re Capital’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003)
23.1	Consent of KPMG.
24.1	Power of Attorney for officers and directors of Max Re Capital Ltd. (included on the signature page of this filing).
31.1	Certification of the Chief Executive Officer of Max Re Capital Ltd. filed herewith pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer of Max Re Capital Ltd. filed herewith pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Chief Executive Officer of Max Re Capital Ltd. furnished herewith pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Chief Financial Officer of Max Re Capital Ltd. furnished herewith pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Factors Affecting Future Financial Results.

* Previously filed as an exhibit to the registrant’s Annual Report on Form 10-K for the year ended December 31, 2005, filed with the Commission on February 15, 2006.

68

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MAX RE CAPITAL LTD.

/s/    W. MARSTON BECKER        

W. Marston Becker

Chief Executive Officer

November 13, 2006

69

POWER OF ATTORNEY

Each person whose signature appears below hereby constitutes and appoints W. Marston Becker and Keith S. Hynes, or either of them, his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments or supplements to this Form 10-K/A and to file the same with all exhibits thereto and other documents in connection therewith, with the SEC, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing necessary or appropriate to be done with this Form 10-K/A and any amendments or supplements hereto, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

/s/    W. MARSTON BECKER	/s/    KEITH S. HYNES
W. Marston Becker	Keith S. Hynes
Chief Executive Officer and Director (Principal executive officer)	Executive Vice President and Chief Financial Officer (Principal financial and accounting officer)
Date: November 13, 2006	Date: November 13, 2006
/s/    N. JAMES TEES	/s/    ZACK H. BACON, III
N. James Tees Senior Vice President, Treasurer and Secretary	Zack H. Bacon, III Director
Date: November 13, 2006	Date: November 13, 2006
	/s/    JAMES L. ZECH
John R. Barber Director	James L. Zech Director
Date: November 13, 2006	Date: November 13, 2006
/s/    WILLIAM KRONENBERG III	/s/    WILLIAM H. HEYMAN
William Kronenberg III Director	William H. Heyman Director
Date: November 13, 2006	Date: November 13, 2006
/s/    WILLIS T. KING, JR.	/s/    PETER A. MINTON
Willis T. King, Jr. Director	Peter A. Minton Director
Date: November 13, 2006	Date: November 13, 2006
/s/    STEVEN M. SKALA	/s/    MARIO P. TORSIELLO
Steven M. Skala Director	Mario P. Torsiello Director
Date: November 13, 2006	Date: November 13, 2006

70

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

Max Re Capital Ltd.

We have audited the accompanying consolidated balance sheets of Max Re Capital Ltd. and subsidiaries as of December 31, 2005 and 2004 and the related consolidated statements of income and comprehensive income, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these restated consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Max Re Capital Ltd. and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, Max Re Capital Ltd. has restated its consolidated financial statements as of December 31, 2005 and 2004, and for each of the three years in the three-year period ended December 31, 2005.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Max Re Capital Ltd.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 15, except as to the second through final paragraphs of Management’s Report on Internal Controls over Financial Reporting (as restated), which are as of November 13, 2006, expressed an unqualified opinion on management’s assessment of, and an adverse opinion on the effective operation of, internal control over financial reporting at December 31, 2005.

Chartered Accountants

Hamilton, Bermuda

February 15, 2006, except as to the restatement discussed in Note 2 to the consolidated financial statements, which is as of November 13, 2006

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

Max Re Capital Ltd.

We have audited management’s restated assessment, included in the accompanying report entitled “Management’s Report on Internal Control Over Financial Reporting (as restated),” that Max Re Capital Ltd. did not maintain effective internal control over financial reporting as of December 31, 2005, because of the effect of the material weakness identified in management’s assessment, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Max Re Capital Ltd.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of control deficiencies, that results in a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

Management has identified and included in its restated assessment the following control deficiencies as of December 31, 2005:

• The Company did not maintain effective controls to bifurcate retroactive and prospective elements of coverage within reinsurance contracts purchased, in accordance with SFAS 113, where the dates of agreement in principle of substantial terms and coverage inception differed.

• The Company did not maintain effective controls over the appropriate accounting for the specific contractual feature contained within the three complex retrocessional contracts purchased.

• The Company did not maintain effective controls to identify potential extra-contractual agreements, including oral agreements, related to their retrocessional contracts purchased to allow for an appropriate determination of risk transfer.

F-2

These control deficiencies resulted in the restatement of the Company’s financial statements as described in Part A of Item 9A to correct premiums ceded, net premiums written, earned premiums ceded, net earned premiums, losses and benefits and related balance sheet accounts. In connection with management’s reassessment of internal controls over financial reporting, management determined that these control deficiencies constitute a material weakness within the meaning of Auditing Standards No.2 of the Public Company Accounting Oversight Board (PCAOB).

As stated in the second through final paragraphs of Management’s Report on Internal Control Over Financial Reporting (as restated) (Part C of Item 9A), management’s assessment of the effectiveness of the Company’s internal control over financial reporting at December 31, 2005 has been restated to reflect management’s identification of the aforementioned material weakness in internal control over financial reporting.

In our opinion, management’s restated assessment that Max Re Capital Ltd. did not maintain effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Max Re Capital Ltd. did not maintain effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the restated consolidated balance sheets of Max Re Capital Ltd. and subsidiaries as of December 31, 2005 and 2004, and the related restated consolidated statements of income and comprehensive income, changes in shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2005. The aforementioned material weakness was considered in determining the nature, timing and extent of audit tests applied in our audit of the restated 2005 consolidated financial statements, and this report does not affect our report dated February 15, except as to the restatement discussed in Note 2 to the consolidated financial statements which as of November 13, 2006, expressed an unqualified opinion on those consolidated financial statements.

Chartered Accountants

Hamilton, Bermuda

February 15, 2006, except as to the second through final paragraphs of Management’s Report on Internal Control over Financial Reporting (as Restated) (Part C of Item 9), which are as of November 13, 2006.

F-3

MAX RE CAPITAL LTD.

Consolidated Balance Sheets

December 31, 2005 and 2004

(Expressed in thousands of United States Dollars,

except per share and share amounts)

	2005			2004
	(Restated)			(Restated)
Assets
Cash and cash equivalents	$	314,031		$	239,188
Fixed maturities, available for sale at fair value		2,682,864			2,156,011
Alternative investments, at fair value		1,230,889			1,119,028
Accrued interest income		32,632			24,257
Premiums receivable		398,666			262,714
Losses and benefits recoverable from reinsurers		453,641			340,123
Funds withheld		16,932			17,599
Deferred acquisition costs		69,015			54,770
Prepaid reinsurance premiums		83,493			79,337
Other assets		23,001			26,384
Total assets	$	5,305,164		$	4,319,411
Liabilities
Property and casualty losses	$	2,006,032		$	1,455,099
Life and annuity benefits		854,224			666,101
Deposit liabilities		225,328			266,479
Funds withheld from reinsurers		271,992			285,060
Unearned property and casualty premiums		442,976			447,633
Reinsurance balances payable		90,781			50,258
Accounts payable and accrued expenses		78,111			96,078
Bank loan		150,000			150,000
Total liabilities		4,119,444			3,416,708
Shareholders’ equity
Preferred shares (par value $1.00) 20,000,000 shares authorized; no shares issued or outstanding		—			—
Common shares (par value $1.00) 200,000,000 shares authorized 58,829,354 (2004—45,825,880) shares issued and outstanding		58,829			45,826
Additional paid-in capital		921,384			643,444
Loans receivable from common share sales		(465	)		(10,515	)
Unearned stock grant compensation		(14,574	)		(13,294	)
Accumulated other comprehensive income		4,981			22,227
Retained earnings		215,565			215,015
Total shareholders’ equity		1,185,720			902,703
Total liabilities and shareholders’ equity	$	5,305,164		$	4,319,411

See accompanying notes to consolidated financial statements

F-4

MAX RE CAPITAL LTD.

Consolidated Statements of Income and Comprehensive Income

Years Ended December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

	2005			2004			2003
	(Restated)			(Restated)			(Restated)
Revenues
Gross premiums written	$	1,246,031		$	1,043,601		$	1,009,779
Reinsurance premiums ceded		(198,974	)		(162,521	)		(185,262	)
Net premiums written	$	1,047,057		$	881,080		$	824,517
Earned premiums	$	1,247,584		$	1,068,172		$	835,449
Earned premiums ceded		(194,085	)		(168,223	)		(120,952	)
Net premiums earned		1,053,499			899,949			714,497
Net investment income		106,835			82,815			60,132
Net gains on alternative investments		39,885			81,648			124,036
Net realized gains (losses) on sale of fixed maturities		(743	)		10,447			19,259
Other income		4,635			4,890			10,743
Total revenues		1,204,111			1,079,749			928,667
Losses and expenses
Losses and benefits		1,039,465			751,442			582,958
Acquisition costs		76,224			116,862			149,534
Interest expense		22,764			20,644			18,435
General and administrative expenses		56,153			49,047			39,845
Total losses and expenses		1,194,606			937,995			790,772
Income before minority interest		9,505			141,754			137,895
Minority interest		—			—			(11,074	)
Net income		9,505			141,754			126,821
Change in net unrealized appreciation of fixed maturities		(13,364	)		(7,140	)		(23,491	)
Foreign currency translation adjustment		(3,882	)		3,577			173
Comprehensive income (loss)	$	(7,741	)	$	138,191		$	103,503
Basic earnings per share	$	0.20		$	3.10		$	3.09
Diluted earnings per share	$	0.18		$	2.92		$	3.00

See accompanying notes to consolidated financial statements

F-5

MAX RE CAPITAL LTD.

Consolidated Statements of Changes in Shareholders’ Equity

Years Ended December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

	2005			2004			2003
	(Restated)			(Restated)			(Restated)
Common shares
Balance—beginning of year	$	45,826		$	45,185		$	37,999
Issue of shares		13,338			910			371
Issue of shares on elimination of minority interest		—			—			7,120
Repurchase of shares		(335	)		(269	)		(305	)
Balance—end of year		58,829			45,826			45,185
Additional paid-in capital
Balance—beginning of year		643,444			629,187			526,582
Issue of common shares		297,117			18,266			4,127
Issue of common shares on elimination of minority interest		—			—			101,700
Direct equity offering expenses		(13,134	)		—			—
Repurchase of shares		(7,025	)		(4,581	)		(3,591	)
Stock option expense		982			572			369
Balance—end of year		921,384			643,444			629,187
Loans receivable from common share sales
Balance—beginning of year		(10,515	)		(11,965	)		(12,575	)
Loans granted		—			—			—
Loans repaid		10,050			1,450			610
Balance—end of year		(465	)		(10,515	)		(11,965	)
Unearned stock grant compensation
Balance—beginning of year		(13,294	)		(4,032	)		(2,656	)
Stock grants awarded		(11,294	)		(15,983	)		(3,740	)
Amortization		10,014			6,721			2,364
Balance—end of year		(14,574	)		(13,294	)		(4,032	)
Accumulated other comprehensive income
Balance—beginning of year		22,227			25,790			49,108
Holding gains (losses) on fixed maturities arising in year		(14,107	)		3,307			(13,433	)
Net realized (gains) losses included in net income		743			(10,447	)		(19,259	)
Currency translation adjustments		(3,882	)		3,577			173
Allocation to minority interest		—			—			6,504
Holding gains transferred on elimination of minority interest		—			—			2,697
Balance—end of year		4,981			22,227			25,790
Retained earnings (deficit)
Balance—beginning of year		215,015			78,748			(44,285	)
Net income		9,505			141,754			126,821
Dividends paid		(8,955	)		(5,487	)		(3,788	)
Balance—end of year		215,565			215,015			78,748
Total shareholders’ equity	$	1,185,720		$	902,703		$	762,913

See accompanying notes to consolidated financial statements

F-6

MAX RE CAPITAL LTD.

Consolidated Statements of Cash Flows

Years Ended December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

	2005			2004			2003
	(Restated)			(Restated)			(Restated)
Operating activities
Net income	$	9,505		$	141,754		$	126,821
Adjustments to reconcile net income to net cash from operating activities:
Minority interest share of net income		—			—			11,074
Amortization of unearned stock based compensation		10,996			7,293			2,733
Amortization of premium on fixed maturities		9,293			9,186			5,986
Net realized (gains) losses on sale of fixed maturities		743			(10,447	)		(19,259	)
Alternative investments		(112,352	)		(288,132	)		(178,560	)
Accrued interest income		(8,375	)		(9,649	)		(2,304	)
Premiums receivable		(135,952	)		126,679			(199,179	)
Losses and benefits recoverable from reinsurers		(113,518	)		(127,210	)		(102,336	)
Funds withheld		667			(17,543	)		55,220
Deferred acquisition costs		(14,245	)		32,346			(8,402	)
Prepaid reinsurance premiums		(4,156	)		5,883			(63,959	)
Other assets		3,383			(356	)		(1,739	)
Property and casualty losses		550,933			463,412			374,283
Life and annuity benefits		188,123			186,002			75,091
Funds withheld from reinsurers		(13,068	)		74,564			86,671
Unearned property and casualty premiums		(4,657	)		(23,992	)		174,916
Reinsurance balances payable		40,523			(24,435	)		32,429
Accounts payable and accrued expenses		(17,967	)		52,303			27,757
Cash from operating activities		389,876			597,658			397,243
Investing activities
Purchases of fixed maturities		(1,789,339	)		(1,683,884	)		(1,210,559	)
Sales of fixed maturities		1,181,516			1,100,398			785,383
Redemptions of fixed maturities		58,061			26,489			83,407
Cash used in investing activities		(549,762	)		(556,997	)		(341,769	)
Financing activities
Net proceeds from issuance of common shares		286,027			3,193			758
Repurchase of common shares		(7,360	)		(4,850	)		(3,896	)
Proceeds from bank loan		—			—			50,000
Dividends		(8,955	)		(5,487	)		(3,788	)
Distributions to / conversions of minority shareholders		—			—			(285	)
Additions to deposit liabilities		21,287			55,253			55,448
Payments of deposit liabilities		(62,438	)		(56,124	)		(45,082	)
Notes and loans repaid		10,050			1,450			610
Cash from (used in) financing activities		238,611			(6,565	)		53,765
Effect of exchange rate on cash		(3,882	)		3,577			173
Net increase in cash and cash equivalents		74,843			37,673			109,412
Cash and cash equivalents, beginning of year		239,188			201,515			92,103
Cash and cash equivalents, end of year	$	314,031		$	239,188		$	201,515
Supplemental Disclosure of Cash Flow Information
Interest paid	$	10,269		$	4,281		$	3,370

See accompanying notes to consolidated financial statements

F-7

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

1. General

Max Re Capital Ltd. (“the Company”) was incorporated on July 8, 1999 under the laws of Bermuda. The Company’s principal operating subsidiary is Max Re Ltd. (“Max Re”). Max Re is registered as a Class 4 insurer and long-term insurer under the insurance laws of Bermuda. The Company’s European activities are conducted from Dublin, Ireland through Max Europe Holdings Limited and its two wholly owned operating subsidiaries, Max Re Europe Limited and Max Insurance Europe Limited.

2. Restatement of Financial Statements

On June 7, 2006, the Company restated its consolidated financial statements (the “First Restatement”) as discussed below. The effects of the First Restatement were reflected in the Company’s consolidated financial statements and accompanying notes included in the Company’s Form 10-K/A (Amendment No. 1) for the year ended December 31, 2005, which was filed on June 7, 2006, and are reflected in the “previously reported” columns in the tables set forth below and in Note 18. The effects of the First Restatement and the November 13, 2006 restatement discussed below (the “Second Restatement”) are included in the consolidated financial statements and accompanying notes included herein.

First Restatement

On March 24, 2006, subsequent to the filing on February 15, 2006 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, the Company announced that the Audit and Risk Management Committee (“ARMC”) had initiated an internal investigation that was opened to review of three finite property and casualty retrocessional contracts purchased in 2001 and 2003. The review was to consider whether these contracts were properly accounted for by the Company, principally with respect to whether they contain sufficient risk transfer to meet the requirements of Statement of Financial Accounting Standard No. 113 (“SFAS 113’) to be accounted for as reinsurance. The ARMC engaged its own law firm, which was assisted by accounting and actuarial consultants, to advise it in performing the internal review. In connection with the internal review, the ARMC voluntarily contacted the SEC. In May 2006, the ARMC concluded its internal investigation and found that the review supported the Company’s original determination that the three contracts in question contained sufficient risk transfer to meet the requirements of SFAS 113 to be accounted for as reinsurance. However, the review caused the Company to re-evaluate other accounting aspects of the three contracts. This re-evaluation led the Company to conclude that a restatement of the consolidated financial statements for the years ended December 31, 2005, 2004, 2003, 2002 and 2001 was warranted. Specifically, the Company restated to account for the bifurcation of the retrocessional contracts into retroactive and prospective components and to account for an additional contractual feature on a gross basis as more fully described in the Company’s restated consolidated financial statements for the years ended December 31, 2005, 2004, and 2003 in our Annual Report on Form 10-K/A (Amendment No.1) filed on June 7, 2006.

The effect of the First Restatement on the Company’s originally reported consolidated financial statements was to decrease 2005 net income by $0.4 million; to increase 2004 net income by $1.6 million; and to decrease 2003 net income by $2.0 million. The cumulative adjustment to shareholders’ equity and minority interest at January 1, 2003 was a decrease of $17.2 million.

Second Restatement

In October 2006, the ARMC received from the counter-party to two of these contracts additional information that was unknown and unavailable to the Company at the May 2006 conclusion of the initial internal

F-8

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

investigation. The ARMC immediately reopened its internal investigation to determine whether, in light of this additional information, these two contracts, which were entered into in 2001, still satisfied the risk transfer requirements of SFAS 113. The additional information raised the possibility of the existence of an oral agreement that would negate risk transfer. The available evidence does not allow for a definitive conclusion as to the existence of such an oral agreement. However, because some of the evidence suggests such an agreement, the Company believes that there is an insufficient basis to conclude that there was risk transfer with respect to these two contracts and, accordingly, the Company has determined that it is appropriate to restate its financial statements for the years ending December 31, 2001 through 2005 and for each of the periods ended March 31, 2006 and June 30, 2006 to reflect no risk transfer for these two contracts. The additional information does not relate to the third contract reviewed in the initial internal investigation, which is with a different counter-party, and the accounting for that contract remains unchanged from that reported on our Form 10-K/A (Amendment No. 1) filed on June 7, 2006. With the decision to restate, the AMRC has concluded its internal investigation.

The effect of the Second Restatement on the Company’s previously reported consolidated financial statements is to increase 2005 net income by $3.2 million; to increase 2004 net income by $6.4 million; to increase 2003 net income by $8.3 million; to increase 2002 net income by $3.6 million and to decrease 2001 net income by $29.6 million. The cumulative adjustment to shareholders’ equity and minority interest at January 1, 2003 is a decrease of $32.1 million. The effect of the Second Restatement is to increase Losses and benefits and to decrease Reinsurance premiums ceded, Earned premiums ceded, Losses and benefits recoverable from reinsurers and Accounts payable and accrued expenses as a result of no longer accounting for the two retrocessional contracts as reinsurance. Additionally, as the contracts were written on a funds withheld basis, there is also a reduction in Interest expense and Funds withheld from reinsurers as a result of the Second Restatement.

F-9

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

The following tables show the previously reported, restatement adjustment and restated amounts for those accounts in the Consolidated Balance Sheet and the Consolidated Statements of Income and Comprehensive Income affected by the Second Restatement. In addition there were changes to the Consolidated Statements of Changes in Shareholders’ Equity, Consolidated Statements of Cash Flows and Notes 5,7,12,14,15,17, and 18 to the Consolidated Financial Statements as a result of the Second Restatement adjustments.

Year ended December 31, 2005	Previously reported			Restatement adjustment			Restated
Reinsurance premiums ceded	$	(228,041	)	$	29,067		$	(198,974	)
Net premiums written		1,017,990			29,067			1,047,057
Earned premiums ceded		(223,152	)		29,067			(194,085	)
Net earned premiums		1,024,432			29,067			1,053,499
Total revenues		1,175,044			29,067			1,204,111
Losses and benefits		1,004,314			35,151			1,039,465
Interest expense		32,025			(9,261	)		22,764
Total Losses and expenses		1,168,716			25,890			1,194,606
Net income		6,328			3,177			9,505
Comprehensive income (loss)		(10,918	)		3,177			(7,741	)
Basic earnings per share		0.13			0.07			0.20
Diluted earnings per share		0.12			0.06			0.18
Losses and benefits recoverable from reinsurers		646,669			(193,028	)		453,641
Funds withheld from reinsurers		435,942			(163,950	)		271,992
Accounts payable and accrued expenses		94,043			(15,932	)		78,111
Additional paid-in capital		926,386			(5,002	)		921,384
Retained earnings		223,709			(8,144	)		215,565
Total shareholders’ equity		1,198,866			(13,146	)		1,185,720
Year ended December 31, 2004	Previously reported			Restatement adjustment			Restated
Reinsurance premiums ceded	$	(166,419	)	$	3,898		$	(162,521	)
Net premiums written		877,182			3,898			881,080
Earned premiums ceded		(172,121	)		3,898			(168,223	)
Net earned premiums		896,051			3,898			899,949
Total revenues		1,075,851			3,898			1,079,749
Losses and benefits		740,956			10,486			751,442
Interest expense		33,644			(13,000	)		20,644
Total Losses and expenses		940,509			(2,514	)		937,995
Net income		135,342			6,412			141,754
Comprehensive income (loss)		131,779			6,412			138,191
Basic earnings per share		2.96			0.14			3.10
Diluted earnings per share		2.79			0.13			2.92
Losses and benefits recoverable from reinsurers		508,481			(168,358	)		340,123
Funds withheld from reinsurers		421,514			(136,454	)		285,060
Accounts payable and accrued expenses		111,659			(15,581	)		96,078
Additional paid-in capital		648,446			(5,002	)		643,444
Retained earnings		226,336			(11,321	)		215,015
Total shareholders’ equity		919,026			(16,323	)		902,703

F-10

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

Year ended December 31, 2003	Previously reported			Restatement adjustment			Restated
Earned premiums ceded		(122,515	)		1,563			(120,952	)
Net earned premiums		712,934			1,563			714,497
Total revenues		927,104			1,563			928,667
Losses and benefits		580,388			2,570			582,958
Interest expense		28,829			(10,394	)		18,435
Total Losses and expenses		798,596			(7,824	)		790,772
Income before minority interest		128,508			9,387			137,895
Minority interest in net income		(9,950	)		(1,124	)		(11,074	)
Net income		118,558			8,263			126,821
Comprehensive income (loss)		95,240			8,263			103,503
Basic earnings per share		2.89			0.20			3.09
Diluted earnings per share		2.79			0.21			3.00
Losses and benefits recoverable from reinsurers		403,264			(190,351	)		212,913
Funds withheld from reinsurers		360,913			(150,417	)		210,496
Accounts payable and accrued expenses		60,974			(17,199	)		43,775
Additional paid-in capital		634,189			(5,002	)		629,187
Retained earnings		96,481			(17,733	)		78,748
Total shareholders’ equity		785,648			(22,735	)		762,913
Reconciliation of minority interest and shareholders’ equity at December 31, 2002	Shareholders’ equity			Minority interest			Total shareholders’ equity and minority interest
At December 31, 2001 as previously reported	$	570,080		$	112,385		$	682,465
Restatement effect in 2001		(29,588	)		(6,785	)		(36,373	)
At December 31, 2001 as restated	$	540,492		$	105,600		$	646,092
At December 31, 2002 as previously reported	$	580,169		$	113,357		$	693,526
Restatement effect in 2001		(29,588	)		(6,785	)		(36,373	)
Restatement effect in 2002		3,592			658			4,250
At December 31, 2002 as restated	$	554,173		$	107,230		$	661,403

3. Significant accounting policies

(a) Basis of presentation

The consolidated financial statements include the financial statements of Max Re Capital Ltd., Max Re and Max Re Managers Ltd., together with Max Re’s subsidiaries, Max Europe Holdings Limited and Max Re Diversified Strategies Ltd. (“Max Re Diversified”). All significant inter-company balances and transactions have been eliminated.

The accompanying financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which require 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 period. Actual results could differ from those estimates.

F-11

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

Certain reclassifications have been made to the prior year reported amounts to conform to the current year presentation.

(b) Minority interest

Minority interest represented non-voting shares in Max Re held by certain founding shareholders of the Company. On July 30, 2003, the holders of non-voting common shares of Max Re exchanged such shares for common shares of the Company. The effect of this exchange resulted in the elimination of the minority interest and an increase in shareholders’ equity of equal amounts as of the date of exchange.

The minority’s share of net income was calculated quarterly using the minority’s weighted average ownership percentage. Minority interest represented the minority’s proportionate share of Max Re’s net assets prior to the exchange described above.

(c) Premium revenue recognition

Property and Casualty

Premiums written are earned on a pro-rata basis over the period the coverage is provided. Premiums are recorded at the inception of the policy and are estimated based upon information in underlying contracts and information received from clients. Changes in premium estimates are expected and may result in significant adjustments in any period. These estimates change over time as additional information regarding the underlying business volume of clients is obtained. Any subsequent differences arising on such estimates are recorded in the period they are determined. Unearned premiums represent the portion of premiums written which relate to the unexpired terms of policies in force. Premiums ceded are similarly pro-rated over the period the coverage is provided with the unearned portion being deferred as prepaid reinsurance premiums. Premium estimates for retrospectively rated contracts are recognized within the periods in which the related losses are incurred.

Life and Annuity

Reinsurance premiums from traditional life and annuity policies with life contingencies are generally recognized as revenue when due from policyholders. Traditional life policies include those contracts with fixed and guaranteed premiums and benefits. Benefits and expenses are matched with such income to result in the recognition of profit over the life of the contracts.

Premiums from annuity contracts without life contingencies are reported as annuity deposits. Policy benefits and claims that are charged to expenses include benefit claims incurred in the period in excess of related policyholders’ account balances.

Deposits

Short duration reinsurance contracts entered into by the Company that are not deemed to transfer significant underwriting and timing risk are accounted for as deposits, whereby liabilities are initially recorded at the same amount as assets received. An initial accretion rate is established based on actuarial estimates whereby the deposit liability is increased to the estimated amount payable over the term of the contract. This accretion charge is presented in the period as either interest expense, where the contract does not transfer underwriting risk, or losses, benefits and experience refunds where the contract does not transfer significant timing risk. Long duration

F-12

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

contracts written by the Company that do not transfer significant mortality or morbidity risks are also accounted for as deposits. The Company periodically reassesses the amount of deposit liabilities and any changes to the estimated ultimate liability is recognized as an adjustment to earnings to reflect the cumulative effect since the inception of the contract and by an adjustment to the future accretion rate of the liability over the remaining estimated contract term.

(d) Investments

Investments in securities with fixed maturities are classified as available for sale and are carried at fair value with any unrealized gains and losses included in accumulated other comprehensive income as a separate component of shareholders’ equity. The cost of fixed maturities is adjusted for amortization of premiums and discounts. Realized gains and losses on investments are recognized in net income using the specific identification method and include adjustments to the net realizable value of investments for declines in value that are considered other than temporary. Investment income is recognized when earned and includes interest income together with amortization of premium and discount on fixed maturities.

Fair value of investments in fixed maturities is generally based on quoted market prices. If quoted market prices are not available, fair values are estimated based on pricing models or quoted prices for instruments with similar characteristics. Changes in fair value are recorded in the period they are determined.

Alternative investments represent a diversified portfolio of (i) limited partnerships and stock investments in trading entities that invest in a range of financial products including U.S. and non-U.S. securities and financial instruments and (ii) reinsurance private equity investments. Investments in limited partnerships and trading entities are classified as trading securities and are carried at the net asset value reported by the respective entity. These entities generally carry their trading positions and investments at fair value as determined by their respective investment managers. The change in net asset value is included in net gains on alternative investments and recognized in net income.

Investments in unquoted equities where the Company has a meaningful ownership position and significant influence over operating and financial policies of the investee are carried under the equity method of accounting. Under this method, the investments are initially recorded at cost and adjusted periodically to recognize the Company’s proportionate share of income or loss and dividends from the investments. The Company believes this approximates fair value for these equity investments for which quoted market prices are not available. The Company’s share of income or loss from these investments is included in net gains on alternative investments and recognized in net income. The Company’s share of unrealized gains and losses on fixed maturities held by these unquoted equity investments are recorded in accumulated other comprehensive income as a separate component of shareholders’ equity.

(e) Fee revenue recognition

Transaction structuring and advisory fees are earned as the services generating the fees are performed.

(f) Losses and benefits

Property and Casualty Losses

The liability for losses, including loss adjustment expenses, represents estimates of the ultimate cost of all losses incurred but not paid as of the balance sheet date. Inherent in the estimates of losses are expected trends of

F-13

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

frequency, severity and other factors which could vary significantly as claims are settled. Accordingly, ultimate losses could vary significantly from the liability recorded in these consolidated financial statements. These estimates are regularly reviewed and any adjustments to the estimates are recorded in the period they are determined.

Life and Annuity Benefits

The development of policy reserves requires management to make estimates and assumptions regarding mortality, morbidity, lapse, expense and investment experience. Such estimates are primarily based on historical experience and information provided by ceding companies. Actual results could differ materially from these estimates. Management monitors actual experience and, where circumstances warrant, will revise its assumptions and the related reserve estimates. These revisions are recorded in the period they are determined.

(g) Acquisition costs

Acquisition costs consist of commissions and fees paid to brokers and consultants and ceding commissions paid to the Company’s clients and are net of ceding commissions recovered by the Company from it’s reinsurers. Deferred acquisition costs are amortized over the period in which the related premiums are earned or, for universal life reinsurance contracts and for deferred annuities, as a percentage of estimated gross profit. Deferred acquisition costs are regularly reviewed to determine if they are recoverable from future income, including investment income, by evaluating whether a loss is probable on policies in force. A premium deficiency loss is recognized when it is probable that expected future claims will exceed anticipated future premiums, reinsurance recoveries and anticipated investment income. If such costs are estimated to be unrecoverable as a result of a premium deficiency loss, they are expensed.

(h) Translation of foreign currencies

Assets and liabilities of foreign operations, whose functional currency is not the U.S. dollar, are translated at year end exchange rates. Revenue and expenses of such foreign operations are translated at average exchange rates during the year. The effect of the translation adjustments for foreign operations is included in accumulated other comprehensive income.

Other foreign currency assets and liabilities that are considered monetary items, are translated at exchange rates in effect at the balance sheet date. Foreign currency revenues and expenses are translated at transaction date exchange rates. These exchange gains and losses are included in the determination of net income.

(i) Cash and cash equivalents

The Company considers all time deposits and money market instruments with an original maturity of ninety days or less as equivalent to cash.

(j) Earnings per share

Basic earnings per share is based on weighted average common shares outstanding and excludes any dilutive effects of warrants, options and convertible securities. Diluted earnings per share assumes the conversion of dilutive convertible securities and the exercise of all dilutive stock options and warrants using the treasury stock method.

F-14

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

(k) Offering costs

Direct offering costs incurred in connection with the Company’s public offering (“the Offering”), including certain amounts payable for investment banking, audit services, legal services and printing, were deducted from the gross proceeds of the Offering.

4. Investments

(a)The fair values and amortized costs of fixed maturities at December 31, 2005 and 2004 were as follows:

2005	Amortized Cost		Unrealized Gain		Unrealized Loss			Fair Value
U.S. Government and Agencies	$	553,907	$	16,119	$	(4,972	)	$	565,054
U.S. Corporate Securities		1,244,916		14,784		(12,527	)		1,247,173
Other Corporate Securities		39,396		372		(637	)		39,131
Asset and Mortgage Backed Securities		535,934		1,619		(7,009	)		530,544
Collateralized Mortgage Obligations		303,460		1,044		(3,542	)		300,962
	$	2,677,613	$	33,938	$	(28,687	)	$	2,682,864
2004	Amortized Cost		Unrealized Gain		Unrealized Loss			Fair Value
U.S. Government and Agencies	$	501,691	$	6,323	$	(1,849	)	$	506,165
U.S. Corporate Securities		948,251		15,321		(3,389	)		960,183
Other Corporate Securities		29,700		192		(363	)		29,529
Asset and Mortgage Backed Securities		525,768		2,802		(1,026	)		527,544
Collateralized Mortgage Obligations		132,477		1,006		(893	)		132,590
	$	2,137,887	$	25,644	$	(7,520	)	$	2,156,011

The following table sets forth certain information regarding the investment ratings (provided by major rating agencies) of fixed maturities at December 31, 2005 and 2004.

	2005			2004
	Fair Value		%	Fair Value		%
U.S. Government and Agencies(1)	$	607,710	22.7	$	680,119	31.6
AAA		1,065,844	39.7		604,321	28.0
AA		252,362	9.4		178,518	8.3
A		724,739	27.0		675,123	31.3
BBB		32,209	1.2		17,930	0.8
	$	2,682,864	100.0	$	2,156,011	100.0

⁽¹⁾ Included within U.S. Government and Agencies are Agency Mortgage Backed Securities with a fair value of $372,705 (2004—$372,128).

F-15

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

(b)The maturity distribution for fixed maturities held at December 31, 2005 was as follows:

	Amortized Cost		Fair Value
Within one year	$	231,709	$	230,721
From one to five years		890,632		882,148
From five to ten years		354,507		352,925
More than ten years		1,200,765		1,217,070
	$	2,677,613	$	2,682,864

Actual maturities could differ from expected contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties.

(c) Investment income earned for the years ended December 31, 2005, 2004 and 2003 was as follows:

	2005			2004			2003
Interest earned on fixed maturities, cash and short term investments	$	117,677		$	89,728		$	67,440
Interest earned on funds withheld		670			4,311			(238	)
Amortization of premium on fixed maturities		(9,293	)		(9,186	)		(5,986	)
Investment expenses		(2,219	)		(2,038	)		(1,084	)
	$	106,835		$	82,815		$	60,132

(d) The net realized gains and the change in net unrealized appreciation on fixed maturities and reinsurance private equity investments (collectively “investments”) for the years ended December 31, 2005, 2004 and 2003 were as follows:

	2005			2004			2003
Net realized gains:
Gross realized gains	$	18,874		$	19,848		$	29,314
Gross realized losses		(19,617	)		(9,401	)		(10,055	)
Net realized gains (losses) on sale of fixed maturities		(743	)		10,447			19,259
Change in unrealized appreciation		(13,364	)		(7,140	)		(29,995	)
Less: allocation to minority interest		—			—			6,504
Net change in unrealized appreciation of investments		(13,364	)		(7,140	)		(23,491	)
Total net realized gains (losses) and change in unrealized appreciation on investments	$	(14,107	)	$	3,307		$	(4,232	)

(e) The Company endeavors to tailor the maturities of its fixed maturities portfolio to the timing of its loss and benefit payments. Due to fluctuations in interest rates, it is likely that over the period a fixed maturity security is held there will be periods, greater than twelve months, when the investment’s fair value is less than its cost resulting in unrealized losses. As the Company has the intent and ability to hold the investment for a longer period, the security’s fair value and amortized cost will tend to converge over time reducing the size of any unrealized gains or losses. The only time the Company would expect to realize an other than temporary

F-16

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

difference on a fixed maturity security is if there were concern about receiving the interest payments and the maturity value of the investment. The Company performs regular reviews of its fixed maturities portfolio and utilizes a model that considers numerous indicators in order to identify investments that are showing signs of potential other than temporary impairments. The indicators include the issuer’s financial condition and ability to make future scheduled interest and principal payments, the nature of collateral or other credit support and significant economic events that have occurred that affect the industry in which the issuer participates. Of the total holding of 1,103 securities, 767 had unrealized losses at December 31, 2005. Fixed maturities with unrealized losses and the duration such conditions have existed at December 31, 2005 were as follows:

	Less than 12 months				12 months or longer				Total
2005	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government and Agencies	$	246,236	$	3,869	$	23,785	$	1,103	$	270,021	$	4,972
U.S. Corporate Securities		709,943		11,760		33,639		767		743,582		12,527
Other Corporate Securities		27,322		637		—		—		27,322		637
Asset and Mortgage Backed Securities		380,870		6,795		4,786		214		385,656		7,009
Collateralized Mortgage Obligations		210,691		3,502		1,081		40		211,772		3,542
	$	1,575,062	$	26,563	$	63,291	$	2,124	$	1,638,353	$	28,687
	Less than 12 months				12 months or longer				Total
2004	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government and Agencies	$	131,820	$	894	$	31,618	$	955	$	163,438	$	1,849
U.S. Corporate Securities		299,932		3,026		30,874		363		330,806		3,389
Other Corporate Securities		22,416		363		—		—		22,416		363
Asset and Mortgage Backed Securities		147,149		624		33,225		402		180,374		1,026
Collateralized Mortgage Obligations		57,400		364		15,652		529		73,052		893
	$	658,717	$	5,271	$	111,369	$	2,249	$	770,086	$	7,520

(f) The majority of the Company’s alternative investments at December 31, 2005 comprise a fund of funds portfolio owned by Max Re Diversified and managed by Alstra Capital Management, LLC (“the Manager”), an affiliate of one of the Company’s directors. Prior to October 1, 2005, the Manager was a subsidiary of Moore Capital Management, LLC (“MCM”) and an affiliate of certain of the Company’s shareholders. As of October 1, 2005, the senior management team of the Manager became the majority shareholder of the Manager. The funds are primarily engaged in global macro, long/short equity, fixed income arbitrage, convertible arbitrage, diversified arbitrage, distressed investing, event driven arbitrage, commodity trading, emerging market and opportunistic investment strategies. Certain funds in the portfolio are managed by MCM. For the year ended December 31, 2005, the Company paid MCM $3,909 (2004—$3,241; 2003—$5,489) for investment management services. In addition, as the fund of funds advisor of Max Re Diversified, the Manager earned $7,916 for the year ended December 31, 2005 (2004—$6,391; 2003—$8,102).

F-17

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

All investment fees incurred on the alternative investments are included in net gains on alternative investments in the accompanying consolidated statements of income and comprehensive income.

(g) In May 2001, the Company made an equity investment of $15,000 for 7.5% of the ordinary shares of Grand Central Re Limited (“Grand Central Re”), a Bermuda domiciled reinsurance company. The investment in Grand Central Re is recorded using the equity method of accounting and is classified as an alternative investment in the accompanying consolidated balance sheets. The Board of Directors of Grand Central Re placed the company into run-off in 2004. As a result of this decision, Grand Central Re requested and received permission from the Bermuda Minister of Finance to return a portion of its capital to shareholders. As a result the Company’s equity investment decreased by $4,875 in 2004 and a further $5,625 in 2005.

Max Re Managers Ltd. provides Grand Central Re with insurance management services under an insurance management agreement. Fees for such services for the year ended December 31, 2005 were approximately $4,624 (2004—$4,777; 2003—$4,300) and are included in other income in the accompanying consolidated statements of income and comprehensive income.

Max Re entered into a quota share retrocession agreement with Grand Central Re, effective January 1, 2002, amending the quota share arrangement with Grand Central Re that commenced January 1, 2001. The 2002 quota share reinsurance agreement with Grand Central Re requires each of the Company and Grand Central Re to retrocede a portion of their respective gross premiums written from certain transactions to the other party in order to participate on a quota share basis. Max Re also entered into an aggregate stop loss contract with Grand Central Re, effective January 1, 2003, whereby Grand Central Re provided aggregate reinsurance protection to Max Re on one of its underlying reinsurance contracts. Max Re did not cede any new business to Grand Central Re in 2004 or 2005.

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

	2005		2004		2003
	(Restated)		(Restated)		(Restated)
Prepaid reinsurance premiums	$	—	$	6,750	$	35,473
Losses recoverable from reinsurers		237,422		234,049		186,964
Funds withheld from reinsurers		229,046		258,220		191,596
Deposit liabilities		36,396		43,465		49,515
Reinsurance balances payable		30,367		9,186		30,447
Reinsurance premiums ceded		31,132		19,292		102,562
Earned premiums ceded		37,882		48,014		87,090
Losses and benefits		41,076		59,815		91,190
Interest expense		7,351		8,128		6,180

The variable quota share retrocession agreement with Grand Central Re was principally written on a funds withheld basis. The rate of return on funds withheld is based on the average of two total return interest rate indices. The interest expense recognized by the Company will fluctuate from period to period due to changes in the indices. The Company records the changes in interest expense through the statement of income and comprehensive income on a monthly basis, in effect marking to market the funds withheld balance.

F-18

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

The Company believes that the terms of the insurance management, quota share retrocession and aggregate stop loss agreements are comparable to terms that the Company would expect to negotiate in similar transactions with unrelated parties.

(h) In December 2001, the Company made an equity investment of $50,000 in Class D shares of DaVinci Re Holdings Ltd., and its operating subsidiary DaVinci Reinsurance Ltd. (“DaVinci”), representing 12.5% of its share capital. DaVinci is a Bermuda-based property catastrophe reinsurer, managed by Renaissance Underwriting Managers, Ltd. The investment in DaVinci is recorded using the equity method of accounting and is classified as an alternative investment in the accompanying consolidated balance sheets. In December 2005, DaVinci raised additional share capital and the Company chose not to participate in the transaction. As a result our investment in Class D shares of DaVinci, represents approximately 5% of its share capital at December 31, 2005.

5. Property and casualty losses and loss adjustment expenses (Restated)

The summary of changes in outstanding property and casualty losses at December 31, 2005, 2004 and 2003 is as follows:

	2005			2004			2003
Gross balance at January 1	$	1,455,099		$	991,687		$	778,069
Less: Reinsurance recoverables and deferred charges		(298,086	)		(166,222	)		(136,593	)
Net balance at January 1		1,157,013			825,465			641,476
Reclassification to deposit liability		—			—			(117,136	)(1)
Incurred losses related to:
Current year		588,876			513,103			443,063
Prior year		139,377			91			24,957
Total incurred		728,253			513,194			468,020
Paid losses related to:
Current year		(65,596	)		(64,274	)		(55,993	)
Prior year		(217,637	)		(119,269	)		(106,075	)
Total paid		(283,233	)		(183,543	)		(162,068	)
Retroactive reinsurance recoveries		—			—			(5,065	)
Foreign currency revaluation		(5,395	)		1,897			238
Net balance at December 31		1,596,637			1,157,013			825,465
Plus: Reinsurance recoverables and deferred charges		409,394			298,086			166,222
Gross balance at December 31	$	2,006,032		$	1,455,099		$	991,687

⁽¹⁾ The reclassification to deposit liability relates to an amendment, effective January 1, 2003, to the terms of a property and casualty contract written in a prior year. The amendment was a material change to the contract, causing the Company to record the amended contract as a deposit arrangement, thereby reducing the net reserve for property and casualty losses by $117,136.

Prior year incurred losses of $139,377 for the year ended December 31, 2005 are comprised of three components: losses arising from changes in premium estimates of $386, amortization of deferred charges on retroactive contracts of $4,407 and an increase in losses arising from re-estimation of liabilities of $134,584.

F-19

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

Changes in premium estimates occur on prior year contracts each year and the associated loss is recorded, at the original loss ratio, concurrently with the premium adjustment. The net adverse loss development of $134,584 arising from the re-estimation of liabilities is related to the Company’s reinsurance segment. The net adverse development primarily relates to two contracts where reserves have been strengthened based on changes in the underlying clients’ loss history and predominantly relates to workers’ compensation and whole account coverages. Due to contractual features requiring additional premiums and interest thereon in the event of additional losses, the net effect of the development on income was a charge of $25,208.

Prior year incurred losses of $91 for the year ended December 31, 2004 are comprised of two components: losses arising from changes in premium estimates of ($5,643) and a reduction in losses arising from re-estimation of liabilities of $5,734. Changes in premium estimates occur on prior year contracts each year and the associated loss is recorded, at the original loss ratio, concurrently with the premium adjustment. The net adverse loss development of $5,734 arising from the re-estimation of liabilities is related to the Company’s reinsurance segment and results from contracts where reserves have been strengthened based on changes in the underlying clients’ loss history and predominantly relates to workers’ compensation and whole account coverages. The adverse development is partially offset by the final settlement of contractual obligations through commutations at amounts lower than reserved.

Prior year incurred losses of $24,957 for the year ended December 31, 2003 are comprised of three components: losses arising from changes in premium estimates of $21,533, amortization of deferred charges on retroactive contracts of $7,398 and a reduction in losses arising from re-estimation of liabilities of ($3,974). The favorable loss development of $3,974 arising from the re-estimation of liabilities is related to the Company’s reinsurance segment and the final settlement of contractual obligations through commutations, at amounts lower than reserved.

While the Company believes that it has made a reasonable estimate of ultimate property and casualty losses, subsequent claims experience may exceed loss reserves and have a significant effect on the Company’s results of operations.

Included in deposit liabilities is $154,955 (2004—$192,365) related to reinsurance contracts that do not transfer sufficient risk to be accounted for as reinsurance.

6. Life and annuity benefits

Life and annuity benefits at December 31, 2005 and 2004 was as follows:

	2005		2004
Life	$	144,908	$	147,105
Annuities		487,969		299,490
Accident and health		221,347		219,506
	$	854,224	$	666,101

Losses recoverable relating to life and annuity contracts of $44,413 in 2005 (2004—$46,611) are included in losses and benefits recoverable from reinsurers in the accompanying consolidated balance sheets.

All annuities included in life and annuity benefits in the accompanying consolidated balance sheets are not subject to discretionary withdrawal. Included in deposit liabilities at December 31, 2005 are annuities of $6,996

F-20

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

(2004—$8,642), which are subject to discretionary withdrawal. Deposit liabilities also include $53,642 (2004—$55,603) representing the account value of a universal life reinsurance contract as prescribed under SFAS 97—Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments.

7. Reinsurance (Restated)

The Company utilizes reinsurance and retrocession agreements principally to increase aggregate capacity and to reduce the risk of loss on business assumed. The Company’s reinsurance and retrocession agreements provide for recovery of a portion of losses, benefits and loss adjustment expenses from reinsurers. Losses and benefits recoverable from reinsurers are recorded as assets. Losses and benefits are net of losses and benefits recoverable of $163,318 in 2005 (2004—$138,974; 2003—$111,655) under these agreements. Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company regularly evaluates the financial condition of its reinsurers. All of the Company’s recoverables are with reinsurers rated “A- (excellent)” or higher by A.M. Best Company at December 31, 2005 with the exception of Grand Central Re which is rated “NR4” by A.M. Best Company. The Company retains funds from Grand Central Re amounting to approximately 89.2% of the loss recoverable obligation.

The effect of reinsurance and retrocessional activity on premiums written and earned for the years ended December 31, 2005, 2004 and 2003 was as follows:

	Premiums written									Premiums earned
Property and casualty	2005			2004			2003			2005			2004			2003
Direct	$	355,296		$	248,068		$	163,213		$	301,213		$	217,543		$	66,083
Assumed		615,720			583,234			738,316			671,356			638,330			661,116
Ceded		(197,505	)		(161,814	)		(163,612	)		(192,616	)		(167,516	)		(99,302	)
Net	$	773,511		$	669,488		$	737,917		$	779,953		$	688,357		$	627,897
	Premiums written									Premiums earned
Life and annuity	2005			2004			2003			2005			2004			2003
Assumed	$	275,015		$	212,299		$	108,250		$	275,015		$	212,299		$	108,250
Ceded		(1,469	)		(707	)		(21,650	)		(1,469	)		(707	)		(21,650	)
Net	$	273,546		$	211,592		$	86,600		$	273,546		$	211,592		$	86,600
Total	$	1,047,057		$	881,080		$	824,517		$	1,053,499		$	899,949		$	714,497

8. Bank loan

In March 2002, the Company completed a $100,000 sale of shares of Max Re Diversified to a third party financial institution. Simultaneous with the sale, the Company entered into a total return swap with the purchaser of these shares whereby the Company received the return earned on the Max Re Diversified shares in exchange for a variable rate of interest based on LIBOR plus a spread. Under GAAP, these transactions were viewed on a combined basis and accounted for as a financing transaction, which resulted in the recording of a $100,000 bank loan.

F-21

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

On February 18, 2003, the Company and the third party financial institution mutually terminated the swap transaction described above and, immediately following the termination, the Company completed a $150,000 sale of shares of Max Re Diversified to the same third party financial institution and entered into a total return swap with the purchaser on similar terms as the terminated transaction. Max Re Diversified shares owned by Max Re with a fair value of $100,440 at December 31, 2005 were pledged as collateral to which the Company is exposed to credit risk. Under GAAP, these transactions are viewed on a combined basis and accounted for as a financing transaction, which resulted in the recording of a $150,000 bank loan. The swap transaction was amended in February 2005, principally to extend the swap termination date to February 2007, with provisions for earlier termination at the Company’s option or in the event that the Company fails to comply with certain covenants, including maintaining a minimum financial strength rating and a minimum Max Re Diversified net asset value. At termination, the purchaser has the option to sell the Max Re Diversified shares to the Company at a price equal to the fair value of the Max Re Diversified shares on the date of repurchase.

9. Pension and deferred compensation plans

The Company sponsors a number of defined contribution retirement plans including a plan under the Bermuda National Pension Scheme Act, 1998, a qualified 401k plan for U.S. citizens, a separately administered defined contribution plan for our Irish subsidiary companies and a deferred compensation plan. Under these plans, employees’ contributions are matched by the Company up to 10% of salary. Company contributions are subject to vesting provisions. Pension expenses totaled $1,522 for the year ended December 31, 2005 (2004—$1,165; 2003—$918).

10. Loans receivable from common share sales

As of December 31, 2005, the Company has full recourse loans outstanding provided to certain members of management of $465 (2004—$10,515; 2003—$11,965) in connection with their investment in the Company in 2001 pursuant to the terms of their employment agreements. The loans have maturity dates on or before August 2006 and are secured by the shares issued. Interest is charged at applicable federal rates that are published by the U.S. Internal Revenue Service and is payable annually in arrears. Interest earned on the loans amounted to $75 for the year ended December 31, 2005 (2004—$192; 2003—$198) and is included in other assets in the accompanying consolidated balance sheets, and net investment income in the accompanying consolidated statements of income and comprehensive income.

11. Shareholders’ equity

Common Shares

The holders of common shares are entitled to one vote per paid up share subject to maximum voting rights of less than 9.5% of total voting rights per shareholder or group of affiliated shareholders unless waived by the Board of Directors. The Board of Directors has waived these provisions with respect to one shareholder, Western General Insurance Ltd.

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

F-22

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

Warrants

In connection with the issuance of certain shares, the Company has issued warrants to purchase the Company’s common shares. The warrants may be exercised at any time up to their expiration dates, which range from December 22, 2009 to August 17, 2011. Warrants are issued with exercise prices approximating their fair value on the date of issuance.

Warrant related activity is as follows:

	Warrants Outstanding		Warrants Exercisable	Weighted Average Exercise Price		Weighted Average Fair Value		Range of Exercise Prices
Balance, December 31, 2003	9,369,363		8,999,366	$	15.31
Warrant exercised	(129,369	)		$	15.20
Balance, December 31, 2004	9,239,994		9,124,762	$	15.31
Warrant exercised	(101,783	)		$	15.18
Balance, December 31, 2005	9,138,211		9,138,211	$	15.31	$	5.77	$	15.00-$18.00

12. Stock incentive plan

In June 2000, the shareholders of the Company approved the adoption of a Stock Incentive Plan (the “Plan”) under which it may award, subject to certain restrictions, Incentive Stock Options (“ISOs”), Non-Qualified Stock Options (“NQSOs”), restricted stock, share awards or other awards. In May 2002 and April 2005, the shareholders of the Company approved the adoption of amendments to the Plan, increasing the maximum aggregate number of common shares available for awards under the Plan to 8,000,000. Only eligible employees of the Company are entitled to ISOs, while NQSOs may be awarded to eligible employees, non-employee Directors and consultants. The Plan is administered by the Compensation Committee of the Board of Directors (“the Committee”).

Stock options issued under the Plan have terms set by the Committee. The maximum option period is ten years. The minimum exercise price of ISOs is equal to the fair value of the Company’s common shares at the date of grant or are granted and priced on a prospective basis. Options contain restrictions relating to, among other things, vesting, forfeiture in the event of termination of employment and transferability.

Restricted stock issued under the Plan have terms set by the Committee. These shares contain certain restrictions relating to, among other things, vesting, forfeiture in the event of termination of employment and transferability. At the time of grant, the fair value of the shares awarded is recorded as unearned stock grant compensation and is presented as a separate component of shareholders’ equity. The unearned compensation is charged to income over the vesting period. Total compensation cost recognized in income for stock-based compensation awards was $10,014 for the year ended December 31, 2005 (2004—$6,721; 2003—$2,364).

Each eligible non-employee Director was granted NQSOs to purchase 10,000 common shares on the date of their directorship and NQSOs to purchase 2,000 common shares each year thereafter through 2004. The NQSOs have an exercise price equal to the fair value of the Company’s common shares at the date of grant and become exercisable and vest over three years. Beginning in April 2005, non-employee Directors are granted 2,000 restricted common shares annually in lieu of NQSOs.

F-23

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

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

In accordance with SFAS 123, the fair value of options granted is estimated on the date of grant using the Black-Scholes option pricing method with the following weighted average assumptions:

	2005		2004		2003
Option valuation assumptions:
Expected option life	7 years		7 years		7 years
Expected dividend yield	0.73	%	0.55	%	0.63	%
Expected volatility	22.55	%	18.00	%	21.00	%
Risk-free interest rate	4.65	%	4.69	%	4.00	%

If the Company were to recognize compensation expense over the relevant service period under the fair value method of SFAS No. 123 with respect to stock options granted for the year ended December 31, 2002 and all prior years, net income would have decreased in each period from the amount reported, resulting in pro forma net income and earnings per share as follows:

	2005			2004			2003
	(Restated)			(Restated)			(Restated)
Net income, as reported	$	9,505		$	141,754		$	126,821
Add: Stock-based employee compensation expense included in reported net income		982			572			342
Deduct: Stock-based employee compensation expense determined under fair value method for all awards		(2,204	)		(2,847	)		(2,531	)
Pro forma net income	$	8,283		$	139,479		$	124,632
Earnings per share, as reported
Basic	$	0.20		$	3.10		$	3.09
Diluted	$	0.18		$	2.92		$	3.00
Earnings per share, pro forma
Basic	$	0.17		$	3.05		$	3.03
Diluted	$	0.16		$	2.87		$	2.95

F-24

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

A summary of Plan related activity follows:

	Awards Available for Grant		Options Outstanding		Options Exercisable	Weighted Average Exercise Price		Fair Value of Options		Range of Exercise Prices
Balance, December 31, 2002	2,948,521		1,735,979		591,323	$	15.71			$	10.26-$18.00
Options granted	(452,500	)	452,500			$	13.02	$	3.77	$	10.95-$15.84
Stock grants	(36,000	)
Restricted stock issued	(335,100	)
Balance, December 31, 2003	2,124,921		2,188,479		985,918	$	15.15			$	10.26-$18.00
Options granted	(57,000	)	57,000			$	20.43	$	6.37	$	18.05-$22.74
Options exercised	—		(57,500	)		$	15.88			$	15.66-$16.00
Options forfeited	—		(19,000	)		$	15.49			$	15.00-$18.00
Stock grants	(16,300	)
Restricted stock issued	(706,700	)
Balance, December 31, 2004	1,344,921		2,168,979		1,314,512	$	15.29	$	5.15	$	10.26-$22.74
Increase in shares available	3,000,000
Options granted	(64,123	)	64,123			$	25.49	$	7.02	$	23.08-$26.70
Options exercised	—		(166,233	)		$	15.88			$	15.00-$19.48
Stock grants	(1,250	)
Restricted stock issued	(525,650	)
Restricted stock forfeited	9,717
Balance, December 31, 2005	3,763,615		2,066,869		1,557,371	$	15.54	$	5.17	$	10.26-$26.70

13. Taxation

Under current Bermuda law, the Company is not required to pay any taxes in Bermuda on either income or capital gains. The Company and Max Re have each received an assurance from the Bermuda Minister of Finance under the Exempted Undertaking Tax Protection Act, 1966 of Bermuda that if there is enacted in Bermuda any legislation imposing tax computed on profits or income, or computed on any capital asset, gain or appreciation, then the imposition of any such tax will not be applicable until March 2016.

The Company and its Bermuda subsidiaries plan to operate in a manner so that they will not generally be subject to tax in other jurisdictions except for withholding taxes on certain kinds of investment income, excise taxes and other taxes attributable to marketing activities in certain jurisdictions.

The Company’s Irish subsidiaries will be subject to Irish corporate taxes and premium taxes in jurisdictions where business is conducted.

14. Statutory requirements and dividend restrictions (Restated)

Under the Bermuda Insurance Act, 1978 and related regulations, Max Re is required to maintain certain levels of solvency and liquidity. The minimum statutory capital and surplus required at December 31, 2005 was approximately $380,000 and actual statutory capital and surplus was approximately $1,055,000. The principal difference between statutory capital and surplus and shareholders’ equity presented in accordance with GAAP is deferred acquisition costs.

F-25

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

Max Re is also required under its Class 4 license to maintain a minimum liquidity ratio whereby the value of its relevant assets is not less than 75% of the amount of its relevant liabilities for general business. Relevant assets include cash and cash equivalents, fixed maturities, accrued interest income, premiums receivable, losses recoverable from reinsurers and funds withheld. The relevant liabilities are total general business insurance reserves and total other liabilities, less sundry liabilities. As of December 31, 2005, the Company met the minimum liquidity ratio requirement.

Under the Irish Insurance Acts 1909 to 2000, regulations made under those Acts, and regulations relating to insurance business made under the European Communities Act, 1972 and directions issued under those regulations, Max Insurance Europe Limited is required to maintain technical reserves and a minimum solvency margin. As of December 31, 2005 Max Insurance Europe Limited maintains sufficient technical reserves and met the minimum solvency margin requirement.

The Company’s ability to pay dividends is subject to certain regulatory restrictions on the payment of dividends by its subsidiaries. The payment of such dividends is limited by applicable regulations and statutory requirements of Bermuda and Ireland. Max Re and Max Insurance Europe Limited are prohibited from declaring or paying a dividend if such payment would reduce their statutory surplus below the required minimum. Max Re is also subject to certain restrictions under its credit facilities that affect its ability to pay dividends to the Company. The Company paid dividends of $0.18 per share during 2005, compared to $0.12 per share in 2004.

15. Earnings per share (Restated)

The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2005, 2004 and 2003.

	2005		2004		2003
Basic earnings per share:
Net income	$	9,505	$	141,754	$	126,821
Weighted average common shares outstanding		48,685,954		45,703,410		41,094,393
Basic earnings per share	$	0.20	$	3.10	$	3.09
Diluted earnings per share:
Net income	$	9,505	$	141,754	$	126,821
Add back minority interest share of income		—		—		11,074
Adjusted net income	$	9,505	$	141,754	$	137,895
Weighted average ordinary shares outstanding—basic		48,685,954		45,703,410		41,094,393
Weighted average non-voting shares outstanding		—		—		4,135,064
Conversion of warrants		3,146,532		2,308,438		601,436
Conversion of options		723,529		556,921		164,722
Weighted average ordinary shares outstanding—diluted		52,556,015		48,568,769		45,995,615
Diluted earnings per share	$	0.18	$	2.92	$	3.00

F-26

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

16. Commitments and contingencies

(a) Concentrations of credit risk

The Company’s portfolio of fixed maturities is managed following prudent standards of diversification. Specific provisions limit the allowable holdings of a single issue and issuers. The Company believes that there are no significant concentrations of credit risk associated with its portfolio of fixed maturities.

The Company’s portfolio of alternative investments is managed pursuant to guidelines that emphasize diversification and liquidity. Pursuant to these guidelines, the Manager of Max Re Diversified’s portfolio is responsible for managing and monitoring risk across a variety of investment funds and vehicles, markets and counterparties. The Company believes that there are no significant concentrations of credit risk associated with its alternative investments.

(b) Lease commitments

The Company and its subsidiaries lease office space in the countries in which they operate under operating leases, which expire at various dates through 2012. Total rent expense for the year ended December 31, 2005 was $1,414. The rent and maintenance expense under operating leases will range from $1,687 to $1,884 over the next five years.

(c) Credit facilities

The Company has three credit facilities as of December 31, 2005. The Company’s primary credit facility, entered into in June 2005, provides $450.0 million of credit capacity and is with a syndicate of commercial banks, one of which, Citibank, N.A., is affiliated with a director of Max Re Capital. The Company replaced its then existing credit facility with this new facility principally to increase credit capacity from $300.0 million to $450.0 million, to provide that a portion of the facility be available for loans to Max Re or Max Re Capital as well as letters of credit for Max Re and to permit that a portion of the facility be unsecured. In accordance with this credit facility agreement, the syndicate will issue letters of credit on behalf of Max Re that may total up to $350.0 million secured by fixed maturities and will issue additional unsecured letters of credit on behalf of Max Re or make unsecured loans to Max Re or Max Re Capital up to an aggregate of $100.0 million, with a maximum of $50.0 million to Max Re Capital. The Company believes that the terms of this credit facility are comparable to the terms that the Company would expect to negotiate with an unrelated party. At December 31, 2005 and December 31, 2004, letters of credit totaling $320,857 and $225,010, respectively, were issued and outstanding under this facility. As of December 31, 2005, there were no unsecured loans issued under this facility. Fixed maturities and cash equivalents with a fair value of $351,547 at December 31, 2005 were pledged as collateral for these letters of credit.

The Company also has a $50,000 letter of credit facility with the New York branch of Bayerische Hypo- und Vereinsbank AG (“HVB”). HVB is the majority shareholder of Grand Central Re, which is managed by Max Re Managers and in which the Company has 7.5% equity interest. The Company believes that the terms of this letter of credit facility are comparable to the terms that the Company would expect to negotiate at arms’ length with an unrelated party. At December 31, 2005 and December 31, 2004, letters of credit totaling $49,695 and $40,050, respectively, were issued by HVB under this facility. All letters of credit issued under this facility are collateralized by a portion of the Company’s invested assets. Fixed maturities and cash equivalents with a fair value of $54,191 at December 31, 2005 were pledged as collateral for these letters of credit.

F-27

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

In November 2004, the Company entered into a $20,000 letter of credit facility with ING Bank N.V., London Branch (“ING”). At December 31, 2005 and December 31, 2004 letters of credit totaling $20,000 were issued by ING under this facility. All letters of credit issued under this facility are collateralized by a portion of the Company’s invested assets. Fixed maturities and cash equivalents with a fair value of $22,623 at December 31, 2005 were pledged as collateral for these letters of credit.

Each of the credit facilities requires that the Company and/or certain of its subsidiaries comply with certain covenants, including a minimum consolidated tangible net worth and restrictions on the payment of dividends. The Company was in compliance with all the covenants of each of its letter of credit facilities at December 31, 2005.

17. Segment information (Restated)

The Company operates in three segments: property and casualty reinsurance, property and casualty insurance and life and annuity reinsurance. Within the property and casualty reinsurance segment, the Company offers quota share and excess of loss capacity providing coverage for a portfolio of underlying risks written by our clients. In the property and casualty insurance segment, the Company generally offers excess of loss capacity on specific risks related to one insured. Within the life and annuity segment, the Company currently offers reinsurance products focusing on existing blocks of business, which take the form of co-insurance transactions. In co-insurance transactions, risks are reinsured on the same basis as that of the original policies. The Company also has a corporate segment that includes its investments and financing functions. The Company does not allocate assets by segment.

F-28

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

A summary of operations by segment for the years ended December 31, 2005, 2004 and 2003 were as follows:

	Property & Casualty									Life & Annuity			Corporate			Consolidated
2005	Reinsurance			Insurance			Total			Reinsurance
Revenues
Gross premiums written	$	615,720		$	355,296		$	971,016		$	275,015		$	—		$	1,246,031
Reinsurance premiums ceded		(51,767	)		(145,738	)		(197,505	)		(1,469	)		—			(198,974	)
Net premiums written	$	563,953		$	209,558		$	773,511		$	273,546		$	—		$	1,047,057
Earned premiums	$	671,356		$	301,213		$	972,569		$	275,015		$	—		$	1,247,584
Earned premiums ceded		(64,287	)		(128,329	)		(192,616	)		(1,469	)		—			(194,085	)
Net premiums earned		607,069			172,884			779,953			273,546			—			1,053,499
Net investment income		—			—			—			—			106,835			106,835
Net gains on alternative investments		—			—			—			—			39,885			39,885
Net realized gains on sale of fixed maturities		—			—			—			—			(743	)		(743	)
Other income		—			—			—			—			4,635			4,635
Total revenues		607,069			172,884			779,953			273,546			150,612			1,204,111
Losses and expenses
Losses and benefits		552,795			175,458			728,253			311,212			—			1,039,465
Acquisition costs		73,617			110			73,727			2,497			—			76,224
Interest expense		—			—			—			—			22,764			22,764
General and administrative expenses		15,023			9,857			24,880			3,487			27,786			56,153
Total losses and expenses		641,435			185,425			826,860			317,196			50,550			1,194,606
Income (loss) before minority interest	$	(34,366	)	$	(12,541	)	$	(46,907	)	$	(43,650	)	$	100,062		$	9,505
Loss ratio *		91.1	%		101.5	%		93.4	%		*	**
Combined ratio **		105.7	%		107.3	%		106.0	%		*	**

* The loss ratio is calculated by dividing losses and benefits by net premiums earned.

** The combined ratio is calculated by dividing total losses and expenses by net premiums earned.

*** Loss ratio and combined ratio are not provided for life and annuity products as the Company believes these ratios are not appropriate measures for life and annuity underwriting.

F-29

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

	Property & Casualty									Life & Annuity			Corporate		Consolidated
2004	Reinsurance			Insurance			Total			Reinsurance
Revenues
Gross premiums written	$	583,234		$	248,068		$	831,302		$	212,299		$	—	$	1,043,601
Reinsurance premiums ceded		(47,573	)		(114,241	)		(161,814	)		(707	)		—		(162,521	)
Net premiums written	$	535,661		$	133,827		$	669,488		$	211,592		$	—	$	881,080
Earned premiums	$	638,330		$	217,543		$	855,873		$	212,299		$	—	$	1,068,172
Earned premiums ceded		(74,012	)		(93,504	)		(167,516	)		(707	)		—		(168,223	)
Net premiums earned		564,318			124,039			688,357			211,592			—		899,949
Net investment income		—			—			—			—			82,815		82,815
Net gains on alternative investments		—			—			—			—			81,648		81,648
Net realized gains on sale of fixed maturities		—			—			—			—			10,447		10,447
Other income		—			—			—			—			4,890		4,890
Total revenues		564,318			124,039			688,357			211,592			179,800		1,079,749
Losses and expenses
Losses and benefits		422,590			90,604			513,194			238,248			—		751,442
Acquisition costs		110,840			2,502			113,342			3,520			—		116,862
Interest expense		—			—			—			—			20,644		20,644
General and administrative expenses		12,116			6,797			18,913			4,488			25,646		49,047
Total losses and expenses		545,546			99,903			645,449			246,256			46,290		937,995
Income (loss) before minority interest	$	18,772		$	24,136		$	42,908		$	(34,664	)	$	133,510	$	141,754
Loss ratio		74.9	%		73.0	%		74.6	%
Combined ratio		96.7	%		80.5	%		93.8	%

F-30

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

	Property & Casualty									Life & Annuity			Corporate		Consolidated
2003	Reinsurance			Insurance			Total			Reinsurance
Revenues
Gross premiums written	$	738,316		$	163,213		$	901,529		$	108,250		$	—	$	1,009,779
Reinsurance premiums ceded		(106,620	)		(56,992	)		(163,612	)		(21,650	)		—		(185,262	)
Net premiums written	$	631,696		$	106,221		$	737,917		$	86,600		$	—	$	824,517
Earned premiums	$	661,116		$	66,083		$	727,199		$	108,250		$	—	$	835,449
Earned premiums ceded		(79,104	)		(20,198	)		(99,302	)		(21,650	)		—		(120,952	)
Net premiums earned		582,012			45,885			627,897			86,600			—		714,497
Net investment income		—			—			—			—			60,132		60,132
Net gains on alternative investments		—			—			—			—			124,036		124,036
Net realized gains on sale of fixed maturities		—			—			—			—			19,259		19,259
Other income		—			—			—			—			10,743		10,743
Total revenues		582,012			45,885			627,897			86,600			214,170		928,667
Losses and expenses
Losses and benefits		433,428			34,591			468,019			114,939			—		582,958
Acquisition costs		144,569			3,098			147,667			1,867			—		149,534
Interest expense		—			—			—			—			18,435		18,435
General and administrative expenses		9,396			4,907			14,303			4,486			21,056		39,845
Total losses and expenses		587,393			42,596			629,989			121,292			39,491		790,772
Income (loss) before minority interest	$	(5,381	)	$	3,289		$	(2,092	)	$	(34,692	)	$	174,679	$	137,895
Loss ratio		74.5	%		75.4	%		74.5	%
Combined ratio		100.9	%		92.8	%		100.3	%

The Company’s clients are principally located in two geographic regions: North America and Europe.

Financial information relating to gross premiums written and reinsurance premiums ceded by geographic region for the years ended December 31, 2005, 2004 and 2003 was as follows:

	2005			2004			2003
North America	$	812,860		$	620,078		$	634,795
Europe		433,171			423,523			374,984
Reinsurance ceded—North America		(163,947	)		(128,535	)		(90,882	)
Reinsurance ceded—Europe		(35,027	)		(33,986	)		(94,380	)
	$	1,047,057		$	881,080		$	824,517

Three customers accounted for 11.5%, 10.2% and 7.4%, respectively, of the Company’s gross premiums written during the year ended December 31, 2005. Three customers accounted for 18.8%, 16.5% and 10.7%, respectively, of the Company’s gross premiums written during the year ended December 31, 2004. Three customers accounted for 14.8%, 14.8% and 11.4%, respectively, of the Company’s gross premiums written during the year ended December 31, 2003.

F-31

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

18. Quarterly financial results (unaudited)

	Quarter Ended
2005	March 31		June 30		September 30			December 31
	(Restated)
Revenues
Gross premiums written	$	455,689	$	245,107	$	288,047		$	257,188
Net premiums earned	$	308,324	$	192,656	$	295,777		$	256,742
Net investment income		23,689		24,965		27,002			31,179
Net gains on alternative investments		14,377		3,597		35,642			(13,731	)
Net realized gains (losses) on sale of fixed maturities		390		813		1,624			(3,570	)
Other income		1,318		1,182		1,088			1,047
Total revenues		348,098		223,213		361,133			271,667
Losses and expenses
Losses and benefits		268,298		156,458		367,681			247,028
Acquisition costs		21,502		17,921		20,492			16,309
Interest expense		3,057		10,139		2,720			6,848
General and administrative expenses		15,257		12,310		14,484			14,102
Total losses and expenses		308,114		196,828		405,377			284,287
Income (loss) before minority interest	$	39,984	$	26,385	$	(44,244	)	$	(12,620	)
Net income (loss)	$	39,984	$	26,385	$	(44,244	)	$	(12,620	)
Basic earnings (loss) per share	$	0.87	$	0.57	$	(0.96	)	$	(0.22	)
Diluted earnings (loss) per share	$	0.80	$	0.53	$	(0.96	)	$	(0.22	)
	Quarter Ended
2005	March 31		June 30		September 30			December 31
	(Previously reported)
Revenues
Gross premiums written	$	455,689	$	245,107	$	288,047		$	257,188
Net premiums earned	$	308,324	$	192,081	$	267,285		$	256,742
Net investment income		23,689		24,965		27,002			31,179
Net gains on alternative investments		14,377		3,597		35,642			(13,731	)
Net realized gains (losses) on sale of fixed maturities		390		813		1,624			(3,570	)
Other income		1,318		1,182		1,088			1,047
Total revenues		348,098		222,638		332,641			271,667
Losses and expenses
Losses and benefits		267,425		155,717		334,802			246,370
Acquisition costs		21,502		17,921		20,492			16,309
Interest expense		6,232		13,372		6,748			5,673
General and administrative expenses		15,257		12,310		14,484			14,102
Total losses and expenses		310,416		199,320		376,526			282,454
Income (loss) before minority interest	$	37,682	$	23,318	$	(43,885	)	$	(10,787	)
Net income (loss)	$	37,682	$	23,318	$	(43,885	)	$	(10,787	)
Basic earnings (loss) per share	$	0.82	$	0.50	$	(0.95	)	$	(0.19	)
Diluted earnings (loss) per share	$	0.75	$	0.47	$	(0.95	)	$	(0.19	)

F-32

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

	Quarter Ended
2004	March 31		June 30			September 30			December 31
	(Restated)
Revenues
Gross premiums written	$	439,531	$	183,654		$	280,848		$	139,568
Net premiums earned	$	194,482	$	167,349		$	326,602		$	211,516
Net investment income		18,846		19,696			20,106			24,167
Net gains on alternative investments		38,476		1,038			(14,624	)		56,758
Net realized gains (losses) on sale of fixed maturities		5,781		(2,575	)		916			6,325
Other income		1,168		1,211			1,285			1,226
Total revenues		258,753		186,719			334,285			299,992
Losses and expenses
Losses and benefits		166,939		130,836			294,747			158,920
Acquisition costs		31,783		29,199			26,032			29,848
Interest expense		7,930		(2,801	)		8,902			6,613
General and administrative expenses		10,169		13,945			10,549			14,384
Total losses and expenses		216,821		171,179			340,230			209,765
Income (loss) before minority interest	$	41,932	$	15,540		$	(5,945	)	$	90,227
Net income (loss)	$	41,932	$	15,540		$	(5,945	)	$	90,227
Basic earnings (loss) per share	$	0.92	$	0.34		$	(0.13	)	$	1.97
Diluted earnings (loss) per share	$	0.85	$	0.32		$	(0.13	)	$	1.87
	Quarter Ended
2004	March 31		June 30			September 30			December 31
	(Previously reported)
Revenues
Gross premiums written	$	439,531	$	183,654		$	280,848		$	139,568
Net premiums earned	$	190,583	$	167,350		$	326,601		$	211,517
Net investment income		18,846		19,696			20,106			24,167
Net gains on alternative investments		38,476		1,038			(14,624	)		56,758
Net realized gains (losses) on sale of fixed maturities		5,781		(2,575	)		916			6,325
Other income		1,168		1,211			1,285			1,226
Total revenues		254,854		186,720			334,284			299,993
Losses and expenses
Losses and benefits		158,696		130,015			294,030			158,215
Acquisition costs		31,783		29,199			26,032			29,848
Interest expense		11,843		95			11,979			9,727
General and administrative expenses		10,169		13,945			10,549			14,384
Total losses and expenses		212,491		173,254			342,590			212,174
Income (loss) before minority interest	$	42,363	$	13,466		$	(8,306	)	$	87,819
Net income (loss)	$	42,363	$	13,466		$	(8,306	)	$	87,819
Basic earnings (loss) per share	$	0.93	$	0.29		$	(0.18	)	$	1.92
Diluted earnings (loss) per share	$	0.86	$	0.28		$	(0.18	)	$	1.82

F-33

MAX RE CAPITAL LTD.

Notes to Consolidated Financial Statements—(Continued)

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars,

except per share and share amounts)

	Quarter Ended
2003	March 31		June 30		September 30		December 31
	(Restated)
Revenues
Gross premiums written	$	430,545	$	165,767	$	188,608	$	224,859
Net premiums earned	$	143,833	$	139,432	$	174,276	$	256,956
Net investment income		14,507		15,061		13,899		16,665
Net gains on alternative investments		21,802		45,212		28,148		28,874
Net realized gains on sale of fixed maturities		2,490		509		11,548		4,712
Other income		2,002		2,212		1,122		5,407
Total revenues		184,634		202,426		228,993		312,614
Losses and expenses
Losses and benefits		115,574		112,881		135,186		219,317
Acquisition costs		38,737		35,690		36,696		38,411
Interest expense		3,801		6,267		2,644		5,723
General and administrative expenses		8,196		10,785		10,896		9,968
Total losses and expenses		166,308		165,623		185,422		273,419
Income before minority interest	$	18,326	$	36,803	$	43,571	$	39,195
Net income	$	15,552	$	31,104	$	40,970	$	39,195
Basic earnings per share	$	0.41	$	0.82	$	0.96	$	0.87
Diluted earnings per share	$	0.40	$	0.81	$	0.95	$	0.82
	Quarter Ended
2003	March 31		June 30		September 30		December 31
	(Previously reported)
Revenues
Gross premiums written	$	430,545	$	165,767	$	188,608	$	224,859
Net premiums earned	$	142,270	$	139,432	$	174,277	$	256,955
Net investment income		14,507		15,061		13,899		16,665
Net gains on alternative investments		21,802		45,212		28,148		28,874
Net realized gains on sale of fixed maturities		2,490		509		11,548		4,712
Other income		2,002		2,212		1,122		5,407
Total revenues		183,071		202,426		228,994		312,613
Losses and expenses
Losses and benefits		113,004		112,881		135,186		219,317
Acquisition costs		38,737		35,690		36,696		38,411
Interest expense		5,981		8,953		5,382		8,513
General and administrative expenses		8,196		10,785		10,896		9,968
Total losses and expenses		165,918		168,309		188,160		276,209
Income before minority interest	$	17,153	$	34,117	$	40,834	$	36,404
Net income	$	14,563	$	28,840	$	38,751	$	36,404
Basic earnings per share	$	0.38	$	0.76	$	0.91	$	0.81
Diluted earnings per share	$	0.38	$	0.75	$	0.89	$	0.76

F-34

SCHEDULE II

MAX RE CAPITAL LTD.

Supplementary Insurance Information (Unaudited)

Balance Sheet

December 31, 2005 and 2004

(Expressed in thousands of United States Dollars)

	December 31, 2005			December 31, 2004
	(Restated)			(Restated)
Assets
Cash and cash equivalents	$	16,694		$	6,220
Investments in Subsidiaries		1,130,559			860,115
Due from affiliated companies		34,614			13,926
Other assets		533			692
Total Assets	$	1,182,400		$	880,953
Liabilities
Accounts payable and accrued expenses		1,661			477
Total Liabilities		1,661			477
Shareholders’ Equity
Preferred shares (par value $1) 20,000,000 shares authorized; no shares issued or outstanding		—			—
Common shares (par value $1) 200,000,000 shares authorized; 58,829,354 shares issued and outstanding (2004 – 45,825,880)		58,829			45,826
Additional paid-in capital		921,384			643,444
Loans receivable from common share sales		(465	)		(10,515	)
Unearned stock grant compensation		(14,574	)		(13,294	)
Accumulated other comprehensive income (loss)		—			—
Retained earnings		215,565			215,015
Total Shareholders’ Equity	$	1,180,739		$	880,476
Total Liabilities and Shareholders’ Equity	$	1,182,400		$	880,953

F-35

SCHEDULE II (Continued)

MAX RE CAPITAL LTD.

Supplementary Insurance Information

Statement of Income and Comprehensive Income

For the years ended December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars)

	Year ended December 31, 2005		Year ended December 31, 2004		Year ended December 31, 2003
	(Restated)		(Restated)		(Restated)
Revenue
Net investment income	$	12,119	$	144,127	$	128,777
Expenses
General and administrative expenses		2,614		2,373		1,956
Net Income	$	9,505	$	141,754	$	126,821
Unrealized gains arising during the year		—		—		—
Adjustments for re-classification of (gains) realized in income		—		—		—
Comprehensive Income	$	9,505	$	141,754	$	126,821

F-36

SCHEDULE II (Continued)

MAX RE CAPITAL LTD.

Supplementary Insurance Information

Statement of Cash Flows

For the years ended December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars)

	Year ended December 31, 2005			Year ended December 31, 2004			Year ended December 31, 2003
	(Restated)			(Restated)			(Restated)
Operating activities:
Net income	$	9,505		$	141,754		$	126,821
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Amortization of unearned stock based compensation		10,996			7,293			2,733
Other assets		159			54			41
Accounts payable and accrued expenses		1,184			477			(249	)
Due from affiliated companies		(20,688	)		(11,628	)		2,986
Equity in net earnings of subsidiaries		(11,589	)		(143,879	)		(128,548	)
Net cash used in (provided by) operating activities		(10,433	)		(5,929	)		3,784
Investing activities:
Investments in subsidiaries		(272,515	)		—			—
Dividends received		13,660			13,287			3,788
Net cash used in (provided by) investing activities		(258,855	)		13,287			3,788
Financing Activities:
Net proceeds from issuance of common shares		286,027			3,193			758
Repurchase of common shares		(7,360	)		(4,850	)		(3,896	)
Notes and loans repaid		10,050			1,450			610
Dividend paid		(8,955	)		(5,487	)		(3,788	)
Net cash (provided by) used in financing activities		279,762			(5,694	)		(6,316	)
Increase in cash and cash equivalents		10,474			1,664			1,256
Cash and cash equivalents, beginning of period		6,220			4,556			3,300
Cash and cash equivalents, end of period	$	16,694		$	6,220		$	4,556

F-37

SCHEDULE III

MAX RE CAPITAL LTD.

Supplementary Insurance Information

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars)

Year ended December 31, 2005

	Deferred Acquisition Costs		Reserve for Losses and Loss Expenses		Unearned Premiums		Net Premiums Earned		Net Investment Income(1)	Losses and Loss Expense		Amortization of Deferred Acquisition Costs		Net Premiums Written		Other Operating Expenses
							(Restated)			(Restated)				(Restated)
Property & Casualty Reinsurance	$	44,858	$	1,549,972	$	261,522	$	607,069	—	$	552,795	$	73,617	$	563,953	$	15,023
Property & Casualty Insurance		3,711		456,060		181,454		172,884	—		175,458		110		209,558		9,857
Life Reinsurance		20,446		854,224		—		273,546	—		311,212		2,497		273,546		3,487
Not allocated to segments		—		—		—		—	106,835		—		—		—		27,786
Total		69,015		2,860,256		442,976		1,053,499	106,835		1,039,465		76,224		1,047,057		56,153

Year ended December 31, 2004

	Deferred Acquisition Costs			Reserve for Losses and Loss Expenses		Unearned Premiums		Net Premiums Earned		Net Investment Income(1)	Losses and Loss Expense		Amortization of Deferred Acquisition Costs		Net Premiums Written		Other Operating Expenses
								(Restated)			(Restated)				(Restated)
Property & Casualty Reinsurance	$	46,207		$	1,245,017	$	319,592	$	564,318	—	$	422,590	$	110,840	$	535,661	$	12,116
Property & Casualty Insurance		(1,737	)		210,082		128,041		124,039	—		90,604		2,502		133,827		6,797
Life Reinsurance		10,300			666,101		—		211,592	—		238,248		3,520		211,592		4,488
Not allocated to segments		—			—		—		—	82,815		—		—		—		25,646
Total		54,770			2,121,200		447,633		899,949	82,815		751,442		116,862		881,080		49,047

Year ended December 31, 2003

	Deferred Acquisition Costs			Reserve for Losses and Loss Expenses		Unearned Premiums		Net Premiums Earned		Net Investment Income(1)	Losses and Loss Expense		Amortization of Deferred Acquisition Costs		Net Premiums Written		Other Operating Expenses
								(Restated)			(Restated)				(Restated)
Property & Casualty Reinsurance	$	79,064		$	941,443	$	373,930	$	582,012	—	$	433,428	$	144,569	$	631,696	$	9,396
Property & Casualty Insurance		(4,116	)		50,244		97,695		45,885	—		34,591		3,098		106,221		4,907
Life Reinsurance		12,168			480,099		—		86,600	—		114,939		1,867		86,600		4,486
Not allocated to segments		—			—		—		—	60,132		—		—		—		21,056
Total		87,116			1,471,786		471,625		714,497	60,132		582,958		149,534		824,517		39,845

^[1] Investment Income is not allocated to the Company’s segments as the invested assets are managed centrally.

F-38

SCHEDULE IV

MAX RE CAPITAL LTD.

Reinsurance

December 31, 2005, 2004 and 2003

(Expressed in thousands of United States Dollars)

	Direct Gross Premium		Ceded to Other Companies		Assumed from Other Companies		Net Amount		Percentage of Amount Assumed to Net
			(Restated)				(Restated)		(Restated)
Year ended December 31, 2005	$	355,296	$	198,974	$	890,735	$	1,047,057	85	%
Year ended December 31, 2004	$	248,068	$	162,521	$	795,533	$	881,080	90	%
Year ended December 31, 2003	$	163,213	$	185,262	$	846,566	$	824,517	103	%

F-39