MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Odyssey Re Holdings Corp. is a holding company incorporated in the state of Delaware, which owns all of the common stock of Odyssey America Reinsurance Corporation. Odyssey America dir ectly or indirectly owns all of the common stock of: Clearwater Insurance Company; Clearwater Select Insurance Company; Odyssey UK Holdings Corporation; Newline Underwriting Management Ltd., which owns and manages a syndicate at Lloyd’ s, Newline Syndicate 1218; Hudson Insurance Company and Hudson Specialty Insurance Company On November 15, 2004, we acquired Overseas Partners US Reinsurance Company (“Opus Re”), a reinsurance company domiciled in the state of Delaware. Opus Re’s name has been changed to Clearwater Select Insurance Company. On October 1, 2004, we sold all of our shar es of First Capital to Fairfax Asia Limited in exchange for Class B non-voting shares of Fairfax Asia, representing $38.6 million, or approximately 45%, ownership interest in Fairfax Asia. Fairfax Financial Holdings Limited, a Canadian financial services holding company, owned 80.8% of our common stock as of December 31, 2004, and also owns the controlling interest in Fairfax Asia. Through our operating subsidiaries, we ar a leading United States based underwriter of reinsurance, providing a full range of property and casualty products on a worldwide basis. We offer a br oad range of both treaty and facultative reinsurance to property and casualty insurers and reinsurers. Treaty reinsurance involves the reinsurance of a specific line or class of business for an insurance company pursuant to an agreement or treaty Facultative reinsurance involves the reinsurance of a specific policy as opposed to a line or class of business. We also write specialty and non-traditional lines of reinsurance, including professional liability, marine and aerospace. We also underwrite specialty program insurance as well as physicians medical malpractice and hospital professional liability insurance. Our gross premiums written for the year ended December 31, 2004 were $2.7 billion, an increase of $98.3 million, or 3.8%, compared to gross premiums written for the year ended December 31, 2003 of $2.6 billion. Continued premium growth was evident in the EuroAsia, London Market and U.S. Insurance divisions while gross premiums written declined in the Americas division. We continue to opportunistically expand in certain classes of business and geographically. Our non-United States operations accounted for 45.9% of our premium volume for the year ended December 31, 2004 compared to 41.9% for the year ended December 31, 2003. For the years ended December 31, 2004 and 2003, our net premiums written were $2.4 billion and $2.2 billion, respectively and our net income was $186.9 million and $249.2 million, respectively. As of December 31, 2004, we had total assets of $7.7 billion and total stockholders’ equity of $1.6 billion. The property and casualty reinsurance and insurance industries use the combined ratio as a measure of underwriting profitability. The GAAP combined ratio is the sum of losses and loss adjustment expenses incurred as a percentage of net premiums earned plus underwriting expenses, which include acquisition costs and other underwriting expenses, as a percentage of net premiums earned. The combined ratio reflects only underwriting results, and does not include income from investments. Underwriting profitability is subject to significant fluctuations due to competition, catastrophic events, economic and social conditions, foreign currency fluctuations and other factors. Our combined ratio, which includes the losses from four hurricanes as discussed below, was 98.0% for the year ended December 31, 2004, an increase of 1.2 percentage points from the 96.8% combined ratio for the year ended December 31, 2003. This continued underwriting pr ofitability is a direct result of our underwriting actions, including improvements in pricing as well as terms and conditions, global diversification and our opportunistic expansion into better performing lines of business. We operate our business through four divisions, the Americas, Eur oAsia, London Market, and U.S. Insurance. The Americas division is our largest division and writes casualty, sur ety and property treaty reinsurance, and facultative casualty reinsurance in the United States and Canada, and primarily treaty and facultative property reinsurance in Central and South America. The Americas division is comprised of three units, the United States, Canada, and Latin America, with two offices in New York City, and offices located in Stamford, Mexico City Miami, Santiago and Toronto. 24