ODYSSEY RE HOLDINGS CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued America agreed to provide a guarantee of a credit facility to be established by CEPL in an amount up to $65 million. The guarantee is conditioned upon a pledge in favor of Odyssey America by the other shareholders of CEPL of assets with an aggregate value of 150% of the guarantee. As of this date, the cr edit facility has not been established; it is expected that this transaction will be completed during the first half of 2005. OdysseyRe and its subsidiaries are involved from time to time in or dinary routine litigation and arbitration proceedings incidental to their business. In management’ opinion, the outcome of these suits, individually or collectively, is not likely to result in judgments which would be material to the financial condition or r esults of operations or cash flow of the Company. Odyssey America is subject to state regulatory restrictions that limit the maximum amount of dividends payable. Odyssey America must obtain approval of the Insurance Commissioner of the State of Connecticut (the “Connecticut Commissioner”) in order to pay during any 12-month period “extraordinary” dividends, which are defined as the greater of 10% of statutory capital and surplus as of the prior year end or net income for such prior year. Connecticut law further provides that (i) Odyssey America must report to the Connecticut Commissioner for informational purposes, all dividends and other distributions within five business days after the declaration thereof and at least ten days prior to payment and (ii) Odyssey America may not pay any dividend or distribution in excess of its earned surplus, as reflected in its most recent statutory annual statement on file with the Connecticut Commissioner, without the Connecticut Commissioner’ s approval. 13. DIVIDEND RESTRICTIONS, STATUTORY INFORMATION AND CAPITAL Odyssey America paid dividends to the Company of $55.0 million during 2004 and $18.0 million during 2002 and did not pay any dividends during 2003. The maximum amount of dividends which Odyssey America may pay to the Company in 2005, without prior approval, is $167.6 million. The following is the consolidated statutory basis net income and policyholders’ surplus of Odyssey America and its subsidiaries, for each of the years ended and as of December 31, 2004, 2003 and 2002 (in thousands): 2004 2003 2002 (Unaudited) Net income $ 114,174 $ 110,471 $173,960 Policyholders’ surplus $1,675,858 $1,553,067 $990,469 The statutory provision for potentially uncollectible reinsurance r ecoverables due from unauthorized companies is reduced to the extent collateral is held by Clearwater or Hudson. Pursuant to indemnification agreements between the Company and Clearwater, and between the Company and Hudson, the Company provides letters of credit (“LOCs”) and/or cash in respect of uncollateralized balances due from unauthorized reinsurers. The use of such collateral provided by the Company is a permitted accounting practice approved by the Insurance Department of the State of Delaware, the domiciliary state of Clearwater and Hudson. As of December 31, 2004 and 2003, $7.3 million of funds held under reinsurance contracts related to cash collateral has been provided in regard to the above mentioned indemnification agr eements. The Company has also provided a $20.5 million LOC to Clearwater and a $0.5 million LOC to Hudson as of December 31, 2004, which has been used as collateral in regard to the indemnification agreements. The indemnification agreements do not affect the reinsurance recoverable balances as reported in the accompanying consolidated financial statements. 78