Odyssey Re Holdings Corp. Reports Record Full Year and Fourth Quarter 2007 Results

Odyssey Re Holdings Corp. (NYSE: ORH) reported net income available to common shareholders of $243.0 million, or $3.48 per diluted share, for the quarter ended December 31, 2007 compared to $83.8 million, or $1.16 per diluted share, for the quarter ended December 31, 2006. Operating income after tax(1) was $59.5 million, or $0.85 per diluted share, for the fourth quarter of 2007, compared to $65.4 million, or $0.91 per diluted share, for the fourth quarter of 2006. Included in the fourth quarter 2007 net income available to common shareholders were after-tax net realized gains of $183.5 million, or $2.63 per diluted share, compared to $18.4 million, or $0.25 per diluted share, for the fourth quarter of 2006. For the year ended December 31, 2007, net income available to common shareholders was $587.2 million, or $8.23 per diluted share, compared to $499.6 million, or $6.93 per diluted share, for the year ended December 31, 2006. Operating income after tax was $236.8 million, or $3.32 per diluted share, for the year ended December 31, 2007, compared to operating income after tax of $268.0 million, or $3.73 per diluted share, for the year ended December 31, 2006. Highlights for the full year and fourth quarter of 2007 are summarized as follows: Pre-tax net income of $913.2 million for the full year and $380.0 million for the fourth quarter led to record after-tax net income available to common shareholders of $587.2 million ($8.23 per diluted share) for the full year and $243.0 million ($3.48 per diluted share) for the fourth quarter; Shareholders’ equity of $2.65 billion as of December 31, 2007; Return on common shareholders’ equity of 25.9% and operating return on common shareholders’ equity of 10.4% for the full year; Book value per common share(2) was $36.78 as of December 31, 2007, an increase of $8.86, or 31.7%, compared to the book value per common share of $27.92 as of December 31, 2006; Total invested assets and cash of $7.8 billion as of December 31, 2007, an increase of 10.1% compared to December 31, 2006; and The repurchase and retirement, during 2007, of 2.6 million shares of our common stock for $94.5 million, or an average repurchase price of $35.83 per share. Gross premiums written for the quarter ended December 31, 2007 were $525.3 million, a decrease of 2.5% compared to $538.9 million for the quarter ended December 31, 2006. This reflects a decline of 3.1% in the Company’s worldwide reinsurance premiums compared to the fourth quarter of 2006, and a 1.4% decrease in the Company’s specialty insurance premiums. Net premiums written during the fourth quarter of 2007 were $482.4 million, a decrease of 5.2% compared to fourth quarter of 2006 net premiums written of $508.7 million. Gross premiums written for the year ended December 31, 2007 were $2.28 billion, compared to $2.34 billion for the year ended December 31, 2006, a 2.3% decrease. Reinsurance gross premiums written decreased by 4.8%, offset by a 3.5% increase in insurance premiums, principally related to the Company’s U.S. operations. Net premiums written over the same period decreased to $2.09 billion from $2.16 billion. The combined ratio for the year ended December 31, 2007 was 95.5%, compared to 94.4% for the year ended December 31, 2006, while the combined ratio for the fourth quarter of 2007 was 93.7%, compared to 94.8% for the fourth quarter of 2006. Net investment income amounted to $329.4 million and $77.0 million for the year and fourth quarter of 2007, respectively, compared to $319.5 million, which excludes net realized gains of an equity investee included in net investment income, and $84.0 million for the year and fourth quarter of 2006, respectively. Net pre-tax realized gains were $539.1 million and $282.4 million for the year and fourth quarter of 2007, respectively, compared to $356.8 and $28.3 million for the year and fourth quarter of 2006, respectively. The realized gains for the year ended December 31, 2006 include realized gains of an equity investee included in net investment income in the consolidated statement of operations of $167.6 million. For the year ended December 31, 2007, the Company sold $175.8 million notional amount of credit default swaps for gross proceeds of $27.2 million, and recognized realized gains of $25.3 million. In addition, the net mark-to-market gain recorded for the year ended December 31, 2007 on the remaining $5.0 billion notional amount of credit default swaps was $273.0 million, resulting in total realized gains of $298.3 million for the year ended December 31, 2007. From January 1 through February 15, 2008, the Company sold an additional $670.0 million notional amount of credit default swaps (including virtually all of its credit default swaps referenced to U.S. bond guarantors) for gross proceeds of $161.0 million, with realized gains on the sale of $26.8 million (gains in excess of the mark-to-market value as of December 31, 2007). The net mark-to-market gain for the January 1 to February 15, 2008 period on the $4.4 billion notional amount of credit default swaps remaining at February 15, 2008 (including 2008 purchases of $47.5 million notional amount of credit default swaps for $1.4 million) was $152.6 million, representing total net gains related to credit default swaps for this period of $179.4 million. The fair market value of the credit default swaps at February 15, 2008 was $327.3 million. The credit default swaps are extremely volatile, and as a result their market value may vary dramatically either up or down in short periods. Their ultimate value will, therefore, only be known upon their disposition. For the quarter ended December 31, 2007, net cash flow from operations was $4.1 million, a $123.8 million decrease from cash flow of $127.9 million for the quarter ended December 31, 2006. The decrease in cash flow from operations is principally attributable to lower premium volume, a decline in reinsurance recoveries and an increase in taxes paid. In the fourth quarter of 2007, OdysseyRe paid a cash dividend of $0.0625 per common share on December 28, 2007 to common shareholders of record on December 14, 2007. (1) "Operating income” after tax is a non-generally accepted accounting principles ("GAAP”) financial measure often used by investors to evaluate performance in the insurance and reinsurance industry. Operating income after tax is equal to net income available to common shareholders, excluding net realized gains as reported, net realized gains of an equity investee included in net investment income and losses on the early extinguishment of debt. Although realized gains or losses are an integral part of the Company’s operations, the amount recognized during any particular period cannot be reasonably estimated and can vary significantly. Management believes that providing operating income after tax to investors is a useful supplement to GAAP information concerning the Company’s performance. A reconciliation of net income available to common shareholders to operating income, after tax and related amounts per diluted share is as follows (in millions, except per share amounts):   Three months ended, (unaudited) December 31, 2007   December 31, 2006 $     Per Diluted Share   $     Per Diluted Share Net income available to common shareholders $ 243.0 $ 3.48 $ 83.8 $ 1.16 Less: Net realized gains, after tax   (183.5 )   (2.63 )   (18.4 )   (0.25 ) Operating income, after tax $ 59.5   $ 0.85   $ 65.4   $ 0.91     Year ended, (unaudited) December 31, 2007   December 31, 2006 $     Per Diluted Share   $   Per Diluted Share Net income available to common shareholders $ 587.2 $ 8.23 $ 499.6 $ 6.93 Less: Net realized gains, after tax (350.4 ) (4.91 ) (122.9 ) (1.70 ) Less: Net realized gains of an equity investee included in investment income, after tax — — (108.9 ) (1.50 ) Add: Loss on early extinguishment of debt —     —     0.2   —   Operating income, after tax $ 236.8   $ 3.32   $ 268.0   $ 3.73   (2) Book value per common share, a financial measure often used by investors, is calculated using common shareholders’ equity, a non-GAAP financial measure, which represents total shareholders’ equity, a GAAP financial measure, reduced by the equity attributable to our preferred stock. The common shareholders’ equity is divided by our common shares outstanding at each respective year end to derive book value per common share as reflected in the following table (in millions, except share and per share amounts):   As of December 31, 2007   2006 Total shareholders’ equity $ 2,654.7 $ 2,083.6 Less: equity related to preferred stock   97.5   97.5 Total common shareholders’ equity $ 2,557.2 $ 1,986.1   Common shares outstanding   69,521,494   71,140,948 Book value per common share $ 36.78 $ 27.92 A conference call to discuss the financial results will be held at 10:00 a.m. Eastern Standard Time on Friday, February 22, 2008. A live audio webcast of the conference call will be available on the Odyssey Re Holdings Corp. web site (www.odysseyre.com). In addition, callers not able to access the Internet may listen to the conference call by dialing (888) 599-8655 (domestic) or (913) 981-5578 (international) and asking for the OdysseyRe call. A replay of the call will be available from 12:00 p.m. Eastern Standard Time on Friday, February 22, 2008, until 11:59 p.m. Eastern Standard Time on Saturday, March 1, 2008. To access the replay, please call either (888) 203-1112 (domestic) or (719) 457-0820 (international); the passcode number is 3922451. Odyssey Re Holdings Corp. is a leading worldwide underwriter of property and casualty treaty and facultative reinsurance, as well as specialty insurance. OdysseyRe operates through its subsidiaries, Odyssey America Reinsurance Corporation, Hudson Insurance Company, Hudson Specialty Insurance Company, Clearwater Insurance Company, Newline Underwriting Management Limited, Newline Asia Services Pte. Ltd. and Newline Insurance Company Limited. The Company underwrites through offices in the United States, London, Paris, Singapore, Toronto and Latin America. Odyssey Re Holdings Corp. is listed on the New York Stock Exchange under the symbol ORH. Certain statements contained herein may constitute forward-looking statements and are made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: a reduction in net income if the Company's loss reserves are insufficient; the occurrence of catastrophic events with a frequency or severity exceeding the Company’s estimates; the lowering or loss of one of the Company's financial or claims-paying ratings, including those of the Company’s subsidiaries; an inability to realize the Company's investment objectives; a decrease in the level of demand for the Company's reinsurance or insurance business, or increased competition; emerging claim and coverage issues; risks relating to ongoing investigations by U.S. government authorities; the risk that ongoing regulatory developments will disrupt the Company's business or mandate changes in industry practices that increase the Company's costs; changes in economic conditions, including interest rate, currency, equity and credit conditions; the Company's inability to access its subsidiaries' cash; loss of services of any of the Company's key employees; risks related to the Company's use of reinsurance brokers; failure of the Company's reinsurers to honor their obligations; regulatory and legislative changes; risks associated with the growth of the Company's specialty insurance business; and other factors that are described in the Company's filings with the Securities and Exchange Commission. Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Visit OdysseyRe’s web site – www.odysseyre.com – for additional information about the Company. In addition, anyone may view the Company’s historical press releases and filings with the Securities and Exchange Commission, which provide additional data regarding the Company’s prior quarterly and year-to-date results. This historical information may be found on OdysseyRe’s web site under "Investor Information.” Consolidated financial and segment information follows: ODYSSEY RE HOLDINGS CORP. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)       December 31, December 31, 2007 2006 (unaudited) ASSETS Investments and cash: Fixed income securities, available for sale, at fair value (amortized cost $4,370,999 and $3,547,656, respectively) $ 4,402,260 $ 3,501,580 Fixed income securities, held as trading securities, at fair value (amortized cost $232,505) 243,164 - Redeemable preferred stock, at fair value (cost $2,086) 1,187 - Equity securities: Common stocks, at fair value (cost $805,707 and $576,212, respectively) 885,751 636,749 Common stocks, at equity 157,450 245,416 Short-term investments, at fair value 483,757 119,403 Cash and cash equivalents 897,963 2,061,796 Cash and cash equivalents held as collateral 295,225 365,033 Other invested assets   412,687     136,111   Total investments and cash 7,779,444 7,066,088 Accrued investment income 70,597 50,930 Premiums receivable 470,227 475,453 Reinsurance recoverable on paid losses 83,123 59,768 Reinsurance recoverable on unpaid losses 643,509 739,019 Prepaid reinsurance premiums 60,528 50,486 Funds held by reinsureds 151,997 154,573 Deferred acquisition costs 150,800 149,886 Deferred federal and foreign income taxes 32,308 184,975 Other assets   90,776     90,589   Total assets $ 9,533,309   $ 9,021,767     LIABILITIES Unpaid losses and loss adjustment expenses $ 5,119,085 $ 5,142,159 Unearned premiums 724,272 741,328 Reinsurance balances payable 98,864 102,711 Funds held under reinsurance contracts 84,696 96,854 Debt obligations 489,154 512,504 Current federal and foreign income taxes payable 45,923 68,055 Obligation to return borrowed securities 60,675 119,798 Other liabilities   255,940     154,779   Total liabilities   6,878,609     6,938,188     SHAREHOLDERS’ EQUITY Preferred shares, $0.01 par value; 200,000,000 shares authorized; 2,000,000 Series A shares and 2,000,000 Series B shares issued and outstanding 40 40 Common shares, $0.01 par value; 500,000,000 shares authorized; 69,684,726 and 71,218,616 shares issued, respectively 697 712 Additional paid-in capital 958,544 1,029,349 Treasury shares, at cost (163,232 and 77,668 shares, respectively) (6,250 ) (2,528 ) Accumulated other comprehensive income, net of deferred income taxes 85,023 25,329 Retained earnings   1,616,646     1,030,677   Total shareholders’ equity   2,654,700     2,083,579   Total liabilities and shareholders’ equity $ 9,533,309   $ 9,021,767   ODYSSEY RE HOLDINGS CORP. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)           Years Ended December 31, Three Months Ended December 31, 2007 2006 2007 2006 (unaudited) (unaudited) (unaudited) REVENUES Gross premiums written $ 2,282,682 $ 2,335,742 $ 525,335 $ 538,900 Ceded premiums written   193,239     174,807     42,972     30,249   Net premiums written 2,089,443 2,160,935 482,363 508,651 Decrease in unearned premiums   31,094     64,891     36,544     33,744   Net premiums earned 2,120,537 $ 2,225,826 518,907 $ 542,395 Net investment income 329,422 487,119 76,952 83,972 Net realized investment gains   539,136     189,129     282,350     28,256     Total revenues   2,989,095     2,902,074     878,209     654,623     EXPENSES Losses and loss adjustment expenses 1,408,364 1,484,197 327,500 361,907 Acquisition costs 437,257 464,148 107,980 109,621 Other underwriting expenses 178,555 153,476 50,627 42,667 Other expense, net 14,006 21,120 2,696 4,709 Interest expense 37,665 37,515 9,379 9,417 Loss on early extinguishment of debt   -     2,403     -     -   Total expenses   2,075,847     2,162,859     498,182     528,321     Income before income taxes   913,248     739,215     380,027     126,302     Federal and foreign income tax provision (benefit): Current 201,803 144,967 67,994 (33,824 ) Deferred   115,870     86,342     66,952     74,259   Total federal and foreign income tax provision   317,673     231,309     134,946     40,435       Net income 595,575 507,906 245,081 85,867   Preferred dividends   (8,345 )   (8,257 )   (2,070 )   (2,094 )   NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 587,230   $ 499,649   $ 243,011   $ 83,773     BASIC Weighted average common shares outstanding   70,443,600     68,975,743     69,221,744     70,421,869   Basic earnings per common share $ 8.34   $ 7.24   $ 3.51   $ 1.19     DILUTED Weighted average common shares outstanding   71,387,255     72,299,050     69,734,046     72,176,628   Diluted earnings per common share $ 8.23   $ 6.93   $ 3.48   $ 1.16     DIVIDENDS Dividends declared per common share $ 0.25   $ 0.13   $ 0.06   $ 0.03     COMPREHENSIVE INCOME Net income $ 595,575 $ 507,906 $ 245,081 $ 85,867 Other comprehensive income (loss), net of tax   76,190     (83,474 )   31,821     (7,552 )   Comprehensive income $ 671,765   $ 424,432   $ 276,902   $ 78,315   ODYSSEY RE HOLDINGS CORP. BUSINESS SEGMENTS (UNAUDITED) (IN THOUSANDS)       Years Ended Three Months Ended December 31, % December 31, % 2007 2006 Change 2007 2006 Change   GROSS PREMIUMS WRITTEN Americas $ 834,921 $ 924,213 (9.7) % $ 191,960 $ 207,576 (7.5) % EuroAsia 565,608 561,232 0.8 134,993 130,960 3.1 London Market 349,874 340,653 2.7 86,167 68,327 26.1 U.S. Insurance   532,279   509,644 4.4   112,215   132,037 (15.0)   Total $ 2,282,682 $ 2,335,742 (2.3) % $ 525,335 $ 538,900 (2.5) %   NET PREMIUMS WRITTEN Americas $ 817,849 $ 897,819 (8.9) % $ 188,810 $ 206,102 (8.4) % EuroAsia 542,058 542,454 (0.1) 131,724 127,453 3.4 London Market 305,601 312,524 (2.2) 71,943 66,505 8.2 U.S. Insurance   423,935   408,138 3.9   89,886   108,591 (17.2)   Total $ 2,089,443 $ 2,160,935 (3.3) % $ 482,363 $ 508,651 (5.2) %   NET PREMIUMS EARNED Americas $ 841,869 $ 975,039 (13.7) % $ 208,270 $ 237,280 (12.2) % EuroAsia 543,141 531,378 2.2 131,877 124,645 5.8 London Market 306,799 333,508 (8.0) 75,156 81,613 (7.9) U.S. Insurance   428,728   385,901 11.1   103,604   98,857 4.8   Total $ 2,120,537 $ 2,225,826 (4.7) % $ 518,907 $ 542,395 (4.3) %     Years Ended Percen- tage Three Months Ended Percen- tage December 31, Point December 31, Point 2007 2006 Change 2007 2006 Change LOSSES AND LOSS ADJUSTMENT EXPENSES RATIO Americas 78.6 % 78.5 % 0.1 99.2 % 86.5 % 12.7 EuroAsia 64.2 60.3 3.9 53.2 58.9 (5.7) London Market 49.0 54.7 (5.7) 12.0 39.2 (27.2) U.S. Insurance 57.8 55.8 2.0 40.4 51.8 (11.4)   Total 66.4 % 66.7 % (0.3) 63.1 % 66.7 % (3.6)   ACQUISITION COSTS AND OTHER UNDERWRITING EXPENSES RATIO Americas 32.1 % 30.8 % 1.3 35.7 % 30.1 % 5.6 EuroAsia 27.5 25.3 2.2 28.3 26.0 2.3 London Market 26.3 25.8 0.5 26.5 26.3 0.2 U.S. Insurance 26.8 25.3 1.5 26.0 27.3 (1.3)   Total 29.1 % 27.7 % 1.4 30.6 % 28.1 % 2.5   COMBINED RATIO Americas 110.7 % 109.3 % 1.4 134.9 % 116.6 % 18.3 EuroAsia 91.7 85.6 6.1 81.5 84.9 (3.4) London Market 75.3 80.5 (5.2) 38.5 65.5 (27.0) U.S. Insurance 84.6 81.1 3.5 66.4 79.1 (12.7)   Total 95.5 % 94.4 % 1.1 93.7 % 94.8 % (1.1)