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## ODYSSEY RE HOLDINGS CORP. 

## NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued 

## 5. RETROCESSIONS 

The Company utilizes retrocessional agreements principally to incr ease aggregate premium capacity, to reduce and spread the risk of loss on insurance and reinsurance underwritten and to limit its exposure with respect to multiple claims arising from a single occurrence. There is a contingent liability with respect to r einsurance, which would become an ultimate liability of the Company in the event that such reinsuring companies ar unable, at some later date, to meet their obligations under the reinsurance agreements in force. Reinsurance recoverables are r ecorded as assets, based on the Company’s evaluation of the retrocessionaires’ ability to meet their obligations under the retr ocession agreements. Premiums written and earned are stated net of reinsurance ceded in the consolidated statements of operations. Direct, reinsurance assumed, reinsurance ceded and net amounts (in thousands and inclusive of amounts in note 6) for these items follow: 

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The total amount of reinsurance recoverable on paid and unpaid losses as of December 31, 2004 was $1,182.0 million and $1,142.1 million as of December 31, 2003. The Company is the beneficiary of letters of credit and trust agreements, and the Company withholds funds from certain reinsurers to secur these balances. The amount of this security as of December 31, 2004 was $619.5 million, and was $599.3 million as of December 31, 2003. The Company has established a reserve for potentially uncollectible reinsurance recoverables. The reserve is based upon an evaluation of each retrocessionaire and the Company’s assessment as to the collectibility of individual balances. The r eserve as of December 31, 2004 and 2003 was $33.0 million and $28.5 million, respectively, and has been netted against reinsurance r ecoverables on loss payments. The Company has also established a reserve for potentially uncollectible assumed r einsurance balances of $5.9 million and $5.8 million as of December 31, 2004 and 2003, respectively, which has been netted against r einsurance balances receivable. 

The Company markets its reinsurance products worldwide primarily through reinsurance brokers as well as directly to its customers. The Company’s five largest reinsurance brokerage firms accounted for an aggregate of approximately 56% of reinsurance gross premiums written for the year ended December 31, 2004. Loss of all or a substantial portion of the business provided by these brokers could have a material adverse effect on the Company. 

Clearwater is the beneficiary of a stop loss reinsurance agreement with nSpire Re Limited (“nSpire Re”), a wholly owned subsidiary of Fairfax (the “1995 Stop Loss Agreement”). Pursuant to the agreement, Clearwater ceded premium of $60.5 million in 1995 for an aggregate limit of $175.0 million in excess of its December 31, 1995 reserves for unpaid losses and allocated loss adjustment expenses and potentially uncollectible reinsurance r ecoverables. Ceded losses and loss adjustment expenses incurred for the years ended December 31, 2004, 2003 and 2002 of $17.5 million in each year related to the stop loss agreement ar included in the accompanying statements of operations and note 6. Reinsurance recoverables on paid and unpaid losses related to this agreement of $157.5 million and $140.0 million as of December 31, 2004 and 2003, respectively, are reflected in the accompanying balance sheets and are secured by letters of cr edit or cash. 

