Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion and analysis of our financial condition and results of operations for the three and six months ended June 30, 2012 and 2011. This discussion and analysis should be read in conjunction with the unaudited condensed consolidated financial statements and related notes contained in this Form 10-Q and the audited consolidated financial statements and related notes for the fiscal year ended December 31, 2011, as well as the discussions of critical accounting policies, contained in our Financial Statements in our 2011 Annual Report on Form 10-K filed with the United States Securities and Exchange Commission.

Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategy for our business and in "Outlook and Trends" below, includes forward-looking statements that involve risk and uncertainties. Please see the section captioned "Cautionary Statement Regarding Forward-Looking Statements" in this report and the "Risk Factors" in Item 1A of our 2011 Annual Report on Form 10-K for more information on factors that could cause actual results to differ materially from the results described in, or implied by, any forward-looking statements contained in this discussion and analysis.

Overview

We are a Bermuda holding company and write insurance and reinsurance business through our wholly-owned subsidiaries in Bermuda, the U.K. and the U.S.

Highlights of our results for the three and six months ended June 30, 2012 were:

• Diluted book value per share(1) of $40.01, increased by 7.4% over the end of the second quarter of 2011(2) and by 3.7% from the end of the first quarter of 2012(2);

• Combined ratio of 87.3% for the second quarter of 2012 compared with a combined ratio of 105.3% for the second quarter of 2011;

• Combined ratio of 90.4% for the first half of 2012 compared to 126.8% for the first half of 2011 which was adversely affected by material catastrophe losses;

• Net income per diluted share of $1.03 for the quarter ended June 30, 2012 compared with net income of $0.05 in the same quarter last year(2);

• Gross written premium of $666.6 million for the second quarter of 2012, an increase of 14.5% from the second quarter of 2011, principally due to growth in our insurance segment;

• Prior year net reserve releases of $28.6 million for the second quarter of 2012 compared with $32.8 million of net reserve releases in the second quarter of 2011; and

• Annualized net income return on average equity(2) of 10.8% for the second quarter of 2012 compared with 0.4% for the second quarter of 2011 and annualized net income return on equity of 10.6% for the first half of 2012 compared to an annualized net loss of 11.2% for the second half of 2011.

Shareholders' equity and financial leverage. Total shareholders' equity increased by $224.2(2) million to $3,435.1 million for the three months ended June 30, 2012. The most significant movements were:

• a $64.3 million increase in retained earnings for the period;

• an increase in net unrealized gains on investments, net of taxes, of $37.0 million;

• proceeds of $154.5 million from the issuance of the Preference Shares; and

• repurchase of 891,335 ordinary shares for $25.0 million in cash under our open market buyback program.

(1) Diluted book value per ordinary share is based on total shareholders' equity less preference shares (liquidation preference less issue expenses), divided by the number of diluted ordinary shares at the end of the period.

(2) In 2012, the Company adopted the provision of ASU 2010-26, "Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts." Under the standard, the Company is required to expense the proportion of its general and administrative deferred acquisition costs not directly related to successful business acquisition. For more information on the impact of ASU 2010-26, please refer to Note 2 of our unaudited financial statements.

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Shareholders' equity and ordinary shares in issue as at June 30, 2012 and December 31, 2011 were: