Odyssey Re restates financial results due to finite review

Odyssey Re Holdings Corp. (NYSE:ORH) is set to restate its financial results for the years 2001 through 2004 as well as the first nine months of 2005 in response to a review of their contracts with finite characteristics. The purpose of the restatement, according to OdysseyRe, is to correct the accounting treatment for certain contract features of seven ceded reinsurance contracts and the accounting treatment of ceding commissions relating to three ceded aggregate excess of loss contracts. Based in Stamford, Conn., OdysseyRe purchased all of the ceded reinsurance contracts between 1998 and 2004. The Company’s re-evaluation found that certain features relating to the seven ceded contracts had the effect of allowing the contracts to operate as multi-year, retrospectively-rated contracts, which resulted in timing differences as to how premiums and losses were recognized over the coverage period. With respect to the three ceded aggregate excess of loss contracts, it was determined that due to the deferred nature of the ceding commissions to be received by OdysseyRe, the amounts should be reflected at their present value rather than the nominal value previously recorded by the Company. The restatement will most heavily impact the Company’s 2001 figures. Published results for 2001 indicated a pretax loss of $15.6 million but the restatement will cause the figure to reduce by about $30 million, after tax. OdysseyRe says the total cumulative impact of the restatement through the third quarter of 2005 will decrease stockholders’ equity by approximately $8.4 million after-tax, all of which relates to the accounting of the deferred ceding commissions, which will be earned in future periods. No cumulative effect on stockholders’ equity through the third quarter of 2005 for the restatement relating to the accounting for the seven multi-year retrospectively rated reinsurance contracts is expected to result, according to OdysseyRe. The reinsurer estimates that, as a result of the restatement, its net income for 2004 will be increased by $16.1 million, with $6.4 million attributable to the fourth quarter of 2004, and will be reduced by $2.4 million for the first nine months of 2005. OdysseyRe says it expects to report a loss of $101.8 million for 2005, and says its restated figure for 2004 will represent a profit of $203 million.OdysseyRe will finalize its restatement in connection with the filing of its 2005 Annual Report on Form 10-K, which is expected to occur by March 15, 2006.