PRIMUS

CERTAIN IMPORTANT U.S. TAX CONSIDERATIONS FOR SHAREHOLDERS AND INVESTORS

There are complex U.S. federal income and other tax considerations for those who seek to acquire, hold, or dispose of our common shares. Shareholders and prospective investors are urged to consult their own tax advisors concerning their particular circumstances and the tax consequences to them of acquiring, owning, and disposing of our common shares, including the tax consequences resulting from our expected treatment as a passive foreign investment company (a "PFIC") for U.S. federal income tax purposes.

In particular, special U.S. federal income tax rules apply to shareholders of a foreign corporation, such as Primus Guaranty, Ltd. ("Primus Guaranty" or the “Company”)1, if it is a PFIC. Based on the operations, assets, and income of our entire group, and in particular the operations, assets, and income of Primus Financial Products, LLC ("Primus Financial"), our subsidiary which has sold credit swaps, we believe that Primus Guaranty is a PFIC.

The consequences to U.S. taxpayers of investing in a PFIC include the following: (1) if a shareholder has elected to have the PFIC treated as a "qualifying electing fund" (a "QEF Election") under the U.S. Internal Revenue Code of 1986, as amended, the shareholder will have to include annually in its taxable income an amount reflecting an allocable share of the income of the PFIC, regardless of whether distributions or dividends are paid by the PFIC to the shareholder; (2) if, rather than a QEF Election, a shareholder has made a mark-to-market election with respect to the PFIC, the shareholder will have to include in its taxable income an amount reflecting any increases in the price of the PFIC’s common shares, again regardless of whether any dividends are paid to the shareholder; and (3) if a shareholder previously has not made either a QEF Election or a mark-to-market election with respect to the PFIC, the shareholder may incur significant additional U.S. federal income taxes with respect to distributions on, or gain from, the sale or other disposition of, its holdings in the PFIC.

Our shareholders may not make the mark-to-market election with respect to our common shares effective as of December 20, 2011, the date the common shares were no longer traded on a "qualified exchange" as a result of the de-listing of the common shares from the New York Stock Exchange. Shareholders who previously had made a mark-to-market election are advised to consult with their tax advisors as to the possibility and/or advisability of making a QEF Election in respect of their holdings of Primus Guaranty common shares in respect of their holdings.

For those shareholders who have made a QEF Election with respect to Primus Guaranty, we intend to comply with all record-keeping, reporting, and other requirements so that those shareholders may maintain that Election. In this regard, shareholders may contact us for the PFIC annual information statement, which will be needed to complete the annual QEF Election filings as part of their U.S. income tax returns. Shareholders also may obtain this information on our Web site at www.primusguaranty.com.

If a U.S. taxpaying shareholder makes a QEF Election with respect to Primus Guaranty, in the absence of credit losses suffered by Primus Financial on its credit swap portfolio, the shareholder’s allocable share of income from Primus Guaranty has been, since tax year 2012, significantly greater than in prior tax years. The Company’s PFIC Annual Information Statement for the tax year ended December 31, 2013 is available below. It is estimated that a U.S. taxpaying shareholder’s allocable share of income from Primus Guaranty will be approximately $3.00 per share for the 2014 tax year. This potential outcome reflects, among other factors, reductions in our operating expenses, the potential timing of recognition of items of taxable income and loss relating to the Primus Financial’s credit swap portfolio as it amortizes, and the reduction in the number of our outstanding common shares. As a result, a U.S. taxpaying shareholder that makes a QEF Election with respect to Primus Guaranty may recognize significant taxable income. This income inclusion will increase the shareholder’s tax basis in its Primus Guaranty common shares, which would be taken into account in determining the shareholder’s gain (or loss) on a subsequent sale of our common shares; there are limitations, however, on the use of any capital losses that might result from such a sale of our common shares.

The Company’s Board of Directors has adopted a Plan of Liquidation for U.S. Federal Income Tax Purposes (the “Plan of Liquidation”). The Company believes that distributions made pursuant to the Plan of Liquidation will be treated as a return of capital to a shareholder, to the extent of the shareholder’s basis (as adjusted by the income inclusion described above) in its common shares, and thereafter as a capital gain, for U.S. federal income tax purposes.

Shareholders who are U.S. taxpayers also are reminded that a completed IRS Form 8621 must be filed along with their U.S. federal income tax return annually with respect to their ownership interest in the Company. Additionally, shareholders who are resident in the United States and who own 1 percent or more of the Company’s common shares may have additional tax reporting to the U.S. Internal Revenue Service (the “IRS”).

Another consideration for investors and shareholders is our treatment of the credit swaps sold by Primus Financial for U.S. federal income tax purposes. As we have previously disclosed, we have treated these credit swaps as the sale of options for these purposes. Accordingly, Primus Financial recognizes income or loss only upon default, termination, or expiration of the credit swaps. There is no definitive authority in support of the treatment by Primus Financial of its credit swaps as options for U.S. federal income tax purposes, and we have not sought, and we do not intend to seek, a ruling from the IRS on this point. The U.S. Department of the Treasury has been studying the treatment of derivative transactions generally, including credit swaps, and on September 16, 2011 issued proposed regulations for comment relating to the taxation of credit swaps. The proposed regulations indicate that credit swaps should be taxed as "notional principal contracts" which requires a different tax treatment than for options. The proposed regulations have not been finalized and are expected to apply to credit swaps entered into on or after the date final regulations are adopted. Furthermore, because the option treatment adopted by Primus Financial for the tax treatment of credit swaps differs from the treatment used for financial accounting purposes, the amount of taxable income that a shareholder would include in a particular year as a result of a QEF Election may differ significantly from, and in particular years may be significantly greater than, the amount the shareholder would have included were taxable income calculated in the same manner used for financial accounting purposes.

The foregoing is not, and is not meant to be, a summary of all the relevant tax considerations associated with our common shares, nor is it tax advice. It should not be relied upon in making an investment decision or taking a tax position with respect to the acquisition, holding, or disposition of our common shares. Shareholders and prospective investors again are urged to consult their own tax advisors concerning their particular circumstances and the U.S. federal, state, local, and non-U.S. tax consequences to them of acquiring, owning, and disposing of our common shares.

February 2013 (updated February 2014)

1 Primus Guaranty, Ltd. is organized under the laws of Bermuda.

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The PFIC Annual Information Statements for Primus Guaranty and certain of its relevant affiliates for the tax years ended December 31, 2004 through 2014 are available through the links below.