10-K405

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001
Commission File Number 000-2348

ESG RE LIMITED
(Exact name of registrant as specified in its charter)

Bermuda	Not Applicable
(State or other jurisdiction of Incorporation of organization)	(I.R.S. Employer Identification No.)

16 Church Street
Hamilton HM11, Bermuda
(Address of executive offices, zip code)

(441) 295-2185
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Shares, $1.00 par value

Name of each exchange on which registered
Nasdaq National Market

Securities registered pursuant to Section 12(g) of the Act: None

        Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes: ý    No o

        The aggregate market value of the voting stock held by non-affiliates of the Registrant, as of March 15, 2002, was $33,365,143 based on the closing price of $3.85 on that date.

        The number of the Registrant's common shares (par value $1.00 per share) outstanding as of March 15, 2002 was 11,831,818.

Documents Incorporated by Reference:

        Portions of the Definitive Proxy Statement in connection with the 2002 Annual General Meeting of Shareholders which will be filed with the Securities and Exchange Commission not later than 120 days after the Registrant's fiscal year ended December 31, 2001, pursuant to Regulation 14A are incorporated by reference in Part III of this Form 10-K.

TABLE OF CONTENTS

Item		Page
PART I
Item 1.	Business	3
Item 2.	Properties	14
Item 3.	Legal Proceedings	15
Item 4.	Submission of Matters to a Vote of Security Holders	15
PART II
Item 5.	Market for the Registrant's Common Equity and Related Stockholder Matters	16
Item 6.	Selected Financial Data	16
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	41
Item 8.	Financial Statements and Supplementary Data	43
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	67
PART III
Item 10.	Directors and Executive Officers of the Registrant	68
Item 11.	Executive Compensation	68
Item 12.	Security Ownership of Certain Beneficial Owners and Management	68
Item 13.	Certain Relationships and Related Transactions	68
PART IV
Item 14.	Exhibits, Financial Statement Schedules, and Reports on Form 8-K	69

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PART I.

        Unless the context requires otherwise, references in this Form 10-K to "ESG," "we," "us," "our" and "ours" mean ESG Re Limited and the subsidiaries through which it operates.

ITEM 1.    BUSINESS

General Development of ESG's Business

        We provide traditional reinsurance, insurance products and insurance product marketing and development services to insurers and financial institutions worldwide. We operate two complementary business segments, ESG Reinsurance and ESG Direct. Our larger segment, ESG Reinsurance, provides medical, personal accident, credit life, disability, and special risks reinsurance to insurers and selected reinsurers. The current focus of our reinsurance segment is reinsuring medical risks in the United States. ESG Direct is a smaller but growing segment of our business. Through ESG Direct, we provide direct marketing services, expertise in the development of reinsurance and insurance products, and supporting technology to financial institutions in Asia, Europe and Australia.

        Our principal executive and underwriting offices are located in Dublin, Ireland. Through our support center in Dublin, we provide centralized global support for underwriting, claims, systems and technology, finance and accounting, legal, human resources and policy administration.

        We were formed on August 21, 1997, as an exempted company limited by shares under the laws of Bermuda and completed an initial public offering of our stock in December 1997. Prior to 1997, our predecessor operated a reinsurance management business through European Specialty Group Holding AG, a German subsidiary.

ESG Reinsurance

Reinsurance Industry Overview

        Reinsurance is a form of insurance in which a reinsurance company, the reinsurer, agrees to indemnify another insurance company, the ceding company, against all or part of the liability underwritten by the ceding company under one or more insurance contracts. Reinsurance can provide a ceding company with several major benefits, including:

•

a reduction in net liability on individual risks,



•

protection against catastrophic losses,



•

reduction of financial leverage, and



•

stabilization of operating results.

        Reinsurance may also provide a ceding company with the ability to increase its underwriting capacity by allowing the insurer to accept larger risks and write more business than would be possible without a corresponding increase in its capital and surplus position. Reinsurance does not, however, discharge the ceding company from its liability to policyholders.

        Reinsurers indemnify ceding companies on either a pro rata basis or an excess of loss basis. Under pro rata reinsurance, the ceding company and the reinsurer share the premiums as well as the losses and expenses in an agreed proportion. Under excess of loss reinsurance, the reinsurer indemnifies the ceding company against all or a specified portion of losses in excess of a specified dollar amount, known as the ceding company's "retention" or "attachment point," which is generally subject to a negotiated reinsurance contract limit.

        Premiums payable to the reinsurer by the ceding company for excess of loss coverage are not directly proportional to the premiums the ceding company receives because the reinsurer does not

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assume a proportionate risk. Under pro rata reinsurance, the reinsurer generally pays the ceding company a commission. This ceding company commission generally is based on the ceding company's costs of acquiring the business being reinsured, including commissions, premium taxes, assessments and administrative expenses. There is normally no ceding company commission on excess of loss reinsurance.

        Reinsurers may purchase reinsurance to cover their own risk exposure. Reinsurance of a reinsurer's business is called a retrocession or "outward risk" reinsurance. Reinsurance companies cede risks under retrocessional agreements to other reinsurers, known as retrocessionaires, for reasons similar to those that cause insurers to purchase reinsurance: to reduce net liability on individual risks, protect against catastrophic losses, obtain underwriting capacity, reduce financial leverage and stabilize operating results.

        Reinsurance can be written through professional reinsurance brokers or directly with ceding companies. From a ceding company's perspective, both the broker market and the direct market have advantages and disadvantages. A ceding company's decision to select one channel market over the other will be influenced by its perception of such advantages and disadvantages relative to the reinsurance coverage being placed.

ESG Reinsurance Operations

        The major lines of business of our reinsurance operations are:

•

medical expense,



•

personal accident and disability,



•

credit, and



•

life.

Medical Expense

        Medical expense reinsurance consists primarily of reinsuring medical expense reimbursement plans, specific and aggregate, short-term travel, defined illnesses and dread diseases, as well as medical expense add-on coverages and top-up benefits. To properly evaluate these reinsurance risks, we rely on our detailed knowledge of the underlying insurance product, active risk management and actuarial rating manuals.

        We encourage our ceding clients through regular client meetings and audits to employ stringent cost control and loss prevention measures, such as managing a patient's choice of doctors and hospital networks, reducing benefit utilization and claims frequency.

        Our largest medical reinsurance operation, ESG Re North America Limited, is based in Toronto, Ontario, Canada. Our Toronto office is responsible for generating reinsurance business in the U.S. medical market. We have committed significant resources and capital to this operation to take advantage of current opportunities in the U.S. medical market. In order to reduce the earnings volatility that may result from such a concentrated investment, we have co-reinsured 50% of our U.S. medical portfolio with another reinsurer. This co-reinsurance arrangement was in effect during 2001, and we expect it to be in effect throughout 2002. In addition, we are pursuing opportunities to create partnerships with leading insurers to develop and market a critical illness product in the United States.

Personal Accident and Disability

        Our personal accident reinsurance covers:

•

accidental death,

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•

dismemberment,



•

permanent, temporary, partial or total disability,



•

loss of occupational license, and



•

occupational accident.

        By acquiring direct knowledge of the underlying business through personal relationships with cedants and producers in the country of origin, we attempt to differentiate our products and services from other reinsurers.

Credit Life

        We reinsure the risk arising from defaults on credit card repayments or loan agreements following death, accident or involuntary unemployment. We have considerable expertise in the production, underwriting and administering this class of business in Portugal, which is the primary geographic focus of our credit reinsurance business. We also conduct credit life operations elsewhere in Europe and Australia.

Life

        We write a small book of both term and sub-standard life reinsurance using a consultant actuary to ensure sound underwriting practices.

Primary Insurance Operations Under ESG Reinsurance

        In addition to ESG's reinsurance operations, we have two subsidiaries that write primary insurance policies as well as, to a lesser extent, reinsurance policies. One of these companies is based in the former Soviet State of Georgia, and the other in Ireland. The Georgian company, IMEDI L Insurance Company Limited (IMEDI), sells property and casualty insurance to individuals and companies seeking to insure themselves against these risks. We have recently made changes to our underwriting policies at IMEDI to limit our underwriting exposure. The Irish company, Accent Europe Insurance Company, Ltd., offers accident and health insurance products.

ESG Direct

        Through ESG Direct, we offer marketing, product development, and technology expertise from a team of experienced professionals in Asia, Europe and Australia. In 2001, we initiated a direct marketing operation in Europe to expand our European operations. We also opened a Representative office in Portugal to develop bancassurance business in that market. Bancassurance is a form of insurance in which a bank or other lender sells insurance to a customer to protect against risk of default due to death, accident, involuntary unemployment or other sudden event.

        ESG Direct complements our core reinsurance business by providing our customers with product development and direct marketing strategies, as well as the technological infrastructure necessary to run an expanding insurance business. For most of ESG Direct's customers, we market insurance products on behalf of the customer, and the customer purchases reinsurance from us to cover its insurance risks on the insurance product once it is sold. The bancassurance component of our ESG Direct business segment focuses on assisting banks, lenders, finance houses, credit unions, credit card issuers and other financial institutions in the marketing of their credit insurance products. We will continue to invest in and expand on these direct marketing and bancassurance operations in 2002.

        We also offer assistance to ceding companies and other partners in the areas of underwriting, actuarial systems, product design, and marketing. We hope to expand this business by capitalizing on

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our experience as a reinsurer and a primary insurer to sell these customers packages of services that will improve the quality of insurance products they are able to market.

Gross Premiums for Major Lines of Business

        Our gross premiums written in 2001 totaled approximately $134.4 million compared to approximately $245.0 million in 2000 and approximately $333.0 million in 1999. The breakdown of gross premiums written for the years ended December 31, 2001, 2000 and 1999 by major lines of business was as follows:

	2001		2000		1999
Medical Expense	77.7	%	71.0	%	75.7	%
Personal Accident and Disability	20.5	%	22.0	%	19.9	%
Credit Life	1.2	%	1.4	%	0.6	%
Life	(1.0	)%	3.7	%	2.1	%
Other	1.6	%	1.9	%	1.7	%
Total	100.0	%	100.0	%	100.0	%

        For a breakdown of our products by business segment, refer to the product mix table under "Management's Discussion and Analysis of Financial Conditions and Results of Operations."

Business by Geographic Area

        We conduct our business in four principal geographic areas defined on the basis of where the underlying risk is located:

•

Western Europe



•

North America



•

Latin America



•

Other (primarily Asia)

        For a more detailed discussion of the geographic areas where we conduct our business, see Note 16 to our Consolidated Financial Statements.

Discontinued Operations

        Effective as of June 30, 2000, as described below, we divested our health care operations in accordance with a plan approved by our Board of Directors and now report the results from our former health care segment as discontinued operations. In 2000, we restated prior periods to reflect the status of this segment as a discontinued operation. For a more complete discussion of our discontinued health care operations, see "Management's Discussion and Analysis of Operations" and Note 11 to our Consolidated Financial Statements.

Market Growth

        Our long-term business strategy is to achieve underwriting profits and provide value to our clients by expanding our core reinsurance and direct marketing businesses on a selective basis, and increasing the quality of our underwriting. Although we have scaled back our traditional reinsurance business in less profitable areas, the primary area where we continue to offer reinsurance, the U.S. medical market, still provides growth opportunities because of our expertise, experience and existing relationships. We are well positioned to benefit from ESG Direct's growth, which we believe will lead to new reinsurance partnerships with providers of bancassurance, life, and accident insurance.

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        We intend to develop those reinsurance products and services necessary to meet the demands of an evolving insurance market. Where insurers develop new types of insurance, or where new types of institutions enter the insurance market, we will offer them our reinsurance services if we believe that opportunities for profit exist. We believe that our flexibility will enable us to take advantage of new opportunities if and when they present themselves.

Underwriting

        In early 2000, we centralized our underwriting operations in Dublin, Ireland. We employ a disciplined and centralized approach to underwriting, designed to maximize our underwriting profitability. Our emphasis is now on the profitability of risks rather than premium volume and, accordingly, our gross premiums written declined from $245.0 million in 2000 to $134.4 million in 2001. We concentrate our resources in those areas and on those products which indicate the greatest potential for profit. We have not renewed contracts with ceding companies when underwriting results were not in line with our expectations.

        We protect our portfolio by effecting non-proportional reinsurance coverage in various layers to defend against large individual and aggregate losses and risks of known and unknown concentration. We intend to continue to effect proportional coverage on underwritten risks that might have fluctuating results.

        As part of our underwriting process, we focus on the experience and reputation of the proposed ceding company, the likelihood of establishing a long-term relationship, the geographic area in which the ceding company conducts business and the ceding company's market share. We also review historical loss data in order to compare the ceding company's historical loss experience to industry averages, as well as the perceived financial strength of the ceding company. In addition, when appropriate, we conduct underwriting and claim audits at the offices of ceding companies to ensure that they operate within our guidelines. Underwriting audits focus on the quality of the underwriting staff, the selection and pricing of risks and the capability of monitoring price levels over time. Claim audits are performed in order to evaluate the client's claims handling abilities and practices.

        We have developed corporate underwriting manuals, guidelines and procedures which govern all of our underwriting evaluations, including our North American, Latin American, European, Asian and other international operations, subject to further refinement in the divisional underwriting guidelines due to applicable local political, economic and other factors. We have structured our reinsurance underwriting operations according to business lines and geographic regions. Specific underwriters in Ireland are responsible for underwriting the business according to internal guidelines and procedural and underwriting manuals.

        Together with co-reinsurers, we provide the following gross underwriting capacities for 2002:

Medical Expense	$5 million per person per annum
Personal Accident and Disability	$250,000 any one person and $5 million known accumulation
Credit Life	$1 million any one person

        Our co-reinsurance agreement with ACE Capital Re Overseas Limited (ACE) allows us to share risks of medical expense and personal accident reinsurance coverage on a 50:50 basis. For risks attaching during 2001, we were not exposed to liabilities in excess of $250,000 per person, on medical expense business, and in excess of $1,000,000 per person, on personal accident business.

        We protect our risk exposures by placing a percentage of our business with high quality retrocessionaires. We adhere to strict guidelines about the retention levels that we hold, and the quality of retrocessionaires with which we retrocede business.

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Claims

        We operate an internal claims management, support and payment function. Unlike many other reinsurers, in many instances we are involved in claims administration with our ceding clients either directly or through third party claims administrators as soon as the insured makes a claim against its policy. Many of our reinsurance treaties contain either "claims control" or "claims co-operation" clauses that permit us to maintain this involvement from the first dollar level. Claims control clauses allow us to determine the extent to which our ceding client will pay an initial claim, and claims co-operation clauses allow us to make this determination jointly with the ceding client.

        We believe that this pro-active approach of claims management may improve the claims performance of our ceding clients, and thereby reduce our reinsurance claim costs, particularly in the area of medical reinsurance. In addition, our early involvement in the claims process allows us to be constantly aware of claims development so we can establish reserves earlier and more accurately.

        Our professional claims staff, based in Dublin, Ireland:

•

review initial loss reports and coverage issues,



•

monitor claims handling activities of ceding companies,



•

establish and adjusts proper case reserves, and



•

approve the payment of claims.

        In addition to claims assessment, processing and payment, our claims staff itself or through external auditors selectively conduct claims audits of both specific claims and overall claims procedures at the offices of selected ceding clients and their managing general underwriting agents. In most instances, insurance claims are handled by third-party claims service providers which have limited authority and are subject to oversight by our claims staff. These audits may include underwriting, claims, financial and systems audits. These audits test compliance and discover weaknesses in the reporting and reserving system of a ceding client and help the ceding client to arrive at a realistic and timely methodology to evaluate risk exposure. We rely upon our ability to effectively monitor the claims handling and claims reserving practices of our ceding clients in order to establish the proper reinsurance premiums for reinsurance agreements and to establish proper loss reserves.

Reserves

        We establish reserves for unpaid losses and loss expenses, which are estimates of future payments of reported and unreported claims for losses and related expenses, with respect to insured events that have occurred. The process of establishing reserves can be a complex and imprecise process, requiring the use of informed estimates and judgments. We sometimes revise our estimates and judgments when additional information becomes available, as new and improved methodologies are developed, or as current laws change. Any such revisions could result in future changes in estimates and losses, which would be reflected in our results of operations in the period in which the estimates are changed.

        We expect that, due to the short-tail nature of most of our lines of business, most claims under our treaties will generally become known and ascertainable within approximately 12 to 36 months from the date the insurance policy is written.

        In accordance with U.S. GAAP, we also maintain reserves for claims incurred but not reported. We establish these reserves to provide for future case reserves and loss payments on incurred claims that have not yet been reported to our ceding clients. In calculating these reserves, we use generally accepted reserving techniques that take into account quantitative loss experience data, together with, where appropriate, qualitative factors. These reserves are based on claim experience and are grouped both by class of business and by accident year. These reserves are adjusted to take into account

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additional factors that can be expected to affect our liability for claims over time, such as changes in the volume of business written, reinsurance contract terms and conditions, the mix of business, claims processing and inflation.

        Although we believe that adequate reserves have been made for the liability of losses and loss expenses based on all available information, there can be no assurance that ultimate losses will not differ significantly from the amounts provided.

Competition

        The reinsurance industry is highly competitive. Many factors affect competition in the reinsurance market, including the perceived overall financial strength of the reinsurer, the credit rating of the reinsurer, underwriting expertise, the jurisdictions where the reinsurer is licensed or otherwise authorized, premiums charged, other terms and conditions of the reinsurance business offered, contract terms and conditions, services offered, speed of claims payment, reputation and experience. We compete in the North American, Latin American, European and other international reinsurance markets. Our competitors include independent reinsurance companies, subsidiaries or affiliates of established international reinsurance companies, reinsurance departments of primary insurance companies and underwriting syndicates, including those at Lloyd's of London. Some of these competitors have greater financial resources than we do and have established long-term and continuing business relationships throughout the industry, which can be a significant competitive advantage. We also compete with providers of alternative forms of risk transfer such as investment banks, which offer capital market mechanisms such as the securitization of reinsurance risks, for primary insurers to transfer such risks directly to investors.

        Some of our competitors attempt to expand their market share by selling reinsurance products and services based solely on cost trends in that market. We do not intend to compete based solely on cost trends in a particular market if doing so requires us to price our products at unprofitable levels. If our competitors employ this strategy in any of the markets in which we operate, we could lose many or all of our customers and be unable to attract new customers in that market.

        Our competitors for ESG Reinsurance differ by market. In North America, our primary competitors are American Re Corporation and Everest Re Group, Ltd. In Latin America, our primary competitors are Latin America Re and Swiss Reinsurance Company. In Europe, our primary competitors are Munich Re, Swiss Re, Hanover Re and Lloyd's of London.

        ESG Direct also faces competition from companies that provide direct marketing, product development, and technology services comparable to ours. These companies can compete with ESG Direct on price and range of services. There are also companies that specialize in one or two of the services that ESG Direct offers who can compete with us on price and depth of knowledge in those areas.

        The primary competitors for ESG Direct are American International Group, Inc. and the ACE Group, both of which provide a full range of services similar to those that we offer. Other competitors of ESG Direct, including General Electric Capital, J.C. Penney and Remark, are experienced insurers and offer some of the same expertise we do in direct marketing and systems integration. Consulting and technology firms also compete with ESG Direct to provide financial institutions with technology and systems integration expertise.

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Significant Customers

        For the year ended December 31, 2001, one customer, the Companion Insurance Company, accounted for approximately 20% of the net premiums earned of our ESG Reinsurance segment. For the year ended December 31, 2000 no one customer accounted for more than 10% of Net premiums earned for the ESG Reinsurance segment.

        For the year ended December 31, 2001, National Financial Management, Metropolitan Life, Prudential Assurance and Cardif Life, accounted for approximately 17%, 29%, 18% and 29% respectively of the net premiums earned of our ESG Direct segment. For the year ended December 31, 2000 National Financial Management and Cardif Life, accounted for approximately 40% and 47% respectively of the net premiums earned of our ESG Direct segment

Employees

        As of March 15, 2002, we had 162 full time employees. None of these employees is represented by a labor union. We do not expect to add significant additional marketing or administrative staff. We believe that our employee relations are generally good.

Regulation

        Our principal reinsurance and insurance companies are:

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European Specialty Reinsurance (Bermuda) Limited—located in Bermuda



•

European Specialty Ruckversicherung AG—located in Germany



•

ESG Reinsurance Ireland Limited—located in Ireland



•

Accent Europe Insurance Company Limited—located in Ireland



•

IMEDI L International Insurance Company Limited—located in the former Soviet State of Georgia

Bermuda

        The Companies Act 1981 (as amended) and Related Regulations.    The Bermuda Companies Act of 1981 regulates the business of both ESG Re Limited and European Specialty Reinsurance (Bermuda) Limited.

        The Insurance Act 1978 (as amended) and Related Regulations.    The Bermuda Insurance Act 1978, as amended, and related regulations from time to time in force, regulate the business of ES Bermuda and provide that no person shall carry on an insurance business in or from within Bermuda unless registered as an insurer under the Insurance Act by the Bermuda Monetary Authority. The Bermuda Monetary Authority, in deciding whether to grant registration, has broad discretion to act as it thinks fit in the public interest. The Bermuda Monetary Authority is required by the Insurance Act to determine whether the applicant is a fit and proper body to be engaged in insurance business and, in particular, whether it has, or has available to it, adequate knowledge and expertise. In connection with registration, the Bermuda Monetary Authority may impose conditions relating to the writing of some types of insurance.

        An Insurance Advisory Committee and related sub-committees, which are appointed by the Bermuda Monetary Authority, advises the Authority on matters connected with the discharge of its functions and supervises and reviews the law and practice of insurance in Bermuda, including reviews of accounting and administrative procedures. In addition, the Insurance Advisory Committee may advise the Bermuda Monetary Authority on any matter relating to the development of the insurance industry in Bermuda.

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        The Insurance Act imposes solvency and liquidity standards and auditing and reporting requirements on Bermuda insurance companies and grants to the Bermuda Monetary Authority powers to supervise, investigate and intervene in the affairs of insurance companies. Significant aspects of the Bermuda insurance regulatory framework are set out below.

        Cancellation of Insurer's Registration.    The Bermuda Monetary Authority may cancel an insurer's registration on the grounds specified in the Insurance Act, including failure of the insurer to comply with its obligations under the Insurance Act or if, in the opinion of the Bermuda Monetary Authority, the insurer has not been carrying on business in accordance with sound insurance principles.

        Independent Approved Auditor.    Every registered insurer must appoint an independent auditor who will annually audit and report on the statutory financial statements and the statutory financial return of the insurer. The insurance company is required to file these financial statements and return annually with the Bermuda Monetary Authority. The auditor must be approved by the Bermuda Monetary Authority as the independent auditor of the insurer. The approved auditor may be the same person or firm which audits the insurer's financial statements and reports for presentation to its shareholders.

        Statutory Financial Statements.    An insurer must prepare annual statutory financial statements. The Insurance Act prescribes rules for the preparation and substance of these statutory financial statements. These financial statements include, in statutory form, a balance sheet, income statement, statement of capital and surplus and detailed notes. The insurer is required to give detailed information and analyses regarding premiums, claims, reinsurance and investments. The statutory financial statements are not prepared in accordance with U.S. GAAP and are distinct from the financial statements prepared for presentation to the insurer's shareholders under The Companies Act 1981 of Bermuda, which may be prepared in accordance with U.S. GAAP. Copies of ESG Bermuda's statutory financial statements must be filed annually together with its statutory financial return. The statutory financial statements must be maintained at the principal office of the insurer for a period of five years.

        Minimum Capital and Surplus.    Under the Insurance Act, ES Bermuda has been designated as a Class 3 composite insurer. The Insurance Act requires $1.25 million minimum capital and surplus for Class 3 composite insurers with a minimum paid up share capital of $370,000. Class 3 composite insurers are insurers that write both general business and long-term business.

        Minimum Solvency Margin.    The Insurance Act provides that the statutory assets of a Class 3 composite insurer writing general business must exceed its statutory liabilities by an amount equal to or greater than the applicable minimum solvency margin for that class. The applicable minimum solvency margin for a Class 3 composite insurer is 20% of net premiums written for the first $6 million of net premiums written plus 15% of net premiums written in excess of $6 million or 15% of the aggregate loss and loss expense provisions, whichever is greater. The minimum solvency margin for writers of long-term business is $250,000.

        Minimum Liquidity Ratio.    The Insurance Act provides a minimum liquidity ratio for insurers that write general business. An insurer engaged in general business is required to maintain the value of its relevant assets at not less than 75% of the amount of its relevant liabilities. Relevant assets include cash and time deposits, quoted investments, unquoted bonds and debentures, first liens on real estate, investment income due and accrued, accounts and premiums receivable, reinsurance balances receivable and funds held by ceding reinsurers. There are categories of assets which, unless specifically permitted by the Bermuda Monetary Authority, do not automatically qualify as relevant assets, such as unquoted equity securities, investments in and advances to affiliates, real estate and collateral loans. The relevant liabilities are total general business insurance reserves and total other liabilities less deferred income tax and sundry liabilities (by interpretation, those not specifically defined) and letters of credit and guarantees.

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        Statutory Financial Return.    A Class 3 composite insurer is required to file with the Bermuda Monetary Authority an annual statutory financial return at the same time as it files its statutory financial statements but, in any event, no later than four months from the insurer's financial year end, unless specifically extended. The annual statutory financial return includes, among other matters, a report of the approved independent auditor on the insurer's statutory financial statements, an annual actuarial opinion on loss reserves prepared by the approved loss reserve specialist, a declaration of the statutory ratios and a solvency certificate.

        Supervision, Investigation and Intervention.    The Bermuda Monetary Authority may appoint an inspector with extensive powers to investigate the affairs of an insurer if the Bermuda Monetary Authority believes that an investigation is required in the interest of the insurer's policyholders or persons who may become policyholders. In order to verify or supplement information otherwise provided to it, the Bermuda Monetary Authority may direct an insurer to produce documents or information relating to matters connected with the insurer's business.

        If it appears to the Bermuda Monetary Authority that there is a risk of the insurer becoming insolvent, the Bermuda Monetary Authority may direct the insurer not to:

•

take on any new insurance business;



•

not to vary any insurance contract if the effect would be to increase the insurer's liabilities;



•

not to make or realize specific investments;



•

to maintain in Bermuda or transfer to the custody of a Bermuda bank, certain assets; and



•

to limit its premium income.

        An insurer is required to maintain a principal office in Bermuda and to appoint and maintain a principal representative in Bermuda to oversee the insurer's business and to report to the Bermuda Monetary Authority and the Registrar of Companies in connection with specific events. Unless the insurance has obtained the Bermuda Monetary Authority's approval, an insurer may not terminate the appointment of its principal representative, and the principal representative may not cease to act as the insurer's principal representative, unless the insurer gives 30 days written notice to the Bermuda Monetary Authority of its intention to terminate the appointment of its principal representative. It is the principal representative's duty, within 30 days of his reaching the view that there is a likelihood of the insurer, for which he acts, becoming insolvent or its coming to his knowledge, or his having reason to believe, that an "event" has occurred, to make a written report to the Bermuda Monetary Authority describing all of the particulars of the case that are available to him. Examples of an "event" include failure by the insurer to comply substantially with a condition imposed upon the insurer by the Bermuda Monetary Authority relating to a solvency margin or a liquidity or other ratio.

        Dividends.    The Bermuda Companies Act 1981 allows dividend payments when there are reasonable grounds for believing that an insurer would be able to pay its debts as they fall due after payment of a dividend, and the realizable value of the insurer's assets would exceed the aggregate value of its liabilities and its issued share capital and premium accounts. The Bermuda Insurance Act 1978 requires ES Bermuda to meet the minimum solvency margin and a minimum liquidity ratio before declaring a dividend.

        Reduction of Statutory Capital.    Approval is needed from the Bermuda Monetary Authority for any reduction in total statutory capital of an insurance company of 15% or more. Applicants are required to show that the proposed reduction of capital will not cause ES Bermuda to fail to meet applicable statutory margin requirements in Bermuda.

        Compliance.    We are in compliance with all applicable Bermudan statutes and regulations.

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Germany

        The German regulatory framework for the insurance industry is provided by the Insurance Supervisory Authority Law (Versicherungsaufsichtsgesetz, VAG). The supervision of all insurance companies domiciled in Germany—except those which function as providers of the Social Security Insurance—is the responsibility of the German Insurance Supervisory Authority (Bundesaufsichtramt fur das Versicherungawesen, BAV). The BAV is a supreme Federal Authority which is supervised by the Federal Ministry of Finance.

        The regulation of reinsurance has been largely liberalized. Consequently, except as set forth below, there are no detailed regulations for reinsurers under the law of the European Union or Germany.

        An insurance company engaged exclusively in the reinsurance business requires no license from the BAV. Reinsurance companies must make a summary filing with the BAV, setting forth the domicile and corporate form of the reinsurance company and the members of the executive and supervisory boards. The BAV encourages reinsurers to submit the names of the company's shareholders with its filing, and also to include the qualification of the members of the executive and supervisory boards. The submission of a business plan is not necessary.

        The applicability of the VAG is restricted to:

•

accounting and auditing procedures (§§ 55-59 VAG);



•

information and examination rights of the BAV (§ 83 VAG);



•

the provision on the effect of legal remedies (§ 89a);



•

the provision on how to enforce the BAV's powers (§ 93);



•

the provision on fees, publications and statistical data (§§ 101-103);



•

the criminal and administrative penalty provision regarding

the false report by auditors (§ 137)

the breach of secrecy (§ 138) and

•

the concluding provision on the reporting requirements to the BAV (§ 150)

Although many provisions of the VAG and the Capitalization Law (Kapitalausstattung VO) do not apply to reinsurers such as ES Rückversicherung AG, the BAV prefers that reinsurance companies have the same level of capitalization as primary insurers (approximately 16-18% of net premiums).

        Generally, the supervision by the BAV is designed primarily for the protection of the policyholders of direct insurers. Such policyholder protection intends to give the policyholder the security she needs as a potential creditor of direct insurance companies.

        Sections 55 - 59 of the VAG, which pertain to accounting and auditing of insurance companies, are also applicable to reinsurance companies.

        Compliance.    We are in compliance with all applicable German statutes and regulations.

Ireland

        Irish law directly regulates only two of our subsidiaries, ESG Reinsurance Ireland Limited and Accent Europe Insurance Company Limited (Accent).

        Regulation.    Direct insurance companies in Ireland, such as Accent are regulated by an extensive list of acts and regulations from the Assurance Companies Act 1909 to the Insurance Act 1989, as amended by The Insurance Act 2000, and the European Communities (Non Life Insurance)

13

Regulations 1976 to the European Communities (Non Life Insurance) Framework Regulations 1994. Direct insurance companies must be authorized by the Minister for Enterprise, Trade, and Employment before commencing business. These companies are subject to solvency requirements under the applicable regulations.

        Reinsurance companies incorporated in Ireland such as ESG Reinsurance Ireland Ltd, are not subject to authorization by the Irish Government. They are, however, required under section 22 of the Insurance Act 1989, to notify the Minister for Enterprise, Trade and Employment that they carry on the business of reinsurance and to provide information to the Minister regarding ownership, share capital, directors, senior management, accountants, auditors and solicitors as well as risks to be covered and related policy and other arrangements.

        Auditor's Report and Duties.    The Companies Act 1963 to 2001 requires all companies incorporated in Ireland to prepare and have audited annual accounts for their shareholders. Section 22(1) Insurance Act 1989 requires reinsurance companies to prepare their accounts in such form as the Minister may specify and such audited accounts are required to be filed in the Companies Registration Office and are available for public inspection.

        Compliance.    We are in compliance with all applicable Irish statutes and regulations.

The Former Soviet State of Georgia

        Georgia law directly regulates only one of our subsidiaries, IMEDI.

        Regulation.    The Georgian Parliament adopted an Insurance Regulation in 1996 regarding foreign ownership and capitalization requirements. Specific laws governing automobile third-party liability insurance and compulsory fire insurance were introduced in 1997 and 1999, respectively. Regulation is carried out by the Insurance State Supervision Service.

        Minimum Capital Requirements.    The minimum capital requirement for an insurance company to underwrite most lines of insurance is GEL500 thousand ($242 thousand). For a company carrying out life insurance, the requirement is increased to GEL600 thousand ($290 thousand) and to GEL1 million ($484thousand) for a company carrying out pension insurance.

        Compliance.    We are in compliance with all the statutes and regulations of Georgia that govern us.

United States and Other Countries

        We currently do not write insurance or reinsurance business in any jurisdiction except Bermuda, Ireland, Germany and the former Soviet State of Georgia. We have applied for authorization to do reinsurance business in Hong Kong. The insurance laws of each state of the United States and of many foreign countries regulate the sale of insurance within their jurisdictions by alien insurers, like ESG, who are not admitted to do business within these jurisdictions. With some exceptions, the sale of insurance within a jurisdiction where the insurer is not admitted to do business is prohibited. We do not intend to maintain an office or to solicit, advertise, settle claims or conduct other insurance activities in any jurisdiction where the conduct of these activities would require that we be so admitted and we are not so admitted.

ITEM 2.    PROPERTIES

        We and our subsidiaries lease office space in Bermuda, Dublin, London, Lisbon, Toronto, Miami, Hong Kong, Rome, Madrid, Sydney and Bangkok and own an office located in the former Soviet State of Georgia. The owned property is currently valued at $290,000. We believe that our space is adequate to meet our current and expected needs.

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ITEM 3.    LEGAL PROCEEDINGS

        We and our subsidiaries, in common with the insurance industry in general, are exposed to litigation, including claims for punitive damages, in the normal course of business. We do not believe that any of the litigation that we are involved in will have a material adverse effect on our financial condition, future operating results or liquidity. For a discussion of a pending lawsuit involving Odyssey Re, see Note 11 to our Consolidated Financial Statements.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2001.

15

PART II.

ITEM 5.    MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

        Since December 12, 1997, our common stock has been traded on NASDAQ under the symbol ESREF. The highest and lowest sales prices of our common stock for each fiscal quarter since December 31, 1999 were as follows:

	High		Low
From January 1 to March 31, 2000	$	6.52	$	2.97
From April 1 to June 30, 2000	$	4.53	$	3.46
From July 1 to September 30, 2000	$	4.01	$	2.43
From October 1 to December 31, 2000	$	4.00	$	1.72
From January 1 to March 31, 2001	$	2.69	$	1.97
From April 1 to June 30, 2001	$	3.71	$	2.02
From July 1 to September 30, 2001	$	3.74	$	2.58
From October 1 to December 31, 2001	$	5.30	$	2.50

Number of Record Holders of Common Stock

        As of March 15, 2002, the number of record holders of our common stock was 145.

Dividend History and Restrictions

        Our dividend history for each fiscal quarter since December 31, 1999 is as follows:

Dividend Declared		Date Declared	Record Date of Shareholders	Date Paid
$	0.08	February 25, 2000	March 15, 2000	March 30, 2000
$	0.08	May 9, 2000	June 15, 2000	June 29, 2000
$	0.08	August 10, 2000	September 15, 2000	September 28, 2000

        We have not declared or paid any dividends since September 2000. Our Board of Directors reviews our dividend policy quarterly. Under Bermuda law, we are not permitted to pay dividends unless we meet required solvency tests. For a further discussion of the restrictions on dividends under Bermuda law, see the discussion titled Dividends under the caption "Regulation-Bermuda" above and Note 18 to our Consolidated Financial Statements.

ITEM 6.    SELECTED CONSOLIDATED FINANCIAL DATA

        The following table sets forth the selected consolidated financial data for ESG and its subsidiaries. The financial statements included in this periodic report represent the financial performance and

16

results of ESG as an insurer and a reinsurer for the years ended December 31, 2001, 2000, 1999 and 1998 and as a reinsurer and reinsurance management company for the year ended December 31, 1997.

		Years Ended December 31,
		2001			2000			1999			1998			1997
		U.S. dollars in thousands except per share data
CONSOLIDATED OPERATING DATA
Gross managed premium		$	181,710		$	254,996		$	347,900		$	224,204		$	100,000
Net premiums written			113,593			211,886			313,210			195,578			25,392
Net premiums earned			153,220			236,620			249,125			98,841			13,411
Investment income			12,177			12,924			13,515			12,930			598
Total revenues			160,533			249,032			262,589			115,827			17,839
Losses and loss expenses			104,566			187,241			199,031			61,364			7,449
Acquisition costs			45,840			78,566			66,296			26,714			4,693
Class B Warrants expense			—			—			—			—			3,626
Administrative expenses			27,529			37,119			26,490			11,965			7,736
Total expenses			178,312			305,650			290,996			100,043			23,504
Net underwriting income/(loss)			(24,713	)		(66,306	)		(39,045	)		1,961			1,269
	Loss expense ratio		68.2	%		79.1	%		79.9	%		62.1	%		55.5	%
	Acquisition expense ratio		29.9	%		33.2	%		26.6	%		27.0	%		35.0	%
	Loss and acquisition expense ratio		98.1	%		112.3	%		106.5	%		89.1	%		90.5	%
Net income/(loss) before taxes			(17,779	)		(56,618	)		(28,407	)		15,784			(5,665	)
Income tax benefit/(charge)			1,339			—			(815	)		(1,262	)		569
Net income/(loss) from continuing operations			(16,440	)		(56,618	)		(29,222	)		14,522			(5,096	)
Net loss from discontinued operations			—			(5,178	)		(12,772	)		—			—
Net income/(loss)			(16,440	)		(61,796	)		(41,994	)		14,522			(5,096	)
Basic net income/(loss) per share from continuing operations			(1.39	)		(4.79	)		(2.20	)		1.04			(4.11	)
Diluted net income/(loss) per share from continuing operations			(1.39	)		(4.79	)		(2.20	)		1.03			(4.11	)
Basic net income/(loss) per share			(1.39	)		(5.23	)		(3.17	)		1.04			(4.11	)
Diluted net income/(loss) per share			(1.39	)		(5.23	)		(3.17	)		1.03			(4.11	)
Dividends declared per share		$	—		$	0.24		$	0.32		$	0.30		$	—
CONSOLIDATED BALANCE SHEET DATA
Investments and cash		$	154,931		$	212,246		$	221,549		$	235,246		$	236,976
Reinsurance balances receivable			190,526			241,587			276,112			168,274			25,785
Total assets			455,529			554,794			605,684			466,373			283,553
Unpaid losses and loss expenses			146,383			179,614			136,935			44,379			7,846
Unearned premiums			104,395			148,124			181,127			111,884			12,168
Total shareholders' equity			95,070			113,566			176,815			244,841			234,375
Book value per share			8.03			9.64			15.24			17.58			16.83
COMMON STOCK PRICE RANGE
High		$	5.39		$	6.52		$	22.25		$	28.75		$	23.88(1	)
Low		$	1.97		$	1.72		$	5.13		$	12.75		$	21.50(1	)

(1)

1997 stock prices are for the period from December 12, 1997, the date of the initial public offering, to December 31, 1997. The initial public offering price was $20.00 per share.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

The following is a discussion and analysis of the financial condition, results of operations, liquidity and capital resources of ESG Re Limited and its subsidiaries. This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes.

Principal Activities and Sources of Revenue

        Our principal activities include providing accident, health, credit, life, special risk reinsurance, direct insurance and related product marketing and development services. We also manage premiums on behalf of co-reinsurers on North American medical contracts. We report the results of our business activities under two segments: ESG Reinsurance and ESG Direct. We evaluate the results of these segments based on business written by each of our producing offices. ESG Reinsurance provides traditional reinsurance products, primarily in the U.S. medical insurance market, and ESG Direct provides direct marketing services, bancassurance services, and supporting technologies, as well as targeted reinsurance products for credit life and other special risks.

        We derive our revenues principally from:

•

premiums for reinsurance products,



•

fees for direct marketing services,



•

management fees, and



•

investment income.

Recent Developments

        Credit Ratings.    On March 8, 2002, Fitch Ratings has assigned Insurer Financial Strength Ratings of BB+ to ESG Reinsurance Bermuda Ltd., ESG Reinsurance Ireland Ltd. and European Specialty Ruckversicherung AG, with a Rating Outlook of Stable. In November 2001, Standard and Poor's increased its counterparty credit and insurer financial strength rating for ESG from "B+" to "BB-" with a change in the rating outlook from "Stable" to "Positive." "Positive" means that the rating may be raised. According to S&P, its capital adequacy model placed us at the high end of the "BBB" rating but that it would like evidence of continued progress in fiscal year 2002 before adjusting the rating further. There can be no assurance that we will continue to maintain either of these ratings.

        Effect of Terrorist Attacks.    We previously reported that our estimated total exposure related to the September 11, 2001 terrorist attacks would be less than $1 million. Additional information regarding an outstanding claim, which we received in December 2001, increased our estimated gross exposure to approximately $1.2 million, before taking account of recoveries from our reinsurers. We review our exposures and liabilities as a result of the events of September 11, 2001 on an ongoing basis. We may have additional liabilities based on these events if additional claims are made.

        Departure of Senior Financial Officer.    Our Senior Financial Officer, Mark E. Oleksik, a U.S. citizen, decided to return to the U.S. for personal reasons at the end of March 2002. The Board of Directors has appointed Joe A. Quinn as Acting Senior Financial Officer until such time as a permanent Senior Financial Officer is named. In addition, our Controller, Conor Heery, was promoted to Chief Accounting Officer. Both of these appointments were effective March 15, 2002.

Critical Accounting Policies

        Our critical accounting policies are:

•

recognition of premium revenues,

18

•

reserves for losses and loss expenses,



•

investments,



•

deferred acquisition costs,



•

reinsurance premiums ceded, and



•

foreign currency translation.

Recognition of Premium Revenues

        We estimate and recognize premiums at the inception of the reinsurance contract based upon information received from intermediaries and ceding companies. We compare estimated written premiums to actual premiums as reported by ceding companies on a periodic basis. The timeliness and frequency of ceding company reports vary considerably by ceding company, line of business, and geographic area, which means that the actual ultimate premium written may not be known with certainty for prolonged periods following the expiration of the reinsurance contracts. We record the differences between our estimates and actual amounts as reported by ceding companies in the period in which the actual amounts are determined.

        The reinsurance contracts which we enter are primarily of short duration. For retroactive contracts the amount by which the amount paid for reinsurance coverage exceeds the recorded liabilities is charged to earnings. If the liabilities exceed the amount paid the excess is deferred and amortized into income over the remaining settlement period. Premiums written are recognized as earned over the coverage period in proportion to the amount of protection provided. Unearned premium reserves are established to cover the unexpired contract period.

Reserves for Losses and Loss Expenses

        The reserve for unpaid losses and loss adjustment expenses includes an estimate of reported case reserves and an estimate for losses incurred but not reported. Case reserves are estimated based on ceding company reports and other data considered relevant to the estimation process. We have some specific historical experience on a significant number of our programs on which to base our estimate of losses incurred but not reported. There is a reliance on the expectations of ceding companies about ultimate loss ratios at the inception of the contracts, supplemented by industry experience, which increases the uncertainty involved in the loss estimation process. The reserves as established by management are reviewed quarterly and adjustments are made in the periods in which they become known. Although management believes that an adequate provision has been made for the liability for losses and loss expenses based on all available information, there can be no assurance that the ultimate losses will not differ significantly from the amounts provided.

Investments

        We classify fixed maturity securities as available for sale, and we report them at estimated fair value. We expect to hold investments available for sale for an indefinite period but may sell them depending on interest rates and other considerations. We account for other investments at the lower of cost or estimated realizable value. We report unrealized investment gains and losses on investments available for sale, net of applicable deferred income tax, as a separate component of "accumulated other comprehensive income." We determine realized gains or losses on the sale of investments on the basis of average cost. We adjust the carrying values of both investments available for sale and other investments by any impairment in value that we consider to be other than temporary.

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Deferred Acquisition Costs

        We defer costs relating to the production of new business, primarily commissions for all business and telemarketing costs from of our ESG Direct business, and include them in the deferred acquisition cost asset to the extent that they are recoverable from future related policy revenues. We amortize the deferred acquisition costs in respect of commissions over the periods in which the related premiums are earned. We amortize the deferred acquisition costs in relation to telemarketing over the expected life of the policies. We review our deferred costs to determine if they are recoverable from future income, including investment income, and, if they are not, we charge them as an expense.

Reinsurance Premiums Ceded

        We report reinsurance premiums ceded as prepaid reinsurance premiums and amortize them over the respective contract or policy periods in proportion to the amount of insurance protection provided. We defer commissions on reinsurance ceded over the duration of the contracts of reinsurance to which they relate and amortize them in proportion to the amount of insurance protection provided.

Foreign Currency Translation

        Our functional and reporting currency is the U.S. Dollar. We translate foreign currency receivables or payables denominated in a currency other than U.S. dollars into U.S. dollars at the rates of exchange in effect at the balance sheet date. We include the resulting exchange gains or losses in the results of operations. We include exchange gains and losses related to the conversion of investments available for sale in the net unrealized appreciation or depreciation of the investments, net of deferred income taxes, and list them as a separate component of "accumulated other comprehensive income." We translate assets and liabilities related to foreign operations into U.S. dollars at the exchange rate in effect at the balance sheet date; we convert revenues and expenses into U.S. dollars using weighted average rates for the period. We exclude from income gains and losses that result from translating foreign currency financial statements, net of deferred income taxes, and include them as a separate component of "accumulated other comprehensive income."

Results of Operations

        We reported a net loss of approximately $16.4 million for 2001, compared to a net loss of approximately $61.8 million for 2000. Included in the 2000 results were net losses of approximately $5.2 million from discontinued operations, which are described more fully under the caption "Discontinued Operations" and in Note 11 to our Consolidated Financial Statements.

        The nature of our business has meant that we have continued exposure to underwriting decisions made in the years 1997, 1998, 1999, and early 2000. Since those years, we have gained valuable underwriting and industry experience that has helped us to better estimate potential losses and the adequacy of our reserves. In the second half of 2000, we reviewed all of our major contracts for adequacy of reserves and related profitability. After this review, we centralized our underwriting operations in Dublin and increased our loss reserves by $21.7 million. To date, these reserves have been adequate.

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YEAR ENDED DECEMBER 31, 2001 COMPARED WITH YEAR ENDED DECEMBER 31, 2000

Total Revenues

        Our total revenues for 2001 were $160.5 million, compared with total revenues of $249.0 million for 2000. The reduction in revenues reflects our new focus on improved underwriting and a greater selectivity in our assumption of risk.

Net Underwriting Income

        For the year ended December 31, 2001, we managed, on our own behalf and on behalf of our co-reinsurers, total gross premiums of $181.7 million, of which we placed $47.3 million with co-reinsurers and retroceded $20.8 million, resulting in $113.6 million net premiums written. For the year ended December 31, 2000, we managed, on our own behalf and on behalf of our co-reinsurers, total premiums of $255.0 million, of which we placed $10.0 million with co-reinsurers and retroceded $33.1 million, resulting in $211.9 million net premiums written. The 29% decrease in gross premiums and 46% decrease in net premiums written during 2001 is a result of our strategy to become more selective with our underwriting.

        The amount placed with co-reinsurers increased to 30.1% of total premiums managed in 2001 from 4.0% in 2000. This is the result of a 50% co-reinsurance arrangement with ACE for all North American medical business that we entered into, from January 2001. We expect to keep this arrangement in place throughout 2002. Reinsurance of risks related to the U.S. medical markets continues to be the largest portion of our total managed premiums. We receive a management fee for the premiums we manage on behalf of ACE under our co-reinsurance agreement, in respect of business managed in the 2001 financial year, but only to the extent ACE earns the premiums in the 2002 and 2003 financial years. We do not receive a management fee under the ACE co-reinsurance agreement for any premium earned in 2001.

        Of $113.6 million net premiums written in 2001, $89.0 million was attributable to the ESG Reinsurance segment, and $24.6 million was attributable to the ESG Direct segment. For the year ended December 31, 2000, net premiums written was $211.9 million, of which $205.9 million was attributable to the ESG Reinsurance segment, and $6.0 million was attributable to the ESG Direct segment.

        Gross and net premiums written and net premiums earned during 2001 and 2000 were as follows:

	Years ended December 31,
	2001			2000
	U.S. dollars in millions
ESG Reinsurance
Total premiums managed	$	157.1		$	249.0
Amount placed with co-reinsurers		(47.3	)		(10.0	)
Gross premiums written		109.8			239.0
Retroceded		(20.8	)		(33.1	)
Net premiums written		89.0			205.9
Net premiums earned	$	135.1		$	230.8

21

	Years ended December 31,
	2001		2000
	U.S. dollars in millions
ESG Direct
Total premiums managed	$	24.6	$	6.0
Amount placed with co-reinsurers		—		—
Gross premiums written		24.6		6.0
Retroceded		—		—
Net premiums written		24.6		6.0
Net premiums earned	$	18.1	$	5.8

        Total premiums that we manage on our behalf and on behalf of our co-reinsurers during 2001 consisted of the following:

•

New Business. Approximately $46.5 million, or 25.6%, of total premiums managed was generated from new business.



•

Renewal Business. Approximately $135.2 million, or 74.4% of total premiums managed was generated from renewal business.

Underwriting Results

        Underwriting results for 2001 and 2000, by line of business and in total, for the ESG Reinsurance segment were as follows:

	Year Ended December 31, 2001
	Medical			Accident			Credit			Life			Other			Total
	U.S. dollars in thousands
Gross premiums written	$	104,376		$	10,424		$	(5,865	)	$	(1,293	)	$	2,116		$	109,758
Net premiums written		88,899			5,850			(5,548	)		(2,307	)		2,086			88,980
Net premiums earned		101,985			33,054			(3,591	)		1,187			2,475			135,110
Losses and loss expenses		(66,008	)		(36,598	)		3,687			284			(3,410	)		(102,045	)
Acquisition costs		(28,769	)		(6,747	)		289			(642	)		936			(34,933	)
Operating costs		(17,893	)		(2,275	)		(65	)		(163	)		(438	)		(20,834	)
Net underwriting income/(loss).	$	(10,685	)	$	(12,566	)	$	320		$	666		$	(437	)	$	(22,702	)

	Year Ended December 31, 2000
	Medical			Accident			Credit			Life			Other			Total
	U.S. dollars in thousands
Gross premiums written	$	173,919		$	48,125		$	3,405		$	8,977		$	4,535		$	238,961
Net premiums written		148,285			43,014			3,162			7,845			3,565			205,871
Net premiums earned		161,772			51,771			6,588			6,127			4,513			230,771
Losses and loss expenses		(124,119	)		(51,153	)		(2,344	)		(5,291	)		(3,081	)		(185,988	)
Acquisition costs		(53,471	)		(15,594	)		(3,527	)		(1,622	)		(2,106	)		(76,320	)
Operating costs		(24,628	)		(6,712	)		(844	)		(1,044	)		(926	)		(34,154	)
Net underwriting income/(loss)	$	(40,446	)	$	(21,688	)	$	(127	)	$	(1,830	)	$	(1,600	)	$	(65,691	)

22

        The operating ratios for 2001 and 2000, by line of business and in total, for the ESG Reinsurance segment were as follows:

	Year Ended December 31, 2001
	Medical		Accident		Credit		Life		Other		Total
Loss ratio	64.7	%	110.7	%	102.7	%	n/m		137.9	%	75.5	%
Acquisition expense ratio	28.2	%	20.4	%	8.0	%	54.1	%	n/m		25.9	%
Loss and acquisition expense ratio	92.9	%	131.1	%	110.7	%	30.2	%	100.1	%	101.4	%
Operating expense ratio											15.4	%
Combined ratio											116.8	%

	Year Ended December 31, 2000
	Medical		Accident		Credit		Life		Other		Total
Loss ratio	76.7	%	98.8	%	35.6	%	86.4	%	68.3	%	80.6	%
Acquisition expense ratio	33.1	%	30.1	%	53.5	%	26.4	%	46.6	%	33.1	%
Loss and acquisition expense ratio	109.8	%	128.9	%	89.1	%	112.8	%	114.9	%	113.7	%
Operating expense ratio											14.8	%
Combined ratio											128.5	%

        We continue to implement stringent terms of trade, effect real rate increases, and are very selective on the business we underwrite. This is reflected in the improving loss and acquisition ratios in our medical reinsurance business from 109.8% in 2000 to 92.9% in 2001. In 2001, net earned premium in the medical line reduced by 37.0%, primarily as a result of our co-reinsurance arrangement with ACE. Net earned premium in respect of the accident line of business decreased by 36.2% as a result of adjustments to estimated premiums and more selective underwriting. Poor underwriting results on the accident account reflect adverse claims development, particularly on our Norwegian Portfolio, and this contributed to the loss and acquisition ratio of 131.1%.

        Our 2001 underwriting results are comprised of four underwriting years, with the 2001 underwriting year contributing net earned premium of $26.2 million, carrying a loss and acquisition ratio of 89.2%. The 2000 underwriting year contributed $95.2 million of net earned premium, carrying a loss and acquisition ratio of 97.6%. The 1999 underwriting year contributed $8.9 million of net earned premium, carrying a loss and acquisition ratio of 190.4%. The 1998 underwriting year contributed $(1.1) million of net earned premium with a loss and acquisition ratio of (105.1)%.

        We calculated the operating expense ratios for 2001 and 2000 by expressing total administrative expenses, net of corporate office expense, as a percentage of net premiums earned.

        During 2001, we reduced gross premiums written for the 2000, 1999, and 1998 underwriting years by $105 million, a large portion of which relates to the 2000 underwriting year, on the business in Western Europe. Because we agree to reinsurance contracts with ceding companies before those companies know what their insurance premiums will be for that year, we must rely on estimates of the amount of premiums the ceding companies will write. The premiums we recognize from the ceding companies under our reinsurance contracts with them are dependent on the underlying premiums received by the ceding company. At the time we underwrite and record the contract, we include premium written on an estimated basis. We reassess our premium estimates as information becomes available, and adjust our written premium if appropriate.

23

        Underwriting results for 2001 and 2000, by line of business and in total, for the ESG Direct segment were as follows:

	Year Ended December 31, 2001
	Accident			Credit			Total
	U.S. dollars in thousands
Gross premiums written	$	17,169		$	7,444		$	24,613
Net premiums written		17,169			7,444			24,613
Net premiums earned		17,153			957			18,110
Losses and loss expenses		(2,242	)		(278	)		(2,520	)
Acquisition costs		(10,395	)		(511	)		(10,906	)
Operating costs		(6,382	)		(313	)		(6,695	)
Net underwriting income/(loss)	$	(1,866	)	$	(145	)	$	(2,011	)

	Year Ended December 31, 2000
	Accident			Credit		Total
	U.S. dollars in thousands
Gross premiums written	$	6,015		$	—	$	6,015
Net premiums written		6,015			—		6,015
Net premiums earned		5,849			—		5,849
Losses and loss expenses		(1,253	)		—		(1,253	)
Acquisition costs		(2,246	)		—		(2,246	)
Operating costs		(2,965	)		—		(2,965	)
Net underwriting income/(loss)	$	(615	)	$	—	$	(615	)

        The operating ratios for 2001 and 2000, by line of business and in total, for the ESG Direct segment were as follows:

	Year Ended December 31, 2001
	Accident		Credit		Total
Loss ratio	13.1	%	29.0	%	13.9	%
Acquisition expense ratio	60.6	%	53.4	%	60.2	%
Loss and acquisition expense ratio	73.7	%	82.4	%	74.1	%
Operating expense ratio					37.0	%
Combined ratio					111.1	%

	Year Ended December 31, 2000
	Accident		Credit	Total
Loss ratio	21.4	%	—	21.4	%
Acquisition expense ratio	38.4	%	—	38.4	%
Loss and acquisition expense ratio	59.8	%	—	59.8	%
Operating expense ratio				50.7	%
Combined ratio				110.5	%

24

        The 2001 underwriting results for our Direct Segment are comprised of two underwriting years, with the 2001 underwriting year contributing net earned premium of $18.1 million, carrying a loss and acquisition ratio of 74.1%. The 2000 underwriting year contributed $5.8 million of earned premium, carrying a loss and acquisition ratio of 59.8%. The increase of $12.3 million in premiums written in 2001 is a result of our increasing investment in the ESG Direct segment in both Asia and Continental Europe.

        The 2001 results suffer because of the operating costs that reflect the investment into Continental Europe and new start up operations in Asia Pacific. As can be seen loss and acquisition costs are significantly lower than the reinsurance segment. Operating expense ratios will decrease as we write more premium and achieve operating economies of scale.

Geographic Spread

        The distribution of gross written premiums for years ended December 31, 2001 and 2000, is as follows:

	Years ended December 31,
	2001		2000
ESG Reinsurance
Western Europe	(11.2	)%	18.9	%
North America	100.3	%	55.2	%
Latin America	17.8	%	16.1	%
Other	(6.9	)%	9.8	%
Total	100.0	%	100.0	%

	Years ended December 31,
	2001		2000
ESG Direct
Western Europe	30.2	%	0.0	%
Asia	69.8	%	100.0	%
Total	100.0	%	100.0	%

Product Mix

        The distribution of gross premiums written by line of business for the years ended December 31, 2001 and 2000 is as follows:

	Years ended December 31,
	2001		2000
ESG Reinsurance
Medical	95.1	%	72.8	%
Personal Accident	9.5	%	20.1	%
Credit	(5.3	)%	1.4	%
Life	(1.2	)%	3.8	%
Other	1.9	%	1.9	%
Total	100.0	%	100.0	%

25

	Years ended December 31,
	2001		2000
ESG Direct
Personal Accident	69.8	%	100.0	%
Credit	30.2	%	0.0	%
Total	100.0	%	100.0	%

Management Fee Revenue

        For the year ending December 31, 2001, we earned $874,000 in management fee revenue. This represents a 51.4% reduction from the $1.8 million in management fees earned in the year ending December 31, 2000. The majority of management fee revenue in 2001 and 2000 consists of fees earned on those premiums managed on behalf of our co-reinsurers. Management fees declined in 2001, primarily due to fee income not attaching to business earned during 2001 on the ACE co-reinsurance business replacing co-reinsurance agreements which expired in 2000. Under the ACE agreement, fee income will be recognized on risks attaching to the 2001 underwriting year, as it earns in the 2002 and 2003 financial years.

Net Investment Income

        Net investment income on our invested assets constituted approximately 7.6%, 5.2%, and 5.1% of our revenues in 2001, 2000. and 1999, respectively. As of December 31, 2001, our cash and invested assets totaled approximately $154.9 million, compared with cash and invested assets of approximately $212.2 million as of December 31, 2000. This decrease in our cash and invested assets is primarily due to negative operating cash flows and developing the ESG Direct infrastructure. Net investment income decreased by approximately $0.7 million from approximately $12.9 million in 2000 to approximately $12.2 million in 2001.

        We do not maintain separate balance sheet data for our operating segments. Accordingly we do not review and evaluate the financial results of the operating segments based upon balance sheet data.

        The following table reflects the investment results for the year ended December 31, 2001:

	Average Investments		Net Investment Income(1)		Annualized Effective Yield		Net Realized Investment Gains (Losses)
	U.S dollars in thousands
Investments	$	164,323	$	10,911	6.64	%	$	6,489
Other investments		13,705		700	5.10	%		(12,200	)
Cash and cash equivalents		12,226		566	4.62	%		—
Total	$	190,254	$	12,177	6.40	%	$	(5,711	)

(1)

Net investment income is net of investment-related expenses and income on premium receivable and funds held by ceding companies.

26

        The following table reflects the investment results for the year ended December 31, 2000:

	Average Investments		Net Investment Income(1)		Annualized Effective Yield		Net Realized Investment Gains Losses
	U.S dollars in thousands
Investments	$	175,641	$	11,523	6.6	%	$	(2,538	)
Other investments		13,794		434	3.1	%		—
Cash and cash equivalents		23,430		967	4.1	%		—
Total	$	212,865	$	12,924	6.1	%	$	(2,538	)

(1)

Net investment income is net of investment-related expenses and income on premium receivable and funds held by ceding companies.

        At December 31, 2001 and 2000, we had invested approximately $1.7 million and $12.7 million, respectively, primarily into companies with whom we have operating relationships. In addition, we have outstanding loans of approximately $4.5 million and $5.0 million with one of these related enterprises as of December 31, 2001 and 2000, respectively.

        The Audit Committee of our Board of Directors reviews our investment policies and arrangements to ensure that they are consistent with our overall goals, strategies and objectives. Overall investment guidelines have been approved by the Audit Committee to ensure appropriate levels of portfolio liquidity, credit quality, diversification and volatility. In addition, the Audit Committee will review the portfolio's exposure to capture any potential violations of investment guidelines.

Investment Portfolio

Maturity and Duration of Portfolio

        The maximum effective maturity for any single security in our investment portfolio is set at 30 years for U.S. government and U.S. government agency securities with full faith and credit guarantees and at 10 years for all other issues, measured from the date of settlement. The duration of the portfolio varies according to decisions taken by the investment advisor on the outlook for interest rate movements. The benchmark for such duration is approximately 3 years.

Quality of Debt Securities in Portfolio

        The minimum average credit quality of our investment portfolio is AA.

Equity Securities and Real Estate

        Our investment policy is to allow up to 10% of our investment assets to be held in equity securities. We do not intend to invest in real estate other than for our own use.

Diversification and Liquidity

        No more than 3% of our investment portfolio may be invested in the securities of any single issuer, with the exception of sovereign governments or agencies, including supranational agencies, with an AA rating or better.

        As of December 31, 2001, total investments and cash were $154.9 million, compared to $212.2 million at December 31, 2000. All fixed maturity securities in our investment portfolio are classified as available for sale and are carried at fair value.

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        The fixed maturity investment portfolios as of December 31, 2001 and 2000 were as follows:

	As at December 31, 2001
	Fair Value		Duration Years	Market Yield		Average Credit Rating
	U.S. dollars in thousands
Corporate securities	$	43,799	2.8	5.2	%	AA
U.S. treasury securities and obligations of U.S. Government corporations and agencies		53,466	3.6	4.6	%	AAA
Asset-backed securities/Mortgage-backed securities		25,599	2.5	7.3	%	AAA
Obligations of states and political subdivisions		16,505	2.7	5.7	%	AAA
Foreign currency debt securities		5,475	1.0	4.2	%	AAA
Total	$	144,844	2.7	5.4	%

	As at December 31, 2000
	Fair Value		Duration Years	Market Yield		Average Credit Rating
	U.S. dollars in thousands
Corporate securities	$	71,382	3.0	6.6	%	AA
U.S. treasury securities and obligations of U.S. Government corporations and agencies		38,128	2.4	6.1	%	AAA
Asset-backed securities/Mortgage-backed securities		33,771	3.0	8.1	%	AAA
Obligations of states and political subdivisions		18,753	3.0	7.3	%	AAA
Foreign currency debt securities		6,444	1.6	4.5	%	AAA
Total	$	168,478	2.6	6.5	%

        In 2002, we will continue to follow our investment policy and guidelines while seeking to improve long-term value by continuing to invest in selected strategic investments in accordance with our current commitments as set out in Discontinued Operations below. A strategic investment is defined as an investment in a reinsurance-related enterprise, ceding company or distribution channel that is expected to generate or secure additional profitable business for us.

Related Party Transactions

        We are a party to several Investment Advisory Agreements with Head Asset Management LLC, an affiliate of Head & Company, L.L.C. Under these agreements, Head Asset Management supervises and directs the investment of our asset portfolio in accordance with investment objectives and guidelines that we have established. Mr. Head, the Chairman of our Board of Directors and our former CEO, controls Head Asset Management. ESG is the principal client of Head Asset Management. Under our Investment Advisory Agreement with Head Asset Management, we pay fees quarterly in arrears equal to:

•

0.20% per year of the first $150 million or less of the market value of the managed assets, and



•

0.15% per year of the managed assets in excess of $150 million.

        We may terminate the Investment Advisory Agreements upon five days written notice, and Head Asset Management may terminate the agreement upon 90 days written notice. We paid $321,637 in fees to Head Asset Management LLC in 2001, and $404,000 in 2000.

        The Audit Committee of our Board of Directors periodically reviews our investment policies and arrangements to ensure that they are consistent with our overall goals, strategies and objectives. Overall

28

investment guidelines are approved by the Audit Committee to ensure appropriate levels of portfolio liquidity, credit quality, diversification and volatility. In addition, beginning in 2002, the Audit Committee will review the portfolio's exposure to capture any potential violations of investment guidelines. The Audit Committee will also review our investment advisory relationship with Head Asset Management LLC in the context of our other banking relationships to determine whether changes should be made to any of these relationships.

Administrative Expenses and Taxes

        Total administrative expenses, which includes personnel costs, professional service fees, interest expense and other expenses, decreased by $11.9 million, or 29.9%, from $39.8 million in 2000 to $27.9 million in 2001. This decrease is primarily due to a legal reserve of $8.4 million which was established in 2000 for costs associated with resolving disputes in respect of certain contracts. As related legal costs have been incurred in 2001, this reserve has reduced to $6.7 million at December 31, 2001. Management reviews this reserve for adequacy on a quarterly basis.

        We made stringent efforts to reduce overheads in the year 2001. To that end, we made cost savings across all categories, but in particular in personnel costs, professional services and travel expenses. Personnel costs decreased by $1.2 million from $13.1 million in 2000 to $11.9 million in 2001. Although the number of full-time employees increased from 135 at December 31, 2000 to 162 at December 31, 2001, labor costs are on average lower due to the weighting of employees being greater now in lower operating-cost economies, than in prior years. We have also recognized economies of scale as a result of our centralized underwriting, claims and finance operations.

        Professional service fees decreased by $3.4 million from $10.3 million in 2000 to $6.9 million in 2001. Professional fees included $3.2 million in legal fees in respect of corporate compliance, standardization of policy contracts and management agreements, acquisitions and forensic audits and legal disputes. Audit and accountancy costs of $1.4 million were incurred in audit, accounting, tax advisory and corporate reporting services. Consulting expenses of $2.6 million were incurred in actuarial support, computer systems improvements, recruitment, due diligence and corporate communications.

        Foreign exchange losses in total were $0.3 million in 2001, compared to $1.3 million in 2000. These losses are primarily unrealized and were incurred on the revaluation of assets and liabilities denominated in foreign currencies for reporting purposes. As we maintain a partial natural hedge, whereby foreign currency assets are held in the same currencies in which we must pay liabilities, the impact on cash flows from foreign exchange movements is reduced.

        Under current Bermuda law, we are not required to pay taxes in Bermuda on either income or capital gains. Provision for income taxes consists of corporate and other applicable income taxes payable in the various jurisdictions in which we conduct our business including, but not limited to, Germany, Ireland, Canada and the United Kingdom. We have a tax credit of $1.3 million resulting from the recognition of a tax asset on the books of ESG Reinsurance Ireland Ltd., our principal underwriting entity. This is in relation to the expected use of carry forward losses in offsetting future taxable profits. Realization of the deferred tax asset is dependent on generating sufficient taxable income in the future. During 2001, a valuation allowance of $11.4 million to reduce the deferred tax asset was recorded in accordance with the provisions of SFAS109. The valuation allowance is necessary because of uncertainly regarding the realizability of certain net operating loss carryforwards. We have loss carryforwards of $57.0 million available to offset future foreign taxable income. Such tax loss carryforwards do not have an expiration date.

29

Discontinued Operations

        From December 1998 through June 2000, we operated IPT GmbH and later VBB Bermuda Limited, subsidiaries that provided disease management services in Germany. These services, which included physician referrals, a medical information hotline, second opinion services, cardiac rehabilitation and access to disease management advisors, comprised the health care segment of our business.

        Effective as of June 30, 2000, we transferred all the assets of our health care segment to 4Sigma. These assets had a book value of $8 million at the time of transfer. In exchange for the transferred assets, we received 8,000,000 shares of Series A preferred stock, representing a 69% equity interest in 4 Sigma. In addition, affiliates of John C Head III, the Chairman of our Board of Directors, invested $3.0 million in cash in exchange for a 28% equity interest in 4Sigma. Dr. Gerald Moeller, a director of ESG from July 1999 to August 2000 and the president of our health care division from July 1999 to June 2000, also invested $400,000 in cash in exchange for a minority equity interest in 4Sigma. The board members of 4Sigma include John C Head III, Dr. Gerald Moeller and Dr. Herbert Palmberger, who also serve as outside counsel to ESG in Germany.

        ESG does not have voting control of, or does it exercise operational control over, this company.

        In November 2001, we committed to make an additional capital infusion in 4Sigma of $1.8 million, in increments of $100,000 as funds are needed by 4Sigma, in exchange for 1.8 million shares of Series E preferred stock. As at December 31, 2001 we had invested $1.2 million of this commitment. Mr. Head has also committed to invest an additional $1.2 million in cash in 4Sigma on these same terms and conditions. We evaluate our investment in 4Sigma periodically.

        On December 31, 2001, we wrote off the Series A preferred stock representing our initial $8.0 million investment in 4Sigma. For a further discussion of our investment in 4Sigma, see Note 11 to our 2001 Consolidated Audited Financial Statements.

YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999

        We have restated all information for 2000 to conform to the our new segment structure.

Net Underwriting Income

        For the year ended December 31, 2000, we managed, on our own behalf and behalf of our co-reinsurers, total premiums of $255.0 million, of which we placed $10.0 million with co-reinsurers and retroceded $33.1 million, resulting in $211.9 million net premiums written. For the year ended December 31, 1999, we managed, on our own behalf and on behalf of our co-reinsurers, total premiums of $347.9 million, of which we placed $14.9 million with co-reinsurers and retroceded $19.8 million, resulting in $313.2 million net premiums written. The amount placed with co-reinsurers declined to 3.9% of total premiums managed in 2000 compared to 4.3% of total premiums managed in 1999. The ESG Direct segment did not operate during 1999.

30

        Gross and net premiums written and net premiums earned for 2000 and 1999 were as follows:

	Years ended December 31,
	2000			1999
	U.S. dollars in millions
ESG Reinsurance
Total premiums managed	$	249.0		$	347.9
Amount placed with co-reinsurers		(10.0	)		(14.9	)
Gross premiums written		239.0			333.0
Retroceded		(33.1	)		(19.8	)
Net premiums written		205.9			313.2
Net premiums earned	$	230.8		$	249.1

	Years ended December 31,
	2000		1999
	U.S. dollars in millions
ESG Direct
Total premiums managed	$	6.0	$	0.0
Amount placed with co-reinsurers		0.0		0.0
Gross premiums written		6.0		0.0
Retroceded		0.0		0.0
Net premiums written		6.0		0.0
Net premiums earned	$	5.8	$	0.0

        Total premiums managed for 2000 consisted of the following:

•

New Business—approximately $130.5 million, or 51.1%, of total premiums managed was generated from new business.



•

Renewal Business—approximately $124.5 million, or 48.9%, of total premiums managed was generated from renewal business.

        During 2000, we had reductions in total premiums managed on the 1998 and 1999 underwriting years of $37.1 million, equivalent to 6.6% of gross premium written in these years. This represents differences between estimates made at the time contracts were written and actual amounts reported by ceding companies. Such changes are recorded in the period in which the actual amounts are determined.

31

        Underwriting results for 2000 and 1999, by line of business and in total, for the ESG Reinsurance segment were as follows:

	Year Ended December 31, 2000
	Medical			Accident			Credit			Life			Other			Total
	U.S. dollars in thousands
Gross premiums written	$	173,919		$	48,125		$	3,405		$	8,977		$	4,535		$	238,961
Net premiums written		148,285			43,014			3,162			7,845			3,565			205,871
Net premiums earned		161,772			51,771			6,588			6,127			4,513			230,771
Losses and loss expenses		(124,119	)		(51,153	)		(2,344	)		(5,291	)		(3,081	)		(185,988	)
Acquisition costs		(53,471	)		(15,594	)		(3,527	)		(1,622	)		(2,106	)		(76,320	)
Operating costs		(24,628	)		(6,712	)		(844	)		(1,044	)		(926	)		(34,154	)
Net underwriting income/(loss)	$	(40,446	)	$	(21,688	)	$	(127	)	$	(1,830	)	$	(1,600	)	$	(65,691	)

	Year Ended December 31, 1999
	Medical			Accident			Credit			Life			Other			Total
	U.S. dollars in thousands
Gross premiums written	$	251,984		$	66,514		$	1,851		$	6,934		$	5,717		$	333,000
Net premiums written		240,314			61,549			714			5,550			5,083			313,210
Net premiums earned		188,016			42,443			3,933			9,593			5,140			249,125
Losses and loss expenses		(153,894	)		(33,001	)		(2,424	)		(8,015	)		(1,697	)		(199,031	)
Acquisition costs		(52,940	)		(9,287	)		(795	)		(1,516	)		(1,758	)		(66,296	)
Operating costs		(16,503	)		(4,393	)		(421	)		(976	)		(550	)		(22,843	)
Net underwriting income/(loss)	$	(35,321	)	$	(4,238	)	$	293		$	(914	)	$	1,135		$	(39,045	)

        The operating ratios for 2000 and 1999, by line of business and in total, for the ESG Reinsurance segment were as follows:

	Year Ended December 31, 2000
	Medical		Accident		Credit		Life		Other		Total
Loss ratio	76.7	%	98.8	%	35.6	%	86.4	%	68.3	%	80.6	%
Acquisition expense ratio	33.1	%	30.1	%	53.5	%	26.4	%	46.6	%	33.1	%
Loss and acquisition expense ratio	109.8	%	128.9	%	89.1	%	112.8	%	114.9	%	113.7	%
Operating expense ratio											14.8	%
Combined ratio											128.5	%

	Year Ended December 31, 1999
	Medical		Accident		Credit		Life		Other		Total
Loss ratio	81.9	%	77.8	%	61.6	%	83.6	%	33.0	%	79.9	%
Acquisition expense ratio	28.2	%	21.9	%	20.2	%	15.8	%	34.2	%	26.6	%
Loss and acquisition expense ratio	110.1	%	99.7	%	81.8	%	99.4	%	67.2	%	106.5	%
Operating expense ratio											9.2	%
Combined ratio											115.7	%

32

        After rapid growth in 1999 in our medical portfolio, we recognized in the second quarter of 2000 that much of this business was not profitable. We centralized underwriting, ceased writing North American medical business from our London office, strengthened our terms of trade, increased rates and became more selective on business accepted. As a result, gross premiums written on medical business declined 31% during the year.

        Gross written premiums on accident business declined 18.6% to $54.1 million for the year ended December 31, 2000, in line with our selectivity on writing new and renewal business. Adverse claims development, particularly on our Norwegian portfolio, contributed to the increase in the loss and acquisition expense ratio from 99.6% in 1999 to 122.0% in 2000.

        Poor underwriting results across the two major lines of business contributed to the increase in our loss and acquisition ratio from 106.5% in 1999 to 112.3% in 2000. The 2000 results are comprised of three underwriting years, with the 2000 underwriting year contributing earned premium of $106.5 million, carrying a loss and acquisition ratio of 104.1%. The 1999 underwriting year contributed $117.8 million of earned premium with a loss and acquisition ratio of 105.4%. The 1998 underwriting year contributed $3.7 million to net earned premium with $17.1 million of loss and acquisition expense attached.

        The operating expense ratios for the years ended December 31, 2000 and 1999 were calculated by expressing total administrative expenses net of corporate office expense, as a percentage of net premiums earned. Included in the 2000 administrative expenses is an $8.4 million legal reserve for the expected costs associated with resolving disputes in respect of certain risks that we ceded to and in some cases rescinded.

        Underwriting results for 2000, by line of business and in total, for the ESG Direct segment were as follows:

	Year Ended December 31, 2000
	Accident			Credit		Total
	U.S. dollars in thousands
Gross premiums written	$	6,015		$	—	$	6,015
Net premiums written		6,015			—		6,015
Net premiums earned		5,849			—		5,849
Losses and loss expenses		(1,253	)		—		(1,253	)
Acquisition costs		(2,246	)		—		(2,246	)
Operating costs		(2,965	)		—		(2,965	)
Net underwriting income/(loss)	$	(615	)	$	—	$	(615	)

        The operating ratios for 2000 for the ESG Direct segment were as follows:

	Year Ended December 31, 2000
	Accident		Credit	Total
	U.S. dollars in thousands
Loss ratio	21.4	%	—	21.4	%
Acquisition expense ratio	38.4	%	—	38.4	%
Loss and acquisition expense ratio	59.8	%	—	59.8	%
Operating expense ratio				50.7	%
Combined ratio				110.5	%

33

        We commenced the ESG Direct business during 2000 by writing business in the Asia region and the above results reflect the early development of this business. Initial set-up costs together with low premium volumes contributed to the high expense ratio.

Geographic Spread

        As a consequence of a reduction in premiums written, selectivity in business being written, and growth in the ESG Direct segment, more business was being sourced outside of the North American market in 2000 when compared to 1999.

        The distribution of gross written premiums for 2000 and 1999 is as follows:

	Years ended December 31,
	2000		1999
ESG Reinsurance
Western Europe	18.9	%	21.2	%
North America	55.2	%	63.5	%
Latin America	16.1	%	9.8	%
Other	9.8	%	5.5	%
Total	100.0	%	100.0	%

	Years ended December 31,
	2000		1999
ESG Direct
Asia	100.0	%	0.0	%
Total	100.0	%	0.0	%

Product Mix

        The distribution of gross premiums written by line of business for the years ended December 31, 2000 and 1999 is as follows:

	Years ended December 31,
	2000		1999
ESG Reinsurance
Medical	72.8	%	75.7	%
Personal Accident	20.1	%	19.9	%
Credit	1.4	%	0.6	%
Life	3.8	%	2.1	%
Other	1.9	%	1.7	%
Total	100.0	%	100.0	%

34

	Years ended December 31,
	2000		1999
ESG Direct
Personal Accident	100.0	%	0.0	%
Total	100.0	%	0.0	%

Management Fee Revenue

        The majority of management fee revenue in 2000 and 1999 consists of fees earned on those premiums managed for our co-reinsurers.

Net Investment Income

        Net investment income decreased by $0.6 million from $13.5 million in 1999 to $12.9 million in 2000.

        The following table reflects the investment results for the year ended December 31, 2000:

	Average Investments		Net Investment Income(1)		Annualized Effective Yield		Net Realized Investment Losses
	U.S dollars in thousands
Investments	$	175,641	$	11,523	6.6	%	$	(2,538	)
Other investments		13,794		434	3.1	%		—
Cash and cash equivalents		23,430		967	4.1	%		—
Total	$	212,865	$	12,924	6.1	%	$	(2,538	)

(1)

Net investment income is net of investment-related expenses and income on premium receivable and funds held by ceding companies.

        Our investment portfolio in 2000 was reduced, in part, as a result of the share buy back, and our investment results were negatively impacted by realized losses from the sale of bonds that fell outside our investment guidelines following their respective downgrade.

        The following table reflects the investment results for the year ended December 31, 1999:

	Average Investments		Net Investment Income(1)		Annualized Effective Yield		Net Realized Investment Losses
	U.S dollars in thousands
Investments	$	197,781	$	11,528	5.8	%	$	(1,960	)
Other investments		10,931		495	4.5	%		(14	)
Cash and cash equivalents		26,889		1,492	5.5	%		—
Total	$	235,601	$	13,515	5.7	%	$	(1,974	)

        Net investment income is net of investment-related expenses and income on premium receivable and funds held by ceding companies.

(1)

Other investments include $7.8 million of equity investment and loads provided to three companies that we expect will generate or secure profitable reinsurance business for us.

35

        Our investment portfolio in 1999 was hurt by a general decrease in prices in the U.S. bond markets, which resulted in investment losses on sales of fixed income securities during the year.

Administrative Expenses and Taxes

        Total administrative expenses, which includes personnel costs, professional service fees, interest expense and other expenses, increased by $14.1 million, or 55%, from $25.7 million in 1999 to $39.8 million in 2000. The majority of the increase was due to a legal reserve of $8.4 million we established for costs associated with resolving disputes in respect of certain contracts and our investment in the Direct Response Marketing and Bancassurance lines of business.

        We continued to incur significant expenses for professional services and for travel expenses in the development of our business. Personnel costs increased by $4.1 million from $9.0 million in 1999 to $13.1 million in 2000. The number of full time employees increased from 121 at December 31, 1999 to 135 at December 31, 2000. The increase in employees was primarily in Direct Marketing, Bancassurance and in the centralized underwriting and claims operations.

        Professional service fees increased by $2.1 million from $8.2 million in 1999 to $10.3 million in 2000. Professional fees included $4.1 million in legal fees in respect of corporate compliance, standardization of policy contracts and management agreements, acquisitions, forensic audits and legal disputes. We incurred audit and accounting costs of $2.0 million. We incurred consulting expenses of $4.1 million in actuarial support, computer systems improvements, recruitment, due diligence and corporate communications.

        Foreign exchange losses were $1.3 million in the 2000 compared to foreign exchange losses of $11 thousand for 1999. These gains or losses are primarily unrealized and were incurred on the revaluation of assets and liabilities denominated in foreign currencies for reporting purposes. As we maintain a partial natural hedge, whereby foreign currency assets are held in the same currencies in which it must pay liabilities, the impact on cash flows from foreign exchange movements is reduced.

        Tax expense was nil for the year reflecting the losses reported.

Discontinued Operations

        Reference is made to Note 11 to our Consolidated Financial Statements concerning the divestiture, effective June 30, 2000, of our health care division.

LIQUIDITY AND CAPITAL RESOURCES

        Operating activities contributed a net cash outflow of $42.5 million and $1.5 million for the years ended December 31, 2001 and 2000 respectively. Cash flows from operations in future years may differ substantially from net income. As reinsurance contracts mature, we will be required to pay out a higher percentage of incurred losses in loss payments, which may affect cash flows.

        Reinsurance balances receivable decreased from $241.6 million as of December 31, 2000 to $190.5 million as of December 31, 2001 because we wrote less gross insurance premiums. We recognize these premiums at the inception of the reinsurance contract, based upon information received from intermediaries and ceding companies. Every quarter we compare estimated written premiums to actual premiums as reported by ceding companies and revise our estimates of written premium if appropriate.

        Prepaid reinsurance premiums decreased from $5.4 million as at December 31, 2000 to $1.5 million as at December 31, 2001, a factor of lower premium writings. During the year, we retroceded 15.5% of our gross written premiums to reinsurers compared to 13.6% in 2000. We have maintained similar levels of excess of loss protection in 2001 as in 2000.

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        Reinsurance funds recoverable on incurred losses increased from $15.6 million as at December 31, 2000 to $28.6 million as at December 31, 2001. The increase was due to additional losses being incurred above our net retention levels that enable us to make recoveries from our excess of loss reinsurers, plus the additional quota share cessions to two of our retrocessionaires.

        Deferred acquisition costs decreased from $46.6 million at December 31, 2000 to $40.3 million at December 31, 2001, which was a function of the decline in written premiums over the year.

        At December 31, 2001, reserves for unpaid losses and loss expenses were $146.4 million compared to $179.6 million at December 31, 2000. This decrease is also a function of reduced underwritings in 2001.

        At December 31, 2001, unearned premium reserves were $104.4 million compared to $148.1 million at December 31, 2000. Unearned premium reserves are established to cover the unexpired period of contracts of reinsurance that we have written. At December 31, 2001, acquisition costs payable were $43.1 million compared to $64.6 million at December 31, 2000. The balance represents acquisition expenses due on gross reinsurance premiums that we have written and is consistent with the decrease in written premiums.

        Shareholders' equity as of December 31, 2001 was $95.1 million, compared to $113.6 million at December 31, 2000. The major factor causing the reduction in shareholders' equity in 2001 was our net operating loss. Book value per common share declined to $8.03 as of December 31, 2001 from $9.64 as of December 31, 2000.

        We expect that our financial and operational needs for the foreseeable future will be met by funds generated from operations and the proceeds from the sale of investments. As we rely on cash flows from operations, a reduction in the demand for our services could reduce the availability of funds. Additionally, although we primarily invest in high quality assets, a diminution in the value of our portfolio could restrict our ability to continue financing our operations.

        As of December 31, 2001, we had the following material commitments for operating leases and employment contracts:

		Total Commitments
Years ending December 31,		Lease & Other Commitments		Less Sublease Income		Net		Employee Commitments		Total
		U.S. dollars in thousands
2002		$	1,743	$	200	$	1,543	$	563	$	2,106
2003			745		36		709		80		789
2004			523		—		523		—		523
2005			263		—		263		—		263
2006			184		—		184		—		184
2007 to 2012			839		—		839		—		839
	Total	$	4,297	$	236	$	4,061	$	643	$	4,704

        In support of our business, we enter into Letters of Credit and Trust Account arrangements with ceding companies. As at December 31, 2001, we had in total $91.0 million of outstanding Letters of Credit and Trust Accounts of which $27.0 million related to Letters of Credit issued and $64.0 million in Trust Accounts. These arrangements were secured against our fixed maturity investment portfolio. Effective January 1, 2001, the total Letters of Credit issued was decreased from $73.4 million to $50.1 million due to historical letters of credit expiring December 31, 2000. Further, in accordance with local regulatory requirements in Ireland, we placed $20 million in a Trust Agreement in February 2001.

37

Exposure Management

        We manage our underwriting risk exposures primarily through an excess of loss reinsurance program. For 2002, this program provides reinsurance protection up to a known accumulation of $5,000,000 for personal accident exposures and up to $5,000,000 per person for medical expense exposure.

Accounting Pronouncements

        In June 2001, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 141, Business Combinations. SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. We do not expect the adoption of SFAS No. 141 to have an impact on our financial position, results of operations, or cash flows.

        In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS No. 142 provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives not be amortized, but rather be tested at least annually for impairment. We do not expect the adoption of SFAS No. 142 to have an impact on our financial position, results of operations, or cash flows.

        In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and some provisions of Accounting Principles Board Opinion 30. SFAS No. 144 sets new criteria for determining when an asset can be classified as held-for-sale as well as modifying the financial statement presentation requirements of operating losses from discontinued operations. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. We are currently evaluating the provisions of SFAS No. 144.

Cautionary Statement Regarding Forward-Looking Statements

        Certain statements and information included in this Form 10-K constitute "forward-looking statements" within the meaning of the Private Litigation Reform Act of 1995. These statements express our intentions, strategies, or predictions for the future. In addition, from time to time, we may make forward-looking statements, orally or in writing. Forward-looking statements in this Form 10-K include, among others, statements regarding:

•

the ongoing adequacy of our loss reserves;



•

our continuing ability to increase premium rates and strengthen terms of trade in the North and Latin American markets without major loss of business;



•

the anticipated growth in ESG Direct segment in Asia and Europe; and



•

the impact of rate increases on premiums written over the 2001 underwriting year.

        These forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to be materially different from the results expressed or implied by the forward-looking statements. These factors include, among other things:

•

Economic Recession.  An economic slowdown worldwide, or in any of our key markets, could reduce demand for our products and services. If the general economic downturn continues or

38

worsens, the market for many insurance products may also diminish. We obtain a significant portion of our business from selling reinsurance, and if the primary insurance market declines, there could be an equal effect on the reinsurance market.

•

Insurance Industry Volatility.  The September 11, 2001, terrorist attacks in the United States (and their aftermath) may increase volatility in insurance and reinsurance markets. That volatility could adversely affect market participants, like ESG, whose direct exposure to the terrorist attacks is limited.



•

Inadequate Loss Reserves.  We maintain reserves to cover the estimated liability for reported and unreported claims. Inadequate reserves could be caused by our failure to value accurately the risks of certain business, inaccurate information from ceding clients, or extraordinary events. If our reserves prove insufficient to cover the actual losses we incur, we would have to increase our reserves and incur a charge to our earnings.



•

Medical Cost Increases.  Our medical reinsurance premiums reflect certain assumptions regarding increases in the cost of medical care. Medical costs (particularly prescription costs) are difficult to gauge, especially in the United States. Changes or advances in medical technology could increase our costs. Legislative or judicial developments that are adverse to medical providers also might increase costs. An increase in costs that eclipses the assumptions reflected in our premiums could result in losses for us.



•

Credit Risks.  From time to time, we may cede a portion of our reinsurance risk to other insurers or reinsurers. If these companies do not fulfill their obligations to us, we may be exposed to a greater risk than we had anticipated.



•

Loss of Key Clients.  Our contracts with our customers are generally short term. We can make no assurance that any customer will retain our services after its contract has ended. Though our business does not depend solely on any one customer, we have several customers that generate substantial revenues, including the Companion Insurance Company account, which accounted for 17% of our total revenues in 2001. The loss of this customer could adversely affect our revenues. If one of our customers is acquired or merges with another company, our contract with that customer may terminate early.



•

Direct Marketing Risks.  Our direct marketing business must gauge the credit, life, and accident risks faced by customers in multiple geographic regions. If we fail to accurately price the risks we assume, including the estimated life of the policies we reinsure, we may have to pay out more than we have taken in as premiums.



•

Competition.  Our reinsurance business competes with other international reinsurers, most notably American Re, Everest Re, Latin America Re, Swiss Re, Hanover Re, and Lloyd's. ESG Direct competes primarily with GE Capital, AIG, and ACE. These competitors have greater financial resources than we do, have been operating longer, and have established long-term relationships with others in the industry, all of which may be significant competitive advantages.



•

Competitive Pricing Practices.  Competitors may seek to capture market share by selling services and products at prices that fall below levels that ESG management expects to be profitable. If a competitor employs this strategy in any of the markets in which we operate, we could lose many customers and be forced to exit the market.



•

Credit Rating Downgrade.  In our reinsurance and direct marketing businesses, the rating assigned to our credit by agencies such as Standard and Poor's and Fitch can affect our business opportunities. Any downgrade in our rating could make it more difficult for us to attract and retain customers.

39

•

Loss of Key Employees.  As a small company, our success is dependent on our ability to retain our existing executive officers and attract additional qualified personnel in the future. The loss of the services of an executive officer would affect adversely our ability to conduct business.



•

Interest Rate Fluctuations.  We invest the majority of the money we receive as premiums in fixed rate instruments such as government and corporate bonds. Typically, the fair market value of a fixed rate instrument varies inversely with the fluctuations in interest rates. While our investments can fall in value, our liabilities tend to remain fixed. Consequently, a decline in the value of our investment portfolio could reduce our net income or lead to a loss.



•

Investment Risks.  We have contracted with Head Asset Management L.L.C. to supervise and direct the investment of our asset portfolio. Poor performance on the part of this investment manager could have an adverse impact on our financial performance.



•

Foreign Currency Exchange Risks.  Because we conduct business in numerous geographic regions and currencies around the world, fluctuations in currency exchange rates can affect our earnings. We maintain investments in currencies in which we will collect premiums and pay claims, thus creating a partial natural hedge against exchange rate fluctuations. While we do not expect our exposure to foreign currency risk to materially affect our profitability, volatility in exchange rates could affect our business adversely.



•

Inflation.  We provide reinsurance in certain geographical markets, such as Latin America, that have experienced sustained periods of high inflation. In an inflationary cycle, there is a risk that the amounts we will owe on our coverage obligations will exceed the amounts we received as premiums.



•

Legislative and Regulatory Changes.  Legislators and regulators could introduce new laws and regulations that affect the manner in which we conduct our business. Our direct marketing business, for example, could be affected by new laws or regulations limiting the use of personal data for direct marketing efforts. New occupational safety legislation in the countries where we reinsure these risks could increase our costs. Additional unexpected regulatory burdens could increase our compliance costs and lower our profit margins.



•

Tax Exposure.  For purposes of many countries, including the United States, ESG is not engaged in the conduct of any trade or business in such country, and, as a result, is not subject to corporate income tax therein. If, however, any country, including the United States were to contend successfully that our operations subject us to corporate income tax, we would be liable for tax on net income received by ESG to the extent it had been received at a permanent place of business. If corporate income taxes did apply to income received by ESG, it would reduce our net income, if any.



•

Litigation Risks.  In the normal course of business, we are involved in litigation. By its nature, litigation is uncertain and could have a material adverse effect that is not anticipated by management.



•

Cyclical Changes in the Market.  The reinsurance market is affected by fluctuations in the investment environment and extraordinary events. If we fail to anticipate these cyclical trends, we may incur losses in our contracts.

        We undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent, written and oral, forward-looking statements attributable to ESG or persons acting on our behalf are qualified by the cautionary statements in this Form 10-K.

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ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

        We are subject to market risk arising from the potential change in value of our various financial instruments. These changes may be due to fluctuations in interest rates or foreign currency rates, or both in the case of foreign currency investments. We monitor our exposure to interest rate and currency rate risk on a quarterly basis and currently do not believe that the use of derivatives to manage such risk is necessary. We intend to reevaluate the need for a formal hedging strategy on a periodic basis, and may determine that such a strategy, including the use of derivative instruments, is appropriate in the future.

Interest Rate Risk

        Our largest source of market risk is interest rate risk on our portfolio of fixed maturity investments, especially fixed rate instruments. In addition, the credit worthiness of the issuer, relative values of alternative investments, liquidity and general market conditions may affect fair values of interest rate sensitive instruments.

        Our general strategy with respect to fixed maturity securities is to invest in high quality securities while maintaining diversification to avoid significant concentrations in individual issuers' industry segments or countries.

        Generally, we expect that an increase in market interest rates will cause a decline in the value of our investment portfolio, whereas a decrease in rates may cause an increase in value. The following table shows the approximate effect on the value of the our fixed maturities investment portfolio, based on hypothetical changes in market interest rates for the year ended December 31, 2001 and 2000:

	-150 Basis Points		-100 Basis Points		-50 Basis Points		Market Value		+50 Basis Points		+100 Basis Points		+150 Basis Points
	U.S. dollars in thousands
December 31, 2001	$	151,898	$	149,492	$	147,140	$	144,844	$	142,591	$	140,390	$	138,234
December 31, 2000	$	176,327	$	173,668	$	171,052	$	168,478	$	165,944	$	163,450	$	160,994

        The changes in portfolio values shown were ascertained by calculating the market yield of each bond given its actual market price at December 31, 2001 and 2000, raising or lowering each bond's yield by the hypothetical changes in market interest rates indicated above and, then calculating the resulting prices and the resulting aggregate market values. The modeled yield changes are assumed to occur instantaneously and equally across the yield curve. Price changes of floating rate bonds were calculated assuming coupons adjusted by the modeled amounts at their next scheduled reset date. Effects on portfolio value of prepayment related interest rate changes in the case of mortgage-backed securities are not significant. The values indicated above are estimates and are necessarily based on various assumptions that are subjective in nature. Accordingly, the actual impact of changes in market rates on our investment portfolio may be significantly greater or less than those indicated above.

Foreign Currency Risk

        Our functional currency is the U.S. Dollar. However, we write reinsurance business in numerous geographic regions and currencies, giving rise to the risk that the ultimate settlement of receivables and payables on reinsurance transactions will differ from the amounts currently recorded as assets and liabilities in the financial statements. We generally do not hedge the foreign currency exposure of its subsidiaries transacting business in currencies other than their functional currency (transaction exposure). The primary functional currency exposures are European Euro, Norwegian Kroner, Australian Dollar, Hong Kong Dollar and Great Britain Pound. We believe that our foreign currency

41

transaction exposure is immaterial to our consolidated results of operations due to the partial natural hedge produced by normal cash flow operations.

Inflation

        Inflation has not had a material impact on our operations for any of the three years presented. We write reinsurance in Latin America, which has experienced periods of high inflation. However, it is possible that future inflationary conditions may impact subsequent accounting periods.

The Euro

        On January 1, 1999, a single currency, the "Euro," was adopted as the national currency of the 11 participating countries in the European Monetary Union, including Germany and Ireland, two of the countries in which we operate and in which we maintain a significant presence. Our German and Irish subsidiaries now use the Euro for accounting purposes. To date, the impact of the conversion has had no material impact on our operations, accounting systems or financial reporting.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ESG RE LIMITED

CONSOLIDATED BALANCE SHEETS

		As of December 31,
		2001			2000
		U.S. dollars in thousands except share data
ASSETS
Investments available for sale, at fair value (cost: $146,369 and $166,513)		$	144,844		$	168,478
Cash and cash equivalents			3,915			26,032
Other investments			6,172			17,736
Total investments and cash			154,931			212,246
Accrued investment income			2,028			3,240
Management fees receivable			296			713
Reinsurance balances receivable			190,526			241,587
Reinsurance recoverable on incurred losses			28,630			15,633
Funds held by ceding companies			24,629			18,432
Prepaid reinsurance premiums			1,523			5,432
Deferred acquisition costs			40,308			46,611
Receivable for securities sold			2,318			—
Deferred tax asset			1,339			—
Other assets			7,277			6,281
Cash and cash equivalents held in a fiduciary capacity			1,724			4,619
TOTAL ASSETS		$	455,529		$	554,794
LIABILITIES
Unpaid losses and loss expenses		$	146,383		$	179,614
Unearned premiums			104,395			148,124
Acquisition costs payable			43,110			64,604
Reinsurance balances payable			51,927			30,511
Accrued expenses, accounts payable, and other liabilities ($80 and $85 due to related parties)			12,920			13,756
Fiduciary liabilities			1,724			4,619
Total liabilities			360,459			441,228
Commitments and contingencies (Note 11)
SHAREHOLDERS' EQUITY
Preference shares, 50,000,000 shares authorized; no shares issued and outstanding for 2001 and 2000			—			—
Class B common shares, 100,000,000 shares authorized; no shares issued and outstanding for 2001 and 2000			—			—
Common shares, par value $1 per share; 100,000,000 shares authorized; 11,831,063 shares issued and outstanding for 2001 and 11,777,086 shares issued and outstanding for 2000			11,831			11,777
Additional paid-in capital			208,221			208,539
Unearned compensation			(333	)		(893	)
Accumulated other comprehensive income:
	Foreign currency translation adjustments		(4,193	)		(5,331	)
	Unrealized (losses)/gains on securities		(1,525	)		1,965
Accumulated other comprehensive income			(5,718	)		(3,366	)
Retained deficit			(118,931	)		(102,491	)
Total shareholders' equity			95,070			113,566
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	455,529		$	554,794

The accompanying notes are an integral part of the consolidated financial statements.

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ESG RE LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS

		Years Ended December 31,
		2001			2000			1999
		U.S. dollars in thousands except share and per share data
REVENUES
Net premiums written		$	113,593		$	211,886		$	313,210
Change in unearned premiums			39,627			24,734			(64,085	)
Net premiums earned			153,220			236,620			249,125
Management fee revenue			874			1,846			2,128
Net investment income (includes expenses of $297, $397 and $495 for related parties)			12,177			12,924			13,515
(Loss)/gain on equity investments			(27	)		180			(205	)
Net realized investment losses			(5,711	)		(2,538	)		(1,974	)
			160,533			249,032			262,589
EXPENSES
Losses and loss expenses			104,566			187,241			199,031
Acquisition costs			45,840			78,566			66,296
Personnel costs			11,891			13,085			8,993
Professional service fees			6,899			10,268			8,166
Other expenses			9,116			16,490			8,510
			178,312			305,650			290,996
LOSS FROM CONTINUING OPERATIONS BEFORE TAXES			(17,779	)		(56,618	)		(28,407	)
Income tax benefit/(charge)			1,339			—			(815	)
LOSS FROM CONTINUING OPERATIONS			(16,440	)		(56,618	)		(29,222	)
Net loss from discontinued operations			—			(5,178	)		(12,772	)
NET LOSS		$	(16,440	)	$	(61,796	)	$	(41,994	)
PER SHARE DATA
Basic net loss per share from continuing operations		$	(1.39	)	$	(4.79	)	$	(2.20	)
Diluted net loss per share from continuing operations		$	(1.39	)	$	(4.79	)	$	(2.20	)
Basic net loss per share		$	(1.39	)	$	(5.23	)	$	(3.17	)
Diluted net loss per share		$	(1.39	)	$	(5.23	)	$	(3.17	)
WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING
	Basic		11,795,034			11,809,000			13,260,214
	Diluted		11,795,034			11,809,000			13,260,214
Dividends declared per share		$	0.00		$	0.24		$	0.32

The accompanying notes are an integral part of the consolidated financial statements.

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ESG RE LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

	Years Ended December 31,
	2001			2000			1999
	U.S. dollars in thousands
COMMON SHARES (PAR VALUE)
Balance at January 1	$	11,777		$	11,599		$	13,924
Shares retired during year		(63	)		(393	)		(2,334	)
Issuance of shares to employees		117			571			9
Balance at December 31		11,831			11,777			11,599
ADDITIONAL PAID-IN CAPITAL
Balance at January 1		208,539			211,225			226,216
Shares retired during year		(430	)		(1,643	)		(14,195	)
Directors' fees taken as stock options		62			173			232
Dividends		—			(2,859	)		(1,072	)
Issuance of shares to employees		50			1,643			44
Balance at December 31		208,221			208,539			211,225
UNEARNED COMPENSATION
Balance at January 1	$	(893	)	$	—		$	—
Net decrease during year		560			893			—
Balance at December 31	$	(333	)	$	(893	)	$	—
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance at January 1		(3,366	)		(5,314	)		60
Foreign currency translation adjustments, net of tax		1,138			(3,629	)		(1,128	)
Unrealized (losses)/gains on securities, net of tax		(3,490	)		5,577			(4,246	)
Balance at December 31		(5,718	)		(3,366	)		(5,314	)
RETAINED (DEFICIT)/EARNINGS
Balance at January 1		(102,491	)		(40,695	)		4,641
Net loss		(16,440	)		(61,796	)		(41,994	)
Dividends		—			—			(3,342	)
Balance at December 31		(118,931	)		(102,491	)		(40,695	)
TOTAL SHAREHOLDERS' EQUITY	$	95,070		$	113,566		$	176,815

The accompanying notes are an integral part of the consolidated financial statements.

45

ESG RE LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Years Ended December 31,
		2001			2000			1999
		U.S. dollars in thousands
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss		$	(16,440	)	$	(61,796	)	$	(41,994	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities
	Depreciation and amortization		1,761			1,642			1,773
	Realized investment losses		5,738			2,805			1,974
	Amortization of premiums and discounts		—			—			89
	Bad debt provisions		—			740			3,416
	Non-cash compensation expenses		428			1,506			285
Changes in assets and liabilities:
	Accrued investment income		1,212			127			262
	Management fees receivable		417			590			1,861
	Reinsurance balances receivable		51,061			34,525			(107,838	)
	Reinsurance recoverable on incurred losses		(12,997	)		(4,171	)		(8,701	)
	Funds held by ceding companies		(6,197	)		(2,891	)		(11,949	)
	Prepaid reinsurance premiums		3,909			3,676			(6,832	)
	Deferred acquisition costs		6,303			11,196			(20,182	)
	Deferred tax asset		(1,339	)		—			843
	Unpaid losses and loss expenses		(33,232	)		42,679			92,556
	Unearned premiums		(43,729	)		(33,003	)		69,243
	Acquisition costs payable		(21,494	)		(8,451	)		27,568
	Reinsurance balances payable		21,416			4,485			18,911
	Accrued expenses and accounts payable		(548	)		5,634			2,195
	Other assets and liabilities		1,246			(816	)		(1,329	)
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES		$	(42,485	)	$	(1,523	)	$	22,151
CASH FLOWS FROM INVESTING ACTIVITIES
Cost of investments acquired—available for sale		$	(296,302	)	$	(209,647	)	$	(301,290	)
Proceeds from sale of investments—available for sale			318,705			223,084			325,129
Change in short-term investments			—			—			—
Purchases of fixed assets			(2,630	)		(1,314	)		(2,686	)
Purchases of intangible assets			—			—			(958	)
Funding of other investments			595			(7,940	)		(10,067	)
NET CASH PROVIDED BY INVESTING ACTIVITIES		$	20,368		$	4,183		$	10,128
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of common shares			—			(2,036	)		(16,529	)
Dividends paid			—			(2,870	)		(4,414	)
NET CASH USED IN FINANCING ACTIVITIES		$	—		$	(4,906	)	$	(20,943	)
Net (decrease) increase in cash			(22,117	)		(2,246	)		11,336
Cash and cash equivalents at January 1			26,032			28,278			16,942
Cash and cash equivalents at December 31		$	3,915		$	26,032		$	28,278
SUPPLEMENTAL CASH FLOW INFORMATION
Cash transactions
	Interest paid	$	—		$	—		$	17
	Income taxes paid	$	65		$	87		$	496

The accompanying notes are an integral part of the consolidated financial statements.

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ESG RE LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

		Years Ended December 31,
		2001			2000			1999
		U.S. dollars in thousands
Net loss		$	(16,440	)	$	(61,796	)	$	(41,994	)
Other Comprehensive income, net of tax:
	Foreign currency translation adjustments		1,138			(3,629	)		(1,128	)
	Unrealized (losses)/gains on securities (net of tax of $— , $160 and $— )		(3,490	)		3,039			(6,220	)
	Less reclassification adjustment for losses/(gains) included in net income		—			2,538			1,974
Other comprehensive (loss)/income			(2,352	)		1,948			(5,374	)
Comprehensive loss		$	(18,792	)	$	(59,848	)	$	(47,368	)

The accompanying notes are an integral part of the consolidated financial statements.

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ESG RE LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the three years ended December 31, 2001, 2000, 1999

1.    ORGANIZATION AND BUSINESS

        We were incorporated under the laws of Bermuda on August 21, 1997. Our principal activities conducted through our subsidiaries, are to provide accident, health, credit, life and special risk reinsurance and to provide underwriting management services for these lines.

        Our consolidated financial statements include both our accounts and those of the following majority owned subsidiaries: European Specialty Reinsurance (Bermuda) Limited, ESG Reinsurance Ireland Limited, Accent Europe Insurance Company Limited, European Specialty Group (United Kingdom) Limited, ESG Re London Limited, ESG (London) Limited, ESG Direct Italy, ESG Direct Spain, European Specialty Latin America Inc., ESG Re North America Limited, European Specialty Group Holding AG, European Specialty Group Management GmbH, European Specialty Group Underwriting Management GmbH, Sportsecure AG, European Specialty Ruckversicherung AG, IPT GmbH, Health Benefits Consultants Company Limited, ESG Direct Hong Kong Limited, ESG Direct Asia Pte Limited, ESG Direct Australia Pty Limited, Imedi-L Holding Georgia and IMEDI L International Insurance Company Limited.

        All material intercompany balances and transactions have been eliminated in consolidation.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). Our significant accounting policies include the following:

(A)  PREMIUM REVENUES

        We estimate and recognize premiums written at the inception of the reinsurance contract based upon information received from intermediaries and ceding companies. We compare estimated written premiums to actual premiums as reported by ceding companies on a periodic basis. The timeliness and frequency of ceding company reports vary considerably by ceding company, line of business and geographic area, therefore the actual ultimate premium written may not be known with certainty for prolonged periods, following the expiration of the reinsurance contract. Differences between such estimates and actual amounts as reported by ceding companies are recorded in the period in which the actual amounts are determined.

        The reinsurance contracts which we enter are primarily of short duration. For retroactive contracts the amount by which the amount paid for reinsurance coverage exceeds the recorded liabilities is charged to earnings. If the liabilities exceed the amount paid the excess is deferred and amortized into income over the remaining settlement period. Premiums written are recognized as earned over the coverage period in proportion to the amount of protection provided. Unearned premium reserves are established to cover the unexpired contract period.

(B)  RESERVE FOR LOSSES AND LOSS EXPENSES

        The reserve for unpaid losses and loss adjustment expenses includes an estimate of reported case reserves and an estimate for losses incurred but not reported. Case reserves are estimated based on ceding company reports and other data considered relevant to the estimation process. We have some specific historical experience on a significant number of our programs on which to base our estimate of losses incurred but not reported. There is a reliance on the expectations of ceding companies about

48

ultimate loss ratios at the inception of the contracts, supplemented by industry experience, which increases the uncertainty involved in the loss estimation process. The reserves as established by management are reviewed quarterly and adjustments are made in the periods in which they become known. Although management believes that an adequate provision has been made for the liability for losses and loss expenses based on all available information, there can be no assurance that the ultimate losses will not differ significantly from the amounts provided.

(C)  INVESTMENTS

        Fixed maturity securities are classified as available for sale and are reported at estimated fair value. Investments that are available for sale are expected to be held for an indefinite period but may be sold depending on interest rates and other considerations. Other investments over which we exercise significant influence are accounted for under the equity method. Otherwise these investments are accounted for at cost. Unrealized investment gains and losses on investments available for sale, net of applicable deferred income tax, are reported as a separate component of "accumulated other comprehensive income". Realized gains or losses on sale of investments are determined on the basis of average cost. The carrying values of investments available for sale and other investments are adjusted for impairments in value that are considered to be other than temporary.

(D)  DEFERRED ACQUISITION COSTS

        We defer costs relating to the production of new business, primarily commissions and telemarketing costs in respect of our Direct business, and include them in the deferred acquisition cost asset to the extent that they are recoverable from future related policy revenues. We amortize the deferred acquisition costs in respect of commissions over the periods in which the related premiums are earned. We amortize the deferred acquisition costs in relation to telemarketing over the expected life of the policies. We review our deferred costs to determine if they are recoverable from future income, including investment income, and, if they are not, we charge them as an expense.

(E)  REINSURANCE PREMIUMS CEDED

        Reinsurance premiums ceded are reported as prepaid reinsurance premiums and amortized over the respective contract or policy periods in proportion to the amount of insurance protection provided. Commissions on reinsurance ceded are deferred over the terms of the contracts of reinsurance to which they relate and amortized in proportion to the amount of insurance protection provided.

(F)  MANAGEMENT FEE REVENUE

        Management fee revenue consists primarily of fees earned as compensation for underwriting and managing the reinsurance portfolio on behalf of our co-reinsurers. These fees are estimated and recognized at the inception of the contracts with the co-reinsurers and amortized over the life of the contracts.

(G)  INCOME TAXES

        We and our subsidiaries file income tax returns as required by the laws of each country in which it has operations. We account for income tax expenses and liabilities under the asset and liability method in accordance with Statement of Financial Accounting Standards Board ("SFAS") No. 109, "Accounting for Income Taxes." Deferred income taxes arise from the recognition of temporary differences between income reported for financial statement purposes and income for income tax purposes. These deferred taxes are measured by applying currently enacted tax rates. In addition, SFAS No. 109 requires the recognition of future benefits, such as for net operating loss carryforwards, to the extent that realization of such benefits is more likely than not.

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(H)  FOREIGN CURRENCY TRANSLATION

        Our functional and reporting currency is the U.S. Dollar. Foreign currency receivables or payables that are denominated in a currency other than U.S. dollars are translated into U.S. dollars at the rates of exchange in effect at the balance sheet date. Revenues and expenses are translated into U.S. dollars using weighted average exchange rates for the period. The resulting exchange gains or losses are included in the results of operations. Exchange gains and losses related to the translation of investments available for sale are included in the net unrealized appreciation (depreciation) of investments, net of deferred income taxes, as a separate component of "accumulated other comprehensive income." Assets and liabilities related to foreign operations are translated into U.S. dollars at the exchange rate in effect at the balance sheet date; revenues and expenses are translated into U.S. dollars using weighted average exchange rates for the period. Gains and losses resulting from translating foreign currency financial statements, net of deferred income taxes, are excluded from income and included as a separate component of "accumulated other comprehensive income."

(I)  EARNINGS PER SHARE

        Basic earnings per share are computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per common share reflect the maximum dilution that would have resulted from the exercise of stock options and warrants to purchase common shares. Diluted earnings per common share are computed by dividing net income by the weighted average number of common shares outstanding and the dilutive potential common shares outstanding during the period of calculation.

(J)  STOCK-BASED COMPENSATION

        SFAS No. 123, "Accounting for Stock-Based Compensation" defines a fair value based method of accounting for stock-based employee compensation plans. Under SFAS No. 123, companies are encouraged, but are not required, to adopt the fair value method for all employee awards granted. Companies are permitted to account for such transactions under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," but must disclose in a note to the financial statements, pro forma net income and earnings per share as if SFAS No. 123 had been applied. We account for stock-based compensation under APB No. 25 and provides the fair value method disclosures required by SFAS No. 123.

(K)  CASH AND CASH EQUIVALENTS

        For purposes of the consolidated statement of cash flows, we consider all time deposits and commercial paper with original maturity dates of 90 days or less to be cash equivalents.

(L)  USE OF ESTIMATES

        The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period as well as the disclosure of such amounts. Actual results, particularly for premiums written, premiums earned and loss reserves could materially differ from those estimates and assumptions.

(M) FAIR VALUE OF FINANCIAL INSTRUMENTS

        The carrying value of our investments approximates their fair value and is based on quoted market prices. Due to the uncertainty with respect to both the timing and amount of the proceeds to be realized from our other investments, it is not practicable to determine the fair value of these other

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investments. The carrying values of other financial instruments, including cash and cash equivalents, accrued investment income, and other receivables and payables approximate their estimated fair value due to the short term nature of the balances.

(N)  ACCOUNTING PRONOUNCEMENTS

        In June 2001, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 141, Business Combinations. SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. Management does not expect the adoption of SFAS No. 141 to have an impact on our financial position, results of operations, or cash flows.

        In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS No. 142 provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives not be amortized, but rather be tested at least annually for impairment. Management does not expect the adoption of SFAS No. 142 to have an impact on our financial position, results of operations, or cash flows.

        In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and some provisions of Accounting Principles Board Opinion 30. SFAS No. 144 sets new criteria for determining when an asset can be classified as held-for-sale as well as modifying the financial statement presentation requirements of operating losses from discontinued operations. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. We are currently evaluating the provisions of SFAS No. 144. Management does not expect the adoption of SFAS No. 144 to have an impact on our financial position, results of operations, or cash flows.

3.    INVESTMENTS

        Our investment portfolio at December 31, 2001 and 2000 is comprised of the following:

	As at December 31,
	2001		2000
	U.S. dollars in thousands
Fixed maturities available for sale	$	144,844	$	168,478
Total	$	144,844	$	168,478

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(A)  FIXED MATURITIES AND EQUITIES

        The amortized cost, fair value and gross unrealized gains and losses of fixed maturities as of December 31, 2001 and 2000 are presented in the tables below:

As at December 31, 2001	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	U.S. dollars in thousands
Corporate securities	$	44,581	$	230	$	1,012	$	43,799
U.S. treasury securities		54,000		24		558		53,466
Asset-backed securities/Mortgage-backed securities		25,741		241		383		25,599
Obligations of states and political subdivisions		16,612		171		278		16,505
Foreign currency debt securities		5,435		40		—		5,475
Total	$	146,369	$	706	$	2,231	$	144,844

As at December 31, 2000	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	U.S. dollars in thousands
Corporate securities	$	70,003	$	1,562	$	183	$	71,382
U.S. treasury securities		37,402		726		—		38,128
Asset-backed securities/Mortgage-backed securities		33,722		89		40		33,771
Obligations of states and political subdivisions		18,263		490		—		18,753
Foreign currency debt securities		7,123		—		679		6,444
Equity investments
Total	$	166,513	$	2,867	$	902	$	168,478

(B)  MATURITY DISTRIBUTION

        The amortized cost and fair value of fixed maturities by contractual maturity are shown in the following table:

As at December 31, 2001		Amortized Cost		Fair Value
		U.S. dollars in thousands
Fixed maturities available for sale
	Due in one year or less	$	11,590	$	11,138
	Due after one year through five years		85,436		84,657
	Due after five years through ten years		23,602		23,450
	Due after ten years		—		—
Mortgage-backed securities /Asset-backed securities			25,741		25,599
Total		$	146,369	$	144,844

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        Proceeds from the sales of investments available for sale for the years ended December 31, 2001 and 2000 were $318.7 million and $223.1 million, respectively. Realized investment gains and losses for the years ended December 31, 2001 and 2000 were as follows:

	Years ended December 31,
	2001			2000
	U.S. dollars in thousands
Gross realized gains	$	8,642		$	779
Gross realized losses		(14,353	)		(3,317	)
Total net realized gains/(losses)	$	(5,711	)	$	(2,538	)

(C)  CHANGE IN NET UNREALIZED (LOSSES)/GAINS ON INVESTMENTS

		As of December 31,
		2001			2000		1999
		U.S. dollars in thousands
Change in unrealized gains on investments, net of deferred taxes, included in other comprehensive income:
	Fixed maturities	$	(3,490	)	$	5,577	$	(6,220	)
Total		$	(3,490	)	$	5,577	$	(6,220	)

(D)  NET INVESTMENT INCOME

        The components of net investment income are presented in the table below:

	Years Ended December 31,
	2001			2000			1999
	U.S. dollars in thousands
Interest on fixed maturities	$	11,245		$	11,966		$	12,335
Interest on other investments		700			434			495
Interest on cash and cash equivalents		450			654			1,274
Other		116			313			218
Total investment income		12,511			13,367			14,322
Investment expenses		(334	)		(443	)		(807	)
Total	$	12,177		$	12,924		$	13,515

4.    OTHER INVESTMENTS

        Other investments represents equity investments in, and loans to, reinsurance-related enterprises, ceding companies or distribution channels that are expected to generate or secure additional profitable business for us. The loans bear interest at rates between 6% and 9% and are repayable between one and five years. There was a write-down in our investment in 4Sigma Limited of $8 million in 2001, leaving a net written down value of $1.2 million as at December 31, 2001.

	As of December 31,
	2001		2000
	U.S. dollars in thousands
Equity investments	$	1,672	$	10,736
Loans		4,500		7,000
	$	6,172	$	17,736

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5.    MANAGEMENT FEES RECEIVABLE

        Management fees receivable represents management fee and related revenues that are primarily due from co-reinsurers and quota share retrocessionnaires to whom a portion of our gross managed premium is allocated. Management fees receivable at December 31, 2001, and 2000 consist of the following:

	As of December 31,
	2001		2000
	U.S. dollars in thousands
Fees from co-reinsurers	$	296	$	582
Other fees		—		131
Total	$	296	$	713

6.    DEFERRED ACQUISITION COSTS

        Activity in deferred acquisition costs for the years ended December 31, 2001, and 2000 is summarized as follows:

	Years Ended December 31,
	2001			2000
	U.S. dollars in thousands
Balance at January 1	$	46,611		$	57,807
Acquisition costs incurred		39,537			67,370
Amortization of acquisition costs		(45,840	)		(78,566	)
Net change in deferred acquisition costs		(6,303	)		(11,196	)
Balance at December 31	$	40,308		$	46,611

7.    LOSSES AND LOSS EXPENSES

        Activity in the reserve for unpaid losses and loss expenses for the years ended December 31, 2001 and 2000 is summarized as follows:

		Years Ended December 31,
		2001			2000
		U.S. dollars in thousands
Balance at January 1		$	179,614		$	136,935
Less reinsurance recoverable			(15,633	)		(11,462	)
Net balance at January 1			163,981			125,473
Incurred related to:
	Current year		124,275			133,574
	Prior years		(19,709	)		53,667
Total incurred losses and loss expenses			104,566			187,241
Paid related to:
	Current year		54,109			41,470
	Prior years		96,685			107,263
	Total paid losses and loss expenses		150,794			148,733
	Net balance at December 31		117,753			163,981
	Plus reinsurance recoverable on incurred losses		28,630			15,633
	Balance at December 31	$	146,383		$	179,614

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        The negative prior year movement in incurred losses is as a result of a reduction in estimated loss reserves arising from write-downs in estimated written premiums of $105 million in 2001, with an equivalent reduction in net earned premiums of $30.3 million.

8.    INCOME TAXES

        Under current Bermuda law, we are not required to pay taxes in Bermuda on either income or capital gains. Provision for income taxes consists of corporate and other applicable income taxes payable in the various jurisdictions in which we conduct our business including, but not limited to, Germany, Ireland, Canada and the United Kingdom. The components of income taxes for the years presented are as follows:

		Years Ended December 31,
		2001			2000		1999
		U.S. dollars in thousands
Current tax expense
	Bermuda	$	—		$	—	$	—
	Foreign		—			—		(28	)
Total current tax expense			—			—		(28	)
Total deferred tax expense (benefit)			(1,339	)		—		843
Total income tax expense (benefit)		$	(1,339	)	$	—	$	815

        The actual income tax expense attributable to income for the three years in the period ended December 31, 2001 differed from the amount computed by applying the combined effective rate of 0% under Bermuda law for 2001 and 1999 to income before income taxes, as a result of the following:

	Years Ended December 31,
	2001			2000		1999
	U.S. dollars in thousands
Computed "expected tax expense"	$	—		$	—	$	—
Tax effect of foreign taxes		(1,339	)		—		815
Total income tax expense (benefit)	$	(1,339	)	$	—	$	815

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        Deferred income taxes reflect the tax effect of the temporary differences between the value of assets and liabilities for financial statement purposes and such values as measured by the tax laws and regulations. The principal items in the net deferred income tax asset (liability) are as follows:

		As of December 31,
		2001			2000
		U.S. dollars in thousands
Deferred tax assets
	Net operating loss carryforward	$	12,147		$	11,246
	Other assets		1,368			1,105
Gross deferred tax assets			13,515			12,351
Less: valuation allowance			(11,387	)		(11,444	)
Deferred tax assets after valuation allowance		$	2,128		$	907
Deferred tax liabilities
	Unrealized investment gains		—			(157	)
	Other liabilities		(789	)		(750	)
Total deferred tax liabilities		$	(789	)	$	(907	)
Net deferred tax asset		$	1,339		$	—

        Realization of the deferred tax asset is dependent on generating sufficient taxable income in the future. During both 2001 and 2000, a valuation allowance of $11.4 million was recorded to reduce the deferred tax asset in accordance with the provisions of SFAS109. The valuation allowance is necessary because sufficient uncertainly exist regarding the realizability of certain net operating loss carryforwards. We have loss carryforwards of $57.0 million and $65.0 million, available to offset future foreign taxable income, as of December 2001 and 2000, respectively. Such tax loss carryforwards do not have an expiration date.

9.    RETROCESSIONS

        We utilize retrocessional agreements to reduce our exposure to large claims and catastrophic loss occurrences. These agreements provide for recovery from retrocessionaires of a portion of our losses and loss expenses under certain circumstances. They do not discharge our primary liability. In the event retrocessionaires were unable to meet their obligations under the retrocession agreements, we would be liable for such defaulted amounts. We believe that we have minimized our credit risk with respect to our reinsurance by monitoring our retrocessionaires and avoiding concentrations with any single company.

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        Losses and loss expenses incurred and earned premiums as reported in the statement of operations are after deduction for retrocessions. Written and earned premiums and losses incurred for the years ended December 31, 2001, 2000 and 1999 are comprised of the following:

		Years Ended December 31,
		2001			2000			1999
		U.S. dollars in thousands
Premiums written:
	Assumed	$	134,372		$	244,976		$	333,000
	Ceded		(20,779	)		(33,090	)		(19,790	)
Net premiums written		$	113,593		$	211,886		$	313,210
Premiums earned:
	Assumed	$	178,101		$	260,469		$	262,451
	Ceded		(24,881	)		(23,849	)		(13,326	)
Net premiums earned		$	153,220		$	236,620		$	249,125
Losses and loss expenses:
	Assumed	$	121,902		$	209,224		$	211,645
	Ceded		(17,336	)		(21,983	)		(12,614	)
Net losses and loss expenses		$	104,566		$	187,241		$	199,031

10.  EARNINGS PER SHARE

        The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for income from continuing operations:

		Year Ended December 31, 2001
		Loss (Numerator)			Shares (Denominator)	Per Share Amount
		U.S. dollars in thousands except share and per share data
BASIC EARNINGS PER SHARE
Net loss allocable to common shareholders		$	(16,440	)	11,795,034	$	(1.39	)
Effect of dilutive securities:
	Class A warrants		—		—		—
	Class B warrants		—		—		—
	Director and employee options		—		—		—
	Employee share grant		—		—		—
	Repurchase of common shares		—		—		—
DILUTED EARNINGS PER SHARE
Net loss allocable to common shareholders		$	(16,440	)	11,795,034	$	(1.39	)

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		Year Ended December 31, 2000
		Loss (Numerator)			Shares (Denominator)	Per Share Amount
		U.S. dollars in thousands except share and per share data
BASIC EARNINGS PER SHARE
Net loss allocable to common shareholders		$	(61,796	)	11,809,000	$	(5.23	)
Effect of dilutive securities:
	Class A warrants		—		—		—
	Class B warrants		—		—		—
	Director and employee options		—		—		—
	Employee share grant		—		—		—
	Repurchase of common shares		—		—		—
DILUTED EARNINGS PER SHARE
Net loss allocable to common shareholders		$	(61,796	)	11,809,000	$	(5.23	)

        Class A warrants to purchase 1,381,200 common shares at $20 per share were outstanding as of December 31, 2000 and 2001. Options to purchase up to 1,680,328 common shares, issued at exercise prices between $2.01 and $26.00, were outstanding as of December 31, 2000. Options to purchase up to 2,315,409 common shares, issued at exercise prices between $2.01 and $26.00, were outstanding as of December 31, 2001. The incremental shares from assumed exercise of options and warrants have not been included in the above computation for 2001 and 2000 as they have an anti-dilutive effect on the net loss per common share.

11.  COMMITMENTS AND CONTINGENCIES

(A)  EMPLOYMENT CONTRACTS

        We have entered into various employment contracts with fixed terms of up to three years that have total minimum commitments of $0.6 million, excluding any performance bonuses that are determined by our Board of Directors. The contracts include various non-compete clauses following termination of employment. As of December 31, 2000, the minimum employee commitments were $3.1 million.

(B)  LEASE AND OTHER COMMITMENTS

        We and our subsidiaries have various lease obligations. Rental expenses are amortized on the straight-line basis over the term of the lease. Total rental expense was approximately $1.4 million, $1.5 million and $0.9 million for the years ended December 31, 2001, 2000 and 1999, respectively. We have leased premises in Bermuda, Ireland, United Kingdom, Portugal, Hong Kong, Australia, Thailand, United States, Canada, Italy and Spain.

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        The future minimum commitments under operating leases, employment contracts and other commitments are as follows:

Year Ended December 31,	Lease and other Commitments		Employment Commitments		Total
	U.S. dollars in thousands
2002	$	1,543	$	563	$	2,106
2003		709		80		789
2004		523		—		523
2005		263		—		263
2006		184		—		184
Over five years		839		—		839
Total	$	4,061	$	643	$	4,704

(C)  LETTERS OF CREDIT

        As of December 31, 2001, Secured Letters of Credit and Trust Accounts in the aggregate amount of $91.0 million have been issued in favor of ceding companies with $27.0 million related to Letters of Credit issued and $64.0 million related to Trust Accounts in force. The Letters of Credit and Trust Accounts are secured by a lien on our fixed maturities investment portfolio, equal to 120% of the amount of the outstanding letters of credit, and 102% of the amount of the outstanding Trust Accounts. As of December 31, 2000, Secured Letters of Credit and Trust Accounts in the aggregate amount of $95.8 million have been issued in favor of ceding companies with $73.4 million related to Letters of Credit issued and $22.4 million related to Trust Accounts in force.

(D)  PENSION OBLIGATIONS

        Certain subsidiaries of ours are obligated to make defined contributions to pension plans for their employees. As of December 31, 2001 and 2000, there were outstanding liabilities for pension contributions of $645 thousand and $568 thousand respectively. Pension contribution expenses were $760 thousand, $732 thousand, and $590 thousand, for the years ended December 31, 2001, 2000, and 1999, respectively.

(E)  DISCONTINUED OPERATIONS

HEALTH CARE DIVISION

        From December 1998 through June 2000, we operated IPT GmbH and later VBB Bermuda Limited, subsidiaries that provided disease management services in Germany. These services, which included physician referrals, a medical information hotline, second opinion services, cardiac rehabilitation and access to disease management advisors, comprised the health care segment of our business.

        Effective as of June 30, 2000, we transferred all the assets of our health care segment to 4Sigma. These assets had a book value of $8 million at the time of transfer. In exchange for the transferred assets, we received 8,000,000 shares of Series A preferred stock, representing a 69% equity interest in 4Sigma. In addition, affiliates of John C Head III, the Chairman of our Board of Directors, invested $3.0 million in cash in exchange for a 28% equity interest in 4Sigma. Dr. Gerald Moeller, a director of ESG from July 1999 to August 2000 and the president of our health care division from July 1999 to June 2000, also invested $400,000 in cash in exchange for a minority equity interest in 4Sigma. The board members of 4Sigma include John C Head III, Dr. Gerald Moeller and Dr. Herbert Palmberger, who also serves as outside counsel to ESG in Germany.

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        In November 2001, we committed to make an additional capital infusion in 4Sigma of $1.8 million, in increments of $100,000 as funds are needed by 4Sigma, in exchange for 1.8 million shares of Series E preferred stock. As at December 31, 2001 we had invested $1.2 million of this commitment. Mr. Head has also committed to invest an additional $1.2 million in cash in 4Sigma on these same terms and conditions. We evaluate our investment in 4Sigma periodically.

        As of December 31, 2001, we had written off the Series A preferred stock representing our initial $8.0 million investment in 4Sigma.

(F)  CONTINGENCIES

        We and our subsidiaries, in common with the insurance industry in general, are subject to litigation, including claims for punitive damages, in the normal course of their business. We do not believe that such litigation will have a material adverse effect on our financial condition, future operating results, or liquidity.

        In February 2000, Odyssey Re instituted an action in England against a broker, Stirling Cooke Brown, alleging fraud and conspiracy on the reinsurance placement of 1997 and 1998 Personal Accident and Workers Compensation "carve out" business with Odyssey Re. These proceedings mirror earlier proceedings commenced in New York, which were dismissed on jurisdictional grounds. During 1998, ESG accepted a 25% quota share reinsurance treaty with Odyssey Re (UK) retroactive to January 1, 1998. This treaty covers various insurance companies involved in the litigation Odyssey Re instituted in New York over 1997 and 1998 business. This treaty terminated as of December 31, 1998, but we renewed our participation for 1999 directly with one of those ceding companies. In December 1999, we gave notice to rescind our contract with Odyssey Re (UK) for misrepresentation and failure to disclose material facts. On November 29, 2000, we filed suit in the High Court to seek a judicial confirmation of our rescission. On February 5, 2001, Odyssey Re filed a response. On March 21, 2001, we filed a motion for summary judgment. The motion was substantially based on an admission by Odyssey Re (UK) that a misrepresentation had been made to us in connection with the quota share, and was supported by evidence from fact and expert witnesses. Our intention was to re-evaluate the motion if Odyssey Re (UK) served any evidence. Subsequently, Odyssey Re (UK) withdrew their admission, and, less than a week before the date scheduled for the hearing, and in violation of the applicable rules of court, they served their evidence, in which they made it clear, for the first time, that they intended to plead a positive case that the representation was true. Odyssey Re's evidence also raised other factual issues by way of defense, which had not been contained in their initial pleading.

        We recognized that the court was unlikely to give a summary judgment on the evidence as it stood and accordingly withdrew our motion. This withdrawal is in no way an acknowledgement that our prospects of success in our litigation with Odyssey Re (UK) are any less good than they were, but simply an acceptance that the issues, which have been raised, require a trial. Indeed, we remain confident that we will prevail in that litigation, and intend to pursue the litigation aggressively. We may reissue our motion for summary judgment at any time if justified by the state of the evidence and the pleadings. This matter will be heard no earlier than early 2003.

        We have also given notice we intend to rescind the 1999 account. This matter is now set for arbitration in early 2003.

        At this time, we are unable to determine the amount of our exposure and the possible effect upon our business, financial condition or results of operation from these two contracts.

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12.  FIDUCIARY ASSETS AND LIABILITIES

        As part of our prior underwriting pool management services, we collect premiums and pay claims on behalf of the pool participants. In addition to fees received for the underwriting services, we also earn interest income on funds we are authorized to hold in accordance with the underwriting management agreements between us and the pool participants. We are authorized to retain 25% of gross premiums as a claims fund held in bank accounts having trustee status.

13.  WARRANTS

        In connection with the Direct Sales (the private sale of securities—Common, A Warrants and B Warrants), we issued Class A Warrants to purchase up to 1,381,200 common shares and Class B Warrants to purchase up to 1,381,200 common shares if certain performance criteria are satisfied. The Class A Warrants are vested and are exercisable at $20 per share at any time prior to December 2007.

        Twenty percent of the Class B Warrants are available for vesting during each of the first five years following the closing date of the IPO of the Company in December 1997, and will vest only if, for any 20 consecutive trading days during the one-year vesting period, the percentage change in the market price of the common shares since the closing date of the IPO exceeds the percentage change in the Wilshire 5000 Stock Price Index by at least 500 basis points. The Class B Warrants are exercisable for a period of 10 years from the date of vesting. The exercise price per Common Share was originally $20 and was reduced by $1.50 on September 1, 2001 under the terms of the original Warrant. As of December 31, 2001 and 2000, 276,240 of the Class B Warrants are vested and are exercisable.

14.  STOCK-BASED COMPENSATION

(A)  EMPLOYEE STOCK OPTION PLAN

        We have adopted the 1997 Stock Option Plan (the "Stock Option Plan") under which our employees and employees of our subsidiaries are eligible to participate. The Stock Option Plan is administered by the Compensation Committee of our Board of Directors. Subject to the provisions of the Stock Option Plan, the Board of Directors has sole discretionary authority to interpret the Stock Option Plan and to determine the terms and conditions of the awards. The Stock Option Plan was approved by shareholders in December 1997.

        The exercise price of an option is determined by the Compensation Committee when the options are granted. The vesting schedule of an option is determined by the Compensation Committee when an option is granted. The most common vesting schedule calls for an option to vest 25% at the date of grant and 25% on each of the second, third and fourth anniversaries of the date of grant. All options are exercisable at the fair market value of the stock at the date of the grant and expire 10 years after the date of the grant. Options granted under the Stock Option Plan are assignable subject to certain limitations. We have reserved 2,000,000 common shares for issuance under the Stock Option Plan.

        As of December 31, 2001, options to purchase a total of 1,565,694 shares of common stock had been granted, net of forfeitures, of which options for 656,975 shares were vested and exercisable, and 166,139 shares had been issued upon exercise. As of December 31, 2000, options to purchase a total of 1,057,900 shares of common stock had been granted, net of forfeitures, of which options for 679,648 shares were vested and exercisable, and no shares had been issued upon exercise.

(B)  DIRECTORS' STOCK OPTION PLAN

        We have adopted the ESG Re Limited Non-Management Directors' Compensation and Option Plan (the "Directors' Plan"), under which non-management directors are compensated for their service on the Board. Each non-management director receives fees for services as a member of the Board of Directors and its committees, in amounts determined by the Board of Directors, to be paid in a

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combination of cash and common shares, as determined by the Board. A Director may elect to receive all or a portion of such fees in the form of options to purchase common shares equal to two times the fees that would otherwise be payable. A director may also elect to defer receipt of the fees, and if so deferred, will receive deferred compensation indexed to the greater of (i) the total return on the common shares; or (ii) the one-year U.S. Treasury bill rate. If a director does not elect the payment in options or deferred compensation alternatives, the fees will be paid in a combination of cash and shares as determined by the Board. Shares granted under the Directors' Plan will not be transferable for six months after receipt. We have reserved 1,000,000 common shares for issuance under the Directors' Plan. The Directors' Plan was approved by shareholders in December 1997.

        To date all non-management directors have elected to receive their fees as options to purchase shares. Options granted under the Directors' Plan vest 100% at the date of grant. All options are exercisable at fair market value of the stock at the date of grant and expire 10 years after the date of grant. As of December 31, 2001, options to purchase a total of 754,428 shares of common stock had been granted, net of forfeitures, of which options for 754,428 shares were vested and exercisable, and no shares had been issued upon exercise. As of December 31, 2000, options to purchase a total of 622,128 shares of common stock had been granted, net of forfeitures, of which options for 622,128 shares were vested and exercisable, and no shares had been issued upon exercise.

        Compensation expense related to these grants of $62 thousand, $173 thousand and $232 thousand were recognized for the years ending December 31, 2001, 2000 and 1999, respectively.

        A summary of the status of our outstanding stock options under both plans as of December 31, 2001, 2000 and 1999 is presented below:

		2001				2000				1999
		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at January 1		1,680,328		$	9.33	1,440,503		$	15.20	815,428		$	21.90
	Granted	1,239,096		$	9.40	858,700		$	5.07	1,033,500		$	11.68
	Exercised	(166,139	)	$	2.62	—			—	—			—
	Forfeited	(437,876	)	$	15.02	(618,875	)	$	17.08	(408,425	)	$	19.66
Outstanding at December 31		2,315,409		$	6.47	1,680,328		$	9.33	1,440,503		$	15.20
Options exercisable at December 31		1,411,403		$	8.70	1,302,076		$	9.89	1,005,378		$	13.54
Average fair value of options granted during the year				$	0.74			$	2.95			$	0.88

        The fair value of each option grant was estimated using the Black/Scholes option pricing model with the following assumptions: (i) dividend yield of 0.0%; (ii) expected volatility of 28.1%; (iii) risk-free rate of 4.5%; and (iv) expected life of 4.7 years.

        We apply APB Opinion 25 and Related Interpretations in accounting for stock based compensation. Had the compensation expense for our stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method

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described in SFAS No. 123, our net loss and earnings per share would have been adjusted to the pro forma amounts indicated below:

		Years Ended December 31,
		2001			2000			1999
		U.S. dollars in thousands, except share and per share data
Net loss
	As reported (basic and diluted)	$	(16,440	)	$	(61,796	)	$	(41,994	)
	Pro forma		(17,859	)		(63,224	)		(42,311	)
Net loss per share
	As reported (basic and diluted)	$	(1.39	)	$	(5.23	)	$	(3.17	)
	Pro forma	$	(1.51	)	$	(5.35	)	$	(3.19	)

        The weighted average remaining contractual life of options outstanding at December 31, 2001, is presented below:

Range	Number of Options Outstanding	Number of Options Exercisable	Weighted Average Remaining Contractual Life
$0.00 to $2.65	971,437	262,307	9.6 years
$2.66 to $5.30	255,082	228,082	8.6 years
$5.31 to $7.95	705,412	543,936	7.6 years
$7.96 to $10.60	0	0	0.0 years
$10.61 to $13.25	0	0	0.0 years
$13.26 to $15.90	4,000	3,000	6.8 years
$15.91 to $18.55	160,050	155,650	7.1 years
$18.56 to $21.20	104,714	104,714	5.8 years
$21.21 to $23.85	0	0	0.0 years
$23.86 to $26.50	114,714	113,714	6.3 years

(C)  RESTRICTED STOCK AWARD PLAN

        On February 25, 2000, the Board of Directors approved the 2000 Restricted Stock Plan (the "RSA Plan"). The purpose of the RSA Plan is to promote the interests of the Company and its shareholders by (i) enhancing our ability and our affiliates' ability to attract and retain qualified individuals upon whom, in large measure, our progress, growth and profitability depend and (ii) providing an incentive to these individuals to encourage them to contribute to our future success and prosperity by enabling such individuals to participate in the long-term growth and financial success of the Company through stock ownership. This is a broad-based plan under which grants can be made to employees at most levels. The Compensation Committee has discretionary authority to interpret the RSA Plan and to determine the terms of any awards, when, if and to whom awards are granted, and the number of common shares covered by each award. An S-8 Registration Statement was filed and effective on March 13, 2000 covering this Plan.

        Upon issuance of restricted shares, unearned compensation is charged to shareholders' equity for the cost of the restricted stock and is amortized to expense over the vesting period. The amount of

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earned compensation recognized as expense with respect to restricted stock awards was $0.6 million and $1.1 million for 2001 and 2000, respectively. No expense was recognized in 1999.

Restricted Stock Awards	2001	2000
Shares Outstanding at January 1	420,450	0
Total Shares Granted	40,000	616,400
Shares Forfeited	62,950	50,500
Shares Released upon Vesting	140,400	145,450
Shares Outstanding & Subject to Forfeiture	257,100	420,450
Shares Remaining available for Grant	1,457,050	1,434,100

15.  RELATED PARTIES

        In 1997, we entered into several agreements with Head Asset Management L.L.C. ("Head Asset Management"), an affiliate of Head & Company L.L.C. ("Head Company"), relating to the provision of investment management services. The Chairman of our Board of Directors and Chief Executive Officer is a Managing Member of Head Company. Under these agreements, which we amended July 1, 2000, and which are subject to our investment guidelines and other restrictions, we will pay Head Asset Management a fee equal to the sum of (i) 0.20% per annum of the first $150 million of assets under management, and (ii) 0.15% per annum of assets under management in excess of $150 million. We incurred expenses of $297 thousand, $397 thousand and $495 thousand under this agreement for the years ended December 31, 2001, 2000 and 1999, respectively.

16.  SEGMENT INFORMATION

        SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," requires that an enterprise disclose information about its operating segments. During 2001, our operations consisted of two segments—ESG Reinsurance and ESG Direct. ESG Reinsurance, provides medical, personal accident, credit life, disability, and special risks reinsurance to insurers and selected reinsurers. ESG Direct provides direct marketing services, expertise in the development of reinsurance and insurance products, and supporting technology to financial institutions in Asia, Europe and Australia. Management monitors and evaluates the financial performance of each segment based on their underwriting profit or loss. The accounting policies for each of the operating segments are the same as those described in Note 2 Summary of Significant Accounting Policies.

        We do not maintain separate balance sheet data for our operating segments. Accordingly we do not review and evaluate the financial results of the operating segments based upon balance sheet data.

        The following tables provide summary financial information by our lines of business of the reinsurance segment.

	Year Ended December 31, 2001
	Medical			Accident			Credit			Life			Other			Total
	U.S. dollars in thousands
Gross premiums written	$	104,376		$	10,424		$	(5,865	)	$	(1,293	)	$	2,116		$	109,758
Net premiums written		88,899			5,850			(5,548	)		(2,307	)		2,086			88,980
Net premiums earned		101,985			33,054			(3,591	)		1,187			2,475			135,110
Losses and loss expenses		(66,008	)		(36,598	)		3,687			284			(3,410	)		(102,045	)
Acquisition costs		(28,769	)		(6,747	)		289			(642	)		936			(34,933	)
Operating costs		(17,893	)		(2,275	)		(65	)		(163	)		(438	)		(20,834	)
Net underwriting (loss)/income	$	(10,685	)	$	(12,566	)	$	320		$	666		$	(437	)	$	(22,702	)

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	Year Ended December 31,2000
	Medical			Accident			Credit			Life			Other			Total
	U.S. dollars in thousands
Gross premiums written	$	173,919		$	48,125		$	3,405		$	8,977		$	4,535		$	238,961
Net premiums written		148,285			43,014			3,162			7,845			3,565			205,871
Net premiums earned		161,772			51,771			6,588			6,127			4,513			230,771
Losses and loss expenses		(124,119	)		(51,153	)		(2,344	)		(5,291	)		(3,081	)		185,988
Acquisition costs		(53,471	)		(15,594	)		(3,527	)		(1,622	)		(2,106	)		(76,320	)
Operating costs		(24,628	)		(6,712	)		(844	)		(1,044	)		(926	)		(34,154	)
Net underwriting (loss)/income	$	(40,446	)	$	(21,688	)	$	(127	)	$	(1,830	)	$	(1,600	)	$	(65,691	)

	Year Ended December 31, 1999
	Medical			Accident			Credit			Life			Other			Total
	U.S. dollars in thousands
Gross premiums written	$	251,984		$	66,514		$	1,851		$	6,934		$	5,717		$	333,000
Net premiums written		240,314			61,549			714			5,550			5,083			313,210
Net premiums earned		188,016			42,443			3,933			9,593			5,140			249,125
Losses and loss expenses		(153,894	)		(33,001	)		(2,424	)		(8,015	)		(1,697	)		(199,031	)
Acquisition costs		(52,940	)		(9,287	)		(795	)		(1,516	)		(1,758	)		(66,296	)
Operating costs		(16,503	)		(4,393	)		(421	)		(976	)		(550	)		(22,843	)
Net underwriting (loss)/income	$	(35,321	)	$	(4,238	)	$	293		$	(914	)	$	1,135		$	(39,045	)

        The following tables provide summary financial information of earned premiums of the ESG Reinsurance segment, on the basis of where the underlying risk is located

	Years ended December 31,
	2001		2000		1999
Western Europe	(0.7	)%	17.9	%	33.0	%
North America	79.6	%	57.1	%	55.3	%
Latin America	19.9	%	16.8	%	10.9	%
Other	1.2	%	8.2	%	0.8	%
Total	100.0	%	100.0	%	100.0	%

        The following tables provide summary financial information by our lines of business of the direct segment. The ESG Direct segment did not operate during 1999.

	Year Ended December 31, 2001
	Accident			Credit			Total
	U.S. dollars in thousands
Gross premiums written	$	17,169		$	7,444		$	24,613
Net premiums written		17,169			7,444			24,613
Net premiums earned		17,153			957			18,110
Losses and loss expenses		(2,242	)		(278	)		(2,520	)
Acquisition costs		(10,395	)		(511	)		(10,906	)
Operating costs		(6,382	)		(313	)		(6,695	)
Net underwriting loss	$	(1,866	)	$	(145	)	$	(2,011	)

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	Year Ended December 31, 2000
	Accident			Credit		Total
	U.S. dollars in thousands
Gross premiums written	$	6,015		$	—	$	6,015
Net premiums written		6,015			—		6,015
Net premiums earned		5,849			—		5,849
Losses and loss expenses		(1,253	)		—		(1,253	)
Acquisition costs		(2,246	)		—		(2,246	)
Operating costs		(2,965	)		—		(2,965	)
Net underwriting loss	$	(615	)	$	—	$	(615	)

        The following tables provide summary financial information of earned premiums of the ESG Direct segment, on the basis of where the underlying risk is located

	Years ended December 31,
	2001		2000
Western Europe	33.9	%	0.0	%
Asia	66.1	%	100.0	%
Total	100.0	%	100.0	%

17.  SIGNIFICANT CLIENTS

        For the year ended December 31, 2001, one significant client contributed $27.9 million to total revenue. For the year ended December 31, 2000 no client contributed more than 10% of total revenue. For the year ended December 31, 1999, one significant client relationship contributed $64.1 million to total revenue.

18.  STATUTORY REQUIREMENTS AND DIVIDEND RESTRICTIONS

        Under Bermuda law, we are prohibited from declaring or paying a dividend if such payment would reduce the realizable value of our assets to an amount less than the aggregate value of our liabilities, issued share capital (common share capital) and share premium (additional paid-in capital) accounts.

        Under the Bermuda Insurance Act, 1978, amendments thereto and Related Regulations, European Specialty Reinsurance (Bermuda) Limited is required to maintain certain measures of solvency and liquidity. For the years ended December 31, 2001 and 2000, these requirements have been met. The statutory capital and surplus of European Specialty Reinsurance (Bermuda) Limited was $68.6 million and $76.6 million and the minimum required statutory capital and surplus was $8.1 million and $8.5 million as of December 31, 2001 and 2000, respectively. The minimum required level of liquid assets was $63.2 million and $80.1 million with actual liquid assets of $95.6 million and $143.7 million as of December 31, 2001 and 2000, respectively.

        Under the regulations in force in Ireland, Accent is required to maintain a minimum solvency margin. As at December 31, 2001, and 2000, the minimum solvency requirement was $1.7 million and $2.2 million respectively. In addition, the company is required to maintain a trust account of $20 million.

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19.  UNAUDITED QUARTERLY FINANCIAL DATA

2001 Operating Data			First Quarter			Second Quarter			Third Quarter			Fourth Quarter
			U.S. dollars in thousands except per share data
Net Premiums written			$	37,193		$	29,672		$	8,898		$	37,830
Net Premiums earned				40,309			40,482			27,232			45,197
Management fee revenue				230			190			(132	)		586
Net investment income				3,408			3,326			2,512			2,931
Losses and loss expenses				29,985			26,238			14,762			33,581
Acquisition costs				11,934			13,070			8,561			12,275
Underwriting (loss)/profit				(1,610	)		1,174			3,909			(659	)
(Loss)/income from continuing operations before tax				(3,943	)		(5,915	)		97			(8,018	)
Net (loss)/income				(3,943	)		(5,915	)		97			(6,679	)
Earnings per common share:
	Basic net (loss)/income from continuing operations per share			(0.33	)		(0.50	)		0.01			(0.57	)
	Diluted net (loss)/income per share			(0.33	)		(0.50	)		0.01			(0.57	)
	Weighted average shares outstanding (000's):
		Basic		11,783			11,788			11,788			11,809
		Diluted		11,783			11,788			11,788			11,809

2000 Operating Data			First Quarter			Second Quarter			Third Quarter			Fourth Quarter
			U.S. dollars in thousands except per share data
Net Premiums written			$	104,479		$	44,675		$	16,010		$	46,722
Net Premiums earned				57,811			76,446			39,756			62,607
Management fee revenue				362			594			224			667
Net investment income				2,926			3,165			3,600			3,233
Losses and loss expenses				45,229			54,689			44,477			42,846
Acquisition costs				14,679			23,444			18,264			22,179
Underwriting loss				(2,097	)		(1,687	)		(22,985	)		(2,417	)
Net loss from continuing operations				(7,306	)		(6,313	)		(35,048	)		(7,951	)
(Loss)/income from discontinued operations				(2,920	)		(3,008	)		750			—
Net loss				(10,226	)		(9,321	)		(34,298	)		(7,951	)
Earnings per common share:
	Basic net loss from continuing operations per share			(0.63	)		(0.53	)		(2.97	)		(0.67	)
	Diluted net loss from continuing operations per share			(0.88	)		(0.79	)		(2.90	)		(0.67	)
	Weighted average shares outstanding (000's):
		Basic		11,576			11,837			11,817			11,822
		Diluted		11,576			11,837			11,817			11,822

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        None.

67

PART III.

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

        The information with respect to our executive officers is contained under the caption "Executive Officers" in our definitive Proxy Statement for the 2002 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act and is incorporated in this Form 10-K by reference in response to this item.

        The information with respect to our directors is contained under the caption "Election of Directors" in our definitive Proxy Statement for the 2002 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act and is incorporated in this Form 10-K by reference in response to this item.

        The information required in this item with respect to Section 16(a) compliance disclosure is incorporated in this Form 10-K by reference from our definitive Proxy Statement for the 2002 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act.

ITEM 11.    EXECUTIVE COMPENSATION

        The information with respect to executive compensation is contained under the caption "Executive Compensation" in our definitive Proxy Statement for the 2002 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act and is incorporated in this Form 10-K by reference in response to this item.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The information with respect to security ownership of certain beneficial owners and management is contained under the caption "Information Regarding the Security Ownership of Certain Beneficial Owners, Management and Directors" in our definitive Proxy Statement for the 2002 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act and is incorporated in this Form 10-K by reference in response to this item.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The information with respect to certain relationships and related transactions is contained under the caption "Certain Relationships and Related Transactions" in our definitive Proxy Statement for our 2002 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission pursuant to Regulation 14A under the Securities Exchange Act and is incorporated in this Form 10-K by reference in response to this item.

68

PART IV.

ITEM 14.    EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, and REPORTS ON FORM 8-K.

(a)  Documents.

        The accompanying Exhibit Index is hereby incorporated herein by this reference. The exhibits listed in the accompanying Index to Exhibits on pages 71 and 72 are filed or incorporated by reference as part of this report.

(b)  Reports on Form 8-K.

        We filed reports on Form 8-K on January 31, 2001, April 9, 2001 and November 26, 2001. There were no other reports on Form 8-K filed during the period from January 1, 2001, to December 31, 2001.

69

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, thereunto authorized on April 1, 2002.

ESG RE LIMITED
By:	/s/  JOE A. QUINN Name: Joe A. Quinn Title: Acting Senior Financial Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/  JOHN C HEAD III John C Head III	Chairman of the Board, Director	March 29, 2002
/s/  ALASDAIR P. DAVIS Alasdair P. Davis	Chief Executive Officer, Director	March 29, 2002
/s/  JOE A. QUINN Joe A. Quinn	Acting Senior Financial Officer	March 29, 2002
/s/  CONOR HEERY Conor Heery	Controller, Chief Accounting Officer	March 29, 2002
/s/  ANTHONY J. HOBSON Anthony J. Hobson	Director	March 29, 2002
/s/  ISAO KUZUHARA Isao Kuzuhara	Director	March 29, 2002
/s/  DAVID L. NEWKIRK David L. Newkirk	Director	March 29, 2002
/s/  DAVID C. WINN David C. Winn	Director	March 29, 2002

70

EXHIBIT INDEX

Exhibit No.	Description of Exhibit
2.1*	Share Exchange Agreement between ESG Re Limited and European Specialty Group (United Kingdom) Limited, dated November 13, 1997
2.2*	Share Exchange Agreement between the shareholders of European Specialty Group Holding A.G. and European Specialty Group (United Kingdom) Limited, dated November 13, 1997
3.1*	Memorandum of Association
3.2*	Bye-Laws
4.1*	Specimen Common Share certificate
4.2*	Form of Class A Warrant
4.3*	Form of Class B Warrant
10.1*	Form of Subscription Agreement, between ESG Re Limited and certain Direct Purchasers, dated September 30, 1997
10.2*	Employment Agreement between ESG Re Limited and Steven H. Debrovner, dated December 1, 1997
10.3***	Employment Agreement between ESG Re Limited and John C Head III, dated September 1, 1999
10.4***	Employment Agreement between ESG Re Limited and Margaret L. Webster, dated March 1, 1999
10.5****	Employment Agreement between ESG Re Limited and Alasdair Davis, dated January 17, 2000
10.6****	Employment Agreement between ESG Re Limited and John C Head III, dated January 1, 2001
10.7++	Employment Agreement between ESG Re Limited and Nik Scopes, dated April 4, 2000
10.8*	Investment Advisory Agreement between ESG Re Limited and Head Asset Management LLC, dated December 1, 1997
10.9++	Amendment to Investment Advisory Agreement between ESG Re Limited and Head Asset Management LLC, dated July 1, 2000
10.10*	Investment Advisory Agreement between European Specialty Ruckversicherung A.G. and Head Asset Management LLC, dated December 1, 1997
10.11++	Amendment to Investment Advisory Agreement between European Specialty Ruckversicherung A.G. and Head Asset Management LLC, dated July 1, 2000
10.12++	Investment Advisory Agreement between European Specialty Reinsurance (Ireland) Limited and Head Asset Management LLC, dated December 1, 1997
10.13++	Amendment to Investment Advisory Agreement between European Specialty Reinsurance (Ireland) Limited and Head Asset Management LLC, dated July 1, 2000
10.14++	Investment Advisory Agreement between European Specialty Reinsurance (Bermuda) Limited and Head Asset Management LLC, dated July 1, 2000

71

10.15++	Investment Advisory Agreement between Accent Insurance Company Limited and Head Asset Management LLC, dated July 1, 2000
10.16*	Form of Registration Rights Agreement between ESG Re Limited and the Direct Purchasers named therein
10.17**	Form of Grant Agreement under ESG Re Limited Non-Management Directors' Compensation and Option Plan
10.18++	ESG Re Limited Non-Management Directors' Compensation and Option Plan
10.19**	Form of Grant Agreement under ESG Re Limited 1997 Stock Option Plan
10.20++	ESG Re Limited 1997 Stock Option Plan
10.21++	Form of Grant Agreement under ESG Re Limited 2000 Restricted Stock Plan
10.22++	ESG Re Limited 2000 Restricted Stock Plan
10.23++	ESG Re Limited Deferred Compensation Plan, amended and restated as of February 25, 2000
10.24++	ESG Re Limited Severance/Change in Control Policy, dated January 1, 2000
10.25†	Agreements relating to the transfer of certain assets and liabilities to, and subsequent sale of, VBB (Bermuda) Limited
10.26‡	Subscription Agreement and Bondholders Conversion Agreement relating to an investment in 4Sigma (Bermuda) Ltd
10.27+++	ACE Capital Reinsurance Overseas Ltd and ESG Reinsurance North America Ltd Reinsurance Management Agreement, dated November 1, 2001
21.1++	Subsidiaries of the Registrant
23.1++	Accountant's consent

*	Incorporated by reference from Amendment No. 1 to the Registration Statement on Form F-1 of the Company, as filed with the Securities and Exchange Commission on December 9, 1997 (registration No. 333-40341).
**	Incorporated by reference from the Company's Form 10-K for the year ended December 31, 1997, filed with the Securities and Exchange Commission on March 31, 1998.
***	Incorporated by reference from the Company's Form 10-K/A for the year ended December 31, 1999, filed with the Securities and Exchange Commission on April 19, 2000.
****	Incorporated by reference from the Company's Form 10-K for the year ended December 31, 2000, filed with the Securities and Exchange Commission on April 2, 2001.
†	Incorporated by reference from the Company's Form 10-Q for the quarterly period ended June 30, 2001, filed with the Securities and Exchange Commission on August 14, 2001.
‡	Incorporated by reference from the Company's Form 10-Q for the quarterly period ended September 30, 2001, filed with the Securities and Exchange Commission on November 14, 2001.
++	Attached as an Exhibit hereto.
+++	Confidential treatment requested for portions of this agreement.

72

ESG RE LIMITED

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of ESG Re Limited

        We have audited the accompanying consolidated balance sheets of ESG Re Limited and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of operations, changes in shareholders' equity, cash flows and comprehensive income for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company and its subsidiaries as of December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.

DELOITTE & TOUCHE

Chartered Accountants
Dublin, Ireland
March 29, 2002

73

QuickLinks

TABLE OF CONTENTS
PART I.

ITEM 1. BUSINESS

ITEM 2. PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II.

ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ESG RE LIMITED CONSOLIDATED BALANCE SHEETS
ESG RE LIMITED CONSOLIDATED STATEMENTS OF OPERATIONS
ESG RE LIMITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
ESG RE LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS
ESG RE LIMITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
ESG RE LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the three years ended December 31, 2001, 2000, 1999

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, and REPORTS ON FORM 8-K.

SIGNATURES
EXHIBIT INDEX
ESG RE LIMITED INDEPENDENT AUDITORS' REPORT

EX-10.7

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EXHIBIT 10.7

CONTRACT OF EMPLOYMENT

THIS AGREEMENT is made BETWEEN:-

	Accent Europe Insurance Company Limited, whose registered office is at 2nd Floor, 12/13 Exchange Place, IFSC, Dublin 1, Ireland ("The Company")
	and
	The Executive named in the Schedule A attached hereto ("The Executive")
IT IS AGREED AS FOLLOWS:
	Clause 1
Status of Contract
1(a)	The term of the Executive's employment hereunder shall commence as of the commencement date specified on schedule A and shall continue until the close of business on the initial termination date as specified on schedule A. Subject to earlier termination in accordance with the terms of this agreement. The term shall be automatically extended for successive one year periods thereafter unless any of the parties notifies the other of its intention not to extend the term at least six months prior to the commencement of the next scheduled one year extension.
1(b)	This agreement shall be governed and construed in all respects in accordance with Irish Law and the Courts of Ireland shall have exclusive jurisdiction to deal with all disputes arising from or touching upon this agreement.
1(d)	The Group as hereinafter referred to shall mean the Company and holding company of the Company and any subsidiaries of the Company or such holding company: the terms "holding company" and "subsidiary" having the meaning as in Section 155 of the Companies Act 1963.
	Clause 2
Capacity 2(a)
	The Company shall employ the Executive as described in Schedule A attached hereto in the business of the Group having regard to the suitability of the Executive for such employment in such capacity as may be reasonably determined from time to time by the Company.
	Clause 3
Duty of Service
	During the continuance of employment, the Executive shall:
	3(a)	faithfully serve the Company to the best of the Executives ability and apply knowledge and skill to promote the interests of the Group.

	3(b)	carry out such duties as are assigned and comply with instructions given by the Company which may include (without limitation) any reasonable instructions to perform only limited duties.
	3c)	give to the Company Executives on request, and in writing if so required, all information within the Executives knowledge or control concerning the Executives own affairs (which may be pertinent to the affairs of the Group) and the affairs of the Group as the Company may require;
	3d)	unless prevented by ill health or accident and except during holidays permitted by this Agreement, devote the whole of the Executive's time, attention, abilities expertise, skills and ingenuity to carry out the duties hereunder; and
	3e)	comply with performance objectives as adjusted and agreed from time to time between the Executive's and the Company.
	3f)	carry out duties and exercise powers jointly with any other person or persons appointed by the Company to act jointly with the Executive.
		The Company may, from time to time and at any time, appoint any other person or persons to act jointly or in conjunction with the Executive in the performance of the Employee's duties and powers hereunder and assign to any such person or persons duties and powers identical or similar to those undertaken or performed by the Executive hereunder.
	Clause 4
Duty of Care & Confidentiality
4(a)	The Executive acknowledges that, in the ordinary course of employment under this Agreement, the Executive will be exposed to information about the business of the Company or any member of the Group and that of their suppliers and customers which amounts to a trade secret, is confidential or is commercially sensitive and which may not be readily available to others engaged in a similar business to that of the Company or any member of the Group or the general public and which if disclosed will be liable to cause significant harm to the Company or any member of the Group.
4(b)	The Executive shall take care of all Group property under the Executive's control. The Executive shall not improperly use or divulge whether during or after this employment any confidential information relating to the affairs of business of the Group. Upon the termination of the Executive's employment hereunder (howsoever arising) the Executive shall return to the Company all property of the Group and all documents (in the broadest sense of the word) which the Executive shall have created or received in the course of the Executive's employment.
	Clause 5
Grievance and Discipline

5(a)	Any allegations of misconduct will be fully investigated by the Company in accordance with the Company disciplinary procedure, a copy of which is attached as Schedule B to this Agreement. All grievances will be dealt with in accordance with the Company grievance procedure, a copy of which is attached as Schedule C to this Agreement.
	Clause 6
Hours of Work
6(a)	The appointment is on a full time basis of 37.5 hours per week. The Executive is required to devote such time to the Executive's duties as may reasonably be required for their proper performance (but so that the Executive shall not be entitled to receive any additional remuneration for work outside normal working hours). The Executive hereby acknowledges that, as the employee is responsible for determining the duration of the employee's own working time, Part II of the Organisation of Working Time Act 1997 shall not apply to the executive's employment under this Agreement.
	Clause 7
Remuneration and Benefits
7(a)	The Company shall during the continuance of employment pay a salary as stated in Schedule A in this contract which shall be subject to annual review by the Company together with such allowances and bonus as may be determined each year by the Group.
7(b)	The Company shall contribute an agreed amount into the Executive's pension scheme and as defined on Schedule A in accordance with the eligibility rules of such schemes.
7(c)	The Executive shall be entitled to annual leave in accordance with the terms set out in Schedule A.
7(d)	The company shall during the continuance of employment in Dublin a housing allowance of 1800.00 Irish punts per month
7(e)	The Executive shall be eligible of a Level 1 benefits under the company in control/severance Policy attached as Schedule D.
7(f)	The Executive shall receive tax advice from Tax Consultants designated by the company. The company shall reimburse Executive for any additional tax owed by the Executive.
	Clause 8
Expenses
8(a)	The Company will reimburse all reasonable expenses incurred by the Executive in the performance of the Executive's duties, subject to the provision of such evidence of expenditure as may be required by the Group.
	Clause 9
Fitness & Related Matters

9(a)	The Company may if it has reasonable grounds, require the Executive to undergo a medical examination to determine fitness to undertake duties, and the Executive shall give full co-operation. If the Executive is absent from work owing to sickness or injury they:
	i)	will notify the Company without delay
	ii)	shall as and when requested by the Company submit medical certificates
	iii)	shall be entitled to sick pay as set out in section 3(d) of Schedule A to this Agreement. With regard to absence for medical reason for more than 3 days, a written statement from a practising physician shall be provided to the Company.
	Clause 10
Termination
10(a)	Employment under this Agreement shall terminate at the age of 65 as specified in Schedule A, or at an earlier date that has been agreed in writing between the Company.
10(b)	Employment under this Agreement may be terminated by the Company before Normal Retirement date:
	i)	without notice, in the event that the executive is prevented by illness or injury from discharging the duties which may be assigned to the Executive under Clause 2 and 3 of this Agreement for a period of 6 months as outlined in Section 3d of Schedule A.
	ii)	without notice, where the Executive neglects or fails or refuses to properly discharge any of the duties properly assigned or delegated to the Executive hereunder and (if capable of remedy) fails to remedy the same within 14 days of being called upon to do so by the Company; or
	iii)	without notice, where the Executive is guilty of dishonesty or misconduct or wilful neglect in the discharge of the Executive duties or the performance of the Executive's powers hereunder; or
	iv)	without notice, where the Executive becomes of unsound mind or shall be or become a patient for the purposes of any statute; or
	v)	without notice, where the Executive is convicted of any criminal offence (other than a road traffic offence which does not result in a custodial sentence) which in the reasonable opinion of the Company may affect the Executive's position in or the reputation of the Company; or
	vi)	without notice, where the Executive for any reason becomes in the reasonable opinion of the Company incapable of performing the Executive's duties under this Agreement or
	vii)	Without notice where the Executive fails to comply with any Published Company policy.

	viii)	It is acknowledged by the Executive that on serving notice for any reason to terminate the Executive employment hereunder the Company shall be entitled to make payment to the Executive in lie of notice.
	Clause 11
Resignation from Directorship & Offices
11(a)	Following termination of employment under whatever circumstances, the Executive shall if requested to do so by the Company immediately resign from any office in or Directorship of any Group Company as may be so requested.
11(b)	In the event of the Executive's failure so to do, the Company is hereby irrevocably authorised to appoint some person in the Executive's name and on the Executive's behalf to sign and deliver such resignations to the Company of which the Executive is an Officer or Director. The Executive shall not without the consent of the Company at any time thereafter represent to be still connected with the Company or the Group.
	Clause 12
Now Solialism
12(a)	The Executive covenants with the Company (for itself and as trustee for the other companies in the Group) that except with the written consent of the Company (not to be unreasonably refused) the Employee will not during the continuance of employment nor:
	(i)	for twelve months after the termination of employment hereunder (howsoever arising) solicit or interfere with or endeavour to entice away from the Company or any Relevant Associated Company any person firm or company who at any time during the twelve months prior to the said termination shall have been a client, customer, supplier to or in the habit of dealing with such company and with whom the Executive shall have had dealings;
	(ii)	for twelve months after the termination of employment hereunder (howsoever arising) induce or seek to induce any executive of the Company or any Relevant Associated Company to leave its service whether or not that would involve breach of contract on the part of such executive;
12(b)	For the purposes of this Clause a "Relevant Associated Company" shall mean any company in the Group for which the Executive has performed services or with which the Executive has held office during the two years immediately preceding the termination of employment hereunder.
12(c)	Each of the restrictions mentioned in Clause 12 is a separate covenant and shall be enforceable separately and independently of any one or more of the other covenants and is considered reasonable by the parties to this Agreement but in the event that any such restriction shall be found to be void but would be valid if some part thereof was deleted or the period of application reduced such restriction shall apply with such modifications as may be necessary to make it valid and effective.
	Clause 13
Notices

13(a)	Notice required under this Agreement to be given to the Executive shall be deemed to have been properly given to the Executive personally or sent by post to the last known address of the Executive. Notice must be given in writing.
	Clause 14
Exclusivity of Service
14(a)	The Executive shall not during the course of employment (except as a representative of the Company) and subject to clause 1.2, undertake nor, directly or indirectly be engaged, concerned or interested in any other business, firm, company, concern, enterprise or society (whether incorporated or otherwise) or become an employee, officer, servant or agent of or consultant to any other business, firm, company, concern, enterprise or society (whether incorporated or otherwise).
14(b)	Nothing in this clause shall preclude the Executive:
	(i)	from holding being interested in or acquiring (beneficially or otherwise), when aggregated with any such holding of the Executive's spouse and the Executive's children under the age of 18, not more than 5 per cent in nominal value of the issued share capital of any class of shares or securities of any other company listed or dealt in on any recognised stock exchange by way of bona fide investment unless the Board shall require the Executive not to do so in any particular case on the ground that such other company is or may be carrying on a business conflicting, competing or tending to conflict or compete with the business of the Company or any Associated Undertaking and accordingly the Executive shall promptly inform the Board in writing of each and every holding or acquisition; or
	(ii)	(if the Company shall at its absolute discretion so agree in writing) from being concerned or taking an interest in or assuming responsibilities to (in any capacity whatsoever including without limitation to the generality of the foregoing as a director, officer, servant, agent or consultant) any company (which is not a member of the Group) business, firm, concern or enterprise or society (whether incorporated or otherwise) provided always that:
		(a)	the business or activity of such company, business, firm, concern, enterprise or society is not in conflict and does not compete and is not likely to compete with the business of the Company or any member of the Group; and
		(b)	the Executive's interest in and responsibilities towards such company, firm, concern or enterprise or society do not interfere with the proper performance by the Executive of duties under this Agreement.
	Clause 15
Place of Work

15(a)	The Executive's normal place of work shall be Dublin or at such other place of business of the Company or any member of the Group as the Company shall reasonably require. In addition, the Executive shall be required and hereby agrees to travel to such places whether inside or outside Ireland and in such manner and on such occasions as the Company may from time to time require in pursuance of duties hereunder.
	Clause 16
Intellectual Property
16(a)	This clause applies to any Intellectual Property produced, invented or discovered by the Executive whether alone or with any other person at any time during the continuance of employment with the Company which relates directly or indirectly to the business of the Company or any member of the Group or which may in the opinion of the Company be capable of being used or adapted for use herein.
16(b)	All Intellectual Property to which this clause applies shall to the fullest extent permitted by law belong to, vest in and be the absolute sole and unencumbered property of the Company.
17(c)	The Executive hereby:
	(i)	undertakes to notify and disclose to the Company in writing full details of all Intellectual Property to which this clause applies forthwith upon the production, invention or discovery of the same, and promptly whenever requested by the Company and in any event upon the termination of employment with the Company deliver up to the Company all correspondence and other documents, papers and records and all copies thereof in the Executive's possession, custody or power relating to any Intellectual Property;
	(ii)	]undertakes to hold on trust for the benefit of the Company any Intellectual Property to the extent that the same may not be, and until the same are, vested absolutely in the Company;
	(iii)	assigns by way of present assignment of future copyright all copy right in all Intellectual Property to which this clause applies;
	(iv)	acknowledges that, save as provided in this Agreement no further remuneration or compensation is or may become due to the Executive in respect of the performance of obligations under this clause;
	(v)	undertakes at the expense of the Company to execute all such documents, make such applications, give such assistance and do such acts and things as may in the opinion of the Board be necessary or desirable to vest in and register or obtain letters patent in the name of the Company and otherwise to protect and maintain the Intellectual Property;
	(vi)	irrevocably appoints the Company or its nominee as the attorney of the Executive to execute and sign as the Executive's act and deed in the Executive's name and on the Executive's behalf all documents as the Company may consider requisite for the perfection of the pledge hereby evidenced.

	Clause 17
Waiver, Release and Remedies
17(a)	A waiver by the Company of any breach by the Executive of any of the terms, provisions or conditions of this Agreement or the acquiescence of the Company in any act (whether commission or omission) which but for such acquiescence would be a breach as aforesaid shall not constitute a general waiver of such term, provision or condition or an acquiescence to any subsequent act contrary thereto.
17(b)	Any remedy or right conferred upon the Company for breach of this Agreement shall be in addition to and without prejudice to all other rights and remedies available to it whether pursuant to this Agreement or provided for by law.
17(c)	No failure or delay by the Company in exercising any claim, remedy, right, power or privilege under this Agreement shall operate as a waiver nor shall a single or partial exercise of any claim, remedy, right, power or privilege preclude any further exercise thereof or exercise of any other claim, right, power or privilege.
	Clause 18
Severability
18(a)	Each of the provisions of this Agreement is separate and severable and enforceable accordingly and if at any time any provision is adjudged by any court of competent jurisdiction to be void or unenforceable the validity, legality and enforceability of the remaining provisions hereof and of that provision in any other jurisdiction shall not in any way be affected or impaired thereby.
	Clause 19
Maternity/Adoptive Leave
20(a)	The provisions of the Maternity Protection Act 1994 and the Adoptive Leave Act 1995 will apply.

For and on behalf of Accent Europe Insurance Company Limited

	Date:
Accent Europe Insurance Company Limited
The Executive	Date:

SCHEDULE A

Section 1

Personal Details
Name of the Executive	Nik James Scopes
Date of Birth
Commencement date of this Agreement	April 4, 2000
Initial date of Termination	April 3, 2002
Service dates from	April 4, 2000
Normal retirement date

Section 2

Details of Initial Appointment Under the Agreement
Job Title	Chief Underwriter
Place of Work	Dublin, Ireland
Commencement Basic Salary	90,000 (GBP)
a) Pensionable salary	90,000 (GBP)
b) Non-pensionable salary

Section 3

General Terms & Conditions of Employment

a)

Basis of Employment

The Basis of employment will be permanent full-time.

b)

Payment

        Salary (and allowances) for each whole calendar month will be paid on the 25th of the month, unless a Saturday, Sunday or Bank Holiday, when payment will be made on the last previous working day. Details of salary payments and deductions, including Income Tax and Pay Related Social Insurance (PRSI) will be shown on a pay-slip which will be issued monthly.

c)

Annual Leave

        25 days paid holiday for each full calendar year plus all public holidays in Ireland. 5 days holiday may be carried into next calendar year. All requests for annual leave must be approved in advance by the Company.

d)

Sick Leave

        If the Executive is absent from work due to illness or accident duly notified and certified in accordance with clause 9(ii), the Company may at its absolute discretion pay the Executive full basic salary, for a maximum aggregate period of the following:

1.

For employees with less than 5 years' continuous service—3 months in any continuous period of twelve months;

2.

For employees with over 5 years' continuous service—6 months in any continuous period of twelve months.

        Basic salary paid during any absence through illness or injury shall include any sick pay to which the Executive is entitled by law and shall be reduced by the amount of any social welfare or other benefits recoverable by the Executive whether or not recovered. The Executive shall notify the Company of any social welfare or other benefits recoverable by the Employee.

        In the event that the Executive is incapable of performing the Executive duties by reason of injuries sustained wholly or partly as a result of actionable negligence, nuisance or breach of any statutory duty on the part of any third party all sick pay paid to the Executive by the Company shall to

the extent that compensation is recoverable from that third party constitute loans by the Company to the Executive (notwithstanding that as an interim measure income tax has been deducted from payments as if they were emoluments of employment) and shall be repaid when and to the extent that the Executive recovers compensation for loss of earnings from that third party by action or otherwise.

Staff Schemes

a)    Pension Entitlement

        Participation in the Groups Pension Scheme. 9% Contribution of the Company.

b)    Medical Cover

        The Company will contribute 100% to VHI Medical Plan B Options for you and spouse.

SCHEDULE B

DISCIPLINARY PROCEDURE

1.

Purpose and Scope

1.1.

The Company's procedure is designed to help and encourage all employees to achieve and maintain standards of conduct, attendance and job performance. The Company's rules from time to time and this procedure apply to all employees. The aim is to ensure consistent and fair treatment for all. This procedure is not contractual, but is intended as a statement of current Company policy and commitment to operate a fair procedure in relation to all its employees taking into account the Code of Practice on Disciplinary Procedures of the Labour Relations Commission as may be amended from time to time. The Company therefore reserves the right to amend the procedure as necessary to meet any changing requirements.

2.

Principles

2.1.

The procedure is concerned with misconduct and gross misconduct, but incompetence and unsuitability will be treated in the same manner as misconduct.

2.2.

Depending upon the severity of the alleged disciplinary offence in any individual case, the Company reserves the right to skip one or more stages of the procedure set out below.

2.3.

At every stage in the procedure the employee will be presented with full details of the complaint against him or her and will be given the opportunity to state his or her case before any decision is made. Where considered necessary by the Company, details of the complaint may be provided in writing, including witness statements, to the employee in advance of any disciplinary hearing. The employee shall be allowed the opportunity to cross-examine any witness who is called to give oral testimony before any disciplinary hearing.

2.4.

At all stages the employee will have the right to be accompanied by a fellow employee or a representative of his/her trade union (if any) or other employee representative during the disciplinary interview.

2.5.

Wherever possible, the investigation into the allegation of a breach of discipline will be carried by a senior employee of the Company who is neither the employee's direct supervisor nor is in any way involved with the making of the complaint which forms the subject matter of the investigation against the employee.

2.6.

No employee will be dismissed for a first breach of discipline except in the case of gross misconduct when the penalty will normally be dismissal without notice or payment in lieu of notice.

2.7.

An employee will have the right to appeal against any disciplinary penalty imposed.

2.8.

A copy of the Company's written record of any disciplinary action taken will be supplied to the employee concerned on request.

3.

The Procedure

3.1.

In the first instance, except in the case of alleged gross misconduct, the Company will attempt to resolve any complaint in an informal manner by way of private discussion between the employee about whom the complaint has been made and his/her immediate supervisor. Where such discussion fails to adequately resolve the issue, the following procedure will be used:

3.2.

Stage 1—Oral Warning

If conduct or performance does not meet acceptable standards the employee will normally be given a formal ORAL WARNING. He or she will be advised of the reason for the warning, that is the first stage of the disciplinary procedure and of his or her right to appeal. A brief note of the oral warning will be kept but it will be spent after 12 months, subject to satisfactory conduct and performance.

3.3.

Stage 2—Written Warning

If the offence is a serious one, or if a further offence occurs, a WRITTEN WARNING will be given to the employee by the supervisor. This will give details of the complaint, and, in the appropriate circumstances, the improvement require and the timescale. It will warn that action under Stage 3 will be considered if there is no satisfactory improvement, or any repetition of misconduct, and will advise of the right of appeal. A copy of this written warning will be kept by the supervisor but it will be disregarded for disciplinary purposes after 12 months subject to satisfactory conduct and performance.

3.4.

Stage 3—Final written warning or disciplinary suspension

If there is still a failure to improve and/or conduct or performance is still unsatisfactory, or if the misconduct is sufficiently serious to warrant only one written working but insufficiently serious to justify dismissal (in effect both first and final written warning), a FINAL WRITTEN WARNING will normally be given to the employee. This will give details of the complaint, will warn that dismissal will result if there is no satisfactory improvement and will advise of the right of appeal. A copy of this final written warning will be kept by the supervisor but it will be spent after 12 months (in exceptional cases the period may be longer) subject to satisfactory conduct and performance.

Alternatively, consideration will be given to imposing a penalty of a disciplinary suspension without pay for a up to a maximum of five working days.

3.5.

Stage 4—Dismissal

If conduct or performance is still unsatisfactory and the employee still fails to reach the prescribed standards, DISMISSAL will normally result. Only the appropriate senior manager can take the decision to dismiss.

The employee will be provided, as soon as reasonably practicable, with written reasons for dismissal, the date on which employment will terminate and the right of appeal and to whom.

Demotion or redeployment will be considered, as an alternative to being dismissed, in appropriate cases.

4.

Gross Misconduct

4.1.

The following non-exhaustive list provides examples of offences which are normally regarded as gross misconduct:

theft, fraud, deliberate falsification of records, fighting, assault on another person, deliberate damage to company property, serious incapability through alcohol or being under the influence of illegal drugs, serious negligence which causes unacceptable loss, damage or injury, serious act of insubordination, unauthorised computer access, serious breach of the Company's Safety Policy or Policy on Sexual Harassment.

If you are accused of an act of gross misconduct, you may be suspended from work on full pay, normally for more than five working days, while the Company investigates the alleged offence. During the period of suspension employees may be refused access to any of the Company's premises without the prior consent of the Company and subject to such conditions as the Company may impose.

If, on completion of the investigation, the Company is satisfied that gross misconduct has occurred, the result will normally be summary dismissal without notice or payment in lieu of notice.

5.

Appeals

5.1.

An employee who wishes to appeal against a disciplinary decision should inform Human Resources two working days from the date of notification, be it in writing or otherwise, of the decision. A Director of the Company will hear all appeals and his/her decision is final. At the appeal any disciplinary penalty imposed will be reviewed but it cannot be increased. The Company shall, whenever possible, ensure that whoever deals with an employee's appeal has had no previous involvement with the disciplinary decision.

SCHEDULE C

GRIEVANCE PROCEDURE

Purpose of the Procedure:

        This procedure is intended for the effective and speedy resolution of grievance on any employment matter save for:-

(a)

Redundancy criteria or selection



(b)

Disciplinary decisions. All disciplinary matters are dealt with under the disciplinary procedure.

Stages of the Procedure:

1.

If you feel aggrieved on any matter of employment which affects you, the grievance should initially be discussed with your Supervisor/Manager who should be told that you are invoking the first stage of the grievance procedure. The Supervisor/Manager will endeavour to resolve the grievance as speedily as possible and, wherever practicable, within a period of 5 working days.

2.

If the grievance cannot be resolved with your Supervisor/Manager you may make a written request that the Supervisor/Manager raise the matter with the Department Head. Your written request must give full details of your grievance, the steps you have taken to resolve this grievance and the remedy you are seeking.

The Department Head will then investigate the grievance, usually by way of an interview and at that interview you may be accompanied by another employee or representative provided you have given notice to this effect in your written request. Wherever practicable the investigation will be completed and a recommendation issued within a period of 5 working days.

3.

If the grievance remains unresolved you may make a written request that the grievance be referred to the Personnel Director of the Company. Your written request should give full details [as set out in paragraph 2 above].

The Personnel Director will investigate the grievance which will include an interview with you at which you may be accompanied by a fellow employee [or Staff Association representative] provided that prior notice has been given to this effect in the written request. Wherever practicable the investigation shall be completed within a period of 5 working days. The Personnel Director will give a written recommendation within a further 5 working days from the date of completion of the investigation.

4.

In the event that you are still dissatisfied with the investigation or recommendation made at the third stage, you may make a written request that the grievance be referred to the Chief Executive of the Company. Your written request should give full details of the grievance, the steps you have taken to resolve the grievance and the remedy which you are seeking.

The Chief Executive will investigate the grievance which will include an interview with you, at which you may be accompanied by a fellow employee [or Staff Association representative] provided that prior notice has been given to this effect in the written request. Wherever practicable, the investigation shall be completed and a recommendation provided within 14 days of the notification of the grievance.

The decision of the Chief Executive of the Company will be binding on all parties to the dispute.

5.

If you are dissatisfied with the response given to the grievance, you have to accept that the grievance cannot be resolved to your satisfaction as the Grievance Procedure has been exhausted.

6.

Where an investigation, or an appeal, in the course of these rules and procedure, is expressed to be conducted by a named individual, or someone holding a particular position, such person, or the person holding such position, may, in appropriate case, nominate an alternate to conduct the investigation or appeal.

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CONTRACT OF EMPLOYMENT
SCHEDULE A
SCHEDULE B DISCIPLINARY PROCEDURE
SCHEDULE C GRIEVANCE PROCEDURE

EX-10.9

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EXHIBIT 10.9

Amendment to Investment Advisory Agreement

Amendment, dated July 1, 2000, to Investment Advisory Agreement dated December 1, 1997, by and between ESG Re Limited and Head Asset Management LLC:

        Per paragraph 20 ("Amendment") of the above named Investment Advisory Agreement, the Investment Advisory Agreement is hereby amended as follows, with the agreement of both parties:

        Paragraph 12, Investment Advisory Fees, subparagraph 1(a) Description of Fee is amended to read as follows:

12.

Investment Advisory Fees



1.

Investment Advisory Fees.

        (a)    Description of Fee.    In consideration of the services provided to the Client under this Agreement, the Client shall pay the Adviser a fee to be calculated on the market value of all assets in the Account, and paid quarterly as set forth in paragraph (b) of this Section 12 (the "Investment Advisory Fee") to be determined at the following annual rates for the corresponding market values of the Account:

(x)

$2.00 per $1,000 (20 basis points) for a market value of $150 million or less; and



(y)

$1.50 per $1,000 (15 basis points) for the balance.

        In witness hereof, the parties hereto have executed this Agreement as of the date and year first above written.

ESG RE LIMITED
By:	/s/ MARK E. OLEKSIK
Name:	Mark E. Oleksik
Title:	Senior Financial Officer
HEAD ASSET MANAGEMENT L.L.C.
By:	/s/ HENRY B. SPENCER
Name:	Henry B. Spencer
Title:	Chief Investment Officer

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Amendment to Investment Advisory Agreement

EX-10.11

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EXHIBIT 10.11

Amendment to Investment Advisory Agreement

Amendment, dated July 1, 2000, to Investment Advisory Agreement dated December 1, 1997, by and between European Specialty Ruckversicherungs AG Limited and Head Asset Management LLC:

        Per paragraph 20 ("Amendment") of the above named Investment Advisory Agreement, the Investment Advisory Agreement is hereby amended as follows, with the agreement of both parties:

        Paragraph 12, Investment Advisory Fees, subparagraph 1(a) Description of Fee is amended to read as follows:

12.

Investment Advisory Fees



1.

Investment Advisory Fees.

        (a)    Description of Fee.    In consideration of the services provided to the Client under this Agreement, the Client shall pay the Adviser a fee to be calculated on the market value of all assets in the Account, and paid quarterly as set forth in paragraph (b) of this Section 12 (the "Investment Advisory Fee") to be determined at the following annual rates for the corresponding market values of the Account:

(x)

$2.00 per $1,000 (20 basis points) for a market value of $150 million or less; and



(y)

$1.50 per $1,000 (15 basis points) for the balance.

        In witness hereof, the parties hereto have executed this Agreement as of the date and year first above written.

EUROPEAN SPECIALTY RUCKVERSICHERUNGS A.G.
By:	/s/ MARK E. OLEKSIK
Name:	Mark E. Oleksik
Title:	Senior Financial Officer
HEAD ASSET MANAGEMENT L.L.C.
By:	/s/ HENRY B. SPENCER
Name:	Henry B. Spencer
Title:	Chief Investment Officer

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Amendment to Investment Advisory Agreement

EX-10.12

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EXHIBIT 10.12

Investment Advisory Agreement

        INVESTMENT ADVISORY AGREEMENT dated as of December 1,1997, by and between EUROPEAN SPECIALTY REINSURANCE (IRELAND) LIMITED, an Irish company (the "Client"), and HEAD ASSET MANAGEMENT L.L.C., a limited liability company fanned under the laws of the State of Delaware (the "Adviser").

        1.    Engagement.    Commencing on December 1, 1997, the Client engages and retains the Adviser to provide the investment advisory and related services described below. The Adviser hereby accepts such engagement and shall provide or make satisfactory arrangements for the provision of such services and assumes the obligations herein set forth for the compensation provided herein.

        2.    Services and Authority of the Adviser.    The Adviser will perform the services and have the authority set forth in this Agreement with respect to all cash, securities and other investment assets of the Client which are from time to time deposited by the Client with the Adviser for investment pursuant to the provisions hereof, and all proceeds thereof and additions thereto (the "Account"). The Adviser will supervise and direct the investment of the Account in accordance with, and subject to, the investment objectives, guidelines and restrictions specified in written statements and notices given by the Client as provided in Section 15 hereof.

        The Adviser, as agent and attorney-in-fact with respect to the Account, may, when it deems appropriate, without prior consultation with the Client and at the risk of the Client (i) buy, sell, exchange, convert, tender and otherwise trade in, retain, or reinvest in bonds, securities and any other investments, including money market instruments, and (ii) place orders for the execution of such investment transactions with or through such brokers, dealers, issuers, or other persons as the Adviser may select, or tender or exchange such securities in a tender or exchange offer or similar transaction initiated by the issuer or any other person or entity. Subject to the last sentence of Section 15, the Adviser shall comply with all legal requirements and rules of securities exchanges applicable to its duties in connection with the execution of transactions. The Advisor shall not effect any borrowing of money on behalf of the Client without Client's written consent thereto.

        3.    Transaction Procedures.    At the commencement of the term of this Agreement, the Client will provide the Adviser with a statement of the existing Account portfolio which it desires the Adviser to manage as set forth in Exhibit A. In connection with each investment transaction in the Account, the Adviser shall instruct the brokers and dealers to provide to the Client such written advice of trades, including expenses and other incidents of the transaction, as is normally provided.

        Instructions of the Adviser to the custodian of the securities and other investments in the Account selected by the Client (the "Custodian") shall be made, at the option of the Adviser, either (i) in writing sent by first class mail or by facsimile transmission, or (ii) orally and confirmed in writing by first class mail or facsimile transmission as soon as practical thereafter. The Adviser shall instruct all brokers and dealers executing orders on behalf of the Account to forward to the Client copies of all confirmations promptly after execution of transactions. The Adviser shall not be responsible for any loss incurred by reason of any act or omission of any broker or dealer; provided, however, that the Adviser exercises due care in the selection of brokers and dealers and makes reasonable efforts to see that brokers and dealers selected by the Adviser perform their obligations with respect to the Account.

        4.    Reports and Records of the Adviser.    The Adviser will provide or cause to be provided to the Client such periodic reports concerning the status of the Account as the Client may reasonably request. The Adviser shall provide to the Client within 10 business days of the end of each calendar month, a report of Account transactions effected by the Adviser since the date of the most recent such report, and within 20 business days of the end of each calendar month, a valuation report of all investments and cash in the Account. The Client and the Adviser will arrange for the Custodian to provide the Adviser daily cash account statements and monthly asset position statements. The Adviser will compare these statements with its own records and inform the Custodian of any differences. In the event that

differences between the custodian's statements and the Adviser's records cannot be resolved between the Adviser and the custodian, the Adviser will inform the Client in writing.

        The Adviser shall preserve its records relating to the Account for no less than six years and shall, upon the request of the Client, make such records available for inspection, at reasonable times at its main business office during normal business hours, by the Client, its auditors or any regulatory authority. Prior to discarding or destroying any such records, the Adviser shall give the Client reasonable opportunity, at the Client's expense, to review them and to take all or such portion of them as the Client wishes to retain. The Adviser, in the maintenance of its records, does not assume responsibility for the accuracy of information furnished by or on behalf of the Client or any third party not an officer or employee of the Adviser.

        5.    Confidential Relationship.    All information and advice furnished by either party to the other hereunder, including their respective agents and employees, shall be treated as confidential and shall not be disclosed to third parties except as provided in Section 4 or as required by law.

        6.    Service to Other Clients.    The Adviser may perform investment advisory and other services for various clients, including insurance companies, investment companies and accounts held by the Adviser in a fiduciary capacity. The Adviser may give advice and take action with respect to any of its other clients which may differ from advice given or the timing or nature of action taken with respect to the Account, so long as it is the Adviser's policy, to the extent practical, to allocate investment opportunities to the Account over a period of time on a fair and equitable basis relative to other clients. The Adviser shall not have any obligation to purchase or sell, or to recommend for purchase or sale, for the Account any security or other investment which the Adviser, its officers, affiliates or employees may purchase or sell for its or their own accounts or for the account of any other client, if in the opinion of the Adviser such transaction or investment appears unsuitable, impractical or undesirable for the Account.

        7.    Allocation of Brokerage.    Where the Adviser places orders for the execution of portfolio transactions for the Account, the Adviser may allocate such transactions to such brokers and dealers for execution on such markets, at such prices and at such commission rates (including commission rates that may exceed those that another broker or dealer would have charged for effecting such transactions) as the Adviser determines to be appropriate; provided, however, that if such commission rate exceeds that which another broker or dealer might have charged for the same transaction, the Adviser has determined in good faith that the amount of such commission is reasonable in relation to the value of brokerage and research services provided by such broker or dealer, viewed in terms of the particular transaction or the Adviser's overall responsibilities with respect to some or all of the accounts over which the Adviser exercises investment discretion; provided, further, that the Adviser shall make reasonable efforts to minimize brokerage costs where similar services of adequate standards and reliability are available from more than one broker or dealer.

        The Adviser may take into consideration in the selection of such brokers and dealers not only the available prices and rate of brokerage commissions, but all other relevant factors (including without limitation, execution and processing capabilities, and general brokerage services, such as economic, fixed income, and equity research, account evaluation, analysis and/or performance and database and/or market information services, all of which are provided by such brokers and dealers and which are expected to enhance the overall investment management capabilities of the Adviser) without the Adviser's having to demonstrate that such factors are a direct benefit to the Account.

        8.    Inside Information.    The Adviser shall have no obligation to seek to obtain any material non-public information about any issuer of securities, the use of which, in any event, may be prohibited by the securities laws of certain jurisdictions.

        9.    Proxies.    The Adviser will not be required to take any action with respect to the voting of proxies solicited by, or with respect to, the issuers of securities in which assets of the Account may be invested from time to time, but the Adviser shall, whenever the Client so requests, provide advice to the Client with respect to the voting of such proxies.

        10.    Independent Contractor.    The Adviser shall for all purposes herein be deemed to be an independent contractor and shall, except as otherwise expressly provided or authorized by or under this Agreement, have no authority to act for or represent the Client in any way or otherwise be deemed an agent of the Client.

        11.    Reimbursement of Travel and Related Expenses.    The Client shall promptly pay or reimburse the Adviser for its payment of all travel and other expenses reasonably incurred by the Adviser with respect to any visit to the Client where such travel is requested by the Client.

        12.    Investment Advisory Fees.

        (a)    Description of Fee.    In consideration of the services provided to the Client under this Agreement, the Client shall pay the Adviser a fee to be calculated on the market value of all assets in the Account, and paid quarterly as set forth in paragraph (b) of this Section 12 (the "Investment Advisory Fee") to be determined at the following annual rates for the corresponding market values of the Account:

        (x)  $2.50 per $1,000 (25 basis points) for a market value of $200 million or less; and

        (y)  $1.50 per $1,000 (15 basis points) for the balance.

        (b)    Payment of the lnvestment Advisory Fee.    The Investment Advisory Fee shall be payable in quarterly installments in arrears. The Adviser shall earn a pro rata share of the first payment under which Section 12 based on the amount of time the Adviser has provided services under this agreement during the quarter. The first payment under this Section 12 shall be made for the period commencing on December 1, 1997 and ending on December 31, 1997, and shall be calculated based upon the market value of the assets in the Account at December 31, 1997. Subsequent Investment Advisory Fees shall be based upon quarter-end market valuations beginning with March 31, 1998, and shall be based on one-quarter of the annual rates specified above. Each Investment Advisory Fee shall be paid by the Client promptly upon the receipt of a statement from the Adviser showing the amount of the fee and the manner in which the fee was calculated.

        (c)    Effect of Termination.    If the quarterly Investment Advisory Fee has not been paid as of the effective date of termination, the Adviser shall earn a pro rata share of the quarterly fee. Payments shall be made as soon as possible after such date of termination.

        13.    Limitation of Liability and Indemnification.    Neither the Adviser nor any shareholder, director, officer or employee of the Adviser performing services for the Client at the direction or request of the Adviser in connection with the discharge of the Adviser's obligations hereunder shall be liable for any error of judgment or mistake of law or for any loss which the Client or any subsidiary of the Client may incur in connection with the investment of assets in the Account.

        To the fullest extent permitted by law, the Client shall indemnify, hold harmless, protect and defend the Adviser, its shareholders, directors, officers and employees (the "Indemnitees") against any losses, claims, damages or liabilities, including without limitation, legal or other expenses incurred in investigating or defending against any such loss, claim, damages or liability, and any amounts expended in settlement of any claim (collectively "Liabilities"), to which any Indemnitee may become subject by reason of any act or omission performed or omitted to be performed by or on behalf of the Client in connection with the investment of assets in the Account. The provisions of this Section 13 shall continue to afford protection to each Indemnitee regardless of whether such Indemnitee remains in the position or capacity pursuant to which such Indemnitee became entitled to indemnification under this Section 13.

        However, nothing contained in this Section 13 shall be construed to protect any Indemnitee against Liability to the Client or any subsidiary or parent corporation of the Client to which such Indemnitee would otherwise be subject, or require the Client to indemnify any Indemnitee against Liability to the Client to which such Indemnitee would otherwise be subject, or require the Client to indemnify any Indemnitee against any Liability, by reason of actions or omissions constituting willful misfeasance, bad

faith or gross negligence in the performance of the Adviser's duties or reckless disregard of the Adviser's obligations and duties under this Agreement.

        14.    Valuation.    The market value of the investments in the Account shall be determined from reports published by any nationally recognized pricing service, or, if such reports are not readily available with respect to a particular security, the Adviser shall determine the value of any such security either by securing a quotation from a broker or dealer it selects or in some other manner which the Adviser determines in good faith reflects the fair market value of such security.

        15.    Investment Objectives, Guidelines, Procedures and Restrictions.    It will be the Client's responsibility to provide the Adviser from time to time with written Investment Guidelines for the Account, approved by the Board of Directors of the Client and signed by its Chief Financial Officer (or a Vice President if no person has the title of Chief Financial Officer), as well as any changes or modifications therein, and any further restrictions under applicable Bermuda laws or regulations. In addition, the client shall give the Adviser prompt written notice if the Client deems any investments recommended or made for the Account to be in violation of any of the Investment Guidelines. Unless the Investment Guidelines contain specific restrictions, the investments recommended for, or made on behalf of, the Account shall be deemed not to be restricted under the current or future regulations stipulated by any Bermuda regulatory body applicable to the Client, or by virtue of the terms of any other contract or instrument purporting to bind the Client or the Adviser.

        16.    Termination.    This Agreement may be terminated at any time (i) by the Client by giving not less than 5 days' written notice to Adviser, and (ii) by the Adviser by giving not less than 90 days' written notice to the Client; provided, however, that the parties may terminate on shorter notice upon mutual agreement in writing. Such termination shall be without penalty to either party but shall not prejudice any rights which have accrued before the date of termination. The Client shall remain liable for settlement of any transactions outstanding at the date of termination. In addition, the Client may order immediate cessation of securities transactions at any time, provided, however that the request is confirmed in writing immediately thereafter via facsimile transmission to the Adviser. After the Client's termination of the Adviser's authority as provided in Section 17 hereof, the Adviser shall not act further for the Client. The Adviser shall reasonably cooperate with the Client to ensure that there is an orderly transfer to an alternative investment adviser.

        17.    The Client's Termination of Authority.    The Client shall compensate the Adviser for any fees due m accordance with this Agreement and for any loss the Adviser may suffer as a result of any action taken by the Adviser within the terms of the Agreement, either before or after the Client's bankruptcy, dissolution, or other termination of authority under this Agreement, but before receipt by the Adviser of notice thereof. The Client further agrees that, to the extent permitted by law, any such action taken by the Adviser shall be binding upon the Client and any successor of the Client, who shall hold the Adviser harmless from all Liability arising from any such action.

        18.    Notices.    Unless otherwise specified herein, all notices, instructions, directions, advice and other communication with respect to Security transactions or any other matter contemplated by this Agreement from the Adviser to the Client and from the Client to the Adviser shall be given either (i) in writing sent by first class mail, courier service, or facsimile transmission or (ii) orally and confirmed in writing by first class mail, courier service, or facsimile transmission as soon as practical thereafter. Any such communication shall be deemed to have been made upon its receipt. Communications by mail or courier service shall be effective if to the Adviser, only if addressed to it at 1330 Avenue of the Americas, 12th floor, New York, New York, 10019, or if to the Client, only if addressed to it at II Windsor Place, Lower Pembroke Street, Dublin 2, Ireland, with a copy of such communication sent to European Specialty Group Holding AG, at Stadthausbrucke 1-3, 20355 Hamburg, Germany, provided that either party may specify another address or addresses for itself for this purpose in a notice similarly given.

        The adviser may rely upon any communication (written or oral) from any person if the Adviser reasonably believes it to be genuine and from an authorized person. A person shall be deemed to be an authorized person for purposes hereof if his name, specimen signature and authority have been

certified to the Adviser by a Director of the Client and such person shall continue to be deemed an authorized person until the Adviser receives written notice to the contrary from a Director of the Client.

        19.    Representation by the Client.    The Client represents and confirms that the employment of the Adviser is authorized by the governing documents relating to the Account and that the terms hereof do not violate any obligation by which the Client or any subsidiary of the Client is bound, or any obligation known to the Client by which the Adviser, as investment manager of the Account, is intended to be bound, whether arising by contract, operation of law, or otherwise

        The Adviser represents and confirms that it has all requisite power and authority to act as Adviser hereunder.

        20.    Amendment.    This Agreement may be amended only by an instrument in writing executed by both parties.

        21.    Assignment.    Neither party may assign any of its rights or obligations under this Agreement without the prior written consent of the other party to this Agreement

        22.    Governing Law.    This Agreement shall be construed and enforced in accordance with, and governed by, the internal laws of the State of New York applicable to agreements made and to be performed in that State.

        IN WITNESS HEREOF, the parties hereto have executed this Agreement as of the date and year first above written.

EUROPEAN SPECIALTY REINSURANCE (IRELAND) LIMITED
By:	/s/  W.M. WAND
Name:	W. M. Wand
Title:	Director
HEAD ASSET MANAGEMENT L.L.C.
By:	/s/  HENRY B. SPENCER
Name:	Henry B. Spencer
Title:	CIO

Exhibit A

European Specialty Reinsurance (Ireland) Limited $ 50,000,000

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Investment Advisory Agreement
Exhibit A

EX-10.13

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EXHBIT 10.13

Amendment to Investment Advisory Agreement

Amendment, dated July 1, 2000, to Investment Advisory Agreement dated December 1, 1997, by and between European Specialty Reinsurance (Ireland) Limited and Head Asset Management LLC:

        Per paragraph 20 ("Amendment") of the above named Investment Advisory Agreement, the Investment Advisory Agreement is hereby amended as follows, with the agreement of both parties:

Paragraph 12, Investment Advisory Fees, subparagraph 1(a) Description of Fee is amended to read as follows:

12.

Investment Advisory Fees



1.

Investment Advisory Fees.

        (a)  Description of Fee. In consideration of the services provided to the Client under this Agreement, the Client shall pay the Adviser a fee to be calculated on the market value of all assets in the Account, and paid quarterly as set forth in paragraph (b) of this Section 12 (the "Investment Advisory Fee") to be determined at the following annual rates for the corresponding market values of the Account:

(x)

$2.00 per $1,000 (20 basis points) for a market value of $150 million or less; and



(y)

$1.50 per $1,000 (15 basis points) for the balance.

        In witness hereof, the parties hereto have executed this Agreement as of the date and year first above written.

EUROPEAN SPECIALTY REINSURANCE (IRELAND) LIMITED
By:	/s/  MARK E. OLEKSIK
Name:	Mark E. Oleksik
Title:	Senior Financial Officer
HEAD ASSET MANAGEMENT L.L.C.
By:	/s/  HENRY B. SPENCER
Name:	Henry B. Spencer
Title:	Chief Investment Officer

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Amendment to Investment Advisory Agreement

EX-10.14

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EXHIBIT 10.14

Investment Advisory Agreement

        INVESTMENT ADVISORY AGREEMENT dated as of July 1,2000, by and between EUROPEAN SPECIALTY REINSURANCE (BERMUDA) LIMITED, an Irish company (the "Client"), and HEAD ASSET MANAGEMENT L.L.C., a limited liability company formed under the laws of the State of Delaware (the "Adviser").

        1.    Engagement.    Commencing on July 1, 2000, the Client engages and retains the Adviser to provide the investment advisory and related services described below. The Adviser hereby accepts such engagement and shall provide or make satisfactory arrangements for the provision of such services and assumes the obligations herein set forth for the compensation provided herein.

        2.    Services and Authority of the Adviser.    The Adviser will perform the services and have the authority set forth in this Agreement with respect to all cash, securities and other investment assets of the Client which are from time to time deposited by the Client with the Adviser for investment pursuant to the provisions hereof, and all proceeds thereof and additions thereto (the "Account"). The Adviser will supervise and direct the investment of the Account in accordance with, and subject to, the investment objectives, guidelines and restrictions specified in written statements and notices given by the Client as provided in Section 15 hereof.

        The Adviser, as agent and attorney-in-fact with respect to the Account, may, when it deems appropriate, without prior consultation with the Client and at the risk of the Client (i) buy, sell, exchange, convert, tender and otherwise trade in, retain, or reinvest in bonds, securities and any other investments, including money market instruments, and (ii) place orders for the execution of such investment transactions with or through such brokers, dealers, issuers, or other persons as the Adviser may select, or tender or exchange such securities in a tender or exchange offer or similar transaction initiated by the issuer or any other person or entity. Subject to the last sentence of Section 15, the Adviser shall comply with all legal requirements and rules of securities exchanges applicable to its duties in connection with the execution of transactions. The Advisor shall not effect any borrowing of money on behalf of the Client without Client's written consent thereto.

        3.    Transaction Procedures.    The Client has provided the Adviser with a statement of the existing Account portfolio that it desires the Adviser to manage. In connection with each investment transaction in the Account, the Adviser shall instruct the brokers and dealers to provide to the Client such written advice of trades, including expenses and other incidents of the transaction, as is normally provided.

        Instructions of the Adviser to the custodian of the securities and other investments in the Account selected by the Client (the "Custodian") shall be made, at the option of the Adviser, either (i) in writing sent by first class mail or by facsimile transmission, or (ii) orally and confirmed in writing by first class mail or facsimile transmission as soon as practical thereafter. The Adviser shall instruct all brokers and dealers executing orders on behalf of the Account to forward to the Client copies of all confirmations promptly after execution of transactions. The Adviser shall not be responsible for any loss incurred by reason of any act or omission of any broker or dealer; provided, however, that the Adviser exercises due care in the selection of brokers and dealers and makes reasonable efforts to see that brokers and dealers selected by the Adviser perform their obligations with respect to the Account.

        4.    Reports and Records of the Adviser.    The Adviser will provide or cause to be provided to the Client such periodic reports concerning the status of the Account as the Client may reasonably request. The Adviser shall provide to the Client within 10 business days of the end of each calendar month, a report of Account transactions effected by the Adviser since the date of the most recent such report, and within 20 business days of the end of each calendar month, a valuation report of all investments and cash in the Account. The Client and the Adviser will arrange for the Custodian to provide the Adviser daily cash account statements and monthly asset position statements. The Adviser will compare these statements with its own records and inform the Custodian of any differences. In the event that differences between the custodian's statements and the Adviser's records cannot be resolved between the Adviser and the custodian, the Adviser will inform the Client in writing.

        The Adviser shall preserve its records relating to the Account for no less than six years and shall, upon the request of the Client, make such records available for inspection, at reasonable times at its main business office during normal business hours, by the Client, its auditors or any regulatory authority. Prior to discarding or destroying any such records, the Adviser shall give the Client reasonable opportunity, at the Client's expense, to review them and to take all or such portion of them as the Client wishes to retain. The Adviser, in the maintenance of its records, does not assume responsibility for the accuracy of information furnished by or on behalf of the Client or any third party not an officer or employee of the Adviser.

        5.    Confidential Relationship.    All information and advice furnished by either party to the other hereunder, including their respective agents and employees, shall be treated as confidential and shall not be disclosed to third parties except as provided in Section 4 or as required by law.

        6.    Service to Other Clients.    The Adviser may perform investment advisory and other services for various clients, including insurance companies, investment companies and accounts held by the Adviser in a fiduciary capacity. The Adviser may give advice and take action with respect to any of its other clients which may differ from advice given or the timing or nature of action taken with respect to the Account, so long as it is the Adviser's policy, to the extent practical, to allocate investment opportunities to the Account over a period of time on a fair and equitable basis relative to other clients. The Adviser shall not have any obligation to purchase or sell, or to recommend for purchase or sale, for the Account any security or other investment which the Adviser, its officers, affiliates or employees may purchase or sell for its or their own accounts or for the account of any other client, if in the opinion of the Adviser such transaction or investment appears unsuitable, impractical or undesirable for the Account.

        7.    Allocation of Brokerage.    Where the Adviser places orders for the execution of portfolio transactions for the Account, the Adviser may allocate such transactions to such brokers and dealers for execution on such markets, at such prices and at such commission rates (including commission rates that may exceed those that another broker or dealer would have charged for effecting such transactions) as the Adviser determines to be appropriate; provided, however, that if such commission rate exceeds that which another broker or dealer might have charged for the same transaction, the Adviser has determined in good faith that the amount of such commission is reasonable in relation to the value of brokerage and research services provided by such broker or dealer, viewed in terms of the particular transaction or the Adviser's overall responsibilities with respect to some or all of the accounts over which the Adviser exercises investment discretion; provided, further, that the Adviser shall make reasonable efforts to minimize brokerage costs where similar services of adequate standards and reliability are available from more than one broker or dealer.

        The Adviser may take into consideration in the selection of such brokers and dealers not only the available prices and rate of brokerage commissions, but all other relevant factors (including without limitation, execution and processing capabilities, and general brokerage services, such as economic, fixed income, and equity research, account evaluation, analysis and/or performance and database and/or market information services, all of which are provided by such brokers and dealers and which are expected to enhance the overall investment management capabilities of the Adviser) without the Adviser's having to demonstrate that such Factors are a direct benefit to the Account.

        8.    Inside Information.    The Adviser shall have no obligation to seek to obtain any material non-public information about any issuer of securities, the use of which, in any event, may be prohibited by the securities laws of certain jurisdictions.

        9.    Proxies.    The Adviser will not be required to take any action with respect to the voting of proxies solicited by, or with respect to, the issuers of securities in which assets of the Account may be invested from time to time, but the Adviser shall, whenever the Client so requests, provide advice to the Client with respect to the voting of such proxies.

        10.    Independent Contractor.    The Adviser shall for all purposes herein be deemed to be an independent contractor and shall, except as otherwise expressly provided or authorized by or under this

Agreement, have no authority to act for or represent the Client in any way or otherwise be deemed an agent of the Client.

        11.    Reimbursement of Travel and Related Expenses.    The Client shall promptly pay or reimburse the Adviser for its payment of all travel and other expenses reasonably incurred by the Adviser with respect to any visit to the Client where such travel is requested by the Client.

        12.    Investment Advisory Fees.

        (a)    Description of Fee.    In consideration of the services provided to the Client under this Agreement, the Client shall pay the Adviser a fee to be calculated on the market value of all assets in the Account, and paid quarterly as set forth in paragraph (b) of this Section 12 (the "Investment Advisory Fee") to be determined at the following annual rates for the corresponding market values of the Account:

        (x)  $2.00 per $1,000 (20 basis points) for a market value of $150 million or less; and

        (y)  $1.50 per $1,000 (15 basis points) for the balance.

        (b)    Payment of the Investment Advisory Fee.    The Investment Advisory Fee shall be payable in quarterly installments in arrears. Each Investment Advisory Fee shall be paid by the Client promptly upon the receipt of a statement from the Adviser showing the amount of the fee and the manner in which the fee was calculated.

        (c)    Effect of Termination.    If the quarterly Investment Advisory Fee has not been paid as of the effective date of termination, the Adviser shall earn a pro rata share of the quarterly fee. Payments shall be made as soon as possible after such date of termination.

        13.    Limitation of Liability and Indemnification.    Neither the Adviser nor any shareholder, director, officer or employee of the Adviser performing services for the Client at the direction or request of the Adviser in connection with the discharge of the Adviser's obligations hereunder shall be liable for any error of judgment or mistake of law or for any loss which the Client or any subsidiary of the Client may incur in connection with the investment of assets in the Account.

        To the fullest extent permitted by law, the Client shall indemnify, hold harmless, protect and defend the Adviser, its shareholders, directors, officers and employees (the "Indemnitees") against any losses, claims, damages or liabilities, including without limitation, legal or other expenses incurred in investigating or defending against any such loss, claim, damages or liability, and any amounts expended in settlement of any claim (collectively "Liabilities"), to which any Indemnitee may become subject by reason of any act or omission performed or omitted to be performed by or on behalf of the Client in connection with the investment of assets in the Account. The provisions of this Section 13 shall continue to afford protection to each Indemnitee regardless of whether such Indemnitee remains in the position or capacity pursuant to which such Indemnitee became entitled to indemnification under this Section 13.

        However, nothing contained in this Section 13 shall be construed to protect any Indemnitee against Liability to the Client or any subsidiary or parent corporation of the Client to which such Indemnitee would otherwise be subject, or require the Client to indemnify any Indemnitee against Liability to the Client to which such Indemnitee would otherwise be subject, or require the Client to indemnify any Indemnitee against any Liability, by reason of actions or omissions constituting willful misfeasance, bad faith or gross negligence in the performance of the Adviser's duties or reckless disregard of the Adviser's obligations and duties under this Agreement.

        14.    Valuation.    The market value of the investments in the Account shall be determined from reports published by any nationally recognized pricing service, or, if such reports are not readily available with respect to a particular security, the Adviser shall determine the value of any such security either by securing a quotation from a broker or dealer it selects or in some other manner which the Adviser determines in good faith reflects the fair market value of such security.

        15.    Investment Objectives, Guidelines, Procedures and Restrictions.    It will be the Client's responsibility to provide the Adviser from time to time with written Investment Guidelines for the Account, approved by the Board of Directors of the Client and signed by its Chief Financial Officer (or a Vice President if no person has the title of Chief Financial Officer), as well as any changes or modifications therein, and any further restrictions under applicable Bermuda laws or regulations. In addition, the client shall give the Adviser prompt written notice if the Client deems any investments recommended or made for the Account to be in violation of any of the Investment Guidelines. Unless the Investment Guidelines contain specific restrictions, the investments recommended for, or made on behalf of, the Account shall be deemed not to be restricted under the current or future regulations stipulated by any Bermuda regulatory body applicable to the Client, or by virtue of the terms of any other contract or instrument purporting to bind the Client or the Adviser.

        16.    Termination.    This Agreement may be terminated at any time (i) by the Client by giving not less than 5 days' written notice to Adviser, and (ii) by the Adviser by giving not less than 90 days' written notice to the Client; provided, however, that the parties may terminate on shorter notice upon mutual agreement in writing. Such termination shall be without penalty to either party but shall not prejudice any rights which have accrued before the date of termination. The Client shall remain liable for settlement of any transactions outstanding at the date of termination. In addition, the Client may order immediate cessation of securities transactions at any time, provided, however, that the request is confirmed in writing immediately thereafter via facsimile transmission to the Adviser. After the Clients termination of the Adviser's authority as provided in Section 17 hereof, the Adviser shall not act further for the Client. The Adviser shall reasonably cooperate with the Client to ensure that there is an orderly transfer to an alternative investment adviser.

        17.    The Client's Termination of Authority.    The Client shall compensate the Adviser for any fees due in accordance with this Agreement and for any loss the Adviser may suffer as a result of any action taken by the Adviser within the terms of the Agreement, either before or after the Client's bankruptcy, dissolution, or other termination of authority under this Agreement, but before receipt by the Adviser of notice thereof. The Client further agrees that, to the extent permitted by law, any such action taken by the Adviser shall be binding upon the Client and any successor of the Client, who shall hold the Adviser harmless from all Liability arising from any such action.

        18.    Notices.    Unless otherwise specified herein, all notices, instructions, directions, advice and other communication with respect to security transactions or any other matter contemplated by this Agreement from the Adviser to the Client and from the Client to the Adviser shall be given either (i) in writing sent by first class mail, courier service, or facsimile transmission or (ii) orally and confirmed in writing by first class mail, courier service, or facsimile transmission as soon as practical thereafter. Any such communication shall be deemed to have been made upon its receipt. Communications by mail or courier service shall be effective if to the Adviser, only if addressed to it at 1330 Avenue of the Americas, 12th floor, New York, New York, 10019, or if to the Client, only if addressed to it at ¹²/13 Exchange Place, IFSC, Dublin I, Ireland, provided that either party may specify another address or addresses for itself for this purpose in a notice similarly given.

        The adviser may rely upon any communication (written or oral) from any person if the Adviser reasonably believes it to be genuine and from an authorized person. A person shall be deemed to be an authorized person for purposes hereof if his name, specimen signature and authority have been certified to the Adviser by a Director of the Client and such person shall continue to be deemed an authorized person until the Adviser receives written notice to the contrary from a Director of the Client.

        19.    Representation by the Client.    The Client represents and confirms that the employment of the Adviser is authorized by the governing documents relating to the Account and that the terms hereof do not violate any obligation by which the Client or any subsidiary of the Client is bound, or any obligation known to the Client by which the Adviser, as investment manager of the Account, is intended to be bound, whether arising by contract, operation of law, or otherwise.

        The Adviser represents and confirms that it has all requisite power and authority to act as Adviser hereunder.

        20.    Amendment.    This Agreement may be amended only by an instrument in writing executed by both parties.

        21.    Assignment.    Neither party may assign any of its rights or obligations under this Agreement without the prior written consent of the other party to this Agreement.

        22.    Governing Law.    This Agreement shall be construed and enforced in accordance with, and governed by, the internal laws of the State of New York applicable to agreements made and to be performed in that State.

        IN WITNESS HEREOF, the parties hereto have executed this Agreement as of the date and year first above written.

EUROPEAN SPECIALTY REINSURANCE (BERMUDA) LIMITED
By:	/s/  MARK E. OLEKSIK
Name:	Mark E. Oleksik
Title:	Senior Financial Officer
HEAD ASSET MANAGEMENT L.L.C.
By:	/s/  HENRY B. SPENCER
Name:	Henry B. Spencer
Title:	Chief Investment Officer

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Investment Advisory Agreement

EX-10.15

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EXHIBIT 10.15

Investment Advisory Agreement

        INVESTMENT ADVISORY AGREEMENT dated as of July 1,2000, by and between ACCENT INSURANCE COMPANY LIMITED, an Irish company (the "Client"), and HEAD ASSET MANAGEMENT L.L.C., a limited liability company formed under the laws of the State of Delaware (the "Adviser").

        1.    Engagement.    Commencing on July 1, 2000, the Client engages and retains the Adviser to provide the investment advisory and related services described below. The Adviser hereby accepts such engagement and shall provide or make satisfactory arrangements for the provision of such services and assumes the obligations herein set forth for the compensation provided herein.

        2.    Services and Authority of the Adviser.    The Adviser will perform the services and have the authority set forth in this Agreement with respect to all cash, securities and other investment assets of the Client which are from time to time deposited by the Client with the Adviser for investment pursuant to the provisions hereof, and all proceeds thereof and additions thereto (the "Account"). The Adviser will supervise and direct the investment of the Account in accordance with, and subject to, the investment objectives, guidelines and restrictions specified in written statements and notices given by the Client as provided in Section 15 hereof.

        The Adviser, as agent and attorney-in-fact with respect to the Account, may, when it deems appropriate, without prior consultation with the Client and at the risk of the Client (i) buy, sell, exchange, convert, tender and otherwise trade in, retain, or reinvest in bonds, securities and any other investments, including money market instruments, and (ii) place orders for the execution of such investment transactions with or through such brokers, dealers, issuers, or other persons as the Adviser may select, or tender or exchange such securities in a tender or exchange offer or similar transaction initiated by the issuer or any other person or entity. Subject to the last sentence of Section 15, the Adviser shall comply with all legal requirements and rules of securities exchanges applicable to its duties in connection with the execution of transactions. The Advisor shall not effect any borrowing of money on behalf of the Client without Client's written consent thereto.

        3.    Transaction Procedures.    The Client has provided the Adviser with a statement of the existing Account portfolio that it desires the Adviser to manage. In connection with each investment transaction in the Account, the Adviser shall instruct the brokers and dealers to provide to the Client such written advice of trades, including expenses and other incidents of the transaction, as is normally provided.

        Instructions of the Adviser to the custodian of the securities and other investments in the Account selected by the Client (the "Custodian") shall be made, at the option of the Adviser, either (i) in writing sent by first class mail or by facsimile transmission, or (ii) orally and confirmed in writing by first class mail or facsimile transmission as soon as practical thereafter. The Adviser shall instruct all brokers and dealers executing orders on behalf of the Account to forward to the Client copies of all confirmations promptly after execution of transactions. The Adviser shall not be responsible for any loss incurred by reason of any act or omission of any broker or dealer; provided, however, that the Adviser exercises due care in the selection of brokers and dealers and makes reasonable efforts to see that brokers and dealers selected by the Adviser perform their obligations with respect to the Account.

        4.    Reports and Records of the Adviser.    The Adviser will provide or cause to be provided to the Client such periodic reports concerning the status of the Account as the Client may reasonably request. The Adviser shall provide to the Client within 10 business days of the end of each calendar month, a report of Account transactions effected by the Adviser since the date of the most recent such report, and within 20 business days of the end of each calendar month, a valuation report of all investments and cash in the Account. The Client and the Adviser will arrange for the Custodian to provide the Adviser daily cash account statements and monthly asset position statements. The Adviser will compare these statements with its own records and inform the Custodian of any differences. In the event that differences between the custodian's statements and the Adviser's records cannot be resolved between the Adviser and the custodian, the Adviser will inform the Client in writing.

        The Adviser shall preserve its records relating to the Account for no less than six years and shall, upon the request of the Client, make such records available for inspection, at reasonable times at its main business office during normal business hours, by the Client, its auditors or any regulatory authority. Prior to discarding or destroying any such records, the Adviser shall give the Client reasonable opportunity, at the Client's expense, to review them and to take all or such portion of them as the Client wishes to retain. The Adviser, in the maintenance of its records, does not assume responsibility for the accuracy of information furnished by or on behalf of the Client or any third party not an officer or employee of the Adviser.

        5.    Confidential Relationship.    All information and advice furnished by either party to the other hereunder, including their respective agents and employees, shall be treated as confidential and shall not be disclosed to third parties except as provided in Section 4 or as required by law.

        6.    Service to Other Clients.    The Adviser may perform investment advisory and other services for various clients, including insurance companies, investment companies and accounts held by the Adviser in a fiduciary capacity. The Adviser may give advice and take action with respect to any of its other clients which may differ from advice given or the timing or nature of action taken with respect to the Account, so long as it is the Adviser's policy, to the extent practical, to allocate investment opportunities to the Account over a period of time on a fair and equitable basis relative to other clients. The Adviser shall not have any obligation to purchase or sell, or to recommend for purchase or sale, for the Account any security or other investment which the Adviser, its officers, affiliates or employees may purchase or sell for its or their own accounts or for the account of any other client, if in the opinion of the Adviser such transaction or investment appears unsuitable, impractical or undesirable for the Account.

        7.    Allocation of Brokerage.    Where the Adviser places orders for the execution of portfolio transactions for the Account, the Adviser may allocate such transactions to such brokers and dealers for execution on such markets, at such prices and at such commission rates (including commission rates that may exceed those that another broker or dealer would have charged for effecting such transactions) as the Adviser determines to be appropriate; provided, however, that if such commission rate exceeds that which another broker or dealer might have charged for the same transaction, the Adviser has determined in good faith that the amount of such commission is reasonable in relation to the value of brokerage and research services provided by such broker or dealer, viewed in terms of the particular transaction or the Adviser's overall responsibilities with respect to some or all of the accounts over which the Adviser exercises investment discretion; provided, further, that the Adviser shall make reasonable efforts to minimize brokerage costs where similar services of adequate standards and reliability are available from more than one broker or dealer.

        The Adviser may take into consideration in the selection of such brokers and dealers not only the available prices and rate of brokerage commissions, but all other relevant factors (including without limitation, execution and processing capabilities, and general brokerage services, such as economic, fixed income, and equity research, account evaluation, analysis and/or performance and database and/or market information services, all of which are provided by such brokers and dealers and which are expected to enhance the overall investment management capabilities of the Adviser) without the Adviser's having to demonstrate that such Factors are a direct benefit to the Account.

        8.    Inside Information.    The Adviser shall have no obligation to seek to obtain any material non-public information about any issuer of securities, the use of which, in any event, may be prohibited by the securities laws of certain jurisdictions.

        9.    Proxies.    The Adviser will not be required to take any action with respect to the voting of proxies solicited by, or with respect to, the issuers of securities in which assets of the Account may be invested from time to time, but the Adviser shall, whenever the Client so requests, provide advice to the Client with respect to the voting of such proxies.

        10.    Independent Contractor.    The Adviser shall for all purposes herein be deemed to be an independent contractor and shall, except as otherwise expressly provided or authorized by or under this

Agreement, have no authority to act for or represent the Client in any way or otherwise be deemed an agent of the Client.

        11.    Reimbursement of Travel and Related Expenses.    The Client shall promptly pay or reimburse the Adviser for its payment of all travel and other expenses reasonably incurred by the Adviser with respect to any visit to the Client where such travel is requested by the Client.

        12.    Investment Advisory Fees.

        (a)    Description of Fee.    In consideration of the services provided to the Client under this Agreement, the Client shall pay the Adviser a fee to be calculated on the market value of all assets in the Account, and paid quarterly as set forth in paragraph (b) of this Section 12 (the "Investment Advisory Fee") to be determined at the following annual rates for the corresponding market values of the Account:

        (x)  $2.00 per $1,000 (20 basis points) for a market value of $150 million or less; and

        (y)  $1.50 per $1,000 (15 basis points) for the balance.

        (b)    Payment of the Investment Advisory Fee.    The Investment Advisory Fee shall be payable in quarterly installments in arrears. Each Investment Advisory Fee shall be paid by the Client promptly upon the receipt of a statement from the Adviser showing the amount of the fee and the manner in which the fee was calculated.

        (c)    Effect of Termination.    If the quarterly Investment Advisory Fee has not been paid as of the effective date of termination, the Adviser shall earn a pro rata share of the quarterly fee. Payments shall be made as soon as possible after such date of termination.

        13.    Limitation of Liability and Indemnification.    Neither the Adviser nor any shareholder, director, officer or employee of the Adviser performing services for the Client at the direction or request of the Adviser in connection with the discharge of the Adviser's obligations hereunder shall be liable for any error of judgment or mistake of law or for any loss which the Client or any subsidiary of the Client may incur in connection with the investment of assets in the Account.

        To the fullest extent permitted by law, the Client shall indemnify, hold harmless, protect and defend the Adviser, its shareholders, directors, officers and employees (the "Indemnitees") against any losses, claims, damages or liabilities, including without limitation, legal or other expenses incurred in investigating or defending against any such loss, claim, damages or liability, and any amounts expended in settlement of any claim (collectively "Liabilities"), to which any Indemnitee may become subject by reason of any act or omission performed or omitted to be performed by or on behalf of the Client in connection with the investment of assets in the Account. The provisions of this Section 13 shall continue to afford protection to each Indemnitee regardless of whether such Indemnitee remains in the position or capacity pursuant to which such Indemnitee became entitled to indemnification under this Section 13.

        However, nothing contained in this Section 13 shall be construed to protect any Indemnitee against Liability to the Client or any subsidiary or parent corporation of the Client to which such Indemnitee would otherwise be subject, or require the Client to indemnify any Indemnitee against Liability to the Client to which such Indemnitee would otherwise be subject, or require the Client to indemnify any Indemnitee against any Liability, by reason of actions or omissions constituting willful misfeasance, bad faith or gross negligence in the performance of the Adviser's duties or reckless disregard of the Adviser's obligations and duties under this Agreement.

        14.    Valuation.    The market value of the investments in the Account shall be determined from reports published by any nationally recognized pricing service, or, if such reports are not readily available with respect to a particular security, the Adviser shall determine the value of any such security either by securing a quotation from a broker or dealer it selects or in some other manner which the Adviser determines in good faith reflects the fair market value of such security.

        15.    Investment Objectives, Guidelines, Procedures and Restrictions.    It will be the Client's responsibility to provide the Adviser from time to time with written Investment Guidelines for the Account, approved by the Board of Directors of the Client and signed by its Chief Financial Officer (or a Vice President if no person has the title of Chief Financial Officer), as well as any changes or modifications therein, and any further restrictions under applicable Bermuda laws or regulations. In addition, the client shall give the Adviser prompt written notice if the Client deems any investments recommended or made for the Account to be in violation of any of the Investment Guidelines. Unless the Investment Guidelines contain specific restrictions, the investments recommended for, or made on behalf of, the Account shall be deemed not to be restricted under the current or future regulations stipulated by any Bermuda regulatory body applicable to the Client, or by virtue of the terms of any other contract or instrument purporting to bind the Client or the Adviser.

        16.    Termination.    This Agreement may be terminated at any time (i) by the Client by giving not less than 5 days' written notice to Adviser, and (ii) by the Adviser by giving not less than 90 days' written notice to the Client; provided, however, that the parties may terminate on shorter notice upon mutual agreement in writing. Such termination shall be without penalty to either party but shall not prejudice any rights which have accrued before the date of termination. The Client shall remain liable for settlement of any transactions outstanding at the date of termination. In addition, the Client may order immediate cessation of securities transactions at any time, provided, however, that the request is confirmed in writing immediately thereafter via facsimile transmission to the Adviser. After the Clients termination of the Adviser's authority as provided in Section 17 hereof, the Adviser shall not act further for the Client. The Adviser shall reasonably cooperate with the Client to ensure that there is an orderly transfer to an alternative investment adviser.

        17.    The Client's Termination of Authority.    The Client shall compensate the Adviser for any fees due in accordance with this Agreement and for any loss the Adviser may suffer as a result of any action taken by the Adviser within the terms of the Agreement, either before or after the Client's bankruptcy, dissolution, or other termination of authority under this Agreement, but before receipt by the Adviser of notice thereof. The Client further agrees that, to the extent permitted by law, any such action taken by the Adviser shall be binding upon the Client and any successor of the Client, who shall hold the Adviser harmless from all Liability arising from any such action.

        18.    Notices.    Unless otherwise specified herein, all notices, instructions, directions, advice and other communication with respect to security transactions or any other matter contemplated by this Agreement from the Adviser to the Client and from the Client to the Adviser shall be given either (i) in writing sent by first class mail, courier service, or facsimile transmission or (ii) orally and confirmed in writing by first class mail, courier service, or facsimile transmission as soon as practical thereafter. Any such communication shall be deemed to have been made upon its receipt. Communications by mail or courier service shall be effective if to the Adviser, only if addressed to it at 1330 Avenue of the Americas, 12th floor, New York, New York, 10019, or if to the Client, only if addressed to it at ¹²/13 Exchange Place, IFSC, Dublin I, Ireland, provided that either party may specify another address or addresses for itself for this purpose in a notice similarly given.

        The adviser may rely upon any communication (written or oral) from any person if the Adviser reasonably believes it to be genuine and from an authorized person. A person shall be deemed to be an authorized person for purposes hereof if his name, specimen signature and authority have been certified to the Adviser by a Director of the Client and such person shall continue to be deemed an authorized person until the Adviser receives written notice to the contrary from a Director of the Client.

        19.    Representation by the Client.    The Client represents and confirms that the employment of the Adviser is authorized by the governing documents relating to the Account and that the terms hereof do not violate any obligation by which the Client or any subsidiary of the Client is bound, or any obligation known to the Client by which the Adviser, as investment manager of the Account, is intended to be bound, whether arising by contract, operation of law, or otherwise.

        The Adviser represents and confirms that it has all requisite power and authority to act as Adviser hereunder.

        20.    Amendment.    This Agreement may be amended only by an instrument in writing executed by both parties.

        21.    Assignment.    Neither party may assign any of its rights or obligations under this Agreement without the prior written consent of the other party to this Agreement.

        22.    Governing Law.    This Agreement shall be construed and enforced in accordance with, and governed by, the internal laws of the State of New York applicable to agreements made and to be performed in that State.

        IN WITNESS HEREOF, the parties hereto have executed this Agreement as of the date and year first above written.

ACCENT INSURANCE COMPANY LIMITED
By:	/s/  MARK E. OLEKSIK
Name:	Mark E. Oleksik
Title:	Senior Financial Officer
HEAD ASSET MANAGEMENT L.L.C.
By:	/s/  HENRY B. SPENCER
Name:	Henry B. Spencer
Title:	Chief Investment Officer

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Investment Advisory Agreement

EX-10.18

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EXHIBIT 10.18

ESG Re Limited Non-Management
Directors' Compensation and Option Plan

        1.    Purpose:    ESG Re Limited, a Bermuda corporation (the "Company"), hereby adopts this Non-Management Directors' Compensation and Option Plan (the "Plan") to provide for the granting of options to purchase ordinary stock of the Company, par value $1.00 per share ("Common Shares") and for the payment of fees for services as a member of the Board of Directors ("Fees") in order to promote the long-term growth and financial success of the Company by attracting and retaining non-management directors of outstanding ability and assisting the Company in promoting a greater identity of interest between the Company's non-management directors and its stockholders.

        2.    Administration.

        (a)  The Plan shall be administered by the Board of Directors of the Company (the "Board").

        (b)  The Board shall have the authority (i) to exercise all of the powers granted to it under the Plan, (ii) to construe, interpret and implement the Plan and all documents executed pursuant to the Plan (including all election forms), (iii) to prescribe, amend and rescind rules relating to the Plan, (iv) to make any determination necessary or advisable in administering the Plan and (v) to correct any defect, supply any omission and reconcile any inconsistency in the Plan.

        (c)  The determination of the Board on all matters relating to the Plan or any document executed pursuant to the Plan shall be conclusive.

        (d)  No member of the Board shall be liable for any action or determination made in good faith with respect to the Plan.

        3.    Eligibility.    Only directors of the Company who are not full-time employees of the Company or any of its subsidiaries ("Eligible Directors") shall be eligible to participate in the Plan.

        4.    Shares Subject to the Plan.

        (a)  Subject to the adjustment provisions of Section 7 below, a maximum of 1,000,000 Common Shares shall be issuable under the Plan. If, and to the extent that, options granted under the Plan shall terminate, expire or be canceled for any reason without having been exercised, new awards may be granted in respect of the Common Shares covered by such terminated, expired or canceled options. In addition, in the event that Common Shares are delivered in payment of the exercise price of an option (or withholding obligation) such Common Shares shall become available for subsequent grants, including Reload Options (as defined in section 6(a)(4) below). The granting and terms of such new awards shall comply in all respects with the provisions of the Plan.

        Common Shares sold upon the exercise of any option granted under the Plan pursuant to Section 6 or Common Shares paid as Fees pursuant to Section 5 may be authorized and unissued Common Shares, issued Common Shares held in the Company's treasury or shares purchased by, or on behalf of the Company in open-market or private transactions or both. There shall be reserved at all times for awards under the Plan a number of Common Shares, of either authorized and unissued Common Shares or Common Shares held in the Company's treasury, or both, equal to the maximum number of Common Shares that may be issued under the Plan.

        5.    Directors Fees.

        (a)    In General.    Each Eligible Director shall be entitled to fees for services as a member of the Board and its committees in amounts determined by the Board ("Fees").

        (b)    Deferral and Payment of Fees.

        (1)  In General. Subject to the timing requirements set forth in subsection (2) below, commencing on the Effective Date of the Plan, each Eligible Director may elect either (i) to receive all or a portion of the Fees payable to such Eligible Director as soon as practicable after the date such amounts become payable, subject to the following paragraph, or (ii) to defer all or a portion of such Fees in accordance with the provisions of subsection (2) below (a "Deferred Payment").

        With respect to any payment that an Eligible Director has elected to receive pursuant to subsection (i) above or for which there is no Deferred Payment Election Form in effect in accordance with the provisions of subsection (2) below (a "Current Payment"), the Eligible Director may elect at least 30 days prior to the date such amounts become payable to either (i) have such Fees paid in a combination of Common Shares and cash, as determined by the Board (a "Cash and Shares Payout") or (ii) to receive options for Common Shares with a value, as determined by the Board, equal to two times the amount of the Fees that would otherwise be payable (an "Option Payment"), which options shall be subject to Section 6 of the Plan.

        (2)  Elective Deferrals.

(i)

An Eligible Director may elect to defer the payment of the Fees by submitting an election form, in the form attached hereto as Exhibit A (a "Deferred Payment Election Form") to the Board, indicating: (I) the percentage of the Fees that are to be deferred; and (II) the date on which the commencement of payments of deferred amounts (the "Distribution Date") should begin, as contemplated by Subsection (4)(i) below. A Deferred Payment Election Form shall become effective with respect to the amounts becoming payable with respect to services performed in the calendar year following the calendar year in which such Deferred Payment Election Form is submitted to the Board; provided, however, that with respect to Initial Fees, or with respect to any Eligible Director, in the calendar year such Eligible Director first becomes eligible to participate in the Plan, an election may be made to defer Fees within 30 days after either the Effective Date of the Plan or the date on which such Eligible Director first becomes eligible to participate in the Plan, whichever is applicable.



(ii)

An election under this section shall continue in effect until revoked by written notice to the Board or superseded by a new effective Deferred Payment Election Form; provided, however, that no revocation of a Deferred Payment Election Form or supersession of such form by submission of a new Deferred Payment Election Form shall be effective to make any change with respect to Fees to be paid to the Eligible Director in respect of services in the calendar year in which such revocation or supersession occurs or for any amounts which, pursuant to a previous election of the Participant, are payable within one year of the date of the change of election.



(iii)

An Eligible Director may designate, in an election form, one or more beneficiaries to receive any distributions under the Plan upon the death of the Eligible Director, and such designation may be changed at any time by submitting a new designation to the Board, which shall become effective immediately upon receipt by the Board.

        (3)  Share Units. Any portion of the Fees that an Eligible Director elects to defer (the "Deferred Amount") shall be credited to an account (a "Share Unit Account") in units that are equivalent in value to Common Shares ("Share Units"). The Deferred Amount allocated to the Share Unit Account shall be credited to the Share Unit Account as of the first business day following the date on which the Eligible Director becomes entitled to payment of the

Fees, as the case may be, and the number of Share Units credited to such Share Unit Account shall be an amount equal to the results obtained by dividing (I) the Deferred Amount of Fees allocated to the Share Unit Account by (II) the Fair Market Value of a Share on the first business day following the date on which the Eligible Director becomes entitled to payment of the Fees, as the case may be. If Share Units exist in an Eligible Director's Share Unit Account on a dividend record date for the Company's Common Shares, the Share Unit Account shall be credited, on the dividend payment date, with an additional number of Share Units equal to (i) the cash dividend paid on one Share, times (ii) the number of Share Units in the Share Unit Account on the dividend record date, divided by (iii) the Fair Market Value of a Share on the dividend payment date.

        (4)  Distributions.

(i)

Distribution Date. Each Eligible Director shall designate on a Deferred Payment Election Form a distribution date with respect to the Deferred Amount credited to the Eligible Director's Share Unit Account thereafter which is not earlier than one year from the date the Fees become payable (the "Elected Distribution Date"). The amounts in an Eligible Director's Share Unit Account shall be paid as soon as practicable following the Elected Distribution Date.



(ii)

Distribution Method. Distributions shall be made from the Eligible Director's Share Unit Account in cash in an amount equal to the greater of (i) the value of the Common Shares in the Eligible Directors Share Unit Account valued at their Fair Market Value on the Elected Distribution Date and (ii) the amount that would have been credited to the Eligible Directors Share Unit Account on the Elected Distribution had the Fees earned interest at the one-year United States treasury bill rate.

        (c)  Fair Market Value. For purposes of the Plan, "Fair Market Value" of a Common Share shall mean as of any date:

        (1)  the average of the closing bid prices for the past ten consecutive trading days of the Common Shares on the Nasdaq National Market if Common Shares are approved for quotation on such system, or, if not so approved, the mean between the closing sales prices for the past ten consecutive trading days of the Common Shares on such other national exchange or over-the-counter market on which the Common Shares are principally trading on such dates, or if, there were no sales on such dates; or

        (2)  in the event there shall be no public market for the Common Shares, the fair market value of the Common Shares as determined in good faith by the Board of Directors based upon the valuation of an independent appraiser.

        6.    Options.

        (a)  Grant of Options

        (1)  Initial Awards. Each person who is an Eligible Director as of the Effective Date or becomes an Eligible Director within one year of the Effective Date shall receive an option to purchase 10,000 Common Shares on the Effective Date or on the date on which such Eligible Director first becomes an Eligible Director ("Initial Options").

        (2)  Subsequent Awards. Each year during the term of the Plan, each person who is an Eligible Director on the date of the Company's annual shareholders meeting and, except with respect to the first annual meeting following the Effective Date, who has been an Eligible Director for the entire year preceding such annual meeting will automatically receive an option to purchase 5,000 Common Shares (or such other amount as the Board determines) for service as a director of the Company. Each Eligible Director who is an Eligible Director on the date of the Company's annual shareholders meeting but has not been an Eligible Director for the entire year preceding such annual meeting shall receive an option to purchase a

portion of such 5,000 Common Shares (or such other amount) equal to the results obtained by multiplying 5,000 (or such other amount) by a fraction, the numerator of which shall be the number of full months such Eligible Director has served as an Eligible Director and the denominator of which shall be 12 ("Annual Options") provided however, that Eligible Directors who are Eligible Directors on the first annual meeting following the Effective Date shall receive an option to purchase 5,000 Common Shares (or such other amount) without regard to the number of months such Eligible Director has served as an Eligible Director. A director receiving an option pursuant to the Plan may hereinafter be referred to as an "Optionee".

        (3)  Discretionary Options. The Board shall also have discretionary authority to award additional options to the Chairman of the Board, the Deputy Chairman of the Board, the Committee Chairmen and members of the Board of Directors or the Supervisory Board of any of the Company's subsidiaries, subject to the terms and conditions set forth below.

        (4)  Reload Options. Options may, in the discretion of the Board, be granted under the Plan to permit an Optionee to reacquire any Common Shares such Optionee delivered to the Company as payment of the exercise price in connection with the exercise of an option hereunder or to reacquire any Common Shares retained by the Company to satisfy the Optionee's withholding obligation in connection with the exercise of an Option hereunder (a "Reload Option"). The terms of such Option shall be identical in all material respects to the terms of the Option for which such Reload Option was granted and the term of the Reload Option shall expire at the same time that the term of the Option for which such Reload Option was granted was scheduled to expire; provided, however, that the option price for each Common Share granted under the Reload Option shall be the Fair Market Value of a Common Share at the time such Reload Option is granted.

        (5)  Options for Fees. Pursuant to Section 5(b)(1), Options shall be granted to an Eligible Director who elects to receive an Option Payment, subject to the terms and conditions set forth below.

        (b)  Price.

(i)

The option price of each share of Common Shares purchasable under any option granted pursuant to the Plan shall be the Fair Market Value thereof at the time the option is granted.

        (c)  Vesting and Exercisability.

(i)

Vesting.

        All options granted hereunder shall be fully (100%) vested and exercisable upon grant.

(ii)

Notwithstanding any provision of the Plan to the contrary, the unexercised portion of any option granted under the Plan shall automatically and without notice terminate and become null and void at the expiration of 10 years from the date on which such option was granted.

        (d)  Exercise of Options.

(i)

An option granted under the Plan shall be deemed exercised when the person entitled to exercise the option:

        (1)  delivers written notice to the Company at its principal business office, directed to the attention of Chairman of the Board, of the decision to exercise; and

        (2)  concurrently tenders to the Company full payment for the Common Shares to be purchased pursuant to such exercise in U.S. dollars.

(ii)

Payment for Common Shares with respect to which an option is exercised may be made in any combination of the following: (i) by certified or official bank check payable to the Company (or the equivalent thereof acceptable to the Board of

Directors); (ii) with the consent of the Board of Directors in its sole discretion, by personal check (subject to collection) and which may in the Board of Directors' discretion be deemed conditional; and (iii) by delivery of previously-acquired Common Shares owned by the grantee for at least six months (or such longer or shorter period as the Board of Directors may prescribe) having a Fair Market Value (determined as of the option exercise date) equal to the portion of the option exercise price being paid thereby. In addition, subject to such rules as may be established by the Board of Directors, if there is a public market for the Common Shares, payment in accordance with clause (a) of this Section 8 may be deemed to be satisfied by delivery to the Company of an assignment of a sufficient amount of the proceeds from the sale of Common Shares acquired upon exercise to pay for all of the Common Shares acquired upon exercise and an authorization to the broker or selling agent to pay that amount to the Company, which sale shall be made at the Optionee's direction at the time of exercise.

        (e)  Transferability of Options.

        (1)  Subject to subsection 2 below, each Option shall be exercisable only by the Optionee during the Optionee's lifetime, or, if permissible under applicable law, by the Optionee's legal guardian or representative. No Option may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by an Optionee otherwise than by will or by the laws of descent and distribution or, if inapplicable, transmission on death in accordance with the Bye-Laws of the Company and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.

        (2)  Notwithstanding the foregoing, the Board may in the applicable Award Agreement evidencing an Option granted under the Plan or at any time thereafter in an amendment to an Award Agreement provide that Options granted hereunder may be transferred by the Optionee without consideration, subject to such rules as the Board may adopt to preserve the purposes of the Plan, to:

        (A)  the Optionee's spouse, children or grandchildren (including adopted and stepchildren and grandchildren) (collectively, the "Immediate Family");

        (B)  a trust solely for the benefit of the Optionee and his or her Immediate Family; or

        (C)  a partnership corporation or limited liability company whose only partners, shareholders or members are the Optionee and his or her Immediate Family members;

(each transferee described in clauses (A), (B) and (C) above is hereinafter referred to as a "Permitted Transferee"); provided that the Optionee gives the Board advance written notice describing the terms and conditions of the proposed transfer and the Board notifies the grantee in writing that such a transfer would comply with the requirements of the Plan and any applicable Award Agreement evidencing the option.

The terms of any option transferred in accordance with the immediately preceding sentence shall apply to the Permitted Transferee and any reference in the Plan or in an Award Agreement to an Optionee or Participant shall be deemed to refer to the Permitted Transferee, except that (a) Permitted Transferees shall not be entitled to transfer any Options, other than by will or the laws of descent and distribution; (b) Permitted Transferees shall not be entitled to exercise any transferred Options unless there shall be in effect a registration statement on an appropriate form covering the Common Shares to be acquired pursuant to the exercise of such Option if the Board determines that such a registration statement is necessary or appropriate, (c) the Board or the Company shall not be required to provide any notice to a Permitted Transferee,

whether or not such notice is or would otherwise have been required to be given to the Optionee under the Plan or otherwise and (d) the consequences of termination of the Optionee's employment by, or services to, the Company under the terms of the Plan and the applicable Award Agreement shall continue to be applied with respect to the Optionee, following which the Options shall be exercisable by the Permitted Transferee only to the extent, and for the periods, specified in the Plan and the applicable Award Agreement.

        (f)    Rights of Optionee. Neither the Optionee nor the Optionee's executor or administrator shall have any of the rights of a stockholder of the Company with respect to the Common Shares subject to an option until certificates for such Common Shares shall actually have been issued upon the due exercise of such option. Unless the Board of Directors otherwise determines in accordance with Section 7 below, no adjustment shall be made for any regular cash dividend for which the record date is prior to the date of such due exercise and full payment for such Common Shares has been made therefor.

        (g)  Form of Agreements with Optionees. Each option granted pursuant to the Plan shall be evidenced by an individual agreement ("Award Agreement") in writing and shall have such form, terms and provisions, not inconsistent with the provisions of the Plan, as the Board of Directors shall provide for such option. In the event that any provisions of an Agreement differ from the terms of the Plan, the Plan provisions shall govern.

        (h)  Purchase for Investment. Whether or not the options and Common Shares covered by the Plan have been registered under the United States Securities Act of 1933, as amended, each person exercising an option under the Plan may be required by the Company to give a representation in writing that such person is acquiring such Common Shares for investment and not with a view to, or in connection with, the sale, transfer or distribution of any part thereof. The Company will endorse any necessary legend referring to the foregoing restriction upon the certificate or certificates representing any Common Shares issued or transferred to the Optionee upon the exercise of any option granted under the Plan.

        7.    Adjustment Upon Changes in Capitalization. Etc.    In the event that the Board of Directors determines that any dividend or other distribution (whether in the form of cash, Common Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Common Shares or other securities of the Company, issuance of warrants or other rights to purchase Common Shares or other securities of the Company, or other similar corporate transaction or event affects the Common Shares such that an adjustment is determined by the Board of Directors in its discretion to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Board of Directors shall, in such manner as it may deem equitable, adjust any or all of (i) the number of Common Shares or other securities of the Company (or number and kind of other securities or property) available for issuance under the Plan with respect to which options may be granted and the number of Share Units credited to a Participant's Share Unit Account, (ii) the number of Common Shares or other securities of the Company (or number and kind of other securities or property) subject to outstanding options, and (iii) the grant or exercise price with respect to any option or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding option in consideration for the cancellation of such option.

        8.    Withholding and Other Obligations.

        (a)  A Participant may be required to pay to the Company and the Company shall have the right and is hereby authorized to withhold from any Option, from any payment due or transfer made under any Option or under the Plan or from any compensation or other amount owing to a Participant the amount (in cash, Common Shares, other securities, other Option or other property) of any applicable withholding taxes in respect of an Option, its exercise, or any payment or transfer under an Option or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such taxes.

        (b)  Without limiting the generality of clause (a) above, a Participant may satisfy, in whole or in part, the foregoing withholding liability by delivery of Common Shares owned by the Participant (which are not subject to any pledge or other security interest and which have been owned by the Participant for at least 6 months) with a Fair Market Value equal to such withholding liability or by having the Company withhold from the number of Common Shares otherwise issuable pursuant to the exercise of the option a number of Common Shares with a Fair Market Value equal to such withholding liability.

        (c)  Notwithstanding any provision of this Plan to the contrary, in connection with the transfer of an Option to a Permitted Transferee pursuant to Section 6(e) of the Plan, the Optionee shall remain liable for any withholding taxes required to be withheld upon the exercise of such Option by the Permitted Transferee.

        9.    Plan Amendments and Termination.    The Board may suspend or terminate the Plan at any time and may amend it at any time and from time to time, in whole or in part; provided, however, that no amendment or termination may adversely affect any rights of any Eligible Director with respect, to amounts that have been deferred or options that have been granted prior to the date of such amendment or termination without the affected Eligible Director's consent and; provided further, that any amendment for which stockholder approval is necessary to comply with any tax or regulatory requirement shall not be effective until such approval has been obtained.

        10.    Listing, Registration and Legal Compliance.    If the Board shall at any time determine that any Consent (as hereinafter defined) is necessary or desirable as a condition of, or in connection with, the issuance of Common Shares or other rights hereunder or the taking of any other action hereunder (each such action being hereinafter referred to as a "Plan Action"), then such Plan Action shall not be taken, in whole or in part, unless and until such Consent shall have been effected or obtained. The term "Consent" as used herein with respect to any Plan Action means (i) the listing, registration or qualification of any Common Shares issued under the Plan on any securities exchange or under any foreign, federal, state or local law, rule or regulation, (ii) any and all consents, clearances and approvals in respect of a Plan Action by any governmental or other regulatory bodies or (iii) any and all written agreements and representations by an Eligible Director with respect to the disposition of Common Shares or with respect to any other matter that the Board shall deem necessary or desirable in order to comply with the terms of any such listing, registration or qualification or to obtain an exemption from the requirement that any such listing, qualification or registration be made.

        11.    Right of Discharge Reserved.    Nothing in the Plan shall confer upon any Eligible Director the right to continue in the service of the Company or affect any right that the Company may have to terminate the service of such Eligible Director.

        12.    Other Payments or Awards.    By participation in the Plan, each Eligible Director so participating shall be deemed to have agreed that any payments made under the Plan are special incentive compensation that will not be taken into account, in any manner, as salary, compensation or bonus in determining the amount of any payment under any pension, retirement or other employee benefit plan of the Company or any of its affiliates. In addition, such participation will not affect the amount of any life insurance coverage, if any, provided by the Company on the life of any such Eligible Director.

        13.    Rights Not Transferable or Subject to Alienation.    Except as set forth in Section 6(e) no options granted to an Eligible Director under this Plan may be sold, assigned or otherwise transferred by the Eligible Director other than by will or the laws of descent or distribution; all options granted to an Eligible Director under this Plan may be exercised during the Eligible Director's lifetime only by such Eligible Director. An Eligible Director's rights to payments under the Plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by his creditors or his beneficiaries.

        14.    Restrictions on Transferability.    All Common Shares delivered under the Plan shall be non-transferable for six months after receipt if the Board determines that such restriction is necessary

to comply with Section 16b of the United States Securities Exchange Act or otherwise and shall be subject to such stop-transfer orders and other restrictions as the Company may deem advisable or legally necessary under any laws, rules, regulations and other legal requirements, including, without limitation, those of any stock exchange upon which the Common Shares are then listed and any applicable federal, state or foreign securities laws.

        15.    Rights as a Stockholder.    An Eligible Director shall have no rights as a stockholder of the Company with respect to any Common Shares issuable under the Plan until such Common Shares have been delivered to the Eligible Director.

        16.    Unfunded Plan.    The Plan shall be unfunded for U.S. Federal income tax purposes and shall not create (or be construed to create) a trust or separate fund. The Plan shall not establish any fiduciary relationship between the Company and any Eligible Director or other person and shall constitute a mere promise by the Company to make payments in the future. The Company may, in its sole discretion, establish a separate trust to hold assets set aside to provide benefits under the Plan, provided that no Eligible Director shall have an interest in the assets of any such trust and the assets of such trust shall be available to pay claims of the Company's general creditors on such terms and conditions as the trust may provide. To the extent any person holds any rights by virtue of a pending deferral under the Plan, such rights shall be no greater than the rights of an unsecured general creditor of the Company.

        17.    Non-Exclusivity of the Plan.    Neither the adoption of the Plan by the Board of Directors nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitation on the power of the Board of Directors to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options and the awarding of stock and cash otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases.

        18.    Governing Law.    The Plan shall be governed by, and construed in accordance with, the laws of the State of Bermuda.

        19.    Severability.    If any portion of the Plan is declared by any court or governmental authority to be invalid, such invalidity shall not affect any portion not declared to be invalid. Any portion so declared to be invalid shall, if possible, be construed in a manner that will give effect to the terms of such portion to the fullest extent possible while remaining valid.

        20.    Notices.    All notices and other communications hereunder shall be given in writing and shall be personally delivered against or sent by registered or certified mail, return receipt requested or by reputable overnight delivery service. Any notice shall be deemed given on the date of delivery or mailing, and if mailed, shall be addressed (a) to the Company, and (b) to an Eligible Director, at the Eligible Director's principal residential address last furnished to the Company. Either party may, by notice, change the address to which notice to such party is to be given.

        21.    Section Headings.    The Section headings contained herein are for convenience only and are not intended to define or limit the contents of said Sections.

        22.    Effective Date.    This Plan shall become effective upon approval by the shareholders of the Company.

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ESG Re Limited Non-Management Directors' Compensation and Option Plan

EX-10.20

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EXHIBIT 10.20

ESG RE LIMITED
1997 Stock Option Plan

        SECTION 1.    Purpose.    The purpose of this ESG Re Limited 1997 Stock Option Plan is to promote the interests of ESG Re Limited, a Bermuda company (the "Company"), and its shareholders by (i) attracting and retaining exceptional officers and other employees of the Company and its Subsidiaries and (ii) enabling such individuals to participate in the long-term growth and financial success of the Company.

        SECTION 2.    Definitions.    As used in the Plan, the following terms shall have the meanings set forth below:

        "Affiliate" shall mean (i) any entity that, directly or indirectly, is controlled by, controls or is under common control with, the Company and (ii) any entity in which the Company has a significant equity interest, in either case as determined by the Committee.

        "Award Agreement" shall mean any written agreement, contract, or other instrument or document evidencing any Option, which may, but need not, be executed or acknowledged by a Participant.

        "Board" shall mean the Board of Directors of the Company.

        "Code" shall mean the United States Internal Revenue Code of 1986, as amended from time to time.

        "Committee" shall mean the compensation committee of the Board or such other committee of the Board as may be designated by the Board to administer the Plan, which Committee shall consist of two or more directors. It is intended that the directors appointed to serve on the Committee shall be "Non-Employee Directors" (within the meaning of Rule 16b-3 promulgated under the Exchange Act) to the extent such are applicable to the Company and the Plan; however, the mere fact that a Committee member shall fail to qualify under either of the foregoing requirements shall not invalidate any award made by the Committee which award is otherwise validly made under the Plan.

        "Company" shall mean ESG Re Limited, together with any successor thereto.

        "Exchange Act" shall mean the United States Securities Exchange Act of 1934. as amended.

        "Fair Market Value" shall mean (a) with respect to any property other than Shares the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee, and (b) with respect to the Shares, as of any date, (i) the average closing bid prices of the Shares for the past ten consecutive trading days on the Nasdaq National Market if the Shares are approved for quotation on such system or if not so approved, the mean between the closing sales price of the Shares for the past ten consecutive trading days on the national exchanges or over-the-counter market on which the Shares are principally trading on such dates or (ii) in the event there shall be no public market for the Shares on such date, the fair market value of the Shares as determined in good faith by the Committee.

        "Option" shall mean a right to purchase Shares from the Company that is granted under Section 6 of the Plan.

        "Participant" shall mean any officer or other key employee of the Company or its Subsidiaries eligible for an Option under Section 5 of the Plan and selected by the Committee to receive an option under the Plan.

        "Person" shall mean any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, government or political subdivision thereof or other entity.

        "Plan" shall mean this ESG Re Limited 1997 Stock Option Plan.

        "Rule 16b-3" shall mean Rule 16b-3 as promulgated and interpreted by the SEC under the Exchange Act, or any successor rule or regulation thereto as in effect from time to time.

        "SEC" shall mean the Securities and Exchange Commission of the United States or any successor thereto and shall include the Staff thereof.

        "Shares" shall mean the common shares of the Company $1.00 par value, or such other securities of the Company (i) into which such common shares shall be changed by reason of a recapitalization, merger, consolidation, split-up, combination, exchange of shares or other similar transaction or (ii) as may be determined by the Committee pursuant to Section 4(b).

        "Subsidiary" shall mean (i) any entity that, directly or indirectly. is controlled by the Company and (ii) any entity in which the Company has a significant equity interest in either case as determined by the Committee.

        "Substitute Options" shall have the meaning specified in Section 4(c).

        SECTION 3.    Administration.

        (a)  The Plan shall be administered by the Committee. Subject to the terms of the Plan and applicable law, and in addition to other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have full power and authority to: (i) designate participants; (ii) determine the number of Shares to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with Options; (iii) determine the terms and conditions of any Option; (iv) determine whether, to what extent, and under what circumstances Options may be settled or exercised in cash, Shares, other securities, other Options or other property, or canceled, forfeited, or suspended and the method or methods by which Options may be settled, exercised, canceled, forfeited_, or suspended; (v) interpret, administer, reconcile any inconsistency, correct any default and/or supply any omission in the Plan and any instrument or agreement relating to, or Option made under, the Plan; (vi) establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (vii) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan.

        (b)  Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Option shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive, and binding upon all Persons, including the Company, any Affiliate, any Participant, any holder or beneficiary of any Option, and any shareholder.

        (c)  No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option hereunder.

        SECTION 4.    Shares Available for Options.

        (a)  Shares Available. Subject to adjustment as provided in Section 4(b), the aggregate number of Shares with respect to which Options may be granted under the Plan shall be 2,000,000. If, after the effective date of the Plan, any Shares covered by an Option granted under the Plan, or to which such an Option relates, are forfeited, or if an Option has expired, terminated or been canceled for any reason whatsoever (other than by reason of exercise or vesting), then the Shares covered by such Option shall again be, or shall become, Shares with respect to which Options may be granted hereunder.

        (b)  Adjustments. In the event that the Committee determines that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affect the Shares such that an adjustment is

determined by the Committee in its discretion to be appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee shall, in such manner as it may deem equitable, adjust any or all of (i) the number of Shares or other securities of the Company (or number and kind of other securities or property) with respect to which Options may be granted, (ii) the number of Shares or other securities of the Company (or number and kind of other securities or property) subject to outstanding Options, and (iii) the exercise price with respect to any Option or, if deemed appropriate, make provision for a cash payment to the holder of an outstanding Option in consideration for the cancellation of such Option in an amount equal to the excess, if any, of the Fair Market Value of the Shares subject to the Options over the aggregate exercise price of such Option.

        (c)  Substitute Options. Options may, in the discretion of the Committee, be granted under the Plan in assumption of, or in substitution for, outstanding awards previously granted by the Company or its Affiliates or a company acquired by the Company or with which the Company combines ("Substitute Options"). The number of Shares underlying any Substitute Options shall be counted against the aggregate number of Shares available for Options under the Plan.

        (d)  Reload Options. Options may, in the discretion of the Committee, be granted under the Plan to permit a Participant to reacquire any Shares such Participant delivered to the Company as payment of the exercise price in connection with the exercise of an Option hereunder or to reacquire any Shares retained by the Company to satisfy the Participant's withholding obligation in connection with the exercise of an Option hereunder (a "Reload Option"). The terms of such Option shall be identical in all material respects to the terms of the Option for which such Reload Option was granted, provided however, that the exercise price for each Share granted under the Reload Option shall be the Fair Market Value of a Share at the time such Reload Option is granted.

        (c)  Sources of Shares Deliverable Under Options. Any Shares delivered pursuant to an Option may consist, in whole or in part, of authorized and unissued Shares.

        SECTION 5.    Eligibility.    Any officer or other employee of the Company or any of its Subsidiaries (including any prospective officer or key employee) shall be eligible to be designated a Participant.

        SECTION 6.    Stock Options.

        (a)  Grant. Subject to the provisions of the Plan, the Committee shall have sole and complete authority to determine the Participants to whom Options shall be granted, the number of Shares to be covered by each Option, the exercise price therefor and the conditions and limitations applicable to the exercise of the Option.

        (b)  Exercise Price. The Committee shall establish the exercise price at the time each Option is granted, which exercise price shall be set forth in the applicable Award Agreement.

        (c)  Exercise. Each Option shall be exercisable at such times and subject to such terms and conditions as the Committee may, in its sole discretion, specify in the applicable Award Agreement or thereafter. The Committee may impose such conditions with respect to the exercise of Options, including without limitation, any relating to the application of federal or state securities laws, as it may deem necessary or advisable.

        (d)  Payment.

(i)

No Shares shall be delivered pursuant to any exercise of an Option until payment in full of the aggregate exercise price therefor is received by the Company. Such payment may be made in cash, or its equivalent, or in the discretion of the Committee (x) by exchanging Shares owned by the optionee (which are not the subject of any pledge or other security interest and which have been owned by such optionee for at least 6 months, unless the Board otherwise determines) or other property having a Fair Market Value equal to the exercise price, (y) through delivery of irrevocable instructions

to a broker to sell the Shares otherwise deliverable upon the exercise of the Option and to deliver promptly to the Company an amount equal to the aggregate exercise price, subject to such rules as may be established by the Committee, or (z) by the promissory note and agreement of a Participant providing for the payment with interest of the unpaid balance accruing at a rate not less than needed to avoid the imputation of income and upon such terms and conditions (including the security, if any therefor) as the Committee may determine, or by a combination of the foregoing, provided that the combined value of all cash and cash equivalents and the Fair Market Value of any such Shares so tendered to the Company as of the date of such tender is at least equal to such aggregate exercise price.

(ii)

Wherever in this Plan or any Award Agreement a Participant is permitted to pay the exercise price of an Option or taxes relating so the exercise of an Option by delivering Shares, the Participant may, subject to procedures satisfactory to the Committee, satisfy such delivery requirement by presenting proof of beneficial ownership of such Shares, in which case the Company shall treat the Option as exercised without further payment and shall withhold such number of Shares from the Shares acquired by the exercise of the Option.

        SECTION 7.    Amendment and Termination.

        (a)  Amendments to the Plan. The Board may amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof at any time; provided that no such amendment, alteration, suspension, discontinuance or termination shall be made without shareholder approval if such approval is necessary to comply with any tax or regulatory requirement applicable to the Plan, and provided that any such amendment, alteration, suspension, discontinuance or termination that would impair the rights of any Participant or any holder or beneficiary of any Option theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary.

        (b)  Amendments to Options. The Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any Option theretofore granted, prospectively or retroactively; provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would impair the rights of any Participant or any holder or beneficiary of any Option theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary.

        (c)  Adjustment of Options Upon the Occurrence of Certain Unusual or Nonrecurring Events. The Committee is hereby authorized to make adjustments in the terms and conditions of, and the criteria included in, Options in recognition of unusual or nonrecurring events (including, without limitation, the events described in Section 4(b) hereof) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or of changes in applicable laws, regulations, or accounting principles, whenever the Committee determines that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan.

        SECTION 8.    General Provisions.

        (a)  Transferability.

(i)

Each Option shall be exercisable only by the Participant during the Participant's lifetime, or, if permissible under applicable law, by the Participant's legal guardian or representative. Except as set forth in the following paragraph, no Option may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant otherwise than by will or by the laws of descent and distribution or, if inapplicable, transmission on death in accordance with the Bye-Laws of the Company and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or any Affiliate;

provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.

(ii)

Notwithstanding the foregoing, the Committee may in the applicable Award Agreement evidencing an Option granted under the Plan or at any time thereafter in an amendment to an Award Agreement provide that Options granted hereunder may be transferred by the Participant to whom such Option was granted (the "Grantee") without consideration, subject to such rules as the Committee may adopt to preserve the purposes of the Plan, to:

        (A)  the Grantee's spouse, children or grandchildren (including adopted and stepchildren and grandchildren) collectively, the "Immediate Family");

        (B)  a trust solely for the benefit of the Grantee and his or her Immediate Family; or

        (C)  a partnership, corporation or limited liability company whose only partners, shareholders or members are the Grantee and his or her Immediate Family members;

(each transferee described in clauses (A), (B) and (C) above is hereinafter referred to as a "Permitted Transferee"); provided that the Grantee gives the Committee advance written notice describing the terms and conditions of the proposed transfer and the Committee notifies the grantee in writing that such a transfer would comply with the requirements of the Plan and any applicable Award Agreement evidencing the option.

The terms of any option transferred in accordance with the immediately preceding sentence shall apply to the Permitted Transferee and any reference in the Plan or in an Award Agreement to an optionee, Grantee or Participant shall be deemed to refer to the Permitted Transferee, except that (a) Permitted Transferees shall not be entitled to transfer any Options, other than by will or the laws of descent and distribution; (b) Permitted Transferees shall not be entitled to exercise any transferred Options unless there shall be in effect a registration statement on an appropriate form covering the shares to be acquired pursuant to the exercise of such Option if the Committee determines that such a registration statement is necessary or appropriate, (c) the Committee or the Company shall not be required to provide any notice to a Permitted Transferee, whether or nor such notice is or would otherwise have been required to be given to the Grantee under the Plan or otherwise, and (d) the consequences of termination of the Grantee's employment by, or services to, the Company under the terms of the Plan and the applicable Award Agreement shall continue to be applied with respect to the Grantee, following which the Options shall be exercisable by the Permitted Transferee only to the extent, and for the periods, specified In the Plan and the applicable Award Agreement.

        (b)  No Rights to Options. No Participant or other Person shall have any claim to be granted any Option, and there is no obligation for uniformity of treatment of Participants, or holders or beneficiaries of Options. The terms and conditions of Options and the Committee's determinations and interpretations with respect thereto need not be the same with respect to each Participant (whether or not such Participants are similarly situated).

        (c)  Share Certificates. All certificates for Shares or other securities of the Company or any Affiliate delivered under the Plan pursuant to any Option or the exercise thereof shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan or the rules, regulations, and other requirements of the SEC, any stock exchange upon which such Shares or other securities are then listed, and any applicable foreign, federal or state laws, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

        (d)  Withholding.

(i)

A Participant may be required to pay to the Company or any Affiliate and the Company or any Affiliate shall have the right and is hereby authorized to withhold from any Option, from any payment due or transfer made under any Option or under the Plan or

from any compensation or other amount owing to a Participant the amount (in cash, Shares, other securities, other Options or other property) of any applicable withholding taxes in respect of an Option, its exercise, or any payment or transfer under an Option or under the Plan and to take such other action as may be necessary in the opinion of the Company to satisfy all obligations for the payment of such taxes.

(ii)

Without limiting the generality of clause (i) above, a Participant may satisfy, in whole or in part, the foregoing withholding liability by delivery of Shares owned by the Participant (which are not subject to any pledge or other security interest and which have been owned by the Participant for at least 6 months) with a Fair Market Value equal to such withholding liability or by having the Company withhold from the number of Shares otherwise issuable pursuant to the exercise of the option a number of Shares with a Fair Market Value equal to such withholding liability.



(iii)

Notwithstanding any provision of this Plan to the contrary, in connection with the transfer of an Option to a Permitted Transferee pursuant to Section 14(a) of the Plan, the Grantee shall remain liable for any withholding taxes required to be withheld upon the exercise of such Option by the Permitted transferee.

        (e)  Award Agreements. Each Option hereunder shall be evidenced by an Award Agreement, which shall be delivered to the Participant and shall specify the terms and conditions of the Option and any rules applicable thereto, including but not limited to the effect on such Option of the death, disability or termination of employment or service of a Participant, and the effect, if any, of such other events as may be determined by the Committee.

        (f)    No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other compensation arrangements, which may, but need not, provide for the grant of options (subject to shareholder approval if such approval is required) and such arrangements may be either generally applicable or applicable only in specific cases.

        (g)  No Right to Employment. The grant of an Option shall not be construed as giving a Participant the right to be retained in the employ of the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Participant from employment, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.

        (h)  No Rights as Shareholder. Subject to the provisions of the applicable Option, no Participant or holder or beneficiary of any Option shall have any rights as a shareholder with respect to any Shares to be distributed under the Plan until he or she has become the holder of such Shares.

        (i)    Governing Law. The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan and any Award Agreement shall be determined in accordance with the laws of Bermuda.

        (j)    Severability. If any provision of the Plan or any Option is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Option, or would disqualify the Plan or any Option under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Option, such provision shall be stricken as to such jurisdiction, Person or Option and the remainder of the Plan and any such Option shall remain in full force and effect.

        (k)  Other Laws. The committee may refuse to issue or transfer any Shares or other consideration under an Option if, acting in its sole discretion and in accordance with the By-laws of the Company, it determines that the issuance or transfer of such Shares or such other

consideration might violate any applicable law or regulation or the Company By-laws or entitle the Company to recover the same under section 16(b) of the Exchange Act, and any payment tendered to the Company by a Participant, other holder or beneficiary in connection with the exercise of such Option shall be promptly refunded to the relevant Participant, holder or beneficiary. Any Shares delivered under the Plan shall be non-transferable for six months (or such other period determined by the committee). Without limiting the generality of the foregoing, no Option granted hereunder shall be construed as an offer to sell securities of the Company, and no such offer shall be outstanding, unless and until the Committee in its sole discretion has determined that any such offer, if made, would be in compliance with all applicable requirements of the U.S. federal and any other applicable securities laws.

        (l)    No Trust or Fund Created. Neither the Plan nor any Option nor any promise to make payments in the future shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate and a Participant or any other Person. To the extent that any Person acquires a right to receive payments from the Company or any Affiliate pursuant to an Option, such right shall be no greater than the right of any unsecured general creditor of the Company or any Affiliate.

        (m)  No Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Option, and the Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional Shares or whether such fractional Shares or any rights thereto shall be canceled, terminated, or otherwise eliminated.

        (n)  Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.

        SECTION 9.    Term of the Plan.

        (a)  Effective Date. The Plan shall be effective as of the date of its approval by the Shareholders of the Company.

        (b)  Expiration Date. No Option shall be granted under the Plan after December 3, 2007. Unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Option granted hereunder may, and the authority of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Option or to waive any conditions or rights under any such Option shall, continue after December 3, 2007.

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ESG RE LIMITED 1997 Stock Option Plan

EX-10.21

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EXHIBIT 10.21

ESG RE LIMITED
2000 RESTRICTED STOCK PLAN

RESTRICTED STOCK AWARD AGREEMENT

        AGREEMENT by and between ESG Re Limited, a Bermuda company (the "Company") and                        (the "Grantee"), dated as of the            day of             , 20    .

        WHEREAS, the Company maintains the ESG RE LIMITED 2000 Restricted Stock Plan (the "Plan") (capitalized terms used but not defined herein shall have the respective meanings ascribed thereto by the Plan);

        WHEREAS, the Grantee is an officer or employee of the Company;

        WHEREAS, the Committee has determined that it is in the best interests of the Company and its shareholders to grant Restricted Stock to the Grantee subject to the terms and conditions set forth below; and

        WHEREAS, this Agreement is executed as a Deed, notwithstanding that the Company executes it under hand.

        NOW, THEREFORE IN THIS DEED, IT IS HEREBY AGREED AS FOLLOWS:

        1.    Grant of Restricted Stock.

        The Company hereby grants the Grantee                        Shares of Restricted Stock of the Company, subject to the following terms and conditions and subject to the provisions of the Plan. The Plan is hereby incorporated herein by reference as though set forth herein in its entirety.

        2.    Restrictions and Conditions.

        The Restricted Stock awarded pursuant to this Agreement shall be subject to the following restrictions and conditions:

          (i)  Subject to the provisions of the Plan, during a period commencing with the date of such Grant and ending on the date the period of forfeiture with respect to such Shares lapse, the Grantee shall not be permitted voluntarily or involuntarily to sell, transfer, pledge, anticipate, alienate, encumber or assign Shares of Restricted Stock granted under this Agreement (or have such Shares attached or garnished). Subject to clauses (iii) below, the period of forfeiture with respect to Shares granted hereunder shall lapse as follows:

Number of Shares Lapse Date

        (ii)  Except as provided in the foregoing clause (i), the Grantee shall have, in respect of the Shares of Restricted Stock, all of the rights of a shareholder of the Company, including the right to vote the Shares, and the right to receive any cash dividends. Certificates for Shares (not subject to restrictions) shall be delivered to the Grantee promptly after, and only after, the period of forfeiture shall lapse without forfeiture in respect of such Shares of Restricted Stock.

        (iii)  In the event the Grantee has a termination of employment on account of death, Disability or Retirement, or upon a Change of Control, during the applicable period of forfeiture, then restrictions will immediately lapse on all Restricted Stock granted to the applicable Grantee.

        3.    Power of Attorney.

        The Grantee, by way of security, irrevocably and severally appoints the Company, and any of its delegates or sub-delegates to be its attorney to take such action which the Grantee is obliged to take under this Agreement and for the Plan, including without limitation under Section 5 of the Plan. The

Grantee ratifies and confirms whatever any attorney does or purports to do pursuant to its appointment under this Section 3.

        4.    Miscellaneous.

(a)

The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified except by a written agreement executed by the parties hereto or their respective successors and legal representatives. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement.



(b)

Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to this Agreement shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all persons.



(c)

The Committee may, in its discretion, require the Grantee to pay to the Company at the end of the applicable restriction period (or other income recognition event, such as election under Section 83(b) of the Internal Revenue Code of 1986, as amended) the amount that the Committee deems necessary to satisfy the Company's obligation to withhold federal, state or local income or other taxes incurred by reason of the lifting of restrictions (or other such event). The Grantee may, with the Committee's approval, elect to have such tax withholding satisfied, in whole or in part, by authorizing the Company to withhold a number of Shares, otherwise to become free of restrictions pursuant to this Agreement as of the date withholding is effected, that would satisfy the withholding amount due. Notwithstanding anything contained in this Agreement to the contrary, the Grantee's satisfaction of any tax-withholding requirements imposed by the Committee shall be a condition precedent to the release of any restrictions as may otherwise be provided hereunder, and the failure of the Grantee to satisfy such requirements with respect to the lapsing of restrictions hereunder (or another income recognition event) shall cause the Shares granted hereunder to be forfeited.



(d)

All notices under this Agreement shall be in writing, and if to the Company, shall be delivered to the Board or mailed to its principal office, addressed to the attention of the Board; and if to the Grantee, shall be delivered personally or mailed to the Grantee at the address appearing in the records of the Company. Such addresses may be changed at any time by written notice to the other party given in accordance with this Section 3(d).



(e)

If any provision of this Agreement is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction, or would disqualify the Plan or the Grant made hereby under any law deemed applicable by the Committee, such provision shall be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or this Agreement, such provision shall be stricken as to such jurisdiction and the remainder of the Plan and any such Grant remain in full force and effect.



(f)

This Agreement shall not be construed as giving a Grantee the right to be retained in the employ of the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Grantee from employment, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or this Agreement.



(g)

THE VALIDITY, CONSTRUCTION, AND EFFECT OF THE PLAN AND ANY RULES AND REGULATIONS RELATING TO THE PLAN AND ANY AWARD AGREEMENT SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF BERMUDA.

        IN WITNESS WHEREOF, the Company and the Grantee have executed this Agreement as a Deed as of the day and year first above written.

	EXECUTED AND DELIVERED AS A DEED BY ESG RE LIMITED
	By:
	Name:
	Title:
EXECUTED AND DELIVERED AS A DEED BY THE GRANTEE

Witness Signature

Name

Address

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ESG RE LIMITED 2000 RESTRICTED STOCK PLAN RESTRICTED STOCK AWARD AGREEMENT

EX-10.22

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EXHIBIT 10.22

ESG RE Limited
2000 RESTRICTED STOCK PLAN

Approved by the Board of Directors February 25, 2000

TABLE OF CONTENTS

		Page
1.	Definitions	1
2.	Administration of Plan	4
3.	Eligibility	5
4.	Number of Shares Subject to the Plan	5
5.	Certain Terms of Grants	5
6.	Tax Withholding	6
7.	Regulations and Approvals	7
8.	Termination; Amendments	8
9.	Changes in Capital Structure	8
10.	General Provisions	9
11.	Term of the Plan	10

ESG RE LIMITED
2000 RESTRICTED STOCK PLAN

        The purpose of this ESG Re Limited 2000 Restricted Stock Plan is to promote the interests of ESG Re Limited, a Bermuda company (the "Company"), and its shareholders by (i) attracting and retaining exceptional officers and other employees of the Company and its Subsidiaries and (ii) enabling such individuals to participate in the long-term growth and financial success of the Company.

        1.    Definitions.

        Whenever used herein, the following terms shall have the meanings set forth below:

"Affiliate" shall mean (i) any entity that, directly or indirectly, is controlled by, controls or is under common control with, the Company and (ii) any entity in which the Company has a significant entity in which the Company has a significant equity interest, in either case as determined by the Committee.

"Award Agreement" means a written agreement in a form approved by the Committee to be entered into by the Company and the Grantee of Restricted Stock as provided in Section 2.

"Board" means the Board of Directors of the Company.

"Cause" means, unless otherwise provided in the Grantee's Award Agreement, the occurrence of one of the following:

          (i)  the commission by the Grantee of an act of deliberately criminal or fraudulent misconduct in the line of duty to the Company or any of its Subsidiaries (including but not limited to, fraud, misappropriation, embezzlement or the willful violation of any material law, rule, regulation, or cease and desist order applicable to the Grantee, the Company or any of its Subsidiaries), or a deliberate, willful breach of fiduciary duty owed by the Grantee to the Company or any of its Subsidiaries;

        (ii)  intentional, continued failure by the Grantee to perform stated duties (including but not limited to chronic absenteeism), gross negligence, or gross incompetence in the performance of stated duties; or

        (iii)  the Grantee's removal from his or her office with the Company pursuant to an effective order under Section 8(e) of the Federal Deposit Insurance Act, as amended.

        "Change of Control" means:

          (i)  any "person," including a "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act, but excluding the Company, any entity controlling, controlled by or under common control with the Company, any employee benefit plan of the Company or any such entity, and, with respect to any particular Grantee, the Grantee and any "group" (as such term is used in Section 13(d)(3) of the Exchange Act) of which the Grantee is a member), is or becomes the "beneficial owner" (as defined in Rule 13(d)(3) under the Exchange Act), directly or indirectly, of securities of the Company representing 35% or more of either (A) the combined voting power of the Company's then outstanding securities or (B) the then outstanding Shares (in either such case other than as a result of an acquisition of securities directly from the Company); or

        (ii)  any consolidation or merger of the Company where the stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, shares representing in the aggregate 50% or more of the combined voting power of the securities of the corporation issuing cash or securities in the consolidation or merger (or of its ultimate parent corporation, if any); or

        (iii)  there shall occur (A) any sale, lease, exchange or other transfer (in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or substantially

all of the assets of the Company, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 50% of the combined voting power of the voting securities of which are owned by Persons in substantially the same proportion as their ownership of the Company immediately prior to such sale or (B) the approval by stockholders of the Company of any plan or proposal for the liquidation or dissolution of the Company; or

        (iv)  the members of the Board at the beginning of any consecutive 24-calendar-month period (the "Incumbent Directors") cease for any reason other than due to death to constitute at least a majority of the members of the Board; provided that any director whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the members of the Board then still in office who were members of the Board at the beginning of such 24-calendar-month period, shall be deemed to be an Incumbent Director.

"Code" means the Internal Revenue Code of 1986, as amended.

"Committee" shall mean the compensation committee of the Board, or such other committee of the Board as may be designated by the Board to administer the Plan which Committee shall consist of two or more Directors. It is intended that the Directors appointed to serve on the Committee shall be "Non-Employee Directors" (within the meaning of Rule 16b-3 promulgated under the Exchange Act) to the extent such are applicable to the Company and the Plan; however, the mere fact that a Committee member shall fail to qualify under either of the foregoing requirements shall not invalidate any Grant made by the Committee which Grant is otherwise validly made under the Plan.

"Common Stock" means the Company's common stock, par value $1.00 per share, either currently existing or authorized hereafter.

"Company" shall mean ESG RE Limited, together with any successor thereto.

"Disability" means, unless otherwise provided by the Committee in the Grantee's Award Agreement, a disability which renders the Grantee incapable of performing all of his or her material duties for a period of at least 180 consecutive or non-consecutive days during any consecutive twelve-month period.

        "Director" means a non-employee director of the Company.

        "Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Fair Market Value" shall mean (a) with respect to any property other than Shares, the fair market value of such property determined by such methods or procedures as shall be established from time to time by the Committee, and (b) with respect to the Shares, as of any date, (i) the average closing bid prices of the Shares for the past ten consecutive trading days on the Nasdaq National Market if the Shares are approved for quotation on such system or, if not so approved, the mean between the closing sales price of the Shares for the past ten consecutive trading days on the national exchange or over-the-counter market on which the Shares are principally trading on such dates or (ii) in the event there shall be no public market for the Shares on such date, the fair market value of the Shares as determined in good faith by the Committee.

        "Grant" means a grant of Restricted Stock hereunder.

"Grantee" means an officer or employee of the Company to whom Restricted Stock is granted.

"Plan" means the Company's 2000 Restricted Stock Plan, as set forth herein and as the same may from time to time be amended.

        "Restricted Stock" means Shares that are subject to restrictions hereunder.

"Retirement" means the Termination of Service of a Grantee with the Company under circumstances which would entitle an employee of the Company to an immediate pension under one of the Company's approved retirement plans or retirement as determined by the Committee in its absolute discretion pursuant to such other standard as may be adopted by the Committee.

"Securities Act" means the Securities Act of 1933, as amended.

"Shares" means shares of Common Stock of the Company.

"Subsidiary" shall mean (i) any entity that, directly or indirectly, is controlled by the Company and (ii) any entity in which the Company has a significant equity interest, in either case as determined by the Committee.

        2.    Administration of Plan

        (a)  The Plan shall be administered by the Committee. Subject to the terms of the Plan and applicable law, and in addition to other express powers and authorizations conferred on the Committee by the Plan, the Committee shall have full power and authority to: (i) designate Grantees; (ii) determine the number of Shares to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, the Grant; (iii) determine the terms and conditions of any Grant; (iv) determine whether, to what extent, and under what circumstances a Grant may be canceled, forfeited, or suspended; (v) interpret, administer reconcile any inconsistency, correct any default and/or supply any omission in the Plan and any instrument or agreement relating to, or Grant made under, the Plan; (vi) establish, amend, suspend, or waive such rules and regulations and appoint such agents as it shall deem appropriate for the proper administration of the Plan; and (vii) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan. If no Committee is designated by the Board to act for these purposes, the Board shall have the rights and responsibilities of the Committee hereunder and under the Award Agreements.

        (b)  Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Grant shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all persons, including the Company, any Affiliate, any Grantee, any holder or beneficiary of any Grant, and any shareholder.

        (c)  Each Grant hereunder shall be evidenced by an Award Agreement, which shall be delivered to the Grantee and shall specify the terms and conditions of the Grant and any rules applicable thereto, including, but not limited to, the effect on such Grant of the death, Disability, termination or Retirement of employment of a Grantee, or a Change of Control of the Company and the effect, if any, of such other events as many be determined by the Committee.

        (d)  No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Grant hereunder.

        3.    Eligibility

        Any officer or other employee of the Company or any of its Subsidiaries (including any prospective officer or key employee) shall be eligible to be designated a Grantee. The Award Agreement shall contain such other terms, provisions and conditions not inconsistent herewith as shall be determined by the Committee.

        4.    Number of Shares Subject to the Plan

        Subject to adjustments pursuant to Section 9, no more than an aggregate of 2,000,000 Shares may be the subject of Grants. Shares of Restricted Stock that are forfeited may be the subject of the grant of further Grants. Shares of Common Stock issued hereunder may consist, in whole or in part, of authorized and unissued shares.

        5.    Certain Terms of Grants.

        (a)  Each Grantee shall be issued a stock certificate in respect of any Grant under the Plan. Such certificate shall be registered in the name of the Grantee. The certificates for Shares issued hereunder may include any legend which the Committee deems appropriate to reflect any restrictions on transfer hereunder or under the Award Agreement, or as the Committee may otherwise deem appropriate, and,

without limiting the generality of the foregoing, shall bear a legend referring to the terms, conditions, and restrictions applicable to such Grant, substantially in the following form:

The transferability of this certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture) of the ESG RE Limited 2000 Restricted Stock Plan and an Agreement entered into between the registered owner and ESG RE Limited. Copies of such Plan and Agreement are on file in the offices of ESG RE Limited, Skandia International House, 16 Church Street, Hamilton, HM 11 Bermuda.

        (b)  The Committee shall require that the stock certificates evidencing such Shares be held in custody by the Company until the restrictions thereon shall have lapsed, and that, as a condition of any Grant, the Grantee shall have delivered a stock power, endorsed in blank, relating to the stock covered by such Grant. If and when such restrictions so lapse, the stock certificates shall be delivered by the Company to the Grantee or his or her designee. The Grantee shall take whatever additional actions and execute whatever additional documents the Committee may in its reasonable judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on the Grantee pursuant to the express provisions of the Plan and the Award Agreement. The Committee may provide that the Grantee pay to the Company a specified purchase price for the Restricted Stock (whether or not the payment of a purchase price is required by any state law applicable to the Company).

        (c)  Restrictions and Conditions. Unless otherwise provided by the Committee, the Shares of Restricted Stock granted pursuant to the Plan shall be subject to the following restrictions and conditions:

          (i)  Subject to the provisions of the Plan and the Award Agreements, during a period commencing with the date of such Grant and ending on the date the period of forfeiture with respect to such Shares lapse, the Grantee shall not be permitted voluntarily or involuntarily to sell, transfer, pledge, anticipate, alienate, encumber or assign Shares of Restricted Stock granted under the Plan (or have such Shares attached or garnished). Subject to the provisions of the Award Agreements, the period of forfeiture with respect to Shares granted hereunder shall lapse as provided in the applicable Award Agreement.

        (ii)  Except as provided in the foregoing clause (i), the Grantee shall have, in respect of the Shares of Restricted Stock, all of the rights of a shareholder of the Company, including the right to vote the Shares and the right to receive any cash dividends. Certificates for Shares (not subject to restrictions) shall be delivered to the Grantee promptly after, and only after, the period of forfeiture shall lapse without forfeiture in respect of such Shares of Restricted Stock.

        (iii)  Subject to the provisions of the Award Agreement, if the Grantee's employment is terminated during the applicable period of forfeiture, then all Shares still subject to restriction shall thereupon, and with no further action, be forfeited by the Grantee.

        6.    Tax Withholding.

        The Company shall be entitled to withhold from any payments or deemed payments any amount of tax withholding determined by the Committee to be required by law. Without limiting the generality of the foregoing, the Committee may, in its discretion, require the Grantee to pay to the Company at the time of vesting of any Restricted Stock (or other income recognition event, such as election under Section 83(b) of the Code) the amount that the Committee deems necessary to satisfy the Company's obligation to withhold federal, state or local income or other taxes incurred by reason of the vesting (or other such event). Upon vesting (or such other event), the Grantee may, if approved by the Committee in its discretion, make a written election to have Shares withheld by the Company from the Shares otherwise to be released from restriction, or to deliver previously owned Shares (not subject to restrictions hereunder), in order to satisfy the liability for such withholding taxes. In the event that the Grantee makes, and the Committee permits, such an election, the number of Shares so withheld or delivered shall have an aggregate Fair Market Value on the date of exercise sufficient to satisfy the

applicable withholding taxes. Notwithstanding anything contained in the Plan to the contrary, the Grantee's satisfaction of any tax-withholding requirements imposed by the Committee shall be a condition precedent to the release of any restrictions as may otherwise be provided hereunder, and the failure of the Grantee to satisfy such requirements with respect to the vesting of Restricted Stock (or other income recognition event) shall cause the applicable Restricted Stock to be forfeited.

        7.    Regulations and Approvals.

        (a)  The Committee may make such changes to the Plan as may be necessary or appropriate to comply with the rules and regulations of any government authority or to obtain tax benefits applicable to restricted stock.

        (b)  Each Grant is subject to the requirement that, if at any time the Committee determines, in its discretion, that the listing, registration or qualification of Shares issuable pursuant to the Plan is required by any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of, or in connection with, the issuance of Shares of Restricted Stock or other Shares, no payment shall be made or Shares issued or Grant made, in whole or in part, unless listing, registration, qualification, consent or approval has been effected or obtained free of any conditions in a manner acceptable to the Committee.

        (c)  In the event that the disposition of stock acquired pursuant to the Plan is not covered by a then current registration statement under the Securities Act, and is not otherwise exempt from such registration, such Shares shall be restricted against transfer to the extent required under the Securities Act, and the Committee may require any individual receiving Shares pursuant to the Plan, as a condition precedent to receipt of such Shares, to represent to the Company in writing that such Shares will be disposed of only if registered for sale under the Securities Act or if there is an available exemption for such disposition, and, without limiting Section 5(a), may provide for a legending of such Shares to that effect.

        8.    Termination; Amendments.

        (a)  The Board may amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof at any time; provided that no such amendment, alteration, suspension, discontinuation or termination shall be made without shareholder approval if such approval is necessary to comply with any tax or regulatory requirement applicable to the Plan, and provided, further, that any such amendment, alteration, suspension, discontinuance or termination that would impair the rights of any Grantee or any holder or beneficiary of any Grant theretofore granted shall not to that extent be effective without the consent of the affected Grantee, holder or beneficiary.

        (b)  The Committee may waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any Grant theretofore granted, prospectively or retroactively; provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would impair the rights of any Grantee or any holder or beneficiary or any Grant theretofore granted shall not to that extent be effective without the consent of the affected Grantee, holder or beneficiary.

        9.    Changes in Capital Structure.

        (a)  In the event that the Committee determines that any dividend or other distribution (whether in the form of cash, Shares, other securities, or other property), recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase, or exchange of Shares or other securities of the Company, issuance of warrants or other rights to purchase Shares or other securities of the Company, or other similar corporate transaction or event affects the Shares such that an adjustment is determined by the Committee in its discretion to be appropriate in order to prevent dilution or enlargement of the potential benefits intended to be made available under the Plan, then the Committee may adjust the maximum aggregate number and kind of Shares of Restricted Stock that may be granted under the Plan.

        (b)  Any Shares or other securities distributed to a Grantee with respect to Restricted Stock shall be subject to the restrictions and requirements imposed by Section 5, including depositing the certificates therefor with ESG RE Limited together with a stock power and bearing a legend as provided in Section 5(b).

        (c)  If the Company shall be consolidated or merged with another corporation, each Grantee who has received Shares of Restricted Stock that is then subject to restrictions imposed by Section 5 may be required to deposit with the successor corporation the certificates for the stock or securities or the other property that the Grantee is entitled to receive by reason of ownership of Shares of Restricted Stock in a manner consistent with Section 5(b), and such stock, securities or other property shall become subject to the restrictions and requirements imposed by Section 5(c), and the certificates therefor or other evidence thereof shall bear a legend similar in form and substance to the legend set forth in Section 5(a).

        10.    General Provisions

        (a)  No Limit on Other Compensation Arrangements. Nothing contained in the Plan shall prevent the Company or any Affiliate from adopting or continuing in effect other compensation arrangements, which may, but need not, provide for the grant of options (subject to shareholder approval if such approval is required), and such arrangements may be either generally applicable or applicable only in specific cases.

        (b)  No Right to Employment. The Grant shall not be construed as giving a Grantee the right to be retained in the employ of the Company or any Affiliate. Further, the Company or an Affiliate may at any time dismiss a Grantee from employment, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.

        (c)  GOVERNING LAW. THE VALIDITY, CONSTRUCTION, AND EFFECT OF THE PLAN AND ANY RULES AND REGULATIONS RELATING TO THE PLAN AND ANY AWARD AGREEMENT SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF BERMUDA.

        (d)  Severability. If any provision of the Plan or any Grant is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any Person or Grant, or would disqualify the Plan or any Grant under any law deemed applicable by the Committee, such provision shall be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Grant, such provision shall be stricken as to such jurisdiction, Person or Grant and the remainder of the Plan and any such Grant remain in full force and effect.

        (e)  Other Laws. The Committee may refuse to issue or transfer any Shares or other consideration under a Grant if, acting in its sole discretion and in accordance with the By-laws of the Company, it determines that the issuance or transfer of such Shares or such other consideration might violate any applicable law or regulation or the Company By-laws or entitle the Company to recover the same under Section 16(b) of the Exchange Act, and any payment tendered to the Company by a Grantee, other holder or beneficiary in connection with a Grant shall be promptly refunded to the relevant Grantee, holder or beneficiary.

        (f)    Headings. Headings are given to the Sections and subsections of the Plan solely as a convenience to facilitate reference. Such headings shall not be deemed in any way material or relevant to the construction or interpretation of the Plan or any provision thereof.

        11.    Term of the Plan

        (a)  Effective Date. The Plan shall be effective as of the date of its approval by the Board.

        (b)  Expiration Date. No Grant shall be granted under the Plan after 10 years from the Effective Date of the Plan. Unless otherwise expressly provided in the Plan or in an applicable Award Agreement, any Grant hereunder may, and the authority of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Grant or to waive any conditions or rights under any such Grant shall, continue after such date.

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ESG RE LIMITED 2000 RESTRICTED STOCK PLAN

EX-10.23

EXHIBIT 10.23

ESG RE LIMITED

DEFERRED COMPENSATION PLAN
(Amended and Restated as of February 25, 2000)

        I.    Purpose    The purpose of the Deferred Compensation Plan (the "Plan") of ESG Re Limited (the "Company") is to provide certain eligible individuals the opportunity to defer receipt of compensation, under terms advantageous to both these individuals and the Company, for the periods provided in the Plan.

        II.    Definitions    For purposes of this Plan, the following terms shall have the following meanings:

"Account" shall have the meaning specified in Section 4.1.

        "Affiliate" means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person. For purposes of this Agreement, the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by representation on the board of directors, management committee or similar governing body, by contract or otherwise.

"Award" shall mean a payment by the Company of an amount equal to a percentage, up to twenty percent (20%) unless a greater percentage is specified by the Board, of a Participant's Compensation, the payment of which the Participant has elected to defer under this Plan.

"Beneficiary" shall mean the person or persons designated from time to time in writing delivered to the Committee by a Participant to receive payments under this Plan after the death of such Participant or, in the absence of any such designation or in the event that such designated person or persons shall predecease such Participant, the Participant's estate or legal representative.

"Board" shall mean the Board of Directors of the Company.

"Cause" shall mean:

        (a)  in the case of an Eligible Individual whose employment with the Company is subject to the terms of an employment agreement between such Eligible Individual and the Company, which employment agreement includes a definition of "Cause," the term "Cause" as used in this Plan shall have the meaning set forth in such employment agreement during the period that such employment agreement remains in effect; and

        (b)  in all other cases, (i) dishonesty or willful misconduct in the performance of duties, (ii) involvement in a transaction in connection with the performance of duties to the Company or any of its Subsidiaries which transaction is adverse to the interests of the Company or any of its Subsidiaries and which is engaged in for personal profit, or (iii) willful violation of any law, rule or regulation in connection with the performance of duties (other than traffic violations or similar offenses).

"Change in Control" shall mean the occurrence of any of the following:

        (a)  an acquisition (other than directly from the Company) of any voting securities of the Company (the "Voting Securities") by any Person, immediately after which such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of twenty percent (20%) or more of the then outstanding Shares or the combined voting power of the Company's then outstanding Voting Securities; provided, however, in determining whether a Change in Control has occurred pursuant to this Section, Shares or Voting Securities which are acquired in a "Non-Control Acquisition" (as hereinafter defined) shall not constitute an acquisition which would cause a Change in Control. A "Non-Control Acquisition" shall mean an acquisition by (i) an employee benefit plan (or a trust forming a part thereof) maintained by (A) the Company or (B) any corporation or other Person

of which a majority of its voting power or its voting equity securities or equity interest is owned, directly or indirectly, by the Company (for purposes of this definition, a "Related Entity"), (ii) the Company or any Related Entity, (iii) a John Head Entity, or (iv) any Person in connection with a "Non-Control Transaction" (as hereinafter defined);

        (b)  the individuals who, as of February 25, 2002 are members of the Board (the "Incumbent Board"), cease for any reason to constitute at least a majority of the members of the Board or, following a Merger which results in a Parent corporation, the board of directors of the ultimate Parent Corporation (as defined in paragraph (c)(i)(A) below); provided, however, that if the election, or nomination for election by the Company's common stockholders, of any new director was approved by a vote of at least three-fourths of the Incumbent Board, such new director shall, for purposes of this Plan, be considered as a member of the Incumbent Board; provided further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board (a "Proxy Contest") including by reason of any agreement intended to avoid or settle a Proxy Contest; or

        (c)  the consummation of:

          (i)  a merger, consolidation or reorganization with or into the Company or in which securities of the Company are issued (a "Merger"), unless such Merger is a "Non-Control Transaction." A "Non-Control Transaction" shall mean a Merger where:

        (A)  the stockholders of the Company, immediately before such Merger own directly or indirectly immediately following such Merger at least fifty percent (50%) of the combined voting power of the outstanding voting securities of (x) the corporation resulting from such Merger (the "Surviving Corporation") if fifty percent (50%) or more of the combined voting power of the then outstanding voting securities of the Surviving Corporation is not Beneficially Owned, directly or indirectly by another Person (a "Parent Corporation"), or (y) if there are one or more Parent Corporations, the ultimate Parent Corporation; and,

        (B)  the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such Merger constitute at least a majority of the members of the board of directors of (x) the Surviving Corporation, if there is no Parent Corporation, or (y) if there are one or more Parent Corporations, the ultimate Parent Corporation; and

        (C)  no Person other than (1) the Company, (2) any Related Entity, (3) any employee benefit plan (or any trust forming a part thereof) that, immediately prior to such Merger was maintained by the Company or any Related Entity, or (4) any Person who, immediately prior to such Merger had Beneficial Ownership of twenty percent (20%) or more of the then outstanding Voting Securities or Shares, has Beneficial Ownership of twenty percent (20%) or more of the combined voting power of the outstanding voting securities or common stock of (x) the Surviving Corporation if there is no Parent Corporation, or (y) if there are one or more Parent Corporations, the ultimate Parent Corporation;

        (ii)  a complete liquidation or dissolution of the Company; or

        (iii)  the sale or other disposition of all or substantially all of the assets of the Company to any Person (other than a transfer to a Related Entity or under conditions that would constitute a Non-Control Transaction with the disposition of assets being regarded as a Merger for this purpose or the distribution to the Company's stockholders of the stock of a Related Entity or any other assets).

        Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person (the "Subject Person") acquired Beneficial Ownership of more than the permitted amount of the then outstanding Shares or Voting Securities as a result of the acquisition of Shares or Voting Securities by the Company which, by reducing the number of Shares or Voting Securities then

outstanding, increases the proportional number of shares Beneficially Owned by the Subject Persons, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of Shares or Voting Securities by the Company, and after such share acquisition by the Company, the Subject Person becomes the Beneficial Owner of any additional Shares or Voting Securities which increases the percentage of the then outstanding Shares or Voting Securities Beneficially Owned by the Subject Person, then a Change in Control shall occur.

        If an Eligible Individual's status as an Eligible Individual is terminated by the Company without Cause prior to the date of a Change in Control but the Eligible Individual reasonably demonstrates that the termination (A) was at the request of a third party who has indicated an intention or taken steps reasonably calculated to effect a Change in Control or (B) otherwise arose in connection with, or in anticipation of, a Change in Control which has been threatened or proposed, then such Eligible Individual's Termination Date shall be deemed to have occurred after a Change in Control for purposes of this Plan provided a Change in Control shall actually have occurred.

"Committee" shall have the meaning specified in Section 6.1.

"Compensation" shall mean the periodic base salary of, or fees for services paid to, an Eligible Individual during a fiscal year.

"Deferral Election" shall have the meaning specified in Section 3.1.

"Deferred Amount" shall mean at any time the sum of all of a Participant's Awards plus all Investment Income credited as of such date to the Account of such Participant, as provided herein.

"Designated Pay-Out Schedule" shall have the meaning specified in Section 3.1.

"Designee" shall mean any Eligible Individual who is designated as a Participant by the Board during a fiscal year.

"Director" means a director of the Company.

"Election Date" shall have the meaning specified in Section 3.2.

"Eligible Individual" shall mean those individuals who either: (a) receive periodic payments for services from the Company, or (b) work exclusively for the Company. Independent contractors shall not be considered Eligible Individuals. Nothing herein, however, shall prohibit the Board from specially designating an independent contractor an Eligible Individual for purposes of receipt of benefits under the Plan.

"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.

"Investment Income" shall have the meaning specified in Section 4.2.

"John Head Entity" means John C Head III or any of his Affiliates or Relatives.

"Participant" shall mean any Eligible Individual who is a Designee on any date which is an Election Date for an Award, which, if thereafter earned, will be earned in respect of the Company's fiscal year following the fiscal year in which the Election Date occurs, or such other period as provided herein.

"Person" means any individual, partnership, firm, corporation, limited liability company, joint venture, association, trust, unincorporated organization or other entity, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Exchange Act.

"Relative" with respect to any natural person, means (i) the spouse, sibling, parent, child or other blood or in-law family members within the fourth degree, in a direct or collateral line, of such natural person; (ii) a trust solely for the benefit of such natural person or any of the individuals referred to in clause (i); (iii) the guardian, estate or conservator of such natural person or any of the individuals referred to in clause (i); and (iv) any corporation, partnership, limited liability company or other entity all of the outstanding equity interests of which are owned, directly or indirectly, by such natural person or the individuals or entities referred to in clauses (i), (ii) or (iii).

"Termination Date" shall mean the date on which an individual's status as an as an Eligible Individual is terminated. For the purposes of this Plan, it shall not be considered a termination of as an Eligible Individual status when a Participant is granted a military or personal leave of absence by the Company.

        III.    Deferral of Awards

        A.    Deferral Election.    "Deferral Election" shall mean an election by a Participant to have the payment of an amount equal to a percentage of his Compensation deferred pursuant to this Plan until the Termination Date with a Designated Pay-Out Schedule. A "Designated Pay-Out Schedule" shall mean one of the following, as selected by the Participant for a particular Award: (i) a lump-sum pay-out 30 days after the Termination Date; or (ii) a pay-out in three annual installments: (a) 30 days after the Termination Date; (b) on the second anniversary of the Termination Date; and (c) on the third anniversary of the Termination Date, in accordance with the following method with respect to each Award:

INSTALLMENT METHOD WITH RESPECT TO AN AWARD

1st payment is ¹/3 of the Deferred Amount then credited to such Participant's Account with respect to such Award,

2nd payment is ¹/2 of the Deferred Amount then credited to such Participant's Account with respect to such Award,

3rd payment is the remainder of the Deferred Amount then credited to such Participant's Account with respect to such Award.

        B.    Form and Timing of Deferral Election.    A Deferral Election shall be in writing on a form delivered to the Designee by the Company on or before the Election Date. The "Election Date" for an Award shall be (i) the last business day in December of the prior fiscal year of the Company in respect of which the Award is earned, or (ii) with respect to years beginning prior to December 31, 2002, the date this Plan was originally adopted; provided, however, that in the case of an Eligible Individual who becomes a Designee for the first time, the "Election Date" shall be 30 days after such Eligible Individual receives notice that he has become a Designee for an Award earned or made following such Election Date. Each Deferral Election shall specify which Designated Pay-Out Schedule will apply.

        C.    Duration of Deferral Election.    A Deferral Election, once made, shall be irrevocable and shall apply to future Awards, provided, however, that a Designee may notify the Company in writing at least thirty days prior to the end of the fiscal year prior to the year in which an Award is earned that the Designee elects to cease future deferrals under the Plan. A Designee who elects to cease the deferral of Awards may not make a subsequent Deferral Election until the fiscal year following such election to cease future deferrals.

        IV.    Treatment of Deferred Amounts

        A.    Memorandum Account.    The Company shall establish on its books a memorandum account (the "Account") for each Participant who elects to defer an Award under this Plan. Immediately following the date on which an Award would otherwise be payable to a Participant, the amount of such Award shall be credited to such Participant's Account.

        B.    Investment Income.    Prior to each calendar quarter, the Committee, in its sole discretion, shall select the assets or group of assets to which the Accounts under the Plan shall be indexed, with such changes from time to time as the Committee in its sole discretion deems advisable. On the last day of each calendar quarter, the total investment return (including dividends, interest, and realized and unrealized gains or losses, if any) of those assets or group of assets (the "Investment Income") shall be credited to each Participant's Account, computed separately for each Account, on the balance (if any) of such Account as of such date.

        C.    Assets.    No assets shall be segregated or earmarked in respect of any Deferred Amount and no Participant shall have any right to assign, transfer, pledge or hypothecate his interest, or any portion

thereof, in his Account. The Plan and the crediting of Accounts hereunder shall not constitute a trust and shall be merely for the purpose of recording an unsecured contractual obligation.

        D.    Reports.    Until the entire Deferred Amount in an Account shall have been paid in full, the Company will furnish to each Participant a report, at least annually, setting forth transactions in such Account and the status of his Account.

        V.    Payment of Deferred Amounts

        A.    Form of Payment.    All payments of Deferred Amounts under this Plan shall be made in cash.

        B.    Payment of Deferred Amount.    The Deferred Amount credited to each Participant's Account with respect an Award (including all Investment Income attributable to such Award) shall be payable to such Participant, in accordance with the Designated Pay-Out Schedule, commencing as provided in Section 3.1. If a Participant dies prior to payment of all or any portion of the Deferred Amount, the entire Deferred Amount credited to such Participant's Account shall (if not sooner payable) be payable to such Participant's Beneficiary in accordance with the Designated Pay-Out Schedule commencing within 30 days following the Participant's death; provided, however, that the Board may, in its sole discretion, accelerate the payment of the entire Deferred Amount in a lump-sum within 30 days following the date of Participant's death.

        C.    Acceleration of Payments.    Notwithstanding any other provision of this Plan to the contrary, the Board, in its sole discretion, is empowered to accelerate the payment of Deferred Amounts to a Participant or to all Participants, for any reason, including but not limited to an event of substantial hardship to a Participant arising out of mental or physical disability of the Participant or an immediate family member, death of an immediate family member or such other cause as the Board shall in its sole discretion determine to constitute substantial hardship. The Board shall not have any obligation to make such acceleration for any such reason or any other reason.

        VI.    Administration

        A.    Committee.    The Plan shall be established by the Board and shall be administered day-to-day and interpreted by a committee appointed from time to time by the Board and consisting of three or more Directors, officers or employees of the Company (the "Committee"). Notwithstanding the administration of the Plan by the Committee, the Board shall have the final authority to construe and interpret the terms and provisions of the Plan, to adopt, alter and repeal such rules, guidelines and practices governing this Plan and perform all acts, including the delegation of its administrative responsibilities as it shall, from time to time, deem advisable, and to otherwise supervise the administration of this Plan. The Board may correct any defect, supply any omission or reconcile any inconsistency in the Plan, or in any election hereunder, in the manner and to the extent it shall deem necessary to carry the Plan into effect. Any decision, interpretation or other action made or taken in good faith by or at the direction of the Company, the Board, or the Committee (or any of its members) arising out of or in connection with the Plan shall be within the absolute discretion of all and each of them, as the case may be, and shall be final, binding and conclusive on the Company and all employees and Participants and their respective heirs, executors, administrators, successors and assigns.

        B.    Liability.    No member of the Board, no employee of the Company and no member of the Committee (nor the Committee itself) shall be liable for any act or action hereunder, whether of omission or commission, by any other member or employee or by any agent to whom duties in connection with the administration of the Plan have been delegated or, except in circumstances involving his bad faith, gross negligence or fraud, for anything done or omitted to be done by himself. The Company, the Board, or the Committee may consult with legal counsel, who may be counsel for the Company or other counsel, with respect to its obligations or duties hereunder, or with respect to any action or proceeding or any question of law, and shall not be liable with respect to any action taken or omitted by it in good faith pursuant to the advice of such counsel.

        VII.    Miscellaneous

        A.    Amendment or Termination.    Notwithstanding any other provision of this Plan, the Board may at any time, and from time to time, amend, in whole or in part, any or all of the provisions of the Plan, or suspend or terminate it entirely, retroactively or otherwise; provided, however, that any such amendment, suspension or termination may not, without the Participant's consent, adversely affect any Deferred Amount credited to him for any calendar year ended prior to the effective date of such amendment, suspension or termination. Notwithstanding the foregoing, upon any termination of this Plan, the Board may in its sole discretion accelerate the payment of all Deferred Amounts credited as of the date of termination of this Plan. The Plan shall remain in effect until terminated pursuant to this Section.

        B.    Termination and Amendment following a Change in Control.    Notwithstanding anything to the contrary contained in this Plan, for the period of three (3) years following a Change of Control, the provisions of this Plan, including any agreements, or exhibits incorporated by reference into, referred to or otherwise necessary to the operation of the Plan, in effect immediately prior to the Change of Control, shall be binding on any successor to the Company and may not be amended or terminated without the prior written consent of any person so affected; provided, however, that such successor shall not be obligated to continue to grant Awards under the Plan.

        C.    Expenses.    The Company will bear all expenses incurred in administering this Plan.

        D.    Withholding.    The Company shall have the right to deduct from any payment to be made pursuant to this Plan, or to otherwise require prior to the payment of any amount hereunder, payment by the Participant of, any federal, state or local taxes required by law to be withheld.

        E.    No Obligation.    Neither this Plan nor any elections hereunder shall create any obligation on the Company to continue any existing Award plans or policies or to establish or continue any other programs, plans or policies of any kind. Neither this Plan nor any election made pursuant to this Plan shall give any Participant or other employee any right with respect to continuance of employment by the Company or any subsidiary, nor shall there be a limitation in any way on the right of the Company or any subsidiary by which an employee is employed to terminate his employment at any time.

        F.    No Assignment.    Except by will or the laws of descent and distribution, no right or interest in any Account or Deferred Amount under this Plan shall be assignable or transferable, and no right or interest of any Participant in any Account hereunder or to any Deferred Amount shall be subject to any lien, obligation or liability of such Participant.

        G.    Applicable Law.    This Plan and the obligations of the Company hereunder shall be subject to all applicable laws, rules and regulations and to such approvals by any governmental or regulatory agency as may from time to time be required. The Board of Directors of the Company may make such changes in this Plan as may be necessary or desirable, in the opinion of the Board of Directors, to comply with the laws, rules and regulations of any governmental or regulatory authority, or to be eligible for tax benefits under the Internal Revenue Code of 1986, as amended, or any other laws or regulations of any federal, state, local or foreign government.

        H.    Governing Law.    This Plan and actions taken in connection herewith shall be governed and construed in accordance with the laws of Bermuda, except with respect to its conflicts of laws principles.

        I.    Construction.    Wherever any words are used in this Plan in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply. The titles to sections of this Plan are intended solely as a convenience and shall not be used as an aid in construction of any provisions thereof.

        J.    Name.    This Plan shall be known as "The ESG Re Limited Deferred Compensation Plan."

        K.    Effective Date.    The Plan is effective and is amended and restated as of February 25, 2000.

EX-10.24

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EXHIBIT 10.24

SEVERANCE/CHANGE IN CONTROL POLICY

1.    PURPOSE

        To provide economic security to covered terminated employees in the event of a "Change of Control" (as defined herein) of the Company, and to assist in recruiting and retaining valued employees in the event of a threatened Change of Control.

2.    SCOPE

        All eligible Employees (as defined below) of ESG Re Limited and its wholly-owned subsidiaries.

3.    EFFECTIVE DATE

        This Plan shall be effective January 1, 2000.

4.    ELIGIBILITY

        Employees of the Company on the date of a Change of Control (with the exception of those employees covered by a contract who have not elected coverage under this Plan in place of any contractually required benefits). No enrollment is necessary for eligibility or coverage under the Plan.

5.    ADMINISTRATION

        This Plan is provided at the discretion of the Company and the Company reserves the right to interpret Plan provisions.

6.    DEFINITIONS

6.1

"Change in Control" shall mean an event, whereby:

(a)

(i) any individual, firm, corporation or other entity, or any group (as defined in Section 13(d)(3) of the Securities Exchange Act of 1934) (the "Act")) becomes, directly or indirectly, the beneficial owner (as defined in the General Rules and Regulations of the Securities and Exchange Commission with respect to Sections 13(d) and 13(g) of the Act) of more than 35% of the then outstanding shares of the company's capital stock entitled to vote generally in the election of directors of the Company; or

(ii)

the stockholders of the Company approve a definitive agreement for (A) the merger or other business combination of the Company with or into another corporation pursuant to which the stockholders of the Company do not own, immediately after the transaction, more than 50% of the voting power of the corporation that survives and is a publicly owned corporation and not a subsidiary of another corporation, or (B) the sale, exchange or other disposition of all or substantially all of the assets of the Company; or

(iii)

during any period of two years or less, individuals who at the beginning of such period constituted the Board of Directors of the Company cease for any reason to constitute at least a majority thereof unless the election or the nomination for election by the stockholders of the Company, of each new director was approved by a vote of at least 75% of the directors then still in office who were directors at the beginning of the period; or

(iv)

such other event as the Board of Directors of the Company may designate.

provided, however, that a "Change of Control" shall not be deemed to have taken place if beneficial ownership is acquired by, or a tender or exchange offer is commenced by, the Company or any of its subsidiaries, any profit-sharing, Employee ownership or other employee benefit plan of the Company or any subsidiary or any trustee of or fiduciary with respect to any such plan when acting in such capacity, or any group comprised solely of such entities.

6.2

"Company" shall mean ESG Re Limited and its wholly-owned subsidiaries.

6.3

"Disability" shall mean a disability leave of absence approved by the Company.

6.4

"Employee" shall mean those individuals of the Company who: (a) receive regular paycheques from the Company from under the Company's payroll systems; (b) have been employed by the Company more than one year and (c) work exclusively for the Company. Independent contractors shall not be considered Employees. Nothing herein, however, shall prohibit the Board of Directors of the Company from specially designating an independent contractor an Employee for purposes of receipt of benefits under the Plan.

6.5

"Monthly Change in Control/Severance benefit" shall mean the total of:

(a)

the Employee's Salary (as defined in subsection 6.10 below);

(b)

an amount equal to the average annual bonus payable to the Employee for the past three (3) fiscal years of the Company during which the Employee was in the employ of the Company (or such lesser period for which the Employee was employed, with any bonus payable for any period of employment of less than a full fiscal year annualized for the purposes of this calculation) ending immediately prior to the Termination Date, divided by twelve (12);

(c)

an amount equal to the monthly aggregate value to the Employee of the medical, dental, vision, life insurance, travel accident, and disability insurance benefits offered by the Company. Where appropriate, the "value to the Employee" shall be measured by determining the cost to the Employee of such insurance benefit if the Employee purchased such benefit as an individual on the open market; and

(d)

the aggregate amount of the annual vacation and sick pay to which the Employee is entitled, divided by twelve (12).

6.6

"Plan" shall mean the Company's Change of Control Severance Plan.

6.7

"Resignation" shall mean the termination of employment effected by an Employee. Resignation shall occur on the date an Employee notifies a representative of the Company that the Employee has decided to terminate employment.

6.8

"Resignation for Good Reason" shall mean the resignation of an eligible Employee within sixty (60) days of any action by the Company resulting in: (i) a reduction of the Employee's salary or incentive opportunities; (ii) any significant reduction in the Employee's responsibilities; (iii) the Company's requiring the Employee to be based at any office or location more than thirty-five (35) miles from that location where the Employee principally performs services for the Company; or (iv) any other significant adverse change in the Employee's position. This provision may be waived with the written consent of the Employee.

6.9

"Retirement" shall mean termination of employment at the sole election of an Employee.

6.10

"Salary" shall mean the monthly base salary of an Employee in effect on the last pay date before the Termination Date.

6.11

"Separation" shall mean all involuntary terminations of an Employee's employment other than Termination for Cause. A Separation does not occur: (i) upon the sale or divestiture of a subsidiary or unit of the Company where an individual continues or is offered employment, at the same or another location, with the acquiring company; or (ii) upon the Employee's Resignation or Retirement. An authorized leave of absence is not a Separation nor is the cessation of employment of an Employee who fails to return from an authorized leave of absence.

6.12

"Service" shall mean the number of full years of employment with the Company (including successive or concurrent service with more than one entity included in the term Company) including service with any successor company. With respect to employment with any employer whose company or business is acquired by or merged into the Company, Service shall include all employment with such employer prior to the date of such merger or acquisition.

6.13

"Change in Control/Severance Benefit" shall mean the payment to be made to a Participant under section 8.

6.14

"Termination Date" shall be deemed to be the last day on which an Employee is carried as an active Employee on the records of the Company.

6.15

"Termination for Cause" shall mean the termination of employment resulting from misconduct by an Employee as determined in the good faith belief of the Company that the Employee has engaged in certain acts including, but not limited to, breach of fiduciary duty, theft, fraud, dishonesty, embezzlement, violation of securities laws, violation of non-competition, non-solicitation or confidentiality agreements, falsification of employment application or other business records, gross insubordination, habitual absenteeism or tardiness, willful malfeasance or gross negligence in a material respect in the performance of position responsibilities, adverse or disloyal acts or interests, unethical activity, material violation of Company policies, unsatisfactory performance of the duties and responsibilities of an Employee's position, including, but not limited to, the failure to maintain a satisfactory level of job performance, work output (quality or quantity) not meeting the minimum requirements of the job; work frequently off schedule; or inability to maintain satisfactory employment relationships with others. The determination whether misconduct has occurred rests in the sole discretion or the Company.

7.    QUALIFICATION

        Coverage under the Plan is provided to eligible Employees whose employment terminates during the one (1) year period following a Change of Control, where the employment terminates due to: (a) the Employee's death; (b) Disability; (c) Separation; or (d) Resignation For Good Reason pursuant to Section 6.8 above. Employees who terminate as a result of Resignation, Retirement or a Termination for Cause as described in subsections 6.7, 6.9, or 6.15 respectively, do not qualify for coverage under the Plan. Qualification for coverage under the Plan does not constitute a vested right to benefits under the Plan, however, in the event of a Change of Control, all benefits become fully vested and are not subject to change, modification, or forfeiture by the Employee, except as specified in this plan. An Employee forfeits benefits if the basis for the termination constitutes Termination for Cause under subsection 6.15 prior to the planned Termination Date.

8.    CHANGE IN CONTROL/SEVERANCE BENEFITS

(a)

In the event of: (x) a Change of Control, and (y) the Employee's employment terminates during the one (1) year period following a Change of Control due to the Employee's: (i) Death; (ii) Disability; (iii) Separation; or (iv) Resignation For Good Reason, the Employee shall be paid the Monthly Severance Benefit multiplied times the number of months specified in subsection 8(b) below.



(b)

All Employees shall be entitled to one (1) month of Severance Benefit for each year of Service up to a maximum payment of six months. The Board of Directors of the Company in its sole discretion may, in using lieu of the formula in the preceding sentence, designate certain officers and Employees to receive benefits by designating them as follows:



(1)

Level I Employees, who shall receive twelve (12) times the amount defined in Paragraph 6.5 (a)



(2)

Level II Employees, who shall receive twenty-four (24) times the amount defined in Paragraphs 6.5 (a) and 6.5 (b); and



(3)

Level III Employees, who shall receive thirty-six (36) times the amounts defined in Paragraphs 6.5 (a), 6.5 (b) and 6.5 (c).

The Board of Directors may at any time prior to a Change in Control remove or change any such designations.

(c)

The Severance Benefit shall be paid in cash in a single lump sum as soon as practicable, but in no event more than thirty (30) days (or at such earlier date required by law), following the Termination Date.



(d)

Any statutory severance benefits to which an Employee may be entitled shall be subtracted from the Change in Control/Severance Benefit payable under this Plan.



(e)

Any Employee may waive all or any portion of the Severance Benefit payable under the Plan.

9.    UNFUNDED STATUS OF THE PLAN

        The Plan is intended to constitute an "unfunded" plan and all amounts due and benefits provided under the Plan shall constitute general obligations of the Company or a subsidiary in accordance with the terms of the Plan, until the occurrence of a Change of Control. Prior to a Change of Control, an Employee shall have only an unsecured right to payments under the Plan out of the general assets of the Company or a subsidiary. Notwithstanding the foregoing, in the event of a Change of Control the Company shall create an irrevocable trust at a Bank acceptable to both the Company and the majority of the Participants, and shall appoint said Bank as trustee of such trust, to make payments to Participants in accordance with the terms of the Plan. Such trust shall be fully funded by the Company within ten (10) days of a Change of Control, and the Company shall have no authority or control over the investment, disbursement, or payment of the assets of the trust thereafter.

10.  TERMINATION AND AMENDMENT OF THE PLAN

        Notwithstanding anything to the contrary contained in this Plan, for the period of three (3) years following a Change of Control, the provisions of this Plan, including any schedules of benefits, agreements, or exhibits incorporated by reference into, referred to or otherwise necessary to the operation of the Plan, in effect immediately prior to the change of control, shall be binding on any successor to the Company and may not be amended or terminated.

11.  NO GUARANTEE OF EMPLOYMENT CREATED

        Notwithstanding anything in the Plan to the contrary, this Plan shall not constitute an employment contract or give any Employee a right of continued employment or preclude the Company from terminating an Employee's employment.

12.  OTHER OBLIGATIONS

        Nothing in this policy shall supercede any contractual obligations the Company may have to any Employee. In such event the Employee shall not be eligible to receive any benefits under this Plan, unless the Employee expressly elects in writing: (i) to waive the contractual entitlement to any severance benefits specified in any such agreement or agreements, and (ii) elects to receive benefits under this Plan instead. Upon the expiration or non-renewal of any contract providing for severance benefits following a Change of Control, the Employee's contractual right to any special severance benefit will terminate, and the Employee will only be eligible for benefits under this Plan.

13.  TAX WITHHOLDING

        All payments hereunder shall be made net of any and all applicable taxes required by law to be withheld.

14.  GOVERNING LAW

        The Plan shall be governed by the laws of Bermuda, except with respect to its conflicts of laws principles.

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SEVERANCE/CHANGE IN CONTROL POLICY

EX-10.27

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Exhibit 10.27

Note: Redacted portions have been marked with (***). The redacted portions are subject to a Request for Confidential Treatment that has been filed with the Securities and Exchange Commission.

EXECUTION COPY

(1) ACE Capital Re Overseas Ltd.
as PRINCIPAL

and

(2) ESG Re North America Ltd.
as AGENT

REINSURANCE MANAGEMENT AGREEMENT

Note: Redacted portions have been marked with (***). The redacted portions are subject to a Request for Confidential Treatment that has been filed with the Securities and Exchange Commission.

REINSURANCE MANAGEMENT AGREEMENT

        This REINSURANCE MANAGEMENT AGREEMENT (this "AGREEMENT"), dated as of November 1, 2001, is entered into between ACE Capital Re Overseas Ltd. and ESG Re North America Ltd.

W I T N E S S E T H

WHEREAS:

(A)

The PRINCIPAL wishes to appoint the AGENT to provide certain SERVICES (defined below); and



(B)

The PRINCIPAL and the AGENT have agreed to record in writing the terms and conditions of the AGENT's appointment by the PRINCIPAL.

NOW, THEREFORE, in consideration of the foregoing and of the mutual promises, covenants and payments set forth herein, IT IS HEREBY AGREED AS FOLLOWS:

ARTICLE I—DEFINITIONS

        As used in this AGREEMENT (including, but not limited to, any schedule hereto), the following terms shall have the following defined meanings.

1.1

"AGENT" shall mean ESG Re North America Ltd.

1.2

"ANNIVERSARY DATE" shall mean 1 January 2002, and thereafter, the next following January 1st.

1.3

"BUSINESS DAY" shall mean a calendar day other than a Saturday, Sunday, or a United States bank holiday.

1.4

[Intentionally Omitted]

1.5

"CEDING COMMISSION" shall mean original acquisition costs in respect of policies ceded under Original Reinsurance Contracts (including all premium taxes), which shall in no event exceed (***) of ORIGINAL GROSS PREMIUMS, and reinsurance brokerage fees on ORIGINAL REINSURANCE CONTRACTS (the reasonableness of which shall be determined by AGENT).

1.6

"CLAIM AND SERVICES ACCOUNT" shall mean a segregated account maintained by the PRINCIPAL with Bank of America (or other financial institution pre-approved in writing by the PRINCIPAL's Treasury Department) to which the AGENT shall have limited access in accordance with Paragraph 6.3 of this AGREEMENT.

1.7

"CLAIM AND SERVICES FUND AMOUNT" shall mean the amount of monies belonging to the PRINCIPAL to be held on deposit in the CLAIM AND SERVICES ACCOUNT.

1.8

"CLAIMS PAYMENT" shall mean the payment of an ORIGINAL REINSURANCE CLAIM made by the AGENT on behalf of the PRINCIPAL to a REINSURED pursuant to the PRINCIPAL's obligations under an ORIGINAL REINSURANCE CONTRACT.

1.9

"EFFECTIVE DATE" shall mean the date of this AGREEMENT first above written. For avoidance of doubt, the phrase "effective date", when used in lower case format, does not mean EFFECTIVE DATE as defined in this Section 1.9.

1.10

"GROSS REINSURANCE PREMIUMS" shall mean the total monetary compensation due from a REINSURED to the PRINCIPAL and received by the PRINCIPAL pursuant to an ORIGINAL REINSURANCE CONTRACT.

1.11

"INTELLECTUAL PROPERTY RIGHTS" shall mean all patents, trademarks, trade names, service marks, service names, trade secrets, copyrights, and other proprietary intellectual property rights and applications therefor.

1.12

"LEAD REINSURER" shall mean ESG Re Ireland Ltd.

1.13

"LOSS ADJUSTMENT EXPENSES" shall mean reasonable out-of-pocket expenses (not including salary of AGENT's employees or overhead costs) incurred by the AGENT in providing the SERVICES listed in Parts D, E and G of Schedule 1 to the PRINCIPAL.

1.14

"MANAGEMENT FEES" shall mean the remuneration to be paid by the PRINCIPAL to the AGENT pursuant to Paragraph 6.6 of this AGREEMENT for SERVICES as defined at Paragraph 1.21 of this AGREEMENT.

1.15

"NOTICE" shall mean a written communication given in accordance with the terms of Article XIX.

1.16

"ORIGINAL GROSS PREMIUMS" shall mean, with respect to policies ceded under an ORIGINAL REINSURANCE CONTRACT, the gross original written premiums on such policies less return premiums on such policies, including amounts refunded to policyholders due to cancellations.

1.17

"ORIGINAL REINSURANCE CLAIM" shall mean a written request by a REINSURED for payment under an ORIGINAL REINSURANCE CONTRACT.

1.18

"ORIGINAL REINSURANCE CONTRACT" shall mean all slips, binding letters of intent, binders, contracts, agreements and treaties of reinsurance with an effective date in calendar year 2001 (and addenda and endorsements thereto) issued to a REINSURED by the AGENT on behalf of both LEAD REINSURER and the PRINCIPAL that conform to all the requirements of Schedule 3 to this AGREEMENT.

1.19

"PRINCIPAL" shall mean ACE Capital Re Overseas Ltd or its non-United States domiciled, lawfully acting affiliate to whom this AGREEMENT is assigned pursuant to the provisions of Section 18.2.

1.20

"REINSURED" shall mean the insurance company or reinsurance company to which the PRINCIPAL issues an ORIGINAL REINSURANCE CONTRACT through the AGENT.

1.21

"SERVICES" shall mean the functions and duties to be performed by the AGENT, as described in Schedule 1 and Schedule 3 to this AGREEMENT.

1.22

"SERVICE STANDARDS" shall mean the quality and level of SERVICES to be provided by the AGENT, as described in Schedule 2 to this AGREEMENT.

1.23

"TERRITORY" shall mean the United States.

1.24

All references to "$" contained in this AGREEMENT are references to U.S. dollars.

ARTICLE II—APPOINTMENT OF AGENT

2.1

As of the EFFECTIVE DATE, and subject to the terms, conditions and limitations set forth herein, the PRINCIPAL hereby appoints the AGENT to provide SERVICES to the PRINCIPAL and the AGENT hereby accepts such appointment.

2.2

It is expressly understood by both the PRINCIPAL and AGENT that the PRINCIPAL's appointment of the AGENT to provide SERVICES under this AGREEMENT shall be non-exclusive.

2

2.3

In the event that this AGREEMENT is assigned by the PRINCIPAL to an affiliate domiciled in the United States or Canada, it is further understood that the PRINCIPAL's appointment of the AGENT is limited to those jurisdictions in the TERRITORY in which the AGENT is licensed or otherwise authorized to provide SERVICES.

ARTICLE III—AUTHORITY OF AGENT

3.1

The AGENT's authority under this AGREEMENT shall be limited to the provision of SERVICES to the PRINCIPAL.

3.2

The authority conferred upon the AGENT under this AGREEMENT, including but not limited to underwriting and claims, is personal in nature and as such, the AGENT shall not delegate, transfer or sub-contract or otherwise assign all or part of such authority to any person or entity except (i) existing SERVICES which are currently delegated to Claims Risk Management, Inc. or (ii) to the extent that the PRINCIPAL approves such delegation, transfer, sub-contracting or assignment in writing in advance.

3.3

The underwriting and claims authority conferred upon the AGENT under this AGREEMENT is subject to any further limitations dictated by the terms of all Schedules to this AGREEMENT.

3.4

The AGENT shall not engage any third party (including, but not limited to, any attorney or special investigator) to act for or on behalf of the PRINCIPAL or AGENT (either directly or indirectly) in connection with this AGREEMENT, the ORIGINAL REINSURANCE CONTRACTS, or any ORIGINAL REINSURANCE CLAIMS presented thereunder unless and until it informs the PRINCIPAL of any such engagement.

3.5

Except as provided in Schedule 1, the AGENT shall not bind any outwards reinsurance of ORIGINAL REINSURANCE CONTRACTS on behalf of the PRINCIPAL.

3.6

AGENT shall only have authority to bind PRINCIPAL to a 50% participation in each ORIGINAL REINSURANCE CONTRACT, provided that, such authority shall be further conditioned on the LEAD REINSURER being bound to the remaining 50% participation in each such contract, provided further that, AGENT shall have the limited authority to reduce PRINCIPAL's participation in an ORIGINAL REINSURANCE CONTRACT where the LEAD REINSURER has committed to retrocede a portion of its share of such contract to a captive reinsurer owned or controlled by the managing general underwriter receiving a commission on such ORIGINAL REINSURANCE CONTRACT. Any such reduction in PRINCIPAL's participation shall be limited to the extent necessary to provide PRINICIPAL and LEAD REINSURER with equal participations in the ORIGINAL REINSURANCE CONTRACT after netting out the retrocession described in the preceding sentence.

ARTICLE IV—REPRESENTATIONS AND WARRANTIES

4.1

The AGENT REPRESENTS AND WARRANTS that at all times relevant to the execution, performance, and/or termination of this AGREEMENT, it was and will be legally authorized and/or licensed to provide all SERVICES contemplated hereunder in any jurisdiction of the TERRITORY in which it is or will be operating.

4.2

The AGENT further REPRESENTS AND WARRANTS that at all times relevant to the execution, performance and/or termination of the AGREEMENT, it was and will be legally authorized to serve as the agent of the LEAD REINSURER for purposes of procuring, underwriting and servicing ORIGINAL REINSURANCE CONTRACTS, collecting reinsurance premiums, and handling, servicing and paying ORIGINAL REINSURANCE CLAIMS.

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ARTICLE V—OBLIGATIONS OF AGENT

5.1

The AGENT shall, subject to all applicable laws, provide SERVICES to the PRINCIPAL in accordance with the SERVICE STANDARDS.

5.2

The AGENT shall follow all lawful instructions given by the PRINCIPAL in connection with the provision of SERVICES under this AGREEMENT.

5.3

For a period of at least six (6) years after the termination of this AGREEMENT, the AGENT shall prepare and maintain full and complete records in relation to every aspect of the SERVICES provided pursuant to this AGREEMENT, including, but not limited to such records as are necessary to document and substantiate any claims for remuneration and/or reimbursement under this AGREEMENT.

5.4

The AGENT agrees to execute and/or deliver at its cost, all such other documents, reports or instruments and to take all such reasonable actions, as the PRINCIPAL may from time to time reasonably request, in order to give full effect to the purposes of this AGREEMENT.

5.5

In addition to the foregoing obligations and for as long as the PRINCIPAL has any obligations under this AGREEMENT, the AGENT shall, within five (5) BUSINESS DAYS of receiving NOTICE of intent to inspect from the PRINCIPAL, make available for inspection and copying by the PRINCIPAL or its designated representatives, all records containing information relating to this AGREEMENT (including, but not limited to, any SERVICES provided hereunder). All such information in the AGENT's possession, custody or control shall be made available at the AGENT's registered office during normal working hours.

5.6

The AGENT shall, at all times, comply with all applicable statutes, rules and regulations, in providing SERVICES to the PRINCIPAL.

5.7

The AGENT warrants that it now has and will maintain during the term of this Agreement insurance coverage for (***) in amounts no less than (***) with an insurer that is reasonably acceptable to the PRINCIPAL. The AGENT shall provide the PRINCIPAL with a certificate of insurance issued by the insurer in the PRINCIPAL's name containing the following provision: "The PRINCIPAL will receive 30 days' prior written notice of any change, cancellation or other termination of this policy."

5.8

The AGENT will use reasonable efforts to obtain a fidelity bond on a form and with a deductible reasonably satisfactory to the PRINCIPAL covering all operations and employees of the AGENT. If such a fidelity bond is obtained, the AGENT will provide the PRINCIPAL with a certificate issued by the fidelity bond carrier in the PRINCIPAL's name containing the following provision: "The PRINCIPAL will receive 30 days' prior written notice of any change, cancellation or other termination of this policy."

ARTICLE VI—OBLIGATIONS OF PRINCIPAL

6.1

The PRINCIPAL agrees to execute and deliver at its cost all documents, reports or instruments and to take all such reasonable actions, as the AGENT may from time to time reasonably request, in order to give full effect to the purposes of this AGREEMENT.

6.2

On or within ten (10) BUSINESS DAYS of the EFFECTIVE DATE, the PRINCIPAL shall establish and place on deposit in the CLAIM AND SERVICES ACCOUNT, the sum of (***).

6.3

For as long as the AGENT shall be obligated to provide SERVICES to the PRINCIPAL, the PRINCIPAL shall afford the AGENT access to draw upon the CLAIM AND SERVICES ACCOUNT in the manner and for the limited purposes specified in Schedule 1 (Part K) to this AGREEMENT.

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6.4

In the event that the CLAIM AND SERVICES ACCOUNT falls to less than (***), the PRINCIPAL shall, within five (5) BUSINESS DAYS of receiving NOTICE from the AGENT, restore the CLAIM AND SERVICES ACCOUNT to (***). If at any time, the funds contained in the CLAIM AND SERVICES ACCOUNT are insufficient to satisfy the PRINCIPAL's obligation to pay the currently due items set forth in Part K of Schedule 1, PRINCIPAL agrees to fund the CLAIM AND SERVICES ACCOUNT with the amounts required to pay such items within (***) of receiving a written cash call for such amounts from the AGENT.

6.5

The PRINCIPAL shall take all steps reasonably necessary to effectuate the obligations set forth at Paragraph 6.2 of this AGREEMENT.

6.5.1

Notwithstanding the foregoing, it is expressly understood that:

(a)

the PRINCIPAL shall be the sole owner of the CLAIM AND SERVICES ACCOUNT;

(b)

all interest generated by the CLAIM AND SERVICES ACCOUNT shall likewise belong to the PRINCIPAL; and

(c)

the PRINCIPAL shall have sole authority to direct the investment of all funds contained in the CLAIM AND SERVICES ACCOUNT.

6.6

The PRINCIPAL hereby agrees to pay the AGENT a MANAGEMENT FEE in the amount of (***) of the GROSS REINSURANCE PREMIUM that is earned by the PRINCIPAL in 2002 and 2003 in respect of ORIGINAL REINSURANCE CONTRACTS. The PRINCIPAL shall earn GROSS REINSURANCE PREMIUMS in accordance with generally accepted accounting principles.

6.7

For a period of one year from the last date that AGENT can bind PRINCIPAL to ORIGINAL REINSURANCE CONTRACTS under the terms of this AGREEMENT, PRINCIPAL agrees not to introduce, sell or otherwise promote any reinsurance or insurance products which are in direct competition with the medical excess reinsurance currently underwritten by AGENT and which is the subject of this AGREEMENT. For purposes of this AGREEMENT, a reinsurance or insurance product shall be deemed to be in direct competition with the medical excess reinsurance currently underwritten by AGENT only if (i) it involves the medical excess reinsurance lines of business currently underwritten by AGENT and (ii) the original insurance policies comprising such business have been underwritten by the managing general underwriters or carriers listed in Exhibit A hereto. For the avoidance of doubt, this provision shall not restrict or prevent PRINCIPAL or its affiliates from introducing, selling or otherwise promoting any reinsurance or insurance products, including without limitation medical excess insurance and reinsurance products, in connection with programs that are not the subject of this AGREEMENT.

6.8

All premium payments due to PRINCIPAL or LEAD REINSURER under ORIGINAL REINSURANCE CONTRACTS shall be deposited by REINSURED or its agent in an escrow account governed by an escrow agreement to be executed by the parties promptly following the EFFECTIVE DATE. AGENT shall have limited authority to allocate the funds contained in such account between PRINCIPAL and LEAD REINSURER and shall instruct the escrow agent to distribute the amount constituting GROSS REINSURANCE PREMIUMS to PRINCIPAL on a weekly basis.

ARTICLE VII—TERM

7.1

This AGREEMENT shall be deemed to take effect on the EFFECTIVE DATE at 12:01 a.m. at the site of the PRINCIPAL's registered office and shall thereafter remain in full force and effect through the later of (i) the date that all obligations and liabilities under ORIGINAL

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REINSURANCE CONTRACTS and outward reinsurance contracts have terminated or expired or (ii) the date that all SERVICES to be performed by the AGENT have been fully performed.

ARTICLE VIII—SPECIAL TERMINATION

8.1

Notwithstanding the provisions of Articles VII and IX, AGENT shall have the right to be relieved of its obligation to bind PRINICIPAL to additional ORIGINAL REINSURANCE CONTRACTS immediately by giving NOTICE to PRINCIPAL, in the event that:

(a)

PRINCIPAL is declared insolvent or put into liquidation by any competent regulatory authority or court of competent jurisdiction or is otherwise unable to pay its debts; or

(b)

PRINCIPAL has its regulatory authority to transact any business or perform any obligations relevant to this AGREEMENT withdrawn, suspended or made conditional and such conditions are, in the opinion of the AGENT, unduly onerous for the proper performance of this AGREEMENT; or

(c)

PRINCIPAL fails to comply with any of the terms or conditions of this AGREEMENT and, provided such breach is curable, fails to rectify such failure within thirty (30) BUSINESS DAYS of receiving NOTICE of such failure, or is otherwise negligent in the performance of its duties and obligations hereunder.

8.2

Notwithstanding the provisions of Articles VII and IX, PRINCIPAL shall have the right to either terminate this AGREEMENT or revoke AGENT's authority to bind it to new contracts immediately by giving NOTICE, in the event that:

(a)

AGENT or LEAD REINSURER is declared insolvent or put into liquidation by any competent regulatory authority or court of competent jurisdiction or is otherwise unable to pay its debts; or

(b)

AGENT has its regulatory authority to transact any business or perform any obligations relevant to this AGREEMENT withdrawn, suspended or made conditional and such conditions are, in the opinion of the PRINCIPAL, unduly onerous for the proper performance of this AGREEMENT;

(c)

AGENT fails to comply with any of the terms or conditions of this AGREEMENT and, provided such breach is curable, fails to rectify such failure within thirty (30) BUSINESS DAYS of receiving NOTICE of such failure, or is otherwise negligent in the performance of its duties and obligations hereunder; or

(d)

any "key personnel" of AGENT cease to be employed by AGENT or are materially less involved with the business covered by this AGREEMENT, and AGENT fails to provide evidence to PRINCIPAL, within 60 days after the date any key personnel terminates his or her employment or becomes materially less involved with the business covered by this AGREEMENT, that satisfies PRINCIPAL (such satisfaction to be determined in the sole discretion of PRINCIPAL) that AGENT still employs appropriate personnel to satisfactorily provide the SERVICES. For purposes of this provision "key personnel" means (***).

8.3

Notwithstanding the provisions of Sections 8.1 and 8.2, if, by reason of an event described in Section 12.1, the PRINCIPAL or the AGENT shall be delayed or prevented from performing any of its obligations hereunder, such delay shall be excused during the continuance, and to the extent of, such event. Notwithstanding the preceding sentence, should such delay or non-performance persist for thirty (30) consecutive days, any applicable provision of Section 8.1 or 8.2 will apply at the conclusion of such thirty (30) day period.

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ARTICLE IX—CONSEQUENCES OF TERMINATION

9.1

The PRINCIPAL may, at its option, upon NOTICE to the AGENT, suspend the authority of the AGENT to assume or cede business during the pendency of any dispute regarding termination under Article VII or VIII of this AGREEMENT.

9.2

Upon receiving NOTICE of termination, the AGENT shall cooperate in all respects with all reasonable requests by PRINCIPAL, including, but not limited to, the transfer of books and records relating to ORIGINAL REINSURANCE CONTRACTS and related matters and PRINCIPAL's efforts to transfer the responsibilities and duties delegated to the AGENT by the PRINCIPAL to another entity.

9.3

Such cooperation shall include, but not be limited to, the timely production of whatever final reports, invoices and/or statements the PRINCIPAL may reasonably request.

ARTICLE X—INDEMNITY; SURVIVAL

        (***) (Three pages redacted)

ARTICLE XI—CONFIDENTIALITY

11.1

Each of the parties hereto agrees to treat and hold as confidential (and not disclose or provide access to any person, except (i) as expressly required to fulfill its duties under this AGREEMENT, (ii) as necessary or desirable to conduct its business or (iii) as determined by such party to be required by law or by an administrative or regulatory body with jurisdiction over such party), all information with respect to this AGREEMENT and the transactions contemplated hereby, including but not limited to information embodied in or relating to, as appropriate, trade secrets, processes, claims data, medical data relating to policies underlying the ORIGINAL REINSURANCE CONTRACTS, product development, pricing of products and services, customer and supplier lists, pricing and marketing plans, policies and strategies, client, customer, vendor, payor, provider, employee, supplier and consultant contracts and relations, operations methods, product development techniques, business acquisition plans, new personnel acquisition plans. Each of the parties agrees and acknowledges that remedies at law for any breach of their obligations under this Section 11.1 are inadequate and that in addition thereto the disclosing party shall be entitled to seek equitable relief, including injunctive relief and specific performance, in the event of any such breach.

ARTICLE XII—FORCE MAJEURE

12.1

Neither the PRINCIPAL nor the AGENT shall be held responsible or liable for delay or failure in performance of this AGREEMENT, in whole or in part, if such delay or failure is due to any cause beyond its reasonable control, such as, but not limited to, fire, earthquake, floods, storms, war, terrorist attacks, invasion of armed forces, strikes, blockade, insurrection, lockouts or other industrial disputes.

ARTICLE XIII—BUSINESS REVIEW

13.1

A business review shall take place when reasonably requested by PRINCIPAL or required by law.

13.2

The purpose of the review shall generally be to examine and discuss all issues arising under this AGREEMENT, proposals for amendments to this AGREEMENT and the resolution of any disputes that may have arisen.

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ARTICLE XIV—RELATIONSHIP BETWEEN THE PARTIES

14.1

Neither of the parties is a partner of the other, and nothing in this AGREEMENT shall create or be deemed to create a partnership or joint venture between the PRINCIPAL and the AGENT or between the PRINCIPAL and the LEAD REINSURER.

ARTICLE XV—ANNOUNCEMENTS

15.1

The AGENT shall not issue any announcement and/or release any information or statement to any person (including, but not limited to, the press) in any way relating to this AGREEMENT, the ORIGINAL REINSURANCE CONTRACTS, and/or any SERVICES provided hereunder unless and until the AGENT receives NOTICE of the PRINCIPAL's consent to such announcement, release or statement. No such consent shall be required in the case of disclosures by the AGENT to a regulatory body pursuant to a statutory obligation.

ARTICLE XVI—SEVERABILITY

16.1

Subject to the provisions of Article VIII, in the event that any portion of this AGREEMENT (or the application thereof to any person or circumstance) shall, to any extent, be invalid or unenforceable, the remainder of this AGREEMENT (or the application thereof to persons or circumstances other than those to which it is invalid or unenforceable) shall not be affected thereby, and shall be valid and enforced to the fullest extent permitted by law.

ARTICLE XVII—MERGER

17.1

This AGREEMENT is an integrated document, containing the entire undertaking between the AGENT and the PRINCIPAL regarding the matters addressed herein and may be varied only by a writing signed by both the AGENT and the PRINCIPAL.

17.2

Except as set forth in this AGREEMENT, no representations, warranties or promises have been made or relied upon by the AGENT and the PRINCIPAL.

17.3

This AGREEMENT shall prevail over prior communications between the AGENT and the PRINCIPAL regarding any of the matters discussed herein, including but not limited to the Confidentiality Agreement and Letter of Intent previously executed by the parties.

17.4

The headings contained within this AGREEMENT are for convenience only and are not a part of this AGREEMENT.

ARTICLE XVIII—NON-WAIVER; ASSIGNMENT

18.1

Any extension or waiver of the requirements hereunder shall be valid only if set forth in an instrument in writing signed by the party to be bound thereby. Any waiver of any term or condition shall not be construed as a waiver of any subsequent breach or a subsequent waiver of the same term or condition, or a waiver of any other term or condition, of this AGREEMENT. The failure of any party to assert any of its rights hereunder shall not constitute a waiver of any of such rights.

18.2

This AGREEMENT may not be assigned by operation of law or otherwise without the express written consent of the AGENT and the PRINCIPAL (which consent may be granted or withheld in the sole discretion of either party); provided, however, that (i) the PRINCIPAL may assign this AGREEMENT in whole or in part to a non-United States domiciled affiliate of the PRINCIPAL that is lawfully permitted to underwrite ORIGINAL REINSURANCE CONTRACTS, without the consent of AGENT.

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ARTICLE XIX—NOTICES

19.1

NOTICE(s) shall only be effective if it is made by either the PRINCIPAL or the AGENT in writing.

19.2

NOTICE(s) shall be sent to the intended recipient at its address or number set out below.

PRINCIPAL	ACE Capital Re Overseas Ltd. Victoria Hall 11 Victoria Street P.O. Box HM 1826 Hamilton HM HX Bermuda Attn: Corporate Secretary	Phone: Fax:	441-292-4402 441-299-8813
	with a copy to:
	ACE Capital Re Inc. 1325 Avenue of the Americas New York, New York 10019 Attn: General Counsel	Phone: Fax:	212-974-0100 212-581-3268
AGENT	ESG Re North America Ltd. 1 Adelaide Street East Suite 2610 Toronto, Ontario M5C 219	Phone: Fax:	1 416 864 7443 1 416 864 9615

19.3

Either party may change its NOTICE details on giving NOTICE to the other party of the change in accordance with this Article. Such change shall be effective five (5) BUSINESS DAYS after the NOTICE has been given, or such later date as may be specified in the NOTICE.

19.4

Any NOTICE given under this AGREEMENT shall, in the absence of proof of earlier receipt, be deemed to have been duly given as follows:

(a)

if delivered personally, on delivery;

(b)

if sent by facsimile, when dispatched with proof of receipt by recipient;

(c)

if sent by overnight courier service, upon delivery to recipient.

NOTICES under this AGREEMENT may be personally delivered, sent by facsimile or sent by overnight courier service.

19.5

Any NOTICE given under this AGREEMENT outside working hours in the place to which it is addressed will be deemed not to have been given until the start of the next period of working hours in such place.

19.6

NOTICE under this AGREEMENT may only be withdrawn or revoked by separate NOTICE given in accordance with this Article.

19.7

Each NOTICE given or made must be unconditional and signed by a duly authorized person.

ARTICLE XX—INTELLECTUAL PROPERTY RIGHTS AND TRADEMARKS

20.1

Each party hereto retains all of its rights, title and interest to all INTELLECTUAL PROPERTY RIGHTS held by it. Except as expressly authorized in writing by the holder of such INTELLECTUAL PROPERTY RIGHTS, the other party shall have no interest in and shall have no right to use such holder's INTELLECTUAL PROPERTY RIGHTS for any purpose, provided

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that AGENT shall be permitted to use PRINCIPAL's name in the ORIGINAL REINSURANCE CONTRACTS to the extent necessary to perform the SERVICES.

ARTICLE XXI—ARBITRATION CLAUSE

21.1

As a condition precedent to any right of action hereunder, any dispute or difference arising out of the interpretation, performance or breach of this AGREEMENT (including the formation or validity thereof) shall be referred to arbitration under the most current version of the ARIAS (US) Arbitration Rules.

21.2

Arbitration shall be commenced by the claimant giving NOTICE to the respondent demanding arbitration.

21.3

The Arbitration Tribunal shall consist of three (3) arbitrators, one to be appointed by the Claimant, one to be appointed by the Respondent and the third to be appointed by the two party-appointed arbitrators. Each party-appointed arbitrator shall be identified to the other party within thirty (30) days after the NOTICE referred to in Section 21.2 is delivered to the respondent.

21.4

The third member of the Tribunal shall be appointed as soon as practicable (and no later than twenty eight (28) days) after the appointment of the two party-appointed arbitrators. The Tribunal shall be constituted upon the appointment of the third arbitrator.

21.5

The arbitrators shall be disinterested persons (including those who have retired) with not less than ten (10) years of experience as officers or directors within the insurance or reinsurance industry or as lawyers or other professional advisers serving the industry.

21.6

Where a party fails to appoint an arbitrator within thirty (30) days after the date the NOTICE referred to in Section 21.2 has been delivered to the respondent or where the two party-appointed arbitrators fail to appoint a third arbitrator within twenty eight (28) days of their appointment, then upon application by either party, ARIAS (US) will appoint an arbitrator to fill the vacancy. At any time prior to the appointment by ARIAS (US) the party or arbitrators in default may make such appointment.

21.7

The Tribunal may, in its sole discretion, make such orders and directions as it considers to be necessary for the final determination of the matters in dispute. The Tribunal shall have the widest discretion permitted under the law governing the arbitral procedure when making such orders or directions.

21.8

The seat of arbitration shall be New York, New York.

ARTICLE XXII—GOVERNING LAW

22.1

This AGREEMENT shall be governed by and construed in accordance with the laws of the State of New York (without giving effect to any choice or conflict of laws provisions thereof).

ARTICLE XXIII—COUNTERPARTS

23.1

This AGREEMENT may be executed in any number of counterparts or duplicates, each of which shall be an original but such counterparts or duplicates shall, together, constitute one and the same AGREEMENT.

ARTICLE XXIV—SCHEDULES

24.1

Any schedule hereto, together with any appendices or attachments thereto, shall be incorporated into and made part of this AGREEMENT.

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24.2

In the event of any conflict between this AGREEMENT and the Schedules hereto, the terms contained in the Schedules shall apply.

ARTICLE XXV—NON-SOLICITATION

25.1

The PRINCIPAL (for itself and the ACE Capital Re Affiliates) and the AGENT agree not to solicit or entice away from the other's employment (or employment by any affiliated company) any person employed by the other (or its affiliate) until the expiry of twelve (12) months from the earlier of the last date on which the AGENT is obligated to provide SERVICES to the PRINCIPAL under this AGREEMENT or the date when such employee's employment with the other party (or its affiliate) terminated. For purposes of this provision, the term "ACE Capital Re Affiliates" means ACE Capital Re International Ltd. and each of its direct and indirect subsidiaries.

IN WITNESS WHEREOF, the PRINCIPAL and the AGENT have caused this AGREEMENT to be executed in duplicate, by their duly authorized representatives.

ACE Capital Re Overseas Ltd., as PRINCIPAL	ESG Re North America Ltd., as AGENT
Signed in Bermuda	Signed in
this 1st day of November, 2001	this 1st day of November, 2001

By:		By:
	Name:		Name:
	Title:		Title:
		By:
			Name:
			Title:

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Note: Redacted portions have been marked with (***). The redacted portions are subject to a Request for Confidential Treatment that has been filed with the Securities and Exchange Commission.

SCHEDULE 1

        (***) (Eight pages redacted)

SCHEDULE 2

        (***) (Two pages redacted)

SCHEDULE 3

        (***) (Three pages redacted)

EXHIBIT A

        (***) (One page redacted)

EXHIBIT B

        (***) (Four pages redacted)

EXHIBIT C

        (***) (One page redacted)

AGREEMENT

        AGREEMENT, dated as of November 1, 2001, (the "Agreement") by and between ACE Capital Re Overseas Ltd. (the "Principal") and ESG Re Ireland Ltd. (the "Lead Reinsurer").

W I T N E S S E T H:

        WHEREAS, the Principal and ESG Re North America Ltd. (the "Agent") are parties to a Reinsurance Management Agreement dated as of November 1, 2001 (the "RMA");

        WHEREAS, it is an agreed condition to the execution of the RMA by Principal that the Lead Reinsurer agree to be bound by the terms set forth herein;

        WHEREAS, the Principal and Lead Reinsurer have agreed to enter into this agreement to satisfy this condition to the execution of the RMA;

        NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged by each of the parties hereto, the parties hereto, intending to be legally bound, do hereby agree as follows:

        1.    Capitalized terms not defined herein shall have the meaning assigned to them in the RMA.

        2.    The Lead Reinsurer represents, warrants and covenants that at all times prior to the termination of all ORIGINAL REINSURANCE CONTRACTS, it shall retain a participation with respect to each such effective contract at least equal to the level of participation in such contract originally allocated to Principal by Agent under the RMA.

        3.    The Lead Reinsurer shall use commercially prudent judgment with respect to all other matters referred by the Agent to the Lead Reinsurer pursuant to the terms of this RMA.

        4.    The Lead Reinsurer shall provide NOTICE to the Principal within three (3) BUSINESS DAYS if Lead Reinsurer becomes insolvent or is otherwise unable to perform its obligations under (i) this Agreement, (ii) its agreement with the Agent regarding ORIGINAL REINSURANCE CONTRACTS or (iii) and ORIGINAL REINSURANCE CONTRACT.

        5.    This Agreement shall be governed by and construed in accordance with the laws of the State of New York (without giving effect to any choice or conflict of laws provisions thereof) and both parties (i) agree that the exclusive jurisdiction with respect to any matter arising under this Agreement shall be in the federal and state courts sitting in New York County, New York, and (ii) expressly submit to the jurisdiction of such courts.

        6.    This Agreement may be executed in any number of counterparts or duplicates, each of which shall be an original but such counterparts or duplicates shall, together, constitute one and the same Agreement.

        IN WITNESS WHEREOF, the Principal and the Lead Reinsurer have cause this Agreement to be executed in duplicate, by their duly authorized representatives.

ACE Capital Re Overseas Ltd., a Principal	ESG Re Ireland Ltd, as Lead Reinsurer
Signed in Bermuda this 1st day of November, 2001	Signed in Dublin, Ireland this 1st day of November, 2001
By:	By:	/s/ Margaret L. Webster
Name:	Name:	Margaret Webster
Title:	Title:	Chief Administrative Officer
	By:	/s/ Mark E. Oleksik
	Name:	Mark E. Oleksik
	Title:	Senior Financial Officer

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REINSURANCE MANAGEMENT AGREEMENT
SCHEDULE 1
SCHEDULE 2
SCHEDULE 3
EXHIBIT A
EXHIBIT B
EXHIBIT C
AGREEMENT

EX-21.1

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EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT

ESG Re Limited (Bermuda)

ESG Reinsurance (Bermuda) Limited (100%)
o	ESG Reinsurance Ireland Limited (100%)
o	Accent Europe Insurance Company Ltd. (Ireland) (100%)
European Specialty Group (United Kingdom) Limited (100%)
o	European Specialty Group (London) Limited (U.K.) (100%)
o	SportSecure Limited (U.K.) (100%)
o	ESG Re London Limited (U.K.) (100%)
o	European Specialty Latin America Inc. (U.S.—Florida) (100%)
o	ESG Re North America Ltd. (Canada—Ontario) (100%)
o	ESG Direct Australia Pty. Ltd. (Australia) (100%)
o	ESG Direct Italia (Italy) (90%)
o	ESG Direct Spain (Spain) (100%)
o	European Specialty Group Holding AG (Germany) (100%)
	•	IPT Institute Fur Praventivmedizin und Technologie GmbH (Germany) (100%) (Dormant)
	•	European Specialty Group Underwriting Management GmbH (Germany) (100%)
	•	SportSecure AG (Germany) (74.1%)
	•	European Specialty Ruckversicherung AG (Germany) (100%)
Health Benefit Consultants Company Limited (Thailand) (100% Direct & Beneficial)
ESG Direct Hong Kong Limited (Hong Kong) (100%)
ESG Direct Asia Pty Ltd (Singapore) (100%)
o	ESG Direct Asia Pty Ltd (Taiwan Branch) (100%)
Imedi-L Holding Georgia (Republic of Georgia) (85%)
o	IMEDI-L International Insurance Company Limited (Republic of Georgia)(100%)

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SUBSIDIARIES OF THE REGISTRANT

EX-23.1

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

        We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-32302) of ESG Re Limited, the Registration Statement on Form S-8 (No. 333-44107) of ESG Re Limited, the Registration Statement on Form S-3 (No. 333-76983) of ESG Re Limited, and Registration Statement on Form S-3 (No. 333-69519) of ESG Re Limited, of our report dated March 29, 2002 appearing on page 73 of this annual report on Form 10-K for the year ended December 31, 2001. We also consent to the reference to us under the heading "Selected Financial Data" in such Registration Statements.

Deloitte & Touche
Chartered Accountants

Dublin, Ireland
March 29, 2002