10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2005

or

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

For the transition period from                      to                     

Commission File Number 1-16561

ANNUITY AND LIFE RE (HOLDINGS), LTD.

(Exact Name of Registrant as Specified in Its Charter)

Bermuda
(State or Other Jurisdiction of
Incorporation or Organization) 66-0619270
(IRS Employer
Identification No.)

Cumberland House, 1 Victoria Street, Hamilton, Bermuda
(Address of Principal Executive Offices) HM11
(Zip Code)

441-296-7667
(Registrant’s Telephone Number, Including Area Code)

     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 þ No o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     The number of the registrant’s Common Shares (par value $1.00 per share) outstanding as of November 4, 2005 was 24,543,811.

INDEX TO FORM 10-Q

		PAGE
	PART I
	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets September 30, 2005 and December 31, 2004		1
	Condensed Consolidated Statements of Operations for the Three Months and Nine Months ended September 30, 2005 and September 30, 2004		2
	Condensed Consolidated Statements of Comprehensive Loss for the Three Months and Nine Months ended September 30, 2005 and September 30, 2004		3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Nine Months ended September 30, 2005 and September 30, 2004		4
	Condensed Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2005 and September 30, 2004		5
	Notes to Unaudited Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		47
Item 4.	Controls and Procedures		47
	PART II
	OTHER INFORMATION
Item 1.	Legal Proceedings		48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		49
Item 6.	Exhibits		50
Signatures			51
Master Agreement dated as of August 10, 2005
Rule 13a-14(a)/15d-14(a) Certification of the Company's Chief Executive Officer
Rule 13a-14(a)/15d-14(a) Certification of the Company's Chief Financial Officer
Section 1350 Certification of the Company's Chief Executive Officer
Section 1350 Certification of the Company's Chief Financial Officer

PART I
FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

ANNUITY AND LIFE RE (HOLDINGS), LTD.

CONDENSED CONSOLIDATED BALANCE SHEETS

(U.S. dollars)

	September 30, 2005			December 31, 2004
	(unaudited)
Assets
Cash and cash equivalents	$	21,749,463		$	56,394,484
Fixed maturity investments at fair value (amortized cost of $71,455,17 and $80,767,893 at September 30, 2005 and December 31, 2004, respectively)		71,150,222			82,034,410
Funds withheld at interest		50,962,885			56,415,386
Accrued investment income		677,662			1,155,762
Receivable for reinsurance ceded		77,016,411			82,433,270
Other reinsurance receivables		3,021,878			4,306,931
Deferred policy acquisition costs		5,592,316			6,084,488
Other assets		401,850			580,625
Total Assets	$	230,572,687		$	289,405,356
Liabilities
Reserves for future policy benefits	$	103,758,582		$	109,860,843
Interest sensitive contracts liability		50,691,337			57,754,009
Other reinsurance liabilities		13,202,482			49,186,297
Accounts payable and accrued expenses		2,867,363			6,186,995
Total Liabilities		170,519,764			222,988,144
Stockholders’ Equity
Preferred shares (par value $1.00; 50,000,000 shares authorized; no shares outstanding)		—			—
Common shares (par value $1.00; 100,000,000 shares authorized; 24,543,811 and 26,338,528 shares issued and outstanding at September 30, 2005 and December 31, 2004, respectively)		24,543,811			26,338,528
Additional paid-in capital		334,116,857			333,810,766
Stock warrants		1,350,000			1,350,000
Unamortized stock based compensation		(107,050	)		(490,415	)
Accumulated other comprehensive (loss) income		(305,655	)		1,016,260
Accumulated deficit		(299,545,040	)		(295,607,927	)
Total Stockholders’ Equity		60,052,923			66,417,212
Total Liabilities and Stockholders’ Equity	$	230,572,687		$	289,405,356

See accompanying notes to unaudited condensed consolidated financial statements.

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ANNUITY AND LIFE RE (HOLDINGS), LTD.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in U.S. dollars)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Revenues
Net premiums	$	3,584,825		$	9,906,337		$	12,001,008		$	34,565,859
Investment income, net of related expenses		1,531,065			4,780,211			4,806,689			17,875,012
Net realized investment gains (losses)		99,507			(84,868	)		500,650			456,172
Net change in fair value of embedded derivatives		654,444			565,939			1,105,853			1,692,113
Surrender fees and other revenues		33,574			1,024,405			94,887			3,609,905
Total Revenues		5,903,415			16,192,024			18,509,087			58,199,061
Benefits and Expenses
Claim and policy benefits		4,591,875			5,669,394			10,781,404			24,683,101
Interest credited to interest sensitive products		359,361			5,513,653			985,614			10,865,545
Policy acquisition costs and other insurance expenses		715,013			5,693,745			3,079,459			18,529,269
Operating expenses		2,865,648			2,410,937			7,599,723			12,446,874
Total Benefits and Expenses		8,531,897			19,287,729			22,446,200			66,524,789
Loss before cumulative effect of a change in accounting principle (Note 5)		(2,628,482	)		(3,095,705	)		(3,937,113	)		(8,325,728	)
Cumulative effect of a change in accounting principle		—			—			—			(365,960	)
Net Loss	$	(2,628,482	)	$	(3,095,705	)	$	(3,937,113	)	$	(8,691,688	)
Loss per common share before cumulative effect of a change in accounting principle per common share
Basic	$	(0.10	)	$	(0.12	)	$	(0.16	)	$	(0.32	)
Diluted	$	(0.10	)	$	(0.12	)	$	(0.16	)	$	(0.32	)
Cumulative effect of a change in accounting principle per common share
Basic	$	—		$	—		$	—		$	(0.01	)
Diluted	$	—		$	—		$	—		$	(0.01	)
Net loss per common share
Basic	$	(0.10	)	$	(0.12	)	$	(0.16	)	$	(0.33	)
Diluted	$	(0.10	)	$	(0.12	)	$	(0.16	)	$	(0.33	)

See accompanying notes to unaudited condensed consolidated financial statements.

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ANNUITY AND LIFE RE (HOLDINGS), LTD.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited and in U.S. dollars)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Net loss for the period	$	(2,628,482	)	$	(3,095,705	)	$	(3,937,113	)	$	(8,691,688	)
Other comprehensive (loss) income:
Unrealized holding (losses) gains on securities arising during the period		(879,823	)		1,722,029			(821,265	)		(346,583	)
Less reclassification adjustment for net realized gains (losses) in net loss		99,507			(84,868	)		500,650			456,172
Other comprehensive (loss) income	$	(979,330	)	$	1,806,897		$	(1,321,915	)	$	(802,755	)
Total comprehensive loss	$	(3,607,812	)	$	(1,288,808	)	$	(5,259,028	)	$	(9,494,443	)

See accompanying notes to unaudited condensed consolidated financial statements.

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ANNUITY AND LIFE RE (HOLDINGS), LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited and in U.S. dollars)

	For the Nine Months Ended
	September 30,
	2005			2004
Preferred shares par value $1.00
Balance at beginning and end of period	$	—		$	—
Common shares par value $1.00
Balance at beginning of period	$	26,338,528		$	26,454,195
Issuance of shares		—			—
Cancellation of shares		(1,794,717	)		(58,267	)
Balance at end of period	$	24,543,811		$	26,395,928
Additional paid-in capital
Balance at beginning of period	$	333,810,766		$	334,418,029
Issuance of shares		—			15,000
Cancellation of shares		306,091			(391,085	)
Balance at end of period	$	334,116,857		$	334,041,944
Stock warrants
Balance at beginning of period	$	1,350,000		$	1,250,000
Issuance of warrants		—			100,000
Balance at end of period	$	1,350,000		$	1,350,000
Unamortized stock based compensation
Balance at beginning of period	$	(490,415	)	$	(1,509,022	)
Issuance of stock based compensation		—			—
Cancellation of stock based compensation		34,725			449,352
Amortization of stock based compensation		348,640			278,294
Balance at end of period	$	(107,050	)	$	(781,376	)
Accumulated other comprehensive (loss) income
Balance at beginning of period	$	1,016,260		$	1,840,849
Net unrealized losses on fixed maturity investments		(1,321,915	)		(802,755	)
Balance at end of period	$	(305,655	)	$	1,038,094
Accumulated deficit
Balance at beginning of period	$	(295,607,927	)	$	(227,281,472	)
Net loss		(3,937,113	)		(8,691,688	)
Balance at end of period	$	(299,545,040	)	$	(235,973,160	)
Total Stockholders’ Equity	$	60,052,923		$	126,071,430

See accompanying notes to unaudited condensed consolidated financial statements.

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ANNUITY AND LIFE RE (HOLDINGS), LTD.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in U.S. dollars)

	For the Nine Months Ended
	September 30,
	2005			2004
Cash flows from operating activities
Net loss	$	(3,937,113	)	$	(8,691,688	)
Adjustments to reconcile net loss to cash used by operating activities:
Net realized investment gains		(500,650	)		(456,172	)
Net change in fair value of embedded derivatives		(1,105,853	)		(1,692,113	)
Amortization of premiums on fixed maturity investments		775,412			816,630
Amortization of stock based compensation		348,640			278,294
Stock warrants expense		—			100,000
Cumulative effect of a change in accounting principle		—			365,960
Changes in:
Accrued investment income		478,100			457,700
Other reinsurance receivables		6,701,912			6,776,590
Deferred policy acquisition costs		492,172			9,309,181
Other assets		178,775			(70,940	)
Reserves for future policy benefits		(6,102,261	)		(7,553,564	)
Interest sensitive contracts liability, net of funds withheld at interest		(504,318	)		(14,164,633	)
Other reinsurance liabilities		(35,983,815	)		(40,445,842	)
Accounts payable and accrued expenses		(3,319,632	)		(1,540,624	)
Net cash used in operating activities		(42,478,631	)		(56,511,221	)
Cash flows from investing activities
Proceeds from sales and maturity of fixed maturity investments		43,514,786			52,924,881
Purchase of fixed maturity investments		(34,227,275	)		(19,548,197	)
Net cash provided by investing activities		9,287,511			33,376,684
Cash flows from financing activities
Purchase and cancellation of company stock		(1,453,901	)		—
Net cash used in financing activities		(1,453,901	)		—
Decrease in cash and cash equivalents		(34,645,021	)		(23,134,537	)
Cash and cash equivalents, beginning of period		56,394,484			80,068,310
Cash and cash equivalents, end of period	$	21,749,463		$	56,933,773
Non-Cash disclosures: amounts recorded in connection with the cumulative effect of a change in accounting principle
Deferred policy acquisition costs	$	—		$	(36,154,010	)
Reserves for future policy benefits		—			(1,878,760	)
Interest sensitive contracts, net of funds withheld at interest		—			38,398,730
Cumulative effect of a change in accounting principle	$	—		$	365,960

See accompanying notes to unaudited condensed consolidated financial statements.

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ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization

     Annuity and Life Re (Holdings), Ltd. (“Holdings”) was incorporated on December 2, 1997 under the laws of Bermuda. Holdings provides annuity and life reinsurance to insurers and reinsurers through its wholly-owned subsidiaries: Annuity and Life Reassurance, Ltd., which is licensed under the laws of Bermuda as a long term insurer, Annuity and Life Re America, Inc., an insurance holding company based in the United States of America, and Annuity and Life Reassurance America, Inc., a life insurance company domiciled in the United States of America. Holdings, Annuity and Life Reassurance, Ltd., Annuity and Life Re America, Inc. and Annuity and Life Reassurance America, Inc. are collectively referred to herein as the “Company.”

     As a result of significant operating losses over the past four years, the Company has reduced its operations significantly through the novation, termination and recapture of many of its life and annuity reinsurance agreements. The Company continues to receive premiums and pay claims under its remaining reinsurance treaties; however, as more fully described in Note 2, the Company has entered into an agreement to novate, or 100% coinsure, its remaining reinsurance treaties effective on June 30, 2005. If the transactions contemplated by this agreement are consummated, the Company will either be released from or indemnified for its obligations under each of its remaining reinsurance treaties.

     The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and in accordance with Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Form 10-K as of and for the year ended December 31, 2004. The accounting policies used in preparing these unaudited condensed consolidated financial statements are consistent with those described in Note 4 to the Company’s audited consolidated financial statements as of and for the year ended December 31, 2004. In the opinion of management, all adjustments considered necessary for a fair presentation have been included in these financial statements. The results of operations for the three and nine months ended September 30, 2005 are not necessarily indicative of results that may be expected for any other interim period or for the full year.

2. Significant Events

     Wilton Re Transaction

     On August 10, 2005, the Company entered into a Master Agreement (the “Master Agreement”) with Prudential Select Life Insurance Company of America and Wilton Reinsurance Bermuda Limited (collectively, the “Wilton Subsidiaries”), each a direct or indirect wholly-owned operating subsidiary of Wilton Re Holdings, Ltd. The Master Agreement provides for the novation to or 100% coinsurance by the Wilton Subsidiaries effective as of June 30, 2005 (the “Effective Date”) of the Company’s life and annuity reinsurance treaties (the “Treaties”) identified in the Master Agreement. The Master Agreement contemplates that the Company and the Wilton Subsidiaries will use commercially reasonable efforts to obtain the consent of each counterparty to the Treaties to the novation of such Treaties to the Wilton

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Subsidiaries. If any of these consents cannot be obtained, then the Company and the appropriate Wilton Subsidiary will enter into a 100% indemnity coinsurance agreement with respect to such Treaties, effective as of the Effective Date.

     Upon the closing of the transactions contemplated by the Master Agreement, the Company will pay the Wilton Subsidiaries an aggregate settlement amount equal to $91.6 million, less any expense reimbursement payments previously made by the Company to the Wilton Subsidiaries in connection with the transactions, plus the amount of interest that will have accrued since June 30, 2005 at fixed rates specified in the Agreement on certain assets being transferred to the Wilton Subsidiaries. The $91.6 million settlement amount will consist of the funds withheld held by the cedents under certain of the Treaties on the Effective Date, which assets totaled approximately $58.4 million on that date, and cash and invested assets of approximately $33.2 million. If the cash flows arising from the Treaties and the earnings on the invested assets to be transferred to the Wilton Subsidiaries are positive between the Effective Date and the closing date of the Master Agreement (the “Closing Date”), such positive amount will be paid to the Wilton Subsidiaries. If such cash flows and earnings are negative, the negative of that amount will be paid to the Company.

     Between the date of the Master Agreement and the first day of the first calendar month beginning at least 28 days after the Closing Date or such other date as the parties shall mutually agree (such date, the “Transition Date”), the Company will continue to administer the Treaties in a manner consistent with current practices. The Wilton Subsidiaries will pay the Company a fee of $30,000 per month for these administration services and will reimburse the Company to the extent that the cost of any approved third party engaged to provide such services exceeds the $30,000 fee.

     The Master Agreement includes mutual indemnification provisions covering, among other things, all costs and expenses arising or resulting from any breach of any representation or warranty, any breach of any covenant and certain excluded liabilities. Neither the Company nor the Wilton Subsidiaries will have any liability for indemnification with respect to losses relating to breaches of representations or warranties under the Master Agreement, unless and until the total of all such losses exceeds $25,000, and then only for the amount by which such losses exceed $25,000. The total liability for losses relating to breaches of representations or warranties under the Master Agreement shall not exceed $2,000,000 in the aggregate for the Company, on the one hand, or the Wilton Subsidiaries, on the other hand. In order to secure their indemnification obligations under the Master Agreement, each of the Company’s subsidiaries is required to maintain statutory capital and surplus of at least $2,000,000 for 18 months following the Closing Date, and the Company has agreed not to take any action that would reduce the statutory capital and surplus of the Company’s subsidiaries below such levels.

     The consummation of the transactions contemplated by the Master Agreement is subject to certain closing conditions, including the receipt of requisite regulatory and other approvals, including the approval of the Company’s shareholders and retrocessionaires. In connection with the execution of the Master Agreement, the Company’s directors and officers, as well as certain significant shareholders, executed voting agreements obligating them to vote in favor of the transactions contemplated by the Agreement (the “Voting Agreements”). Directors, officers and shareholders holding collectively approximately 29.3% of the Company’s outstanding common shares as of the date of the Master Agreement (or 26.4% of the outstanding common shares entitled to vote as of such date after giving effect to certain voting cutback provisions in the Company’s Bye-laws) signed voting agreements. As of September 30, 2005, the number of common shares held by directors, officers and shareholders who signed voting agreements totaled approximately 31.5% of the Company’s outstanding common shares, or 28.1% of the outstanding common shares entitled to vote as of such date after giving effect to the voting cutback provisions in the Company’s Bye-laws.

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     The Master Agreement is terminable by any party if the closing of the transactions has not occurred on or before January 2, 2006 and may also be terminated, in limited circumstances, by the Company if the Company’s Board of Directors determines it has a fiduciary obligation to pursue a superior proposal. In such case, the Voting Agreements would terminate and the Company would be obligated to pay the Wilton Subsidiaries a $500,000 “break-up” fee and any out of pocket expenses they incurred in connection with the transactions. If the Master Agreement is terminated by any party due to the failure of the Company’s shareholders to approve the transaction, the Company would be obligated to reimburse the Wilton Subsidiaries for the out of pocket expenses they incurred in connection with the transactions. UBS Investment Bank acted as the Company’s financial advisor in connection with the transactions contemplated by the Master Agreement.

     Upon consummation of the transactions, the Company anticipates that it will recognize a loss of approximately $13.0 to $15.0 million, primarily reflecting the excess of the sum of the aggregate carrying value of the cash and assets transferred to Wilton, plus transaction costs and a write-off of deferred acquisition costs, over the aggregate carrying value of the liabilities assumed by Wilton. Following the consummation of the transactions contemplated by the Master Agreement, the financial condition and results of operations of the Company will remain subject to certain contingencies, including obligations for amounts that may be due under previously terminated or recaptured reinsurance agreements relating to deaths occurring prior to such terminations or recaptures and obligations that have been 100% reinsured with third parties, but for which the Company remains liable in the event the reinsurer is unable or unwilling to pay its obligations. The Company also remains subject to certain third party claims, including an outstanding claim by Transamerica for rescission or damages related to two life reinsurance agreements novated to Transamerica effective as of December 31, 2004. The Company also has continuing obligations under employment agreements with certain of its employees, including obligations to make severance payments under certain circumstances. The amount of funds that may be available for distribution from its subsidiaries to the Company and its shareholders will also likely be limited by continuing regulatory requirements, policyholder obligations that will remain following the Closing Date and normal working capital requirements.

     Because the Company will continue to have residual commitments and contingencies following the consummation of the transactions contemplated by the Master Agreement, it does not expect to be able immediately to wind-down or dissolve the Company or its subsidiaries. The Company intends to continue to explore strategic alternatives to attempt to maximize its economic value for shareholders, including a merger of Holdings into another entity, the sale of one or both of its operating subsidiaries or other comparable transactions. In addition, the Company may consider cash distributions to shareholders, stock buybacks or similar transactions, to the extent its financial condition allows it to do so and it is not constrained by insurance regulatory or other laws or by its obligations under the Master Agreement.

     The following unaudited pro forma consolidated financial statements are presented for informational purposes to show the effect of the proposed transactions with Wilton. The pro forma information presented is based on assumptions and includes adjustments as explained in the notes to the unaudited pro forma consolidated financial statements. The unaudited pro forma information presented does not include any adjustments to reflect transaction costs or the cost of severance payments to the Company’s former Chief Executive Officer of approximately $1.16 million.

     The unaudited pro forma condensed consolidated balance sheet as of September 30, 2005 is intended to demonstrate how the Company’s unaudited condensed consolidated balance sheet would have looked had the Wilton transactions been consummated on September 30, 2005. The pro forma condensed consolidated balance sheet is presented as of September 30, 2005 assuming that all of the reinsurance

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treaties covered by the Master Agreement are novated to Wilton, as well as assuming that all of those reinsurance treaties are coinsured by Wilton. The Company can offer no estimate as to how many of the ceding companies under these reinsurance treaties will ultimately consent to the novation of the treaties to Wilton.

Annuity and Life Re (Holdings), Ltd.
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2005
(Unaudited and in U.S. Dollars)

			100% Novation					100% Coinsurance
	Reported		Adjustments			Pro Forma		Adjustments			Pro Forma
Assets
Cash & invested assets	$	92,899,685	$	(32,490,788	)(A)	$	60,408,897	$	(32,490,788	)(K)	$	60,408,897
Funds withheld at interest		50,962,885		(50,962,885	)(B)		—		(50,962,885	)(L)		—
Accrued investment income		677,662					677,662					677,662
Receivable for reinsurance ceded		77,016,411		(211,956	)(C)		76,804,455		25,863,490	(M)		102,879,901
Other reinsurance receivables		3,021,878		(2,586,522	)(D)		435,356		(2,586,522	)(N)		435,356
Deferred policy acquisition costs		5,592,316		(5,592,316	)(E)		—		(5,592,316	)(O)		—
Other assets		401,850					401,850					401,850
Total assets	$	230,572,687	$	(91,844,467	)	$	138,728,220	$	(65,769,021	)	$	164,803,666
Liabilities
Reserves for future policy benefits	$	103,758,582	$	(26,075,446	)(F)	$	77,683,136	$			$	103,758,582
Interest sensitive contracts liability		50,691,337		(50,691,337	)(G)		—		(50,691,337	)(P)		—
Other reinsurance liabilities		13,202,482		(5,767,747	)(H)		7,434,735		(5,767,747	)(Q)		7,434,735
Accounts payable and accrued expenses		2,867,363		(49,145	)(I)		2,818,218		(49,145	)(R)		2,818,218
Total liabilities	$	170,519,764	$	(82,583,675	)	$	87,936,089	$	(56,508,229	)	$	114,011,535
Stockholders’ Equity
Total Stockholders’ Equity	$	60,052,923	$	(9,260,792	)(J)	$	50,792,131	$	(9,260,792	)(S)	$	50,792,131
Total Liabilities and Stockholders’ Equity	$	230,572,687	$	(91,844,467	)	$	138,728,220	$	(65,769,021	)	$	164,803,666

(A)	To record the transfer of cash and invested assets to Wilton.
(B)	To record the transfer of Funds withheld at interest to Wilton.
(C)	To record the transfer of ceded benefit reserves to Wilton.
(D)	To record the transfer of premiums receivable related to the life reinsurance agreements novated to Wilton.
(E)	To write-off the Deferred policy acquisition costs associated with the life and annuity reinsurance agreements novated to Wilton.
(F)	To record the transfer of benefit reserves associated with the life reinsurance agreements novated to Wilton.
(G)	To record the transfer of Interest sensitive contracts liabilities associated with the annuity reinsurance agreement novated to Wilton.
(H)	To record the transfer of Other reinsurance liabilities associated with the life reinsurance agreements novated to Wilton.
(I)	To record the transfer of excise tax payable associated with the life reinsurance agreements novated to Wilton.
(J)	To record to net effect of the Wilton novation transaction in Stockholders’ equity.
(K)	To record the transfer of cash and invested assets to Wilton.
(L)	To record the transfer of Funds withheld at interest to Wilton.
(M)	To record the ceded life reserves recoverable for the life reinsurance agreements coinsured by Wilton.
(N)	To record the ceded premiums payable related to the life reinsurance agreements coinsured by Wilton.
(O)	To record ceded Deferred policy acquisition costs associated with the life and annuity reinsurance agreements coinsured by Wilton.
(P)	To record the ceded Interest sensitive contracts liabilities associated with the annuity reinsurance agreement coinsured by Wilton.
(Q)	To record the ceded amount of Other reinsurance liabilities associated with the life reinsurance agreements coinsured by Wilton.
(R)	To record the ceded excise tax receivable associated with the life reinsurance agreements coinsured by Wilton.
(S)	To record the net effect of the coinsurance transaction in Stockholders’ equity.

     The unaudited pro forma condensed consolidated statement of operations for the nine months ended

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September 30, 2005 adjusts the reported GAAP statement of operations by assuming that (1) the effective date of the proposed transactions with Wilton was January 1, 2005, and (2) there was no gain or loss from the Wilton transactions. No attempt has been made to estimate the impact of the aforementioned adjustments on cash flow for the periods presented, on net investment income earned on assets transferred to third parties in connection with the novated life reinsurance agreements or on operating expenses. The pro forma information presented below is not necessarily indicative of the financial results that would have been attained had the transactions occurred on the dates referenced above and should not be viewed as indicative of operations in future periods.

Annuity & Life Re (Holdings) Ltd.
Pro Forma Consolidated Statement of Operations for the Nine Months Ended September 30, 2005
(Unaudited and in U.S. Dollars)

				Wilton
				Transaction
	Reported			Adjustments			Pro Forma
Revenues
Net premiums	$	12,001,008		$	(11,325,272	)(A)	$	675,736
Investment income, net of related expenses		4,806,689			(1,938,486	)(B)		2,868,203
Net realized investment gains		500,650			—			500,650
Net change in fair value of embedded derivatives		1,105,853			(1,105,853	)(C)		—
Surrender fees and other revenues		94,887			(94,887	)(D)		—
Total Revenues	$	18,509,087		$	(14,464,498	)	$	4,044,589
Benefits and Expenses
Claims and policy benefits	$	10,781,404		$	(12,675,325	)(E)	$	(1,893,921	)
Interest credited to interest sensitive products		985,614			(985,614	)(F)		—
Policy acquisition costs and other insurance expenses		3,079,459			(2,370,965	)(G)		708,494
Operating expenses		7,599,723			—			7,599,723
Total Benefits and Expenses	$	22,446,200		$	(16,031,904	)	$	6,414,296
Loss before cumulative effect of a change in accounting principal	$	(3,937,113	)	$	1,567,406		$	(2,369,707	)
Cumulative effect of a change in accounting principal		—			—			—
Net Loss	$	(3,937,113	)	$	1,567,406		$	(2,369,707	)
Loss per common share before cumulative effect of change in accounting principal per common share:
Basic	$	(0.16	)	$	0.06		$	(0.09	)
Diluted	$	(0.16	)	$	0.06		$	(0.09	)
Cumulative effect of a change in accounting principal per common share:
Basic	$	—					$	—
Diluted	$	—					$	—
Net loss per common share:
Basic	$	(0.16	)	$	0.06		$	(0.09	)
Diluted	$	(0.16	)	$	0.06		$	(0.09	)

(A)	To reflect reduced Premiums as if the life reinsurance treaties novated to or coinsured by Wilton did not exist during the first nine months of 2005.
(B)	To reflect reduced Net investment income as if the annuity reinsurance treaty novated to or coinsured by Wilton did not exist during the first nine months of 2005.
(C)	To reflect no embedded derivative as if the annuity reinsurance treaty novated or coinsured by Wilton did not exist during the first nine months of 2005.
(D)	To reflect reduced Surrender fees as if the annuity reinsurance treaty novated to or coinsured by Wilton did not exist during the first nine months of 2005.
(E)	To reflect reduced Claim and Policy Benefits as if the life reinsurance treaties novated to or coinsured by Wilton did not exist during the first nine months of 2005.
(F)	To reflect reduced Interest credited to interest sensitive products as if the annuity reinsurance treaty novated to or coinsured by Wilton did not exist during the first nine months of 2005.
(G)	To reflect reduced Policy acquisition costs and other insurance expenses as if the life and annuity reinsurance treaties novated to or

-10-

coinsured by Wilton did not exist during the first nine months of 2005.

     The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2004 adjusts the reported GAAP statement of operations by assuming that (1) all of the novation, recapture and termination transactions that had effective dates in 2004 occurred on January 1, 2004 (which removes from reported net (loss) the actual performance for each agreement through its novation, recapture or termination date), (2) the effective date of the proposed transactions with Wilton was January 1, 2004, and (3) there was no gain or loss from the novation, recapture or termination transactions that had effective dates in 2004 or from the Wilton transactions. No attempt has been made to estimate the impact of the aforementioned adjustments on cash flow for the periods presented, on net investment income earned on assets transferred to third parties in connection with the novated life reinsurance agreements or on operating expenses. The pro forma information presented below is not necessarily indicative of the financial results that would have been attained had the transactions occurred on the dates referenced above and should not be viewed as indicative of operations in future periods.

Annuity and Life Re (Holdings), Ltd.
Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2004
(Unaudited and in U.S. Dollars)

													Pro Forma
													(as adjusted
													for the 2004
							Pro Forma			Adjustments			transactions
				Adjustments			(as adjusted			(for the			and the
				(for the 2004			for the 2004			Wilton			Wilton
	Reported			transactions)			transactions)			transaction)			transaction)
Revenues
Net premiums	$	48,297,706		$	(30,325,348	)(A)	$	17,972,358		$	(15,898,984	)(H)	$	2,073,374
Investment income, net of related expenses		21,697,563			(13,439,098	)(B)		8,258,465			(2,923,139	)(I)		5,335,326
Net realized investment gains		439,536			—			439,536			—			439,536
Net change in fair value of embedded derivatives		2,181,070			—			2,181,070			(2,181,070	)(J)		—
Surrender fees and other revenues		4,475,691			(4,257,721	)(C)		217,970			(217,970	)(K)		—
Total Revenues	$	77,091,566		$	(48,022,167	)	$	29,069,399		$	(21,221,163	)	$	7,848,236
Benefits and Expenses
Claims and policy benefits	$	14,101,129			(306,552	)(D)	$	13,794,577			(13,990,062	)(L)		(195,485	)
Interest credited to interest sensitive products		5,399,460			(3,530,883	)(E)		1,868,577			(1,868,577	)(M)		—
Policy acquisition costs and other insurance expenses		110,922,948			(105,602,277	)(F)		5,320,671			(3,987,088	(N)		1,333,583
Operating expenses		14,628,524			—			14,628,524			—			14,628,524
Total Benefits and Expenses	$	145,052,061			(109,439,712	)	$	35,612,349		$	(19,845,727	)	$	15,766,622
Loss before cumulative effect of a change in accounting principal	$	(67,960,495	)		61,417,545		$	(6,542,950	)	$	(1,375,436	)	$	(7,918,386	)
Cumulative effect of a change in accounting principal		(365,960	)		365,960	(G)		—			—			—
Net Loss	$	(68,326,455	)	$	61,783,505		$	(6,542,950	)	$	(1,375,436	)	$	(7,918,386	)
Loss per common share before cumulative effect of change in accounting principal per common share:
Basic	$	(2.63	)	$	2.38		$	(0.25	)	$	(0.05	)	$	(0.31	)
Diluted	$	(2.63	)	$	2.38		$	(0.25	)	$	(0.05	)	$	(0.31	)
Cumulative effect of a change in accounting principal per common share:
Basic	$	(0.01	)	$	0.01		$	0.00		$	0.00		$	0.00
Diluted	$	(0.01	)	$	0.01		$	0.00		$	0.00		$	0.00
Net loss per common share:
Basic	$	(2.64	)	$	2.39		$	(0.25	)	$	(0.05	)	$	(0.31	)
Diluted	$	(2.64	)	$	2.39		$	(0.25	)	$	(0.05	)	$	(0.31	)

(A)	To reflect reduced Premiums as if the Scottish Re and F&G life reinsurance agreements novated to Transamerica and as if the GMDB/ GMIB agreement recaptured by CIGNA did not exist in 2004
(B)	To reflect reduced Net investment income as if the Transamerica annuity agreement did not exist in 2004.
(C)	To reflect reduced Surrender fees and other revenues as if the Transamerica annuity agreement did not exist in 2004.
(D)	To reflect reduced Claim and Policy Benefits as if the Scottish Re and F&G life reinsurance agreements novated to Transamerica and as if the GMDB/ GMIB agreement recaptured by CIGNA did not exist in 2004.
(E)	To reflect reduced Interest credited to interest sensitive products as if the Transamerica annuity agreement did not exist in 2004. Includes the release of interest sensitive contracts liability net of funds withheld at interest and the termination premium of $14,000,000 paid to Transamerica in consideration of the termination of this agreement as of December 1, 2004.

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(F)	To reflect reduced Policy acquisition costs and other insurance expenses as if the Transamerica annuity agreement, the Scottish Re and F&G life reinsurance agreements novated to Transamerica and the GMDB/ GMIB agreement recaptured by CIGNA did not exist in 2004. Includes the write down of deferred acquisition costs of approximately $63,100,000 associated with the termination of the Transamerica annuity agreement and approximately $24,900,000 associated with the novation of Scottish Re and F&G life agreements as of December 31, 2004.
(G)	To reflect the reversal of the application of SOP 03-1 to the GMDB/ GMIB agreement recaptured by CIGNA and the Transamerica annuity agreement as if those agreements did not exist in 2004.
(H)	To reflect reduced Premiums as if the life reinsurance agreements novated to or coinsured by Wilton did not exist in 2004.
(I)	To reflect reduced Net investment income as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.
(J)	To reflect no embedded derivative as if the annuity reinsurance treaty novated to or coinsured by Wilton did not exist in 2004.
(K)	To reflect reduced Surrender fees as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.
(L)	To reflect reduced Claim and Policy Benefits as if the life reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.
(M)	To reflect reduced Interest credited to interest sensitive products as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist during the first six months of 2005.
(N)	To reflect reduced Policy acquisition costs and other insurance expenses as if the life and annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.

     The unaudited pro forma condensed consolidated statement of operations for the nine months ended September 30, 2004 adjusts the reported GAAP statement of operations by assuming that (1) all of the novation, recapture and termination transactions that had effective dates in 2004 occurred on January 1, 2004 (which removes from reported net (loss) the actual performance for each agreement through its novation, recapture or termination date), (2) the effective date of the proposed transactions with Wilton was January 1, 2004, and (3) there was no gain or loss from the novation, recapture or termination transactions that had effective dates in 2004 or from the Wilton transactions. No attempt has been made to estimate the impact of the aforementioned adjustments on cash flow for the periods presented, on net investment income earned on assets transferred to third parties in connection with the novated life reinsurance agreements or on operating expenses. The pro forma information presented below is not necessarily indicative of the financial results that would have been attained had the transactions occurred on the dates referenced above and should not be viewed as indicative of operations in future periods.

Annuity and Life Re (Holdings), Ltd.
Pro Forma Consolidated Statement of Operations for the Nine Months Ended September 30, 2004
(Unaudited and in U.S. Dollars)

													Pro Forma
													(as adjusted
													for the 2004
							Pro Forma			Adjustments			transactions
				Adjustments			(as adjusted			(for the			and the
				(for the 2004			for the 2004			Wilton			Wilton
	Reported			transactions)			transactions)			transaction)			Transaction)
Revenues
Net premiums	$	34,565,859		$	(21,253,833	)(A)	$	13,312,026		$	(11,804,417	)(H)	$	1,507,609
Investment income, net of related expenses		17,875,012			(11,476,353	)(B)		6,398,659			(2,253,938	)(I)		4,144,721
Net realized investment gains		456,172			—			456,172			—			456,172
Net change in fair value of embedded derivatives		1,692,113			—			1,692,113			(1,692,113	)(J)		—
Surrender fees and other revenues		3,609,905			(3,467,072	)(C)		142,833			(142,833	)(K)		—
Total Revenues	$	58,199,061		$	(36,197,258	)	$	22,001,803		$	(15,893,301	)	$	6,108,502
Benefits and Expenses
Claims and policy benefits	$	24,683,101			(14,068,562	)(D)	$	10,614,539			(9,197,418	)(L)		1,417,121
Interest credited to interest sensitive products		10,865,545			(9,584,687	)(E)		1,280,858			(1,280,858	)(M)		—
Policy acquisition costs and other insurance expenses		18,529,269			(14,795,810	)(F)		3,733,459			(3,112,693	)(N)		620,766
Operating expenses		12,446,874			—			12,446,874			—			12,446,874
Total Benefits and Expenses	$	66,524,789			(38,449,059	)	$	28,075,730		$	(13,590,969	)	$	14,484,761
Loss before cumulative effect of a change in accounting principal	$	(8,325,728	)		2,251,801		$	(6,073,927	)	$	(2,302,332	)	$	(8,376,259	)
Cumulative effect of a change in accounting principal		(365,960	)		365,960	(G)		—			—			—
Net Loss	$	(8,691,688	)	$	2,617,761		$	(6,073,927	)	$	(2,302,332	)	$	(8,376,259	)
Loss per common share before cumulative effect of change in accounting principal per common share:
Basic	$	(0.32	)	$	0.09		$	(0.23	)	$	(0.09	)	$	(0.32	)
Diluted	$	(0.32	)	$	0.09		$	(0.23	)	$	(0.09	)	$	(0.32	)

-12-

												Pro Forma
												(as adjusted
												for the 2004
						Pro Forma			Adjustments			transactions
				Adjustments		(as adjusted			(for the			and the
				(for the 2004		for the 2004			Wilton			Wilton
	Reported			transactions)		transactions)			transaction)			Transaction)
Cumulative effect of a change in accounting principal per common share:
Basic	$	(0.01	)	$	0.01	$	0.00		$	0.00		$	0.00
Diluted	$	(0.01	)	$	0.01	$	0.00		$	0.00		$	0.00
Net loss per common share:
Basic	$	(0.33	)	$	0.10	$	(0.23	)	$	(0.09	)	$	(0.32	)
Diluted	$	(0.33	)	$	0.10	$	(0.23	)	$	(0.09	)	$	(0.32	)

(A)	To reflect reduced Premiums as if the Scottish Re and F&G life reinsurance agreements novated to Transamerica and as if the GMDB/ GMIB agreement recaptured by CIGNA did not exist in 2004
(B)	To reflect reduced Net investment income as if the Transamerica annuity agreement did not exist in 2004.
(C)	To reflect reduced Surrender fees and other revenues as if the Transamerica annuity agreement did not exist in 2004.
(D)	To reflect reduced Claim and Policy Benefits as if the Scottish Re and F&G life reinsurance agreements novated to Transamerica and as if the GMDB/ GMIB agreement recaptured by CIGNA did not exist in 2004.
(E)	To reflect reduced Interest credited to interest sensitive products as if the Transamerica annuity agreement did not exist in 2004.
(F)	To reflect reduced Policy acquisition costs and other insurance expenses as if the Transamerica annuity agreement, the Scottish Re and F&G life reinsurance agreements novated to Transamerica and the GMDB/ GMIB agreement recaptured by CIGNA did not exist in 2004.
(G)	To reflect the reversal of the application of SOP 03-1 to the GMDB/ GMIB agreement recaptured by CIGNA and the Transamerica annuity agreement as if those agreements did not exist in 2004.
(H)	To reflect reduced Premiums as if the life reinsurance agreements novated to or coinsured by Wilton did not exist in 2004.
(I)	To reflect reduced Net investment income as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.
(J)	To reflect no embedded derivative as if the annuity reinsurance treaty novated to or coinsured by Wilton did not exist in 2004.
(K)	To reflect reduced Surrender fees as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.
(L)	To reflect reduced Claim and Policy Benefits as if the life reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.
(M)	To reflect reduced Interest credited to interest sensitive products as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist during the first nine months of 2005.
(N)	To reflect reduced Policy acquisition costs and other insurance expenses as if the life and annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.

     Repurchase of Common Shares

     On September 14, 2005, the Company entered into a Purchase Agreement (the “Purchase Agreement”) with Overseas Partners, Ltd. (“Overseas Partners”). The Purchase Agreement provided for the purchase by the Company from Overseas Partners of 1,773,050 common shares of the Company (the “Shares”) and Class B warrants to purchase an additional 133,396 common shares of the Company (the “Warrants”) for a total cash purchase price of $1,453,901. The Company completed the acquisition of the Shares and Warrants pursuant to the terms of the Purchase Agreement on September 14, 2005. The Shares represented approximately 6.74% of the Company’s outstanding common shares, and the Warrants had an exercise price of $14.06 per share. Following the acquisition, the Shares and the Warrants were cancelled by the Company. As a consequence of the repurchase of the Shares and Warrants, Overseas Partners no longer has the right to nominate one person for election to the Company’s Board of Directors.

     Separation of Chief Executive Officer

     On September 23, 2005, the Company entered into a Separation of Employment Agreement and General Release (the “Separation Agreement”) with John F. Burke, the Company’s President and Chief Executive Officer. Pursuant to the Separation Agreement, the Amended and Restated Employment Agreement, dated July 28, 2003, by and among Mr. Burke, Holdings and Annuity and Life Reassurance, Ltd. (the “Employment Agreement”) was terminated, and Mr. Burke resigned from all positions he held as a director or officer of the Company and its subsidiaries.

     Pursuant to the Separation Agreement, on October 3, 2005, the Company made a one-time payment to Mr. Burke of $740,000 in cash. In addition, within five business days of the closing of the transactions contemplated by the Master Agreement with the Wilton Subsidiaries, the Company will pay Mr. Burke a one-time cash amount of $1,160,000 (the “Closing Payment”). The Separation Agreement provides that Mr. Burke will also be paid the Closing Payment if (i) a “Competing Acquisition Proposal” (as such term is defined in the Master Agreement) is formally proposed to the Company’s Board of Directors, on or

-13-

before February 28, 2006, (ii) the Board elects to pursue that Competing Acquisition Proposal in lieu of the transactions contemplated by the Master Agreement and (iii) the final closing of such Competing Acquisition Proposal occurs. Effective with the execution of the Separation Agreement, all of Mr. Burke’s restricted common shares became immediately vested and his stock options became immediately exercisable. Mr. Burke was also permitted to keep certain computer equipment that was provided to him during the course of his employment with the Company.

     The Separation Agreement also provides that Mr. Burke will cooperate fully with the Company and its counsel with respect to any matter (including any litigation, arbitration, investigation, or governmental proceeding) relating to matters with which Mr. Burke was involved during the term of his employment with the Company. Mr. Burke is entitled to receive a fee of $2,500 for each day he provides services pursuant to this provision. The Separation Agreement also contains a mutual release by the Company and Mr. Burke of any and all claims relating to Mr. Burke’s service as a director of the Company, his employment relationship with the Company, the Employment Agreement or Mr. Burke’s separation from the Company.

     Transamerica Transaction

     On December 31, 2004, the Company entered into a binding letter of intent with Transamerica Occidental Life Insurance Company (“Transamerica”) that provided for the novation of its life reinsurance agreements with Scottish Re Limited (“Scottish Re”) and Fidelity and Guaranty Life Insurance Company (“F&G”) to Transamerica as of December 31, 2004. The letter of intent also provided that, upon consummation of the novation of the life reinsurance agreements, Transamerica would terminate its annuity reinsurance agreement with the Company and recapture all business ceded under the agreement effective as of December 1, 2004.

     Pursuant to the letter of intent with Transamerica, on January 31, 2005, the Company executed definitive documents (the “Novation Agreement”) and novated its life reinsurance agreements with Scottish Re and F&G to Transamerica as of December 31, 2004. In consideration of the life reinsurance agreement novations, the Company paid Transamerica $18.5 million. Also, on January 31, 2005, the Company executed an amendment to its annuity reinsurance agreement with Transamerica which terminated the agreement and resulted in Transamerica recapturing all business ceded under the agreement effective as of December 1, 2004. In consideration of the annuity recapture, the Company paid a $14.0 million premium to terminate and recapture the agreement and approximately $7.1 million for monthly settlement amounts owed under the annuity reinsurance agreement through November 30, 2004.

     The termination, recapture and novation transactions consummated by the Company effective in 2004 had a material impact on the Company’s results of operations. The following unaudited table shows summarized results of operations for the three and nine months ended September 30, 2004 assuming that all of the termination, recapture and novation transactions occurred on January 1, 2004.

-14-

Annuity and Life Re (Holdings), Ltd.
Pro Forma Condensed Consolidated Statements of Operations
for the Three and Nine Months Ended September 30, 2004
(Unaudited and in U.S. Dollars)

	For the Period Ended September 30, 2004
	Three Months			Nine Months
Pro Forma
Total Revenues	$	7,453,090		$	22,001,800
Total Benefits and Expenses		7,551,700			28,075,800
Income before cumulative effect of a change in accounting principle		(98,610	)		(6,074,000	)
Cumulative effect of a change in accounting principle		—			—
Net loss	$	(98,610	)	$	(6,074,000	)
Loss per common share before cumulative effect of a change in accounting principle per common share:
Basic	$	(0.00	)	$	(0.23	)
Diluted	$	(0.00	)	$	(0.23	)
Cumulative effect of a change in accounting principle per common share:
Basic	$	0.00		$	0.00
Diluted	$	0.00		$	0.00
Net loss per common share:
Basic	$	(0.00	)	$	(0.23	)
Diluted	$	(0.00	)	$	(0.23	)

     Settlement of Shareholder Lawsuit

     On and since December 4, 2002, certain of the Company’s shareholders, seeking to act as class representatives, filed lawsuits against the Company and certain of its present and former officers and directors in the United States District Court for the District of Connecticut seeking unspecified monetary damages. On July 20, 2004, the Company announced that it had reached an agreement in principle with the plaintiffs, subject to full documentation by the parties to the settlement, notice to the class, court approval and other steps required to consummate a class action settlement, to settle the lawsuit. The Company’s share of the settlement was $5.0 million in cash, of which it paid $2.5 million into escrow in August 2004, and the remaining $2.5 million on January 10, 2005. Following a Settlement Fairness Hearing, the District Court entered an order and final judgment approving the settlement in January 2005. The Company recorded its $5.0 million portion of the settlement as an operating expense in the second quarter of 2004.

3. Loss per Common Share

     The following table sets forth the computation of basic and diluted loss per common share for the three and nine months ended September 30, 2005 and 2004:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
Loss before cumulative effect of a change in accounting principle	$	(2,628,482	)	$	(3,095,705	)	$	(3,937,113	)	$	(8,325,728	)
Cumulative effect of a change in accounting principle (Note 5)		—			—			—			(365,960	)
Net loss	$	(2,628,482	)	$	(3,095,705	)	$	(3,937,113	)	$	(8,691,688	)
Basic:
Weighted average number of common shares outstanding		25,306,170			25,945,328			25,213,320			25,856,995
Loss before cumulative effect of a change in accounting principle per common share	$	(0.10	)	$	(0.12	)	$	(0.16	)	$	(0.32	)
Cumulative effect of a change in accounting principle per common share	$	—		$	—		$	—		$	(0.01	)

-15-

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
Net loss per common share	$	(0.10	)	$	(0.12	)	$	(0.16	)	$	(0.33	)
Diluted:
Weighted average number of common shares outstanding		25,306,170			25,945,328			25,213,320			25,856,995
Loss before cumulative effect of a change in accounting principle per common share	$	(0.10	)	$	(0.12	)	$	(0.16	)	$	(0.32	)
Cumulative effect of a change in accounting principle per common share	$	—		$	—		$	—		$	(0.01	)
Net loss per common share	$	(0.10	)	$	(0.12	)	$	(0.16	)	$	(0.33	)

     At September 30, 2005, 5,556,318 warrants, 647,702 options, and 78,334 shares of unvested restricted stock were outstanding. The calculation of the diluted loss per common share for the three and nine months ended September 30, 2005 does not include the incremental number of shares from the assumed exercise of options and warrants, or the vesting of unvested restricted stock grants because the inclusion of these potential common shares would be considered anti-dilutive.

     At September 30, 2004, 5,690,032 warrants, 745,702 options, and 434,767 shares of unvested restricted stock were outstanding. The calculation of the diluted loss per common share for the three and nine months ended September 30, 2004 does not include the incremental number of shares from the assumed exercise of options and warrants, or the vesting of unvested restricted stock grants because the inclusion of these potential common shares would be considered anti-dilutive.

     The following table sets forth the pro forma computation of basic and diluted loss per common share after accounting for stock option grants made prior to the Company’s January 1, 2003 adoption of the prospective method described in Statement of Financial Accounting Standards (“SFAS”) No. 148 for the three and nine months ended September 30, 2005 and 2004:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
Net loss — as reported	$	(2,628,482	)	$	(3,095,705	)	$	(3,937,113	)	$	(8,691,688	)
Stock option expense recognized		41,667			20,833			130,258			62,500
Pro forma effect on net loss of applying fair value accounting to all stock option grants (a)		(41,667	)		(165,128	)		(130,258	)		(571,273	)
Net loss — pro forma	$	(2,628,482	)	$	(3,240,000	)	$	(3,937,113	)	$	(9,200,461	)
Net loss per common share — as reported:
Basic	$	(0.10	)	$	(0.12	)	$	(0.16	)	$	(0.33	)
Diluted	$	(0.10	)	$	(0.12	)	$	(0.16	)	$	(0.33	)
Net loss per common share — pro forma:
Basic	$	(0.10	)	$	(0.13	)	$	(0.16	)	$	(0.35	)
Diluted	$	(0.10	)	$	(0.13	)	$	(0.16	)	$	(0.35	)

(a) The pro forma effect of applying fair value accounting to all stock option grants is equal to the stock option expense recognized in the determination of net loss for the three and nine months ended September 30, 2005 because the Company no longer has any unvested stock options that were granted prior to the adoption of SFAS No. 123 and No. 148.

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     Stock-based compensation expense, including restricted common stock issued to employees, for the three months ended September 30, 2005 and 2004 was $98,500 and $180,732, respectively. Stock-based compensation expense, including restricted common stock issued to employees, for the nine months ended September 30, 2005 and 2004 was $348,640 and $278,294, respectively.

     4. Business Segments

     The Company separately tracks financial results of its life and annuity operations in segments. Each segment is defined by a dominant risk characteristic inherent in all products in that segment. The life segment consists of all products where the dominant risk characteristic is mortality risk. The annuity segment comprises all products where the dominant risk characteristic is investment risk, including those products that provide minimum guarantees on variable annuity products. In addition, certain of the Company’s modified coinsurance annuity reinsurance agreements have features that constitute embedded derivatives that require bifurcation and separate accounting under SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities.” The change in fair value of these embedded derivatives is included in the annuity segment.

     Both the life and annuity segments have specific assets, liabilities, stockholders’ equity, revenue, benefits and expenses that apply only to them. The corporate segment contains all stockholders’ equity not otherwise deployed to the life or annuity segment. In addition, the corporate segment includes all capital gains and losses from sales of securities in the Company’s portfolio and investment income on undeployed invested assets. Operating expenses are generally allocated to the segments proportionately based upon the amount of stockholders’ equity deployed to each segment. Costs associated with the Company’s efforts to raise capital and pursue other strategic alternatives and the costs of settling the shareholder class action lawsuit have been allocated to the corporate segment.

Three Months Ended	Life			Annuity
September 30, 2005	Reinsurance			Reinsurance			Corporate			Consolidated
Revenues	$	3,957,221		$	1,283,347		$	662,847		$	5,903,415
Benefits and Expenses		5,180,216			646,343			2,705,338			8,531,897
Segment (Loss) Income	$	(1,222,995	)	$	637,004		$	(2,042,491	)	$	(2,628,482	)
Total Assets	$	121,261,064		$	52,291,337		$	57,020,286		$	230,572,687
Three Months Ended	Life			Annuity
September 30, 2005	Reinsurance			Reinsurance			Corporate			Consolidated
Revenues	$	10,620,367		$	5,026,576		$	545,081		$	16,192,024
Benefits and Expenses		8,016,909			9,781,795			1,489,025			19,287,729
Segment Income (Loss)	$	2,603,458		$	(4,755,219	)	$	(943,944	)	$	(3,095,705	)
Total Assets	$	197,754,315		$	642,979,101		$	79,890,539		$	920,623,955
Nine Months Ended	Life			Annuity
September 30, 2005	Reinsurance			Reinsurance			Corporate			Consolidated
Revenues	$	13,239,655		$	3,121,282		$	2,148,150		$	18,509,087
Benefits and Expenses		13,332,089			2,089,331			7,024,780			22,446,200
Segment (Loss) Income	$	(92,434	)	$	1,031,951		$	(4,876,630	)	$	(3,937,113	)
Total Assets	$	121,261,064		$	52,291,337		$	57,020,286		$	230,572,687

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Nine Months Ended	Life		Annuity
September 30, 2005	Reinsurance		Reinsurance			Corporate			Consolidated
Revenues	$	35,750,909	$	19,948,919		$	2,499,233		$	58,199,061
Benefits and Expenses		32,238,504		24,584,137			9,702,148			66,524,789
Segment Income (Loss) before cumulative effect of a change in accounting principle	$	3,512,405	$	(4,635,218	)	$	(7,202,915	)	$	(8,325,728	)
Cumulative effect of a change in accounting principle	$	—	$	(365,960	)	$	—		$	(365,960	)
Segment Income (Loss)	$	3,512,405	$	(5,001,178	)	$	(7,202,915	)	$	(8,691,688	)
Total Assets	$	197,754,315	$	642,979,101		$	79,890,539		$	920,623,955

5. Accounting Standards

Emerging Issues Task Force

     The Emerging Issues Task Force (“EITF”) of the Financial Accounting Standards Board (“FASB”) issued EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” in late 2003. It contains two aspects that impact the Company. First, it provides details regarding disclosures about unrealized losses on available-for-sale debt and equity securities accounted for under SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” These disclosures were effective in annual financial statements for fiscal years ended after December 15, 2003. Second, it provides additional guidance for evaluating whether an investment is other-than-temporarily impaired. This guidance was scheduled to be effective for reporting periods beginning after June 30, 2004. However, the FASB determined that a delay in the effective date of these provisions was necessary until it could issue additional guidance on the application of EITF Issue No. 03-1. At the June 29, 2005 meeting, the FASB decided not to provide additional guidance on the meaning of other-than-temporary impairment and decided that (1) transition would be applied prospectively and (2) the effective date would be reporting periods beginning after December 15, 2005. The Company has adopted the provisions of EITF Issue No. 03-1 and has determined that such adoption had no material impact on the Company’s results of operations or financial condition.

AICPA Statement of Position (SOP) 03-1

     In July 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountant’s (“AICPA”) issued Statement of Position (“SOP”) 03-1, “Accounting and Reporting by Insurance Enterprises for Certain Non-Traditional Long-Duration Contracts and for Separate Accounts.” The SOP is effective for financial statements for fiscal years beginning after December 15, 2003 and provides guidance on accounting and reporting by insurance enterprises for certain nontraditional long-duration contracts and for separate accounts. The SOP changed the manner in which life insurance companies account for certain types of insurance and reinsurance contracts. On January 1, 2004, the Company adopted this new accounting standard. At that time, the Company had a combined GMDB/GMIB agreement with Connecticut General Life Insurance Company (“CIGNA”) and an annuity reinsurance agreement with Transamerica that were both affected by the adoption of the new SOP. The cumulative effect of the change in accounting principle was a net loss of $365,960 for the three months

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ended March 31, 2004. The Company no longer has any reinsurance agreements that are affected by the SOP.

Share-Based Payments

     On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”). SFAS No. 123R replaces SFAS No. 123 “Accounting for Stock-Based Compensation” and supersedes APB opinion No. 25 “Accounting for Stock Issued to Employees.” SFAS No. 123R requires all entities to recognize compensation expense in an amount equal to the fair value of share-based payments granted to employees and is effective as of the beginning of the first quarter of the first fiscal year that begins after June 15, 2005. Because the Company applies fair value accounting to all employee stock options granted or modified subsequent to December 31, 2002, the impact of this statement will be to record compensation expense utilizing fair value accounting for awards vesting on or after July 1, 2005 that were granted on or before December 31, 2002. The pro forma table in Note 3 illustrates the impact of SFAS No. 123 on the Company’s unaudited condensed consolidated statements of operations; SFAS No. 123R will have no impact on the Company’s financial position and results of operations.

6. Related Party Transactions

     Michael P. Esposito, Jr., a director of the Company, currently serves as the non-executive Chairman of the Board of XL Capital Ltd (“XL Capital”). Robert M. Lichten, a director of the Company, serves as a director of a United States-based subsidiary of XL Capital. XL Capital is a major stockholder of the Company.

7. Restricted Stock

     In 2002, the Board of Directors adopted a Restricted Stock Plan (the “Plan”) under which it may grant common shares to key employees. The aggregate number of common shares that may be granted under the Plan is 1,200,000, and the Compensation Committee of the Board of Directors administers the Plan. Since the inception of the Plan, the Company has issued 976,000 shares of restricted stock. As a result of certain employees terminating their employment with the Company, 227,133 shares of restricted stock were cancelled in 2003, 115,667 shares of restricted stock were cancelled in 2004 and 21,667 shares of restricted stock were cancelled in 2005. Also, 60,833 shares of restricted stock vested in 2003 and 2004 prior to certain employees terminating their employment with the Company. Effective with the execution of the Separation Agreement with John F. Burke, the Company’s former CEO, there were 66,667 restricted common shares that became immediately vested on September 23, 2005 which would have otherwise vested in 2006.

     As of September 30, 2005, there remain outstanding 78,334 unvested restricted common shares that will vest on June 25, 2006. The Company believes that the transactions contemplated by the Master Agreement fall within the scope of the definition of “Change of Control” under the equity incentive plan pursuant to which these restricted shares were granted. As a consequence, all unvested restricted shares will vest immediately upon the consummation of the transactions contemplated by the Master Agreement.

     The fair value as determined at the date of grant of the restricted stock awards that were outstanding on September 30, 2005 was approximately $1,460,000 and is reflected in the Company’s balance sheet as common shares and additional paid-in-capital. The fair value of the outstanding restricted stock is being amortized on a straight-line basis over the three-year vesting period. Based on the vesting of the restricted stock, and offset partially by cancellations of restricted stock, approximately $218,000 and $216,000 was

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expensed during the nine months ended September 30, 2005 and 2004, respectively. The unamortized balance of outstanding restricted stock is reflected in the balance sheet as a component of unamortized stock based compensation and was $84,250 at September 30, 2005 and approximately $600,000 at September 30, 2004.

     8. Vulnerability Due to Concentrations

     As a result of the life reinsurance agreements that were novated to Transamerica as of December 31, 2004, certain of the Company’s remaining agreements, which previously did not represent a significant percentage of the Company’s business, have become more prominent. The Company’s three largest life reinsurance agreements, as measured by gross premiums, are now with National States Insurance Company (“National States”), John Hancock Life Insurance Company (“John Hancock”) and Omega Reinsurance Corporation (“Omega”). For the three and nine months ended September 30, 2005, the Company recorded a loss of approximately $0.5 million and $2.8 million, respectively, related to its life reinsurance agreement with National States. Premiums associated with this agreement for the three and nine months ended September 30, 2005 were approximately $2.7 million and $7.6 million, respectively. For the three and nine months ended September 30, 2005, the Company recorded gross profits of approximately $0.4 million and $1.3 million, respectively, related to its life reinsurance agreement with John Hancock. Premiums associated with this agreement for the three and nine months ended September 30, 2005 were approximately $0.5 million and $1.5 million, respectively. For the three and nine months ended September 30, 2005, the Company recorded gross losses of approximately $0.7 million and $0.3 million related to its life reinsurance agreement with Omega. Premiums associated with this agreement for the three and nine months ended September 30, 2005 were approximately $0.3 million and $0.9 million, respectively.

     The Company has a significant deferred annuity reinsurance agreement with Lafayette Life Insurance Company (“Lafayette”). Due to the size of this agreement, there is a material concentration of net investment income, interest credited to interest sensitive products, funds withheld at interest, deferred policy acquisition costs and interest sensitive contract liabilities. Approximately $45.7 million, or 90%, of the Company’s funds withheld at interest, approximately $50.7 million, or 100%, of the Company’s interest sensitive contracts liability, and approximately $2.6 million, or 46%, of the deferred acquisition costs on the Company’s unaudited condensed consolidated balance sheet as of September 30, 2005 were related to its reinsurance agreement with Lafayette.

     Since June 1, 2000, 100% of Annuity and Life Reassurance America’s life and annuity policies that were in force prior to the Company’s acquisition of that entity were reinsured with Reassure America Life Insurance Company (“Reassure”). Following the acquisition, the policies continue to be 100% reinsured with Reassure; however, Annuity and Life Reassurance America remains the primary carrier. Reassure is required to indemnify Annuity and Life Reassurance America for any losses associated with these policies. However, Annuity and Life Reassurance America is not discharged from its primary liability as the direct insurer of the risks reinsured should Reassure default on its obligations. Reserves ceded under this reinsurance agreement amounted to approximately $76.8 million and $82.2 million at September 30, 2005 and December 31, 2004, respectively. As of September 30, 2005, Reassure is rated A+ (g) (superior) by A.M. Best.

9. Contingencies

     As described in Note 2, the Company and Transamerica entered into a Novation Agreement to novate the Company’s reinsurance contracts with F&G and Scottish Re to Transamerica effective December 31, 2004. In accordance with the terms of the Novation Agreement, the Company and Transamerica have been in discussions regarding possible adjustments to the policy benefit reserves transferred to

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Transamerica as part of the F&G novation. On March 30, 2005, the Company received a demand letter from Transamerica stating that $7,000,000 was owed to Transamerica as an adjustment to the F&G policy benefit reserves. On June 14, 2005, the Company received an additional letter from Transamerica revising its original demand to $6,000,000. Because the Company had been unable to resolve this issue through continued discussions with Transamerica, the Company sought resolution of the dispute by a neutral actuary pursuant to a provision of the Novation Agreement. The Company and Transamerica had agreed upon a neutral actuary and were in discussions regarding the scope of the issue to be submitted to the neutral actuary when, on October 3, 2005, Transamerica delivered a demand for arbitration in connection with this dispute. In that demand, Transamerica alleged that the Company materially misrepresented the true economic nature of the reinsurance agreements that the Company novated to it, or, in the alternative, that there was a mutual mistake as to the true economic nature of those reinsurance agreements. Transamerica is now seeking to rescind the Novation Agreement or recover such interest and damages as the arbitration panel deems appropriate for the alleged misrepresentations and breaches of representations and warranties. The Company believes Transamerica’s position is without merit and intends to defend itself vigorously in arbitration.

     The United States Internal Revenue Service (“IRS”) has conducted an audit of the Company’s United States operating subsidiaries. Those companies currently have a significant tax based net operating loss carryforward. In addition, the IRS has requested certain information and documents related to the Company’s Bermuda operations. While the Company’s United States operating subsidiaries have complied with the IRS’ requests for information, both the Company and its Bermuda operating subsidiary have declined to supply the IRS with certain information in response to its initial requests for information on May 7, 2002 and July 1, 2002. The Company did provide the IRS with certain publicly available information in addition to minutes of the Board of Directors meetings and committee meetings held from 1999 through to 2001. The Company has not received any additional requests for information since July 1, 2002. If the IRS were to determine that the Company or its Bermuda operating subsidiary were engaged in business in the United States, those entities could be subject to United States tax at regular corporate rates on their taxable income that is attributable to a permanent establishment, if any, in the United States plus an additional 30% “branch profits” tax on such income remaining after the regular tax. Such taxes would have a material effect on the Company’s results of operations and financial condition.

     Pursuant to an engagement letter dated January 19, 2004, as amended (the “Engagement Letter”), the Company engaged UBS Securities LLC (“UBS”) to serve as its financial advisor and capital markets advisor in connection with identifying strategic alternatives available to the Company. The Engagement Letter provides that if, during the term of the Engagement Letter, the Company closes an equity investment, the Company is obligated to pay UBS a minimum transaction fee of $1,000,000. If the Company closes a sale transaction during the term of the Engagement Letter, the Company is obligated to pay UBS a minimum transaction fee of either $1,500,000 or $2,000,000, depending on whether the other party to that transaction is one identified in the Engagement Letter. In any case, the transaction fee payable to UBS may increase as the transaction value increases. Any transaction fee payable to UBS under the Engagement Letter will be offset by certain fees paid by the Company to UBS prior to the closing of the equity investment or sale transaction. At September 30, 2005, the offset due to such fees totaled $270,000. The Company anticipates that it will be required to pay UBS a fee of $1,750,000 upon the consummation of the novation and coinsurance transaction with the Wilton Subsidiaries, subject to the $270,000 offset for fees already paid.

     Pursuant to the Separation Agreement with John F. Burke, the Company’s former Chief Executive Officer, the Company is liable for a one-time payment of $1,160,000 should certain contingencies described in Note 2 be satisfied.

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10. Subsequent Events

     On October 8, 2003, the Company was served with a statutory demand for $640,000 from Imagine Group Holdings Limited (“Imagine”), a Bermuda based reinsurance company, which was subsequently withdrawn. Imagine has since instituted a civil proceeding in the Bermuda Supreme Court against the Company, alleging that the Company is obligated to reimburse it for $640,000 of expenses incurred by Imagine in connection with a proposed December 2002 capital raising transaction that was not consummated. On March 11, 2004, the Company filed an amended defense with the court to which Imagine responded on April 26, 2004. On October 26, 2005, the Company reached an agreement in principle with Imagine to settle this dispute for a payment of $425,000 which the Company paid into escrow on November 7, 2005.

     On April 15, 2005, the Company and its wholly-owned subsidiary Annuity and Life Reassurance, Ltd. were served with a Writ of Summons from the Bermuda Supreme Court, whereby Rodney Cordle, a former employee of the Company, alleged that the Company and its subsidiary failed to pay a monthly housing allowance to him in accordance with the terms of his employment agreement. Mr. Cordle was seeking $287,403 plus damages, interest and costs. On October 25, 2005, the dispute was settled and the Company paid Mr. Cordle a settlement amount of $181,866 plus $18,134 for legal costs.

     On October 19, 2005, the Company entered into letter agreements with William H. Mawdsley and John W. Lockwood setting forth the terms of their continued employment by the Company. The Company had previously given Messrs. Mawdsley and Lockwood notice that their current employment agreements would not be renewed upon their expiration. Pursuant to the letter agreement with Mr. Mawdsley, he is entitled to an annual salary of $250,000 and an additional $10,000 per month as a housing and travel allowance. Effective with the execution of the letter agreement, Mr. Mawdsley was named the Company’s Chief Executive Officer, subject to the approval of the Bermuda Department of Immigration, and he was appointed to fill a vacancy on the Company’s Board of Directors created by the recent resignation of John F. Burke, the Company’s former President and Chief Executive Officer. Mr. Mawdsley had previously been a Vice President of the Company and the Chief Actuary of its Bermuda based operating subsidiary. Pursuant to the letter agreement with Mr. Lockwood, he is entitled to an annual salary of $200,000 and an additional $7,500 per month as a housing and travel allowance. Mr. Lockwood will continue to serve as the Company’s Chief Financial Officer and President of the Company’s United States based subsidiaries.

     The Company has also agreed to continue to provide Messrs. Mawdsley and Lockwood with the same benefits they are currently receiving, and they will be eligible for bonus compensation at the discretion of the Company’s Board of Directors. Mr. Mawdsley and Mr. Lockwood may be terminated at any time for any reason, but if such termination is without “cause” (as defined in the letter agreements), Mr. Mawdsley would be entitled to receive a severance payment of $620,000 plus reasonable relocation expenses from Bermuda to the United States, and Mr. Lockwood would be entitled to receive a severance payment of $490,000. Both men would also receive the foregoing severance payments if they resign because of a reduction in their base salary or housing allowance to which they did not agree or if they resign for any other reason within the period commencing 90 days and ending 180 days following the effective time of (i) the acquisition of all of the outstanding equity securities of Holdings or (ii) the merger of Holdings with another entity, other than one of Holding’s direct or indirect wholly owned subsidiaries.

     On October 12, 2005, Messrs. Lee M. Gammill, Jr., Frederick S. Hammer and Jon W. Yoskin, II, who are members of the Company’s Board of Directors currently serving terms that will expire at the Company’s upcoming annual general meeting (the “AGM”) of shareholders, informed the Company that they will not stand for re-election as directors. Accordingly, each of these Board members will cease to be

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a director of the Company following the AGM. Also on October 12, 2005, Messrs. Robert M. Lichten and Robert P. Johnson, whose terms would otherwise expire in 2006 and 2007, respectively, informed the Company that they will resign as directors of the Company effective as of the date of the AGM.

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

General

     Annuity and Life Re (Holdings), Ltd. was incorporated on December 2, 1997 under the laws of Bermuda. We provide annuity and life reinsurance to select insurers and reinsurers through our wholly-owned subsidiaries: Annuity and Life Reassurance, Ltd., which is licensed under the insurance laws of Bermuda as a long term insurer; and Annuity and Life Re America, Inc., an insurance holding company based in the United States, and its subsidiary, Annuity and Life Reassurance America, Inc., a life insurance company authorized to conduct business in over 40 states of the United States and the District of Columbia. We acquired Annuity and Life Reassurance America on June 1, 2000. For more information regarding the business and operations of our company and its subsidiaries, please see our Annual Report on Form 10-K for the year ended December 31, 2004.

     Our company has encountered significant difficulties during the last four years. In addition to reporting significant operating losses for those years, we have reduced our operations significantly through the novation, termination and recapture of many of our life and annuity reinsurance agreements. We continue to receive premiums and pay claims under our remaining reinsurance treaties; however, we are not currently underwriting any new treaties or accepting any new business from our existing treaties. If the transactions contemplated by the Master Agreement described below under “Wilton Re Transaction” are consummated, we will be either released from or indemnified for each of our remaining reinsurance treaties.

     Our remaining life reinsurance agreements are the reinsurance of ordinary life insurance, primarily for mortality risk. Profitability of our life reinsurance line depends in large part on the volume and amount of death claims incurred. While death claims are reasonably predictable over a long time horizon, they are less predictable over shorter periods and are subject to fluctuation from quarter to quarter and year to year, particularly given the relatively small size of our in force business as a result of recaptures and terminations in previous periods. Significant fluctuations from period to period could adversely affect the results of our operations. Similarly, claims experience that exceeds what we anticipated at the time we enter into reinsurance agreements can also adversely affect the results of our operations, as occurred in 2003 and 2002. At September 30, 2005 and December 31, 2004, the total face amount of our life insurance in force was approximately $2.2 billion and $2.3 billion, respectively.

     Our remaining annuity reinsurance agreement reinsures general account fixed deferred annuities. Profitability of this agreement is primarily dependent on earning a spread between the interest rate earned on the assets under management and the interest rate credited to the policyholder. This agreement is market and interest rate sensitive. Fluctuations in the general level of interest rates and fixed income markets from period to period may cause fluctuations in the profitability of this agreement. At September 30, 2005 and December 31, 2004, our liability for annuity reinsurance agreements amounted to approximately $50.7 million and $57.8 million, respectively.

     Because our financial results are heavily dependent on three life reinsurance agreements and one remaining annuity reinsurance agreement, large fluctuations in actual experience under any one of these agreements could cause volatility in our overall financial results.

     Wilton Re Transaction

     On August 10, 2005, we entered into a Master Agreement (the “Master Agreement”) with Prudential Select Life Insurance Company of America and Wilton Reinsurance Bermuda Limited (collectively,

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“Wilton”), each a direct or indirect wholly owned operating subsidiary of Wilton Re Holdings, Ltd. The Agreement provides for the novation to or 100% coinsurance by Wilton effective as of June 30, 2005 (the “Effective Date”) of our life and annuity reinsurance treaties (the “Treaties”) identified in the Master Agreement. The Master Agreement contemplates that we and Wilton will use commercially reasonable efforts to obtain the consent of each counterparty to the Treaties to the novation of such Treaties to the Wilton Subsidiaries. If any of these consents cannot be obtained, then we and Wilton will enter into a 100% indemnity coinsurance agreement with respect to such Treaties, effective as of the Effective Date.

     Upon the closing of the transactions contemplated by the Master Agreement, we will pay Wilton an aggregate settlement amount equal to $91.6 million, less any expense reimbursement payments previously made by us to Wilton in connection with the transactions. The $91.6 million settlement amount will consist of the funds withheld held by the cedents under certain of the Treaties on the Effective Date, which assets totaled approximately $58.4 million on that date, and cash and invested assets of approximately $33.2 million. If the cash flows arising from the Treaties and the earnings on the invested assets to be transferred to Wilton are positive between the Effective Date and the closing date of the Agreement (the “Closing Date”), such positive amount will be paid to Wilton. If such cash flows and earnings are negative, the negative of that amount will be paid to us.

     The consummation of the transactions contemplated by the Master Agreement is subject to certain closing conditions, including the receipt of requisite regulatory and other approvals, including the approval of our shareholders and retrocessionaires. In connection with the execution of the Master Agreement, our directors and officers, as well as certain significant shareholders, executed voting agreements obligating them to vote in favor of the transactions contemplated by the Master Agreement. Directors, officers and shareholders holding collectively approximately 29.3% of our outstanding common shares as of the date of the Master Agreement (or 26.4% of the outstanding common shares entitled to vote as of such date after giving effect to certain voting cutback provisions in our Bye-laws) signed voting agreements. As of September 30, 2005, the number of common shares held by directors, officers and shareholders who signed voting agreements totaled approximately 31.5% of our outstanding common shares, or 28.1% of the outstanding common shares entitled to vote as of such date after giving effect to the voting cutback provisions in our Bye-laws.

     Because we will continue to have residual commitments and contingencies following the consummation of the transactions contemplated by the Master Agreement, we do not expect to be able immediately to wind-down or dissolve our company or its subsidiaries. We intend to continue to explore strategic alternatives to attempt to maximize our economic value for shareholders, including a merger of our company into another entity, the sale of one or both of our operating subsidiaries or other comparable transactions. In addition, we may consider cash distributions to shareholders, stock buybacks or similar transactions, to the extent our financial condition allows us to do so and we are not constrained by insurance regulatory or other laws or by our obligations under the Master Agreement.

     The following unaudited pro forma consolidated financial statements are presented for informational purposes to show the effect of the proposed transactions with Wilton. The pro forma information presented is based on assumptions and includes adjustments as explained in the notes to the unaudited pro forma consolidated financial statements. The unaudited pro forma information presented does not include any adjustments to reflect transaction costs or the cost of severance payments to the Company’s former Chief Executive Officer of approximately $1.16 million.

     The unaudited pro forma condensed consolidated balance sheet as of September 30, 2005 is intended to demonstrate how the Company’s unaudited condensed consolidated balance sheet would have looked had the Wilton transactions been consummated on September 30, 2005. The unaudited pro forma

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condensed consolidated balance sheet is presented as of September 30, 2005 assuming that all of the reinsurance treaties covered by the Master Agreement are novated to Wilton, as well as assuming that all of those reinsurance treaties are coinsured by Wilton. The Company can offer no estimate as to how many of the ceding companies under these reinsurance treaties will ultimately consent to the novation of the treaties to Wilton.

Annuity and Life Re (Holdings), Ltd.
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2005
(Unaudited and in U.S. Dollars)

			100% Novation					100% Coinsurance
	Reported		Adjustments			Pro Forma		Adjustments			Pro Forma
Assets
Cash & invested assets	$	92,899,685	$	(32,490,788	)(A)	$	60,408,897	$	(32,490,788	)(K)	$	60,408,897
Funds withheld at interest		50,962,885		(50,962,885	)(B)		—		(50,962,885	)(L)		—
Accrued investment income		677,662		—			677,662		—			677,662
Receivable for reinsurance ceded		77,016,411		(211,956	)(C)		76,804,455		25,863,490	(M)		102,879,901
Other reinsurance receivables		3,021,878		(2,586,522	)(D)		435,356		(2,586,522	)(N)		435,356
Deferred policy acquisition costs		5,592,316		(5,592,316	)(E)		—		(5,592,316	)(O)		—
Other assets		401,850		—			401,850		—			401,850
Total assets	$	230,572,687	$	(91,844,467	)	$	138,728,220	$	(65,769,021	)	$	164,803,666
Liabilities
Reserves for future policy benefits	$	103,758,582	$	(26,075,446	)(F)	$	77,683,136	$			$	103,758,582
Interest sensitive contracts liability		50,691,337		(50,691,337	)(G)		—		(50,691,337	)(P)		—
Other reinsurance liabilities		13,202,482		(5,767,747	)(H)		7,434,735		(5,767,747	)(Q)		7,434,735
Accounts payable and accrued expenses		2,867,363		(49,145	)(I)		2,818,218		(49,145	)(R)		2,818,218
Total liabilities	$	170,519,764	$	(82,583,675	)	$	87,936,089	$	(56,508,229	)	$	114,011,535
Stockholders’ Equity
Total Stockholders’ Equity	$	60,052923	$	(9,260,792	)(J)	$	50,792,131	$	(9,260,792	)(S)	$	50,792,131
Total Liabilities and Stockholders’ Equity	$	230,572,687	$	(91,844,467	)	$	138,728,220	$	(65,769,021	)	$	164,803,666

(A)	To record the transfer of cash and invested assets to Wilton.
(B)	To record the transfer of Funds withheld at interest to Wilton.
(C)	To record the transfer of ceded benefit reserves to Wilton.
(D)	To record the transfer of premiums receivable related to the life reinsurance agreements novated to Wilton.
(E)	To write-off the Deferred policy acquisition costs associated with the life and annuity reinsurance agreements novated to Wilton.
(F)	To record the transfer of benefit reserves associated with the life reinsurance agreements novated to Wilton.
(G)	To record the transfer of Interest sensitive contracts liabilities associated with the annuity reinsurance agreement novated to Wilton.
(H)	To record the transfer of Other reinsurance liabilities associated with the life reinsurance agreements novated to Wilton.
(I)	To record the transfer of excise tax payable associated with the life reinsurance agreements novated to Wilton.
(J)	To record to net effect of the Wilton novation transaction in Stockholders’ equity.
(K)	To record the transfer of cash and invested assets to Wilton.
(L)	To record the transfer of Funds withheld at interest to Wilton.
(M)	To record the ceded life reserves recoverable for the life reinsurance agreements coinsured by Wilton.
(N)	To record the ceded premiums payable related to the life reinsurance agreements coinsured by Wilton.
(O)	To record ceded Deferred policy acquisition costs associated with the life and annuity reinsurance agreements coinsured by Wilton.
(P)	To record the ceded Interest sensitive contracts liabilities associated with the annuity reinsurance agreement coinsured by Wilton.
(Q)	To record the ceded amount of Other reinsurance liabilities associated with the life reinsurance agreements coinsured by Wilton.
(R)	To record the ceded excise tax receivable associated with the life reinsurance agreements coinsured by Wilton.
(S)	To record the net effect of the coinsurance transaction in Stockholders’ equity.

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     The unaudited pro forma condensed consolidated statement of operations for the nine months ended September 30, 2005 adjusts the reported GAAP statement of operations by assuming that (1) the effective date of the proposed transactions with Wilton was January 1, 2005, and (2) there was no gain or loss from the Wilton transactions. No attempt has been made to estimate the impact of the aforementioned adjustments on cash flow for the periods presented, on net investment income earned on assets transferred to third parties in connection with the novated life reinsurance agreements or on operating expenses. The unaudited pro forma information presented below is not necessarily indicative of the financial results that would have been attained had the transactions occurred on the dates referenced above and should not be viewed as indicative of operations in future periods.

Annuity & Life Re (Holdings) Ltd.
Pro Forma Consolidated Statement of Operations for the Nine Months Ended September 30, 2005
(Unaudited and in U.S. Dollars)

				Wilton
				Transaction
	Reported			Adjustments			Pro Forma
Revenues
Net premiums	$	12,001,008		$	(11,325,272	)(A)	$	675,736
Investment income, net of related expenses		4,806,689			(1,938,486	)(B)		2,868,203
Net realized investment gains		500,650			—			500,650
Net change in fair value of embedded derivatives		1,105,853			(1,105,853	)(C)		—
Surrender fees and other revenues		94,887			(94,887	)(D)		—
Total Revenues	$	18,509,087		$	(14,464,498	)	$	4,044,589
Benefits and Expenses
Claims and policy benefits	$	10,781,404		$	(12,675,325	)(E)	$	(1,893,921	)
Interest credited to interest sensitive products		985,614			(985,614	)(F)		—
Policy acquisition costs and other insurance expenses		3,079,459			(2,370,965	)(G)		708,494
Operating expenses		7,599,723			—			7,599,723
Total Benefits and Expenses	$	22,446,200		$	(16,031,904	)	$	6,414,296
Loss before cumulative effect of a change in accounting principal	$	(3,937,113	)	$	1,567,406		$	(2,369,707	)
Cumulative effect of a change in accounting principal		—						—
Net Loss	$	(3,937,113	)	$	1,567,406		$	((2,369,707	)
Loss per common share before cumulative effect of change in accounting principal per common share:
Basic	$	(0.16	)	$	0.06		$	(0.09	)
Diluted	$	(0.16	)	$	0.06		$	(0.09	)
Cumulative effect of a change in accounting principal per common share:
Basic	$	—					$	—
Diluted	$	—					$	—
Net loss per common share:
Basic	$	(0.16	)	$	0.06		$	(0.09	)
Diluted	$	(0.16	)	$	0.06		$	(0.09	)

(A)	To reflect reduced Premiums as if the life reinsurance treaties novated to or coinsured by Wilton did not exist during the first nine months of 2005.
(B)	To reflect reduced Net investment income as if the annuity reinsurance treaty novated to or coinsured by Wilton did not exist during the first nine months of 2005.
(C)	To reflect no embedded derivative as if the annuity reinsurance treaty novated or coinsured by Wilton did not exist during the first nine months of 2005.
(D)	To reflect reduced Surrender fees as if the annuity reinsurance treaty novated to or coinsured by Wilton did not exist during the first nine months of 2005.
(E)	To reflect reduced Claim and Policy Benefits as if the life reinsurance treaties novated to or coinsured by Wilton did not exist during the first nine months of 2005.
(F)	To reflect reduced Interest credited to interest sensitive products as if the annuity reinsurance treaty novated to or coinsured by Wilton did not exist during the first nine months of 2005.

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(G) To reflect reduced Policy acquisition costs and other insurance expenses as if the life and annuity reinsurance treaties novated to or coinsured by Wilton did not exist during the first nine months of 2005.

     The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2004 adjusts the reported GAAP statement of operations by assuming that (1) all of the novation, recapture and termination transactions that had effective dates in 2004 occurred on January 1, 2004 (which removes from reported net (loss) the actual performance for each agreement through its novation, racapture or termination date), (2) the effective date of the proposed transactions with Wilton was January 1, 2004, and (3) there was no gain or loss from the novation, recapture or termination transactions that had effective dates in 2004 or from the Wilton transactions. No attempt has been made to estimate the impact of the aforementioned adjustments on cash flow for the periods presented, on net investment income earned on assets transferred to third parties in connection with the novated life reinsurance agreements or on operating expenses. The pro forma information presented below is not necessarily indicative of the financial results that would have been attained had the transactions occurred on the dates referenced above and should not be viewed as indicative of operations in future periods.

Annuity and Life Re (Holdings), Ltd.
Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2004
(Unaudited and in U.S. Dollars)

													Pro Forma
													(as adjusted
													for the 2004
							Pro Forma			Adjustments			transactions
				Adjustments			(as adjusted			(for the			and the
				(for the 2004			for the 2004			Wilton			Wilton
	Reported			transactions)			transactions)			transaction)			transaction)
Revenues
Net premiums	$	48,297,706		$	(30,325,348	)(A)	$	17,972,358		$	(15,898,984	)(H)	$	2,073,374
Investment income, net of related expenses		21,697,563			(13,439,098	)(B)		8,258,465			(2,923,139	)(I)		5,335,326
Net realized investment gains					439,536			439,536						439,536
Net change in fair value of embedded derivatives		2,181,070			—			2,181,070			(2,181,070	)(J)		—
Surrender fees and other revenues		4,475,691			(4,257,721	)(C)		217,970			(217,970	)(K)		—
Total Revenues	$	77,091,566		$	(48,022,167	)	$	29,069,399		$	(21,221,163	)	$	7,848,237
Benefits and Expenses
Claims and policy benefits	$	14,101,129			(306,552	)(D)	$	13,794,577			(13,990,062	)(L)		(195,485	)
Interest credited to interest sensitive products		5,399,460			(3,530,883	)(E)		1,868,577			(1,868,577	)(M)		—
Policy acquisition costs and other insurance expenses		110,922,948			(105,602,277	)(F)		5,320,671			(3,987,088	)(N)		1,333,583
Operating expenses		14,628,524			—			14,628,524						14,628,524
Total Benefits and Expenses	$	145,052,061			(109,439,712	)	$	35,612,349		$	(19,845,727	)	$	15,766,622
Loss before cumulative effect of a change in accounting principal	$	(67,960,495	)		61,417,545		$	(6,542,950	)	$	(1,375,436	)	$	(7,918,386	)
Cumulative effect of a change in accounting principal		(365,960	)		365,960	(G)		—			—			—
Net Loss	$	(68,326,455	)	$	61,783,505		$	(6,542,950	)	$	(1,375,436	)	$	(7,918,386	)
Loss per common share before cumulative effect of change in accounting principal per common share:
Basic	$	(2.63	)	$	2.38		$	(0.25	)	$	(0.05	)	$	(0.31	)
Diluted	$	(2.63	)	$	2.38		$	(0.25	)	$	(0.05	)	$	(0.31	)
Cumulative effect of a change in accounting principal per common share:
Basic	$	(0.01	)	$	0.01		$	0.00		$	0.00		$	0.00
Diluted	$	(0.01	)	$	0.01		$	0.00		$	0.00		$	0.00
Net loss per common share:
Basic	$	(2.64	)	$	2.39		$	(0.25	)	$	(0.05	)	$	(0.31	)
Diluted	$	(2.64	)	$	2.39		$	(0.25	)	$	(0.05	)	$	(0.31	)

(A)	To reflect reduced Premiums as if the Scottish Re and F&G life reinsurance agreements novated to Transamerica and as if the GMDB/ GMIB agreement recaptured by CIGNA did not exist in 2004
(B)	To reflect reduced Net investment income as if the Transamerica annuity agreement did not exist in 2004.
(C)	To reflect reduced Surrender fees and other revenues as if the Transamerica annuity agreement did not exist in 2004.
(D)	To reflect reduced Claim and Policy Benefits as if the Scottish Re and F&G life reinsurance agreements novated to Transamerica and as if the GMDB/ GMIB agreement recaptured by CIGNA did not exist in 2004.
(E)	To reflect reduced Interest credited to interest sensitive products as if the Transamerica annuity agreement did not exist in 2004. Includes the release of interest sensitive contracts liability net of funds withheld at interest and the termination premium of $14,000,000 paid to Transamerica in consideration of the termination of this agreement as of December 1, 2004.

- 28 -

(F)	To reflect reduced Policy acquisition costs and other insurance expenses as if the Transamerica annuity agreement, the Scottish Re and F&G life reinsurance agreements novated to Transamerica and the GMDB/ GMIB agreement recaptured by CIGNA did not exist in 2004. Includes the write down of deferred acquisition costs of approximately $63,100,000 associated with the termination of the Transamerica annuity agreement and approximately $24,900,000 associated with the novation of Scottish Re and F&G life agreements as of December 31, 2004.
(G)	To reflect the reversal of the application of SOP 03-1 to the GMDB/ GMIB agreement recaptured by CIGNA and the Transamerica annuity agreement as if those agreements did not exist in 2004.
(H)	To reflect reduced Premiums as if the life reinsurance agreements novated to or coinsured by Wilton did not exist in 2004.
(I)	To reflect reduced Net investment income as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.
(J)	To reflect no embedded derivative as if the annuity reinsurance treaty novated to or coinsured by Wilton did not exist in 2004.
(K)	To reflect reduced Surrender fees as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.
(L)	To reflect reduced Claim and Policy Benefits as if the life reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.
(M)	To reflect reduced Interest credited to interest sensitive products as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist during the first six months of 2005.
(N)	To reflect reduced Policy acquisition costs and other insurance expenses as if the life and annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.

     The unaudited pro forma condensed consolidated statement of operations for the nine months ended September 30, 2004 adjusts the reported GAAP statement of operations by assuming that (1) all of the novation, recapture and termination transactions that had effective dates in 2004 occurred on January 1, 2004 (which removes from reported net (loss) the actual performance for each agreement through its novation, recapture or termination date), (2) the effective date of the proposed transactions with Wilton was January 1, 2004, and (3) there was no gain or loss from the novation, recapture or termination transactions that had effective dates in 2004 or from the Wilton transactions. No attempt has been made to estimate the impact of the aforementioned adjustments on cash flow for the periods presented, on net investment income earned on assets transferred to third parties in connection with the novated life reinsurance agreements or on operating expenses. The pro forma information presented below is not necessarily indicative of the financial results that would have been attained had the transactions occurred on the dates referenced above and should not be viewed as indicative of operations in future periods.

Annuity and Life Re (Holdings), Ltd.
Pro Forma Consolidated Statement of Operations for the Nine Months Ended September 30, 2004
(Unaudited and in U.S. Dollars)

													Pro Forma
													(as adjusted
													for the 2004
							Pro Forma			Adjustments			transactions
				Adjustments			(as adjusted			(for the			and the
				(for the 2004			for the 2004			Wilton			Wilton
	Reported			transactions)			transactions)			transaction)			Transaction)
Revenues
Net premiums	$	34,565,859		$	(21,253,833	)(A)	$	13,312,026		$	(11,804,417	)(H)	$	1,507,609
Investment income, net of related expenses		17,875,012			(11,476,353	)(B)		6,398,659			(2,253,938	)(I)		4,144,721
Net realized investment gains		456,172						456,172						456,172
Net change in fair value of embedded derivatives		1,692,113						1,692,113			(1,692,113	)(J)		—
Surrender fees and other revenues		3,609,905			(3,467,072	)(C)		142,833			(142,833	)(K)		—
Total Revenues	$	58,199,061		$	(36,197,258	)	$	22,001,803		$	(15,893,301	)	$	6,108,502
Benefits and Expenses
Claims and policy benefits	$	24,683,101			(14,068,562	)(D)	$	10,614,539			(9,197,418	)(L)		1,417,121
Interest credited to interest sensitive products		10,865,545			(9,584,687	)(E)		1,280,858			(1,280,858	)(M)
Policy acquisition costs and other insurance expenses		18,529,269			(14,795,810	)(F)		3,733,459			(3,112,693	)(N)		620,766
Operating expenses		12,446,874						12,446,874						12,446,874
Total Benefits and Expenses	$	66,524,789			(38,449,059	)	$	28,075,730		$	(13,590,969	)	$	14,484,761
Loss before cumulative effect of a change in accounting principal	$	(8,325,728	)		2,251,801		$	(6,073,927	)	$	(2,302,332	)	$	(8,376,259	)
Cumulative effect of a change in accounting principal		(365,960	)		365,960	(G)		—
Net Loss	$	(8,691,688	)	$	2,617,761		$	(6,073,927	)	$	(2,302,332	)	$	(8,376,259	)
Loss per common share before cumulative effect of change in accounting principal per common share:
Basic	$	(0.32	)	$	0.09		$	(0.23	)	$	(0.09	)	$	(0.32	)

-29-

												Pro Forma
												(as adjusted
												for the 2004
						Pro Forma			Adjustments			transactions
				Adjustments		(as adjusted			(for the			and the
				(for the 2004		for the 2004			Wilton			Wilton
	Reported			transactions)		transactions)			transaction)			Transaction)
Diluted	$	(0.32	)	$	0.09	$	(0.23	)	$	(0.09	)	$	(0.32	)
Cumulative effect of a change in accounting principal per common share:
Basic	$	(0.01	)	$	0.01	$	0.00		$	0.00		$	0.00
Diluted	$	(0.01	)	$	0.01	$	0.00		$	0.00		$	0.00
Net loss per common share:
Basic	$	(0.33	)	$	0.10	$	(0.23	)	$	(0.09	)	$	(0.32	)
Diluted	$	(0.33	)	$	0.10	$	(0.23	)	$	(0.09	)	$	(0.32	)

(A)	To reflect reduced Premiums as if the Scottish Re and F&G life reinsurance agreements novated to Transamerica and as if the GMDB/ GMIB agreement recaptured by CIGNA did not exist in 2004
(B)	To reflect reduced Net investment income as if the Transamerica annuity agreement did not exist in 2004.
(C)	To reflect reduced Surrender fees and other revenues as if the Transamerica annuity agreement did not exist in 2004.
(D)	To reflect reduced Claim and Policy Benefits as if the Scottish Re and F&G life reinsurance agreements novated to Transamerica and as if the GMDB/ GMIB agreement recaptured by CIGNA did not exist in 2004.
(E)	To reflect reduced Interest credited to interest sensitive products as if the Transamerica annuity agreement did not exist in 2004.
(F)	To reflect reduced Policy acquisition costs and other insurance expenses as if the Transamerica annuity agreement, the Scottish Re and F&G life reinsurance agreements novated to Transamerica and the GMDB/ GMIB agreement recaptured by CIGNA did not exist in 2004.
(G)	To reflect the reversal of the application of SOP 03-1 to the GMDB/ GMIB agreement recaptured by CIGNA and the Transamerica annuity agreement as if those agreements did not exist in 2004.
(H)	To reflect reduced Premiums as if the life reinsurance agreements novated to or coinsured by Wilton did not exist in 2004.
(I)	To reflect reduced Net investment income as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.
(J)	To reflect no embedded derivative as if the annuity reinsurance treaty novated to or coinsured by Wilton did not exist in 2004.
(K)	To reflect reduced Surrender fees as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.
(L)	To reflect reduced Claim and Policy Benefits as if the life reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.
(M)	To reflect reduced Interest credited to interest sensitive products as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist during the first nine months of 2005.
(N)	To reflect reduced Policy acquisition costs and other insurance expenses as if the life and annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.

     Transamerica Transaction

     On December 31, 2004, we entered into a binding letter of intent with Transamerica Occidental Life Insurance Company (“Transamerica”) that provided for the novation of our life reinsurance agreements with Scottish Re Limited (“Scottish Re”) and with Fidelity and Guaranty Life Insurance Company (“F&G”) to Transamerica as of December 31, 2004. The letter of intent also provided that, upon consummation of the novation of the life reinsurance agreements, Transamerica would terminate its annuity reinsurance agreement with us and recapture all business ceded under the agreement effective as of December 1, 2004. Our annuity reinsurance agreement with Transamerica has generated substantial losses since 2001 and has required us to make significant cash payments to Transamerica.

     Pursuant to our letter of intent with Transamerica, on January 31, 2005, we executed definitive documents (the “Novation Agreement”) and novated our life reinsurance agreements with Scottish Re and F&G to Transamerica as of December 31, 2004. In consideration of these novations, we paid Transamerica $18.5 million, representing a transfer of reserves related to the life reinsurance agreements that were novated. Also on January 31, 2005, we executed an amendment to our annuity reinsurance agreement with Transamerica pursuant to which our agreement with Transamerica was terminated, and Transamerica recaptured all business ceded under the agreement effective as of December 1, 2004. In consideration of the recapture, we paid Transamerica all amounts owed under the annuity reinsurance agreement through November 30, 2004, which was approximately $7.1 million, along with a termination premium of $14.0 million.

     In connection with the novations of the life reinsurance agreements, approximately $28.9 million of collateral held in a trust established with respect to our life reinsurance agreement with Scottish Re was transferred to Transamerica. In addition, $23.8 million of the letters of credit we posted in connection

-30-

with our life reinsurance agreement with F&G were cancelled and the collateral securing those letters of credit was released to us. Approximately $39.6 million was paid to Transamerica in connection with the novation and recapture transactions from this collateral, including $18.5 million as consideration for the novations, a $14.0 million termination premium and approximately $7.1 million for amounts due to Transamerica on December 1, 2004. Following those payments, approximately $13.1 million of cash and securities previously posted as collateral was released to us.

     On March 30, 2005, we received a demand letter from Transamerica stating that $7.0 million was owed to Transamerica as an adjustment to the F&G policy benefit reserves. On June 14, 2005, we received an additional letter from Transamerica revising its original demand to $6.0 million. Because we had been unable to resolve this issue through continued discussions with Transamerica, we sought resolution of the dispute by a neutral actuary pursuant to a provision of the Novation Agreement. The Company and Transamerica had agreed upon a neutral actuary and were in discussions regarding the scope of the issue to be submitted to the neutral actuary when, on October 3, 2005, Transamerica delivered a demand for arbitration in connection with this dispute. In that demand, Transamerica alleged that we materially misrepresented the true economic nature of the reinsurance agreements that we novated to it, or, in the alternative, that there was a mutual mistake as to the true economic nature of those reinsurance agreements. Transamerica is now seeking to rescind the Novation Agreement or recover such interest and damages as the arbitration panel deems appropriate for the alleged misrepresentations and breaches of representations and warranties. We believe Transamerica’s position is without merit and intend to defend ourselves vigorously in arbritration.

Critical Accounting Policies

     Our unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require our management to make estimates and assumptions that affect the amounts of our assets, liabilities, stockholders’ equity and results of operations. We believe that the following critical accounting policies, as well as those set forth in our Form 10-K for the year ended December 31, 2004, detail the more significant estimates and assumptions used in the preparation of our unaudited condensed consolidated financial statements.

     Deferred Policy Acquisition Costs. The costs of acquiring new business, principally allowances, which vary with and are primarily related to the production of new business, are deferred. For traditional life and annuity policies with life contingencies, deferred policy acquisition costs are charged to expense using assumptions consistent with those used in computing policy reserves. Assumptions as to anticipated premiums are estimated at the date of the policy issuance, or the effective date of the most recent premium rate increase, and are consistently applied during the life of the contracts. Deviations from estimated experience are reflected in earnings in the period such deviations occur. For these contracts, the amortization periods are generally the estimated life of the policies. We terminated or recaptured several of our reinsurance agreements during 2003 and 2004, which caused us to incur significant deferred acquisition cost write-downs. For example, we completed the termination and recapture of our annuity reinsurance agreement with Transamerica effective as of December 1, 2004, which resulted in a write off of deferred policy acquisition costs of approximately $63,100,000 in 2004. Also, the transactions contemplated under the Master Agreement with the Wilton Subsidiaries will require write downs of all remaining deferred policy acquisition costs.

     In preparing our financial statements, we make assumptions about our proportionate share of future investment income that will be earned from the investment of premiums received from underlying policyholders by our ceding companies and about future rates of lapse of policies underlying our annuity reinsurance agreements. These assumptions have a direct impact on our estimated expected gross profits on our annuity reinsurance agreements and, therefore, on the recoverability of the deferred acquisition

- 31 -

costs carried on our balance sheet for these agreements. While these estimates are based upon historical results and information provided to us by our ceding companies, actual results could differ (and, in the past, have differed) materially from our estimates for a variety of reasons, including the failure of our ceding companies to report timely information regarding material developments under our reinsurance agreements. Such differences could be material to our future results. If our assumptions for investment returns prove to be inaccurate, or if lapse rates exceed our assumptions, we may be required to record additional charges, which would adversely impact our results of operations.

     Consistent with our accounting policies, we review the key assumptions used in determining the carrying value of our deferred acquisition cost associated with our annuity reinsurance agreement each quarter. A change in these assumptions could result in additional charges that would adversely impact future results of operations. If our assumptions for total returns prove to be inaccurate, or if lapse rates exceed our assumptions, we may be required to record additional write downs of deferred acquisition costs, which would adversely impact future results of operations. For example, assuming no change in lapse assumptions, the net impact of a 100 basis point decrease in our total return assumptions in all future years would have required an additional write down of deferred acquisition costs of approximately $1,300,000 as of September 30, 2005.

     Embedded Derivatives. We have concluded that there is an embedded derivative within the Funds withheld at interest related to our annuity reinsurance agreement with Lafayette Life Insurance Company (“Lafayette”) that requires bifurcation and separate accounting under Statement of Financial Accounting Standards No. 133 — Accounting for Derivative Instruments and Hedging Activities. This embedded derivative is similar to a total return swap arrangement on the underlying assets held by Lafayette. The fair value of the embedded derivative is classified as part of our Funds withheld asset on our balance sheet. We have developed a cash flow model with the assistance of outside advisors to arrive at an estimate of the fair value of this total return swap that uses various assumptions regarding future cash flows under the agreement. The fair value of the embedded derivative is influenced by changes in credit risk, changes in expected future cash flows under the agreement and interest rates. The change in fair value of the embedded derivative is recorded in our statement of operations as the net change in fair value of embedded derivatives.

     The change in fair value of the embedded derivative also impacts the emergence of expected gross profits for purposes of amortizing deferred acquisition costs associated with our annuity reinsurance agreement with Lafayette. The application of this accounting policy has increased the volatility of our reported results of operations. While we have made an estimate of the fair value of the embedded derivative using a model that we believe to be appropriate and based upon reasonable assumptions, the assumptions used are subjective and may require adjustment in the future. Changes in our assumptions could have a significant impact on the fair value of the embedded derivative and our reported results of operations.

     Recognition of Revenues and Expenses. Reinsurance premium revenues from life products with mortality risk are recognized when due from the policyholders. Premiums from universal life and investment-type contracts are recorded on our balance sheet as interest sensitive contracts liability. Revenues from these investment-type contracts consist of income earned on the assets and amounts assessed during the period against policyholders’ account balances for mortality charges, policy administration charges and surrender charges. Items that are charged to expense represent interest credited to policyholder accounts and other benefits in excess of related policyholders’ account balances, including lifetime minimum interest guarantee payments. We make estimates at the end of each reporting period regarding premiums and benefits for ceding companies who do not report such information in a timely

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manner. These estimates can have a significant effect on the amounts we report in our financial statements.

     Reserves for Policy Benefits, Including Claims Incurred but not Reported (IBNR) and Interest Sensitive Contracts Liability. The development of reserves for policy benefits and for claims incurred but not reported for our life reinsurance contracts requires us to make estimates and assumptions regarding mortality, lapse, persistency, expense and investment experience. Such estimates are primarily based on historical experience and information provided by ceding companies. Actual results could differ, and in the past have differed, materially from those estimates. We monitor actual experience, and where circumstances warrant, will revise our assumptions and the related reserve estimates.

     Our obligations arising from our fixed annuity reinsurance agreements came from our agreement with Lafayette and, in 2004, our agreement with Transamerica. Our obligations for these fixed annuity agreements were reflected on our balance sheet as “interest sensitive contracts liability.” On December 31, 2004, we entered into a binding letter of intent with Transamerica which provided that it would terminate its annuity reinsurance agreement with us and recapture all business ceded under the agreement effective as of December 1, 2004. Pursuant to this letter of intent, on January 31, 2005, we executed definitive documents and completed the termination and recapture of our annuity reinsurance agreement with Transamerica.

     AICPA Statement of Position (SOP) 03-1. In July 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position 03-1 (“SOP”), “Accounting and Reporting by Insurance Enterprises for Certain Non-Traditional Long-Duration Contracts and for Separate Accounts”, which provides guidance on accounting and reporting by insurance enterprises for certain nontraditional long-duration contracts and for separate accounts. The SOP is effective for financial statements for fiscal years beginning after December 15, 2003. We adopted the SOP as of January 1, 2004. We no longer have any reinsurance agreements that are affected by the SOP.

     Stock-Based Compensation. On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”). SFAS No. 123R replaces SFAS No. 123 “Accounting for Stock-Based Compensation” and supersedes APB opinion No. 25 “Accounting for Stock Issued to Employees”. SFAS No. 123R requires all entities to recognize within compensation expense an amount equal to the fair value of share-based payments granted to employees and is effective as of the beginning of the first quarter of the first fiscal year that begins after June 15, 2005. We already record compensation expense for awards of stock options and restricted stock to employees based on the fair value of the awards. Consequently this statement will not impact our results of operations or financial condition.

     If actual events differ significantly from the underlying estimates and assumptions used by us in the application of any of the aforementioned accounting policies, there could be a material adverse effect on our results of operations and financial condition.

Operating Results

     Net Loss. For the three months ended September 30, 2005, we had a net loss of $(2,628,482), or $(0.10) per basic and fully diluted common share, as compared with a net loss of $(3,095,705), or $(0.12) per basic and fully diluted common share, for the three months ended September 30, 2004. For the nine months ended September 30, 2005, we had a net loss of $(3,937,113), or $(0.16) per basic and fully diluted common share, as compared to a net loss, after the cumulative effect of a change in accounting

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principle, of $(8,691,688), or $(0.33) per basic and fully diluted common share, for the nine months ended September 30, 2004.

     Our loss for the three and nine months ended September 30, 2005 was the result of our operating expenses exceeding our net investment income due to the significantly reduced size of our remaining book of business. In addition, during the first nine months of 2005 we encountered unfavorable experience on the National States life reinsurance agreement, partially offset by favorable experience relative to our assumptions at December 31, 2004 on the Scottish Re and F&G life reinsurance agreements that were novated to Transamerica at December 31, 2004. Our net loss during the three months ended September 30, 2004 was primarily due to a $2,421,000 charge for the settlement of the recapture agreement with CIGNA, while our net loss during the nine months ended September 30, 2004 was primarily due to that charge and a $5,000,000 accrual for our portion of the settlement payment under a class action shareholder lawsuit that had been brought against us and certain of our present and former officers and directors.

     Net Premiums. Net premium revenue for the three and nine months ended September 30, 2005 was $3,584,825 and $12,001,008, a decrease of 64% and 65%, respectively, from net premium revenue of $9,906,337 and $34,565,859, respectively, for the three and nine months ended September 30, 2004. Substantially all premium revenue was derived from traditional ordinary life reinsurance agreements. The decline in premium revenue reflects the significant reduction of business in force resulting from the novations of our life reinsurance agreements with Scottish Re and F&G as of December 31, 2004. At September 30, 2005, the total face amount of life insurance in force decreased to approximately $2.2 billion, as compared with approximately $15.3 billion at September 30, 2004. Our largest life reinsurance agreement represented approximately $0.2 billion of life insurance in force at September 30, 2005 and approximately $7.6 million of premium revenue for the nine months ended September 30, 2005.

     Net Investment Income. Total net investment income for the three and nine months ended September 30, 2005 was $1,531,065 and $4,806,689, respectively, as compared with $4,780,211 and $17,875,012, respectively, for the three and nine months ended September 30, 2004. Net investment income is comprised of income earned on our general account assets and income earned on assets held and managed by our reinsurance ceding companies under modified coinsurance contracts, which we refer to as Funds withheld.

     Net investment income earned on our general account assets for the three and nine months ended September 30, 2005 was approximately $927,000 and $2,868,000, respectively, as compared to $1,194,000 and $4,145,000, respectively, for the three and nine months ended September 30, 2004. The average annualized yield rate earned on our general account assets for the three and nine months ended September 30, 2005 was approximately 3.92% and 3.57%, respectively, as compared with approximately 3.53% and 3.11%, respectively, for the three and nine months ended September 30, 2004. Because the amount of our cash and invested assets has decreased significantly due to payments associated with the novation of certain life reinsurance agreements to Transamerica as of December 31, 2004 and will decrease further following the consummation of the transactions contemplated by the Master Agreement, we expect our net investment income earned on our general account assets for the remainder of 2005 to be substantially less than 2004.

     Net investment income earned on Funds withheld for the three and nine months ended September 30, 2005 was approximately $604,000 and $1,938,000, respectively, as compared to approximately $3,586,000 and $13,730,000, respectively, for the three and nine months ended September 30, 2004. The decrease in investment income on our Funds withheld was the result of our annuity reinsurance agreement with Transamerica being recaptured as of December 1, 2004. Approximately $2.8 million and $11.5

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million, respectively, of net investment income earned on Funds withheld for the three and nine months ended September 30, 2004 related to our annuity reinsurance agreement with Transamerica. The average annualized yield rates earned on Funds withheld for our annuity reinsurance agreement with Lafayette Life Insurance Company were approximately 4.67% and 4.87%, respectively, for the three and nine months ended September 30, 2005, as compared with 4.94% and 4.98%, respectively, for the three and nine months ended September 30, 2004. For purposes of calculating the average yield rates earned on our Funds withheld at interest, we include our share of the investment income and net realized capital gains and losses as reported to us through our settlements with our ceding companies.

     Net Realized Investment Gains. Net realized investment gains for the three and nine months ended September 30, 2005 were $99,507 and $500,650, respectively, as compared with net realized investment (losses) gains of $(84,868) and $456,172, respectively, for the three and nine months ended September 30, 2004. The level of net realized investment gains for both periods reflected the transfer and sale of securities in our investment portfolio to ceding companies in connection with the termination and recapture of certain of our reinsurance agreements in the first nine months of 2005 and 2004. Although we have moved a greater portion of our invested assets into longer duration investments, we continue to hold a relatively large portion of our assets in short duration investments. We will adjust our investment strategy based on developments in the markets and our business and those adjustments may result in realized gains or losses being recognized. We make decisions concerning the sales of invested assets based on a variety of market, business and other factors.

     Net Change in the Fair Value of Embedded Derivatives. Under SFAS No. 133, we have been required to bifurcate and separately account for the embedded derivatives contained in our annuity reinsurance agreement with Lafayette. Unrealized changes in the fair value of the embedded derivative are reflected in our results of operations. For the three and nine months ended September 30, 2005, the net change in fair value of our embedded derivatives was an unrealized gain of $654,444 and $1,105,853, respectively. For the three and nine months ended September 30, 2004, the net change in fair value of our embedded derivatives was an unrealized gain of $565,939 and $1,692,113, respectively.

     Surrender Fees and Other Revenue. Surrender fees and other revenue for the three and nine months ended September 30, 2005 were $33,574 and $94,887, respectively, as compared with $1,024,405 and $3,609,905, respectively, for the three and nine months ended September 30, 2004. For the three and nine months ended September 30, 2005, this income was solely derived from surrender fees related to our fixed annuity agreement with Lafayette. Approximately $1.0 million and $3.5 million, respectively, of surrender fee revenue was generated on account of our annuity reinsurance agreement with Transamerica for the three and nine months ended September 30, 2004. In light of the termination and recapture of our annuity reinsurance agreement with Transamerica, effective as of December 1, 2004, we do not expect to report significant surrender fee revenue in future periods.

     Claims and Policy Benefits. Claims and policy benefits include both life and variable annuity benefits, which, during the first half of 2004, included guaranteed minimum death benefits (“GMDB”) and guaranteed minimum income benefits (“GMIB”). Claims and policy benefits for the three months ended September 30, 2005 and 2004 were $4,591,875 and $5,669,394, or 128% and 57% of net premiums, respectively. For the nine months ended September 30, 2005 and 2004, claims and policy benefits were $10,781,404 and $24,683,101, or 90% and 71% of net premiums, respectively. The absolute decline in claims and policy benefits for the three and nine months ended September 30, 2005 as compared to the same periods in 2004 was the result of the significant reduction of life insurance in force from approximately $15.3 billion at September 30, 2004 to approximately $2.2 billion at September 30, 2005. This included the termination of our GMDB/GMIB agreement with CIGNA, which was effective July 1, 2004, as well as the novation of our life reinsurance agreements with Scottish Re and F&G to

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Transamerica as of December 31, 2004. While the novations of these life reinsurance agreements will reduce claims and policy benefits throughout 2005, they may increase volatility in the level of claims and policy benefits as a percentage of premiums.

     Interest Credited to Interest Sensitive Products. Interest credited to interest sensitive products, which are liabilities we assume under certain annuity reinsurance agreements, was $359,361 and $985,614, respectively, for the three and nine month periods ended September 30, 2005, as compared with $5,513,653 and $10,865,545, respectively, for the three and nine month periods ended September 30, 2004. The reduction in interest credited to interest sensitive products for the three and nine months ended September 30, 2005 as compared to the same periods in 2004 was due to the recapture and termination of our annuity reinsurance agreement with Transamerica which was effective December 1, 2004. For the three and nine months ended September 30, 2005, interest credited to interest sensitive products related entirely to our fixed annuity agreement with Lafayette. Interest credited to interest sensitive products for the three and nine months ended September 30, 2004 included lifetime minimum interest guarantee payments of approximately $2,652,000 and $8,063,000, respectively, related to our Transamerica agreement.

     Policy Acquisition Costs and Other Insurance Expenses. Policy acquisition costs and other insurance expenses, consisting primarily of allowances and amortization and write downs of deferred policy acquisition costs, for the three and nine months ended September 30, 2005 were $715,013 and $3,079,459, respectively, as compared with $5,693,745 and $18,529,269, respectively, for the three and nine months ended September 30, 2004. The decrease for the three and nine months ended September 30, 2005 reflects the reduction in the size of our book of business as a result of the termination and recapture of our annuity reinsurance agreement with Transamerica and the novation of our life reinsurance agreements with Scottish Re and F&G to Transamerica.

     Operating Expenses. Operating expenses for the three months ended September 30, 2005 were $2,865,648 or 55% of total revenue (excluding the net change in fair value of embedded derivatives), as compared with $2,410,937 or 15% of total revenue (excluding the net change in fair value of embedded derivatives) for the three months ended September 30, 2004. Operating expenses for the nine months ended September 30, 2005 were $7,599,723 or 44% of total revenue (excluding the net change in fair value of embedded derivatives), as compared to $12,446,874 or 22% of total revenue (excluding the net change in fair value of embedded derivatives) for the nine months ended September 30, 2004. Operating expenses for the three and nine months ended September 30, 2005 included a $740,000 severance accrual for John F. Burke, our former President and Chief Executive Officer, as well as a $200,000 settlement accrual for our dispute with Rodney Cordle, a former employee of the Company. The decrease in expenses for the nine months ended September 30, 2005 reflects the accrual of $5,000,000 for the settlement of the purported shareholder class action lawsuit in June 2004.

Segment Results

     We separately track financial results of our life and annuity operations in segments. Each segment is defined by a dominant risk characteristic inherent in products in that segment. The life segment consists of all products where the dominant risk characteristic is mortality risk. The annuity segment comprises all products where the dominant risk characteristic is investment risk. In addition, our remaining modified coinsurance annuity reinsurance agreement has features that constitute embedded derivatives that require bifurcation and separate accounting under SFAS No. 133 — Accounting for Derivative Instruments and Hedging Activities. The change in the fair value of these embedded derivatives is included in the annuity segment. Both the life and annuity segments have specific assets, liabilities, stockholders’ equity, revenue, benefits and expenses that apply only to them. The corporate segment contains all stockholders’

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equity not otherwise deployed to the life or annuity segment. In addition, the corporate segment includes all capital gains and losses from sales of securities in our portfolio and investment income on undeployed invested assets. Operating expenses are generally allocated to the segments proportionately based upon the amount of stockholders’ equity deployed to the segment. Costs associated with our efforts to raise capital and pursue other strategic alternatives and the costs of settling the shareholder class action lawsuit have been completely allocated to the corporate segment. Segment results are reported in Note 4 to our unaudited condensed consolidated financial statements.

     Life Segment. Our life reinsurance segment is the reinsurance of ordinary life insurance, primarily for mortality risks. Ordinary life reinsurance generally is the reinsurance of individual term life insurance policies, whole life insurance policies and joint and survivor insurance policies on a yearly renewable term basis. In addition, we reinsured the mortality risk inherent in universal life insurance policies, variable universal life insurance policies and variable life insurance policies.

     Our life segment is our largest segment as measured by revenues. Life segment loss for the three months ended September 30, 2005 was $(1,222,995), as compared with segment income of $2,603,458 for the three months ended September 30, 2004. Segment loss for the nine months ended September 30, 2005 was $(92,434), as compared to segment income of $3,512,405 for the nine months ended September 30, 2004.

     Segment revenues for the three months ended September 30, 2005 declined 63% to $3,957,221 from $10,620,367 for the three months ended September 30, 2004. Segment revenues for the nine months ended September 30, 2005 declined 63% to $13,239,655 from $35,750,909 for the nine months ended September 30, 2004. This decline reflects our reduced levels of life insurance in force as a result of novations of life reinsurance agreements at the end of 2004. In addition, net investment income attributable to the life segment for the first nine months of 2005 decreased by approximately $1,250,000, as compared with the first nine months of 2004, reflecting reduced invested assets in the life segment as a result of the novations to Transamerica at the end of 2004.

     Segment policy benefits and expenses decreased 35% to $5,180,216 for the three months ended September 30, 2005, as compared with $8,016,909 for the three months ended September 30, 2004. Segment policy benefits and expenses for the nine months ended September 30, 2005 decreased 59% to $13,332,089, as compared to $32,238,504 for the nine months ended September 30, 2004. The decline is attributable to the significant reduction in life insurance in force at the end of 2004 when our agreements with F&G and Scottish Re were novated to Transamerica. While novations of life reinsurance agreements in 2004 have reduced claims and policy benefits in the first nine months of 2005, they may increase volatility in the level of claims and policy benefits as a percentage of premiums in the future.

     Annuity Segment. Our annuity reinsurance segment has historically consisted of the reinsurance of general account fixed deferred annuities and certain minimum guarantees arising from variable annuities. We currently have only one remaining annuity reinsurance agreement, which covers individual general account single premium deferred annuity policies, which involve the tax-deferred accumulation of interest on a single premium paid by the policyholder (accumulation phase policies). Accumulation phase policies are subject primarily to investment risk and persistency (lapse) risk. Historically, we have also reinsured certain guarantees associated with variable annuity agreements, including GMDB and GMIB. At September 30, 2005, we no longer reinsured any GMDB or GMIB due to the recapture of our reinsurance agreement with CIGNA in 2004.

     Our annuity segment has historically contained the majority of our assets and exposes us to significant volatility in our results from operations due to the application of SFAS No. 133 — Accounting

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for Derivative Instruments and Hedging Activities. We must currently bifurcate and separately account for the embedded derivative associated with our annuity reinsurance agreement with Lafayette, and we have had to do so for other annuity reinsurance agreements in the past. This unrealized change in the value of the derivative is reported in our statement of operations each quarter. The change in the value of the derivative can be large, and is driven by financial market conditions, most notably credit risk related changes.

     Annuity segment income was $637,004 for the three months ended September 30, 2005, as compared with a loss of $(4,755,219) for the three months ended September 30, 2004. The segment income for the three months ended September 30, 2005 was largely the result of the net unrealized gain on our embedded derivatives of $654,444 on our agreement with Lafayette. During the three months ended September 30, 2004, the Transamerica annuity reinsurance agreement, which was terminated and recaptured at the end of 2004, incurred a loss of approximately $(2,059,000). For the nine months ended September 30, 2005, segment income was $1,031,951 as compared to a segment loss of $(5,001,178) for the nine months ended September 30, 2004. The segment income for the nine months ended September 30, 2005 was largely the result of the net unrealized gain on our embedded derivatives of $1,105,853 on our agreement with Lafayette. The loss for the nine months ended September 30, 2004 reflected a loss of approximately $(2,965,000) incurred on our annuity reinsurance agreement with Transamerica.

     Total revenue for our annuity segment declined 75% to $1,283,347 for the three months ended September 30, 2005, as compared with $5,026,576 for the three months ended September 30, 2004. Total revenue for our annuity segment declined 84% to $3,121,282 for the nine months ended September 30, 2005, as compared with $19,948,919 for the nine months ended September 30, 2004. This decline is due to the termination and recapture of our annuity reinsurance agreement with Transamerica in 2004 and was primarily caused by decreased investment income on our Funds withheld assets as a result of smaller asset base. Approximately $2.8 million and $11.5 million, respectively, of net investment income earned on our annuity segment for the three and nine months ended September 30, 2004 was related to our annuity reinsurance agreement with Transamerica. Approximately $1.0 million and $3.5 million, respectively, of surrender fee revenue was generated on account of our annuity reinsurance agreement with Transamerica for the three and nine months ended September 30, 2004.

     Policy benefits and expenses for the annuity segment declined 93% to $646,343 for the three months ended September 30, 2005, as compared with $9,781,795 for the three months ended September 30, 2004. These expenses declined 92% to $2,089,331 for the nine months ended September 30, 2005, as compared with $24,584,137 for the nine months ended September 30, 2004. The primary components of these expenses are interest credited to policyholders, payments for minimum interest guarantees, payments and reserve changes for minimum guarantees associated with variable annuity contracts and write downs and amortization of deferred acquisition costs. The decline in policy benefits and expenses is primarily due to the termination and recapture of our annuity reinsurance agreement with Transamerica as of December 1, 2004. Policy benefits and expenses included minimum interest guarantee payments on the Transamerica annuity reinsurance agreement of approximately $2,652,000 and $8,063,000, respectively, for the three and nine months ended September 30, 2004.

     Corporate Segment. The corporate segment includes all of our capital gains and losses, investment income on undeployed invested assets, costs associated with our efforts to raise capital and pursue other strategic alternatives, costs relating to the settlement of the shareholder class action lawsuit and a proportionate share of operating expenses based upon how stockholders’ equity is deployed to the life and annuity segments. As a result, the corporate segment, while small relative to our total company, will likely have volatile results.

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     Segment losses of $(2,042,491) and $(4,876,630), respectively, were incurred for the three and nine months ended September 30, 2005, as compared with losses of $(943,944) and $(7,202,915), respectively, for the three and nine months ended September 30, 2004. The decrease in segment loss for the nine months ended September 30, 2005 reflects the accrual of $5,000,000 for the settlement of the purported shareholder class action lawsuit in June 2004. Revenues increased by 22% to $662,847 for the three months ended September 30, 2005, as compared with $545,081 for the three month period ended September 30, 2004, and declined by 14% to $ $2,148,150 for the nine months ended September 30, 2005, as compared with $2,499,233 for the nine months ended September 30, 2004. This decrease in segment revenues for the nine months ended September 30, 2005 was primarily the result of lower investment income earned on general account assets as a result of the reduced level of invested assets.

     Segment benefits and expenses increased to $2,705,338 for the three months ended September 30, 2005, as compared with $1,489,025 for the three months ended September 30, 2004. This increase was primarily due to a $740,000 severance accrual for the Company’s former CEO as well as a $200,000 settlement accrual for the dispute with a former employee of the Company in the third quarter of 2005. Segment benefits and expenses decreased to $7,024,780 for the nine months ended September 30, 2005, as compared with $9,702,148 for the nine months ended September 30, 2004. This decrease partially reflects the $5,000,000 accrual for the anticipated settlement of the purported shareholder class action lawsuit in June 2004.

Financial Condition

Investments

     At September 30, 2005 and December 31, 2004, a large portion of our invested assets, including cash and cash equivalents, were posted as collateral to secure our obligations under reinsurance agreements and letter of credit facilities or were required to maintain the statutory capital and surplus requirements of our U.S. operating subsidiary. At September 30, 2005, our invested assets, including cash and cash equivalents, had an aggregate fair value of $92,899,685, as compared with an aggregate fair value of $138,428,894 at December 31, 2004. The decline in our invested assets during the first nine months of 2005 was primarily due to the payment to Transamerica of $18,500,000 as consideration for the novations of our agreements with Scottish Life and F&G to Transamerica, $14,000,000 for the termination and recapture of our annuity reinsurance agreement with Transamerica and approximately $7,100,000 for amounts due to Transamerica through November 30, 2004. On January 10, 2005, we paid $2,500,000 in connection with the settlement of a class action shareholder lawsuit that had been brought against us and certain of our present and former officers and directors. At September 30, 2005, gross unrealized losses totaled $(305,655), as compared to gross unrealized gains of $1,266,517 at December 31, 2004. At September 30, 2005 and December 31, 2004, the weighted average duration of the fixed income securities included in our invested assets was 2.8 and 2.9 years, respectively, and the weighted average investment quality rating was “AA” at the end of each period.

     Our investments are governed by investment guidelines established and approved by our Board of Directors. Our investment objectives are to achieve above average risk-adjusted total returns, maintain a high quality portfolio, maximize current income, maintain an adequate level of liquidity in our portfolio and match the cash flows of our investments to our related insurance liabilities. Our investment guidelines require our overall fixed income portfolio to maintain a minimum weighted average credit quality of “A” and limit investment in fixed income securities that are non-rated or below investment grade at the time of purchase to an aggregate of $3,000,000. In 2004, we invested approximately $900,000 in securities that were non-rated at the time of their purchase. While any investment carries some risk, the risks associated with non-rated or lower-rated securities generally are greater than the risks associated with investment

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grade securities. A fixed income security rated “A” by Standard & Poor’s is considered to be somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than higher rated issuers; however, the issuer’s capacity to meet its financial commitment on the security is still considered to be strong. We currently do not invest in any fixed income securities in emerging markets.

     Prudential Investment Corporation (“Prudential”) serves as our advisor for our general account investment portfolio. Our management agreement with Prudential may be terminated by either party with 45 days notice. On September 14, 2005, Prudential provided us with the requisite written notice that it would be terminating our investment management agreement as of November 15, 2005. Our Board of Directors is currently reviewing the options available to replace Prudential.

     We do not engage in trading activities to generate realized investment gains and, thus, do not have a trading portfolio. However, we evaluate the desirability of continuing to hold a security when market conditions, creditworthiness or other measurement factors change. These changes may relate to a change in the credit risk of an issuer and a decision to sell may be made to avoid further declines in realizable value. Securities also may be sold prior to maturity to provide liquidity, as was the case in 2003 and 2004. As a result, our securities are classified as “available for sale” and are carried at fair value on our balance sheet.

     At both September 30, 2005 and at December 31, 2004, there was one below investment-grade security held in the portfolio. The market value of non-rated securities held at September 30, 2005 was approximately $812,000. The fair value of such investments varies depending on economic and market conditions, the level of interest rates and the perceived creditworthiness of the issuer. As noted above, our investment guidelines require our overall fixed income portfolio to maintain a minimum weighted average credit quality of “A” and limit the amount of our investments in fixed income securities that are non-rated or below investment grade at the time of purchase. We monitor the creditworthiness of the portfolio as a whole, and when the fair market value of a security declines for reasons other than changes in interest rates or other perceived temporary conditions, the security is written down to its fair value. At September 30, 2005 and December 31, 2004, there were no impaired securities in our portfolio.

     At September 30, 2005, mortgage-backed securities represented approximately 3% of our invested assets, including cash and cash equivalents, as compared with approximately 7% at December 31, 2004. Investors in these securities are compensated primarily for reinvestment risk rather than credit quality risk. Investments in mortgage-backed securities include collateralized mortgage obligations (“CMO’s”) and mortgage-backed pass-through securities. Mortgage backed securities generally are collateralized by mortgages issued by the Government National Mortgage Association (“GNMA”), the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. Of these, only GNMA mortgages are backed by the full faith and credit of the U.S. government. Credit risk generally is not a consideration when investing in agency mortgage backed securities. Our mortgage backed securities portfolio had a weighted average investment quality rating of “AAA” at both September 30, 2005 and December 31, 2004.

     At September 30, 2005, approximately 65% of our mortgage-backed investment portfolio consisted of securities with planned repayment schedules, as compared with 17% at December 31, 2004. These investments are designed to amortize in a more predictable manner by shifting the primary risk of prepayment of the underlying collateral to investors in other tranches of the CMO.

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     The following table summarizes our investment results (excluding investment income on assets held and managed by our ceding companies or others on their behalf) for the periods indicated:

Investment Results

	Nine months Ended September 30,						Twelve Months Ended December 31,
	2005			2004			2004			2003			2002
	(Dollars in thousands)
Total invested assets, including cash and equivalents (1)	$	92,900		$	140,221		$	138,429		$	197,881		$	306,346
Investment income, net of related expenses	$	2,868		$	4,145		$	5,335		$	5,924		$	25,931
Effective annualized yield rate (2)		3.57	%		3.53	%		3.51	%		2.53	%		5.28	%
Realized investment gains	$	501		$	456		$	440		$	6,407		$	19,749

(1)	Fair value at end of the indicated period.
(2)	The effective yield rate equals (i) net investment income divided by (ii) the average of total adjusted invested assets (fixed maturities at amortized cost, including assets on deposit with reinsurers) at the end of each calendar quarter included in the indicated period.

     Funds Withheld at Interest

     As of September 30, 2005, our ceding companies had approximately $51.0 million in assets that were held and managed by them under our modified coinsurance and coinsurance funds withheld arrangements. Approximately $45.7 million of the funds withheld at interest relates to our modified coinsurance annuity reinsurance agreement with Lafayette, with the remaining $5.2 million related to a coinsurance funds withheld life reinsurance agreement.

     Our remaining annuity reinsurance agreement covers general account fixed deferred annuity policies and is structured as a modified coinsurance arrangement. In this type of arrangement, the ceding company invests the premiums received from policyholders or engages an investment manager to do so, credits interest to policyholders’ accounts, processes surrenders and engages in other administrative activities. The ceding company is also required to carry reserves for these annuity policies based upon certain statutory rules in the state in which the ceding company is domiciled. The underlying investments purchased with the premiums received from policyholders support these statutory reserves.

     Historically, when a ceding company enters into an annuity reinsurance agreement structured as a modified coinsurance arrangement with us, a portion of the ceding company’s liability to the policyholders is ceded to us. Our remaining modified coinsurance arrangement is on a quota share basis, so the portion that is ceded to us is a fixed percentage of the liabilities arising from the underlying policies. Our share of the ceding company’s liability is included on our balance sheet as “interest sensitive contracts liabilities.” However, unlike other reinsurance arrangements in which we receive cash or investments as consideration for assuming a portion of the ceding company’s liability, under these types of arrangements, we have established a receivable called “funds withheld at interest” that is equal to our fixed portion of the statutory reserves carried by the ceding company. We are allocated our share of the investment income and realized capital gains and losses that arise from the securities in the investment portfolio underlying the statutory reserve.

     The average yield rate earned on the invested premiums funding our annuity obligations to Lafayette was approximately 4.67% and 4.87%, respectively, for the three and nine months ended September 30, 2005 and approximately 4.94% and 4.98%, respectively, for the three and nine months ended September 30, 2004. For purposes of calculating the average yield rate earned on assets held and managed by our

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ceding companies, we include our share of the investment income and net realized capital gains and losses as reported to us through our settlements with our ceding companies.

     The performance of the assets held and managed by our ceding companies depends to a great extent on the ability of the ceding company and its investment managers to make appropriate investments consistent with their investment guidelines. If these assets do not achieve investment returns sufficient to meet our obligations on the underlying policies, we could experience unexpected losses.

Lafayette Annuity Reinsurance Agreement

     Approximately $45.7 million, or 90%, of our funds withheld at interest receivable, approximately $50.7 million, or 100%, of our interest sensitive contracts liability, and approximately $2.6 million, or 46%, of the deferred acquisition costs on our balance sheet as of September 30, 2005 related to our annuity reinsurance agreement with Lafayette. As a result of the termination and recapture of our annuity reinsurance agreement with Transamerica effective as of December 1, 2004, we expect that the assets and liabilities associated with the Lafayette agreement will represent a significant portion of our total assets and liabilities in future periods. The amount of deferred acquisition costs we record as an asset on our balance sheet related to our agreement with Lafayette is based on a series of assumptions related to the investment performance of the assets supporting our liabilities under the agreement, as well as future lapse rates for the underlying policies. These assumed lapse rates include assumptions regarding future full surrenders, partial withdrawals, annuitizations and policyholder deaths. While we believe our investment and lapse estimates to be reasonable, they are estimates of future events and we cannot assure you that they will prove to be accurate. If such assumptions turn out to be inaccurate, we could be required to write off additional deferred acquisition costs, which would have a significant adverse impact on our results of operations in future periods.

     The assets funding the policyholder obligations under our annuity reinsurance agreement with Lafayette have an average credit quality of “A-” and an average duration of 3.7 years. The average yield rates on the assets held and managed by Lafayette was approximately 5.1% as of September 30, 2005. At September 30, 2005, none of the assets were invested in below investment grade or non-rated securities. The premiums paid in connection with the underlying policies have been invested in investment grade bonds and mortgage backed securities.

     According to information provided by Lafayette, at September 30, 2005, the assets funding the policyholder obligations under our annuity reinsurance agreement were comprised of the following:

					% of Total
Type of Security	Book Value(1)		Market Value		Market Value
Investment grade US corporate bonds	$	39,605,135	$	40,603,096		78.6	%
Mortgage-backed securities		5,527,012		5,978,893		11.6	%
Government bonds		5,114,039		5,084,687		9.8	%
Total invested assets	$	50,246,186	$	51,666,676		100.0	%
Accrued investment income				762,281
Total market value, including accrued investment income			$	52,428,957

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(1) Book values are statutory book values reported to us by Lafayette for the underlying investments and represent the value of our Funds withheld at interest receivable. We present statutory book values in the above table because that is the basis upon which we settle with Lafayette. We believe this presents a better understanding of potential future returns and cash flows under the agreement.

     According to information provided by Lafayette, at September 30, 2005, the credit ratings of the assets (excluding accrued investment income) funding the policyholder obligations under our annuity reinsurance agreement were approximately as follows:

					% of Total
Ratings(1)	Book Value(2)		Market Value		Market Value
AAA	$	5,822,578	$	5,771,383		11.2	%
AA		3,265,558		3,342,010		6.5	%
A		14,259,514		14,695,695		28.4	%
BBB		26,898,536		27,857,588		53.9	%
Total invested assets	$	50,246,186	$	51,666,676		100.0	%
Accrued investment income				762,281
Total market value, including accrued investment income			$	52,428,957

(1)	As assigned by Standard & Poor’s, or, if unrated by Standard & Poor’s, based on an equivalent rating assigned by the National Association of Insurance Commissioners.
(2)	Book values are statutory book values reported to us by Lafayette for the underlying investments and represent the value of our Funds withheld at interest receivable. We present statutory book values in the above table because that is the basis upon which we settle with Lafayette. We believe this presents a better understanding of potential future returns and cash flows under the agreement.

     According to information provided by Lafayette, at September 30, 2005, the maturity distribution of the assets funding the policyholder obligations under our annuity reinsurance agreement was as follows:

					% of Total
Maturity	Book Value(1)		Market Value		Book Value
Within one year	$	5,284,689	$	5,309,945		10.3	%
From one to five years		22,356,515		23,173,587		44.9	%
From six to ten years		19,389,936		19,693,693		38.1	%
More than ten years		3,215,046		3,489,451		6.7	%
Total all years	$	50,246,186	$	51,666,676		100.0	%

(1) Book values are those statutory book values reported to us by Lafayette for the underlying investments and represent the value of our Funds withheld at interest receivable. We present statutory book values in the above table because that is the basis upon which we settle with Lafayette. We believe this presents a better understanding of potential future returns and cash flows under the agreement.

Liquidity and Capital Resources

     Our liquidity and capital resources are a measure of our overall financial strength and our ability to generate cash flows from our operations to meet our operating needs. Our principal sources of funds are

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premiums received, net investment income, proceeds from investments called, redeemed or sold and cash and short-term investments. Our principal obligations and uses of the funds are to post collateral for the statutory reserves ceded to us by U.S. based insurers and reinsurers, the payment of policy benefits, acquisition and operating expenses and the purchase of investments.

     Under the terms of our reinsurance agreements, we are required to provide letters of credit or fund trust accounts with liquid assets to satisfy the collateral requirements of our ceding companies. At September 30, 2005 and December 31, 2004, letters of credit totaling $9,800,000 and $35,100,000, respectively, had been issued in the ordinary course of our business by our bankers in favor of certain ceding insurance companies (including our U.S. operating subsidiary) to provide security and meet regulatory requirements. At September 30, 2005 and December 31, 2004, cash and investments of approximately $14,000,000 and $41,300,000, respectively, were pledged as collateral for letters of credit. At September 30, 2005 and December 31, 2004, cash and investments of nil and approximately $28,900,000, respectively, were held in trust for the benefit of certain of our ceding insurance companies to provide security and to meet regulatory requirements. At September 30, 2005, we had satisfied the collateral requirements of all of our ceding companies.

     We have two reinsurance operating subsidiaries, one of which is based in and operates out of Bermuda, and the other of which is based in and operates out of the United States. Our Bermuda operating subsidiary reinsures a large portion of the reinsurance business written by our U.S. operating subsidiary. The primary purpose of this reinsurance is to provide reinsurance capacity to our U.S. operating subsidiary so that it can compete in its market place. Our Bermuda operating subsidiary also has made capital infusions into the U.S. operating subsidiary to allow the U.S. Company to maintain targeted statutory surplus levels and to provide cash and securities as collateral for the reinsurance cessions the U.S. operating subsidiary makes to the Bermuda operating company. At September 30, 2005, approximately $50,000,000 of our cash and cash equivalents and fixed income securities were held by the U.S. operating subsidiary and were not available to us or our Bermuda operating subsidiary to fund our liquidity or collateral needs.

     In connection with the novations of the life reinsurance agreements, approximately $28,900,000 of collateral held in a trust established with respect to our life reinsurance agreement with Scottish Re was transferred to Transamerica. In addition, $23,800,000 of letters of credit we posted on behalf of our life reinsurance agreement with F&G was cancelled and the collateral securing those letters of credit was released to us. Approximately $39,600,000 was paid to Transamerica in connection with the novation and recapture transactions from this collateral, including $18,500,000 as consideration for the novations, a $14,000,000 termination premium and approximately $7,100,000 for amounts due to Transamerica as of December 1, 2004. Following those payments, approximately $13,100,000 of cash and securities previously posted as collateral was released to us. On March 30, 2005, we received a demand letter from Transamerica stating that $7,000,000 was owed to Transamerica as an adjustment to the F&G policy benefit reserves. On June 14, 2005, we received an additional letter from Transamerica revising its original demand to $6,000,000. Because we had been unable to resolve this issue through continued discussions with Transamerica, we sought resolution of the dispute by a neutral actuary pursuant to a provision of the Novation Agreement. We had agreed with Transamerica upon a neutral actuary and were in discussions regarding the scope of the issue to be submitted to the neutral actuary when, on October 3, 2005, Transamerica delivered a demand for arbitration in connection with this dispute. In that demand, Transamerica alleged that we materially misrepresented the true economic nature of the reinsurance agreements that we novated to it, or, in the alternative, that there was a mutual mistake as to the true economic nature of those reinsurance agreements. Transamerica is now seeking to rescind the Novation Agreement or recover such interest and damages as the arbitration panel deems appropriate for the alleged misrepresentations and breaches of representations and warranties. We believe Transamerica’s position is without merit and intend to defend ourselves vigorously in arbitration.

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     Although our liquidity position has improved following the novation and recapture transactions we completed with Transamerica, a large portion of our cash and investments is held by our U.S. operating subsidiary or is posted as collateral under our remaining life reinsurance agreements and is unavailable to fund our operations or those of our Bermuda operating subsidiary.

     At September 30, 2005, our total capitalization, which consisted entirely of equity, was $60,052,923. During 2001, our Board of Directors approved a share repurchase program of up to an aggregate of $25,000,000 of our common shares from time to time in the future if market conditions so dictate. As of September 30, 2005, no shares had been repurchased under this program.

     On September 14, 2005, we entered into and completed a purchase agreement with Overseas Partners, Ltd. This agreement provided for our purchase from Overseas Partners, Ltd. of 1,773,050 of our common shares and Class B warrants to acquire an additional 133,396 common shares for a total cash purchase price of $1,453,901. Following the acquisition, we cancelled these shares and warrants.

     For the nine months ended September 30, 2005, we utilized $42,478,631 of our cash and equivalents to fund operating activities, as compared with using cash and equivalents of $56,511,221 from our operating activities for the nine months ended September 30, 2004. The utilization of our cash and equivalents during the first nine months of 2005 primarily reflects the $18,500,000 payment as consideration for the novations of our agreements with Scottish Life and F&G to Transamerica, the $14,000,000 premium paid to Transamerica for the termination and recapture of our annuity reinsurance agreement and approximately $7,100,000 for amounts due to Transamerica for monthly settlements under our annuity reinsurance agreement through November 30, 2004. Also, on January 10, 2005, we paid $2,500,000 in connection with the settlement of a class action shareholder lawsuit that had been brought against us and certain of our present and former officers and directors.

     We have no material commitments for capital expenditures as of September 30, 2005. We continue to receive premiums and pay claims under our remaining reinsurance treaties; however, we are not currently underwriting any new treaties or accepting any new business from our existing treaties. Because we will continue to have residual commitments and contingencies following the consummation of the transactions contemplated by the Master Agreement, we do not expect to be able immediately to wind-down or dissolve our company or its subsidiaries. We intend to continue to explore strategic alternatives to attempt to maximize our economic value for shareholders, including a merger of our company into another entity, the sale of one or both of our operating subsidiaries or other comparable transactions. In addition, we may consider cash distributions to shareholders, stock buybacks or similar transactions, to the extent our financial condition allows us to do so and we are not constrained by insurance regulatory or other laws or by our obligations under the Master Agreement.

     Both we and our Bermuda operating subsidiary, Annuity and Life Reassurance, are required to comply with the provisions of the Bermuda Companies Act that regulate the payment of dividends and the making of distributions from contributed surplus. Under the Act, neither we nor Annuity and Life Reassurance may declare or pay a dividend, or make a distribution out of contributed surplus, if there are reasonable grounds for believing that: (i) the relevant company is, or would be after the payment, unable to pay its liabilities as they become due; or (ii) the realizable value of the relevant company’s assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts. As of and since December 31, 2002, we have not declared a dividend to shareholders. The declaration and payment of future dividends to holders of our common shares will be at the discretion of our Board of Directors and will depend upon our earnings and financial condition, capital requirements of

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our subsidiaries, the ability of our operating subsidiaries to pay dividends to us, regulatory considerations and other factors the Board of Directors deems relevant.

Forward-Looking and Cautionary Statements

     This report, together with other statements and information we may provide, contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements may include, but are not limited to, projections of revenues, income or loss, capital expenditures, plans for future operations and financing needs or plans, as well as assumptions relating to the foregoing. The words “expect,” “project,” “estimate,” “predict,” “anticipate,” “believe” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements include these expressions. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results, performance and achievements could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. Factors that could materially and adversely affect our operations and financial condition and/or cause our actual results of operations or financial condition to differ from those expressed or implied in our forward-looking statements include, but are not necessarily limited to, our ability to consummate the pending transactions with Wilton described in this report, our ability to meet the obligations associated with our current business and to fund our continuing operations; the loss of a key executive; our ability to pursue strategic alternatives on favorable terms; the outcome of pending legal proceedings involving us; the ability of our ceding companies to manage successfully assets they hold on our behalf; our success in managing our investments; changes in mortality, morbidity and claims experience; our ability to make accurate estimates and assumptions regarding future mortality, persistency, lapses, expenses and investment performance based upon historical results and information provided to us by our ceding companies; changes in market conditions, including changes in interest rate levels; the competitive environment; the impact of recent and possible future terrorist attacks and the U.S. government’s response thereto; regulatory changes (such as changes in U.S. tax law and insurance regulation that directly affect the competitive environment for our products); and a prolonged economic downturn. Investors are also directed to consider the risks and uncertainties discussed in other documents we have filed with the Securities and Exchange Commission, and in particular, our Annual Report on Form 10-K for the year ended December 31, 2004. We do not undertake to update any forward-looking statement that may be made from time to time by or on our behalf.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

     There have been no material changes since December 31, 2004 with respect to our market risk exposure described in our Annual Report on Form 10-K for the year ended December 31, 2004. Please refer to “Item 7A: Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2004.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

     The Company’s principal executive officer and its principal financial officer, based on their evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), have concluded that the Company’s disclosure controls and procedures were effective for the purposes set forth in the definition thereof in Exchange Act Rule 13a-15(e) as of September 30, 2005.

Changes in internal control over financial reporting

     There were no changes to the Company’s system of internal control during the three months ended September 30, 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Please refer to “Item 9a. Controls and Procedures” in our Annual Report on Form 10-K for the year ended December 31, 2004.

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

     On October 8, 2003, we were served with a statutory demand for $640,000 from Imagine Group Holdings Limited (“Imagine”), a Bermuda based reinsurance company, which was subsequently withdrawn. Imagine has since instituted a civil proceeding in the Bermuda Supreme Court against us, alleging that we are obligated to reimburse it for $640,000 of expenses incurred by Imagine in connection with a proposed December 2002 capital raising transaction that was not consummated. On March 11, 2004, we filed an amended defense with the court to which Imagine responded on April 26, 2004. On October 26, 2005, we reached an agreement in principle with Imagine to settle this dispute for a payment of $425,000 which we paid into escrow on November 7, 2005.

     On April 15, 2005, we were served with a Writ of Summons from the Bermuda Supreme Court, whereby Rodney Cordle, a former employee of the Company, alleged that we failed to pay a monthly housing allowance to him in accordance with the terms of his employment agreement. Mr. Cordle was seeking $287,403 plus damages, interest and costs. On October 25, 2005, the dispute was settled and we paid Mr. Cordle a settlement amount of $181,866 plus $18,134 for legal costs.

     On March 30, 2005, we received a demand letter from Transamerica stating that $7.0 million was owed to Transamerica as an adjustment to the F&G policy benefit reserves. On June 14, 2005, we received an additional letter from Transamerica revising its original demand to $6.0 million. Because we had been unable to resolve this issue through continued discussions with Transamerica, we sought resolution of the dispute by a neutral actuary pursuant to a provision of the Novation Agreement. We had agreed with Transamerica upon a neutral actuary and were in discussions regarding the scope of the issue to be submitted to the neutral actuary when, on October 3, 2005, Transamerica delivered a demand for arbitration in connection with this dispute. In that demand, Transamerica alleged that we materially misrepresented the true economic nature of the reinsurance agreements that we novated to it, or, in the alternative, that there was a mutual mistake as to the true economic nature of those reinsurance agreements. Transamerica is now seeking to rescind the agreement providing for the novation of the reinsurance agreements, or, in the alternative, such interest and damages as the arbitration panel deems appropriate for the alleged misrepresentations and breaches of representations and warranties. We believe Transamerica’s position is without merit and intend to defend ourselves vigorously in arbitration.

     There are no other material arbitration or other legal proceedings currently in process in which we are involved.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     The following table summarizes our equity security repurchases during the three months ended September 30, 2005:

						Total Number of		Approximate Dollar
	Total					Share Purchased		Value of Shares that
	Number of			Average		as part of Publicly		May Yet Be Purchased
	Shares			Price Paid		Announced Plans		Under the
Period	Purchased			per Share		or Programs		Plans or Programs (1)
July 1 – July 31, 2005		—			—		—	$	25,000,000
August 1 – August 31, 2005		—			—		—	$	25,000,000
September 1 – September 30, 2005		1,773,050	(2)	$	0.82		—	$	25,000,000
Total		1,773,050	(2)	$	0.82		—	$	25,000,000

(1)

During 2001, the Company’s Board of Directors approved a share repurchase program to allow the Company to repurchase up to an aggregate $25,000,000 of its common shares in the future if market conditions so dictate. As of September 30, 2005, no shares had been repurchased under the program.

(2)

On September 14, 2005, the Company entered into a Purchase Agreement (the “Agreement”) with Overseas Partners, Ltd. (“Overseas Partners”). The Agreement provided for the purchase by the Company from Overseas Partners of 1,773,050 common shares of the Company (the “Shares”) and Class B warrants to purchase an additional 133,396 common shares of the Company (the “Warrants”) for a total cash purchase price of $1,453,901. The Company completed the acquisition of the Shares and Warrants pursuant to the terms of the Agreement on September 14, 2005. The Shares represented approximately 6.74% of the Company’s outstanding common shares, and the Warrants had an exercise price of $14.06 per share. Following the acquisition, the Shares and the Warrants were cancelled by the Company.

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Item 6. Exhibits

10.1	Master Agreement dated as of August 10, 2005 by and between Prudential Select Life Insurance Company of America, Wilton Reinsurance Bermuda Limited, Annuity and Life Reassurance America, Inc. and Annuity and Life Reassurance, Ltd.
10.2	Purchase Agreement dated as of September 14, 2005 by and between Annuity and Life Re (Holdings), Ltd. and Overseas Partners, Ltd. (incorporated by reference to the issuer’s Current Report on Form 8-K dated September 14, 2005, as filed with the Commission on September 15, 2005).
10.3	Separation of Employment Agreement and General Release, dated September 23, 2005, by and among Annuity and Life Re (Holdings), Ltd., Annuity and Life Reassurance, Ltd., and John F. Burke (incorporated by reference to the issuer’s Current Report on Form 8-K dated September 23, 2005, as filed with the Commission on September 26, 2005).
10.4	Employment Letter, dated October 19, 2005, by and among Annuity and Life Re (Holdings), Ltd. and William H. Mawdsley (incorporated by reference to the issuer’s Current Report on Form 8-K dated October 19, 2005, as filed with the Commission on October 20, 2005).
10.5	Employment Letter, dated October 19, 2005, by and among Annuity and Life Re (Holdings), Ltd. and John W. Lockwood. (incorporated by reference to the issuer’s Current Report on Form 8-K dated October 19, 2005, as filed with the Commission on October 20, 2005).
31.1	Rule 13a-14(a)/15d-14(a) Certification of the Company’s Chief Executive Officer.
31.2	Rule 13a-14(a)/15d-14(a) Certification of the Company’s Chief Financial Officer.
32.1	Section 1350 Certification of the Company’s Chief Executive Officer.
32.2	Section 1350 Certification of the Company’s Chief Financial Officer.

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ANNUITY AND LIFE RE (HOLDINGS), LTD.

SIGNATURES

     Pursuant to the requirements 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.

	ANNUITY AND LIFE RE (HOLDINGS), LTD.
	/s/ William H. Mawdsley
	Name:	William H. Mawdsley
Date: November 9, 2005	Title:	Chief Executive Officer
	/s/ John W. Lockwood
	Name:	John W. Lockwood
Date: November 9, 2005	Title:	Chief Financial Officer

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Exhibit Index

10.1	Master Agreement dated as of August 10, 2005 by and between Prudential Select Life Insurance Company of America, Wilton Reinsurance Bermuda Limited, Annuity and Life Reassurance America, Inc. and Annuity and Life Reassurance, Ltd.
10.2	Purchase Agreement dated as of September 14, 2005 by and between Annuity and Life Re (Holdings), Ltd. and Overseas Partners, Ltd. (incorporated by reference to the issuer’s Current Report on Form 8-K dated September 14, 2005, as filed with the Commission on September 15, 2005).
10.3	Separation of Employment Agreement and General Release, dated September 23, 2005, by and among Annuity and Life Re (Holdings), Ltd., Annuity and Life Reassurance, Ltd., and John F. Burke (incorporated by reference to the issuer’s Current Report on Form 8-K dated September 23, 2005, as filed with the Commission on September 26, 2005).
10.4	Employment Letter, dated October 19, 2005, by and among Annuity and Life Re (Holdings), Ltd. and William H. Mawdsley (incorporated by reference to the issuer’s Current Report on Form 8-K dated October 19, 2005, as filed with the Commission on October 20, 2005).
10.5	Employment Letter, dated October 19, 2005, by and among Annuity and Life Re (Holdings), Ltd. and John W. Lockwood. (incorporated by reference to the issuer’s Current Report on Form 8-K dated October 19, 2005, as filed with the Commission on October 20, 2005).
31.1	Rule 13a-14(a)/15d-14(a) Certification of the Company’s Chief Executive Officer.
31.2	Rule 13a-14(a)/15d-14(a) Certification of the Company’s Chief Financial Officer.
32.1	Section 1350 Certification of the Company’s Chief Executive Officer.
32.2	Section 1350 Certification of the Company’s Chief Financial Officer.

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EX-10.1

APPENDIX A

MASTER AGREEMENT

By and Among

PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA*,

WILTON REINSURANCE BERMUDA LIMITED,

ANNUITY AND LIFE REASSURANCE AMERICA, INC.,

and

ANNUITY AND LIFE REASSURANCE, LTD.

August 10, 2005

      * To be renamed Wilton Reassurance Company. Not affiliated with The Prudential Insurance Company of America.

A-1

MASTER AGREEMENT

      THIS MASTER AGREEMENT (“Agreement”), dated as of August 10, 2005, is entered into by and among PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA, a Minnesota insurance company (to be renamed Wilton Reassurance Company) (“Wilton America”), WILTON REINSURANCE BERMUDA LIMITED, a Bermuda insurance company (“Wilton Bermuda” and, together with Wilton America, the “Retrocessionaires”), ANNUITY AND LIFE REASSURANCE AMERICA, INC., a Connecticut insurance company (“ALR America”), and ANNUITY AND LIFE REASSURANCE, LTD., a Bermuda insurance company (“ALR Bermuda,” and, with ALR America, each a “Company” and together the “Companies”).

      WHEREAS, the Companies are the reinsurers or retrocessionaires under the Treaties (as defined herein); and

      WHEREAS, the Companies desire to transfer, assign, cede and retrocede, as the case may be, their contractual rights, interests, liabilities, obligations and risks under the Treaties and the Ancillary Agreements (as defined herein) to the Retrocessionaires, and the Retrocessionaires desire to purchase, acquire, assume and reinsure such contractual rights, interests, liabilities, obligations and risks pursuant to the terms of the Coinsurance Agreements (as defined herein) and to seek novations of the Treaties to the Retrocessionaires on the terms stated herein; and

      WHEREAS, the Retrocessionaires wish for the Companies to provide certain administrative and support services with respect to the Treaties for a period of time and, thereafter, the Retrocessionaires shall undertake and assume full responsibility for such administrative and support services pursuant to the provisions of the Coinsurance Agreements; and

      WHEREAS, in connection with any approvals that the Companies or their affiliates must obtain from their respective security holders in connection with the transactions contemplated by this Agreement, the Retrocessionaires and certain significant shareholders of ALR Holdings (as defined herein) have entered into certain voting agreements dated the date hereof (the “Voting Agreements”), which provide that such shareholders will vote in favor of the transactions contemplated hereby.

      NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, and in reliance upon the representations, warranties, conditions and covenants herein contained, and intending to be legally bound hereby, the Companies and the Retrocessionaires do hereby agree as follows:

ARTICLE I

Definitions

      Capitalized terms used in this Agreement, but not defined in this Article  I, shall have the meaning given them in the other articles of this Agreement. The following capitalized words and terms shall have the following meanings when used in this Agreement:

      1.1     ALR Holdings. Annuity and Life Re (Holdings), Ltd., a Bermuda holding company.

      1.2     Ancillary Agreement Assignment. With respect to any Ancillary Agreement that is assigned or novated to a Retrocessionaire, the assignment or novation agreement to be entered into between the relevant Company, the relevant Retrocessionaire, and the counter-party or counter-parties to such Ancillary Agreement in accordance with Section 5.9 of this Agreement (which assignment or novation agreement shall be substantially in one of the forms attached as Exhibit A hereto).

      1.3     Ancillary Agreements. Each contract or agreement identified on Schedule 1.3 hereof between one or more of the Companies (or affiliates thereof) and the counterparties as to any Treaty relating to the administration or management of one or more of the Treaties.

      1.4     Assumed Liability. Any liability expressly assumed or reinsured by either Retrocessionaire pursuant to this Agreement, a Novation Amendment, an Ancillary Agreement Assignment or an Existing Retrocession Agreement Assignment.

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      1.5     Books and Records. All files and records, in whatever form, in the possession of either Company or ALR Holdings related to the Treaties, the Ancillary Agreements, the Existing Retrocession Agreements or the administration of any of the foregoing, including, but not limited to Treaty files, correspondence files, claims files and underwriting files, reinsurance and policy records, administrative records, compliance records, files and records relating to regulatory matters related to the Treaties or any of the policies or contracts covered thereby or the administration of any of the foregoing, and actuarial, operational and financial data and information developed or utilized by the relevant Company or on its behalf with respect to the Treaties; provided, however, that if any such records contain information which does not relate to the Treaties, such information shall not constitute “Books and Records” and may be redacted from the “Books and Records” as the relevant Company reasonably deems appropriate. Books and Records shall exclude (a) any original books and records relating to any Company Extracontractual Liabilities or required to be retained by any applicable laws, and (b) any records that are subject to attorney-client privilege.

      1.6     Business Day. Any day other than a Saturday, Sunday or other day on which commercial banks in New York or Bermuda are required or authorized by law to be closed.

      1.7     Cedent. The cedent under any Treaty.

      1.8     Closing. The closing of the transactions contemplated by Article II of this Agreement, which shall take place at the offices of ALR Holdings in Hamilton, Bermuda, unless otherwise agreed by the parties.

      1.9     Closing Date. The Closing shall take place at 10:00 a.m., Atlantic Standard time, on (a) the first Business Day of the first calendar month beginning at least five (5) Business Days after the date on which the last of the conditions set forth in Article VI is satisfied or waived by the party or parties entitled to waive the same or (b) such other date upon which the parties may mutually agree.

      1.10     Coinsurance Agreements. The coinsurance agreements to be entered into between (i) Wilton America and ALR America and (ii) Wilton Bermuda and ALR Bermuda, in each case pursuant to the provisions of Section 2.1 of this Agreement. Each such coinsurance agreement shall be in substantially the form attached as Exhibit B hereto.

      1.11     Coinsurance Effective Date. 11:59 p.m. Eastern time on June 30, 2005.

      1.12     Company Extracontractual Liabilities. All liabilities for consequential, exemplary, punitive or similar extracontractual damages or statutory penalties, whether owing to Cedents, governmental authorities or any other person relating to the Treaties, which liabilities arise from any action, act of bad faith, error or omission by either Company, any of their affiliates, or any Representative of either Company or any of their affiliates, in each case excluding any action taken or failure to take any action at the written direction or with the express consent of either Retrocessionaire; provided, however, that Company Extracontractual Liabilities shall exclude, with respect to a given Treaty, those liabilities arising pursuant to the express terms of such Treaty.

      1.13     Company Statements. The financial statements of each of the Companies as of and for the year ended December 31, 2004, and, as to ALR America, the quarter ended March 31, 2005.

      1.14     Confidentiality Agreement. The Confidentiality Agreement by and between Annuity and Life Re (Holdings), Ltd. and Wilton Re Services, Inc., dated April 6, 2005.

      1.15     Enforceability Exceptions. The exceptions identified as such in Section 3.1.

      1.16     Excluded Liability. Any liability that (i) represents a Company Extracontractual Liability or (ii) is not expressly assumed by either Retrocessionaire pursuant to this Agreement, a Coinsurance Agreement, a Novation Amendment or an Existing Retrocession Agreement Assignment.

      1.17     Existing Retrocession Agreement. Any contract, agreement or treaty between either Company and any retrocessionaire thereof that (a) is in force as of the Coinsurance Effective Date and (b) covers any risks associated with any Treaty, each as specifically identified on Schedule 1.17, including, as respects ALR America, retrocession agreements with ALR Bermuda.

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      1.18     Existing Retrocession Agreement Assignment. With respect to any Existing Retrocession Agreement that is assigned or novated to a Retrocessionaire in connection with any Treaty, the assignment or novation agreement to be entered into between the relevant Company, the relevant Retrocessionaire and the relevant Third-Party Retrocessionaire in accordance with Section 5.9 of this Agreement (which assignment or novation agreement shall be substantially in one of the forms attached as Exhibit C hereto) pursuant to which such Company shall assign or novate to the relevant Retrocessionaire, and such Retrocessionaire shall assume, all of such Company’s rights and obligations with respect to such Existing Retrocession Agreement as the same relate to the Treaty.

      1.19     GAAP. United States generally accepted accounting principles.

      1.20     Expense Reimbursement Amount. The aggregate amount of expense reimbursements paid by ALR Holdings or its affiliates to affiliates of the Retrocessionaires through the Closing Date in connection with the transactions contemplated hereby, as contemplated by an electronic mail message from Chris C. Stroup to John F. Burke dated June 20, 2005.

      1.21     Knowledge of the Companies. The actual knowledge after due investigation of the individuals identified in Schedule 1.21.

      1.22     Knowledge of the Retrocessionaires. The actual knowledge after due investigation of the individuals identified in Schedule 1.22.

      1.23     Material Adverse Effect. A material adverse effect on the business, condition (financial or otherwise), or results of operations with respect to either (x) the block of business represented by the Bermuda Treaties or (y) the block of business represented by the U.S. Treaties; provided, however, that adverse effects caused primarily by any one or more of the following shall be excluded from the definition of “Material Adverse Effect” and from any determination as to whether a Material Adverse Effect has occurred: (i) any adverse changes in general economic or market conditions, including, without limitation, changes in interest rates or currency valuations; (ii) any adverse change in the life insurance industry or financial services industry generally; and (iii) any change in law, rule or regulation, including, without limitation, changes in tax law, accounting rules or reserving requirements.

      1.24     Novated Treaty. Each Treaty that has been assumed by one of the Retrocessionaires pursuant to the terms of a Novation Amendment or, prior to Closing, as to which each of the relevant Cedent and the relevant Company has executed a Novation Amendment that will become effective upon execution by the relevant Retrocessionaire and the consummation of the Closing.

      1.25     Novation Amendment. An amendment of a Treaty in substantially the form attached as Exhibit D hereto under which Wilton Bermuda or Wilton America, as the case may be, will be contractually substituted for ALR Bermuda and ALR America, respectively, as respects such Treaty.

      1.26     Representatives. With respect to any party hereto, its officers, directors, employees, agents and other representatives (including legal counsel, investment bankers, consultants, independent public accountants, and actuaries).

      1.27     Required Closing Date Approvals. The approvals set forth on Schedules 3.2 and 4.2.

      1.28     Retrocessionaire Extracontractual Liability. All liabilities for consequential, exemplary, punitive or similar extracontractual damages or statutory penalties, whether owing to Cedents, governmental authorities or any other person relating to the Treaties, which liabilities arise from any action, act of bad faith, error or omission by either Retrocessionaire, any of their affiliates, or any Representative of either Retrocessionaire or any of their affiliates, in each case excluding any action taken or failure to take any action at the written direction or with the express consent of either Company.

      1.29     SAP. As to either Company, the statutory accounting practices prescribed by the insurance regulatory authorities of the jurisdiction in which such Company is domiciled.

      1.30     Settlement Amount. $91,600,000.00 less (i) the book value of the aggregate funds withheld balances maintained as of the Coinsurance Effective Date by Cedents in connection with the Treaties or

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Ancillary Agreements set forth on Schedule 1.30 (i) hereto, less (ii) the Transferred Investment Asset Amount, less (iii) the Expense Reimbursement Amount, plus (iv) interest on such net amount determined at the Settlement Rate for the period from but excluding June 30, 2005, to and including the Closing Date, plus (v) the Transferred Investment Asset Interest Amount.

      1.31     Settlement Rate. Five percent (5%) per annum, compounded quarterly.

      1.32     Third-Party Retrocessionaire. Any retrocessionaire under an Existing Retrocession Agreement.

      1.33     Transferred Investment Asset Amount. The sum of the market values of the investment assets identified on Schedule 1.33 (the “Transferred Investment Assets”) as of the date upon which the asset was purchased by the relevant Company (with the market value being deemed for purposes of this Agreement to be the purchase price paid therefor, including but not limited to “due and accrued interest”). Schedule 1.33 shall be subject to modification, change and addition at any time prior to the Closing Date to reflect assets purchased prior to the Closing Date in joint agreement by the relevant Retrocessionaire and the relevant Company. At Closing, Schedule 1.33 shall list the date of purchase and purchase price (including the due and accrued interest component thereof) of each asset purchased, along with the Transferred Investment Asset Interest Amount with respect to each such asset.

      1.34     Transferred Investment Asset Interest Amount. As to Transferred Investment Assets purchased after June 30, 2005, an amount determined by (i) applying interest at an annualized rate of three percent (3%) to the purchase price of each such asset as shown on Schedule 1.33 from but excluding June 30, 2005, to and including the date on which such asset was purchased and (ii) aggregating such interest for all Transferred Investment Assets purchased after June 30, 2005.

      1.35     Transition Date. The date that is the later of (i) the first day of the first calendar month beginning at least twenty-eight (28) days following the Closing Date or (ii) November 1, 2005.

      1.36     Treasury Rate. The annual yield rate, on the Closing Date, of actively traded U.S. Treasury securities having a remaining time to maturity of six (6) months, as such rate is published under “Treasury Constant Maturities” in Federal Reserve Statistical Release H.15(519).

      1.37     Treaties. The reinsurance treaties identified on Schedule 1.37 hereto. For purposes of this Agreement, the term “Bermuda Treaties” shall mean those Treaties as to which ALR Bermuda is party as an assuming reinsurer and the term “U.S. Treaties” means those Treaties as to which ALR America is party as an assuming reinsurer.

      1.38     Treaty-Specific Historical Financial Information. Collectively, the materials provided by the Companies to the Retrocessionaires and attached hereto as Schedule 1.38.

      1.39     Treaty-Specific Projected Financial Information. The materials provided by the Companies to the Retrocessionaires and attached hereto as Schedule 1.39 summarizing projected financial information concerning the Treaties.

ARTICLE II

Closing

      2.1     Coinsurance and Novation of Treaties on the Closing Date. Subject to the terms and conditions of this Agreement, on the Closing Date, each of the Companies and the Retrocessionaires shall enter into the (i) Novation Amendments as to each of the Treaties as to which counterparties shall have prior to such date executed and delivered Novation Amendments in form and substance reasonably acceptable to the relevant Company and Retrocessionaire, and (ii) Coinsurance Agreements pursuant to which the Retrocessionaires shall reinsure the Companies’ retained risk (i.e., net of risk retroceded under Existing Retrocession Agreements) under the Treaties (other than Novated Treaties) on a coinsurance basis, and the Companies shall pay to the Retrocessionaires the Settlement Amount in accordance with Section 2.3 hereof. The reinsurance under the Coinsurance Agreements shall be effective as of the Coinsurance Effective Date. The Settlement Amount shall be allocated according to the percentages set forth on Schedule 2.1.

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      2.2     Transfer of Books and Records. On the Transition Date, for no additional consideration, the Companies shall transfer (i) original versions of all Books and Records relating to each Novated Treaty and to each Existing Retrocession Agreement and Ancillary Agreement that has been assigned or novated to a Retrocessionaire, subject to the Companies’ right to retain copies of any such Books and Records, and (ii) copies of all Books and Records relating to Treaties coinsured under the Coinsurance Agreements and to any Existing Retrocession Agreements and Ancillary Agreements that have not been assigned or novated to a Retrocessionaire.

      2.3     Closing Deliveries. (a) On the Closing Date, the Companies shall deliver to the Retrocessionaires the following:

      (i) the Coinsurance Agreements, each executed by the appropriate Company;

      (ii) any Novation Amendments agreed to by the applicable Cedent prior to the Closing in accordance with Section 5.9 of this Agreement, each executed by the appropriate Company and the applicable Cedent;

      (iii) any Ancillary Agreement Assignment that may be agreed to by the parties thereto in accordance with Section 5.9 of this Agreement, each in form and substance reasonably acceptable to the Retrocessionaires and executed by the appropriate Company;

      (iv) any Existing Retrocession Agreement Assignment that may be agreed to by the applicable Third-Party Retrocessionaire in accordance with Section 5.9 of this Agreement, each executed by the appropriate Company;

      (v) evidence in form reasonably satisfactory to the Retrocessionaires that the Required Closing Date Approvals, if any, required to be obtained by the Companies have been obtained;

      (vi) two certificates, one for each Company, executed by an officer of such Company and certifying that the closing conditions set forth in Section 6.1.2 of this Agreement have been satisfied;

      (vii) the Transferred Investment Assets, together with such transfer documentation as may be reasonably acceptable to the Retrocessionaires; and

      (viii) the Settlement Amount.

      (b) On the Closing Date, the Retrocessionaires shall deliver to the Companies the following:

      (i) the Coinsurance Agreements, each executed by the appropriate Retrocessionaire;

      (ii) any Novation Amendment agreed to by the applicable Cedent prior to the Closing in accordance with Section 5.9 of this Agreement, each executed by the appropriate Retrocessionaire;

      (iii) any Ancillary Agreement Assignment that may be agreed to by the parties thereto in accordance with Section 5.9 of this Agreement, each in form and substance reasonably acceptable to the Companies and executed by the appropriate Retrocessionaire;

      (iv) any Existing Retrocession Agreement Assignment that may be agreed to by the applicable Third-Party Retrocessionaire, each executed by the appropriate Retrocessionaire;

      (v) evidence in form reasonable satisfactory to the Companies that the Required Closing Date Approvals, if any, required to be obtained by the Retrocessionaires have been obtained; and

      (vi) two certificates, one for each Retrocessionaire, executed by an officer of such Retrocessionaire and certifying that the closing conditions set forth in Section 6.2.2 have been satisfied.

      2.4     Cash Transfers. All cash required to be transferred on the Closing Date will be transferred by wire transfer of immediately available funds in U.S. Dollars in the amounts and to the bank accounts designated in writing by the Retrocessionaires at least three (3) Business Days prior to the Closing Date.

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ARTICLE III

Company Representations and Warranties

      The Companies hereby represent and warrant, severally and not jointly, to the Retrocessionaires as follows (it being understood that each Company hereby makes only those representations and warranties that specifically relate to it or to the Treaties to which it is a party):

      3.1     Corporate Existence and Authority. Each Company is a stock life insurance company organized, existing and in good standing under the laws of its jurisdiction of domicile. Each Company has full corporate power and authority to execute and to deliver this Agreement and the Coinsurance Agreement, the Novation Amendments, the Ancillary Agreement Assignments and the Existing Retrocession Agreement Assignments to which it is a party, and the execution, delivery and, subject to obtaining the Required Closing Date Approvals, performance of those agreements by such Company have been duly authorized by all necessary corporate action on the part of such Company. This Agreement has been, and the Coinsurance Agreement, the Novation Amendments, the Ancillary Agreement Assignments and the Existing Retrocession Agreement Assignments to which such Company is a party will at Closing be, duly and validly executed and delivered to the Retrocessionaires by such Company and constitute, or will at Closing constitute, the valid and legally binding obligations of such Company, enforceable in accordance with their terms except (i) as the same may be limited by applicable bankruptcy, insolvency, rehabilitation, moratorium or similar laws of general application relating to or affecting creditors’ rights, including, without limitation, the effect of statutory or other laws regarding fraudulent conveyances and preferential transfers, and (ii) for the limitations imposed by general principles of equity (the exceptions identified in the foregoing clauses (i) and (ii) being referred to as the “Enforceability Exceptions”). The execution, delivery and performance by such Company of this Agreement and the Coinsurance Agreement, the Novation Amendments, the Ancillary Agreement Assignments and the Existing Retrocession Agreement Assignments to which such Company is a party do not and will not:

      3.1.1     Conflict with or result in any breach or violation of or any default under (or give rise to any right of termination, cancellation or acceleration under) the bylaws, certificate of incorporation or similar organizational documents of such Company or any note, bond, mortgage, indenture, lease, license, permit, agreement or other instrument or obligation to which such Company is a party or by which such Company is or may be bound.

      3.1.2     Subject to obtaining any Required Closing Date Approvals, violate any law, order, rule or regulation applicable to such Company.

      3.2     Required Consents and Approvals. Except for the consents of Cedents for the novation of Treaties and as set forth on Schedule 3.2, no consent, approval or authorization of, or declaration, filing or registration with, any governmental authority or any other person is required to be made or obtained by either Company in connection with the execution, delivery and performance of this Agreement or the Coinsurance Agreements or the consummation of the transactions contemplated hereby and thereby.

      3.3     Financial Statements. (a) The Company Statements of each Company (i) present fairly, in all material respects, the financial condition and results of operations of such Company as of and for the periods therein specified, and (ii) were prepared in accordance with SAP consistently applied, each except as expressly set forth within the Company Statements, including the notes thereto; provided, that the unaudited quarterly statutory statements of ALR America for the calendar quarter ended March 31, 2005 are subject to normal recurring year-end adjustments.

      (b) The Treaty-Specific Historical Financial Information: (i) was prepared from information consistent in all material respects with the Books and Records of the relevant Company, and (ii) except as set forth on Schedule 3.3(b) hereto, to the extent such Treaty-Specific Historical Financial Information consists of historical quarterly balance sheet and income statement information, was prepared on a basis consistent with GAAP or SAP, as appropriate, and presents fairly, in all material respects, the financial status of and results with respect to each of the Treaties as of and for the periods therein specified.

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      (c) The Treaty specific reserve balances reflected in the Treaty-Specific Historical Financial Information (i) were determined in accordance with generally accepted actuarial principles, consistently applied, (ii) were based on actuarial assumptions that were reasonable in relation to relevant policy and contract provisions, (iii) are consistent with balances relating to the Treaties included in the Company Statements (after consideration of differences between SAP and GAAP reserve requirements), and (iv) were determined on a basis consistent with GAAP or SAP, as appropriate; it being understood by the Retrocessionaires that in making the representation and warranty in this Section 3.3(c) that the Companies are not representing or warranting that the reserves referred to therein have been or will be sufficient or adequate for the purposes for which they were established.

      (d) To the Knowledge of the Companies, there is no reason to believe that the Treaty-Specific Projected Financial Information does not represent a reasonable projection in all material respects of the expected financial results with respect to the Treaties, considered in the aggregate; however, neither Company represents or warrants that the Treaties, either individually or in the aggregate, will achieve any results projected in the Treaty-Specific Projected Financial Information.

      3.4     Treaties. (a) The Companies have made available to the Retrocessionaires true and complete copies of the Treaties, the Ancillary Agreements and all amendments thereto.

      (b) Except as set forth on Schedule 3.4(b) hereto, (i) no Cedent has given notice of termination (provisional or otherwise) to either of the Companies in respect of any Treaty or Ancillary Agreement; (ii) no Cedent has a present right to recapture any of the risks ceded under any such Treaty; (iii) neither Company nor, to the Knowledge of the Companies, the Cedent is in default in any material respect under any Treaty or Ancillary Agreement; (iv) each Treaty and Ancillary Agreement is in full force and effect and is valid and enforceable in accordance with its terms subject to the Enforceability Exceptions; and (v) no Treaty or Ancillary Agreement contains any provision under which any Cedent may terminate such Treaty or Ancillary Agreement or take any other action by reason of the transactions contemplated by this Agreement.

      (c) Except as set forth on Schedule 3.4(c) hereto, each Treaty involves coverage only of contracts for individual life insurance or annuities and does not involve any reinsurance of guaranteed minimum death benefits, guaranteed minimum income benefits, guaranteed minimum accumulation benefits, secondary guarantees, long term care, health, disability or group insurance.

      (d) All obligations of either Company to make payments with respect to or under the Treaties and the Existing Retrocession Agreements (including, without limitation, payments to any broker, agent, reinsurance intermediary or other producer with respect to any Treaty or Existing Retrocession Agreement) that were due under the terms of the Treaties and Existing Retrocession Agreements as of the Coinsurance Effective Date have been paid in full. Except as set forth on Schedule 3.4(d) hereto, no broker, agent, reinsurance intermediary or other producer with respect to any Treaty or Existing Retrocession Agreement is entitled to receive any payments based upon collected renewal premiums.

      3.5     Existing Retrocession Agreements; Ancillary Agreements. (a) The Companies have made available to the Retrocessionaires true and complete copies of the Existing Retrocession Agreements and Ancillary Agreements and all amendments thereto.

      (b) Other than the Existing Retrocession Agreements, there is no agreement under which any risk assumed under the Treaties is retroceded or is eligible to be automatically retroceded by either of the Companies. Other than the Ancillary Agreements, there is no agreement to which either Company is a party that is directly related to any Treaty.

      No retrocessionaire has given notice of termination (provisional or otherwise) in respect of any Existing Retrocession Agreement. Neither Company nor, to the Knowledge of the Companies, the retrocessionaire under any Existing Retrocession Agreement is in default in any material respect under any Existing Retrocession Agreement. Each Existing Retrocession Agreement is in full force and effect and is valid and enforceable in accordance with its terms, subject to the Enforceability Exceptions. Except as set forth on Schedule 3.5(b) hereto, no Existing Retrocession Agreement contains any provision (i) under which the retrocessionaire may terminate such agreement by reason of, or (ii) that would be violated by, or that

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constitutes a condition that would not be satisfied as a result of, the transactions contemplated by this Agreement (including without limitation, the execution and delivery of the Coinsurance Agreements or the performance of obligations thereunder).

      3.6     Accuracy of Books and Records. All of the Books and Records are current, complete and accurate in all material respects.

      3.7     Compliance with Law. As respects the marketing, issuance and administration of the Treaties, the Ancillary Agreements and the Existing Retrocession Agreements, each Company has conducted its business in material compliance with all applicable laws (including, without limitation, insurance laws and federal and state laws), statutes, ordinances, rules, governmental regulations, writs, injunctions, judgments, decrees or orders of any governmental instrumentality or court.

      3.8     Litigation or Regulatory Actions. Except as disclosed on Schedule 3.8 hereto, there are no actions, suits, investigations or regulatory proceedings pending or (to the Knowledge of the Companies) threatened against either Company at law or in equity, in, before, or by any person or entity (a) that involve any of the Treaties or any producer or either Company’s marketing or sales activities, (b) that may result in the revocation, cancellation, suspension or nonrenewal of any permit held or required to be held by either Company in connection with the Treaties, the Ancillary Agreements and the Existing Retrocession Agreements, or (c) that individually or in the aggregate have or may reasonably be expected to have a Material Adverse Effect or a material adverse effect on the validity or enforceability of this Agreement, the Coinsurance Agreements, the Novation Amendments, the Ancillary Agreement Assignments, the Existing Retrocession Agreement Assignments or the transactions contemplated hereby and thereby.

      3.9     Company Brokers. Except for the persons or entities identified on Schedule 3.9 hereto (and for whose compensation the Companies shall be solely responsible), no broker or finder has acted directly or indirectly for the Companies, nor has either Company incurred any obligation to pay any brokerage or finder’s fee or other commission in connection with this Agreement and the transactions contemplated hereby, and all actions by or on behalf of Companies have been carried out by the Companies directly with the Retrocessionaires, without the intervention of any person acting on behalf of the Companies in such a manner as to give rise to any valid claim by any other person against the Retrocessionaires for payment of a finder’s fee, brokerage commission or similar payment.

      3.10     Investment Company. Neither Company is an investment company subject to registration and regulation under the Investment Company Act of 1940, as amended.

      3.11     Absence of Certain Changes and Events. (a) Except (i) as disclosed in Schedule 3.11, or (ii) as expressly contemplated by this Agreement, since December 31, 2004 the business consisting of the Treaties and the administration thereof and the accounting therefore and other business activities related thereto have been conducted in the ordinary course of business consistent with past practices (including, without limitation, with regard to underwriting, pricing, actuarial and investment policies generally) and there has been no material change in the financial, underwriting, pricing, claims, risk retention, retrocession, investment or accounting policies of the Companies related to such business or any change, event or circumstance that, individually or in the aggregate with all other changes, events or circumstances, has had or would reasonably be expected to have a Material Adverse Effect.

      (b) Without limiting the generality of Section 3.11(a), since December 31, 2004, there has been no change to the claims payment or cash settlement practices of either Company relating in any way to the administration of the Treaties or the Existing Retrocession Agreements.

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ARTICLE IV

Retrocessionaire Representations and Warranties

      The Retrocessionaires hereby represent and warrant, severally and not jointly, to the Companies as follows (it being understood that each Retrocessionaire hereby makes only those representations and warranties that specifically relate to it):

      4.1     Corporate Existence and Authority. Each Retrocessionaire is a stock life insurance company organized, existing and in good standing under the laws of its jurisdiction of domicile. Each Retrocessionaire has full corporate power and authority to execute and to deliver this Agreement and the Coinsurance Agreement, the Novation Amendments, the Ancillary Agreement Assignments and Existing Retrocession Agreement Assignments to which it is a party, and the execution, delivery and, subject to obtaining the Required Closing Date Approvals, performance of those agreements by such Retrocessionaire have been duly authorized by all necessary corporate action on the part of such Retrocessionaire. This Agreement has been, and the Coinsurance Agreement, the Novation Amendments, the Ancillary Agreement Assignments and Existing Retrocession Agreement Assignments to which such Retrocessionaire is a party will at Closing be, duly and validly executed and delivered to such Companies by the Retrocessionaires and constitute, or will at Closing constitute, the valid and legally binding obligations of such Retrocessionaire, enforceable in accordance with their terms except (i) as the same may be limited by the Enforceability Exceptions. The execution, delivery and performance by such Retrocessionaire of this Agreement and the Coinsurance Agreement, the Novation Amendments, the Ancillary Agreement Assignments and Existing Retrocession Agreement Assignments to which such Retrocessionaire is a party do not and will not:

      4.1.1     Conflict with or result in any breach or violation of or any default under (or give rise to any right of termination, cancellation or acceleration under) the bylaws, certificate of incorporation or similar organizational documents of such Retrocessionaire or any note, bond, mortgage, indenture, lease, license, permit, agreement or other instrument or obligation to which such Retrocessionaire is a party or by which such Retrocessionaire is or may be bound.

      4.1.2     Subject to obtaining any Required Closing Date Approvals, violate any law, order, rule, or regulation applicable to such Retrocessionaire.

      4.2     Required Consents and Approvals. Except for the consents of Cedents for the novation of Treaties and as set forth on Schedule 4.2, no consent, approval or authorization of, or declaration, filing or registration with, any governmental authority or any other person is required to be made or obtained by either Retrocessionaire in connection with the execution, delivery and performance of this Agreement or the Coinsurance Agreements or the consummation of the transactions contemplated hereby and thereby.

      4.3     Permits. Schedule 4.3 contains a true and complete list of all material permits issued to the Retrocessionaires as of the date of this Agreement. Except as set forth on Schedule 4.3, (i) each Retrocessionaire has all material permits required by applicable law for the operation of its business (including without limitation the business to be reinsured as contemplated by this Agreement) and is in material compliance with the terms of such permits, (ii) all such permits are in full force and effect, (iii) there is no proceeding pending or threatened to revoke or suspend any such permit, and (iv) the Retrocessionaires have not received any written notice from any governmental authority of the failure to have any required permit. Except as set forth in Schedule 4.3, as of the date of this Agreement there is no suit, proceeding or investigation potentially involving the revocation, cancellation, suspension or nonrenewal of any such permit which is pending or, to the Knowledge of the Retrocessionaires, threatened in writing.

      4.4     Litigation Against Retrocessionaires. There are no actions, suits, investigations or regulatory proceedings pending or (to the Knowledge of the Retrocessionaires) threatened against either Retrocessionaire at law or in equity, in, before, or by any person, that individually or in the aggregate have or may reasonably be expected to have a material adverse effect on the validity or enforceability of this Agreement, the Coinsurance Agreements, the Novation Amendments, the Ancillary Agreement Assignments, the Existing Retrocession Agreement Assignments or the transactions contemplated hereby and thereby.

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      4.5     Compliance with Law. The Retrocessionaires have conducted their business in material compliance with all applicable laws (including, without limitation, insurance laws and federal and state laws), statutes, ordinances, rules, governmental regulations, writs, injunctions, judgments, decrees or orders of any governmental instrumentality or court.

      4.6     Retrocessionaire Brokers. Except for the persons or entities identified on Schedule 4.6 hereto (and for whose compensation the Retrocessionaires shall be solely responsible), no broker or finder has acted directly or indirectly for the Retrocessionaires, nor has either Retrocessionaire incurred any obligation to pay any brokerage or finder’s fee or other commission in connection with this Agreement and the transactions contemplated hereby, and all actions by or on behalf of the Retrocessionaires have been carried out by the Retrocessionaires, without the intervention of any person acting on behalf of the Retrocessionaires in such a manner as to give rise to any valid claim by any other person against the Companies for payment of a finder’s fee, brokerage commission or similar payment.

      4.7     Investment Company. Neither Retrocessionaire is an investment company subject to registration and regulation under the Investment Company Act of 1940, as amended.

ARTICLE V

Covenants

      5.1     Conduct of Business. Except as (i) set forth on Schedule 5.1, (ii) otherwise expressly provided in this Agreement or the Coinsurance Agreements, (iii) consented to in writing by the Retrocessionaires, or (iv) reasonably required to prepare for and facilitate the consummation of the transactions contemplated hereby, during the period from the date hereof through the earlier of (i) the date upon which the last Treaty expires or is terminated in accordance with its terms or (ii) the date upon which the last Treaty is novated to one of the Retrocessionaires in accordance with Section 5.7, each of the Companies, with respect to the business related to the Treaties:

      (a) shall exercise its commercially reasonable efforts to maintain itself at all times in all material respects as a corporation duly organized, validly existing, in good standing, and duly qualified and licensed to conduct such business;

      (b) shall exercise its commercially reasonable efforts to prevent any material breach of or default under any Treaty or Ancillary Agreement or fail to comply in any material respect with any applicable law;

      (c) shall not pay, discharge or satisfy any claims, liabilities or obligations related to the Treaties, the Ancillary Agreements, or the Existing Retrocession Agreements (absolute, asserted or unasserted, contingent or otherwise) other than the payment, discharge or satisfaction, in the ordinary course of business consistent with past practice and in accordance with the terms of the Treaties, the Ancillary Agreements and the Existing Retrocession Agreements;

      (d) shall not terminate, modify, amend or waive compliance with, any provision of any of the Treaties, Ancillary Agreements or the Existing Retrocession Agreements and shall fully comply with all of the terms and provisions of such agreements;

      (e) shall not enter into any new retrocession agreements or ancillary agreements relating to the Treaties;

      (f) shall not change any financial, underwriting, reserving methods or assumptions, pricing, claims, risk retention, retrocession, investment or accounting policies related thereto unless required to do so by applicable law, rule or regulation or as a result of any change to GAAP or SAP; and

      (g) shall not authorize or enter into an agreement or arrangement of any kind to do any of the foregoing.

      5.2     Accountings. (a) Cash flows arising out of the Treaties, the Ancillary Agreements, the Existing Retrocession Agreements and the Transferred Investment Assets from the Coinsurance Effective Date to but excluding the Closing Date shall be calculated in an accounting delivered by the Companies no later than five (5) Business Days after the Closing Date (the “Post-Effective Time Accounting”). The Post-Effective Time

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Accounting will be in the form attached as Schedule 5.2(a) hereto. The Post-Effective Time Accounting shall be accompanied by a certification of the chief financial officer of each of the Companies that all items reflected in the Post-Effective Time Accounting were calculated in good faith by such Company for the period from the Coinsurance Effective Date to but excluding the Closing Date, based upon the relevant Books and Records of the Company, and calculated consistent with the past practices of the Company, including, without limitation, its claims payment and cash settlement practices. Each Company shall supply the Retrocessionaires with a copy of all bank statements, computer runs, work papers and supporting data relating to the cash flows arising out of the Treaties or otherwise used in preparing the Post-Effective Time Accounting. If the Post-Effective Time Accounting reflects a balance due to either Retrocessionaire, such balance shall be paid by the appropriate Company to such Retrocessionaire by wire transfer of immediately available funds in U.S. dollars, in the amounts and to the bank accounts designated in writing by the Retrocessionaire, simultaneously with the delivery of the Post-Effective Time Accounting. If the Post-Effective Time Accounting reflects a balance due to either Company, such balance shall be paid by the appropriate Retrocessionaire to such Company by wire transfer of immediately available funds in U.S. dollars, in the amounts and to the bank accounts designated in writing by such Company, not later than three (3) Business Days following the Retrocessionaires’ receipt of the Post-Effective Time Accounting. In either case, the amount paid shall be the balance due as shown on the Post-Effective Time Accounting plus interest for the period from the Coinsurance Effective Date to but excluding the Closing Date at an annual rate of three percent (3 %) on one-half of such balance due.

      (b) Cash flows arising out of the Treaties, the Ancillary Agreements, the Existing Retrocession Agreements and the Transferred Investment Assets from and including the Closing Date to but excluding the Transition Date shall be calculated in an accounting delivered by the Companies no later than five (5) Business Days after the Transition Date (the “Post-Transition Accounting”). The Post-Transition Accounting will be in the same form as the Post-Effective Time Accounting. The Post-Transition Accounting shall be accompanied by a certification of the chief financial officer of each of the Companies that all items reflected in the Post-Transition Accounting were calculated in good faith by such Company for the period from and including the Closing Date to but excluding the Transition Date, based upon the relevant Books and Records of the Company, and calculated consistent with the past practices of the Company, including, without limitation, its claims payment and cash settlement practices. Each Company shall supply the Retrocessionaires with a copy of all computer runs, work papers and supporting data used in preparing the Post-Transition Accounting. If the Post-Transition Accounting reflects a balance due to either Retrocessionaire, such balance shall be paid by the appropriate Company to such Retrocessionaire by wire transfer of immediately available funds in U.S. dollars in the amounts and to the bank accounts designated in writing by the Retrocessionaire, simultaneously with the delivery of the Post-Transition Accounting. If the Post-Transition Accounting reflects a balance due to either Company, such balance shall be paid by the appropriate Retrocessionaire to such Company by wire transfer of immediately available funds in U.S. dollars, in the amounts and to the bank accounts designated in writing by such Company, not later than three (3) Business Days following the Retrocessionaires’ receipt of the Post-Transition Accounting. In either case, the amount paid shall be the balance due as shown on the Post-Transition Accounting plus interest for the period from and including the Closing Date to but excluding the Transition Date at an annual rate of three percent (3 %) on one-half of such balance due.

      (c) The Retrocessionaires shall give written notice (an “Objection Notice”) to the Companies of any objections to the calculations shown in the Post-Effective Time Accounting or the Post-Transition Accounting within 180 days after the receipt by the Retrocessionaires of the Post-Transition Accounting. Such Objection Notice will set forth the Retrocessionaires’ proposal as to each item to which the Retrocessionaires objects together with appropriate support for such objections. If the Retrocessionaires do not deliver an Objection Notice within such 180-day period, the Post-Effective Time Accounting and the Post-Transition Accounting shall be deemed to be conclusive, final and binding on the parties. Any disputes regarding the amounts calculated by the Companies pursuant to this Section 5.2 shall be submitted to PricewaterhouseCoopers LLP (the “Independent Accountant”), which shall be the exclusive means for the resolution of any such disputes. The parties shall provide to the Independent Accountant the Post-Effective Time Accounting and/or the Post-Transition Accounting, as applicable, and the appropriate Objection Notice, as well as any documenta-

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tion they believe will assist the Independent Accountant in resolving the disputes, together with such documentation as may be requested by the Independent Accountant. The parties shall instruct the Independent Accountant to resolve such disputes and issue a written report with respect thereto within 45 days following its receipt of such documentation. The determination of the Independent Accountant will, with respect to each item in dispute, be limited to the range for such item proposed by the Companies in the Post-Effective Time Accounting or the Post-Transition Accounting, as applicable, and the Retrocessionaires in the appropriate Objection Notice. The decision of the Independent Accountant will be final and binding on the parties with the same effects as if the issues in dispute had been resolved by arbitration pursuant to Section 10.9 of this Agreement. The fees and expenses of the Independent Accountant will be allocated between the parties in accordance with the Independent Accountant’s assessment of the merits of the parties’ positions with respect to the matters in dispute.

      5.3     Pre-Closing Access. Between the date of this Agreement and the Closing Date, subject to any applicable law relating to antitrust, employment or privacy issues, the Companies shall afford to the Retrocessionaires and their Representatives access, upon reasonable notice and during normal business hours, to all contracts, documents and information of or relating to the assets, liabilities, business, operations and other aspects of the business related to the Treaties, the Ancillary Agreements or the Existing Retrocession Agreements. The Companies shall, and shall cause their respective employees to, cooperate with the Retrocessionaires and their Representatives in their investigation of matters relating to the transactions contemplated hereby; provided, however, that the Retrocessionaires’ investigation shall be conducted in a manner which does not unreasonably interfere with the normal operations of the Companies. Without limiting any of the terms thereof, the terms of the Confidentiality Agreement shall govern the Retrocessionaires’ and their Representatives’ obligations with respect to all confidential information made available to the Retrocessionaires or their Representatives pursuant to this Section 5.3.

      5.4     Transition Services. (a) Between the Coinsurance Effective Date and the Transition Date, the Companies shall continue to service the Treaties, Existing Retrocession Agreements and Ancillary Agreements (including without limitation any of such agreements that have been assigned or novated to either Retrocessionaire) in a manner consistent with their current practices.

      (b) Within thirty (30) days following the end of each calendar month ending between the Coinsurance Effective Date and the Transition Date, the Companies will provide to the Retrocessionaires the information needed by the Retrocessionaires for reporting the Treaties on the Retrocessionaires’ statutory financial statements. The report will be in a form mutually agreed upon by the parties.

      (c) From the date of this Agreement to the Transition Date, the Companies shall use commercially reasonable efforts to assist the Retrocessionaires in preparing to transition the administration of the Treaties from the Companies to the Retrocessionaires on the Transition Date.

      (d) As consideration for the services provided by the Companies pursuant to this Section 5.4 (the “Company Services”), the Retrocessionaires shall pay or reimburse the Companies: (i) $30,000 per month, prorated for any portion of a month, for Company Services provided by the Company, and (ii) for Company Services provided by third parties not affiliated with either Company, at the actual costs charged by such third parties, provided that the provision of such services by a third party (including an appropriate adjustment of the monthly fee contemplated by clause (i) above) is approved in advance by the Retrocessionaires. The Retrocessionaires acknowledge that, while a reduction in the monthly fee contemplated by clause (i) above is appropriate in the event any Company Service currently provided by the Companies (or an affiliate of the Companies) is moved to a third party, there may be circumstances in which the aggregate amount paid by the Retrocessionaires for Company Services may exceed $30,000. For as long as the Companies are obligated to perform any Company Services, not later than twenty (20) days following the end of each calendar month, the Companies shall submit to the Retrocessionaires in writing an invoice for the Company Services performed by the Companies during the preceding month that sets forth, in reasonable detail, costs for services provided by unaffiliated third parties. The Retrocessionaires shall pay the aggregate amount shown on each such invoice no later than ten (10) days after receipt of the invoice, and any monthly payment that is not so paid shall bear interest from such due date until the date paid at the Treasury Rate.

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      5.5     Continued Access to Books and Records Transferred to the Retrocessionaires. On and after the Transition Date, the Retrocessionaires shall provide the Companies with access to all information in the possession or control of the Retrocessionaires which the Companies reasonably request in connection with the Treaties relating to the preparation or examination of the Companies’ tax returns and financial statements, the review of payment and claims procedures, the adequacy of established reserves, the compliance by the Retrocessionaires with any obligations they have under this Agreement or the Coinsurance Agreements, and the conduct of any litigation or regulatory dispute resolution, whether pending or threatened, concerning the Treaties or the servicing of the Treaties by the Retrocessionaires following the Transition Date. Such access shall be provided by the Retrocessionaires during normal business hours of the Retrocessionaires upon forty-eight (48) hours advance notice or such shorter period if reasonably required in the circumstances. The Retrocessionaires shall maintain all books, records, files and other information related to the Treaties for such period of time as specified by applicable laws and regulations regulating the preservation of books and records.

      5.6     Notice of Actions Received. On and after the date of this Agreement, the Companies and the Retrocessionaires shall promptly provide each other with notice of the receipt of any demand letter, summons, complaint, petition or notice of litigation, and any complaint, notice, inquiry or other correspondence from any insurance regulatory authority with respect to any of the Treaties.

      5.7     Systems Support. From the date of this Agreement to the Transition Date, and in order to facilitate the transfer of the Books and Records on the Transition Date, the Companies shall cooperate with the Retrocessionaires and their respective designees in converting the Books and Records from the Companies’ systems to the Retrocessionaires’ systems. Historical treaty, accounting, claims, policy master file, retrocession and financial and actuarial information concerning the Treaties, the Ancillary Agreements and the Existing Retrocession Agreements will be provided to the Retrocessionaires in formats reasonably designated thereby with file layouts and mapping documents as reasonably designated thereby. Any third-party expense incurred by the Companies in connection with providing any such information in the formats designated shall be reimbursed by the Retrocessionaires. The Companies will make appropriate personnel available to respond to questions from the Retrocessionaires’ systems personnel in order to enable the Retrocessionaires to understand the data and file layouts and effectuate a transfer of the Books and Records.

      5.8     Maintenance of Existing Retrocession Agreements. From and after the date of this Agreement, unless otherwise agreed by the Retrocessionaires, each of the Companies shall maintain the Existing Retrocession Agreements related to any Treaty coinsured under the Coinsurance Agreements in full force and effect without any waiver or modification of the terms thereof or any rights or obligations thereunder.

      5.9     Novations and Assignments. (a) From and after the date of this Agreement, the Retrocessionaires and the Companies shall cooperate with each other and use commercially reasonable efforts to procure the consent of (i) the relevant Cedent to the novation of each of the Treaties to the Retrocessionaires pursuant to a Novation Amendment, (ii) the relevant retrocessionaire to the execution and delivery of an Existing Retrocession Agreement Assignment as to each of the Existing Retrocession Agreements, and (iii) the appropriate Person to the assignment or novation to and assumption by the relevant Retrocessionaire of each of the Ancillary Agreements other than the Deposit Agreement identified on Schedule 1.3. In no event shall the obligation to use “commercially reasonable efforts” pursuant to the foregoing sentence require (i) the Companies or the Retrocessionaires to make any additional payment or concession to any Cedent or Third Party Retrocessionaire, (ii) the Companies to execute or deliver a Novation Amendment with respect to a Treaty if any risk assumed thereunder is currently retroceded to ALR Bermuda under an Existing Retrocession Agreement and Wilton America does not agree to retrocede such risk to Wilton Bermuda, or (iii) the Retrocessionaires or the Companies to execute or deliver a Novation Amendment with respect to any Treaty unless each Third-Party Retrocessionaire now assuming any risk as to such Treaty under an Existing Retrocession Agreement has executed an Existing Retrocession Agreement Assignment with respect thereto.

      (b) The Companies shall execute any (i) Novation Amendment executed by the relevant Retrocessionaire and the relevant Cedent, (ii) Ancillary Agreement Assignment executed by the relevant counter-party or counter-parties, and (iii) Existing Retrocession Agreement Assignment executed by the relevant Third Party Retrocessionaire, in each case in the forms attached hereto as exhibits and provided that such Novation

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Amendment and Existing Retrocession Agreement Assignments do not require the Companies to make any payment to a third party.

      (c) In the event that the Companies and the Retrocessionaires are unable to obtain any consent required from any counter-party in order to assign any Ancillary Agreement to a Retrocessionaire, (i) the Companies shall use commercially reasonable efforts in cooperation with the relevant Retrocessionaire to (A) provide or cause to be provided to such Retrocessionaire the benefits of such Ancillary Agreement and (B) enforce for the benefit of such Retrocessionaire any rights of either Company arising from such Ancillary Agreement, and (ii) such Retrocessionaire shall use commercially reasonable efforts to perform the obligations of the relevant Company under such Ancillary Agreement. If and when any such required consent to the assignment of an Ancillary Agreement is obtained, the relevant Company shall promptly assign all of its rights and obligations thereunder to the relevant Retrocessionaire without the payment of further consideration therefore, and such Retrocessionaire shall assume such rights and obligations.

      (d) If a Treaty is novated to a Retrocessionaire pursuant to a Novation Amendment following the Transition Date, the relevant Company shall transfer all Books and Records relating to such Treaty to the relevant Retrocessionaire, subject to such Company’s right to retain copies of any such Books and Records.

      (e) Notwithstanding anything in this Section 5.9 to the contrary, on the Closing Date, each Existing Retrocession Agreement under which ALR America retrocedes to ALR Bermuda risks assumed under any of the other Treaties (an “Inter-Affiliate Agreement”) will be novated in part, by means of a bifurcation of such Inter-Affiliate Agreement, to substitute Wilton America for ALR America and Wilton Bermuda for ALR Bermuda as to each Treaty that is a Novated Treaty on the Closing Date. Following the Closing Date, at such time as any Treaty is novated to Wilton America, each Inter-Affiliate Agreement covering such Treaty will be further novated in part to substitute Wilton America for ALR America and Wilton Bermuda for ALR Bermuda as to such Treaty. The documentation effecting the partial novations contemplated by this Section 5.9(e) shall be in a form reasonably satisfactory to the parties hereto. Regardless of whether any Treaties have not yet been novated at the time in question, the Inter-Affiliate Agreements shall be finally and completely novated to substitute Wilton America for ALR America and Wilton Bermuda for ALR Bermuda effective either (i) the last day of the sixth calendar month following the month in which the Closing Date falls, or (ii) the last day of such earlier calendar month as the Retrocessionaires shall elect in their sole discretion.

      (f) Prior to the Closing Date, (i) ALR America and ALR Bermuda will terminate the Deposit Agreement identified on Schedule 1.3, and (ii) ALR America will cause all funds on deposit pursuant to such agreement to be returned to ALR Bermuda.

      5.10     Letters of Credit or Similar Collateral. (a) Following the date of this Agreement, the Companies and the Retrocessionaires will use their commercially reasonable efforts to arrange to replace any letters of credit required to be maintained by the Companies under any Treaty (each, a “Collateralized Treaty”) with letters of credit provided by the Retrocessionaires, with such replacement to be effectuated on the Closing Date or as promptly thereafter as practicable. As to any letters of credit the Companies continue to maintain following the Closing, the Retrocessionaire reinsuring the applicable Collateralized Treaty shall reimburse the applicable Company for (i) all amounts paid or incurred by such Company for such letter of credit after the Closing Date (excluding letter of credit facility commitment fees or other similar amounts not specifically relating to the letter of credit in question), and, (ii) in the event of any draw against any such letter of credit securing a Collateralized Treaty following the Closing Date, including without limitation a draw resulting from the non-renewal of such letter of credit, an amount equal to the amount of such draw. If the Retrocessionaire is obligated to make any payment under clause (ii) of the preceding sentence, the Company receiving such payment shall, upon receipt of such payment, assign to the Retrocessionaire all of its right, title and interest in and to the return of such collateral under the terms of the applicable Collateralized Treaty. Any payment to either Company required pursuant to this Section 5.10(a) shall be made to such Company within five (5) days of the appropriate Retrocessionaire’s receipt of notice of the event giving rise to such payment, and any payment not so made to the appropriate Company shall bear interest from such due date until the date paid at the Treasury Rate.

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      (b) Each of the Companies shall provide notice of non-renewal to the issuer of each letter of credit it maintains with respect to a Collateralized Treaty on (i) November 15, 2005, if the Closing takes place on or prior to such date, or (ii) the date that is 45 days prior to the termination of such letter of credit if the Closing does not take place on or prior to November 15, 2005. Neither Company shall provide any notice of non-renewal of any letter of credit it maintains with respect to a Collateralized Treaty prior to the date specified in this Section 5.10(b). In the event of a draw under a letter of credit by the Cedent under a Collateralized Treaty as a result of a non-renewal of such letter of credit, the obligation of the Retrocessionaire reinsuring such Collateralized Treaty to reimburse the relevant Company for amounts paid or incurred by such Company with respect to such letter of credit pursuant to Section 5.10(a) shall cease immediately upon the reimbursement by such Retrocessionaire of the amount so drawn.

      5.11     Regulatory Filings, Consents and Approvals. The Retrocessionaires and the Companies shall cooperate and use commercially reasonable efforts to obtain as promptly as practicable all approvals, authorizations and clearances of governmental and regulatory authorities to consummate the transactions contemplated by this Agreement and the Coinsurance Agreements, and shall cooperate with each other and provide such information and communications to such governmental and regulatory authorities as the party responsible for obtaining such approvals may reasonably request. The Retrocessionaires and the Companies will provide each other and their counsel the opportunity to review in advance and comment on all such filings with any governmental and regulatory authorities and will keep each other informed of the status of matters relating to obtaining the required regulatory approvals. It is expressly understood by the parties hereto that each party hereto shall use commercially reasonable efforts to ensure that representatives of both parties shall have the right to attend and participate in any hearing, proceeding, meeting, conference or similar event before or with a governmental authority relating to this Agreement. In the case of a meeting, conference or similar event related in part to this Agreement and in part to other matters, the parties shall cooperate in good faith to ensure that each of the parties is able to participate in the portion of such meeting, conference or similar event that relates solely to this Agreement; provided, however, that either party shall have the right to exclude the other party from all or any portion of any meeting, conference or similar event not relating to this Agreement. In furtherance of the foregoing, each party shall provide each other reasonable advance notice of any such hearing, proceeding, meeting, conference or similar event.

      5.12     Other Consents and Approvals. The parties shall cooperate and use commercially reasonable efforts to obtain all consents, approvals and agreements of, and to give and make all notices and filings with, any other Person (other than governmental and regulatory authorities, which are covered under Section 5.11 of this Agreement) required in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, including without limitation, Cedents and Third-Party Retrocessionaires. Without limiting the generality of the foregoing, Wilton Bermuda will cause all shares as to which it holds proxies granted pursuant to the Voting Agreements to be voted in favor of the transactions contemplated by this Agreement at any meeting of the shareholders of ALR Holdings. The Retrocessionaires and the Companies will keep each other informed of the status of matters relating to obtaining the required approvals. It is expressly understood by the parties hereto that each party hereto shall use commercially reasonable efforts to ensure that representatives of both parties shall have the right to attend and participate in any meeting, conference or similar event involving any Cedent or Third-Party Retrocessionaire relating to this Agreement. In furtherance of the foregoing, each party shall provide each other reasonable advance notice of any such meeting, conference or similar event.

      5.13     HSR Act Filings. If required by law, the parties shall, as promptly as practicable, file Notification and Report Forms under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), and the rules of the Federal Trade Commission (“FTC”) thereunder, with the FTC and the Antitrust Division of the U.S. Department of Justice (the “Antitrust Division”) in connection with the transactions contemplated by this Agreement and the Coinsurance Agreements, and shall use commercially reasonable efforts to respond as promptly as practicable to all inquiries received from the FTC or the Antitrust Division for additional information or documentation.

      5.14     Notification of Certain Matters. From the date of this Agreement to the Closing Date, (a) the Companies shall use commercially reasonable efforts to conduct their affairs in such a manner so that the

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representations and warranties of the Companies contained in Article III hereof shall continue to be true and correct in all material respects on and as of the Closing Date as if made on and as of the Closing Date; (b) the Retrocessionaires shall use their respective commercially reasonable efforts to conduct their affairs in such a manner so that the representations and warranties of the Retrocessionaires contained in Article IV hereof shall continue to be true and correct in all material respects on and as of the Closing Date as if made on and as of the Closing Date; (c) the Companies shall notify the Retrocessionaires promptly of any event, condition or circumstance that would reasonably be expected to give rise to the inability of the Companies to satisfy any of the conditions precedent to the Closing set forth in Article 6 hereof; and (d) the Retrocessionaires shall notify the Companies promptly of any event, condition or circumstance that would reasonably be expected to give rise to the inability of the Retrocessionaires to satisfy any of the conditions precedent to Closing set forth in Article 6 hereof. No notification pursuant to this Section 5.14 shall be deemed to cure any breach for any purpose under this Agreement.

      5.15     Further Assurances. Each of the parties hereto shall execute such documents and other papers and perform such further acts as may be reasonably required to carry out the provisions hereof and the transactions contemplated hereby. Each such party shall, at or prior to the Closing Date, use its commercially reasonable efforts to fulfill or obtain the fulfillment of the conditions precedent to the consummation of the transactions contemplated hereby, including the execution and delivery of any documents, certificates, instruments or other papers that are reasonably required for the consummation of the transactions contemplated hereby. On and after the Transition Date, the Companies and their respective affiliates will hold any and all payments received under the Treaties, the Ancillary Agreements or any Existing Retrocession Agreement that has been assigned to the Retrocessionaires as received thereby for the benefit of the relevant Retrocessionaire pending remittance thereto. Each of the Companies shall, upon any request by Retrocessionaires, take any and all actions reasonably required or appropriate thereby to further establish, substantiate or perfect the interests created hereby in favor of the Retrocessionaires, including, without limitation, the execution and delivery of trust or other agreements reasonably requested by the Retrocessionaires in order to further establish, substantiate or perfect the interests created hereby.

      5.16     Use by the Retrocessionaires of the Companies’ Names, Logos or Service Marks. Except as otherwise agreed in writing, the Retrocessionaires have not acquired by means of this Agreement or the Coinsurance Agreements or by any other means, the right to use the names of either of the Companies or any of the Companies’ service marks, trademarks, designs or logos related to that name. The Retrocessionaires agree that they will not use such name, service marks, trademarks, designs or logos unless the relevant Company shall have agreed in writing to such use; provided, however, that the Retrocessionaires may utilize the names of the Companies as may be necessary or appropriate for its administration of the Treaties pursuant to the Coinsurance Agreements.

      5.17     Communications with Cedents and Third Party Retrocessionaires. (a) Before the Closing Date, all communications with Cedents and Third Party Retrocessionaires by either the Companies or the Retrocessionaires in connection with the proposed novation or reinsurance of the Treaties by the Retrocessionaires as contemplated by this Agreement shall be in such form as shall be mutually agreed upon by the parties hereto prior to any release thereof, except for communications with Cedents and Third Party Retrocessionaires, as the case may be, as required to administer the Treaties and the Existing Retrocession Agreements in the ordinary course of business. The Company and the Retrocessionaires shall cooperate fully and promptly regarding the preparation and distribution of any such communications to Cedents.

      (b) The Retrocessionaires shall send to each Cedent a written notice from the Companies advising that the Retrocessionaire has been appointed by the Companies to provide administrative services relating to the Treaties on and after the Transition Date, and directing that future payments by the Cedent should be made to the Collections Account (as defined in the Coinsurance Agreements). The Retrocessionaires shall send such notice at their own expense by first class U.S. mail promptly after the Closing Date, but in no event later than the Transition Date.

      5.18     Expenses. Except as otherwise specifically provided in this Agreement, and except for the Expense Reimbursement Amount, the parties hereto shall each bear their own respective expenses incurred in

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connection with the preparation, execution and performance of this Agreement, the Coinsurance Agreements, the Novation Amendments, the Existing Retrocession Agreement Assignments, the Ancillary Agreement Assignments and all other documentation related hereto and thereto, including without limitation all fees and expenses of counsel, actuaries and accountants.

      5.19     Intercompany Balances. At the Closing, the Companies shall provide the Retrocessionaires with a reconciliation of any outstanding balances that were owing between ALR Bermuda and ALR America under any Existing Retrocession Agreement as of the Coinsurance Effective Date.

      5.20     Competing Acquisition Proposals. (a) Subject to Sections 5.20(b) through (d) below, from and after the date of this Agreement until the earlier of the termination of this Agreement in accordance with its terms or the Closing Date, none of ALR Holdings, the Companies or any of their respective Representatives shall (and each of ALR Holdings and the Companies shall cause their respective Representatives not to), directly or indirectly, (i) initiate, solicit, encourage or otherwise facilitate any inquiries or the making of any proposal or offer that constitutes, is intended to result in, or could be expected to lead to any Competing Acquisition Proposal (as defined below) or (ii) engage in negotiations or discussions concerning the Treaties or any Company with, or provide any confidential information with respect to the Treaties or any Company to, any person making or proposing to make any Competing Acquisition Proposal. Each of ALR Holdings and each Company will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any Competing Acquisition Proposal, and will take the necessary steps to promptly inform such parties of the obligations undertaken in this Section 5.20.

      (b) Notwithstanding anything to the contrary contained in the foregoing Section 5.20(a), nothing herein shall prohibit ALR Holdings, prior to the receipt of the approval of its shareholders of the transactions contemplated by this Agreement (as provided for on Schedule 3.2), (i) from complying with Rule 14e-2 and Rule 14d-9 under the Securities Exchange Act of 1934, as amended, with regard to a bona fide tender offer or exchange offer, or (ii) from participating in negotiations or discussions with or furnishing information to any person in connection with an unsolicited bona fide Competing Acquisition Proposal that is submitted in writing by such Person to the Board of Directors of ALR Holdings after the date of this Agreement and prior to the receipt of the approval of ALR Holdings’ shareholders of the transactions contemplated by this Agreement, provided that, prior to participating in any such discussions or negotiations or furnishing any information (A) ALR Holdings shall promptly provide the Retrocessionaires with notice of the receipt of any communication regarding a potential Competing Acquisition Proposal, including the identity of the person making or proposing to make such Competing Acquisition Proposal and the material terms thereof, (B) ALR Holdings shall have received from such person an executed confidentiality agreement on terms not less favorable to ALR Holdings than the Confidentiality Agreement, a copy of which shall be provided only for informational purposes to the Retrocessionaires, (C) the Board of Directors of ALR Holdings shall have concluded in good faith, after obtaining the advice of its outside financial advisors, that such Competing Acquisition Proposal is reasonably likely to be or to result in a Superior Proposal (as defined below), and (D) the Board of Directors of ALR Holdings shall have concluded in good faith, after obtaining the advice of its outside legal advisors, that participating in such negotiations or discussions or furnishing such information is required in order for the Board of Directors of ALR Holdings to fulfill its fiduciary duties to its shareholders. The Board of Directors of ALR Holdings shall promptly notify the Retrocessionaires of any material changes or amendment to the primary terms of such Competing Acquisition Proposal.

      (c) In the event that, prior to the receipt of the approval of its shareholders of the transactions contemplated by this Agreement (as provided for on Schedule 3.2), the Board of Directors of ALR Holdings determines in good faith, after consultation with its financial advisor, that such Competing Acquisition Proposal is a Superior Proposal, and that, after consultation with outside legal counsel, the failure to accept such Superior Proposal would be inconsistent with the fiduciary duties of the Board of Directors of ALR Holdings, the Board of Directors of ALR Holdings may accept such Superior Proposal and the Companies may terminate this Agreement in accordance with Section 9.1.3(b) of this Agreement; provided, however, that prior to any such acceptance of the Superior Proposal and termination of this Agreement, ALR Holdings shall (i) notify the Retrocessionaires in writing that it intends to enter into an agreement relating to a Superior Proposal, which notice shall include the most recent draft of the relevant acquisition agreement (and which

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notice shall give the Retrocessionaires the immediate right to terminate this Agreement in accordance with Section 9.1.2(b) of this Agreement), (ii) during the five Business Days following receipt by the Retrocessionaires of such notice, ALR Holdings shall have offered the Retrocessionaires the opportunity to make such adjustments to the terms and conditions of this Agreement such that any Competing Acquisition Proposal is no longer a Superior Proposal, and (iii) the Board of Directors of ALR Holdings shall have concluded, after termination of the five Business Day period, that the Competing Acquisition Proposal giving rise to ALR Holdings’ obligations to provide notice hereunder continues to be a Superior Proposal. ALR Holdings and the Companies may not terminate this Agreement under Section 9.1.3(b) in connection with a Superior Proposal unless ALR Holdings pays to the Retrocessionaires in immediately available funds the Termination Fee pursuant to Section 9.2 of this Agreement. ALR Holdings agrees that it will not enter into a binding agreement relating to a Superior Proposal until at least the sixth Business Day after it has provided the notice to the Retrocessionaires described above. ALR Holdings further agrees that it shall notify the Retrocessionaires promptly if ALR Holdings has changed its intention with respect to entering into the agreement identified in the notice provided hereunder, whether as a result of the Retrocessionaires modifying their offer or otherwise.

      (d) For purposes of this Agreement, “Competing Acquisition Proposal” means any inquiry, proposal or offer from any person relating to (x) any direct or indirect sale, transfer, pledge, disposition, reinsurance, novation, bulk reinsurance or other conveyance of rights or interests with respect to the Treaties other than a transaction expressly provided for herein, (y) a direct or indirect sale of any of the outstanding shares of, or other securities issued by, either Company or ALR Holdings or (z) a merger, consolidation, business combination, reorganization, share exchange, recapitalization, liquidation, dissolution or similar transaction involving any Company other than a transaction expressly provided for herein; provided, however, that any such inquiry, proposal or offer that relates to a transaction that would, by its terms, be consummated following the consummation of the transactions contemplated by this Agreement shall not be considered a Competing Acquisition Proposal so long as such transaction would not interfere with the Retrocessionaires’ rights hereunder. For purposes of this Agreement, “Superior Proposal” means any Competing Acquisition Proposal with respect to which any required financing is committed or, in the good faith judgment of the Board of Directors of ALR Holdings, based on the advice of its outside financial advisors, is reasonably capable of being financed by the person making the proposal and, with respect to which the Board of Directors of ALR Holdings shall have concluded in good faith is reasonably capable of being completed, taking into account all legal, financial, regulatory and other aspects of the Competing Acquisition Proposal and the person making the proposal, and would, if consummated, result in a transaction more favorable to ALR Holding’s shareholders from a financial point of view than the transactions contemplated by this Agreement.

ARTICLE VI

Closing Conditions

      6.1     Conditions to the Retrocessionaires’ Obligations to Close. The obligation of the Retrocessionaires to close the transactions contemplated under this Agreement shall be subject to the fulfillment of the following conditions, any one or more of which may be waived by the Retrocessionaires to the extent permitted by law:

      6.1.1     Receipt of All Required Closing Date Approvals. All Required Closing Date Approvals shall have been received, and each Company shall have delivered to the Retrocessionaires a copy of any Required Closing Date Approval issued to such Company.

      6.1.2     Representations, Warranties and Covenants. The representations and warranties of each Company contained in this Agreement that are not qualified by “materiality” or a “Material Adverse Effect” qualifier shall have been true and correct in all respects on and as of the date of this Agreement and shall be true and correct in all material respects on and as of the Closing Date (unless such representation or warranty is expressly made as of an earlier date). The representations and warranties of each Company contained in this Agreement that are qualified by “materiality” or a “Material Adverse Effect” qualifier shall have been true and correct in all respects on and as of the date of this Agreement and shall be true and correct in all respects on and as of the Closing Date (unless such representation or warranty is expressly made as of an earlier date).

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Each Company shall have performed and complied in all material respects with all agreements, covenants, obligations and conditions required by this Agreement to be so performed or complied with by such Company at or before the Closing. On the Closing Date, each Company shall have delivered to the Retrocessionaires a certificate dated as of the Closing Date and signed by a senior officer of such Company, to the effect contemplated by this Section 6.1.2.

      6.1.3     Secretary’s Certificates. Each Company shall have delivered to the Retrocessionaires a certificate of the secretary or assistant secretary thereof, dated as of the Closing Date, as to the resolutions of the Board of Directors (or other similar governing body) of such Company authorizing the execution, delivery and performance of this Agreement and the other agreements contemplated hereby to which it is a party, as to the status and signature of each of its officers who executed and delivered this Agreement and such other agreements and any other document delivered by it in connection with the transactions contemplated by this Agreement and such other agreements.

      6.1.4     Injunction and Litigation. There shall be in effect no injunction, writ, preliminary restraining order or other order issued by any court of competent jurisdiction directing that the transactions contemplated by this Agreement or the Coinsurance Agreements not be consummated as herein or therein provided.

      6.1.5     Third-Party Retrocessionaires. Each Third-Party Retrocessionaire that has accepted any risk arising under any Novated Treaty shall have, as to the Existing Retrocession Agreement applicable to such Novated Treaty, either (i) executed an Existing Retrocession Agreement Assignment or (ii) on terms approved by the Retrocessionaires, which approval shall not be unreasonably withheld, confirmed in writing to the Retrocessionaires that it will continue to provide coverage with respect to such Novated Treaty under the terms of the relevant Existing Retrocession Agreement for the duration of the term thereof.

      6.1.6     Cedents. Either (a) the Cedent under each Treaty shall have provided to the Retrocessionaires a confirmation in the form of Exhibit E hereto indicating that the information therein is correct, and such information shall have been determined to be, in the reasonable judgment of the Retrocessionaires, consistent in all material respects with (i) information contained in the Books and Records of the relevant Company and (ii) information provided prior to the date of this Agreement by the Companies to the Retrocessionaires or (b) the Retrocessionaires shall have otherwise received the information called for by Exhibit E with respect to each Treaty, and such information shall have been determined to be, in the reasonable judgment of the Retrocessionaires, consistent in all material respects with (x) information contained in the Books and Records of the relevant Company and (y) information provided prior to the date of this Agreement by the Companies to the Retrocessionaires.

      6.2     Conditions to the Company’s Obligations to Close. The obligation of the Companies to close the transactions contemplated under this Agreement shall be subject to the fulfillment of the following conditions, any one or more of which may be waived by the Companies to the extent permitted by law:

      6.2.1     Receipt of All Required Closing Date Approvals. All Required Closing Date Approvals shall have been received, and each Retrocessionaire shall have delivered to the Companies a copy of any Required Closing Date Approval issued to such Retrocessionaire.

      6.2.2     Representations, Warranties and Covenants. The representations and warranties of each Retrocessionaire contained in this Agreement that are not qualified by “materiality” or a “Material Adverse Effect” qualifier shall have been true and correct in all respects on and as of the date of this Agreement and shall be true and correct in all material respects on and as of the Closing Date (unless such representation or warranty is expressly made as of an earlier date). The representations and warranties of each Retrocessionaire contained in this Agreement that are qualified by “materiality” or a “Material Adverse Effect” qualifier shall have been true and correct in all respects on and as of the date of this Agreement and shall be true and correct in all respects on and as of the Closing Date (unless such representation or warranty is expressly made as of an earlier date).Each Retrocessionaire shall have performed and complied in all material respects with all agreements, covenants, obligations and conditions required by this Agreement to be so performed or complied with by such Retrocessionaire at or before the Closing. On the Closing Date, each Retrocessionaire shall have

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delivered to the Companies a certificate dated as of the Closing Date and signed by a senior officer of such Retrocessionaire, to the effect contemplated by this Section 6.2.2.

      6.2.3     Secretary’s Certificates. Each Retrocessionaire shall have delivered to the Companies a certificate of the secretary or assistant secretary thereof, dated as of the Closing Date, as to the resolutions of the Board of Directors (or other similar governing body) of such Retrocessionaire authorizing the execution, delivery and performance of this Agreement and the other agreements contemplated hereby to which it is a party, as to the status and signature of each of its officers who executed and delivered this Agreement and such other agreements and any other document delivered by it in connection with the transactions contemplated by this Agreement and such other agreements.

      6.2.4     Injunction and Litigation. There shall be in effect no injunction, writ, preliminary restraining order or other order issued by any court of competent jurisdiction directing that the transactions contemplated by this Agreement or the Coinsurance Agreements not be consummated as herein or therein provided.

ARTICLE VII

Survival of Representations and Warranties

      Except for the representations and warranties made by the Companies in Section 3.1 and those made by the Retrocessionaires in Section 4.1, each of which shall survive the Closing indefinitely, the representations and warranties made by the Companies and the Retrocessionaires in this Agreement or in any certificate delivered by the Company or the Retrocessionaires pursuant hereto, shall survive for a period of eighteen (18) months following the Closing Date. All claims for inaccuracy or breach of any representation or warranty will be deemed waived unless notice of such inaccuracy or breach shall have been given to the breaching party prior to the expiration of the survival period set forth in this Article VII, in which case such representation or warranty shall survive to the extent of the claim referred to in such notice until such claim has been resolved.

ARTICLE VIII

Indemnification

      8.1     Indemnification by the Companies. Subject to the limitations set forth in Article VII and elsewhere in this Article VIII, each Company, severally and not jointly, shall indemnify, defend and hold harmless each Retrocessionaire, each of its affiliates, and each of their respective directors, officers and employees (the “Retrocessionaire Indemnified Parties”) from and against all costs and expenses (including reasonable attorneys’, accountants’ and actuaries’ fees and disbursements, and any other costs and expenses incident to any suit, action or proceeding), damages, losses, charges, deficiencies, liabilities, obligations, claims or judgments (“Loss” or “Losses”) arising or resulting from:

      (a) any breach of any representation or warranty made by such Company in this Agreement or from any misrepresentation in any certificate furnished hereunder by such Company;

      (b) any breach of any covenant of such Company in this Agreement;

      (c) any Excluded Liability; and

      (d) any successful enforcement of the obligations contained in this Section 8.1 against either Company.

      8.2     Indemnification by the Retrocessionaires. Subject to the limitations set forth in Article VII and elsewhere in this Article VIII, each Retrocessionaire, severally and not jointly, shall indemnify, defend and hold harmless each Company, each of its affiliates, and each of their respective directors, officers and employees (the “Company Indemnified Parties”) from and against all costs and expenses (including reasonable attorneys’, accountants’ and actuaries’ fees and disbursements, and any other costs and expenses

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incident to any suit, action or proceeding), damages, losses, charges, deficiencies, liabilities, obligations, claims or judgments (“Loss” or “Losses”) arising or resulting from:

      (a) any breach of any representation or warranty made by such Retrocessionaire in this Agreement or from any misrepresentation in any certificate furnished hereunder by such Retrocessionaire;

      (b) any breach of any covenant of such Retrocessionaire in this Agreement;

      (c) any Assumed Liability;

      (d) any Retrocessionaire Extracontractual Liability; and

      (e) any successful enforcement of the obligations contained in this Section 8.2 against either Retrocessionaire.

      8.3     Limitations. (a) Notwithstanding anything in Section 8.1(a) to the contrary, (i) the Companies shall have no liability to the Retrocessionaire Indemnified Parties with respect to the matters described in Section 8.1(a) unless and until the total of all Losses with respect to such matters exceeds $25,000.00, and then only for the amount by which such Losses exceed $25,000.00; and (ii) in no event shall the Companies’ obligations under Section 8.1(a) exceed $2,000,000.00 in the aggregate.

      (b) Notwithstanding anything in Section 8.2(a) to the contrary, (i) the Retrocessionaires shall have no liability to the Company Indemnified Parties with respect to the matters described in Section 8.2(a) unless and until the total of all Losses with respect to such matters exceeds $25,000.00, and then only for the amount by which such Losses exceed $25,000.00; and (ii) in no event shall the Retrocessionaires’ obligations under Section 8.2(a) exceed $2,000,000.00 in the aggregate.

      8.4     Notice of Claim. As soon as reasonably practicable, but in no event subsequent to the first to occur of the expiration of the relevant survival period of a representation or warranty (as set forth in Article VII) or thirty (30) days after receipt by an indemnified party hereunder of written notice of any demand, claim or circumstances which, upon the lapse of time, would give rise to a claim or the commencement (or threatened commencement) of any action, proceeding or investigation (a “Claim”) that may result in a Loss, such indemnified party shall give notice thereof (“Claims Notice”) to the indemnifying party. The Claims Notice shall describe the Claim in reasonable detail, and shall indicate the amount (if quantifiable and estimated, if necessary) of the Loss that has been or may be suffered by such indemnified party. The failure of the indemnified party to give the Claims Notice within in the time provided for herein shall not affect the indemnifying party’s obligation under this Article VIII except if, and then only to the extent that, such failure prejudices the indemnifying party or its ability to defend such Claim.

      8.5     Opportunity to Defend. Within thirty (30) days of receipt of any Claims Notice given pursuant to Section 8.4, the indemnifying party shall notify the indemnified party in writing of the acceptance of or objection to the Claim and whether the indemnifying party will indemnify the indemnified party and, in the case of a Claim by a third party, defend the same at the expense of the indemnifying party with counsel selected by the indemnifying party (who shall be approved in writing by the indemnified party, such approval not to be unreasonably withheld); provided that the indemnified party shall at all times have the right to fully participate in the defense of any third-party Claim at its own expense or, as provided herein below, at the expense of the indemnifying party. Failure by the indemnifying party to object in writing within such thirty (30) day period shall be deemed to be acceptance of the Claim by the indemnifying party. In the event that the indemnifying party objects to a third-party Claim within said thirty (30) day period or does not object but fails to vigorously defend and appears to be unable or unwilling to meet its indemnification obligations hereunder, the indemnified party shall have the right, but not the obligation, to undertake the defense, and to compromise and/or settle (in the exercise of reasonable business judgment) such Claim. Except as provided in the preceding sentence, the indemnified party shall not compromise and/or settle any third-party Claim without the prior written consent of the indemnifying party. If a third-party Claim is one that cannot by its nature be defended solely by the indemnifying party, the indemnified party shall make available all information and assistance that the indemnifying party may reasonably request, provided that any associated expense shall be paid by the indemnifying party.

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      8.6     Exclusive Remedy; Additional Limitations. If the Closing occurs, the indemnification remedies provided in this Article VIII shall be the exclusive remedies available to the Company Indemnified Parties and the Retrocessionaire Indemnified Parties with respect to any breach of representation, warranty, covenant or other obligation under this Agreement or any document or instrument delivered under this Agreement (other than the Coinsurance Agreement, any Novation Amendment, Existing Retrocession Agreement Assignment or any Ancillary Agreement Assignment) or otherwise arising out of, resulting from or related to the transactions contemplated by this Agreement. Neither party shall be entitled to indemnification unless the party seeking indemnification makes claim therefor pursuant to the procedures set forth in Section 8.4 of this Agreement. In addition, for purposes of determining any indemnifiable amount under this Agreement or the agreements contemplated hereby, the amount of a Loss shall be reduced by any net tax benefit to the indemnified party from the Loss and any insurance proceeds or indemnity, contribution or similar payments recoverable by the indemnified party from any third party with respect to the Loss. Except as otherwise expressly set forth in this Agreement with respect to any Company Extracontractual Liability or Retrocessionaire Extracontractual Liability, in no event shall the indemnifying party under this Article VIII have liability to the indemnified party for any consequential, special, incidental, indirect, or punitive damages, lost revenue, profits or income, diminution in value, loss of business reputation or opportunity or similar items; provided, that the term “Loss” shall be deemed to include, and the Retrocessionaires shall be entitled to recover, lost revenue, profits or income under the Treaties, the Existing Retrocession Agreements and the Ancillary Agreements.

      8.7     Maintenance of Statutory Capital and Surplus. (a) During the period ending on the later of the date (i) that is eighteen (18) months following the Closing Date or (ii) on which all outstanding Claims by the Retrocessionaire Indemnified Parties for indemnification with respect to the matters described in Section 8.1(a) of this Agreement are finally resolved (the “Capital and Surplus Maintenance Period”), each Company shall maintain statutory capital and surplus equal to at least $2,000,000.00.

      (b) During the Capital and Surplus Maintenance Period, ALR Holdings shall not take any action, and shall not cause the Companies to take any action, including, without limitation, the declaration and payment of any dividend or distribution, that would reduce the statutory capital and surplus of either Company below the levels set forth in Section 8.7(a) of this Agreement.

ARTICLE IX

Termination

      9.1     Termination. This Agreement may be terminated as provided in this Section 9.1.

      9.1.1     This Agreement may be terminated at any time before the Closing, by mutual written agreement of the Companies and the Retrocessionaires.

      9.1.2     The Retrocessionaires may terminate this Agreement at any time prior to Closing:

      (a) for material breach by either of the Companies of any of the terms or conditions of this Agreement or for failure of any condition to Closing, the satisfaction of which is solely within the Companies’ control; provided, however, that the Companies shall have ten (10) days to cure any such breach or satisfy any such condition after receipt of notice thereof by the Companies from the Retrocessionaires; or

      (b) if ALR Holdings provides the Retrocessionaires with notice pursuant to Section 5.20(c)(i) that it intends to enter into a binding written agreement for a Superior Proposal (in which case ALR Holdings shall promptly pay to the Retrocessionaires the Termination Fee in accordance with Section 9.2(iv)(A) below).

      9.1.3     The Companies may terminate this Agreement at any time prior to Closing:

      (a) for material breach by the Retrocessionaires of any of the terms or conditions of this Agreement or for failure of any condition to Closing, the satisfaction of which is solely within the Retrocessionaires’ control; provided, however, that the Retrocessionaires shall have ten (10) days to cure any such breach or satisfy any such condition after receipt of notice thereof by the Retrocessionaires from the Companies; or

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      (b) if (i) the Board of Directors of ALR Holdings authorizes ALR Holdings, subject to complying with the terms of this Agreement, to enter into a binding written agreement concerning a transaction that constitutes a Superior Proposal, (ii) ALR Holdings notifies the Retrocessionaires in writing pursuant to Section 5.20(c)(i) that it intends to enter into such an agreement, and (iii) ALR Holdings, prior to such termination, pays to the Retrocessionaires the fee required to be paid pursuant to Section 9.2(iv)(B) of this Agreement.

      9.1.4     Either the Companies or the Retrocessionaires may terminate this Agreement at any time prior to Closing for failure of any condition to Closing, the satisfaction of which is not within either the Companies’ or the Retrocessionaires’ control, or otherwise is not the result of any act or omission on the part of any party; provided, however, that in the event this Agreement is terminated by either party due to the failure of ALR Holdings’ shareholders, at a meeting duly held, to approve the transactions contemplated hereby, the Retrocessionaires shall be entitled to receive from ALR Holdings the aggregate amount of all out-of-pocket expenses incurred by Retrocessionaires and their affiliates in connection with the transactions contemplated by this Agreement (including but not limited to the fees and expenses of outside counsel, accountants and actuaries) not previously reimbursed by the Companies (the “Unreimbursed Expense Amount”), as set forth in Section 9.2 of this Agreement.

      9.1.5     Either the Company or the Retrocessionaires may terminate this Agreement if Closing hereunder has not occurred on or prior to January 2, 2006.

      9.2     Effect of Termination. If this Agreement is terminated pursuant to Section 9.1 hereof, notice of termination shall be given pursuant to the notice provisions herein, and the transactions contemplated by this Agreement shall be terminated without further action by any party except that (i) the provisions of Sections 5.18, 10.1, 10.6, 10.7 and 10.8 shall remain in full force and effect, (ii) such termination shall not in any way limit or restrict the rights and remedies of any party hereto against any other party which has breached any of the representations, warranties, covenants, agreements or other provisions of this Agreement prior to termination hereof, (iii) any confidentiality obligations of the parties (arising under this Agreement or under the Confidentiality Agreement) shall survive such termination, and (iv) (A) in the event that this Agreement is terminated by the Retrocessionaires pursuant to Section 9.1.2(b), then ALR Holdings shall promptly, but in no event later than three (3) Business Days after the Retrocessionaires have provided notice of termination in accordance with this Section 9.2, pay to the Retrocessionaires a single, lump-sum termination fee (the “Termination Fee”) equal to the sum of (x) $500,000 plus (y) the Unreimbursed Expense Amount, (B) in the event that this Agreement is terminated by the Retrocessionaires pursuant to Section 9.1.4 due to the failure of ALR Holdings’ shareholders, at a meeting duly held, to approve the transactions contemplated hereby, then ALR Holdings shall promptly, but in no event later than three (3) Business Days after the Retrocessionaires have provided notice of termination in accordance with this Section 9.2, pay to the Retrocessionaires the Unreimbursed Expense Amount, (C) in the event that this Agreement is to be terminated by ALR Holdings and the Companies pursuant to Section 9.1.3(b), then ALR Holdings shall promptly, but in no event later than the time it delivers to the Retrocessionaires notice of termination in accordance with this Section 9.2, pay the Termination Fee to the Retrocessionaires, and (D) in the event that this Agreement is to be terminated by ALR Holdings and the Companies pursuant to Section 9.1.4 due to the failure of ALR Holdings’ shareholders, at a meeting duly held, to approve the transactions contemplated hereby, then ALR Holdings shall promptly, but in no event later than three (3) Business Days after it delivers to the Retrocessionaires notice of termination in accordance with this Section 9.2, pay to the Retrocessionaires the Unreimbursed Expense Amount. Any payments pursuant to this Section 9.2 shall be made by wire transfer of same day funds to an account or accounts designated in writing by the party entitled to such payment.

ARTICLE X

Miscellaneous Provisions

      10.1     Notice. Any and all notices and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given when (a) received by the receiving

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party if mailed via United States registered or certified mail, return receipt requested, (b) received by the receiving party if mailed by United States overnight express mail, (c) sent by facsimile or telecopy machine, followed by confirmation mailed by United States first-class mail or overnight express mail, or (d) delivered in person or by commercial courier against proof of receipt to the parties at the following addresses:

      If to the Retrocessionaires, to:

Wilton Reinsurance Bermuda Limited

Par La Ville Place

14 Par la Ville Road

P.O. Box HM 3379

Hamilton HM PX Bermuda

Attention: Chief Executive Officer

Fax: (441) 295-6821

Wilton Reassurance Company

187 Danbury Road

Riverview Building, 3rd Floor

Wilton, Connecticut 06897

Attention: Chief Executive Officer

Fax: (203) 762-4445

      With a concurrent copy to each of:

Wilton Services, Inc.

187 Danbury Road

Riverview Building, 3rd Floor

Wilton, Connecticut 06897

Attention: General Counsel

Fax: (203) 762-4445

David A. Massey, Esq.

Sutherland Asbill & Brennan LLP

1275 Pennsylvania Ave., NW

Washington, DC 20004-2415

Fax: (202) 637-3593

      If to the Companies, to:

Annuity and Life Reassurance America, Inc.

124 Palasido Avenue

Windsor, Connecticut 06095

Attention: Chief Executive Officer

Fax: (860) 285-0233

Annuity and Life Reassurance, Ltd.

Cumberland House

1 Victoria Street

Hamilton, Bermuda HM 11

Attention: Chief Executive Officer

Fax: (441) 296-7665

      With a concurrent copy to each of:

Annuity and Life Re (Holdings), Ltd.

Cumberland House

1 Victoria Street

Hamilton, Bermuda HM 11

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Attention: Chief Executive Officer

Fax: (441) 296-7665

Robert C. Juelke, Esq.

Drinker, Biddle & Reath LLP

One Logan Square

18th and Cherry Streets

Philadelphia, PA 19103-6996

Fax: (215) 988-2757

      Any party may change the names or addresses where notice is to be given by providing notice to the other party of such change in accordance with this Section 10.1.

      10.2     Entire Agreement. This Agreement, including the Exhibits and Schedules hereto, the Coinsurance Agreements, and the other agreements entered into or to be entered into in connection herewith constitute the sole and entire agreement between the parties hereto with respect to the subject matter hereof, and supersedes all prior discussions and agreements between the parties with respect to the subject matter hereof, which are merged with and into this Agreement.

      10.3     Assignment. This Agreement shall not be assigned by either of the parties hereto without the prior written consent of the other party.

      10.4     Waivers and Amendments. Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof. Such waiver must be in writing and must be executed by an executive officer of such party. A waiver on one occasion will not be deemed to be a waiver of the same or any other term or condition on a future occasion. This Agreement may be modified or amended only by a writing duly executed by an executive officer of each of the Companies and each of the Retrocessionaires.

      10.5     No Third Party Beneficiaries. Except as provided in Article VIII, the terms and provisions of this Agreement are intended solely for the benefit of the Companies and the Retrocessionaires and their permitted successors and assigns, and it is not the intention of the parties to confer rights as a third-party beneficiary to this Agreement upon any other person.

      10.6     Public Announcements. At all times at or before the Closing, the Companies, on the one hand, and the Retrocessionaires, on the other hand, will consult with the other before issuing or making any reports, statements or releases to the public with respect to this Agreement or the transactions contemplated hereby and will use good faith efforts to obtain the other party’s approval of the form, content and timing of any public report, statement or release to be made solely on behalf of a party. If the Companies and the Retrocessionaires are unable to agree upon or approve the form, content and timing of any such public report, statement or release and such report, statement or release is, in the opinion of legal counsel to the party wishing to make such report, statement or release, required by law or by legal disclosure obligations, then such party may make or issue the legally required report, statement or release.

      10.7     Confidentiality. Each of the Companies, on the one hand, and the Retrocessionaires, on the other hand, will hold, and will cause its respective Representatives to hold, in strict confidence, unless compelled to disclose by judicial or administrative process (including, without limitation, in connection with obtaining any Required Closing Date Approval) or by other requirements of law, all confidential documents and confidential information concerning the other party furnished to it by the other party or such other party’s Representatives in connection with this Agreement or the transactions contemplated hereby (“Confidential Information”), except to the extent that such documents or information can be shown to have been (a) previously lawfully known by the party receiving such documents or information, (b) in the public domain through no fault of the receiving party, or (c) later acquired by the receiving party from other sources not themselves bound by, and in breach of, a confidentiality agreement. Neither the Companies, on the one hand, nor the Retrocessionaires, on the other hand, will disclose or otherwise provide any such Confidential Information to any other person, except to that party’s respective auditors, actuaries, attorneys, financial advisors and other consultants who need access to such Confidential Information in connection with this Agreement and the transactions contemplated hereby. If this Agreement is terminated pursuant to Article IX, each of the parties will return to

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the other party all Confidential Information furnished to that party by the other party, and retrieve and destroy all copies of such Confidential Information distributed to any other person, provided that the Retrocessionaires shall be entitled to maintain one copy solely for archival purposes.

      10.8     Governing Law and Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts entered into therein, without reference to principles of choice of law or conflicts of laws of that or any other jurisdiction. Each party hereto irrevocably and unconditionally submits to the exclusive jurisdiction of any State or Federal Court sitting in New York, over any suit, action or proceeding arising out of or relating to this Agreement. Each party hereto agrees that service of any process, summons, notice or document by U.S. registered mail addressed to such party shall be effective service of process for any action, suit or proceeding brought against such party in such court. Each party hereto irrevocably and unconditionally waives any objection to the laying of venue of any such suit, action or proceeding brought in any such court and any claim that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. Each party hereto agrees that final judgment in any such action, suit or proceeding brought in any such court shall be conclusive and binding upon such party and may be enforced in any other courts to whose jurisdiction such party may be subject, by suit upon such judgment.

      10.9     Arbitration. (a) Except as provided in Section 5.2(c) of this Agreement, after the Closing Date, any dispute between the parties relating in any way to this Agreement, the Novation Amendments, the Existing Retrocession Agreement Assignments, the Ancillary Agreement Assignments or the transactions contemplated hereby and thereby (including without limitation any dispute relating to the formation of a contract) shall be decided through negotiation and, if necessary, arbitration as set forth in Schedule 10.9 hereto.

      (b) The parties intend this Section 10.9 to be enforceable in accordance with the United States Federal Arbitration Act (9 U.S.C., Section 1) including any amendments to that Act which are subsequently adopted. In the event that either party refuses to submit to arbitration as required by Section 10.9(a), the other party may request the court specified in Section 10.8 to compel arbitration in accordance with the Federal Arbitration Act.

      10.10     Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all of the parties hereto. Each counterpart may be delivered by facsimile transmission, which transmission shall be deemed delivery of an originally executed document.

      10.11     Headings. The headings in this Agreement have been inserted for convenience and do not constitute matter to be construed or interpreted in connection with this Agreement.

      10.12     Severability. If any provision of this Agreement other than any provision of Article II, Article III or Article VIII is held to be illegal, invalid or unenforceable under any present or future law or is determined by a court of competent jurisdiction to be unenforceable, and if the rights or obligations of the Companies or the Retrocessionaires under this Agreement will not be materially and adversely affected thereby, such provision shall be fully severable, and this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Agreement, and the remaining provisions of this Agreement shall remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom.

[Signature pages follow]

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

PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA

/s/ Perry H. Braun

By:   Perry H. Braun

Title:  Senior Vice President

WILTON REINSURANCE BERMUDA LIMITED

/s/ Michael N. Smith

By:   Michael N. Smith

Title:  Chief Executive Officer

ANNUITY AND LIFE REASSURANCE AMERICA, INC.

/s/ John W. Lockwood

By:   John W. Lockwood

Title:  Chief Financial Officer

ANNUITY AND LIFE REASSURANCE, LTD.

/s/ John F. Burke

By:   John F. Burke

Title:  Chief Executive Officer

      Annuity and Life Re (Holdings), Ltd. hereby executes this Agreement solely for the purposes of Sections 5.20, 8.7(b) and 9.2 hereof.

ANNUITY AND LIFE RE (HOLDINGS), LTD.

/s/ John F. Burke

By:   John F. Burke

Title:  Chief Executive Officer

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EXHIBIT A-1

[To be used if counterparty will novate]

FORM OF ANCILLARY AGREEMENT NOVATION AGREEMENT

      THIS NOVATION AGREEMENT (this “Agreement”), is made and entered into as of [                    ] by and among ANNUITY AND LIFE REASSURANCE AMERICA, INC., a Connecticut insurance company (“Transferor”), PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA*, a Minnesota insurance company (“Transferee”), and the counterparties identified on the signature page hereto (collectively, the “Counterparties” and each a “Counterparty”).

RECITALS

      WHEREAS, pursuant to the Master Agreement (the “Master Agreement”), dated as of [                    ], 2005, by and between Transferor, Annuity and Life Reassurance, Ltd., a Bermuda insurance company (“ALR Bermuda” and, together with Transferor, the “ALR Companies”), Transferee, and Wilton Re Bermuda Limited, a Bermuda insurance company (“Wilton Bermuda” and together with Transferee the “Wilton Companies”), the ALR Companies have agreed to reinsure the Treaties (as defined in the Master Agreement) with, and/or novate the Treaties to, the relevant Wilton Companies;

      WHEREAS, there are certain agreements ancillary to the Treaties, including the [                    ] agreement between Transferor and the Counterparties, a true and correct copy of which, together with all amendments thereto, is attached as Exhibit A hereto (the “Ancillary Agreement”);

      WHEREAS, Transferor desires to novate to the Transferee, and Transferee desires to assume from Transferor, the Ancillary Agreement in accordance with the terms hereof and to substitute Transferee for Transferor for all purposes as a party to the Ancillary Agreement with respect to all rights and obligations of Transferor under such agreement; and

      WHEREAS, each Counterparty is willing to agree to such novation of the Ancillary Agreement;

      NOW THEREFORE, in consideration of the foregoing recitals, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows:

      Section 1.01     Novation. (a) Effective as of 11:59 p.m. Eastern time on [                    ] (the “Effective Time”), Transferee agrees with Transferor to perform the Ancillary Agreement, to be bound by all of the terms and conditions of the Ancillary Agreement, and to perform all of Transferor’s duties, obligations and liabilities under the Ancillary Agreement to the same extent as if Transferee were an original party to the Ancillary Agreement instead of Transferor, provided that Transferee shall enjoy all of Transferor’s rights under the Ancillary Agreement.

      (b) Effective at the Effective Time, each Counterparty accepts the liability of Transferee under the Ancillary Agreement in lieu of the liability of Transferor, agrees to Transferee being bound by all of the terms and conditions of the Ancillary Agreement, and to Transferee performing all of Transferor’s duties, obligations and liabilities under the Ancillary Agreement to the same extent as if Transferee were a party to the Ancillary Agreement instead of Transferor, and agrees that Transferee shall enjoy all of Transferor’s rights under the Ancillary Agreement.

      (c) Effective at the Effective Time, each Counterparty releases and forever discharges Transferor from any liability under the Ancillary Agreement, from performing the Ancillary Agreement and any of its terms and conditions, from all of Transferor’s duties, obligations and liabilities under the Ancillary Agreement, and from all claims, demands actions and causes of actions which such Counterparty ever had, now has or may

      * To be renamed Wilton Reassurance Company. Not affiliated with The Prudential Insurance Company of America.

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hereafter have against Transferor in any way arising out of, resulting from or related to the Ancillary Agreement.

      Section 1.02     Continued Effectiveness. Transferee and each Counterparty hereby ratify and confirm that the Ancillary Agreement shall continue among them in full force and effect and the terms and conditions of this Agreement shall form part of the Ancillary Agreement.

      Section 1.03     Transferred Rights, Duties and Obligations. All rights, duties, obligations and liabilities transferred to Transferee pursuant to this Agreement shall apply whether the right, duty, obligation or liability arose prior to or after the Effective Time.

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      IN WITNESS WHEREOF, the parties hereto have executed this Agreement this            day of [                    ], 2005.

PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA

By:

Title:

ANNUITY AND LIFE REASSURANCE AMERICA, INC.

By:

Title:

COUNTERPARTIES:

[COUNTERPARTY]

By:

Title:

[COUNTERPARTY]

By:

Title:

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EXHIBIT A-2

[To be used if counterparty will not novate]

FORM OF ANCILLARY AGREEMENT ASSIGNMENT AGREEMENT

      THIS ASSIGNMENT AGREEMENT (this “Agreement”), is made and entered into as of [                    ] by and among ANNUITY AND LIFE REASSURANCE AMERICA, INC., a Connecticut insurance company (“Transferor”) and PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA*, a Minnesota insurance company (“Transferee”).

RECITALS

      WHEREAS, pursuant to the Master Agreement (the “Master Agreement”), dated as of [                    ], 2005, by and between Transferor, Annuity and Life Reassurance, Ltd., a Bermuda insurance company (“ALR Bermuda” and, together with Transferor, the “ALR Companies”), Transferee, and Wilton Re Bermuda Limited, a Bermuda insurance company (“Wilton Bermuda” and together with Transferee the “Wilton Companies”), the ALR Companies have agreed to reinsure the Treaties (as defined in the Master Agreement) with, and/or novate the Treaties to, the relevant Wilton Companies;

      WHEREAS, there are certain agreements ancillary to the Treaties, including the [                    ] agreement between Transferor and the counterparties identified on the signature page hereto (collectively, the “Counterparties” and each a “Counterparty”), a true and correct copy of which, together with all amendments thereto, is attached as Exhibit A hereto (the “Ancillary Agreement”);

      WHEREAS, Transferor desires to assign to the Transferee, and Transferee desires to assume from Transferor, the Ancillary Agreement in accordance with the terms hereof; and

      WHEREAS, the Transferor and Transferee desire that each Counterparty consent, and each Counterparty is willing to consent, to such assignment and assumption of the Ancillary Agreement;

      NOW THEREFORE, in consideration of the foregoing recitals, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows:

      Section 1.01     Assignment and Assumption. Transferor hereby assigns to Transferee, and its successors and permitted assigns, as of the 11:59 Eastern time on [                    ] (the “Effective Time”), its respective rights, interests, liabilities and obligations in the Ancillary Agreement, and Transferee hereby accepts such transfer and assignment and assumes, and releases and discharges Transferor and its affiliates, and their respective successors and assigns, from, and agrees to pay, perform, discharge and be bound by all the terms, covenants, conditions and obligations in and under, the Ancillary Agreement.

      Section 1.02     Transferred Rights, Duties and Obligations. All rights, duties, obligations and liabilities transferred to Transferee pursuant to this Agreement shall apply whether the right, duty, obligation or liability arose prior to or after the Effective Time.

      * To be renamed Wilton Reassurance Company. Not affiliated with The Prudential Insurance Company of America.

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      IN WITNESS WHEREOF, the parties hereto have executed this Agreement this            day of [                    ], 2005.

PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA

By:

Title:

ANNUITY AND LIFE REASSURANCE AMERICA, INC.

By:

Title:

CONSENT:

      The undersigned counterparties hereby consent to the foregoing assignment by the Transferor to the Transferee; provided, that such assignment shall not relieve the Transferor of any obligation or liability under the Ancillary Agreement.

[COUNTERPARTY]

By:

Title:

[COUNTERPARTY]

By:

Title:

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EXHIBIT B

COINSURANCE AGREEMENT

Between

ANNUITY AND LIFE REASSURANCE AMERICA, INC.,

(referred to as the Company)

and

PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA*,

(referred to as the Retrocessionaire)

Dated [                    ], 2005

Effective June 30, 2005

      * To be renamed Wilton Reassurance Company. Not affiliated with The Prudential Insurance Company of America.

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COINSURANCE AGREEMENT

      THIS COINSURANCE AGREEMENT (the “Agreement”), is made and entered into this [     ] day of [                    ], 2005, by and between ANNUITY AND LIFE REASSURANCE AMERICA, INC., a Connecticut insurance company (the “Company”) and PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA, a Minnesota insurance company (“Retrocessionaire”).

      WHEREAS, the Company, Annuity and Life Reassurance, Ltd., a Bermuda insurance company (“ALR Bermuda”), Retrocessionaire and Wilton Reinsurance Bermuda Limited, a Bermuda insurance company (“Wilton Bermuda,”) have entered into that certain Master Agreement, dated August [     ], 2005 (the “Master Agreement”) and attached as Exhibit A hereto, pursuant to which the Company and ALR Bermuda have agreed to retrocede, and Retrocessionaire and Wilton Bermuda have agreed to reinsure, certain reinsurance treaties;

      WHEREAS, as contemplated by the Master Agreement, the Company wishes to retrocede to the Retrocessionaire, and the Retrocessionaire wishes to indemnity reinsure, on a one-hundred percent (100%) coinsurance basis, such reinsurance treaties; and

      WHEREAS, following the Transition Date, the Company desires that the Retrocessionaire perform, and the Retrocessionaire wishes to perform, administrative functions on behalf of the Company with respect to the Covered Treaties as well as certain agreements related thereto.

      NOW, THEREFORE, in consideration of the mutual and several promises and undertakings herein contained, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Retrocessionaire agree as follows:

ARTICLE I

Basis of Coinsurance and Business Coinsured

      1.01     Coinsurance.

      (a) Subject to the terms and conditions of this Agreement, the Company hereby retrocedes on a coinsurance basis to the Retrocessionaire as of the Effective Time, and the Retrocessionaire hereby accepts and agrees to assume and indemnity reinsure on a coinsurance basis as of the Effective Time, one hundred percent (100%) of the Reinsured Liabilities. This is an Agreement for indemnity reinsurance solely between the Company and the Retrocessionaire and shall not create any legal relationship whatsoever between the Retrocessionaire and any Person other than the Company. The reinsurance effected under this Agreement shall be maintained in force, without reduction, unless such reinsurance is terminated or reduced as provided herein.

      (b) On and after the Effective Time, the Retrocessionaire will have the responsibility for immediately paying on behalf of the Company, as and when due, all Reinsured Liabilities arising under or attributable to the Covered Treaties.

      1.02     Reinsurance Coverage. In no event shall the reinsurance provided hereunder with respect to a particular Covered Treaty be in force and binding at any time unless such Covered Treaty was in force and binding as of the Effective Time and is not a Novated Treaty at such time.

      1.03     Reserves. On and after the Effective Time, the Retrocessionaire shall establish and maintain as a liability on its statutory financial statements reserves for the Covered Treaties retroceded hereunder, calculated in accordance with SAP.

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ARTICLE II

Accountings and Transfer of Assets

      2.01     Reinsurance Premiums. (a) In connection with the Closing under the Master Agreement, in order to effect the reinsurance on the Covered Treaties at the Effective Time, the Company has paid to the Retrocessionaire an initial reinsurance premium equal to [insert allocable portion of Master Agreement consideration].

      (b) The Retrocessionaire shall be entitled to receive, as additional reinsurance premium, immediate payment of an amount equal to (i) Premiums received on and after the Effective Time attributable to the Covered Treaties less (ii) Premiums paid by the Company to Third-Party Retrocessionaires under any Existing Retrocession Agreements.

      (c) To the extent that the Company recovers amounts from any third party relating to the Covered Treaties (including, without limitation, Premiums from any Ceding Company and litigation recoveries, but excluding recoveries under Existing Retrocession Agreements that have not been assigned or novated to Retrocessionaire), immediately upon receipt of any such amounts the Company shall transfer such amounts to the Retrocessionaire and provide the Retrocessionaire with any pertinent information that the Company may have relating thereto.

      (d) Notwithstanding anything to the contrary set forth in Section 2.01(b) and (c) of this Agreement, any amounts paid, received or due by the Company thereunder prior to the Transition Date shall be accounted for and paid pursuant to Section 5.3(b) and (c) of the Master Agreement.

      2.02     Delayed Payments. If there is a delayed settlement of any payment due hereunder, interest will accrue on such payment on a daily compounded basis at an annual rate equal to the Treasury Rate. For purposes of this Section 2.02, a payment will be considered overdue, and such interest will begin to accrue, on the first day immediately following the date such payment is due. For greater clarity, (i) a payment shall be deemed to be due hereunder on the last date on which such payment may be timely made under the applicable provision, and (ii) interest will not accrue on any payment due the Retrocessionaire hereunder unless the delayed settlement thereof was caused by the Company.

      2.03     Failure to Pay Reinsurance Premiums. The payment of reinsurance premiums is a condition precedent to the continuing liability of the Retrocessionaire under this Agreement, unless such failure is a result of any action or inaction of the Retrocessionaire or any of its Representatives during the time it is administering the Covered Treaties pursuant to Article III of this Agreement. If reinsurance premiums with respect to this Agreement are not paid when due, the Retrocessionaire shall have the right to provide the Company 45 days’ prior written notice (the “Initial Notice”) of its intent to terminate because of the Company’s failure to pay reinsurance premiums. If such reinsurance premiums have not been paid within 45 days of the delivery of the Initial Notice, the Retrocessionaire shall provide to the Company a second notice (the “Second Notice”) of its intent to terminate because of the Company’s failure to pay such premiums. The reinsurance hereunder of all Covered Treaties shall terminate as of the last date upon which premiums with respect to such Covered Treaties were paid.

ARTICLE III

Administration

      3.01.     Engagement. Commencing on the Transition Date and during the entire term of this Agreement, the Company hereby exclusively engages the Retrocessionaire to render on behalf of the Company all administrative and management services necessary and desirable to fully administer and manage the Covered Treaties, the Ancillary Agreements and the Existing Retrocession Agreements (collectively, the “Administrative Services”). The Retrocessionaire hereby accepts such engagement and agrees to perform the Administrative Services in accordance with the terms and conditions of this Agreement. The Administrative Services shall include, but not be limited to, the following: (i) collecting Premiums and other amounts due under the

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Covered Treaties, provided that the Company shall cooperate with the Retrocessionaire with respect to any dispute or litigation with respect thereto by making available any information in the possession of the Company necessary to respond to any such dispute or litigation on a timely basis; (ii) receiving, processing, investigating, evaluating and paying claims filed or made by Ceding Companies; (iii) defending any action brought upon a Covered Treaty (other than in respect of an Excluded Liability), Existing Retrocession Agreement or Ancillary Agreement or in connection with Reinsured Liabilities; (iv) providing usual and customary services for Ceding Companies to the extent required under the terms of the Covered Treaties, Existing Retrocession Agreements, and Ancillary Agreements; (v) paying amounts due to agents, brokers, reinsurance intermediaries, and other Persons, as applicable, under the terms of any of the Covered Treaties, Existing Retrocession Agreements, and Ancillary Agreements; (vi) preparing and providing to the Company all accounting and actuarial information related to the Covered Treaties, Existing Retrocession Agreements, and Ancillary Agreements that are necessary in order for the Company to timely meet statutory or tax accounting requirements for periods commencing on or after the Transition Date; (vii) maintaining appropriate books and records of all transactions related to the each of the Covered Treaties, Existing Retrocession Agreements, and Ancillary Agreements, including, without limitation, those books and records required by and in accordance with the Industry Standards; (viii) fully administering Existing Retrocession Agreements, including, without limitation, paying all reinsurance premiums and collecting all reinsurance recoverables due from or to the Company thereunder; (ix) commencing any actions necessary to collect amounts due under the Existing Retrocession Agreements and Ancillary Agreements; (x) fully administering Ancillary Agreements, including, without limitation, paying all amounts due by the Company thereunder and collecting all amounts due the Company thereunder; and (xi) providing any such additional services incident to the foregoing, including, without limitation, those services as may be necessary or appropriate to fully and properly administer the Covered Treaties, Existing Retrocession Agreements, and Ancillary Agreements in accordance with Industry Standards. The Retrocessionaire shall provide the Administrative Services and perform its other obligations under this Article III at its sole cost and expense and in accordance with Industry Standards. It is acknowledged and agreed that payment of any amount under or with respect to any Covered Treaty pursuant to this Section 3.01 (including without limitation the payment of any Reinsured Liabilities) will constitute full and equivalent performance by Retrocessionaire of its obligations with respect to such amount under Section 1.01.

      3.02.     Facilities. The Retrocessionaire will furnish the facilities, including, without limitation, physical facilities, trained personnel, and data processing hardware and software, necessary or desirable to provide the Administrative Services.

      3.03.     Safeguarding Data. The Retrocessionaire will provide the storage facilities for its copies of books and records relating to the Covered Treaties, Existing Retrocession Agreements, and Ancillary Agreements necessary or desirable and as required by Applicable Law. The Retrocessionaire shall be responsible for ensuring that the quality and security of the storage facilities is in accordance with Industry Standards. The Retrocessionaire shall establish reasonable safeguards to protect such books and records, including, without limitation, the data and data files of the Company and each Ceding Company, as the case may be, against unauthorized distribution, loss or alteration. Without limiting the generality of the foregoing, the Retrocessionaire shall provide for data recovery procedures and systems, including daily back-up of records, which shall be stored at an off-site location reasonably acceptable to the Company. Upon reasonable notice, the Company shall have the right to review and inspect such books, records and procedures relating thereto.

      3.04.     Bank Account. The Retrocessionaire shall establish and maintain a bank account (the “Collections Account”) in the name of Company for the collection of and payment of all amounts due in connection with each Covered Treaty, Existing Retrocession Agreement and Ancillary Agreement. To the extent reasonably requested by the Retrocessionaire, the Company shall do all things reasonably necessary to enable the Retrocessionaire to open and maintain the Collections Account, including without limitation executing and delivering such board resolutions and other documents as may be requested by the relevant bank. The Company shall direct that all amounts due to the Company under the terms of any Covered Treaty, Existing Retrocession Agreement and Ancillary Agreement be deposited directly into the Collections Account. The Retrocessionaire shall have the right to draw on the Collections Account for the purpose of performing its

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obligations under this Agreement. Schedule 3.04 sets forth a list of, and copies of incumbency certificates for, the Retrocessionaire employees empowered to take any action with respect to the Collection Account. The Retrocessionaire will notify the Company of the termination or replacement of any person listed on Schedule 3.04 promptly, but in no event later than two business days after such termination or replacement. The Company shall not, without the Retrocessionaire’s prior written consent, make any changes to the authorized signatories on the Collections Account or attempt to withdraw any funds therefrom. As between the Retrocessionaire and the Company, the Retrocessionaire shall own all funds deposited in the Collections Account, shall be entitled to all interest thereon, and shall pay or reimburse the Company for all taxes on such interest.

      3.05.     Books and Records. The Retrocessionaire shall maintain at its principal administrative office for the duration of this Agreement and six (6) years thereafter or such longer period required by Applicable Law books and records (a) of all transactions between it, the Company and the Ceding Companies, or (b) relating to or arising from any of the Covered Treaties, Existing Retrocession Agreements and Ancillary Agreements. Such books and records shall be maintained in accordance with Industry Standards. The commissioner of insurance or appropriate governmental officer of any state or local authority with jurisdiction over the Company shall have access to such books and records as required by Applicable Law. The Retrocessionaire shall give the Company sixty (60) days’ advance written notice of the proposed disposal or destruction of such books and records by or on behalf of the Retrocessionaire and shall make available for removal and storage by the relevant Ceding Company, Third-Party Retrocessionaire, and/or the Company such books and records during that sixty-day period. The storage and disposal/destruction of any books and records so obtained by the Company shall thereafter be the sole responsibility of the Company.

      3.06.     Right to Inspect and Audit. The Company and its Representatives shall have the right to inspect and audit the Retrocessionaire during the Retrocessionaire’s normal business hours with five(5) business days’ advance notice or upon other reasonable notice to evaluate the internal controls and compliance with this Agreement with regard to the books and records maintained by the Retrocessionaire pursuant to or in connection with this Agreement, including, without limitation, records relating to the Collections Account, and all such books and records shall be made available to the Company and its Representatives for review, audit, inspection, and reproduction.. The Company shall be fully responsible for the costs of such reviews, audits, inspections and reproductions

      3.07     Regulatory Reporting; Monthly Reports.

      (a) The Retrocessionaire shall provide to the Company all information with respect to the Covered Treaties, Existing Retrocession Agreements and Ancillary Agreements required by the Company to satisfy all current and future informational reporting and any other requirements imposed upon it by any governmental entity. Upon the reasonable request of the Company, the Retrocessionaire shall timely provide all information necessary to prepare such reports and summaries as may be necessary to satisfy any requirements imposed by a governmental entity upon the Company with respect to Covered Treaties, Existing Retrocession Agreements and Ancillary Agreements, and promptly provide to the Company copies of all existing records relating to the Covered Treaties, Existing Retrocession Agreements and Ancillary Agreements (including, with respect to records maintained in machine readable form, hard copies) necessary to satisfy such requirements.

      (b) Within a time period mutually agreeable to the Company and the Retrocessionaire, but in no event more than 30 days following the end of each calendar month after the Transition Date, the Retrocessionaire will provide to the Company the information needed by the Company for reporting the Covered Treaties, Existing Retrocession Agreements and Ancillary Agreements on statutory or GAAP financial statements, tax returns, or other financial reports required to be filed by the Company. The form of the report (the “Retrocessionaire Monthly Report”) and the information to be provided is set forth on Schedule 3.07 attached hereto. If net cash is due to the Company, the amount due will accompany the Retrocessionaire Monthly Report. If net cash is due to the Retrocessionaire, the Company will pay such amount to the Retrocessionaire promptly upon its receipt of the Retrocessionaire Monthly Report.

      3.08     Insurance. The Retrocessionaire shall maintain (a) commercial general liability and/or office premises liability insurance, including premises liability and contractual liability, for claims of bodily injury,

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personal injury and property damage with a business personal property limit of not less than $1,000,000, and an office premises liability of not less than $1,000,000 per occurrence, $2,000,000 general aggregate, $1,000,000 for fire damage, any one fire, and $10,000 for medical expense, any one person; and (b) while any of the Retrocessionaire’s employees are based on the premises of the Company, workers compensation insurance in compliance with statutory requirements.

ARTICLE IV

Regulatory Matters

      4.01     Regulatory Matters. If the Company or the Retrocessionaire receives notice of, or otherwise becomes aware of, any regulatory inquiry, investigation or proceeding relating to the Covered Treaties, the Company or the Retrocessionaire, as applicable, shall promptly notify the other party thereof, whereupon the parties shall cooperate in good faith and use their respective commercially reasonable efforts to resolve such matter in a mutually satisfactory manner, in light of all the relevant business, regulatory and legal facts and circumstances.

      4.02     Licenses. At all times during the term of this Agreement, the Retrocessionaire shall hold and maintain all licenses, certificates of authority and authorizations required under Applicable Law or otherwise take all action that may be necessary or desirable (i) for the Company to obtain full financial credit for the Covered Treaties in the jurisdiction in which it is domiciled as of the Effective Date, and (ii) to perform its obligations hereunder.

      4.03     Notice of Litigation. On and after the date of this Agreement, the Company and the Retrocessionaire shall promptly notify the other upon receipt of any demand letter, summons, complaint, petition or notice of litigation, arbitration, or other dispute resolution proceedings from any Person, and any complaint, notice, inquiry or other correspondence from any insurance regulatory authority relating to this Agreement, any Covered Treaty, Existing Retrocession Agreement, or Ancillary Agreement, or the subject matter hereof or thereof.

ARTICLE V

Certain Covenants

      5.01     Cooperation. Each party hereto shall cooperate fully with the other in all reasonable respects in order to accomplish the objectives of this Agreement, including, without limitation, the conveyance of the benefits of the Covered Treaties, Ancillary Agreements and the Existing Retrocession Agreements, each in accordance with the terms of such agreements. In the event and to the extent that the parties are unable to obtain any required consents, approvals or agreements of any such Person as may be required to convey such benefits (i) the Company shall use commercially reasonable efforts in cooperation with the Retrocessionaire to (A) provide or cause to be provided to the Retrocessionaire the benefits of each of the Covered Treaties, Ancillary Agreements and the Existing Retrocession Agreements, and (B) enforce for the account of the Retrocessionaire any rights of the Company arising from any such agreement, and (ii) the Retrocessionaire shall use commercially reasonable efforts to perform the obligations of the Company arising under all such agreements. If and when any such consent, approval or agreement shall be obtained, the Company shall promptly assign all of its rights and obligations thereunder to the Retrocessionaire without the payment of further consideration and the Retrocessionaire shall, without the payment of any further consideration therefor, assume such rights and obligations and the Company shall be relieved of any and all obligation or liability hereunder.

      5.02     Further Assurances. Each of the parties hereto shall execute such documents and other papers and perform such further acts as may be reasonably required to carry out the provisions hereof and the transactions contemplated hereby. Without limiting the generality of the foregoing, (i) the Company shall grant to the Retrocessionaire a power of attorney to authorize the Retrocessionaire, to the greatest extent possible, to act on behalf of the Company in administering the Covered Treaties, the Existing Retrocession

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Agreements, and the Ancillary Agreements, and (ii) the parties shall cooperate with each other by furnishing any additional information and executing and delivering any additional documents as may be reasonably requested by the other to further perfect or evidence the consummation of, or otherwise implement, any transaction contemplated by this Agreement, or to aid in the preparation of any regulatory filing, financial statement or Tax return; provided, however, that any such additional documents must be reasonably satisfactory to each of the parties and not impose upon either party any material liability, risk, obligation, loss, cost or expense not contemplated by this Agreement.

      5.03     Oversights. Inadvertent delays, errors or omissions made in connection with this Agreement or any transaction hereunder shall not relieve either party from any liability which would have attached had such delay, error or omission not occurred, provided always that such error or omission is rectified as soon as possible after discovery, and provided that the party making such error or omission or responsible for such delay shall be responsible for any additional liability which attaches as a result.

      5.04     No Amendments or Waivers. Following the execution of this Agreement, the Company shall not terminate, modify, amend or waive compliance with any provision of any of the Covered Treaties, Ancillary Agreements or Existing Retrocession Agreements and shall fully comply with all of the terms and provisions of such agreements.

ARTICLE VI

Dac Tax

      6.01     Election.

      (a) All uncapitalized terms used herein shall have the meanings set forth in the regulations under Section 848 of the Code.

      (b) Each of the Company and the Retrocessionaire acknowledges that it is subject to taxation under Subchapter L of the Code and hereby makes the election contemplated by Section 1.848-2(g)(8) of the Treasury Regulations with respect to this Agreement. Each of the Company and the Retrocessionaire (i) agrees that such election is effective for the taxable year of each party that includes the Effective Date and for all subsequent years during which this Agreement remains in effect and (ii) warrants that it will take no action to revoke the election.

      (c) Pursuant to Section 1.848-2(g)(8) of the Treasury Regulations, each of the Company and the Retrocessionaire hereby agrees (i) to attach a schedule to its federal income tax return for its first taxable year ending on or after the Effective Date that identifies this Agreement as a reinsurance agreement for which the joint election under Section 1.848-2(g)(8) has been made, (ii) that the party with net positive consideration for this Agreement for each taxable year will capitalize its specified policy acquisition expenses with respect to this Agreement without regard to the general deductions limitation of Section 848(c)(1) of the Code, and (iii) to exchange information pertaining to the amount of net consideration under this Agreement each year to ensure consistency or as otherwise required by the Internal Revenue Service. The Retrocessionaire shall prepare and execute duplicate copies of the schedule described in the preceding sentence as soon as possible after the Effective Date and submit them to the Company for execution. The Company shall execute the copies and return one of them to the Retrocessionaire within thirty (30) days of the receipt of such copies.

      (d) The Retrocessionaire shall submit a schedule to the Company by May 1 of each year of its calculation of the net consideration under this Agreement for the preceding taxable year. This schedule of calculations shall be accompanied by a statement signed by an authorized representative of the Retrocessionaire stating that the Retrocessionaire will report such net consideration in its federal income tax return for the preceding taxable year.

      (e) The Company may contest such calculation by providing an alternative calculation to the Retrocessionaire in writing within thirty (30) days after the date on which the Company receives the Retrocessionaire’s calculation. If the Company does not so notify the Retrocessionaire, the Company will report the net

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consideration under this Agreement as determined by the Retrocessionaire in the Company’s federal income tax return for the preceding taxable year.

      (f) If Company contests the Retrocessionaire’s calculation of the net consideration under this Agreement, the parties shall act in good faith to reach an agreement as to the correct amount of net consideration within thirty (30) days after the date on which the Company submits its alternative calculation. If Retrocessionaire and the Company reach agreement as to the amount of net consideration under this Agreement, each party shall report such amount in its federal income tax return for the preceding taxable year.

      If, during such period, Retrocessionaire and the Company are unable to reach agreement, they shall promptly thereafter cause PricewaterhouseCoopers LLP (or another mutually-agreed nationally-recognized firm of certified public accountants) promptly to review (which review shall commence no later than five (5) days after the selection of such independent accountants) this Agreement and the calculations of Retrocessionaire and the Company for the purpose of calculating the net consideration under this Agreement. In making such calculation, such independent accountants shall consider only those items or amounts in the Company’s calculation as to which the Retrocessionaire has disagreed.

      Such independent accountants shall deliver to Retrocessionaire and the Company, as promptly as practicable (but no later than thirty (30) days after the commencement of their review), a report setting forth such calculation, which calculation shall result in a net consideration between the amount thereof shown in the Company’s calculation delivered and the amount thereof shown in Retrocessionaire’s calculation. Such report shall be final and binding upon Retrocessionaire and the Company. The fees, costs and expenses of such independent accountant shall be borne (i) by the Company if the difference between the net consideration as calculated by the independent accountants and the Company’s calculation is greater than the difference between the net consideration as calculated by the independent accountants and Retrocessionaire’s calculation, (ii) by the Retrocessionaire if the first such difference is less than the second such difference, and (iii) otherwise equally by Retrocessionaire and the Company.

ARTICLE VII

Arbitration

      7.01     Arbitration. (a) After the Closing Date, any dispute between the parties relating in any way to this Agreement (other than disputes relating to calculations relating to DAC tax, which shall be resolved in accordance with Article VI hereof, and any dispute arising in connection with the Post-Effective Time Accounting or the Post-Transition Accounting contemplated by Section 5.2 of the Master Agreement, which shall be resolved in accordance with Section 5.2(c) of the Master Agreement), shall be decided through negotiation and, if necessary, arbitration as set forth in Schedule 7.01 hereto.

      (b) The parties intend this Section 7.01 to be enforceable in accordance with the Federal Arbitration Act (9 U.S.C., Section 1) including any amendments to that Act which are subsequently adopted. In the event that either party refuses to submit to arbitration as required by Section 7.01(a), the other party may request the court specified in Section 12.04 to compel arbitration in accordance with the Federal Arbitration Act.

ARTICLE VIII

Insolvency

      8.01     Insolvency of the Company. In the event of the insolvency of the Company, all coinsurance made, retroceded, renewed or otherwise becoming effective under this Agreement shall be payable by the Retrocessionaire directly to the Company or to its liquidator, receiver or statutory successor on the basis of the liability of the Company under the Covered Treaties without diminution because of the insolvency of the Company. It is understood, however, that in the event of the insolvency of the Company, the liquidator or receiver or statutory successor of the Company shall give written notice of the pendency of a claim against the

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Company on a Covered Treaty within a reasonable period of time after such claim is filed in the insolvency proceedings and that during the pendency of such claim the Retrocessionaire may investigate such claim and interpose, at its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses which it may deem available to the Company or its liquidator or receiver or statutory successor. It is further understood that the expense thus incurred by the Retrocessionaire shall be chargeable, subject to court approval, against the Company as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Retrocessionaire.

ARTICLE IX

Duration

      9.01     Duration. This Agreement shall continue in force (a) with respect to each Covered Treaty until such time as (i) such Covered Treaty becomes a Novated Treaty, or (ii) if such Covered Treaty does not become a Novated Treaty, (1) all the Company’s liability with respect to such Covered Treaty is terminated in accordance with its terms, and (2) the Company has received, or the Retrocessionaire has made on behalf of the Company, payments that discharge such liability in full; (b) each Existing Retrocession Agreement and Ancillary Agreement until such time as (i) each such agreement is assigned to and assumed by the Retrocessionaire, or, (ii) if such agreement is not so assigned or assumed, (1) all the Company’s liability with respect to each such agreement is terminated in accordance with its terms, and (2) the Company has received, or the Retrocessionaire has made on behalf of the Company, payments that discharge such liability in full. This Agreement shall terminate following the satisfaction of the requirements of the foregoing subsections (a) and (b) with respect to the last non-Novated Treaty, Existing Retrocession Agreement or Ancillary Agreement then in force. In no event shall the interpretation of this Section 9.01 imply a unilateral right of the Retrocessionaire to terminate this Agreement.

      9.02     Survival. Notwithstanding the other provisions of this Article IX, the terms and conditions of Articles VI, X and XI shall remain in full force and effect after the date on which this Agreement is terminated in accordance with the terms and conditions of this Article IX.

ARTICLE X

Indemnification

      10.01     Retrocessionaire’s Obligation to Indemnify. The Retrocessionaire hereby agrees to indemnify, defend and hold harmless the Company and its Affiliates and their respective directors, officers and employees (collectively, the “Company Indemnified Parties”) from and against all losses, liabilities, claims, expenses (including reasonable attorneys’ fees and expenses) and damages (“Losses”) incurred by the Company to the extent arising from (i) any breach of any covenant or obligation of the Retrocessionaire contained in this Agreement, (ii) fraud, theft or embezzlement by directors, officers, employees, agents, subcontractors, successors or assigns of the Retrocessionaire in connection with the performance of the Retrocessionaire’s obligations under Article III of this Agreement, (iii) any Reinsured Liability, or (iv) any Retrocessionaire Extracontractual Liability, provided, however, that no indemnification shall be due under Sections 10.01(i) or (ii) to the extent that Losses are attributable to acts, omissions or conduct of a person who is a director, officer, employee, agent, representative, successor, or permitted assign of the Company or any of its Affiliates (other than the Retrocessionaire or any of its Representatives acting as an agent, representative, successor or permitted assign of the Company or any of its Affiliates), unless such acts, omissions or conduct were committed at the written direction of the Retrocessionaire.

      10.02     Company’s Obligation to Indemnify. The Company hereby agrees to indemnify, defend and hold harmless the Retrocessionaire and its Affiliates and their respective directors, officers and employees (collectively, the “Retrocessionaire Indemnified Parties”) from and against all Losses incurred by the Retrocessionaire to the extent arising from (i) any breach of any covenant or obligation of the Company contained in this Agreement, (ii) fraud, theft or embezzlement by directors, officers, employees, agents,

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subcontractors, successors or assigns of the Company in connection with the performance of the Company’s obligations under Article III of this Agreement, (iii) any Excluded Liability; provided, however, that no indemnification shall be due under Sections 10.02(i) or (ii) to the extent that Losses are attributable to acts, omissions or conduct of a person who is a director, officer, employee, agent, representative, successor, or permitted assign of the Retrocessionaire or any of its Affiliates (other than the Company or any of its Representatives acting as an agent, representative, successor or permitted assign of the Retrocessionaire or any of its Affiliates), unless such acts, omissions or conduct were committed at the written direction of the Company.

ARTICLE XI

Definitions

      11.01     Definitions. Any capitalized term used but not defined herein shall have the meaning set forth in the Master Agreement. The following terms shall have the respective meanings set forth below throughout this Agreement:

      “Affiliate” means, with respect to any Person, at the time in question, any other Person controlling, controlled by or under common control with such Person.

      “Agreement” has the meaning set forth in the preamble.

      “Ancillary Agreements” means each contract or agreement identified on Schedule 11.01(a) hereto between the Company (or any Affiliate thereof) and a Ceding Company or other counterparty relating to the administration or management of one or more of the Covered Treaties.

      “Applicable Law” means any federal, state, local or foreign law (including common law), statute, ordinance, rule, regulation, order, writ, injunction, judgment, permit, governmental agreement or decree applicable to a Person or any such Person’s subsidiaries, properties, assets, or to such Person’s officers, directors, managing directors, employees or agents in their capacity as such.

      “Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks in New York or Bermuda are required or authorized by law to be closed.

      “Ceding Company” means the ceding company under any Covered Treaty.

      “Company” has the meaning set forth in the preamble.

      “Company Extracontractual Liabilities” means all liabilities for consequential, exemplary, punitive or similar extracontractual damages or statutory penalties, whether owing to Ceding Companies, governmental authorities or any other person relating to the Covered Treaties, which liabilities arise from any action, act of bad faith, error or omission by the Company, any of its Affiliates, or any Representative of the Company or any of its Affiliates, in each case excluding any action taken or failure to take any action at the written direction or with the express consent of the Retrocessionaire; provided, however, that Company Extracontractual Liabilities shall exclude, with respect to a given Covered Treaty, those liabilities arising pursuant to the express terms of such Covered Treaty.

      “Covered Treaty” means each reinsurance agreement identified on Exhibit B hereto.

      “Effective Date” means June 30, 2005.

      “Effective Time” means 11:59 p.m. Eastern time on June 30, 2005.

      “Excluded Liability” means any liability that (i) represents a Company Extracontractual Liability, (ii) is not expressly assumed by the Retrocessionaire pursuant the Master Agreement, a Coinsurance Agreement (as defined in the Master Agreement), a Novation Amendment, an Existing Retrocession Agreement Assignment (as defined in the Master Agreement) or an Ancillary Agreement.

      “Existing Retrocession Agreement” at any time means any Existing Retrocession Agreement (as defined in the Master Agreement) that (a) was in force and effect as of the Effective Time, (b) covers any risk

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associated with any Covered Treaty, and (c) has not been assigned or novated to Retrocessionaire at or prior to such time.

      “GAAP” means United States generally accepted accounting principles.

      “Industry Standards” as to any Administrative Service shall mean the performance of such service (i) with the skill, diligence and expertise commonly expected from experienced and qualified personnel performing such duties in the life reinsurance industry and (ii) in accordance with Applicable Law and the terms of each Covered Treaty, Existing Retrocession Agreement, and Ancillary Agreement, as applicable.

      “Master Agreement” has the meaning set forth in the preamble.

      “Novated Treaty” means, at any time, each Covered Treaty that has been assumed by the Retrocessionaire pursuant to the terms of a Novation Amendment at such time.

      “Novation Amendment” means an amendment of a Covered Treaty in substantially the form attached as Exhibit D to the Master Agreement under which the Retrocessionaire will be contractually substituted for the Company as respects such Covered Treaty.

      “Person” means any individual, corporation, limited liability company, partnership, limited partnership, firm, joint venture, association, joint stock company, trust, unincorporated organization, governmental, judicial or regulatory body or other entity.

      “Premiums” means premiums, considerations, deposits and similar amounts due from Ceding Companies or to Third-Party Retrocessionaires with respect to the Covered Treaties.

      “Reinsured Liabilities” means all net retained liabilities of the Company, whether incurred before or after the Effective Time, arising under the Covered Treaties (net of all liabilities with respect to the Covered Treaties retroceded by the Company under any Existing Retrocession Agreement that has not been assigned or novated to the Retrocessionaire, except to the extent any retroceded liability to a non-Affiliate of the Company under an Existing Retrocession Agreement cannot be collected, in which case such liability shall be reinsured by the Retrocessionaire hereunder), including any amounts payable to any broker, agent or reinsurance intermediary identified on Schedule 11.01(b) hereto but excluding any Excluded Liability. For the avoidance of doubt, Reinsured Liabilities does not include any premium tax liability or any obligation to pay any guaranty fund assessment by any jurisdiction except to the extent any such liability or obligation arises under the express terms of a Covered Treaty.

      “Representatives” means, with respect to any party hereto, its officers, directors, employees, agents and other representatives (including legal counsel, investment bankers, consultants, independent public accountants and actuaries).

      “Retrocessionaire” has the meaning set forth in the preamble.

      “Retrocessionaire Extracontractual Liability” means all liabilities for consequential, exemplary, punitive or similar extracontractual damages or statutory penalties, whether owing to Ceding Companies, governmental authorities or any other person relating to the Covered Treaties, which liabilities arise from any action, act of bad faith, error or omission by the Retrocessionaire, any of its Affiliates, or any Representative of the Retrocessionaire or any of its Affiliates, in each case excluding any action taken or failure to take any action at the written direction or with the express consent of the Company.

      “SAP” means the statutory accounting practices prescribed or permitted by the insurance regulatory authorities of the jurisdiction in which the Retrocessionaire is domiciled.

      “Third-Party Retrocessionaire” shall mean any retrocessionaire under an Existing Retrocession Agreement.

      “Treasury Rate” means the annual yield rate, on the Closing Date, of actively traded U.S. Treasury securities having a remaining time to maturity of six (6) months, as such rate is published under “Treasury Constant Maturities” in Federal Reserve Statistical Release H.15(519).

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ARTICLE XII

Miscellaneous

      12.01 Notices. Any and all notices and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given when (a) received by the receiving party if mailed via United States registered or certified mail, return receipt requested, (b) received by the receiving party if mailed by United States overnight express mail, (c) sent by facsimile or telecopy machine, followed by confirmation mailed by United States first-class mail or overnight express mail, or (d) delivered in person or by commercial courier to the parties at the following addresses:

(i)	If to the Company to:
	Annuity and Life Reassurance America, Inc. 124 Palasido Avenue Windsor, Connecticut 06095 Attention: Chief Executive Officer Fax: (860) 285-0233
	With a concurrent copy to each of:
	Annuity and Life Re (Holdings), Ltd. Cumberland House 1 Victoria Street Hamilton, Bermuda HM 11 Attention: Chief Executive Officer Fax: (441) 296-7665
	Robert C. Juelke, Esq. Drinker, Biddle & Reath LLP One Logan Square 18th and Cherry Streets Philadelphia, PA 19103-6996 Fax: (215) 988-2757
(ii)	If to Retrocessionaire to:
	Wilton Reassurance Company 187 Danbury Road Riverview Building, 3rd Floor Wilton, Connecticut 06897 Attention: Chief Executive Officer Fax: (203) 762-4445
	With a concurrent copy to each of:
	Wilton Services, Inc. 187 Danbury Road Riverview Building, 3rd Floor Wilton, Connecticut 06897 Attention: General Counsel Fax: (203) 762-4445
	Sutherland Asbill & Brennan LLP 1275 Pennsylvania Ave., N.W. Washington, D.C., 20004 Attn: David A. Massey Fax: (202) 637-3593

Either party may change the names or addresses where notice is to be given by providing notice to the other party of such change in accordance with this Section 12.01.

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      12.02     Entire Agreement. This Agreement, including the Schedules hereto, and the Master Agreement constitute the sole and entire agreement between the parties hereto with respect to the subject matter hereof and thereof, and supersede all prior discussions and agreements between the parties with respect to the subject matter hereof, which are merged with and into this Agreement. In the even of a conflict between this Agreement and the Master Agreement, this Agreement shall control.

      12.03     Waivers and Amendments; Preservation of Remedies. Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof. Such waiver must be in writing and must be executed by an executive officer of such party. A waiver on one occasion will not be deemed to be a waiver of the same or any other term or condition on a future occasion. This Agreement may be modified or amended only by a writing duly executed by an executive officer of the Company and the Retrocessionaire.

      12.04     Governing Law and Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut applicable to contracts entered into therein, without reference to principles of choice of law or conflicts of laws of that or any other jurisdiction. Each party hereto irrevocably and unconditionally submits to the exclusive jurisdiction of any State or Federal Court sitting in Connecticut, over any suit, action or proceeding arising out of or relating to this Agreement. Each party hereto agrees that service of any process, summons, notice or document by U.S. registered mail addressed to such party shall be effective service of process for any action, suit or proceeding brought against such party in such court. Each party hereto irrevocably and unconditionally waives any objection to the laying of venue of any such suit, action or proceeding brought in any such court and any claim that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. Each party hereto agrees that final judgment in any such action, suit or proceeding brought in any such court shall be conclusive and binding upon such party and may be enforced in any other courts to whose jurisdiction such party may be subject, by suit upon such judgment.

      12.05     Assignment. This Agreement shall not be assigned by either of the parties hereto without the prior written consent of the other party.

      12.06     No Third Party Beneficiaries. Except as expressly provided in this Agreement, the terms and provisions of this Agreement are intended solely for the benefit of the Company and the Retrocessionaire and their permitted successors and assigns, and it is not the intention of the parties to confer rights as a third-party beneficiary to this Agreement upon any other person.

      12.07     Expenses. Except as otherwise specifically provided in this Agreement, the parties hereto shall each bear their own respective expenses incurred in connection with the preparation, execution and performance of this Agreement and all documentation related hereto, including without limitation all fees and expenses of counsel, actuaries and accountants.

      12.08     Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all of the parties hereto. Each counterpart may be delivered by facsimile transmission, which transmission shall be deemed delivery of an originally executed document.

      12.9     Headings. The headings in this Agreement have been inserted for convenience and do not constitute matter to be construed or interpreted in connection with this Agreement.

      12.10     Severability. If any provision of this Agreement other than any provision of Article I, Article II, or Article X is held to be illegal, invalid or unenforceable under any present or future law or is determined by a court of competent jurisdiction to be unenforceable, and if the rights or obligations of the Company or the Retrocessionaire under this Agreement will not be materially and adversely affected thereby, such provision shall be fully severable, and this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Agreement, and the remaining provisions of this Agreement shall remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom.

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      12.11     Offset Rights. Any debits or credits incurred on and after the Effective Time in favor of or against either the Company or Retrocessionaire with respect to this Agreement, Section 5.2 of the Master Agreement and any Ancillary Agreement are deemed mutual debits or credits, as the case may be, and shall be set off, and only the net balance shall be allowed or paid. This Section 12.11 shall apply notwithstanding the existence of any insolvency, rehabilitation, conservatorship or comparable proceeding by or against the Company or the Retrocessionaire.

[Remainder of page intentionally left blank; signature page follows.]

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      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on this [                    ] day of [                    ], 2005.

ANNUITY AND LIFE REASSURANCE

AMERICA, INC.

By: 

Name: 

Title:

PRUDENTIAL SELECT LIFE INSURANCE

COMPANY OF AMERICA

By: 

Name: 

Title:

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EXHIBIT C-1

[To be used if counterparty will novate]

FORM OF REINSURANCE NOVATION AGREEMENT

      THIS NOVATION AGREEMENT (this “Agreement”), is made and entered into as of [                    ] by and among ANNUITY AND LIFE REASSURANCE AMERICA, INC., a Connecticut insurance company (“Transferor”), PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA*, a Minnesota insurance company (“Transferee”), and [                    ], a [                    ] (the “Retrocessionaire”).

RECITALS

      WHEREAS, pursuant to the Master Agreement (the “Master Agreement”), dated as of [                    ], 2005, by and between Transferor, Annuity and Life Reassurance, Ltd., a Bermuda insurance company (“ALR Bermuda” and, together with Transferor, the “ALR Companies”), Transferee, and Wilton Re Bermuda Limited, a Bermuda insurance company (“Wilton Bermuda” and together with Transferee the “Wilton Companies”), the ALR Companies have agreed to reinsure the Treaties (as defined in the Master Agreement) with, and/or novate the Treaties to, the relevant Wilton Companies;

      WHEREAS, a portion of the business assumed by the ALR Companies under certain of the Treaties is retroceded pursuant to certain retrocession agreements, including the retrocession agreement between Transferor and the Retrocessionaire, a true and correct copy of which, together with all amendments thereto and all agreements ancillary thereto (including any related trust agreement or performance guaranty), is attached as Exhibit A hereto (the “Retrocession Agreement”);

      WHEREAS, Transferor desires to novate to the Transferee, and Transferee desires to assume from Transferor, the Retrocession Agreement in accordance with the terms hereof and to substitute Transferee for Transferor for all purposes as a party to the Retrocession Agreement with respect to all rights and obligations of Transferor under such agreement; and

      WHEREAS, the Retrocessionaire is willing to agree to such novation of the Retrocession Agreement;

      NOW THEREFORE, in consideration of the foregoing recitals, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows:

      Section 1.01     Novation. (a) Effective as of 11:59 p.m. Eastern time on [                    ] (the “Effective Time”), Transferee agrees with Transferor to perform the Retrocession Agreement, to be bound by all of the terms and conditions of the Retrocession Agreement, and to perform all of Transferor’s duties, obligations and liabilities under the Retrocession Agreement to the same extent as if Transferee were an original party to the Retrocession Agreement instead of Transferor, provided that Transferee shall enjoy all of Transferor’s rights under the Retrocession Agreement.

      (b) Effective at the Effective Time, the Retrocessionaire accepts the liability of Transferee under the Retrocession Agreement in lieu of the liability of Transferor, agrees to Transferee being bound by all of the terms and conditions of the Retrocession Agreement, and to Transferee performing all of Transferor’s duties, obligations and liabilities under the Retrocession Agreement to the same extent as if Transferee were a party to the Retrocession Agreement instead of Transferor, and agrees that Transferee shall enjoy all of Transferor’s rights under the Retrocession Agreement.

      (c) Effective at the Effective Time, the Retrocessionaire releases and forever discharges Transferor from any liability under the Retrocession Agreement, from performing the Retrocession Agreement and any of its terms and conditions, from all of Transferor’s duties, obligations and liabilities under the Retrocession Agreement, and from all claims, demands actions and causes of actions which the Retrocessionaire ever had,

      * To be renamed Wilton Reassurance Company. Not affiliated with The Prudential Insurance Company
of America.

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now has or may hereafter have against Transferor in any way arising out of, resulting from or related to the Retrocession Agreement. The Retrocessionaire shall indemnify and hold Transferor harmless from any and all claims, demands, liabilities, costs and expenses in any way arising out of, resulting from or related to the Retrocession Agreement.

      Section 1.02     Continued Effectiveness. Transferee and the Retrocessionaire hereby ratify and confirm that the Retrocession Agreement shall continue between them in full force and effect and the terms and conditions of this Agreement shall form part of the Retrocession Agreement.

      Section 1.03     Transferred Rights, Duties and Obligations. All rights, duties, obligations and liabilities transferred to Transferee pursuant to this Agreement shall apply whether the right, duty, obligation or liability arose prior to or after the Effective Time.

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      IN WITNESS WHEREOF, the parties hereto have executed this Agreement this                     day of [                    ], 2005.

PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA

By:

Title:

ANNUITY AND LIFE REASSURANCE AMERICA, INC.

By:

Title:

[RETROCESSIONAIRE]

By:

Title:

A-51

EXHIBIT C-2

[To be used if counterparty will not novate]

FORM OF REINSURANCE ASSIGNMENT AGREEMENT

      THIS ASSIGNMENT AGREEMENT (this “Agreement”), is made and entered into as of [                    ] by and among ANNUITY AND LIFE REASSURANCE AMERICA, INC., a Connecticut insurance company (“Transferor”) and PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA*, a Minnesota insurance company (“Transferee”).

RECITALS

      WHEREAS, pursuant to the Master Agreement (the “Master Agreement”), dated as of [                    ], 2005, by and between Transferor, Annuity and Life Reassurance, Ltd., a Bermuda insurance company (“ALR Bermuda” and, together with Transferor, the “ALR Companies”), Transferee, and Wilton Re Bermuda Limited, a Bermuda insurance company (“Wilton Bermuda” and together with Transferee the “Wilton Companies”), the ALR Companies have agreed to reinsure the Treaties (as defined in the Master Agreement) with, and/or novate the Treaties to, the relevant Wilton Companies;

      WHEREAS, a portion of the business assumed by the ALR Companies under certain of the Treaties is retroceded pursuant to certain retrocession agreements, including the retrocession agreement between Transferor and [                    ] (the “Retrocessionaire”), a true and correct copy of which, together with all amendments thereto and all agreements ancillary thereto (including any related trust agreement or performance guaranty), is attached as Exhibit A hereto (the “Retrocession Agreement”);

      WHEREAS, Transferor desires to assign to the Transferee, and Transferee desires to assume from Transferor, the Retrocession Agreement in accordance with the terms hereof; and

      WHEREAS, the Transferor and Transferee desire that the Retrocessionaire consent, and the Retrocessionaire is willing to consent, to such assignment and assumption of the Retrocession Agreement;

      NOW THEREFORE, in consideration of the foregoing recitals, and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties hereto agree as follows:

      Section 1.01     Assignment and Assumption. Transferor hereby assigns to Transferee, and its successors and permitted assigns, as of the 11:59 Eastern time on [                    ] (the “Effective Time”), its respective rights, interests, liabilities and obligations in the Retrocession Agreement, and Transferee hereby accepts such transfer and assignment and assumes, and releases and discharges Transferor and its affiliates, and their respective successors and assigns, from, and agrees to pay, perform, discharge and be bound by all the terms, covenants, conditions and obligations in and under, the Retrocession Agreement.

      Section 1.02     Transferred Rights, Duties and Obligations. All rights, duties, obligations and liabilities transferred to Transferee pursuant to this Agreement shall apply whether the right, duty, obligation or liability arose prior to or after the Effective Time.

      * To be renamed Wilton Reassurance Company. Not affiliated with The Prudential Insurance Company of America.

A-52

      IN WITNESS WHEREOF, the parties hereto have executed this Agreement this                     day of [                    ], 2005.

PRUDENTIAL SELECT LIFE INSURANCE COMPANY OF AMERICA

By: 

Title:

ANNUITY AND LIFE REASSURANCE AMERICA, INC.

By: 

Title:   

CONSENT:

      The undersigned hereby consents to the foregoing assignment by the Transferor to the Transferee; provided, that such assignment shall not relieve the Transferor of any obligation or liability under the Retrocession Agreement.

[RETROCESSIONAIRE]

By: 

Title:

A-53

EXHIBIT D

FORM OF NOVATION AMENDMENT

      THIS NOVATION AGREEMENT (the “Agreement”) is made as of [                    ], 2005 (the “Effective Date”) by and among [                    ] (“CEDENT”), [ALR America or ALR Bermuda] (“ALR”), and [Prudential Select Life Insurance Company of America or Wilton Reinsurance Bermuda Limited] (“WILTON”).

RECITALS

      A. CEDENT and ALR are parties to a [describe underlying reinsurance agreement], effective as of [                    ], as amended (the “Agreement”), under which CEDENT cedes to ALR certain interests and liabilities with respect to certain life insurance policies or annuities written or previously assumed by CEDENT (the “Reinsured Policies”). A true and correct copy of the Agreement, together with all amendments thereto and all agreements ancillary thereto (including any related trust agreement or performance guaranty as to which ALR may be party), is attached as Exhibit A.

      B. CEDENT, ALR and WILTON wish to substitute WILTON for ALR for all purposes as a party to the Agreement with respect to all rights and obligations of ALR under such agreement.

      NOW, THEREFORE, in consideration of the mutual and foregoing recitals and the mutual covenants and undertakings herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:

      Section 1.01.     CEDENT has supplied to WILTON in-force amounts under the Agreement, and CEDENT represents to WILTON that, to the best of its knowledge, such amounts are correct and complete. CEDENT understands that in determining to enter into this Agreement, WILTON is relying on the CEDENT’s representation in this Section 1.01.

      Section 1.02.     Effective at 12:01 a.m. on the Effective Date (the “Effective Time”), WILTON agrees with each of CEDENT and ALR to perform the Agreement, to be bound by all of the terms and conditions of the Agreement, and to perform all of ALR’s duties, obligations and liabilities under the Agreement to the same extent as if WILTON were the original reinsurer under the Agreement instead of ALR, provided that WILTON shall enjoy all of ALR’s rights under the Agreement.

      Section 1.03.     Effective at the Effective Time, CEDENT accepts the liability of WILTON under the Agreement in lieu of the liability of ALR, agrees to WILTON performing the Agreement, to WILTON being bound by all of the terms and conditions of the Agreement, and to WILTON performing all of ALR’s duties, obligations and liabilities under the Agreement to the same extent as if WILTON were a party to the Agreement instead of ALR, and agrees that WILTON shall enjoy all of ALR’s rights under the Agreement.

      Section 1.04.     Effective at the Effective Time, CEDENT releases and forever discharges ALR and its affiliates from any liability under the Agreement, from performing the Agreement and any of its terms and conditions, from all of ALR’s duties, obligations and liabilities under the Agreement, and from all claims, demands actions and causes of actions which the CEDENT or any of its affiliates ever had, now has or may hereafter have against ALR or any of its affiliates in any way arising out of, resulting from or related to the Agreement.

      Section 1.05.     WILTON and CEDENT hereby ratify and confirm that the Agreement shall continue between them in full force and effect and the terms and conditions of this Agreement shall form part of the Agreement.

      Section 1.06     All rights, duties, obligations and liabilities transferred to WILTON pursuant to this Agreement shall apply whether the right, duty, obligation or liability arose prior to or after the Effective Time.

A-54

      IN WITNESS WHEREOF, CEDENT, ALR, and WILTON have duly executed this Agreement on the dates shown below.

CEDENT

By: 

Title: 

Date: 

By: 

Title: 

Date: 

[ALR America or ALR Bermuda]

By: 

Title: 

Date: 

By: 

Title: 

Date: 

[Prudential Select Life Insurance Company of America or Wilton Reassurance Company or Wilton Reinsurance Bermuda Limited]

By: 

Title: 

Date: 

By: 

Title: 

Date: 

A-55

EXHIBIT E: CEDENT CONFIRMATION LETTER

NAME
ADDRESS
CITY, STATE ZIP

Dear Name:

      Please review and verify the following 2005 financial information for us. This review is necessary as a result of the recently announced reinsurance transaction underway between our company and Wilton Re.

      Please fax the completed letter to Enrico Treglia, Wilton Re Services, Inc. at the following number: 203-762-4439.

      Thank you for your timely attention to this matter.

Sincerely,

Robert P. Mills, Jr.
Vice President & Actuary

		Contract Type:
Product Name:			Claim
Month	Premiums	Allowances	Recoveries
January 2005
February 2005
March 2005
April 2005
May 2005
June 2005

	Pending Claims as of June 30, 2005:
Premiums Outstanding as of June 30, 2005:	Policy Number	Name	Claim Amount

June 30, 2005 Inforce:		Reinsurance
	Count	Net Amount at Risk
From electronic file:
The above information is:		(  ) CORRECT
		(  ) INCORRECT Please provide explanation

Confirmed by:	Name (Print)
	Title
	Signature
	Date

A-56

Confirmation Procedure:

1.     ALRe will prepare confirmation letters for all cedents (see sample).

2.     Letter will be mailed/faxed to ceding company.

3.     ALRe will send Wilton a copy of the June 30, 2005 electronic data file that was provided by the ceding company

      This file will match the June 30, 2005 Inforce on the verification letter.

      Along with the file will be layout information and explanation of codes used.

4.     Ceding company will respond directly to Wilton.

A-57 EX-31.1 3 w14531exv31w1.htm RULE 13A-14(A)/15D-14(A) CERTIFICATION OF THE COMPANY'S CHIEF EXECUTIVE OFFICER

Exhibit 31.1

CERTIFICATION

I, William H. Mawdsley, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Annuity and Life Re (Holdings), Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2005

/s/ William H. Mawdsley

Name: William H. Mawdsley

Title: Chief Executive Officer

- 53 -

EX-31.1

exv31w1

EX-31.2

Exhibit 31.2

CERTIFICATION

I, John W. Lockwood, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Annuity and Life Re (Holdings), Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

     (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

     (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2005

/s/ John W. Lockwood

Name: John W. Lockwood

Title: Chief Financial Officer

- 1 -

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF SARBANES-OXLEY ACT OF 2002

     I, William H. Mawdsley, Chief Executive Officer of Annuity and Life Re (Holdings), Ltd. (the “Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that (1) the Form 10-Q of the Company for the quarterly period ended September 30, 2005 (the “Form 10-Q”), fully complies with requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 9, 2005	/s/ William H. Mawdsley
	Name: William H. Mawdsley
	Title: Chief Executive Officer

- 1 -

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF SARBANES-OXLEY ACT OF 2002

     I, John W. Lockwood, Chief Financial Officer of Annuity and Life Re (Holdings), Ltd. (the “Company”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that (1) the Form 10-Q of the Company for the quarterly period ended September 30, 2005 (the “Form 10-Q”), fully complies with requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 9, 2005	/s/ John W. Lockwood
	Name: John W. Lockwood
	Title: Chief Financial Officer

- 2 -