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 June 30, 2003
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	Not applicable
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)
Cumberland House, 1 Victoria Street, Hamilton, Bermuda	HM11
(Address of Principal Executive Offices)	(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

      The number of the registrant’s Common Shares (par value $1.00 per share) outstanding as of July 5, 2003 was 26,579,228.

INDEX TO FORM 10-Q

		page
	PART I FINANCIAL INFORMATION
Item 1.	Unaudited Consolidated Financial Statements
	Consolidated Balance Sheets June 30, 2003 and December 31, 2002		1
	Consolidated Statements of Operations Three Months and Six Months ended June 30, 2003 and June 30, 2002		2
	Consolidated Statements of Comprehensive (Loss) Three Months and Six Months ended June 30, 2003 and June 30, 2002		3
	Consolidated Statements of Cash Flows Six Months ended June 30, 2003 and June 30, 2002		4
	Consolidated Statements of Changes in Stockholders’ Equity Six Months ended June 30, 2003 and June 30, 2002		5
	Notes to Unaudited Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		35
Item 4.	Controls and Procedures		37
	PART II OTHER INFORMATION
Item 1.	Legal Proceedings		38
Item 2.	Change in Securities and Use of Proceeds		38
Item 4.	Submission of Matters to a Vote of Security Holders		39
Item 5.	Other Information		40
Item 6.	Exhibits and Reports on Form 8-K		41
Signatures			42

PART I

FINANCIAL INFORMATION

Item 1. Unaudited Consolidated Financial Statements

ANNUITY AND LIFE RE (HOLDINGS), LTD.

CONSOLIDATED BALANCE SHEETS

			June 30,		December 31,
			2003		2002
			(Unaudited)
			(U.S. dollars)
Assets
Cash and cash equivalents			$	139,793,317	$	152,930,908
Fixed maturity investments at fair value (amortized cost of $82,117,597 and $146,487,903 at June 30, 2003 and December 31, 2002)				85,064,792		153,415,429
Funds withheld at interest				845,456,798		1,427,093,380
Accrued investment income				1,080,806		2,141,338
Receivable for reinsurance ceded				90,396,049		93,669,173
Other reinsurance receivables				6,947,154		25,025,453
Deferred policy acquisition costs				108,570,393		187,913,648
Other assets				1,429,685		2,508,858
	Total Assets		$	1,278,738,994	$	2,044,698,187
Liabilities
Reserves for future policy benefits			$	235,720,387	$	269,619,809
Interest sensitive contracts liability				815,685,167		1,443,143,080
Other reinsurance liabilities				71,046,391		51,139,164
Accounts payable and accrued expenses				9,565,313		12,459,423
		Total Liabilities	$	1,132,017,258	$	1,776,361,476
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; 26,579,228 and 26,106,328 shares outstanding at June 30, 2003 and December 31, 2002)				26,579,228		26,106,328
Additional paid-in capital				334,887,270		335,334,932
Notes receivable from stock sales				—		(1,626,493)
Unamortized stock grant compensation				(2,318,844)		(2,514,693)
Stock warrants				1,250,000		—
Accumulated other comprehensive income				2,641,227		6,162,525
(Deficit)				(216,317,145)		(95,125,888)
	Total Stockholders’ Equity		$	146,721,736	$	268,336,711
	Total Liabilities and Stockholders’ Equity		$	1,278,738,994	$	2,044,698,187

See accompanying Notes to Unaudited Consolidated Financial Statements

1

ANNUITY AND LIFE RE (HOLDINGS), LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS

		For the Three Months Ended						For the Six Months Ended
		June 30,						June 30,
		2003			2002			2003			2002
		(Unaudited and in U.S. dollars)
Revenues
Net premiums		$	58,563,721		$	92,065,743		$	119,929,634		$	170,072,634
Investment income, net of related expenses			5,734,738			26,366,669			13,893,427			50,956,459
Net realized investment gains			4,896,176			1,837,672			6,560,044			1,515,964
Net change in fair value of embedded derivatives			(1,717,537	)		(6,566,805	)		12,037,322			(4,976,707	)
Surrender fees and other revenues			3,002,778			6,161,207			4,393,025			10,057,332
Total Revenues		$	70,479,876		$	119,864,486		$	156,813,452		$	227,625,682
Benefits and Expenses
Claim and policy benefits		$	84,425,206		$	74,443,139		$	159,514,646		$	133,258,745
Interest credited to interest sensitive products			4,217,542			20,948,167			9,089,301			38,870,513
Policy acquisition costs and other insurance expenses			44,631,210			40,571,869			97,132,274			56,207,987
Collateral costs			—			1,053,037			—			2,348,741
Operating expenses			5,922,358			3,142,272			12,268,488			6,800,064
Total Benefits and Expenses		$	139,196,316		$	140,158,484		$	278,004,709		$	237,486,050
Net (Loss)		$	(68,716,440	)	$	(20,293,998	)	$	(121,191,257	)	$	(9,860,368	)
Net (loss) per common share
	Basic	$	(2.66	)	$	(0.79	)	$	(4.69	)	$	(0.38	)
	Diluted	$	(2.66	)	$	(0.79	)	$	(4.69	)	$	(0.38	)

See accompanying Notes to Unaudited Consolidated Financial Statements

2

ANNUITY AND LIFE RE (HOLDINGS), LTD.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2003			2002			2003			2002
	(Unaudited and in U.S. dollars)
Net (loss) for the period	$	(68,716,440	)	$	(20,293,998	)	$	(121,191,257	)	$	(9,860,368	)
Other comprehensive (loss) income:
Unrealized holding gains on securities arising during the period		2,130,876			8,688,887			3,038,746			2,853,180
Less reclassification adjustment for realized gains in net (loss)		4,896,176			1,837,672			6,560,044			1,515,964
Other comprehensive (loss) income	$	(2,765,300	)	$	6,851,215		$	(3,521,298	)	$	1,337,216
Total Comprehensive (Loss)	$	(71,481,740	)	$	(13,442,783	)	$	(124,712,555	)	$	(8,523,152	)

      See accompanying Notes to Unaudited Consolidated Financial Statements

3

ANNUITY AND LIFE RE (HOLDINGS), LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

		For the Six Months Ended
		June 30,
		2003			2002
		(Unaudited and in U.S. dollars)
Cash flows from operating activities
Net (loss)		$	(121,191,257	)	$	(9,860,368	)
Adjustments to reconcile net (loss) to cash (used) provided by operating activities:
Net realized investment (gains)			(6,560,044	)		(1,515,964	)
Net change in fair value of embedded derivatives			(12,037,322	)		4,976,707
Amortization of stock grant compensation			225,016			360,896
Stock warrants expense			1,250,000			—
Changes in:
Accrued investment income			1,060,532			(602,536	)
Deferred policy acquisition costs			79,343,255			(2,232,078	)
Other reinsurance receivables			21,351,424			11,296,348
Other assets			1,079,173			(1,770,523	)
Reserves for future policy benefits			(33,899,422	)		32,829,600
Interest sensitive contracts, net of funds withheld			(33,784,009	)		(15,565,503	)
Other reinsurance liabilities			19,907,227			282,534
Accounts payable			(2,894,110	)		196,432
	Net cash (used) provided by operating activities	$	(86,149,537	)	$	18,395,545
Cash flows from investing activities
Proceeds from sales of fixed maturity investments		$	322,639,650		$	287,775,849
Purchase of fixed maturity investments			(251,254,197	)		(356,676,834	)
	Net cash provided (used) by investing activities	$	71,385,453		$	(68,900,985	)
Cash flows from financing activities
Interest accrued on notes receivable		$	(43,998	)	$	(48,334	)
Interest collected on notes receivable			420,491			38,620
Repayments (issuances) of notes receivable			1,250,000			(250,000	)
Dividends paid to stockholders			—			(2,576,588	)
Increase in deposit liability			—			10,000,000
	Net cash provided by financing activities	$	1,626,493		$	7,163,698
Decrease in cash and cash equivalents		$	(13,137,591	)	$	(43,341,742	)
Cash and cash equivalents, beginning of period			152,930,908			104,793,019
Cash and cash equivalents, end of period		$	139,793,317		$	61,451,277

      See accompanying Notes to Unaudited Consolidated Financial Statements

4

ANNUITY AND LIFE RE (HOLDINGS), LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

	For the Six Months Ended
	June 30,
	2003			2002
	(Unaudited and in U.S. dollars)
Preferred shares par value $1.00
Balance at beginning and end of period	$	—		$	—
Common shares par value $1.00
Balance at beginning of period	$	26,106,328		$	25,705,328
Issuance of shares		575,000			133,500
(Cancellation) of shares		(102,100	)		—
Balance at end of period	$	26,579,228		$	25,838,828
Additional paid-in capital
Balance at beginning of period	$	335,334,932		$	332,447,062
Issuance of shares		325,000			2,031,870
(Cancellation) of shares		(772,662	)		—
Balance at end of period	$	334,887,270		$	334,478,932
Notes receivable from stock sales
Balance at beginning of period	$	(1,626,493	)	$	(1,317,259	)
Repayments (issuances)		1,250,000			(250,000	)
Interest collected on notes receivable		420,491			38,620
Accrued interest during period		(43,998	)		(48,334	)
Balance at end of period	$	—		$	(1,576,973	)
Unamortized stock grant compensation
Balance at beginning of period	$	(2,514,693	)	$	—
(Issuance) of stock grants		(900,000	)		(2,165,370	)
Cancellation of stock grants		870,832			—
Amortization of stock grants		225,017			360,896
Balance at end of period	$	(2,318,844	)	$	(1,804,474	)
Stock warrants outstanding
Balance at beginning of period	$	—		$	—
Issuance of warrants		1,250,000			—
Balance at end of period	$	1,250,000		$	—
Accumulated other comprehensive income
Balance at beginning of period	$	6,162,525		$	6,418,469
Net unrealized (losses) gains on securities		(3,521,298	)		1,337,216
Balance at end of period	$	2,641,227		$	7,755,685
(Deficit) Retained earnings
Balance at beginning of period	$	(95,125,888	)	$	38,935,242
Net (loss)		(121,191,257	)		(9,860,368	)
Stockholder dividends		—			(2,576,588	)
Balance at end of period	$	(216,317,145	)	$	26,498,286
Total Stockholders’ Equity	$	146,721,736		$	391,190,284

See accompanying Notes to Unaudited Consolidated Financial Statements

5

ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO UNAUDITED 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; and Annuity and Life Re America, Inc., an insurance holding company based in the United States, and Annuity and Life Reassurance America, Inc., a life insurance company domiciled in the United States. Holdings, Annuity and Life Reassurance, Annuity and Life Re America and Annuity and Life Reassurance America are collectively referred to herein as the “Company.” The Company completed an initial public offering of its equity securities and commenced operations on April 17, 1998.

2.     Going Concern Basis of Presentation

      The accompanying unaudited 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 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 for the fiscal year ended December 31, 2002. In the opinion of management, all adjustments considered necessary for a fair presentation have been included in these financial statements.

      The accompanying unaudited consolidated financial statements of the Company have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. However, the Company incurred a significant operating loss in 2002 and the first six months of 2003. Further, the financial strength ratings of the Company’s operating subsidiaries were downgraded in 2002 and 2003 by A.M. Best, Standard & Poor’s, and Fitch Ratings to C+, BB-, and C, respectively. The A.M. Best and Standard & Poor’s ratings were subsequently withdrawn at the Company’s request.

      In addition, the Company is required to post collateral for the statutory reserves ceded to it by U.S. based insurers and reinsurers. The Company did not have sufficient available cash and investments at June 30, 2003 to satisfy the collateral requirements asserted by its cedents under certain of its reinsurance treaties. Two of the Company’s cedents have asserted that the Company must satisfy additional collateral requirements of approximately $78 million in excess of amounts the Company currently has posted. The Company has not agreed with the assertion by one of these cedents that the Company must post approximately $59 million of additional collateral. As a result of the Company’s inability to satisfy its obligations, certain parties have claimed that the Company is in breach of its agreements. As a consequence, such parties have sought and others may seek remedies for such claimed breaches by the Company, and the Company may be required to enter into arbitration or litigation proceedings with those parties. If the Company does not prevail in any such arbitration or litigation proceeding, it would have a material adverse effect on the Company’s financial condition and the Company may be required to liquidate its operations.

      As of June 30, 2003, the Company had $29,810,000 of outstanding unsecured letters of credit issued on its behalf by Citibank. In October 2002, Citibank agreed to extend the Company’s unsecured letter of credit facility into 2003 in exchange for the Company’s agreement to secure or eliminate the letter of credit facility by June 30, 2003. The Company was unable to secure or eliminate the letter of credit facility by that date. Although the Company is seeking to reduce the amount of outstanding letters of credit issued on its behalf by Citibank, primarily through recaptures and terminations of reinsurance agreements, the Company expects that there will be letters of credit outstanding that will expire on December 31, 2003. At that time, Citibank may not renew the letters of credit. If Citibank does not renew the letters of credit, the Company’s cedents will be

6

ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

entitled to draw on the letters of credit and the Company would be obligated to repay Citibank for any amounts drawn.

      Under Bermuda law, a single creditor could make a statutory demand upon the Company for satisfaction of obligations owed to that creditor. If the statutory demand is held to be valid, and the Company is unable to satisfy its obligations to that creditor, the creditor may institute proceedings seeking the liquidation of the Company. As of the date of this report, the Company has been served with two statutory demands under Bermuda law and has satisfied or otherwise eliminated its obligations to the parties making those demands. If a creditor of the Company successfully pursues this statutory process and the Company is unable to discharge its obligations, liquidation proceedings could be commenced against the Company.

      On November 20, 2002, the State of Connecticut Insurance Department and the Company’s United States domiciled operating subsidiary entered into a letter agreement acknowledging that the Connecticut Insurance Department is monitoring the financial condition of the Company’s United States domiciled operating subsidiary. The letter agreement requires that certain financial transactions entered into by the subsidiary, including the disposal of assets, payment of dividends and settlement of inter-company balances with the Company’s Bermuda operating subsidiary, be pre-approved by the insurance department. In addition, the Connecticut Insurance Department has requested weekly updates from senior management of the U.S. operating subsidiary on the status of the Company and any changes in the status of the U.S. operating subsidiary. The letter agreement continues to be effective until March 1, 2004.

      The Company continues to consider its strategic alternatives, including the possibility of raising new capital, but has not been able to successfully raise new capital to date. The Company has ceased to write new reinsurance agreements and has notified its existing clients that it will not be accepting any new business under existing treaties on their current terms. The Company does not anticipate writing new reinsurance agreements in the foreseeable future. These aforementioned factors raise substantial doubt about the Company’s ability to continue as a going concern.

      The Company’s plans involve attempting to meet or reduce its collateral requirements by continuing to negotiate the recapture, retrocession, novation or sale of certain of its reinsurance agreements. During the first six months of 2003, these types of transactions resulted in significant losses for the Company. The Company expects to incur additional charges in connection with similar transactions in the third quarter of 2003; however, the magnitude of charges associated with these types of transactions should be significantly less than previous quarters. In January 2003, the Company instituted substantial premium rate increases on all of its non-guaranteed premium yearly renewable term contracts. All of the Company’s cedents subject to the rate increase, except The Metropolitan Life Insurance Companies (“MetLife”) and one other cedent who has accepted the rate increase, have elected to recapture their reinsurance agreements. MetLife has made the rate increase a subject of arbitration with the Company, and has indicated that its election to recapture is dependent upon the arbitration panel’s conclusion about the validity of the rate increase.

      There can be no assurance that the Company’s plans will be successful in improving its operations and liquidity. If the Company is not successful in implementing its plans, management believes that the Company will not be able to satisfy its obligations in 2003. The accompanying unaudited consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

7

ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3.     (Loss) Per Share

      The following table sets forth the computation of basic and diluted (loss) per share for the three month and six month periods ended June 30:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2003			2002			2003			2002
Net (loss) available to common shareholders	$	(68,716,440	)	$	(20,293,998	)	$	(121,191,257	)	$	(9,860,368	)
Basic:
Weighted average number of common shares outstanding		25,841,057			25,722,016			25,816,982			25,716,453
Net (loss) per share	$	(2.66	)	$	(0.79	)	$	(4.69	)	$	(0.38	)
Diluted:
Weighted average number of common shares outstanding		25,841,057			25,722,016			25,816,982			25,716,453
Net (loss) per share	$	(2.66	)	$	(0.79	)	$	(4.69	)	$	(0.38	)

4. Business Segments

      The Company separately tracks financial results of the Company’s 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 and coinsurance funds withheld annuity reinsurance agreements have features that constitute embedded derivatives that require bifurcation and separate accounting under FAS 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’ 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 allocated to the segments proportionately based upon the amount of stockholders’ equity deployed to the segment, except for capital raising costs, which are charged directly to the corporate segment. Capital raising costs incurred in 2002 have been reallocated to the corporate segment to maintain comparability with the presentation for 2003. The Company believes that investors will better understand the Company’s profitability, risk profile, and capital deployment through this segment reporting method. There are no intersegment transactions. The following table displays several key measurements for each of the Company’s business segments:

	Life			Annuity
Three Months Ended June 30, 2003	Reinsurance			Reinsurance			Corporate		Consolidated
Revenues	$	57,507,429		$	7,766,799		$	5,205,648	$	70,479,876
Benefits and Expenses		96,845,758			40,830,738			1,519,821		139,196,316
Segment (Loss) Income	$	(39,338,329	)	$	(33,063,939	)	$	3,685,827	$	(68,716,440	)
Total Assets	$	396,766,778		$	849,885,167		$	32,087,049	$	1,278,738,994

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ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Life		Annuity
Three Months Ended June 30, 2002	Reinsurance		Reinsurance			Corporate		Consolidated
Revenues	$	94,465,177	$	21,395,350		$	4,003,959	$	119,864,486
Benefits and Expenses		88,013,741		51,185,729			959,014		140,158,484
Segment Income (Loss)	$	6,451,436	$	(29,790,379	)	$	3,044,945	$	(20,293,998	)
Total Assets	$	605,018,193	$	1,553,294,479		$	137,994,918	$	2,296,307,590

	Life			Annuity
Six Months Ended June 30, 2003	Reinsurance			Reinsurance			Corporate		Consolidated
Revenues	$	117,677,416		$	31,869,930		$	7,266,106	$	156,813,452
Benefits and Expenses		202,161,913			72,804,345			3,038,452		278,004,709
Segment (Loss) Income	$	(84,484,497	)	$	(40,934,415	)	$	4,227,655	$	(121,191,257	)
Total Assets	$	396,766,778		$	849,885,167		$	32,087,049	$	1,278,738,994

	Life		Annuity
Six Months Ended June 30, 2002	Reinsurance		Reinsurance			Corporate		Consolidated
Revenues	$	173,611,221	$	48,311,104		$	5,703,357	$	227,625,682
Benefits and Expenses		159,970,569		75,183,152			2,332,329		237,486,050
Segment Income (Loss)	$	13,640,652	$	(26,872,048	)	$	3,371,028	$	(9,860,368	)
Total Assets	$	605,018,193	$	1,553,294,479		$	137,994,918	$	2,296,307,590

5. Accounting Standards

      In December 2002, the FASB issued Statement Number 148 — Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement Number 123. This statement provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. On January 1, 2003, the Company voluntarily adopted the fair value based method of accounting for stock-based employee compensation under the prospective method described in FASB Statement Number 148. Under this method, the Company applies fair value accounting to all grants of employee stock options subsequent to December 31, 2002. Previously, the Company had applied the intrinsic value method when accounting for its stock-based compensation and continues to apply the intrinsic value method to stock-based compensation issued prior to January 1, 2003. FASB Statement Number 148 also amends the disclosure requirements of FASB Statement Number 123 to require more prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The following table provides the required disclosure for grants made prior to the Company’s adoption of the prospective method described in FASB Statement Number 148.

9

ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2003			2002			2003			2002
Net (loss) — as reported	$	(68,716,440	)	$	(20,293,998	)	$	(121,191,257	)	$	(9,860,368	)
Pro forma effect on net (loss) of applying fair value accounting to pre January 1, 2003 option grants		(547,800	)		(862,121	)		(1,095,601	)		(1,724,242	)
Net (loss) — pro forma	$	(69,269,240	)	$	(21,156,119	)	$	(120,159,065	)	$	(11,584,610	)
(Loss) per share as reported:
Basic	$	(2.66	)	$	(0.79	)	$	(4.69	)	$	(0.38	)
Diluted	$	(2.66	)	$	(0.79	)	$	(4.69	)	$	(0.38	)
Pro forma effect on net (loss) per share of applying fair value accounting to pre January 1, 2003 option grants:
Basic	$	(0.02	)	$	(0.03	)	$	(0.05	)	$	(0.07	)
Diluted	$	(0.02	)	$	(0.03	)	$	(0.05	)	$	(0.07	)
Pro forma (loss) per share:
Basic	$	(2.68	)	$	(0.82	)	$	(4.74	)	$	(0.45	)
Diluted	$	(2.68	)	$	(0.82	)	$	(4.74	)	$	(0.45	)

6. Related Party Transactions

XL Life Ltd

      On December 31, 2002, the Company entered into a transaction with XL Life Ltd (“XL Life”), a subsidiary of XL Capital, pursuant to which the Company transferred certain blocks of life reinsurance business to XL Life. Under the agreement with XL Life, the Company novated five blocks of life reinsurance business to XL Life, which in turn entered into a 50% quota share reinsurance contract with the Company with respect to four of those blocks of business. As a result of the transaction, the Company incurred a loss of approximately $26.5 million, primarily as a result of a write down of deferred acquisition costs of $38.7 million (which was partially offset by a net ceding commission to the Company of $18.0 million), a write down of prepaid expenses of $2.4 million and transaction costs of approximately $3.2 million. The agreement also provides that XL Life will receive an additional payment of $5 million if, during the 18 months following the agreement, the Company receives new capital funding of at least $35 million and the Company’s stock trades at a price at or above $5.00 per share for a period of 20 out of any 30 consecutive trading days. The Company is in discussions with XL Life regarding certain post closing adjustments called for by the master novation agreement entered into in connection with the transaction. If the Company cannot reach a satisfactory resolution with XL Life regarding these adjustments, it may be required to enter into arbitration proceedings with XL Life under the agreement. If the Company is unable to prevail in such arbitration proceedings, it may be required to make substantial cash adjustment payments to XL Life under the agreement.

      On August 5, 2003, XL Life served the Company with notice of its intention to recapture the 50% quota share reinsurance contract with the Company. As a result, the Company will not be able to recover the deferred acquisition costs carried for this contract from future expected income, and has written down approximately $21 million of such deferred acquisition costs in the three months ended June 30, 2003.

10

ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      XL Life has also indicated its desire to terminate other agreements with the Company, including the $10 million excess of loss reinsurance policy purchased by the Company in the first quarter of 2002 and two annuity reinsurance contracts between the Company and XL Life or its affiliates. The excess of loss reinsurance policy was purchased to protect against lifetime minimum interest guarantee (“LMIG”) payments under the Company’s annuity reinsurance contract with Transamerica Occidental Life Insurance Company (“Transamerica”), and full recovery under the policy has been anticipated in establishing the Company’s deferred acquisition cost asset. The two annuity reinsurance contracts represent approximately $96 million (including a cumulative loss from embedded derivatives of approximately $2.8 million) of the Company’s Funds withheld at interest and approximately $95 million of the Company’s Interest sensitive contract and other liabilities. The Company is in discussions with XL Life regarding these other relationships. The outcome of these discussions cannot be determined at this time.

Transactions with management

      During 1998, certain of the Company’s officers purchased 163,121 shares in the Company, and the Company made loans to the officers to partially finance such purchases. The loans accrued interest at 7% per annum and certain unpaid loans became due and payable in April 2003. In connection with the renegotiation or termination of certain officers’ employment agreements, the Company has deemed the outstanding loans of those officers to have been repaid in exchange for the officers agreeing to forego certain bonus, severance or other payments that are or may become payable to them. During the six months ended June 30, 2003, loans of $1,000,000 with accrued interest of $402,812 had been deemed repaid in this manner.

7.     Restricted Stock

      In 2002, the Board of Directors adopted a Restricted Stock Plan under which it may grant common shares to key employees. The aggregate number of common shares that may be granted under the Restricted Stock Plan is 1,200,000. The Compensation Committee of the Board of Directors administers the Restricted Stock Plan. During 2002, the Company made two awards to employees. Under the first award to employees, the Company issued 133,500 shares of restricted stock that vest on the third anniversary of the grant date. Under the second award, certain employees of the Company were irrevocably offered shares of restricted stock, conditioned upon the execution of a retention agreement with the Company. The Company issued an aggregate 267,500 shares to those employees who chose to execute retention agreements and such shares vest in three equal annual installments commencing on the first anniversary of the grant date.

      During the first quarter of 2003, the Company issued 200,000 shares of restricted stock to the Company’s President and Chief Executive Officer. These shares vest in three equal annual installments commencing on the first anniversary of the grant date. In addition, during the second quarter of 2003, the Company issued an additional 375,000 shares of restricted stock in connection with retention grants to employees. These shares also vest in three equal annual installments commencing on the first anniversary of the grant date. During the first six months of 2003, 102,100 shares of restricted stock were cancelled as a result of certain employees terminating their employment with the Company. The fair value, as determined at the date of grant, of the restricted stock awards that remain outstanding on June 30, 2003 was $3,064,108 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. The unamortized balance of outstanding restricted stock is reflected in the balance sheet as a component of unamortized stock grant compensation.

11

ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8.     Vulnerability Due to Concentrations

      The Company has entered into a significant deferred annuity reinsurance contract with Transamerica and a significant life reinsurance contract with MetLife. Due to the size of these contracts, there is a material concentration of net premiums, net investment income, interest credited to interest sensitive products, funds withheld at interest, deferred policy acquisition costs and interest sensitive contract liabilities with one or both of the underlying parties to these contracts.

      At June 30, 2003 and December 31, 2002, approximately $648 million and $734 million, respectively, of the Company’s funds withheld at interest receivable and $650 million and $756 million, respectively of the Company’s interest sensitive contracts liability related to its reinsurance contract with Transamerica, which is a retrocessional reinsurance arrangement covering policies issued by IL Annuity and Insurance Company. Transamerica’s agreement with IL Annuity is also structured on a modified coinsurance basis, so IL Annuity maintains ownership and control of the assets supporting the Company’s obligations to Transamerica. At June 30, 2003, IL Annuity’s financial strength rating was BB+ from Standard & Poor’s. At June 30, 2003, Transamerica had financial strength or claims paying ratings of A+, AA, Aa3 and AA+ (with a negative outlook) from A.M. Best, Standard & Poor’s, Moody’s Ratings and Fitch Ratings, respectively.

      During the six months ended June 30, 2003, the Company recorded $10,057,000 of LMIG payments in connection with the Transamerica annuity reinsurance contract, as compared to payments of $13,322,000 for the six months ended June 30, 2002. XL Life, subsidiary of XL Capital, has agreed to provide protection for up to $10,000,000 against LMIG payments on this contract paid after December 31, 2001 in excess of a $33,000,000 deductible. During the second quarter of 2003, the cumulative LMIG payments made by the Company under the Transamerica contract exceeded the deductible and, as a result, the Company is currently due approximately $3,800,000 under the excess of loss reinsurance policy purchased from XL Life.

      During 2002, the Company recorded a write down of deferred acquisition costs in connection with the Transamerica contract of $27,474,000. This charge was the result of a high level of surrenders of the underlying policies coupled with poor investment performance on the premiums paid by the holders of policies underlying the reinsurance contract. In writing down the deferred acquisition costs to their estimated recoverable amount, management estimated the future levels of surrenders of the underlying policies together with the estimated future level of investment return on the invested premiums. No additional write downs of deferred acquisition costs were required in the six months ended June 30, 2003. While management has established its deferred acquisition cost asset at what it believes to be an appropriate level based upon reasonable assumptions about future investment performance and surrenders, if actual experience varies significantly from the assumptions used to establish our deferred acquisition cost asset, additional write downs may be needed in the future.

      For the three and six months ended June 30, 2003, the Company recorded losses of approximately $2,246,000 and $3,935,000, respectively, related to its life reinsurance contract with MetLife. Premiums associated with this contract for the three and six months ended June 30, 2003, were approximately $9,918,000 and $19,898,000, respectively. In January 2003, the Company provided written notice to MetLife of a premium rate increase in connection with this contract, effective March 5, 2003, which has become a subject of the Company’s arbitration with MetLife. As a result of novations and recaptures of certain of the Company’s life reinsurance contracts during the year ended December 31, 2002 and the first six months of 2003, MetLife now represents a larger percentage of the Company’s premium, revenue and net income, and the Company expects the relative significance of the MetLife contract to increase as additional contracts are recaptured or novated.

      During the first quarter of 2003, The Ohio National Life Insurance Company terminated its annuity reinsurance agreement with the Company, resulting in a loss of approximately $(4,655,000) (net of the unrealized gain associated with the reversal of cumulative unrealized losses in the embedded derivative

12

ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

associated with the agreement). At December 31, 2002, this reinsurance agreement was the Company’s second largest annuity reinsurance agreement representing approximately $366 million of the Company’s funds withheld at interest (net of the fair value of the embedded derivatives associated with that agreement, which was an unrealized loss of approximately $10 million) and $376 million of the Company’s interest sensitive contracts liability.

      On December 31, 2002, the Company entered into a transaction with XL Life pursuant to which the Company transferred certain blocks of life reinsurance business to XL Life. Under the agreement with XL Life, the Company novated five blocks of life reinsurance business to XL Life, which in turn entered into a 50% quota share reinsurance contract with the Company with respect to four of those blocks of business. On August 5, 2003, XL Life served the Company with notice of its intention to recapture the 50% quota share reinsurance contract with the Company.

9.     Contingencies

      As of June 30, 2003, the Company did not have sufficient available cash and investments to post collateral to satisfy its obligations under certain of its reinsurance treaties. Two of the Company’s cedents have asserted that the Company must satisfy additional collateral requirements of approximately $78,000,000 in excess of amounts the Company currently has posted. At June 30, 2003, $59,000,000 of the collateral requirements asserted by the Company’s cedents related to the Company’s only combined guaranteed minimum death benefit (“GMDB”) and guaranteed minimum income benefit (“GMIB”) contract. The Company has not agreed with the cedent under that contract regarding the amount that is in fact required to be posted as collateral. If the Company is ultimately unable to satisfy its collateral obligations under this or other contracts, its cedents may elect to pursue the remedies available to them under their contracts, including arbitration against the Company.

      While the Company plans to continue receiving premiums and paying claims under its remaining reinsurance treaties, the Company has ceased to write new reinsurance agreements and has notified its existing clients that it will not be accepting any new business under existing treaties on their current terms. The Company does not anticipate writing new reinsurance agreements in the foreseeable future. The Company’s plans involve attempting to meet or reduce its collateral requirements by continuing to negotiate the recapture, retrocession, novation or sale of certain of its reinsurance agreements. During the first six months of 2003, these types of transactions resulted in significant losses for the Company. The Company expects to incur additional charges in connection with similar transactions in the third quarter of 2003; however, the magnitude of charges associated with these types of transactions should be significantly less than previous quarters. In January 2003, the Company instituted substantial premium rate increases on all of its non-guaranteed premium yearly renewable term contracts. All of the Company’s cedents subject to the rate increase, except MetLife and one other cedent who has accepted the rate increase, have elected to recapture their reinsurance agreements. MetLife has made the rate increase a subject of arbitration with the Company, and has indicated that its election to recapture is dependent upon the arbitration panel’s conclusion about the validity of the rate increase. There can be no assurance that the Company’s plans will be successful in improving its operations and liquidity, or that the Company can successfully implement its plans. If the Company’s plans are not successful or it is unable to implement its plans, it will not be able to satisfy its obligations in 2003.

      In April 2003, Hartford Life Insurance Company (“Hartford Life”), the cedent under the Company’s largest GMDB reinsurance contract, drew approximately $18,000,000 of assets held in trust for its benefit and drew approximately $24,500,000 of letters of credit that had been issued by Citibank for Hartford Life’s benefit. As a result of Hartford Life’s draw on the letters of credit, Citibank applied approximately $20,105,000 in assets that had been posted by the Company as security under its letter of credit facility against amounts due to Citibank from the Company. Consequently, approximately $4,395,000 related to the Company’s letter of credit facility became due upon demand by Citibank and was paid by the Company on

13

ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

June 30, 2003. On July 17, 2003, Hartford Life agreed to recapture its GMDB reinsurance contract with the Company, effective June 30, 2003. As consideration for the recapture, Hartford Life retained approximately $31 million of the funds it had drawn from the trust account and letters of credit and the Company issued warrants to purchase an aggregate one million of the Company’s common shares to Hartford Life. The impact of the recapture in the second quarter of 2003, net of reserves for GMDB that were no longer needed and released, was a charge of approximately $20 million. Under the terms of the recapture, the Company has no further obligations to Hartford Life.

      In April 2002, the Company served written notice of arbitration on MetLife, the cedent under its largest life reinsurance agreement, seeking equitable relief and monetary damages based on MetLife’s misrepresentation of and failure to disclose material facts relating to the agreement. In January 2003, the Company also provided written notice to MetLife of a premium rate increase, effective March 5, 2003, which also has become a subject of this arbitration. An arbitration panel is scheduled to hear these claims in December 2003.

      As of June 30, 2003, the Company had $29,810,000 of outstanding unsecured letters of credit issued on its behalf by Citibank. In October 2002, Citibank agreed to extend the Company’s unsecured letter of credit facility into 2003 in exchange for the Company’s agreement to secure or eliminate the letter of credit facility by June 30, 2003. The Company was unable to secure or eliminate the letter of credit facility by that date. Although the Company is seeking to reduce the amount of outstanding letters of credit issued on its behalf by Citibank, primarily through recaptures and terminations of reinsurance agreements, the Company expects that there will be letters of credit outstanding that will expire on December 31, 2003. At that time, Citibank may not renew the letters of credit. If Citibank does not renew the letters of credit, the Company’s cedents will be entitled to draw on the letters of credit and the Company would be obligated to repay Citibank for any amounts drawn.

      On November 20, 2002, the State of Connecticut Insurance Department and the Company’s United States domiciled operating subsidiary entered into a letter agreement acknowledging that the Connecticut Insurance Department is monitoring the financial condition of the Company’s United States domiciled operating subsidiary. The letter agreement requires that certain financial transactions entered into by the subsidiary, including the disposal of assets, payment of dividends and settlement of inter-company balances with the Company’s Bermuda operating subsidiary, be pre-approved by the insurance department. In addition, the Connecticut Insurance Department has requested weekly updates from senior management of the U.S. operating subsidiary on the status of the Company and any changes in the status of the U.S. operating subsidiary. The letter agreement continues to be effective until March 1, 2004.

      On and since December 4, 2002, certain of the Company’s shareholders filed purported shareholder class action 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. The plaintiffs claim that the defendants violated certain provisions of the United States securities laws by making various alleged material misstatements and omissions in public filings and press releases. No assurance can be given that the Company will not be required to pay monetary damages in connection with these lawsuits.

      As discussed in Note 6 above, on December 31, 2002, the Company entered into a transaction with XL Life pursuant to which the Company transferred certain blocks of life reinsurance business to XL Life. Under the agreement with XL Life, the Company novated five blocks of life reinsurance business to XL Life, which in turn entered into a 50% quota share reinsurance contract with the Company with respect to four of those blocks of business. The Company is in discussions with XL Life regarding certain post closing adjustments called for by the master novation agreement entered into in connection with the transaction. If the Company cannot reach a satisfactory resolution with XL Life regarding these adjustments, it may be required to enter into arbitration proceedings with XL Life under the agreement. If the Company is unable to prevail in such arbitration proceedings, it may be required to make substantial cash adjustment payments to XL Life under the agreement. On August 5, 2003, XL Life served the Company with notice of its intention to

14

ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

recapture the 50% quota share reinsurance contract with the Company. As a result, the Company will not be able to recover the deferred acquisition costs carried for this contract from future expected income, and has written down approximately $21 million of such deferred acquisition costs in the three months ended June 30, 2003.

      XL Life has also indicated its desire to terminate other agreements with the Company, including the $10 million excess of loss reinsurance policy purchased by the Company in the first quarter of 2002 and two annuity reinsurance contracts between the Company and XL Life or its affiliates. The excess of loss reinsurance policy was purchased to protect against LMIG payments under the Company’s annuity reinsurance contract with Transamerica, and full recovery under the policy has been anticipated in establishing the Company’s deferred acquisition cost asset. The two annuity reinsurance contracts represent approximately $96 million (including a cumulative loss from embedded derivatives of approximately $2.8 million) of the Company’s Funds withheld at interest and approximately $95 million of the Company’s Interest sensitive contract and other liabilities. The Company is in discussions with XL Life regarding these other relationships. The outcome of these discussions cannot be determined at this time.

      On April 8, 2003, the Company received notice from the New York Stock Exchange that it did not satisfy the NYSE’s continued listing standards as of that date because the average closing price of the Company’s common shares had been below $1.00 for a 30 consecutive trading day period. If the Company cannot achieve (i) a $1.00 average share price for the 30 consecutive trading days prior to October 7, 2003, the expiration of the six month period following the date of the receipt of this notification, and (ii) a $1.00 share price on October 7, 2003, then the NYSE will commence suspension and delisting procedures with respect to the Company’s common shares. In addition, the NYSE informed the Company that it is considering whether it continues to meet certain of the NYSE’s qualitative continued listing standards due to concerns over the Company’s financial condition.

10.     Stock Warrants

      On June 30, 2003, the Company issued warrants to purchase an aggregate one million common shares of the Company at an exercise price of $1.25 per share to Hartford Life, the cedent under the Company’s largest GMDB reinsurance contract. The warrants were issued in connection with the recapture of the GMDB contract and expire on June 30, 2013. At June 30, 2003, the fair value of warrants, using a Black-Scholes pricing model, was estimated at $1,250,000, which has been included in the charge associated with the recapture. The expense of issuing these warrants is reflected as a component of Claim and policy benefits expense in the Company’s Consolidated Statements of Operations and as Stock warrants in the Company’s Consolidated Balance Sheet.

15

ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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, 2002, as amended.

      As discussed in greater detail elsewhere in this report, our company continued to encounter significant difficulties during the six month period ended June 30, 2003. In addition to reporting a significant operating loss for the first six months of 2003, we did not have sufficient available cash and investments at June 30, 2003 to satisfy all the collateral requirements asserted by our cedents under certain of our reinsurance treaties. Two of our cedents have asserted that we must satisfy additional collateral requirements of approximately $78,000,000 in excess of amounts we currently have posted. We have not agreed with the assertion by one of these cedents that we must post approximately $59,000,000 of additional collateral. As a result of our inability to satisfy our obligations, certain parties have claimed that we are in breach of our agreements. As a consequence, such parties have sought and others may seek remedies for such claimed breaches by us, and we may be required to enter into arbitration or litigation proceedings with those parties. If we do not prevail in any such arbitration or litigation proceeding, it would have a material adverse effect on our financial condition and we may be required to liquidate our operations.

      As of June 30, 2003, we had $29,810,000 of outstanding unsecured letters of credit issued on our behalf by Citibank. In October 2002, Citibank agreed to extend our unsecured letter of credit facility into 2003 in exchange for our agreement to secure or eliminate the letter of credit facility by June 30, 2003. We were unable to secure or eliminate the letter of credit facility by that date. Although we are seeking to reduce the amount of outstanding letters of credit issued on our behalf by Citibank, primarily through recaptures and terminations of reinsurance agreements, we expect that there will be letters of credit outstanding that will expire on December 31, 2003. At that time, Citibank may not renew the letters of credit. If Citibank does not renew the letters of credit, our cedents will be entitled to draw on the letters of credit and we would be obligated to repay Citibank for any amounts drawn.

      As discussed in Note 6 to our unaudited consolidated financial statements included elsewhere in this report, on December 31, 2002, we entered into a transaction with XL Life Ltd (“XL Life”) pursuant to which we transferred certain blocks of life reinsurance business to XL Life. Under the agreement with XL Life, we novated five blocks of life reinsurance business to XL Life, which in turn entered into a 50% quota share reinsurance contract with us with respect to four of those blocks of business. We are in discussions with XL Life regarding certain post closing adjustments called for by the master novation agreement entered into in connection with the transaction. If we cannot reach a satisfactory resolution with XL Life regarding these adjustments, we may be required to enter into arbitration proceedings with XL Life under the agreement. If we are unable to prevail in such arbitration proceedings, we may be required to make substantial cash adjustment payments to XL Life under the agreement.

      On August 5, 2003, XL Life served us with notice of its intention to recapture the 50% quota share reinsurance contract with us. As a result, we will not be able to recover the deferred acquisition costs carried for this contract from future expected income and have written down approximately $21 million of such deferred acquisition costs in the three months ended June 30, 2003.

      XL Life has also indicated its desire to terminate other agreements with us, including the $10 million excess of loss reinsurance policy purchased by us in the first quarter of 2002 and two annuity reinsurance contracts between our company and XL Life or its affiliates. The excess of loss reinsurance policy was

16

purchased to protect against lifetime minimum interest guarantee (“LMIG”) payments under our annuity reinsurance contract with Transamerica Occidental Life Insurance Company (“Transamerica”), and full recovery under the policy has been anticipated in establishing our deferred acquisition cost asset. The two annuity reinsurance contracts represent approximately $96 million (including a cumulative loss from embedded derivatives of approximately $2.8 million) of our Funds withheld at interest and approximately $95 million of our Interest sensitive contract and other liabilities. We are in discussions with XL Life regarding these other relationships. The outcome of these discussions cannot be determined at this time.

      While we plan to continue receiving premiums and paying claims under our remaining reinsurance treaties, we have ceased to write new reinsurance agreements and have notified our existing clients that we will not be accepting any new business under existing treaties on their current terms. We do not anticipate writing new reinsurance agreements in the foreseeable future. Our plans involve attempting to meet or reduce our collateral requirements by continuing to negotiate the recapture, retrocession, novation or sale of certain of our reinsurance agreements. During the first six months of 2003, these types of transactions resulted in significant losses for us. We expect to incur additional charges in connection with similar transactions in the third quarter of 2003; however, the magnitude of charges associated with these types of transactions should be significantly less than previous quarters. In January 2003, we instituted substantial premium rate increases on all of our non-guaranteed premium yearly renewable term contracts. All of our cedents subject to the rate increase, except The Metropolitan Life Insurance Companies (“MetLife”) and one other cedent who has accepted the rate increase, have elected to recapture their reinsurance agreements. MetLife has made the rate increase a subject of arbitration with us, and has indicated that its election to recapture is dependent upon the arbitration panel’s conclusion about the validity of the rate increase. There can be no assurance that our plans will be successful in improving our operations and liquidity, or that we can successfully implement our plans. If our plans are not successful or we are unable to implement our plans, we will not be able to satisfy our obligations in 2003.

Critical Accounting Policies

      Our 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 net income. 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, 2002, as amended, detail the more significant estimates and assumptions used in the preparation of our 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. As discussed elsewhere in this report, we are attempting to improve our liquidity by novating and recapturing certain of our reinsurance agreements. If we cannot novate or recapture these reinsurance agreements on favorable terms, we will incur additional deferred acquisition cost write downs.

      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 contracts when estimating gross profits arising from such contracts. These assumptions have a direct impact on the amount of expected future LMIG payments and our estimated expected gross profits on these annuity reinsurance contracts and, therefore, on the recoverability of the deferred acquisition costs carried on our balance sheet for these contracts. While these estimates are based upon historical results and information provided to us by our cedents, 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

17

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 make additional LMIG payments and record additional charges, which would adversely impact our earnings.

      Embedded Derivatives. We have concluded that there are embedded derivatives within the Funds withheld at interest receivable related to certain of our annuity reinsurance contracts written on a modified coinsurance or coinsurance funds withheld basis that require bifurcation and separate accounting under Statement of Financial Accounting Standards No. 133 — Accounting for Derivative Instruments and Hedging Activities. These embedded derivatives are similar to a total return swap arrangement on the underlying assets held by our ceding companies. The net fair value of these embedded derivatives 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 affected annuity reinsurance contracts. The fair value of the embedded derivative is influenced by changes in credit risk, changes in expected future cash flows under the annuity contracts and interest rates. The change in fair value of these embedded derivatives is recorded in our statement of operations as Net change in fair value of embedded derivatives, which is a non-cash item. The change in fair value of these embedded derivatives also impacts the emergence of expected gross profits for purposes of amortizing deferred acquisition costs associated with these contracts. The application of this accounting policy has increased the volatility of our reported earnings. While we have made an estimate of the fair value of these embedded derivatives 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. In addition, as industry standards for estimating the fair value of embedded derivatives develop, it is possible that we may modify our methodology. Changes in our assumptions and industry standards could have a significant impact on the fair value of the embedded derivatives and our reported earnings. We do not bifurcate and separately account for the embedded derivatives contained in certain of our contracts, including our Transamerica annuity reinsurance agreement and our guaranteed minimum income benefit (“GMIB”) reinsurance agreement, because we acquired those agreements prior to the transition date elected by us under FAS 133, as amended by FAS 137. Because of the nature of the assets underlying our Transamerica contract, which were roughly 63% convertible bonds at June 30, 2003, the bifurcation and separate accounting for the embedded derivatives contained in that contract would add significant volatility to our reported results. If we bifurcated and separately accounted for the embedded derivative contained in our GMIB reinsurance agreement, it also would add volatility to our reported results.

      Recognition of Revenues and Expenses. Reinsurance premium revenues from life products with mortality risk are recognized when due from the policyholders. For those policies with premium paying periods that are significantly shorter than the total period over which benefits are expected to be provided, profits are deferred and recognized as income in a constant relationship to the insurance in force or, for annuities, in relation to the amount of expected future benefit payments. 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 LMIG payments. Such LMIG payments are recognized when paid upon the surrender of the underlying policy and are not charged to the policyholders’ account balances. We make estimates at the end of each reporting period regarding premiums and benefits for cedents who do not report such information in a timely 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 materially from those estimates.

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We monitor actual experience, and where circumstances warrant, will revise our assumptions and the related reserve estimates.

      We reinsure certain minimum guarantees associated with variable annuity contracts. These have historically included guaranteed minimum death benefits (“GMDB”), GMIB, and enhanced earnings benefits (“EEB”). Our accounting policy is designed to establish reserves for expected claim payments based upon the long-term view of expected losses over the life of the underlying policies, based upon the original pricing assumptions. Our reserving policy allows us to increase reserves if reported claim amounts or claims volume exceed what was anticipated in pricing.

      Policy benefit liabilities for annuities are reflected on our balance sheet as “Interest sensitive contracts liability” and are reported at the accumulated policyholder balance of these accounts.

      If actual events differ significantly from the underlying estimates and assumptions used by us in the application of these 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 June 30, 2003, we had a net loss of $(68,716,440), or $(2.66) per basic and fully diluted common share, as compared with a net loss of $(20,293,998), or $(0.79) per basic and fully diluted common share, for the three months ended June 30, 2002. For the six months ended June 30, 2003, we had a net loss of $(121,191,257), or $(4.69) per basic and fully diluted common share, as compared to net loss of $(9,860,368), or $(0.38) per basic and fully diluted common share, for the six months ended June 30, 2002. The loss in the second quarter of 2003 was primarily the result of losses associated with recaptures and terminations of life and annuity reinsurance agreements and adverse claims experience under our life and annuity reinsurance agreements.

      During the three months ended June 30, 2003, we negotiated the recapture and termination of certain of our life and annuity reinsurance agreements. On July 17, 2003, Hartford Life recaptured our largest GMDB contract effective June 30, 2003. The impact of the recapture of the Hartford Life contract in the second quarter, net of reserves for guaranteed minimum death benefits that were no longer needed and released, was a charge of approximately $20,400,000. In addition, on August 5, 2003, XL Life served us with notice of its intention to recapture its 50% quota share reinsurance contract with us. As a result, we will not be able to recover the deferred acquisition costs carried for this contract from future expected income, and have written down approximately $21,000,000 of such deferred acquisition costs in the three months ended June 30, 2003. As a result of these and all other recaptures and terminations, we incurred charges of approximately $55 million and $94 million for the three and six months ended June 30, 2003, respectively. These charges resulted from the write down of deferred acquisition costs and cash payments made to cedents net of reserve releases associated with the recaptures. We also incurred aggregate losses of approximately $8,500,000 and $21,000,000, respectively, for the three and six month periods ended June 30, 2003 on certain of our life, annuity and GMDB contracts that were recaptured or terminated during the first six months of 2003. Reduced investment income and increased operating expenses also contributed to our net loss for the three and six month periods ended June 30, 2003.

      Net Premiums. Net premium revenue for the three and six month periods ended June 30, 2003 was $58,563,721 and $119,929,634, respectively, a decrease of 36% and 30%, respectively, from net premium revenue of $92,065,743 and $170,072,634, respectively, for the three and six month periods ended June 30, 2002. Substantially all premium revenue was derived from traditional ordinary life reinsurance. The decline in premium revenue reflects the significant reduction of business in force resulting from the novation and recapture of life reinsurance agreements in the fourth quarter of 2002 and the first six months of 2003. At June 30, 2003, the total face amount of life reinsurance in force had decreased to approximately $60 billion, as compared with approximately $137 billion at June 30, 2002. Of the $60 billion life reinsurance in force at June 30, 2003, approximately $17 billion related to those blocks of business covered by our 50% quota share reinsurance agreement with XL Life, which has served us with notice of its intent to recapture that agreement. As we continue to novate, terminate and negotiate the recapture of other reinsurance contracts, we expect our

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reinsurance in force and net premium revenue to continue to decline. In addition, we have stopped writing new reinsurance agreements and have notified our existing clients that we will not be accepting any new business under existing treaties on their current terms, which we expect will also adversely impact our net premium revenue going forward.

      Net Investment Income. Total net investment income for the three and six month periods ended June 30, 2003 was $5,734,738 and $13,893,427, respectively, as compared with $26,366,669 and $50,956,459, respectively, for the three and six month period ended June 30, 2002. Net investment income is comprised of income earned on our general account assets and income earned on assets held and managed by our reinsurance cedents under modified coinsurance contracts, which we refer to as Funds withheld. Both sources of investment income declined from the comparable prior periods.

      Net investment income earned on general account assets for the three and six month periods ended June 30, 2003 was approximately $1,527,000 and $3,409,000, respectively, as compared to $7,192,000 and $13,235,000, respectively, for the three and six month periods ended June 30, 2002. The decrease in net investment income for the three and six months periods ended June 30, 2003 was primarily the result of our return of approximately $147,000,000 of invested assets related to the termination of a reinsurance agreement that provided cash deposits to us that were used to secure collateral obligations of our U.S. based cedents, as well as lower investment returns resulting from the shift in our general account assets towards a greater cash position. Because the amount of our cash and invested assets has decreased significantly due to our operating losses as well as the recapture and termination of certain of our reinsurance agreements, our net investment income is expected to be lower in future periods, absent a significant increase in yield rates.

      The average annualized yield rate earned on our invested assets (excluding the Funds withheld) for the three and six months ended June 30, 2003 was approximately 2.87% and 2.46%, respectively, as compared with approximately 6.46% and 6.01%, respectively, for the three and six months ended June 30, 2002. The decline in yield rates primarily reflects our decision to invest funds supporting our letters of credit in cash equivalents in an effort to maximize our collateral funding ability and to minimize the impact of changing interest rates on our collateral obligations.

      Net investment income earned on Funds withheld for the three and six month periods ended June 30, 2003 was approximately $4,207,000 and $10,484,000, respectively, as compared to approximately $19,175,000 and $37,722,000, respectively, for the three and six month periods ended June 30, 2002. The decrease in investment income on our Funds withheld for the three and six month periods ended June 30, 2003 is primarily due to a significant reduction in Funds withheld as a result of terminations of several large annuity reinsurance contracts, continued lapses and their related invested asset withdrawals and lower investment returns.

      The average annualized yield rates earned on Funds withheld were approximately 1.65% and 2.13%, respectively, for the three and six months ended June 30, 2003, as compared with 5.36% and 5.38%, respectively, for the three and six months ended June 30, 2002.

      Net Realized Investment Gains. Net realized investment gains for the three and six month periods ended June 30, 2003 were $4,896,176 and $6,560,044, respectively, as compared with net realized investment gains of $1,837,672 and $1,515,964, respectively, for the three and six month periods ended June 30, 2002. The increase in net realized investment gains was the result of the strong credit quality of our investment portfolio and the low interest rate environment. Realized gains and losses will fluctuate from period to period based on the market value of our invested assets, and we make decisions concerning the sales of our invested assets based on a variety of market, business and other factors.

      Net Change in the Fair Value of Embedded Derivatives. For the three and six month periods ended June 30, 2003, the net change in fair value of our embedded derivatives was an unrealized loss of $(1,717,537) and unrealized gain of $12,037,322, respectively. For the three and six month periods ended June 30, 2002, the net change in fair value of our embedded derivatives was an unrealized loss of $(6,566,805) and $(4,976,707), respectively. The unrealized loss in our embedded derivatives during the three month period ended June 30, 2003 largely reflects losses related to the termination of one of our annuity reinsurance agreements in the

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second quarter of 2003, partially offset by gains due to credit spreads tightening in the sectors in which the underlying investments are held. The primary reason for the unrealized gain in our embedded derivative for the six month period ended June 30, 2003 was the termination of our Ohio National annuity reinsurance agreement in the first quarter of 2003. Widening credit spreads and bond defaults in the portfolio of assets supporting this agreement had caused unrealized losses in our embedded derivatives in prior periods, which were reversed upon termination of the reinsurance agreement.

      Surrender Fees and Other Revenue. Surrender fees and other revenue for the three and six month periods ended June 30, 2003 were $3,002,778 and $4,393,025, respectively, as compared with $6,161,207 and $10,057,332, respectively, for the three and six month periods ended June 30, 2002. This income is primarily derived from surrender fees related to our fixed annuity contract with Transamerica. The decrease in revenue for the three and six month periods ended June 30, 2003 is mainly due to a reduction in surrender fees under that contract resulting from a lower absolute level of withdrawals during those periods as compared with the three and six month periods ended June 30, 2002.

      Claims and Policy Benefits. Claims and policy benefits for the three month periods ended June 30, 2003 and 2002 were $84,425,206 and $74,443,139, or 144% and 81% of net premiums, respectively. For the six months ended June 30, 2003 and 2002, claims and policy benefits were $159,514,646 and $133,258,745, or 133% and 78% of net premiums, respectively. The increase for the three month and six month periods ended June 30, 2003 was primarily due to recaptures and terminations of life and annuity reinsurance contracts and reported claims under our life and annuity reinsurance contracts that exceeded of our expectations. Recaptures and terminations of life and annuity reinsurance contracts accounted for $21 million and $31 million of claims and policy benefits for the three and six month periods ended June 30, 2003, respectively. Approximately $8.5 million of our loss for the three months ended June 30, 2003 was from contracts that were recaptured in the quarter.

      We continue to monitor and analyze our experience under our remaining agreements. We cannot assure you that claims experience under our remaining contracts will improve. If claim experience continues at the levels observed during the fourth quarter of 2002 and the first six months of 2003, or increases from those levels, our operating results would be materially and adversely affected. The novation, termination and recapture of additional reinsurance agreements will reduce claims and policy benefits at an aggregate level in future periods, and may affect the level of claims and policy benefits as a percentage of premiums. We decreased our reserves for expected claim payments associated with our GMDB and EEB contracts by approximately $10,850,000, largely as a result of the recapture of our GMDB contract with Hartford Life, bringing our total carried reserves for all minimum guarantees associated with variable annuity contracts (including guaranteed minimum income benefits) to $9,400,000 at June 30, 2003. We have one remaining combined GMDB and GMIB contract.

      During July 2003, we updated our analysis of reported claims performed in the first quarter of 2003. Our updated analysis includes claims paid and reported to us through June 30, 2003, and indicates that our carried reserve for incurred but not reported (“IBNR”) claims as of December 31, 2002 was approximately $5,000,000 less than we currently believe was needed. This adverse development has been reflected in claims and policy benefits during the first six months of 2003. In determining the amount of IBNR required at June 30, 2003, we considered the full trending of claims reported through June 30, 2003 on December 31, 2002 reserves. Due primarily to our reduced life reinsurance in force at June 30, 2003 resulting from recaptures of life reinsurance agreements, we have decreased our level of IBNR reserves at June 30, 2003 by $2,560,000.

      We are currently seeking relief from MetLife, our largest cedent of life insurance, with respect to a reinsurance contract that has generated mortality experience beyond our initial pricing parameters and is producing losses. If we are unable to rescind or recapture this agreement, we may incur additional losses in future periods. This life reinsurance agreement is currently in arbitration with respect to representations made to us at the time we underwrote the agreement and with respect to a rate increase we instituted in the first quarter of 2003. In April 2003, MetLife informed us that if the arbitration panel scheduled to hear these

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claims in December 2003 finds the rate increase to be valid, MetLife will recapture the reinsurance agreement effective as of March 5, 2003, the effective date of the increase.

      Interest Credited to Interest Sensitive Contracts Liabilities. Interest credited to Interest sensitive contract liabilities, which are liabilities we assume under certain annuity reinsurance agreements, was $4,217,542 and $9,089,301, respectively, for the three and six month periods ended June 30, 2003, as compared with $20,948,167 and $38,870,513, respectively, for the three and six month periods ended June 30, 2002. Included in Interest credited to interest sensitive contracts liabilities for the three and six month periods ended June 30, 2003 are LMIG payments of approximately $4,571,000 and $10,057,000, respectively, as compared to LMIG payments of approximately $8,129,000 and $13,322,000, respectively, for the comparable prior periods in 2002. The decline in Interest credited to interest sensitive contracts liabilities for the three and six month periods ended June 30, 2003 was primarily the result of terminations of annuity reinsurance contracts, particularly our contract with Ohio National, which was our second largest annuity contract at the time of its recapture, and a smaller base of policyholders account values on our annuity reinsurance contract with Transamerica. We terminated our reinsurance agreement with Ohio National on February 14, 2003 and another large annuity reinsurance contract on April 1, 2003.

      Policy Acquisition and Other Insurance Expenses. Policy acquisition and other insurance expenses, consisting primarily of allowances and amortization and write downs of deferred policy acquisition costs, for the three and six month periods ended June 30, 2003 were $44,631,210 and $97,132,274, respectively, as compared with $40,571,869 and $56,207,987, respectively, for the comparable prior periods in 2002. The increase for the three and six month periods ended June 30, 2003 is primarily due to the net write down of deferred acquisition costs associated with the recapture and termination of contracts of approximately $30,980,000 and $74,210,000, respectively, for the three and six month periods ended June 30, 2003. During the three and six month periods ending June 30, 2002, we wrote down $24,796,000 of deferred acquisition costs associated with our Transamerica annuity reinsurance contract. There were no write downs of deferred acquisition costs associated with the Transamerica contract during the three and six month periods ended June 30, 2003.

      Operating Expenses. Operating expenses for the three month period ended June 30, 2003 were $5,922,358 or 8.2% of total revenue (excluding the net change in fair value of embedded derivatives), as compared with $3,142,272 or 2.6% of total revenue (excluding the net change in fair value of embedded derivatives) for three month period ended June 30, 2002. Operating expenses for the six month period ended June 30, 2003 were $12,268,488 or 8.5% of total revenue (excluding the net change in fair value of embedded derivatives), as compared to $6,800,064 or 3% of total revenue (excluding the net change in fair value of embedded derivatives) for the comparable prior period in 2002. The increase in expense for the three and six month periods of 2003 reflect the write off of approximately $2,100,000 of goodwill associated with our United States operating subsidiary, costs associated with renegotiating employment arrangements and other employee compensation, increased costs of insurance for directors and officers liability coverage and increased legal and audit fees.

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, certain of our remaining modified coinsurance and coinsurance funds withheld annuity reinsurance agreements have features that constitute embedded derivatives that require bifurcation and separate accounting under FAS 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’ 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

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upon the amount of stockholders’ equity deployed to the segment, except for capital raising costs, which are charged directly to the corporate segment. Segment results are reported in Note 4 to our unaudited consolidated financial statements included elsewhere in this report.

      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.

      Life segment loss for the three month period ended June 30, 2003 was $(39,338,329), as compared with segment income of $6,451,436 for the comparable prior period of 2002. Segment loss for the six months ended June 30, 2003 was $(84,484,497) compared to segment income of $13,640,652 for the six months ended June 30, 2002. Segment loss in the three and six months ended June 30, 2003 reflects the costs of recaptures of life reinsurance agreements of approximately $28,310,000 and $62,410,000, respectively. These charges reflect the write down of deferred acquisition costs and cash payments made to cedents net of reserve releases associated with the recaptures, and include the write off of approximately $21,000,000 of deferred acquisition costs resulting from our receipt of XL Life’s notice of its intent to recapture the 50% quota share contract it entered into with us as part of our December 31, 2002 transaction. Similar charges of approximately $34,090,000 were recorded in the first quarter of 2003 in connection with recaptures of life reinsurance agreements that took place in that quarter. We did not incur any recapture costs during the three and six months ended June 30, 2002. Our results for the three and six month periods ending June 30, 2003 were also adversely affected by reported claims from deaths prior to 2003 exceeding our estimated reserves at December 31, 2002 by approximately $5,000,000.

      Segment revenues for the three month period ended June 30, 2003 declined 39% to $57,507,429 from $94,465,177 in the second quarter of 2002. Segment revenues for the six month period ended June 30, 2003 declined 32% to $117,677,416 from $173,611,221 for the first six months of 2002. These declines reflect our reduced levels of life reinsurance in force as a result of novations and recaptures of life reinsurance agreements during the fourth quarter of 2002 and the first six months of 2003. We anticipate further declines in segment revenue in the third quarter of 2003 as the result of these novations and recaptures. In addition, net investment income attributable to the life segment for the first six months of 2003 decreased approximately $6,000,000, as compared with the first six months of 2002, reflecting a reduction in invested assets in the segment and lower asset yields.

      Segment policy benefits and expenses increased 10% to $96,845,758 for the three month period ended June 30, 2003, as compared with $88,013,741 for the three month period ended June 30, 2002, reflecting costs of recaptures during the period. Segment policy benefits and expenses for the six month period ended June 30, 2003 were $202,161,913 compared to $159,970,569 for the comparable prior period. The net cost of recaptures during the three and six month periods ended June 30, 2003 was $28,310,000 and $62,410,000, respectively. For the second quarter these costs are comprised of write downs of deferred acquisition costs of approximately $28,520,000, including the write off of approximately $21,000,000 of deferred acquisition costs associated with XL Life’s recapture of the 50% quota share contract it entered into with us as part of the December 31, 2002 transaction and the return of unearned premium reserves to our cedents of $9,020,000, both offset by policy benefit reserve reductions of $9,230,000. The increase in policy benefits and expenses was also due to reported claims for deaths prior to 2003 that exceeded our expectations at December 31, 2002 by approximately $5,000,000. If claim experience continues at the levels observed during the fourth quarter of 2002 and the first six months of 2003, or increases from those levels, our operating results would be materially and adversely affected. The novation, termination and recapture of additional reinsurance agreements will reduce claims and policy benefits at an aggregate level in future periods, and may affect the level of claims and policy benefits as a percentage of premiums.

      During July 2003, we updated our analysis of reported claims performed in the first quarter of 2003. Our updated analysis indicates that our carried reserve for IBNR claims as of December 31, 2002 was approximately $5,000,000 less than we currently believe was needed. This adverse development has been

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reflected in claims and policy benefits during the first six months of 2003. In determining the amount of IBNR required at June 30, 2003, we considered the full trending of claims reported through June 30, 2003 on December 31, 2002 reserves. Due primarily to our reduced life reinsurance in force at June 30, 2003 resulting from recaptures of life reinsurance agreements, we have decreased our level of IBNR reserves at June 30, 2003 by $2,560,000.

      Annuity Segment. Our annuity reinsurance segment is the reinsurance of general account fixed deferred annuities, general account payout annuity obligations and certain risks arising from variable annuities. With respect to the general account fixed annuities we reinsure, our agreements generally relate to individual general account single premium deferred annuity policies, which either involve the tax-deferred accumulation of interest on a single premium paid by the policyholder (accumulation phase policies) or are annuities that pay fixed amounts periodically to policyholders over a fixed period of time or their lives (payout phase policies). Accumulation phase policies are subject primarily to investment risk and persistency (lapse) risk, while payout phase policies are primarily subject to investment risk and mortality (longevity) risk. We have also historically reinsured certain guarantees associated with variable annuity contracts, including GMDB, EEB and GMIB. As of June 30, 2003, our only remaining EEB contract had been recaptured.

      Our annuity segment contains the majority of our assets. While we would expect it be a small contributor to our net income, it contains significant volatility from two sources. First, under FAS 133 – Accounting for Derivative Instruments and Hedging Activities we must value embedded derivatives in certain of our annuity reinsurance agreements. This unrealized change in the value of the derivative is reported in our income statement 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. Second, our Transamerica annuity reinsurance contract has exhibited volatility due to write downs of our deferred acquisition cost balance which are based upon management’s estimates of future investment performance and lapse experience. Our annuity reinsurance contract with Transamerica, which represented 80% of our annuity segment assets at June 30, 2003, is not expected to generate significant income going forward.

      Segment loss was $(33,063,939) for the three month period ended June 30, 2003, as compared with a loss of $(29,790,379) for the three month period ended June 30, 2002. The loss for the three months ended June 30, 2003 includes a $20,400,000 charge related to the recapture of our largest GMDB reinsurance contract, approximately $2,900,000 of operating loss during the second quarter on that contract, an approximate $4,100,000 loss related to the termination of another annuity reinsurance agreement, approximately $2,400,000 of operating loss from a third annuity reinsurance contract, and embedded derivative losses of approximately $1,700,000. For the first six months of 2003, segment loss was $(40,934,415) compared to $(26,872,048) for the first half of 2002. This reflects the second quarter activity previously mentioned and a $(4,875,000) first quarter loss related to the termination of our annuity reinsurance agreement with Ohio National (net of the unrealized gain associated with the reversal of cumulative unrealized losses in the embedded derivative associated with this agreement). We also incurred a loss of approximately $(1,000,000) in the first quarter of 2003 on one of our annuity reinsurance agreements as the result of an experience refund adjustment reflecting a change in mortality assumptions by the cedent under the contract. The three and six months ended June  30, 2002 includes the $24,796,000 write off of deferred acquisition costs associated with our annuity reinsurance contract with Transamerica.

      Under FAS 133, we are required to bifurcate and separately account for embedded derivatives contained in certain of our annuity reinsurance agreements. The change in the fair value of the embedded derivatives is influenced by changes in credit risk, changes in expected future cash flows under the annuity reinsurance contracts and interest rate changes. For the three and six month periods ended June 30, 2003, the net change in fair value of our embedded derivatives was an unrealized loss of $(1,717,537) and an unrealized gain of $12,037,322, respectively. For the three and six month periods ended June 30, 2002, the net change in fair value of our embedded derivatives was an unrealized loss of $(6,566,805) and $(4,976,707), respectively. The unrealized loss in our embedded derivatives during the three month period ended June 30, 2003 largely reflects losses related to the termination of one of our annuity reinsurance agreements in the second quarter of 2003, partially offset by gains due to credit spreads tightening in the sectors in which the underlying investments are

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held. The primary reason for the unrealized gain in our embedded derivative for the six month period ended June 30, 2003 was the termination of our Ohio National annuity reinsurance agreement in the first quarter of 2003. Widening credit spreads and bond defaults in the portfolio of assets supporting this agreement had caused unrealized losses in our embedded derivatives in prior periods, which were reversed upon the termination of the Ohio National agreement.

      As a result of the recapture of our GMDB contract with Hartford Life, we decreased our reserves for expected claim payments associated with our GMDB and EEB contracts by approximately $10,850,000, bringing our total carried reserves for all minimum guarantees associated with variable annuity contracts (including guaranteed minimum income benefits) to $9,400,000 at June 30, 2003. We have one remaining combined GMDB and GMIB contract.

      Total revenue for our annuity segment declined 64% to $7,766,799 for the three month period ended June 30, 2003, as compared with $21,395,350 for the three month period ended June 30, 2002. Total revenue for our annuity segment declined 34% to $31,869,930 for the six month period ended June 30, 2003, as compared with $48,311,104 for the six month period ended June 30, 2002. The decreases are primarily related to lower investment income of approximately $10,500,000 for the three and six month periods ending June 30, 2003. This reduction is due to a lower base of invested assets as a result of annuity contract terminations during the six months ended June 30, 2003, most notably our annuity reinsurance contract with Ohio National, a decline in net investment income due to reduced assets under management resulting from policy lapses, and lower yields on the remaining assets, including realized losses. Surrender fees from our Transamerica annuity reinsurance contract also decreased by approximately $2,300,000 and $3,700,000 for the three and six months ended June 30, 2003 compared with the comparable prior periods of 2002. The declines in segment revenue were partially offset by increases in net change in the fair value of embedded derivatives of $4,849,268 and $17,014,029 for the three and six month periods ended June 30, 2003, as compared with the comparable prior periods of 2002.

      Policy benefits and expenses for the annuity segment, which include interest credited to policyholders, segment specific expenses, and allocated expenses, declined 20% to $40,830,738 for the three month period ended June 30, 2003, as compared with $51,185,729 for the three month period ended June 30, 2002. These expenses declined 3% to $72,804,345 for the six months ended June 30, 2003, as compared with $75,183,152 for the six months ended June 30, 2002. The three and six months ended June 30, 2003 include a charge of $20,400,000 for the recapture of our largest GMDB contract during the second quarter and LMIG payments of approximately $4,571,000 and $10,057,000, respectively, during the first and second quarters. The three and six month periods ended June 30, 2002 includes a write off of $24,796,000 of deferred acquisition costs associated with our annuity reinsurance contract with Transamerica and LMIG payments of $8,129,000 and $13,322,000, respectively, during the first and second quarters.

      Corporate Segment. The corporate segment includes all of our capital gains and losses, investment income on undeployed invested assets, capital raising costs 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. Segment income grew to $3,685,827 and $4,227,655 for the three and six month periods ended June 30, 2003, as compared with $3,044,945 and $3,371,028 for the three and six month periods ended June 30, 2002. Revenues grew by 30% to $5,205,648 for the three month period ended June 30, 2003, as compared with $4,003,959 for the three month period ended June 30, 2002, and grew by 27% to $7,266,106 for the six month period ended June 30, 2003, as compared with $5,703,357 for the six month period ended June 30, 2002. These increases were the result the movement of stockholders’ equity from the life and annuity segments into the corporate segment as a result of novations, recaptures and terminations of reinsurance contracts during 2002 and the first six months of 2003. Net realized investment gains of $4,896,176 and $6,560,044 in the three and six month periods ended June 30, 2003, respectively, as compared to $1,837,672 and $1,515,964 for the first three and six month periods ended June 30, 2002 also contributed to both increases, partially offset by a reduction in investment income allocated to the segment.

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      Segment benefits and expenses increased slightly to approximately $1.5 million and $3.0 million for the three and six month periods ended June 30, 2003, respectively, as compared with approximately $1 million and $2.3 million, respectively, for the comparable prior periods in 2002.

Financial Condition

Investments

      At June 30, 2003 and December 31, 2002, virtually all of our invested assets 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 June 30, 2003, our invested assets, including cash and cash equivalents, had an aggregate fair value of $224,858,109, including unrealized gains of $2,641,227, as compared with an aggregate fair value of $306,346,337, including unrealized gains of $6,162,525, at December 31, 2002. The decline in our invested assets during the second quarter of 2003 was primarily the result of recaptures and terminations of certain of our reinsurance agreements during the first six months of 2003, as well as increased operating expenses during that period. At June 30, 2003 and December 31, 2002, the weighted average duration of the fixed income securities included in our invested assets was 3.2 and 3.8 years, respectively, and the weighted average investment quality rating was “AA+” and “AA,” respectively.

      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.” 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 issuer; however, the issuer’s capacity to meet its financial commitment on the security is still considered to be strong. As of July 31, 2002, our investment guidelines were amended to prohibit us from investing in fixed income securities that are rated below investment grade at the time of purchase. We do not invest in any fixed income securities in emerging markets or securities that are not rated by a major rating agency.

      At both June 30, 2003 and December 31, 2002, less than 1% of our fixed income securities consisted of below investment grade securities. 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 prohibit the purchase of below investment grade securities, as these investments are subject to a higher degree of credit risk than investment grade securities. 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 June 30, 2003, mortgage-backed securities represented approximately 5% of our invested assets, including cash and cash equivalents, as compared with approximately 10% at December 31, 2002. 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 June 30, 2003 and December 31, 2002.

      At June 30, 2003, none of our mortgage-backed investment portfolio consisted of securities with planned repayment schedules, as compared with 7% at December 31, 2002. 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

	Six Months Ended						Twelve Months Ended
	June 30,						December 31,
	2003			2002			2002			2001			2000
	(Dollars in thousands)
Total invested assets, including cash and equivalents(1)	$	224,858		$	456,578		$	306,346		$	423,780		$	321,819
Investment income, net of related expenses	$	3,409		$	13,235		$	25,931		$	20,165		$	20,126
Effective annualized yield rate(2)		2.46	%		5.57	%		5.28	%		5.74	%		6.85	%
Realized investment gains (losses)	$	6,560		$	1,516		$	19,749		$	1,230		$	(4,817	)

(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 at the end of each calendar quarter included in the indicated period.

      The effective annualized yield rate on our invested assets has declined significantly during the first six months of 2003. This decline is the result of the shift in our general account assets towards a greater cash position. We have increased and are maintaining this greater cash position to maximize the amount of collateral we can provide to our cedents and letter of credit providers and to minimize market risk related to our collateral requirements.

Funds Withheld at Interest

      At June 30, 2003, our Funds withheld receivable was $845 million, as compared with $1.4 billion at December 31, 2002. Historically, when a ceding company enters into a reinsurance contract structured as a modified coinsurance or coinsurance funds withheld arrangement with us, a portion of the ceding company’s liability to the policyholders or, in the case of a retrocessional arrangement, the primary insurer, is ceded to us. Our remaining modified coinsurance and coinsurance funds withheld arrangements are generally 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.” For annuity reinsurance agreements, the Funds withheld at interest receivable is equal to our fixed portion of the statutory reserves carried by the ceding company. For life reinsurance agreements, the Funds withheld at interest receivable is equal to the value of the ceding company’s GAAP reserves related to the policies underlying our life reinsurance agreements, which includes reserves for pending claims and reserves for incurred but not reported claims. 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 Funds withheld at interest under each type of agreement.

      At June 30, 2003, our Funds withheld at interest receivable related to our annuity reinsurance contracts had a carrying value of approximately $820 million. Our contract with Transamerica accounted for approximately 79% of annuity related Funds withheld at interest receivable as June 30, 2003, as compared to 51% at December 31, 2002. The increase in the proportion of our Funds withheld at interest assets related to the Transamerica contract generally reflects the decrease in our Funds withheld at interest asset that resulted from the termination of our annuity reinsurance agreement with Ohio National in February 2003. At June 30, 2003, the assets held and managed by our ceding companies under our annuity reinsurance contracts were invested in convertible bonds and fixed income securities having a weighted average credit quality of “A” and a weighted average duration of 4.97 years. In addition, at June 30, 2003, approximately 6% of such assets were invested in below investment grade securities, as compared with 4.2% of such assets at December 31, 2002. At

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December 31, 2002, these assets had a weighted average credit quality of “A” and a weighted average duration of 5.3 years.

      The average annualized yield rate earned on the assets held and managed by our ceding companies under our annuity reinsurance contracts was approximately 1.65% and 2.13% for the three and six month periods ended June 30, 2003, as compared to 5.36% and 5.38% for the three and six month periods ended June 30, 2002. The average annualized yield rate earned on the assets funding our annuity obligations to Transamerica was approximately 1.24% and 1.43% for the three and six month periods ended June 30, 2003, as compared with 4.28% and 4.47% for the three and six month periods ended June 30, 2002. For purposes of calculating the average yield rate earned on assets held and managed by our ceding companies, including Transamerica, we include net realized capital gains and losses as reported to us by our ceding companies.

      At June 30, 2003, approximately $25.3 million of our Funds withheld at interest receivable was attributable to a 50% quota share reinsurance contract we entered into with XL Life Ltd covering certain blocks of life reinsurance business that we novated to XL Life on December 31, 2002. As of June 30, 2003, the assets related to these reinsurance contracts are investment grade corporate and government securities with an average credit quality of “AA-” and a weighted average duration of 5.8 years. On August 5, 2003 XL Life served notice that it would recapture the 50% quota share reinsurance contract.

Transamerica

      Our annuity reinsurance contract with Transamerica is our largest annuity reinsurance contract and, as of June 30, 2003, approximately $648 million, or 77%, of our Funds withheld at interest receivable; approximately $650 million, or 80%, of our Interest sensitive contracts liability; and approximately $45 million of the Deferred policy acquisition costs assets on our balance sheet related to this contract. As a result of the changes to our Company resulting from the recapture, termination, and novations of numerous blocks of business, including the termination of our annuity reinsurance contract with Ohio National in February 2003, we expect that the assets and liabilities associated with the Transamerica contract will represent a significant portion of our total assets and liabilities in future periods. We do not expect the Transamerica contract to generate significant income in future periods.

      At June 30, 2003, the assets funding the policyholder obligations under the Transamerica contract had an average credit quality of “A” and an average duration of 4.58 years, as compared with an average credit quality of “A-” and an average duration of 4.2 years at December 31, 2002. The contract is a retrocessional arrangement covering VisionMark fixed annuity products issued by IL Annuity and Insurance Company, the primary insurance company. The assets underlying the Transamerica contract are managed by AmerUS Capital Management, the investment manager appointed by IL Annuity. At June 30, 2003 and December 31, 2002, AmerUS Capital Management had invested approximately 63% of the premiums paid in connection with the underlying policies in investment grade convertible bonds and had invested the remaining premiums in investment grade bonds, high yield bonds and mortgage-backed securities. The value of convertible bonds is a function of their investment value (determined by comparing their yield with the yields of other securities of comparable maturity and quality that do not have a conversion privilege) and their conversion value (at market value, if converted into the underlying common stock). To the extent the market price of the underlying common stock approaches or exceeds the conversion price, the price of the convertible bonds will be increasingly influenced by their conversion value. Consequently, the value of convertible bonds may be influenced by changes in the equity markets.

      While convertible bonds would typically be expected to produce lower investment income than other fixed income securities, convertible bonds provide the potential for higher total returns through the underlying equity component of the bonds, which are passed on to VisionMark policyholders through the total return adjustment upon surrender of the policies. As with the holders of other single premium deferred annuity policies, a VisionMark policyholder is guaranteed a return of premiums paid plus a guaranteed minimum interest rate of 3% to 3.5% per annum over the life of the policy. During the six months ended June 30, 2003 and the year ended December 31, 2002, we paid approximately $10,057,000 and $26,700,000, respectively, under our annuity reinsurance contract with Transamerica to cover our proportionate share of the shortfall that

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arose because the net investment returns on the assets related to these policies substantially underperformed the LMIG for surrendered policies.

      According to data provided to us by Transamerica, at June 30, 2003, the assets held by IL Annuity and managed by AmerUS Capital were comprised of the following:

						% of Total
Type of Security		Book Value(1)		Market Value		Market Value
Investment grade convertible bonds		$	455,949,172	$	449,219,666		63.2	%
Investment grade U.S. corporate bonds			130,993,912		139,664,607		19.6	%
Below investment grade U.S. corporate bonds			38,354,642		40,410,242		5.7	%
Mortgage-backed securities			30,758,742		31,834,698		4.5	%
Short term securities			48,907,542		49,774,302		7.0	%
	Total invested assets	$	704,964,010	$	710,903,515		100.0	%
Accrued investment income					4,492,280
	Total market value, including accrued investment income			$	715,395,795

(1)  Book values are those reported to us by the cedent for the underlying investments and do not represent the value of our Funds withheld at interest receivable.

      According to data provided to us by Transamerica, at June 30, 2003, the credit ratings of the assets (excluding accrued investment income) held by IL Annuity and managed by AmerUS Capital were approximately as follows:

						% of Total
Ratings(1)		Book Value(2)		Market Value		Market Value
AAA		$	171,308,887	$	171,627,688		24.1	%
AA			21,475,641		21,497,080		3.0	%
A			205,689,315		209,188,365		29.5	%
BBB			261,119,509		260,768,620		36.7	%
BB and below			45,370,658		47,821,762		6.7	%
	Total invested assets	$	704,964,010	$	710,903,515		100.0	%
Accrued investment income					4,492,280
	Total market value, including accrued investment income			$	715,395,795

(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 those reported to us by the cedent for the underlying investments and do not represent the value of our Funds withheld at interest receivable.

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      According to data provided to us by Transamerica, at June 30, 2003, the maturity distribution of the assets held by IL Annuity and managed by AmerUS Capital was approximately as follows:

						% of Total
Maturity		Book Value(1)		Market Value		Book Value
Within one year		$	59,009,794	$	59,109,505		8.3	%
From one to five years			180,045,321		182,876,013		25.7	%
From six to ten years			140,737,409		146,658,905		20.6	%
More than ten years			325,171,486		322,259,092		45.4	%
	Total all years	$	704,964,010	$	710,903,515		100.0	%

(1)  Book values are those reported to us by the cedent for the underlying investments and do not represent the value of our Funds withheld at interest receivable.

Other Annuity Reinsurance Contracts

      At June 30, 2003, we had two other annuity reinsurance contracts that guaranteed crediting rates that vary in amount and duration. At June 30, 2003, the assets funding the policyholder obligations under these contracts had an average credit quality of “A” and an average duration of approximately 6.47 years, as compared with an average credit quality of “A” and an average duration of approximately 7.04 years at December 31, 2002.

      According to information provided by the ceding companies under these two annuity reinsurance contracts, at June 30, 2003, the assets held and managed by those ceding companies were comprised of as follows:

						% of Total
Type of Security		Book Value(1)		Market Value		Market Value
Investment grade US corporate bonds		$	74,175,750	$	78,630,000		42.0	%
Investment grade UK corporate bonds			84,834,955		92,167,324		49.3	%
Government bonds			6,016,848		5,504,040		3.0	%
Mortgage securities			4,966,500		5,796,000		3.0	%
Below investment grade bonds			5,843,450		5,043,111		2.7	%
	Total invested assets	$	175,837,503	$	187,140,475		100.0	%
Accrued investment income					3,600,082
	Total market value, including accrued investment income			$	190,740,557

(1)  Book values are those reported to us by the cedent for the underlying investments and do not represent the value of our Funds withheld at interest receivable.

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      According to information provided by the ceding companies under these two annuity reinsurance contracts, at June 30, 2003, the credit ratings of the assets (excluding accrued investment income) held and managed by those ceding companies were approximately as follows:

						% of Total
Ratings(1)		Book Value(2)		Market Value		Market Value
AAA		$	31,253,062	$	33,968,312		18.2	%
AA			20,209,536		21,825,974		11.7	%
A			62,775,763		67,605,513		36.1	%
BBB			54,243,693		57,332,564		30.6	%
BB and below			7,355,449		6,408,112		3.4	%
	Total invested assets	$	175,837,503	$	187,140,475		100.0	%
Accrued investment income					3,600,082
	Total market value, including accrued investment income			$	190,740,557

(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 those reported to us by the cedent for the underlying investments and do not represent the value of our Funds withheld at interest receivable.

      According to information provided by the ceding companies under these two annuity reinsurance contracts, at June 30, 2003, the maturity distribution of the assets held and managed by those ceding companies was approximately as follows:

						% of Total
Maturity		Book Value(1)		Market Value		Book Value
Within one year		$	16,811,366	$	16,982,329		9.6	%
From one to five years			34,021,304		36,566,412		19.3	%
From six to ten years			45,164,298		46,621,583		25.7	%
More than ten years			79,840,535		86,970,150		45.4	%
	Total all years	$	175,837,503	$	187,140,475		100.0	%

(1)  Book values are those reported to us by the cedent for the underlying investments and do not represent the value of our Funds withheld at interest receivable.

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 and growth needs. Our principal sources of funds are premiums received, net investment income, proceeds from investments called, redeemed or sold and cash and short term investments. The principal obligations and uses of the funds are to post collateral for the statutory reserves ceded to us by U.S. based insured 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 cedents. At June 30, 2003 and December 31, 2002, letters of credit totaling $106,000,000 and $174,000,000, 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 June 30, 2003 and December 31, 2002, cash and investments of approximately $80,000,000 and $115,000,000, respectively, were pledged as collateral for letters of credit. At both June 30, 2003 and December 31, 2002, cash and investments of $98,220,000 and $125,085,000 respectively were held in

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trust for the benefit of certain ceding insurance companies to provide security and to meet regulatory requirements.

      We have two reinsurance operating subsidiaries, the largest of which is based in and operates out of Bermuda. Our other reinsurance operating subsidiary 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 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 June 30, 2003, approximately $51,000,000 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 addition, our U.S. operating company has entered into a letter agreement with the Connecticut Insurance Department that, among other things, restricts the U.S. operating company from paying dividends or settling inter-company balances with us or our Bermuda operating company.

      In March 2003, Hartford Life Insurance Company, the cedent under our largest GMDB reinsurance contract, served notice seeking to institute arbitration proceedings against us alleging that we had failed to satisfy additional collateral requirements under the contract of approximately $59,000,000 as of December 31, 2002. We did not agree with the additional collateral requirements asserted by Hartford Life and, as a result, ceased making claim payments to Hartford Life under the contract. In April 2003, Hartford Life drew approximately $18,000,000 of assets held in trust for its benefit and drew approximately $24,500,000 of letters of credit that had been issued by Citibank for Hartford Life’s benefit. As a result of Hartford Life’s draw on the letters of credit, Citibank applied approximately $20,105,000 in assets that had been posted by us as security under our letter of credit facility against amounts due to Citibank from us. Consequently, approximately $4,395,000 related to our letter of credit facility became due upon demand by Citibank and was paid by us on June 30, 2003. On July 17, 2003, Hartford Life agreed to recapture its GMDB reinsurance contract with us, effective June 30, 2003. As consideration for the recapture, Hartford Life retained approximately $31 million of the funds it had drawn from the trust account and letters of credit and we issued warrants to purchase an aggregate one million of our common shares to Hartford Life. The impact of the recapture in the second quarter of 2003, net of reserves for GMDB that were no longer needed and released, was a charge of approximately $20 million. Under the terms of the recapture, the Company has no further obligations to Hartford Life.

      As discussed in Note 6 to our unaudited consolidated financial statements included elsewhere in this report, on December 31, 2002, we entered into a transaction with XL Life pursuant to which we novated five blocks of life reinsurance business to XL Life, which in turn entered into a 50% quota share reinsurance contract with us with respect to four of those blocks of business. We are in discussions with XL Life regarding certain post closing adjustments called for by the master novation agreement entered into in connection with the transaction. If we cannot reach a satisfactory resolution with XL Life regarding these adjustments, we may be required to enter into arbitration proceedings with XL Life under the agreement. If we are unable to prevail in such arbitration proceedings, we may be required to make substantial cash adjustment payments to XL Life under the agreement.

      On August 5, 2003, XL Life served us with notice of its intention to recapture the 50% quota share reinsurance contract with us. As a result we will not be able to recover our deferred acquisition costs carried for this contract from future expected income, and have written down approximately $21 million of such deferred acquisition costs in the three months ended June 30, 2003.

      XL Life has also indicated its desire to terminate other agreements with us including the $10 million excess of loss reinsurance policy purchased by us in the first quarter of 2002 and two annuity reinsurance contracts between our company and XL Life or its affiliates. The excess of loss reinsurance policy was purchased to protect against LMIG payments under our annuity reinsurance contract with Transamerica, and full recovery under the policy has been anticipated in establishing our deferred acquisition cost asset. The two

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annuity reinsurance contracts represent approximately $96 million (including a cumulative loss from embedded derivatives of approximately $2.8 million) of our Funds withheld at interest and approximately $95 million of our Interest sensitive contract and other liabilities. We are in discussions with XL Life regarding these other relationships. The outcome of these discussions cannot be determined at this time.

      We did not have sufficient available cash and investments at June 30, 2003 to satisfy the collateral requirements asserted by our cedents under certain of our reinsurance treaties. Two of our cedents have asserted that we must satisfy additional collateral requirements of approximately $78,000,000 in excess of amounts we currently have posted. We have not agreed with the assertion by one of these cedents that we must post approximately $59,000,000 of additional collateral. As a result of our inability to satisfy our obligations, certain parties have claimed that we are in breach of our agreements. As a consequence, such parties have sought and others may seek remedies for such claimed breaches, and we may be required to enter into arbitration or litigation proceedings with those parties. If we do not prevail in any such arbitration or litigation proceeding, it would have a material adverse effect on our financial condition and we may be required to liquidate our operations.

      As of June 30, 2003, we had $29,810,000 of outstanding unsecured letters of credit issued on our behalf by Citibank. In October 2002, Citibank agreed to extend our unsecured letter of credit facility into 2003 in exchange for our agreement to secure or eliminate the letter of credit facility by June 30, 2003. We were unable to secure or eliminate the letter of credit facility by that date. Although we are seeking to reduce the amount of outstanding letters of credit issued on our behalf by Citibank, primarily through recaptures and terminations of reinsurance agreements, we expect that there will be letters of credit outstanding that will expire on December 31, 2003. At that time, Citibank may not renew the letters of credit. If Citibank does not renew the letters of credit, our cedents will be entitled to draw on the letters of credit and we would be obligated to repay Citibank for any amounts drawn.

      At June 30, 2003, our total capitalization, which consists entirely of equity, was $146,721,736. On March 1, 2002, we filed a shelf registration statement on Form S-3 to register under the Securities Act of 1933 for $200,000,000 of senior debt to be sold in one or more transactions on a delayed basis. We subsequently determined that we would not utilize the shelf registration and requested that the Securities and Exchange Commission withdraw the registration statement in March 2003.

      For the six months ended June 30, 2003, we utilized $86,149,537 of our cash and equivalents to fund our operating activities, as compared with generating cash and equivalents of $18,395,545 from our operating activities for the six months ended June 30, 2002. The utilization of our cash and equivalents during the first six months of 2003 primarily reflects recaptures and terminations of certain of our reinsurance agreements, as well as increased operating expenses during that period.

      While we plan to continue receiving premiums and paying claims under our remaining reinsurance treaties, we have ceased to write new reinsurance agreements and have notified our existing clients that we will not be accepting any new business under existing treaties on their current terms. We do not anticipate writing new reinsurance agreements in the foreseeable future. Our plans involve attempting to meet or reduce our collateral requirements by continuing to negotiate the recapture, retrocession, novation or sale of certain of our reinsurance agreements. During the first six months of 2003, these types of transactions resulted in significant losses for us. We expect to incur additional charges in connection with similar transactions in the third quarter of 2003; however, the magnitude of charges associated with these types of transactions should be significantly less than previous quarters. In January 2003, we instituted substantial premium rate increases on all of our non-guaranteed premium yearly renewable term contracts. All of our cedents subject to the rate increase, except MetLife and one other cedent who has accepted the rate increase, have elected to recapture their reinsurance agreements. MetLife has made the rate increase a subject of arbitration with us, and has indicated that its election to recapture is dependent upon the arbitration panel’s conclusion about the validity of the rate increase. There can be no assurance that our plans will be successful in improving our operations and liquidity, or that we can successfully implement its plans. If our plans are not successful or we are unable to implement our plans we will not be able to satisfy our obligations in 2003 and will likely be required to liquidate our business if we cannot successfully pursue any other strategic alternative. The report of our independent

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auditors included in our Annual Report on Form 10-K for the year ended December 31, 2002, as amended, contains a paragraph expressing substantial doubt regarding our ability to continue as a going concern.

      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. 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 December 31, 2002, we could not reasonably determine that we met these grounds. Accordingly, on February 19, 2003, we announced that we would not declare or pay a dividend on our common shares during the first quarter of 2003. 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 our subsidiaries, the ability of our operating subsidiaries to pay dividends to us, regulatory considerations and other factors the Board of Directors deems relevant. We do not expect to declare or pay dividends in the near future.

      During 2001, our Board of Directors approved a share repurchase program of up to $25,000,000 of our common stock. While our Board has given us the flexibility to repurchase our common stock in the future if market conditions so dictate, at the present time we do not anticipate repurchasing any common shares.

      We have no material commitments for capital expenditures as of June 30, 2003, but as noted above, we have significant obligations that we will not be able to satisfy unless we are able to negotiate the termination, recapture, or novation of certain reinsurance agreements on favorable terms, or raise capital. Since beginning our efforts to raise capital, we have been unable to do so, and there can be no assurances that our efforts to raise capital or pursue other strategic alternatives will be successful.

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 meet the obligations associated with our current business and to fund our continuing operations; our ability to reduce or otherwise satisfy our collateral obligations through novations, recaptures or otherwise; the outcome of pending legal proceedings involving us; our ability to obtain acceptable financial ratings; the ability of our cedents to manage successfully assets they hold on our behalf; our success in managing our investments; our ability to maintain the listing of our common shares on the New York Stock Exchange; 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 cedents; our ability to underwrite business; unanticipated withdrawal or surrender activity; 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; our ability to attract and retain clients; the loss of a key executive; 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, 2002, as amended. 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

      Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates, and other relevant market rate or price changes. The following is a discussion of our primary market risk exposures and how those exposures are currently managed as of June 30, 2003.

      Our major market risk exposure is changing interest rates, primarily in the United States. We have a portfolio of fixed income investments and a change in interest rates will affect the fair value of our investments and may affect our operating results and financial condition. We seek to manage interest rate risk with effective maturity structures and with the application of duration management practices.

      We have no equity securities in our general account. We have significant market risk, including equity risk, from our largest annuity reinsurance contract and our GMDB/ GMIB contract. We do not currently use derivative financial instruments such as futures and options to manage risk in our general account or assumed through our reinsurance agreements, although we may do so in the future. We manage other risks, including credit and liquidity, in the normal course of business. In managing credit risk, we establish overall quality and rating guidelines and place limits on credit exposure by issuer and industry to achieve appropriate diversification in the portfolio. We do not have a trading portfolio and are not exposed to market risk from trading activities.

      Our primary market risk exposures as of June 30, 2003 have changed since the year ended December 31, 2002 as a result of a decrease in the amount of our invested assets and funds withheld. In addition, the recapture of our GMBD reinsurance contract with Hartford Life has changed our market risk exposures.

      The table below presents as of June 30, 2003 the amortized cost amounts and related weighted average interest rates by years of maturity for our investment portfolio. Mortgage-backed securities are included in the table by anticipated year of maturity.

	Cash and Cash		Weighted Average			Fixed Maturity		Weighted Average
Year of Maturity	Equivalents		Interest Rate			Investments		Interest Rate
	(Dollars in thousands)
2003	$	139,793		0.87	%	$	3,344		6.54	%
2004							6,026		3.59	%
2005							9,019		4.51	%
2006							12,859		5.55	%
2007							8,519		5.61	%
Thereafter							42,351		5.11	%
Total	$	139,793		0.87	%	$	82,118
Fair Value	$	139,793				$	85,065

      Sensitivity analysis and duration modeling are used to estimate changes in fair values of fixed income investments and the potential effects on operating earnings and cash flows resulting from possible near term changes in interest rates. The term “near term” means a period of time going forward up to one year from the date of our consolidated financial statements. Durations of fixed income investments are adjusted for call, put and reset features. Portfolio durations are calculated on a market value weighted basis, including accrued investment income. Our duration model uses a 100 basis point change in interest rates to measure the hypothetical change in fair value of financial instruments included in the model. The duration model produces a loss in fair value of the fixed income investments of approximately $2,800,000 based on a 100 basis point increase in interest rates as of June 30, 2003. Conversely, gains of similar amounts are produced by the model with a 100 basis point decrease in interest rates. Actual results may differ from the hypothetical change in fair values assumed in this disclosure, especially since the analysis does not and cannot reflect the results of any actions that would be taken by us to mitigate losses or to optimize gains in fair values.

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      Certain of our modified coinsurance and coinsurance funds withheld annuity reinsurance agreements have features that constitute embedded derivatives that require bifurcation and separate accounting under FAS 133 — Accounting for Derivative Instruments and Hedging Activities. We have identified an embedded derivative, similar to a total return swap arrangement, within our funds withheld at interest receivable asset that we record in connection with these agreements. The valuation of these embedded derivatives requires complex cash flow modeling and assumptions, most notably with respect to expected future cash flows. The net fair value of these derivatives is classified on our balance sheet as a component of our Funds withheld asset. Changes in the fair value of these derivatives are reported in net income as Net change in fair value of embedded derivatives. While we believe these estimates of future cash flows and other assumptions in our models are reasonable when made, the assumptions used are subjective and may require adjustment in the future. In addition, as industry standards for estimating the fair value of embedded derivatives develop, we may modify our methodology.

      The methodology we use to determine the fair value of the embedded derivatives in our annuity reinsurance agreements that require bifurcation and separate accounting under FAS 133 is to determine the fair value of the host contract (notional asset) based upon expected future cash flows under the annuity contracts. The fair value of the embedded derivative is calculated as being the market value of the actual assets less the fair value of the notional asset. The change in fair value of the embedded derivative is influenced by changes in credit risk, changes in expected future cash flows under the annuity contracts and interest rate changes. This methodology, which applies to all of our fixed annuity reinsurance contracts other than Transamerica, results in a valuation of the embedded derivative reflecting the market risk inherent in the underlying contracts.

      As of June 30, 2003, after giving effect to the termination or recapture of certain annuity reinsurance agreements that were in effect on December 31, 2002, the net impact on our embedded derivatives of a 20 basis point increase or decrease in credit spreads is a loss or gain on the embedded derivative of approximately $52,000, respectively. Also as of June 30, 2003 and after giving effect to the termination or recapture of certain annuity reinsurance agreements, the net impact on our embedded derivatives of a 50 basis point increase or decrease in interest rates as a result of duration mismatching is a gain or loss on the embedded derivative of approximately $770,000, respectively. The duration of the actual assets is approximately 7.17 years and the duration of the notional asset is approximately 7.62 years.

      The table below shows the change in our embedded derivatives by quarter for 2002 and 2003, including only those embedded derivatives relating to contracts in force at June 30, 2003:

	Change in Embedded			Embedded Derivative
	Derivative Value			at Fair Value
First Quarter 2002	$	843,491		$	(2,831,908	)
Second Quarter 2002	$	(4,447,113	)	$	(7,279,021	)
Third Quarter 2002	$	(5,832,309	)	$	(3,111,330	)
Fourth Quarter 2002	$	(672,539	)	$	(13,783,869	)
First Quarter 2003	$	2,155,984		$	(11,627,885	)
Second Quarter 2003	$	(817,612	)	$	(12,445,497	)

      Our accounting policy for guaranteed minimum death benefit, guaranteed minimum income benefit and enhanced earnings benefit contracts is discussed in Note 3 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2002. As of December 31, 2002, we had established reserves of approximately $18,500,000 related to these types of minimum guarantees associated with variable annuity products. As a result of the recapture of our largest guaranteed minimum death benefit contract as of June 30, 2003, our exposure to guaranteed minimum death benefits has declined from $1,231 million to less than $170 million. Our exposure for guaranteed minimum income benefits has not materially changed since December 31, 2002. Our reserve as of June 30, 2003 is $9,400,000. These reserves are calculated on the basis of actuarial assumptions related to projected benefits and related contract charges over the lives of the contracts. Our reserve methodology for these variable annuity minimum guarantee

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products is not directly market sensitive, although we do make assumptions about the state of the financial markets when we establish our reserves for these exposures. After giving effect to the recapture of our largest guaranteed minimum death benefit contract, we estimate no significant impact on our reserve for guaranteed minimum death benefits and guaranteed minimum income benefits based on our preliminary review of the Statement of Position 03-1 “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts.”

      We refer you to Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the year ended December 31, 2002 for additional information regarding our exposure to market risk.

      The statements above are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. See “Forward-Looking and Cautionary Statements.”

Item 4.     Controls and Procedures

      As of the end of the period covered by this Form 10-Q, the Company’s management, including its Chief Executive Officer/ Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer/ Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective. There have been no changes in the Company’s internal controls over financial reporting during the period ended June 30, 2003 that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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PART II

OTHER INFORMATION

Item 1.     Legal Proceedings

      On April 23, 2002, we served written notice of arbitration on The Metropolitan Life Insurance Companies (“MetLife”), the cedent under our largest life reinsurance agreement, seeking equitable relief and monetary damages based on MetLife’s misrepresentation of and failure to disclose material facts known to it relating to the agreement. On January 30, 2003, we also provided written notice to MetLife of a premium rate increase, effective March 5, 2003, which also has become a subject of this arbitration. In April 2003, MetLife informed us that, if the arbitration panel finds the premium rate increase valid, MetLife would recapture the reinsurance agreement as of March 5, 2003. An arbitration panel is scheduled to hear these claims in December 2003.

      On and since December 4, 2002, certain of our shareholders have filed purported shareholder class action lawsuits against us and certain of our present and former officers and directors in the United States District Court for the District of Connecticut seeking unspecified monetary damages. The plaintiffs claim that the defendants violated certain provisions of the United States securities laws by making various alleged material misstatements and omissions in public filings and press releases. The plaintiffs filed a single consolidated amended complaint in July 2003, adding as defendants XL Capital Ltd and two additional directors. The Company’s response is currently due in September 2003.

      On March 18, 2003, Hartford Life Insurance Company, the cedent under our largest guaranteed minimum death benefit reinsurance contract, served notice seeking to institute arbitration proceedings against us alleging that we have failed to satisfy additional collateral requirements under the contract of approximately $59.0 million. On July 17, 2003, Hartford Life agreed to recapture its guaranteed minimum death benefits reinsurance contract with us. As consideration for the recapture, Hartford Life retained approximately $31 million of the funds it had drawn from a trust account and letters of credit that had been posted as collateral under the contract, and we issued warrants to purchase an aggregate one million of our common shares to Hartford Life. Under the terms of the recapture, we have no further obligations to Hartford Life.

      There are no other arbitration or other legal proceedings currently in process.

Item 2.     Changes in Securities and Use of Proceeds

      On June 25, 2003, our Board approved the issuance of 575,000 shares of restricted stock to various employees in connection with retention arrangements. Issuance of the restricted stock required no investment decision on the part of each recipient. If the grant were deemed to be a sale of securities under the Securities Act of 1933 (the “1933 Act”), we believe such sale would be exempt from the 1933 Act pursuant to Section 4(2) thereof or Regulation S thereunder.

      On July 17, 2003, we issued warrants to purchase an aggregate one million of our common shares at an exercise price of $1.25 per share to Hartford Life, the ceding company under our largest guaranteed minimum death benefit reinsurance contract. The warrants were issued in connection with the recapture of the contract and expire on June 30, 2013. The issuance of the warrants was exempt from the registration requirements of the 1933 Act pursuant to Section 4(2) thereof.

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Item 4. Submission of Matters to a Vote of Security Holders

      The Annual Meeting of Shareholders of the Company was held on June 3, 2003. The following matters were voted upon at the Annual Meeting, and received the votes set forth below:

      (a) All of the following persons were elected to serve as directors and received the number of votes set forth opposite their respective name:

	FOR		WITHHELD
John F. Burke		19,070,559		97,061
Albert R. Dowden		19,056,275		111,345
Robert P. Johnson		19,056,875		110,745
Henry C.V. Keeling		19,056,275		111,345
Robert M. Lichten		19,056,875		110,745
Jeffrey D. Watkins		19,056,275		111,345

      (b) A proposal to ratify the appointment of KPMG as independent accountants for the Company for the 2003 fiscal year was approved and received 17,248,722 votes FOR and 22,684 votes AGAINST, with 1,896,214 abstentions and broker non-votes.

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Item 5.     Other Information

      Effective as of June 30, 2003, our largest guaranteed minimum death benefit reinsurance contract was recaptured by Hartford Life, the ceding company under that contract. As discussed elsewhere in this report, in connection with securing the recapture of the contract, we issued warrants to acquire up to one million of our common shares to Hartford Life.

      On August 5, 2003, XL Life served us with notice of its intention to recapture a 50% quota share reinsurance contract entered into with us on December 31, 2002. We will not be able to recover the deferred acquisition costs carried for this contract from future expected income, and have written down approximately $21 million of such deferred acquisition costs in the three months ended June 30, 2003.

      XL Life has also indicated its desire to terminate other agreements with us, including a $10 million excess of loss reinsurance policy purchased by us in the first quarter of 2002 and two annuity reinsurance contracts between our company and XL Life or its affiliates. The excess of loss reinsurance policy was purchased to protect against lifetime minimum interest guarantee payments under our annuity reinsurance contract with Transamerica Occidental Life Insurance Company. We are in discussions with XL Life regarding these other relationships. The outcome of these discussions cannot be determined at this time.

      During 1998, certain of our officers purchased 163,121 of our common shares, and we made loans to the officers to partially finance such purchases. The loans accrued interest at 7% per annum and certain unpaid loans became due and payable in April 2003. In connection with the renegotiation or termination of certain officers’ employment agreements, we have deemed the outstanding loans of those officers to have been repaid in exchange for the officers agreeing to forego certain bonus, severance or other payments that are or may become payable to them. During the six months ended June 30, 2003, loans of $1,000,000 with accrued interest of $402,812 had been deemed repaid in this manner.

      On April 8, 2003, we received notice from the New York Stock Exchange that we did not satisfy the NYSE’s continued listing standards as of that date because the average closing price of our common shares had been below $1.00 for a 30 consecutive trading day period. If we cannot achieve (i) a $1.00 average share price for the 30 consecutive trading days prior to October 7, 2003, the expiration of the six month period following the date of the receipt of this notification, and (ii) a $1.00 share price on October 7, 2003, then the NYSE will commence suspension and delisting procedures with respect to our common shares. In addition, the NYSE informed us that it is considering whether we continue to meet certain of the NYSE’s qualitative continued listing standards due to concerns over our financial condition.

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Item 6.     Exhibits and Reports on Form 8-K

      (a) Exhibits —

4	Form of Warrant issued to Hartford Life and Annuity Insurance Company and Hartford Life Insurance Company.
10.1	Amended and Restated Employment Agreement, dated as of July 28, 2003, by and between Annuity and Life Re (Holdings), Ltd., Annuity and Life Reassurance, Ltd. and John F. Burke.
10.2	Employment Agreement, dated as of June 10, 2003, among Annuity and Life Re (Holdings), Ltd., Annuity and Life Reassurance, Ltd. and Robert Reale.
10.3	Recapture Agreement and General Release of Guaranteed Minimum Death Benefit Reinsurance Agreements, dated as of June 30, 2003, among Hartford Life and Annuity Insurance Company, Hartford Life Insurance Company and Annuity and Life Reassurance, Ltd.
31	Rule 13a-14(a)/15d-14(a) Certification of the Company’s Chief Executive Officer and Chief Financial Officer.
32	Section 1350 Certification of the Company’s Chief Executive Officer and Chief Financial Officer.

      (b) Reports on Form 8-K —

      Current Report on Form 8-K (Items 7 and 12) dated and filed on April 3, 2003, regarding the Company’s release of its financial results for the three and twelve month periods ended December 31, 2002.

      Amended Current Report on Form 8-K (Item 7) dated February 14, 2003 and filed on April 16, 2003, providing unaudited pro forma condensed consolidated financial statements for the year ended December 31, 2002, reflecting the termination of the Company’s annuity reinsurance agreement with The Ohio National Life Insurance Company and the transfer of certain blocks of life reinsurance business to XL Life Ltd, as well as other terminations and recaptures of reinsurance contracts during 2002 and through March 31, 2003.

      Current Report on Form 8-K (Items 7 and 12) dated May 15, 2003 and filed on May 16, 2003, regarding the Company’s release of its financial results for the three month period ended March 31, 2003.

      Current Report on Form 8-K (Items 7 and 12) dated and filed on August 7, 2003, reporting several recent developments that had occurred with respect to the Company, including the recapture of the Company’s largest guaranteed minimum death benefit reinsurance contract and the announcement that XL Life Ltd had served notice that it intended to recapture four life reinsurance contracts ceded to the Company on a 50% quota share basis.

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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/ JOHN F. BURKE

Name: John F. Burke

Title: Chief Executive Officer and

Chief Financial Officer

Date: August 14, 2003

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EXHIBIT INDEX

4	Form of Warrant issued to Hartford Life and Annuity Insurance Company and Hartford Life Insurance Company.
10.1	Amended and Restated Employment Agreement, dated as of July 28, 2003, by and between Annuity and Life Re (Holdings), Ltd., Annuity and Life Reassurance, Ltd. and John F. Burke.
10.2	Employment Agreement, dated as of June 10, 2003, among Annuity and Life Re (Holdings), Ltd., Annuity and Life Reassurance, Ltd. and Robert Reale.
10.3	Recapture Agreement and General Release of Guaranteed Minimum Death Benefit Reinsurance Agreements, dated as of June 30, 2003, among Hartford Life and Annuity Insurance Company, Hartford Life Insurance Company and Annuity and Life Reassurance, Ltd.
31	Rule 13a-14(a)/15d-14(a) Certification of the Company’s Chief Executive Officer and Chief Financial Officer.
32	Section 1350 Certification of the Company’s Chief Executive Officer and Chief Financial Officer.

EX-4

                                                                       EXHIBIT 4

WARRANTS WERE ISSUED TO HARTFORD LIFE INSURANCE COMPANY AND HARTFORD LIFE AND
ANNUITY INSURANCE COMPANY ON JULY 17, 2003 IN SUBSTANTIALLY THE FORM SET FORTH
IN THIS EXHIBIT 4. THE TERMS AND CONDITIONS OF BOTH WARRANTS ARE IDENTICAL
EXCEPT FOR THE NAMES OF THE RESPECTIVE PARTIES.

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS (I) PURSUANT TO
REGISTRATION UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR (II) IN
COMPLIANCE WITH AN EXEMPTION THEREFROM AND ACCOMPANIED, WITH AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER IS IN
COMPLIANCE WITH AN EXEMPTION THEREFROM (UNLESS SUCH TRANSFER IS TO AN AFFILIATE
OF THE REGISTERED HOLDER).

           THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
                  EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
                 TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT

Warrant No. ____                                       Number of Shares: 500,000
                                                         (subject to adjustment)

Date of Issuance: July ____, 2003

                      ANNUITY AND LIFE RE (HOLDINGS), LTD.

                          COMMON STOCK PURCHASE WARRANT

      Annuity and Life Re (Holdings), Ltd., a Bermuda corporation (the
"COMPANY"), for value received, hereby certifies that Hartford Life and Annuity
Insurance Company, or its registered assigns (the "REGISTERED HOLDER"), is
entitled, subject to the terms and conditions set forth below, to purchase from
the Company, in whole or in part, at any time and from time to time on or after
the date of issuance and on or before 5:00 p.m., New York time, on July __, 2013
and shall be void thereafter (the "EXERCISE PERIOD"), 500,000 shares of Common
Stock, $1.00 par value per share, of the Company, at an exercise price of $1.25
per share. The shares purchasable upon exercise of this warrant ("WARRANT") and
the exercise price per share, each as adjusted from time to time pursuant to the
provisions of this Warrant, are hereinafter referred to as the "WARRANT SHARES"
and the "EXERCISE PRICE," respectively.

1. EXERCISE.

            (a) This Warrant may be exercised by the Registered Holder by
surrendering this Warrant, along with the purchase form appended hereto as
Exhibit A duly executed and completed by the Registered Holder or by the
Registered Holder's duly authorized attorney, at the principal office of the
Company, or at such other office or agency as the Company may designate by
notice in writing to the Registered Holder, accompanied by either (i) cash or
certified cashier's check payable to the Company (or wire transfer of
immediately available funds), in lawful money of the United States, of the
Exercise Price payable in respect of the number of Warrant Shares purchased upon
such exercise (the "AGGREGATE EXERCISE PRICE") or (ii) a written notice to the
Company that the Registered Holder is exercising this Warrant on a "cashless"
exercise basis by authorizing the Company to withhold from issuance a number of
shares of Common Stock issuable upon such exercise of the Warrant which when
multiplied by the Fair Market Value of the Common Stock is equal to the
Aggregate Exercise Price (and such withheld shares shall no longer be issuable
under this Warrant).

            (b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in subsection
1(a) above (the "EXERCISE DATE"). At such time, the person or persons in whose
name or names any certificates for Warrant Shares shall be issuable upon such
exercise


as provided in subsection 1(c) below shall be deemed to have become the holder
or holders of record of the Warrant Shares represented by such certificates.

            (c) Within ten (10) days after the date of exercise of this Warrant,
the Company, at its expense, will cause to be issued in the name of, and
delivered to, the Registered Holder, or as such Holder (upon payment by such
Holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of full Warrant Shares to which the Registered
Holder shall be entitled upon such exercise plus, in lieu of any fractional
share to which the Registered Holder would otherwise be entitled, cash in an
amount determined pursuant to Section 3 hereof; provided, however, that the
Company shall not be required to pay any tax that may be payable in respect of
any transfer involving the issuance and delivery of any such certificate upon
exercise in a name other than that of the Registered Holder. Notwithstanding the
foregoing, the Registered Holder shall be solely responsible for any income
taxes payable and arising from the issuance or exercise of this Warrant, or any
ad valorem property or intangible tax assessed against the Registered Holder. If
this Warrant shall be exercised in part only, the Company shall, upon surrender
of this Warrant for cancellation, execute and deliver a new Warrant evidencing
the rights of the Registered Holder to purchase the balance of the Warrant
Shares purchasable hereunder.

            (d) The Company shall reasonably assist and cooperate with any
Registered Holder required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company).

            (e) Notwithstanding any other provision of this Warrant, if the
exercise of all or any portion of this Warrant is to be made in connection with
a registered public offering, a sale of the Company or any other transaction or
event, such exercise may, at the election of the Registered Holder, be
conditioned upon consummation of such transaction or event in which case such
exercise shall not be deemed effective until the consummation of such
transaction or event.

2. ADJUSTMENTS. In order to prevent dilution of the rights granted under this
Warrant and to grant the Registered Holder certain additional rights, the
Exercise Price shall be subject to adjustment from time to time as provided in
this Section 2 and the number of Warrant Shares shall be subject to adjustment
from time to time as provided in this Section 2.

            (a) Adjustment for Stock Splits and Combinations. If the Company
shall at any time after the date on which this Warrant was first issued (the
"ORIGINAL ISSUE DATE") while this Warrant remains outstanding and unexpired in
whole or in part, effect a subdivision (by any stock split or otherwise) of the
outstanding Common Stock into a greater number of shares, the Exercise Price in
effect immediately before that subdivision shall be proportionately decreased
and the number of shares of Common Stock obtainable upon exercise of this
Warrant shall be proportionately increased. Conversely, if the Company shall at
any time or from time to time after the Original Issue Date combine (by reverse
stock split or otherwise) the outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect immediately before the
combination shall be proportionately increased and the number of shares of
Common Stock obtainable upon exercise of this Warrant shall be proportionately
decreased. Any adjustment under this paragraph shall become effective at the
close of business on the date the subdivision or combination becomes effective

            (b) Adjustment for Certain Dividends and Distributions. In the event
the Company at any time or from time to time after the Original Issue Date while
this Warrant remains outstanding and unexpired in whole or in part shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of


                                       2

Common Stock, then and in each such event the Exercise Price then in effect
immediately before such event shall be decreased as of the time of such issuance
or, in the event such a record date shall have been fixed, as of the close of
business on such record date, by multiplying the Exercise Price then in effect
by a fraction:

                  (i) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date; and

                  (ii) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the total number
of shares of Common Stock issuable in payment of such dividend or distribution;

provided, however, that if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Exercise Price shall be recomputed accordingly as of the
close of business on such record date and thereafter the Exercise Price shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.

            (c) Adjustment for Reclassification, Exchange and Substitution. If
at any time after the Original Issue Date while this Warrant remains outstanding
and unexpired in whole or in part, the Common Stock issuable upon exercise of
this Warrant is changed into the same or a different number of shares of any
class or classes of stock, this Warrant will thereafter represent the right to
acquire such number and kind of securities as would have been issuable as a
result of exercise of this Warrant and the Exercise Price therefor shall be
appropriately adjusted, all subject to further adjustment in this Section 2.

            (d) Adjustments for Other Dividends and Distributions. In the event
the Company at any time or from time to time after the Original Issue Date while
this Warrant remains outstanding and unexpired in whole or in part shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Company (other than shares of Common Stock) or in cash or other property
(other than cash out of earnings or earned surplus, determined in accordance
with generally accepted accounting principles), then and in each such event
provision shall be made so that the Registered Holder shall receive upon
exercise hereof, in addition to the number of shares of Common Stock issuable
hereunder, the kind and amount of securities of the Company and/or cash and
other property which the Registered Holder would have been entitled to receive
had this Warrant been exercised into Common Stock on the date of such event and
had the Registered Holder thereafter, during the period from the date of such
event to and including the Exercise Date, retained any such securities
receivable, giving application to all adjustments called for during such period
under this Section 2 with respect to the rights of the Registered Holder.

            (e) Adjustment for Mergers or Reorganizations, etc. Any
reorganization, recapitalization, reclassification, consolidation, merger, sale
of all or substantially all of the Company's assets or other transaction
involving the Company in which the Common Stock is converted into or exchanged
for securities, cash or other property while this Warrant remains outstanding
and unexpired in whole or in part (other than a transaction covered by
subsections 2(a), 2(b) or 2(d)) is referred to herein as an "ORGANIC CHANGE".
Prior to the consummation of any such Organic Change, the Company shall make
appropriate provision (in form and substance satisfactory to the Registered
Holders of the Warrants then remaining outstanding and unexpired) to ensure that
the Registered Holder shall have the right to receive, in lieu of or in addition
to (as the case may be) such shares of Common Stock immediately acquirable and
receivable upon exercise of this Warrant, the kind and amount of securities,
cash or other property as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock


                                       3

immediately acquirable and receivable upon exercise of this Warrant had such
Organic Change not taken place. In such case, appropriate adjustment (in form
and substance satisfactory to the Registered Holders of the Warrants then
remaining outstanding and unexpired) shall be made with respect to the
Registered Holder's rights and interests to ensure that the provisions of this
Section 2 shall thereafter be applicable to the Warrants. The Company shall not
effect any reorganization, recapitalization, consolidation or merger unless,
prior to the consummation thereof, the successor entity (if other than the
Company) resulting from the consolidation or merger or the entity purchasing
such assets assumes by written instrument (in form and substance satisfactory to
the Registered Holders of the Warrants then remaining outstanding and unexpired)
the obligation to deliver to each Registered Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to acquire; provided, that any assumption shall not
relieve the Company of its obligations hereunder.

            (f) Other Events. If any event occurs that would adversely affect
the Registered Holder's rights but is not expressly provided for by this Section
2, then the Company's Board of Directors will make an appropriate adjustment in
the Exercise Price and number of Warrant Shares subject to this Warrant so as to
protect the Registered Holder's rights; provided, however, that no such
adjustment will increase the Exercise Price or decrease the number of shares of
Common Stock obtainable as otherwise determined pursuant to this Section 2.

            (h) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Exercise Price pursuant to this Section 2, the
Company at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to the Registered Holder a
certificate setting forth such adjustment or readjustment (including the kind
and amount of securities, cash or other property for which this Warrant shall be
exercisable and the Exercise Price) and showing in detail the facts upon which
such adjustment or readjustment is based. The Company shall, upon the written
request at any time of the Registered Holder, promptly furnish or cause to be
furnished to the Registered Holder a certificate setting forth (i) the Exercise
Price then in effect and (ii) the number of shares of Common Stock and the
amount, if any, of other securities, cash or property which then would be
received upon the exercise of this Warrant, and shall cause a copy of such
certificate to be mailed (by first-class mail, postage prepaid) to the
Registered Holder.

3. FRACTIONAL SHARES. The Company shall not be required upon the exercise of
this Warrant to issue any fractional shares, but shall make an adjustment
therefor in cash on the basis of the fair market value ("FAIR MARKET VALUE") per
share of Common Stock, such Fair Market Value to be determined as follows:

            (a) If traded on a securities exchange or through the Nasdaq
National Market or SmallCap Market, the Fair Market Value shall be deemed to be
the average of the closing prices of the securities on such exchange over the
thirty (30) day period ending three (3) days prior to the closing. If actively
traded over the counter, the value shall be deemed to be the average of the
closing bid or sales prices (whichever is applicable) over the thirty (30) day
period ending three (3) days prior to the closing; or

            (b) If at any time such security is not listed on any securities
exchange or quoted in the Nasdaq National Market or the SmallCap Market, or
actively traded over the counter, the Fair Market Value shall be the fair value
thereof, as determined jointly by the Board of Directors and the Registered
Holders of the Warrants then remaining outstanding and unexpired. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an appraisal conducted, at the Company's
selection, of either CS First Boston, Goldman Sachs, Merrill Lynch, or Morgan
Stanley. If none of these potential appraisers are able to serve, then such fair
value shall be determined by an independent appraiser experienced in valuing
securities jointly selected by the


                                       4

Company's Board of Directors and the Registered Holders of the Warrants then
remaining outstanding and unexpired. The determination of the appraiser shall be
final and binding upon the parties and the parties shall share the fees and
expenses of such appraiser equally.

4. REQUIREMENTS FOR TRANSFER.

            (a) This Warrant and the Warrant Shares shall not be sold or
transferred unless either (i) they first shall have been registered under the
Act or (ii) the Company first shall have been furnished with an opinion of legal
counsel reasonably satisfactory to the Company to the effect that such sale or
transfer is exempt from the registration requirements of the Act.

            (b) Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for (i) a transfer by a Registered Holder which is a
corporation to a wholly owned subsidiary of such corporation or to a corporation
owned by the same parent entity of such corporation, a transfer by a Registered
Holder which is a partnership to a partner of such partnership or a retired
partner of such partnership or to the estate of any such partner or retired
partner, or a transfer by a Registered Holder which is a limited liability
company to a member of such limited liability company or a retired member or to
the estate of any such member or retired member, provided that, as a condition
to the Company effecting such transfer, the transferee in each case agrees in
writing to be subject to the terms of this Section 4, or (ii) a transfer made in
accordance with Rule 144 under the Act, unless in the case of clause (ii) only,
the Company reasonably requests an opinion of counsel regarding compliance with
Rule 144 under the Act.

            (c) Each certificate representing Warrant Shares shall bear a legend
substantially in the following form:

                  "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
                  REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
                  ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED,
                  SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
                  AND UNTIL SUCH SECURITIES ARE REGISTERED UNDER SUCH ACT AND
                  SUCH LAWS OR UNLESS SOLD PURSUANT TO AN EXEMPTION THEREFROM
                  AND AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
                  OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT
                  REQUIRED."

      The foregoing legend shall be removed from the certificates representing
any Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Act.

5. No Impairment. The Company will not, by amendment of its charter or through
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holder of this Warrant against impairment. Without limiting
the generality of the foregoing, the Company will (a) not increase the par


                                       5

value of any shares of Common Stock obtainable upon the exercise of this Warrant
and (b) take all such actions as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.

6. NOTICES OF RECORD DATE, ETC. In the event:

            (a) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive
any other right; or

            (b) of any Organic Change; or

            (c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company,

then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holders at least twenty (20) days prior to the record date specified
therein (or such shorter period approved by a majority of the Registered
Holders) and at least twenty (20) days prior to the effective date of such event
specified in clause (b) or (c) hereof a notice specifying, as the case may be,
(i) the record date for such dividend, distribution or right, and the amount and
character of such dividend, distribution or right, or (ii) the effective date on
which such Organic Change, dissolution, liquidation or winding-up is to take
place, and the time, if any is to be fixed, as of which the holders of record of
Common Stock (or such other stock or securities at the time deliverable upon the
exercise of this Warrant) shall be entitled to exchange their shares of Common
Stock (or such other stock or securities) for securities or other property
deliverable upon such Organic Change, dissolution, liquidation or winding-up;
provided, however, that the failure to mail such notice or any defect therein or
in the mailing thereof shall not affect the validity of the corporate action
required to be specified in such notice. Nothing herein shall prohibit the
Registered Holder from exercising this Warrant during the twenty (20) day period
commencing on the date of such notice.

7. RESERVATION OF STOCK. The Company covenants that for the duration of the
Exercise Period, the Company will at all times reserve and keep available, from
its authorized and unissued Common Stock solely for issuance and delivery upon
the exercise of this Warrant and free of preemptive rights, such number of
Warrant Shares and other securities, cash and/or property, as from time to time
shall be issuable upon the exercise of this Warrant. The Company further
covenants that it shall, from time to time, take all steps necessary to increase
the authorized number of shares of its Common Stock if at any time the
authorized number of shares of Common Stock remaining unissued is insufficient
to permit the exercise of this Warrant.

8. ISSUANCE UPON EXERCISE. All shares of Common Stock issuable upon exercise of
this Warrant will be duly and validly issued, fully paid and nonassessable and
will be free of restrictions on transfer, other than restrictions on transfer
under any agreement between the Registered Holder and the Company and under
applicable state and federal securities laws, and will be free from all taxes,
liens and charges in respect of the issue thereof (other than taxes in respect
of any transfer occurring contemporaneously or otherwise specified herein). The
Company shall take all such actions as may be necessary to ensure that all such
shares of Common Stock may be so issued without violation of any applicable law
or governmental regulation or any requirements of any domestic stock exchange
upon which shares of Common Stock may be listed (except for official notice of
issuance which shall be delivered by the Company upon each such issuance as soon
as practicable).


                                       6

9. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder of this
Warrant, properly endorsed, to the Company at the principal office of the
Registered Company, the Company will, subject to the provisions of Section 4
hereof, issue and deliver to or upon the order of such Registered Holder, at the
Company's expense, a new Warrant or Warrants of like tenor, in the name of the
Registered Holder or as the Registered Holder may direct, calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
(or other securities, cash and/or property) then issuable upon exercise of this
Warrant.

10. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably satisfactory to
the Company (an affidavit of a Registered Holder shall be satisfactory) of the
ownership and loss, theft, destruction or mutilation of any certificate
evidencing this Warrant and, in the case of loss, theft or destruction, upon
delivery of an indemnity agreement of the Registered Holder in form reasonably
satisfactory to the Company, or in the case of mutilation, upon surrender and
cancellation of such certificate, the Company shall, at its expense, execute and
deliver in lieu of such certificate, a new certificate of like kind representing
the same rights represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.

11. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Registered Holder that:

            (a) Organization, Qualifications and Corporate Power. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of Bermuda and is duly licensed or qualified to transact business as a
foreign corporation and is in good standing in each jurisdiction in which the
nature of the business transacted by it or the character of the properties owned
or leased by it requires such licensing or qualification. The Company has full
corporate power and authority to own and hold its properties and to carry on its
business as now conducted and as proposed to be conducted, to execute, deliver
and perform this Agreement.

            (b) Authorization; No Conflict; No Violation. The Company's
execution and delivery of this Agreement and performance of its obligations
hereunder, and issuance and delivery of the Warrant Shares have been duly
authorized by all requisite corporate action and will not (a) result in a
violation of the charter or the Company's bylaws, as amended, (b) result in a
violation of any applicable law, rule or regulation, or any material order,
injunction, judgment or decree of any court or other agency of government, (c)
conflict with, result in a breach of, or constitute (or, with due notice or
lapse of time or both, would constitute) a default under, or give rise to any
right of termination, acceleration or cancellation under, any material
indenture, agreement, contract, license, arrangement, understanding, evidence of
indebtedness, note, lease or other instrument to which the Company or any of its
properties or assets is bound, (d) result in the creation or imposition of any
material lien, charge, restriction, claim or encumbrance of any nature
whatsoever upon the Company or any of the Company's material properties or
assets or (e) require any consent, approval, notification, waiver or other
similar action from any third party.

            (c) Consents and Approvals. No registration or filing with, or
consent or approval of or other action by, any federal, state or other
governmental agency or instrumentality or any third party is or will be
necessary for the Company's valid execution, delivery and performance of this
Agreement or the Company's issuance and delivery of the Warrant Shares, other
than those (a) which have previously been obtained or made or (b) those which
are required to be made under federal or state securities laws, which will be
obtained or made, and will be effective, within the time periods required by
law.

            (d) Validity. This Agreement has been duly executed and delivered by
the Company and constitutes the legal, valid and binding obligations of the
Company, enforceable against the Company


                                       7

in accordance with its terms, except to the extent limited by (a) applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws of general
application related to the enforcement of creditors' rights generally and (b)
general principles of equity, and except that enforcement of rights to
indemnification and contribution contained therein may be limited by applicable
federal or state laws or the public policy underlying such laws, regardless of
whether enforcement is considered in a proceeding in equity or at law.

            (e) Ownership Percentage. This Warrant is one of a series of
Warrants issued by the Company, all dated the date hereof and of like tenor
(collectively, the "COMPANY WARRANTS"). If exercised on the date hereof, the
number of shares of Common Stock issued pursuant to this Warrant together with
all the other Company Warrants, would constitute less than five percent (5%) of
the issued and outstanding Common Stock of the Company following such exercise.

12. TRANSFERS, ETC.

            (a) The Company shall maintain a register at its principal executive
office containing the name and address of the Registered Holder of this Warrant.
The Registered Holder may change its or his address as shown on the warrant
register by written notice to the Company requesting such change.

            (b) Subject to the provisions of Section 4 hereof, this Warrant and
all rights hereunder are transferable, in whole or in part, upon surrender of
this Warrant with a properly executed assignment (in the form of Exhibit B
hereto) at the principal executive office of the Company.

            (c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder as the absolute owner
hereof for all purposes; provided, however, that if and when this Warrant is
properly assigned in blank, the Company may (but shall not be obligated to)
treat the bearer hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.

            (d) The Company shall not close its books against the transfer of
this Warrant or any share of Common Stock issued or issuable upon the exercise
of this Warrant in any manner which interferes with the timely exercise of this
Warrant. The Company shall from time to time take all such action as may be
necessary to ensure that the par value per share of the unissued Common Stock
acquirable upon exercisable of this Warrant is at all times equal to or less
than the Exercise Price then in effect.

13. SPECIAL OWNERSHIP NOTICE. In the event the number of shares of Common Stock
issued upon exercise of this Warrant, together with the exercise of all the
other Company Warrants, would constitute five percent (5%) or more of the issued
and outstanding Common Stock of the Company following such exercise, then the
Company will promptly notify the Registered Holder hereof in accordance with the
provisions of Section 14.

14. MAILING OF NOTICES, ETC. Any notice, request, demand or other communication
required or permitted to be given to a party pursuant to the provisions of this
Agreement will be in writing and will be effective and deemed given under this
Agreement on the earliest of: (a) the date of personal delivery, (b) the date of
transmission by facsimile, with confirmed transmission and receipt, (c) two (2)
days after deposit with a nationally-recognized courier or overnight service
such as Federal Express, or (d) five (5) days after mailing via certified mail,
return receipt requested. All notices not delivered personally or by facsimile
will be sent with postage and other charges prepaid and properly addressed to
the party to be notified at the address set forth below for such party:


                                       8

            If to a Registered Holder:

            Hartford Life and Annuity Insurance Company
            P.O. Box 2999
            Hartford, Connecticut 06104-2999
            Phone: (860) 843-3560
            Fax: (860) 843-8665
            Attn: Christine Repasy, General Counsel

            With a copy to (which does not constitute notice):

            Akin, Gump, Strauss, Hauer & Feld, L.L.P.
            300 Convent Street, Suite 1500
            San Antonio, Texas 78205
            Phone: (210) 281-7000
            Fax: (210) 224-2035
            Attn: Barry Chasnoff, Esq.

            If to the Company:

            Annuity and Life Re (Holdings), Ltd.
            Cumberland House
            1 Victoria Street
            Hamilton, Bermuda HM11
            Phone: (441) 296-7667
            Fax: (441) 296-7665
            Attn: John Burke, Chief Executive Officer

            With a copy to (which does not constitute notice):

            Clifford Chance US LLP
            200 Park Avenue
            New York, New York 10166
            Attn: Peter R. Chaffetz, Esq.
            Phone: (212) 878-8000
            Fax: (212) 878-8375

      Any party hereto (and such party's permitted assigns) may change such
party's address for receipt of future notices hereunder by giving written notice
to the Company and the other parties hereto.

15. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Subject to the provisions of
Sections 2 and 6 hereof, until the exercise of this Warrant, the Registered
Holder shall not have or exercise any rights by virtue hereof as a stockholder
of the Company, including, without limitation, the right to vote, to receive
dividends and other distributions or to receive notice of or attend meetings of
stockholders or any other proceedings of the Company. Notwithstanding the
foregoing, in the event (a) the Company effects a split of the Common Stock by
means of a stock dividend and the Exercise Price of and the number of Warrant
Shares are adjusted as of the date of the distribution of the dividend (rather
than as of the record date for such dividend), and (b) the Registered Holder
exercises this Warrant between the record date and the distribution date for
such stock dividend, the Registered Holder shall be entitled to receive, on the
distribution date, the stock dividend with respect to the shares of Common Stock
acquired upon such


                                       9

exercise, notwithstanding the fact that such shares were not outstanding as of
the close of business on the record date for such stock dividend.

16. AMENDMENT OR WAIVER. Any term of this Warrant may be amended or waived upon
the written consent of the Company and the holders of Company Warrants
representing at least 50% of the number of shares of Common Stock then subject
to outstanding Company Warrants; provided that any such amendment or waiver must
apply to all Company Warrants then outstanding; and provided further that the
number of Warrant Shares subject to this Warrant, the Exercise Price of this
Warrant and the number of shares or class of stock obtainable upon exercise of
this Warrant may not be amended, and the right to exercise this Warrant may not
be waived, without the written consent of the holder of this Warrant (it being
agreed that an amendment to or waiver under any of the provisions of Section 2
of this Warrant shall not be considered an amendment of the number of Warrant
Shares or the Exercise Price). The Company shall promptly give notice to all
holders of the Company Warrants of any amendments effected in accordance with
this Section 16. No special consideration may be given to any holder as
inducement to waive or amend this Warrant unless such consideration is given
equally and ratably to all holders.

17. SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon and inure to the
benefit of the Registered Owner and its assigns, and shall be binding upon any
entity succeeding to the Company by consolidation, merger or acquisition of all
or substantially all of the Company's assets. The Company may not assign this
Warrant or any rights or obligations hereunder without the prior written consent
of the Registered Holder. The Registered Holder may assign this Warrant without
the Company's prior written consent.

18. REMEDIES. In the event of a breach by the Company of any of its obligations
under this Warrant, the Registered Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The Company
agrees that monetary damages would not provide adequate compensation for any
losses incurred by reason of its breach of any of the provisions of this Warrant
and hereby further agrees that, in the event of any action for specific
performance in respect of such breach, it shall waive the defense that a remedy
at law would be adequate.

19. SECTION HEADINGS. The section headings in this Warrant are for the
convenience of the parties and in no way alter, modify, amend, limit or restrict
the contractual obligations of the parties.

20. COUNTERPARTS. This Warrant may be executed in two or more counterparts, each
of which will be deemed an original but all of which together will constitute
one and the same instrument.

21. SEVERABILITY. The provisions of this Warrant will be deemed severable and
the invalidity or unenforceability of any provision hereof will not affect the
validity or enforceability of the other provisions hereof; provided that if any
provision of this Warrant, as applied to any party or to any circumstance, is
adjudged by a court or governmental body not to be enforceable in accordance
with its terms, the parties agree that the court or governmental body making
such determination will have the power to modify the provision in a manner
consistent with its objectives such that it is enforceable, and/or to delete
specific words or phrases, and in its reduced form, such provision will then be
enforceable and will be enforced.

22. TITLES AND SUBTITLES. The article and section headings contained in this
Warrant are inserted for convenience only and will not affect in any way the
meaning or interpretation of this Warrant.


                                       10

23. THIRD PARTIES. Nothing in this Warrant, express or implied, is intended to
confer upon any person other than the parties hereto and their successors and
assigns, any rights or remedies under or by reason of this Warrant.

24. GOVERNING LAW. This Warrant and the performance of the transactions and the
obligations of the parties hereunder will be governed by and construed and
enforced in accordance with the laws of the State of New York, without giving
effect to any choice of law principles.

                            [SIGNATURE PAGE FOLLOWS]


                                       11

      IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.

                                        ANNUITY AND LIFE RE (HOLDINGS), LTD.


                                        By:
                                            ------------------------------------
                                            Name:
                                            Title:

[Corporate Seal]

ATTEST:


- ------------------------------------


                                       12

                                                                       EXHIBIT A

                                  PURCHASE FORM

To:_________________                                          Dated:____________

      The undersigned, pursuant to the provisions set forth in the attached
      Warrant (No. ___), hereby irrevocably elects to purchase _____ shares of
      the Common Stock covered by such Warrant.

      The undersigned herewith makes payment of the full exercise price for such
      shares at the price per share provided for in such Warrant, which is
      $________ in lawful money of the United States.

                                        [                                      ]
                                         --------------------------------------

                                        ----------------------------------------
                                        Name:
                                        Title:

                                        Address:
                                                 -------------------------------

                                                 -------------------------------


                                       13

                                                                       EXHIBIT B

                                 ASSIGNMENT FORM

      FOR VALUE RECEIVED, ________________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (No. ____) with respect to the number of shares of Common Stock covered
thereby set forth below, unto:



Name of Assignee                       Address                                No. of Shares
- ----------------                       -------                                -------------
                                                                        





Dated:
      ---------------------------

                                        [                                      ]
                                         --------------------------------------

                                        ----------------------------------------
                                        Name:
                                        Title:

                                        Address:
                                                 -------------------------------

                                                 -------------------------------

Signature Guaranteed:

By:
    ---------------------------

The signature should be guaranteed by an eligible guarantor institution (banks,
stockbrokers, savings and loan associations and credit unions with membership in
an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
under the Securities Exchange Act of 1934.


                                       14

EX-10.1

                                                                    EXHIBIT 10.1

                                                                  EXECUTION COPY

                              AMENDED AND RESTATED
                              EMPLOYMENT AGREEMENT

      AGREEMENT by and between Annuity and Life Re (Holdings), Ltd. ("Holdings")
and Annuity and Life Reassurance, Ltd. ("Annuity Reassurance" and, together with
Holdings, the "Company") and John F. Burke (the "Executive") dated as of the
28th day of July, 2003.

      WHEREAS, the Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its shareholders
to employ the Executive as the Company's President and Chief Executive Officer
and to have the Executive be a member of the Board;

      WHEREAS, Holdings and the Executive entered into an Employment Agreement,
dated as of April 3, 2003 (the "Existing Employment Agreement"), setting forth
the terms and conditions of the Executive's employment with Holdings; and

      WHEREAS, Holdings and the Executive wish to amend the terms and conditions
of the Executive's employment with Holdings and to establish the terms and
conditions of the Executive's employment with Annuity Reassurance. Accordingly,
the Company and the Executive wish to amend and restate the Existing Employment
Agreement in its entirety in the manner set forth herein;

      NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the receipt of
which is mutually acknowledged, the Company and the Executive (individually a
"Party" and together the "Parties") agree as follows:

      1. Effective Date. The "Effective Date" shall mean February 28, 2003.

      2. Employment Period. The Company hereby agrees to employ the Executive,
and the Executive hereby agrees to be employed by the Company subject to the
terms and conditions of this Agreement, for the period commencing on the
Effective Date and ending on the third anniversary thereof (the "Initial Term"),
provided that, commencing on February 28, 2006, the employment period shall be
extended one year on each successive anniversary until, at any time on or after
such date, the Company or the Executive delivers a written notice (a "Notice of
Non-Renewal"), no later than ninety-days prior to the end of the then-current
term to the other Party that the employment period shall expire at the end of
the then-current term (the Initial Term as so extended, the "Employment
Period").

      3. Terms of Employment.

            (a) Position and Duties. (i) During the Employment Period, (A) the
Executive


                                      -1-

shall serve as the President and Chief Executive Officer of the Company and
shall be responsible for the general management of the Company, with such
authority, duties and responsibilities as are commensurate with such positions
and as may be consistent with such positions (taking into account the duties and
responsibilities of the non-executive Chairman of the Board, if any), reporting
directly to the Board, and (B) the Executive's principal location of employment
shall be at the principal headquarters of the Company; provided, that the
Executive may be required under reasonable business circumstances to travel
outside of such location in connection with performing his duties under this
Agreement. In addition, the Company has caused the Executive to be appointed as
a member of the Board as of the Effective Date, and following such date, the
Executive shall remain on the Board, subject to Section 4(f), and shall perform
his duties as a director of the Company conscientiously and faithfully.

                  (ii) The Executive agrees that during the Employment Period,
he shall devote substantially all of his business time, energies and talents to
serving as the Company's President and Chief Executive Officer, perform his
duties conscientiously and faithfully subject to the reasonable and lawful
directions of the Board, and in accordance with each of the Company's corporate
governance and ethics guidelines, conflict of interests policies and code of
conduct (collectively, the "Company Policies") applicable to all Company
employees or senior executives generally and copies of which have been or will
be provided to the Executive within a reasonable period of time following the
adoption of the particular Company Policy. During the Employment Period, it
shall not be a violation of this Agreement for the Executive, subject to the
requirements of Section 9, to (A) serve on corporate, civic or charitable boards
or committees, (B) deliver lectures or fulfill speaking engagements and (C)
manage personal investments, so long as such activities do not materially
inhibit or interfere with the performance of the Executive's responsibilities as
the President and Chief Executive Officer or as a director of the Company in
accordance with this Agreement.

            (b) Compensation.

                  (i) Base Salary; Cost of Living Allowance. During the
Employment Period, the Executive shall receive an annualized base salary
("Annual Base Salary") of not less than $500,000, payable pursuant to the
Company's normal payroll practices. During the Employment Period, the current
Annual Base Salary shall be reviewed for increase only (and once increased shall
never be decreased) at such time as the salaries of senior officers of the
Company are reviewed generally, provided that, the Executive's first such review
shall occur no earlier than calendar year 2004. The Company will also pay the
Executive a cost of living allowance for residing in Bermuda of $10,000 per
month.

                  (ii) Annual Bonus. For each fiscal year completed during the
Employment Period, the Executive shall be eligible to receive an annual cash
bonus ("Annual Bonus") based upon performance targets that are established as
soon as practicable by mutual agreement between the Executive and the
compensation committee of the Board, provided that, the Executive's target
Annual Bonus shall be at least 50% of his Annual Base Salary (the "Target
Bonus") and his maximum Annual Bonus shall be at least 150% of his Annual Base
Salary.


                                      -2-

                  (iii) Retirement Benefits.

                        (A) General. The Executive shall become a participant in
any qualified or nonqualified retirement plans maintained by the Company.

                        (B) Certain Terminations During Initial Term. In the
event that, prior to the end of the Initial Term, the Executive (i) resigns
without Good Reason (as defined in Section 4(c)) or (ii) is terminated for Cause
(as defined in Section 4(b)), the Executive shall not be entitled to receive any
retirement benefits, and the Company shall not be obligated to pay such benefits
to the Executive.

                  (iv) Signing Bonus; Restricted Share Award. Executive shall be
paid a signing bonus of $100,000 upon his execution of this Agreement. Such
signing bonus shall be in lieu of any signing bonus payable to Executive under
Section 3(b)(iv) of the Existing Employment Agreement. The Executive was granted
200,000 shares of restricted stock in the Company on April 3, 2003. The
restriction for this grant covered a three-year period from the date of the
grant and the restriction will lapse with one-third of the restricted shares
becoming unrestricted after each of the three years. Except as specifically set
forth herein, the grant shall have the same terms and conditions as similar
grants that have been made by the Company to senior executives generally, as
such terms are set forth in the grant agreement attached as Exhibit A.

                  (v) Stock Option Awards. On April 3, 2003, the Executive was
granted options to purchase 250,000 shares of Common Stock under the Company's
Initial Stock Option Plan (the "Plan") at $1.00 per share (the "Option"). Except
as specifically set forth herein, the Options shall have the same terms and
conditions as similar grants that have been made by the Company to senior
executives generally, as such terms are set forth in the award agreement
attached as Exhibit B.

                  (vi) Other Benefits. During the Employment Period, the
Executive shall be entitled to participate in all welfare, perquisites, fringe
benefit, and other benefit plans, practices, policies and programs, as may be in
effect from time to time, for senior executives of the Company generally.

                  (vii) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for business expenses
reasonably incurred by the Executive in accordance with the Company's policies,
as may be in effect from time to time, for its senior executives generally.

                  (viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the Company's policies, as
may be in effect from time to time, for its senior executives generally.

            (c) Other Entities. The Executive agrees to serve, without
additional compensation, as an officer and director for each of the Company's
subsidiaries, partnerships, joint ventures, limited liability companies and
other affiliates, including entities in which the


                                      -3-

Company has a significant investment (collectively, the Company and such
entities, the "Affiliated Group"), as determined by the Company, provided, that
such service does not materially interfere with the Executive's performance of
his duties and responsibilities as the President and Chief Executive Officer of
the Company. As used in this Agreement, the term "affiliates" shall include any
entity controlled by, controlling, or under common control with the Company.

      4. Termination of Employment.

            (a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may provide the Executive with written notice in accordance
with Section 12(b) of this Agreement of its intention to terminate the
Executive's employment. In such event, the Executive's employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by the Executive (the "Disability Effective Date"), provided that, within the
30-day period after such receipt, the Executive shall not have returned to
full-time performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the inability of the Executive to perform his duties
with the Company on a full-time basis for six consecutive months as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a licensed physician mutually selected by (i) the Company or its
insurers and (ii) the Executive or the Executive's legal representative. If the
Parties cannot agree on a licensed physician, each Party shall select a licensed
physician and the two physicians shall select a third who shall be the approved
licensed physician for this purpose.

            (b) Cause. The Company may terminate the Executive's employment
during the Employment Period with or without Cause. For purposes of this
Agreement, "Cause" shall mean:

                  (i) the Executive's willful and continued failure to
substantially perform his duties under this Agreement, other than any such
failure resulting from incapacity due to physical or mental illness, which
failure has continued after a written demand for substantial performance, signed
by a duly authorized member of the Board, is delivered to the Executive,
specifying the manner in which the Executive has failed to substantially
perform; or

                  (ii) the Executive's willful engagement in any malfeasance,
fraud, dishonesty or gross misconduct, each of which must (x) be in connection
with his position as the President and Chief Executive Officer of the Company
(or as a director of the Company or an officer or director of any member of the
Affiliated Group) and (y) materially damage the Company economically or
otherwise; or

                  (iii) the Executive's conviction of, or plea of guilty or nolo
contendere to, a felony; or

                  (iv) the Executive's breach of Section 13(c) of this Agreement
that


                                      -4-

materially damages or could reasonably be expected to materially damage the
Company economically or otherwise; or

                  (v) the Executive's material breach of Section 9 or Section
13(b) of this Agreement.

For purposes of this provision, no act or failure to act on the part of the
Executive shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith and without reasonable belief that the
Executive's act or omission was in the best interests of the Company. A
termination of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than two-thirds of
the entire membership of the Board (not including the Executive) at a meeting of
the Board called and held for such purpose (after at least ten days' written
notice is provided to the Executive and the Executive is given an opportunity,
together with counsel, to be heard before the Board), finding that, in the good
faith opinion of the Board, the Executive is guilty of the conduct described in
subparagraph (i), (ii), (iii), (iv) or (v) above, and specifying the particulars
thereof in detail.

            (c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason. If (x) an event or circumstance set forth in clauses
(i) through (viii) below shall have occurred and the Executive provides the
Company with written notice thereof within a reasonable period of time after the
Executive has knowledge of the occurrence or existence of such event or
circumstance, which notice shall specifically identify the event or circumstance
that the Executive believes constitutes Good Reason, (y) the Company fails to
correct the circumstance or event so identified within 15 days after the receipt
of such notice, and (z) the Executive resigns within 90 days after the date of
delivery of the notice referred to in clause (x) above, the Executive shall be
considered to have resigned for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean, in the absence of the Executive's express written
consent (and except in consequence of a prior termination of the Executive's
employment), the occurrence of any of the following:

                  (i) a reduction by the Company in the Executive's highest
Annual Base Salary or a reduction in the Executive's Target Bonus as a
percentage of the Executive's Annual Base Salary; or

                  (ii) the failure of the Executive to be appointed to any of
the positions described in Section 3(a)(i) or his removal from any such position
(other than pursuant to Section 4(f) or pursuant to a termination of the
Executive's employment for death, Disability or Cause); or

                  (iii) a material diminution in the Executive's duties or
responsibilities (other than as a result of the Executive's physical or mental
incapacity) or the assignment to the Executive of duties or responsibilities
materially inconsistent with the Executive's position and status as the
President and Chief Executive Officer of the Company; provided, however, that
the Executive acknowledges that he will continue to serve as the Company's Chief
Financial Officer until such time as the Board elects to retain another
individual for such position and such


                                      -5-

individual has in fact been retained; or

                  (iv) a material change in the Executive's reporting
relationship so that the Executive no longer reports solely to the Board in his
positions as President and Chief Executive Officer; or

                  (v) a breach by the Company of any of its material obligations
to the Executive under this Agreement; or

                  (vi) the Company requiring the Executive's principal location
of employment to be at any office or location other than Bermuda or the United
States (except to the extent agreed to or requested by the Executive); or

                  (vii) a breach by the Company of Section 11 or Section 13(a)
of this Agreement; or

                  (viii) any failure by the Company to comply with and satisfy
Section 10(b) of this Agreement.

            (d) Notice of Termination. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other Party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.

            (e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein within 30 days of such notice, as the case may
be, (ii) if the Executive's employment is terminated by the Company other than
for Cause or Disability, or if the Executive voluntarily resigns without Good
Reason, the date on which the terminating Party notifies the other Party of such
termination, (iii) if the Executive's employment is terminated by reason of
death, the date of death of the Executive, (iv) if the Executive's employment is
terminated by the Company due to Disability, the Disability Effective Date, or
(v) if the Executive's employment is terminated by the Executive or the Company
as a result of a Notice of Non-Renewal, the second anniversary of such notice.


                                      -6-

            (f) Resignation from All Positions. Notwithstanding any other
provision of this Agreement, upon the termination of the Executive's employment
for any reason, unless otherwise requested by the Board, the Executive shall
immediately resign from all positions that he holds or has ever held with the
Company and any other member of the Affiliated Group (and with any other
entities with respect to which the Company has requested the Executive to
perform services), including, without limitation, the Board and all boards of
directors of any member of the Affiliated Group. The Executive hereby agrees to
execute any and all documentation to effectuate such resignations upon request
by the Company, but he shall be treated for all purposes as having so resigned
upon termination of his employment, regardless of when or whether he executes
any such documentation.

            (g) Except in matters where Executive is individually a defendant or
the subject of an investigation, following termination of his employment for any
reason, in the event that Executive is requested by the Company to cooperate in
any litigation or investigation regarding the Company, or is compelled to do so
by any legal process, the Company shall pay Executive the sum of $2,500 for each
day or portion of a day Executive performs any such services, to the extent
permitted by applicable law.

      5. Obligations of the Company upon Termination.

            (a) Good Reason; Other Than for Cause. If, during the Employment
Period, (1) the Company shall terminate the Executive's employment other than
for Cause, death or Disability, (2) the Executive shall terminate employment for
Good Reason:

                  (i) the Company shall pay to the Executive in a lump sum in
cash within 30 days (except as specifically provided in Sections 5(a)(i)(A)(3))
after the Date of Termination the aggregate of the following amounts:

                  A. the sum of (1) the Executive's accrued but unpaid Annual
Base Salary and any accrued vacation pay through the Date of Termination, (2)
the Executive's business expenses that are reimbursable pursuant to Section
3(b)(vii) but have not been reimbursed by the Company as of the Date of
Termination, (3) the Executive's Annual Bonus for the fiscal year immediately
preceding the fiscal year in which the Date of Termination occurs if such bonus
has been determined but not paid as of the Date of Termination (at the time such
Annual Bonus would otherwise have been paid), and (4) $60,000 (such amount
representing the cost of living allowance under Section 3(b)(i) for six months);

                  B. one year's Annual Base Salary and full relocation back to
any city in the United States; and

                  C. an amount equal to (1) the Executive's Annual Bonus, if
any, for the fiscal year immediately preceding the fiscal year in which the Date
of Termination occurs multiplied by (2) a fraction, the denominator of which is
365 and the numerator of which is the number of days between the end of the
immediately preceding fiscal year and the Date of Termination.


                                      -7-

                  (ii) any stock options, restricted stock, performance shares
and any other stock-based long-term incentive compensation award held by the
Executive (whether granted under this Agreement or otherwise) shall vest
immediately (with option exercisability continuing until the first to occur of
the fifth anniversary of the Date of Termination or the end of the scheduled
option term)

The Parties agree that any amounts due under this Section 5(a) are in the nature
of severance payments considered to be reasonable by the Company and are not in
the nature of a penalty. If the Company shall terminate the Executive's
employment other than for Cause, death or Disability, or the Executive shall
terminate employment for Good Reason, except as contemplated by Section 9, 11
and 12 hereof, this Agreement shall terminate without further obligations to the
Executive other than the obligations set forth in this Section 5(a).

            (b) Cause; Other than for Good Reason. If the Executive's employment
shall be terminated for Cause or the Executive terminates his employment without
Good Reason during the Employment Period (including by providing to the Company
a Notice of Non-Renewal), except as contemplated by Section 9, 11 and 12 hereof,
this Agreement shall terminate without further obligations to the Executive
other than the obligation to pay to the Executive an amount equal to the amount
set forth in clauses (1) and (2) of Section 5(a)(i)(A) above and the timely
payment or provision of the Other Benefits, including any applicable life
insurance benefits.

            (c) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, except as contemplated by
Section 9, 11 and 12 hereof, this Agreement shall terminate without further
obligations to the Executive's legal representatives under this Agreement, other
than the obligation to pay to the Executive's beneficiaries an amount equal to
the amount set forth in clauses (1), (2) and (3) of Section 5(a)(i)(A) above and
the timely payment or provision of the Other Benefits, including any applicable
life insurance benefits.

            (d) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, except as
contemplated by Section 9, 11 and 12 hereof, this Agreement shall terminate
without further obligations to the Executive, other than the obligation to pay
or provide to the Executive the Executive's Retiree Health Benefits, an amount
equal to the amount set forth in clauses (1), (2) and (3) of Section 5(a)(i)(A)
above, and the timely payment or provision of Other Benefits, including any
applicable disability benefits.

      6. Change of Control

            (a) Notwithstanding any other provision contained herein, all
options issued to the Executive under the Company's share option plans that are
not then exercisable shall become exercisable (and be deemed to be vested) on
the date on which a Change of Control of the Company occurs. In addition, any
restricted shares granted under any of the Company's equity incentive plans
shall immediately vest upon a Change of Control of the Company.

            (b) Notwithstanding any other provision contained herein, if (i) the

                                      -8-

employment of the Executive is terminated by the Company (or successor thereto)
without Cause within the period commencing on the date that a Change of Control
is formally proposed to the Board and ending on the first anniversary of the
date on which such Change of Control occurs or (ii) the Executive terminates
employment with the Company (or successor thereto) (A) because of the failure of
a successor to the Company to expressly assume and agree to perform this
Agreement or (B) for any reason during the period commencing ninety (90) days
following the date that a Change of Control occurs and ending on the first
anniversary of the date on which such Change of Control occurs, then the
Executive shall be entitled to receive (in lieu of the benefits described in
Section 5): (1) any accrued but unpaid Annual Base Salary through the Date of
Termination, (2) the Executive's Annual Bonus for the fiscal year immediately
preceding the fiscal year in which the Date of Termination occurs if such bonus
has been determined but not paid as of the Date of Termination (at the time such
Annual Bonus would otherwise have been paid), (3) a lump sum payment equal to
equal to the sum of (x) two times the the Executive's Annual Base Salary as of
the Date of Termination plus (y) an amount equal to (A) the Executive's Annual
Bonus, if any, for the fiscal year immediately preceding the fiscal year in
which the Date of Termination occurs multiplied by (B) a fraction, the
denominator of which is 365 and the numerator of which is the number of days
between the end of the immediately preceding fiscal year and the Date of
Termination, (4) the Executive's business expenses that are reimbursable
pursuant to Section 3(b)(vii) but have not been reimbursed by the Company as of
the Date of Termination, (5) the cost of living allowance under Section 3(b)(i)
for twelve months after the Date of Termination, (6) reasonable relocation
expenses from Bermuda to the United States, together with (7) a gross-up of any
income taxes payable by the Executive by reason of such payments occurring in
connection with a change of control.

      The Executive shall not be entitled to any benefits or other entitlements
under this section or under Section 5 of this Agreement if he terminates his
employment with the Company for any reason, including Good Reason, during the
period commencing on the date that a Change of Control is formally proposed to
the Board and ending ninety (90) days following the date that a Change of
Control occurs. The Executive shall not be entitled to any benefits or other
entitlements under this section unless a Change of Control actually occurs.

            (c) A "Change of Control" of the Company shall be deemed to have
occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934 (the "Exchange Act")), excluding the
Company or any of its subsidiaries, a trustee or any fiduciary holding
securities under an employee benefit plan of the Company or any of its
subsidiaries, an underwriter temporarily holding securities pursuant to an
offering of such securities or a corporation owned, directly or indirectly, by
shareholders of the Company in substantially the same proportion as their
ownership of the Company, is or becomes the "beneficial owner" (as defined in
rule 13d-3 under the Exchange Act), directly or indirectly, of securities
("Voting Securities") of the Company representing 50% or more of the combined
voting power of the Company's then outstanding securities; (ii) during any
period of not more than two years, individuals who constitute the Board as of
the beginning of the period and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (i) or (iii) of this sentence) whose
election by the Board or nomination for election by the Company's shareholders
was approved by a vote of at least two-thirds (2/3) of the directors then still
in office who either were directors


                                      -9-

at such time or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; (iii) the
shareholders of the Company approve a merger, consolidation or reorganization or
a court of competent jurisdiction approves a scheme of arrangement of the
Company, other than a merger, consolidation, reorganization or scheme of
arrangement which would result in the Voting Securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 50% of the combined voting power of the Voting
Securities of the Company or such surviving entity outstanding immediately after
such merger, consolidation, reorganization or scheme of arrangement; or (iv) the
shareholders of the Company approve a plan of complete liquidation of the
Company or any agreement for the sale or liquidation of substantially all of the
Company's assets.

      7. Non-Exclusivity of Rights. Except as specifically provided otherwise,
nothing in this Agreement shall prevent or limit the Executive's continuing or
future participation in any plan, program, policy or practice provided by the
Company, or any of its subsidiaries for which the Executive is otherwise
eligible, nor, subject to Section 12(f), shall anything herein limit or
otherwise affect such rights as the Executive may have under any contract or
agreement with the Company or its subsidiaries. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any plan,
policy, practice or program of or any contract or agreement with the Company or
its subsidiaries at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or agreement
except as explicitly modified by this Agreement.

      8. Full Settlement. The Company's obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense, or other
claim, right or action that the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement and such amounts shall
not be reduced as a result of a mitigation duty whether or not the Executive
obtains other employment. In the event of any dispute between the Company and
the Executive under this Agreement during or after termination of the
Executive's employment, the Company agrees to pay, to the full extent permitted
by law, all professional fees, costs and expenses which the Executive may
reasonably incur as a result of any such contest.

      9. Covenants.

            (a) Confidential Information. The Executive shall hold in a
fiduciary capacity for benefit of the Affiliated Group, all secret or
confidential information, knowledge or data relating to the Affiliated Group and
its businesses (including, without limitation, any proprietary and not publicly
available information concerning any processes, methods, trade secrets, research
or secret data, costs, names of users or purchasers of their respective products
or services, business methods, operating procedures or programs or methods of
promotion and sale) that the Executive has obtained or obtains during the
Executive's employment by the Affiliated Group that is not public knowledge
(other than as a result of the Executive's violation of this Section 9(a))
("Confidential Information"). For the purposes of this Section 9(a), information


                                      -10-

shall not be deemed to be publicly available merely because it is embraced by
general disclosures or because individual features or combinations thereof are
publicly available. The Executive shall not communicate, divulge or disseminate
Confidential Information at any time during or after the Executive's employment
with the Affiliated Group, except with prior written consent of the Company, or
as otherwise required by law or legal process or as such disclosure or use may
be required in the course of the Executive performing his duties and
responsibilities as the President and Chief Executive Officer of the Company.
Notwithstanding the foregoing provisions, if the Executive is required to
disclose any such confidential or proprietary information pursuant to applicable
law or a subpoena or court order, the Executive shall promptly notify the
Company in writing of any such requirement so that the Company or the
appropriate member of the Affiliated Group may seek an appropriate protective
order or other appropriate remedy or waive compliance with the provisions
hereof. The Executive shall reasonably cooperate with the Affiliated Group to
obtain such a protective order or other remedy. If such order or other remedy is
not obtained prior to the time the Executive is required to make the disclosure,
or the Company waives compliance with the provisions hereof, the Executive shall
disclose only that portion of the confidential or proprietary information which
he is advised by counsel that he is legally required to so disclose. All
records, files, memoranda, reports, customer lists, drawings, plans, documents
and the like that the Executive uses, prepares or comes into contact with during
the course of the Executive's employment shall remain the sole property of the
Company and/or the Affiliated Group, as applicable, and shall be turned over to
the Company upon termination of the Executive's employment.

            (b) Non-Recruitment of Affiliated Group Employees. The Executive
shall not, at any time during the Restricted Period (as defined in this Section
9(b)), without the prior written consent of the Company, directly or indirectly,
contact, solicit, recruit, or employ (whether as an employee, officer, director,
agent, consultant or independent contractor) any person who is or was at any
time during the previous twelve months an employee, representative, officer or
director of any member of the Affiliated Group. Further, during the Restricted
Period, the Executive shall not take any action that could reasonably be
expected to have the effect of encouraging or inducing any employee,
representative, officer or director of any member of the Affiliated Group to
cease their relationship with any member of the Affiliated Group for any reason,
except for terminations of employment in the ordinary course of business. This
Section 9(b) shall not apply to recruitment of employees for the Affiliated
Group and shall not apply to the Executive's personal administrative staff who
perform secretarial-type functions. The "Restricted Period" shall mean the
period of Executive's employment with the Company and its subsidiaries and the
additional period ending on the second anniversary of the Date of Termination.

            (c) Remedies. The Executive acknowledges and agrees that the terms
of Section 9: (i) are reasonable in light of all of the circumstances, (ii) are
sufficiently limited to protect the legitimate interests of the Company and its
subsidiaries, (iii) impose no undue hardship on the Executive and (iv) are not
injurious to the public. The Executive further acknowledges and agrees that (x)
the Executive's breach of the provisions of Section 9 will cause the Company
irreparable harm, which cannot be adequately compensated by money damages, and
(y) if the Company elects to prevent the Executive from breaching such
provisions by obtaining an injunction against the Executive, there is a
reasonable probability of the


                                      -11-

Company's eventual success on the merits. The Executive consents and agrees that
if the Executive commits any such breach or threatens to commit any breach, the
Company shall be entitled to temporary and permanent injunctive relief from a
court of competent jurisdiction, without posting any bond or other security and
without the necessity of proof of actual damage, in addition to, and not in lieu
of, such other remedies as may be available to the Company for such breach,
including the recovery of money damages. If any of the provisions of Section 9
are determined to be wholly or partially unenforceable, the Executive hereby
agrees that this Agreement or any provision hereof may be reformed so that it is
enforceable to the maximum extent permitted by law. If any of the provisions of
this Section 9 are determined to be wholly or partially unenforceable in any
jurisdiction, such determination shall not be a bar to or in any way diminish
the Company's right to enforce any such covenant in any other jurisdiction.

      10. Successors. (a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive other than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.

            (b) No rights or obligations of the Company under this Agreement may
be assigned or transferred by the Company except that such rights or obligations
may be assigned or transferred pursuant to a merger or consolidation in which
the Company is not the continuing entity, or the sale or liquidation of all or
substantially all or a substantial portion of the assets of the Company;
provided, however, that the assignee or transferee is the successor to all or
substantially all or a substantial portion of the assets of the Company and such
assignee or transferee assumes the liabilities, obligations and duties of the
Company, as contained in this Agreement, either contractually or as a matter of
law. The Company shall cause any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all or a
substantial portion of its business and/or assets to assume expressly and agree
to perform this Agreement within 15 days after such succession in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. A breach of this Section 10(b) shall be
deemed to be Good Reason under Section 4(c)(viii). As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.

      11. Indemnification. The Company shall indemnify the Executive as an
officer, director and employee of the Company and any member of the Affiliated
Group and in the same amounts to the maximum extent permitted under the
Company's by-laws and applicable law. The Company shall maintain directors' and
officers' liability insurance coverage during the Executive's employment and
thereafter for the duration of any period of limitations during which any
action, if any, may be brought against the Executive for his service as an
officer, director or employee of the Company and any member of the Affiliated
Group and in the same amounts, and on the same terms and conditions as
applicable to other former senior executives and directors of the Company.

      12. Miscellaneous. (a) This Agreement shall be governed by and construed
in


                                      -12-

accordance with the laws of the State of New York, without reference to
principles of conflict of laws. The Parties hereto irrevocably agree to submit
to the jurisdiction and venue of the courts of the State of New York, in any
action or proceeding brought with respect to or in connection with this
Agreement. The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the Parties hereto or their
respective successors and legal representatives.

            (b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other Party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:

         If to the Executive:

         John F. Burke

         At the most recent address on file for the Executive at the Company.

         If to the Company:

         Annuity and Life Re (Holdings), Ltd.
         Cumberland House
         1 Victoria Street
         Hamilton, HM 11
         Bermuda
         Attn: Chair of Compensation Committee

or to such other address as either Party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.

            (c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.

            (d) Notwithstanding any other provision of this Agreement, the
Company may withhold from any amounts payable or benefits provided under this
Agreement any Federal, state, and local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.

            (e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, shall not be deemed to be
a waiver of such provision or right or any other provision or right of this
Agreement.

            (f) From and after the Effective Date, this Agreement shall
supersede any


                                      -13-

other employment, severance, retention or change-in-control agreement between
the Parties with respect to the subject matter hereof excepting only any stock
option or restricted stock agreements or awards whereunder the Executive is the
optionee or shareholder.

      13. Representations. (a) The Company hereby represents and warrants to the
Executive that it is fully authorized and empowered to enter into this Agreement
and to perform its obligations hereunder and that the performance of its
obligations under this Agreement will not violate any agreement between it and
any other person, firm or organization.

            (b) The Executive hereby represents and warrants to the Company that
the Executive is not party to any contract, understanding, agreement or policy,
whether or not written that would be breached by the Executive's entering into,
or performing services under, this Agreement by the Executive.

            (c) The Executive further represents that he has disclosed to the
Company in writing all material (i) threatened claims that (x) are unresolved
and still outstanding as of the Effective Date and (y) have been received by the
Executive in writing during the 24 months prior to the Effective Date, (ii)
existing claims, and (iii) pending claims, in each case, against him of which he
is aware, if any, as a result of his employment with any previous employer or
his membership on any boards of directors which could be reasonably expected to
be materially damaging to the Executive monetarily, reputationally or otherwise.

      IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name and on its behalf, all as of
the day and year first above written.

                                 /s/ John F. Burke
                                 -----------------
                                 John F. Burke


                                 By: /s/ Lee M. Gammill
                                    -------------------
                                 Name:   Lee M. Gammill
                                 Title:  Chairman of the Compensation Committee
                                         of the Board of Directors



                                      -14-

                                    EXHIBIT A

                           RESTRICTED STOCK AGREEMENT

            This RESTRICTED STOCK AGREEMENT, dated as of the 3rd day of April,
2003 (the "Award Date"), is between Annuity and Life Re (Holdings), Ltd., a
Bermuda corporation (the "Company"), and John F. Burke (the "Grantee"), an
employee of the Company.

            The Company desires to award the Grantee shares of restricted stock
as provided in this Agreement, in accordance with the provisions of the Annuity
and Life Re (Holdings), Ltd. Restricted Stock Plan (the "Plan"), a copy of which
has been provided to the Grantee;

            NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth and for other good and valuable consideration, the legal sufficiency
of which is hereby acknowledged, the parties hereto, intending to be legally
bound hereby, agree as follows:

            1. Grant of Award. The Company hereby awards to the Grantee a
restricted stock award (the "Award") under the Plan for an aggregate of Two
Hundred Thousand (200,000) common shares of the Company ("Common Shares"),
subject to adjustment as provided by Section 8 of the Plan. The Award is in all
respects limited and conditioned as provided in this Agreement and by the Plan.
The Plan and Grantee's rights under the Plan may be amended from time to time.
The terms of the Plan shall control in the event of any conflict with any other
terms of this Restricted Stock Agreement.

            2. Vesting. Unless earlier terminated or vested in accordance with
the provisions of the Plan, the Common Shares covered by the Award shall vest in
Grantee in three equal annual installments commencing on the first anniversary
of the Award Date.

            3. Stock Certificates. Certificates for Common Shares subject to the
Award shall be registered in the Grantee's name (or, if the Grantee so requests,
in the name of the Grantee and the Grantee's spouse, jointly with a right of
survivorship) and shall be delivered to the Grantee as soon as practicable. With
respect to shares in which the Grantee is not vested on the Award Date, the
Grantee shall, immediately upon receipt thereof, deposit all certificates for
such unvested Common Shares, together with a stock power executed in favor of
the Company, with the Company. Certificates for such unvested Common Shares
shall be held by the Company until the Grantee becomes vested in such Common
Shares. The certificate may include a legend setting forth restrictions on
transfer.

            4. Dividends; Rights as Shareholder in Unvested Common Shares. The
Grantee shall be entitled to receive dividends on unvested Common Shares subject
to the Award (if any), shall have the right to vote such unvested Common Shares,
and shall have all other shareholder's rights in such unvested Common Shares,
with the exception that (i) the Grantee shall not be entitled to delivery of the
stock certificates until he or she becomes vested in the Common Shares and (ii)
the Company shall retain custody of the certificates representing the unvested
Common Shares until the Grantee becomes vested in such Common Shares, at which
time such certificates shall be delivered to the Grantee. The Grantee's rights
to such unvested Common Shares in the event the Grantee's employment with the
Company (or any related company) is terminated shall be governed by the Plan,
except as otherwise set forth in that certain Employment Agreement dated as of
the date hereof by and between the Grantee and the Company.

            5. Transferability. The Grantee may not assign or transfer, in whole
or in part, Common Shares subject to this Award in which the Grantee is not
vested, other than by will or by the laws of descent and distribution.

            6. Withholding of Taxes. The obligation of the Company to deliver
Common Shares upon vesting shall be subject to applicable tax withholding
requirements. If the vesting of the Award is subject to the withholding
requirements of applicable tax laws, the Grantee, subject to the provisions of
the Plan and such additional withholding rules ("Withholding Rules") as shall be
adopted by the Committee, may satisfy the withholding tax, in whole or in part,
by electing to have the Company withhold Common Shares to the extent such

shares are vested. Such Common Shares shall be valued, for this purpose, at
their Fair Market Value (as defined in the Plan) on the date the Award is
includible in income by the Grantee under applicable tax laws (the
"Determination Date"). Such election must be made in compliance with and subject
to the Withholding Rules, and the Company may limit the number of Common Shares
withheld to the extent necessary to avoid adverse accounting consequences.

            7. Governing Law. This Restricted Stock Agreement shall be construed
in accordance with, and its interpretation shall be governed by, applicable
United States laws, and otherwise by Bermuda law (without reference to
principles of conflict of laws).

            IN WITNESS WHEREOF, the Company has caused this Restricted Stock
Agreement to be duly executed by its duly authorized officer, and the Grantee
has hereunto set his hand, all on the day and year first above written.

                                           ANNUITY AND LIFE RE (HOLDINGS), LTD.


                                           By:     /s/ Robert M. Lichten
                                              ----------------------------------
                                           Name:   Robert M. Lichten
                                           Title:  Director

                                           GRANTEE:

                                                   /s/ John F. Burke
                                           -------------------------------------
                                           John F. Burke

                                    EXHIBIT B

                                  April 3, 2003


Mr. John F. Burke
c/o Annuity and Life Re (Holdings), Ltd.
Cumberland House, 1 Victoria Street
Hamilton HM 11
Bermuda

Dear Jay:

I am pleased to inform you that on April 3, 2003, pursuant to the terms of the
Annuity and Life Re (Holdings), Ltd. Initial Stock Option Plan (the "Plan"), you
were granted options to purchase Two Hundred Fifty Thousand (250,000) common
shares of Annuity and Life Re (Holdings), Ltd. (the "Company") at an exercise
price of $1.00 per share. The exercise price for the options shall be payable in
cash or its equivalent.

      The options herein granted will become exercisable as follows:



Date First Exercisable                           Number of Shares
- ----------------------                           ----------------
                                              
    April 3, 2004                                    83,333
    April 3, 2005                                    83,333
    April 3, 2006                                    83,334


            Once the options become exercisable, they will remain exercisable
until they are exercised or until they terminate. Unless earlier terminated
pursuant to the terms of the Plan, all options herein granted shall terminate on
April 3, 2013. Under certain conditions more specifically set forth in the Plan
or in that certain Employment Agreement dated as of the date hereof by and
between you and the Company, the time at which the options become exercisable
may be accelerated.

            To the extent exercisable under the provisions of this letter
agreement and the Plan, the options may be exercised from time to time by
written notice to the Company of your election to exercise the options. Any such
notice of exercise shall specify the number of common shares to be purchased by
the exercise of the options and shall be accompanied by the purchase price for
such common shares.

            Further terms governing the options granted to you herein are set
forth in the Plan, which is incorporated by reference herein. In the event of
any conflict between this letter agreement and the Plan, the Plan shall control.

            The options granted to you herein are intended to be non-qualified
stock options. You are advised to consult with your tax advisor for the tax
consequences of the grant of the options, exercise of the options and the sale
of common shares purchased by exercise of the options.

            If you wish to accept the grant of the options as provided above and
in the Plan, please so indicate by signing this letter in the space provided
below. Upon signing the letter, you and the Company shall be legally bound
hereby under Bermuda law.

                                          Very truly yours,

                                          ANNUITY AND LIFE RE (HOLDINGS), LTD.


                                          By:   /s/ Robert M. Lichten
                                              ----------------------------------
                                          Name: Robert M. Lichten
                                                Director


Accepted and Agreed:


  /s/ John F. Burke
- ------------------------------
John F. Burke

EX-10.2

                                                                   EXHIBIT 10.2

                              EMPLOYMENT AGREEMENT

            THIS AGREEMENT, dated as of June 10, 2003, replaces as of June 1,
2003 the employment agreement , dated as of January 8, 1998 by and between
Annuity and Life Re (Holdings), Ltd., a Bermudian corporation (the "Company"),
Annuity and Life Reassurance, Ltd., a subsidiary of the Company organized under
the laws of Bermuda to engage in worldwide life and annuity reinsurance (the
"Operating Company"), and Robert Reale (hereinafter called the "Employee").

                                   WITNESSETH:

            WHEREAS, the Company and the Operating Company desire that the
Employee serve as Senior Vice President and Chief Underwriter and Chief
Operating Officer of the Company and as Senior Vice President and Chief
Underwriter of the Operating Company and the Employee is willing to serve in
such capacities.

            NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the parties hereto agree as
follows;

Section: 1. Employment.

            Effective as of June 1, 2003, the Company and the Operating Company
will employ the Employee and the Employee will perform services for the Company
and the operating Company on the terms and conditions set forth in this
Agreement and for the period ("Term of Employment") specified in Section 3
hereof.

Section: 2. Duties.

            The Employee, during the Term of Employment, shall serve the Company
as its Senior Vice President and Chief Underwriter and Chief Operating Officer.
The Employee shall also serve as Senior Vice President and Chief Underwriter of
the Operating Company. The Employee shall be based at the Operating Company's
headquarters in Bermuda, other than for periodic travel in the ordinary course
of business. The Employee shall have such duties and responsibilities as are
assigned to him by the Boards of Directors of the Company and the Operating
Company and the CEO commensurate with his positions as Senior Vice President and
Chief Underwriter and Chief Operating Officer of the Company and Senior Vice
President and Chief Underwriter the Operating Company.

            The Employee shall perform his duties hereunder faithfully and to
the best of his abilities and in furtherance of the business of the Company, and
shall devote his full business time, energy, attention and skill to the business
of the Company and to the promotion of its interests except as otherwise agreed
by the Company.

            The Employee warrants and represents that he is free to enter into
this Agreement and is not restricted by any prior or existing agreement and the
Company and the Operating Company may rely on such representation in entering
into this Agreement.



Section: 3. Term of Employment.

            The Term of Employment of this Agreement shall be the period
commencing on June 1, 2003 and ending on the later of (i) February 28, 2004, or
(ii) the date the Company's arbitrations with MetLife which commenced in April
2002 and Hartford Life Insurance Company which commenced in March 2003 have been
withdrawn, resolved or ended with the delivery of the decision from their
arbitration panel on the matters being arbitrated as of the date of this
Agreement. At the end of the Term of Employment, and on each three month
anniversary thereof, the Term of Employment shall automatically be extended for
three additional months, unless the Company or the Employee shall have given
written notice to the other that it does not wish to extend this Agreement at
least three months in advance.

Section: 4. Salary.

            The Employee shall receive, as compensation for his duties and
obligations to the Company and the Operating Company, a salary at the annual
rate of $335,000, payable in substantially equal installments in accordance with
the Operating Company's payroll practice. It is agreed between the parties that
the Company shall review the base annual salary annually and in light of such
review may, in the discretion of the Board of Directors of the Company (but
shall not be obligated to), increase such base annual salary taking into account
any change in the Employee's then responsibilities, increases in the cost of
living, performance by the Employee, and other pertinent factors.

Section: 5. Bonus.

            During the Term of Employment, the Employee shall participate in the
Company's Incentive Compensation Plan, and will be eligible for an annual cash
bonus of up to two times his annual salary based on performance targets as
determined in accordance with the terms of the Plan.

            Additionally, upon the date the Company's arbitrations with MetLife
and Hartford Life Insurance Company have been withdrawn, resolved or ended, the
Employee shall receive a one-time Special Retention Cash Bonus equal to one
times the Employee's annual base salary, except the Special Retention Cash Bonus
shall not be paid in the event of termination of the Employee's employment by
the Company for Serious Cause or termination of the Employee's employment by the
Employee for other than Good Reason.

Section: 6. Options.

            (a) Initial Options. No Initial Option may be exercised after the
earlier of (A) the date that is (i) ninety (90) days following the termination
of the employee's employment for any reason other than death, disability or
Serious Cause (as defined in Section 11), or (ii) six (6) months after the
termination of the Employee's employment by reason of death or disability or
(iii) the date upon which the Employee's employment


                                       2


is terminated for Serious Cause; or (B) the tenth anniversary of the IPO date.

            The consideration for the Ordinary Shares purchased upon exercise of
the initial options may be paid in cash or by any other method permitted by the
terms of the Company's Initial Option Plan. The issuance of any Ordinary Shares
pursuant to the Initial Options shall in all events be subject to all applicable
securities laws and the Employee shall enter into any agreement reasonably
requested by the Company in order to ensure that all such issuances are in full
compliance therewith. The Employee shall not have any of the rights and
privileges of a shareholder of the Company with respect to the Ordinary Shares
issuable upon any exercise of Initial options unless and until his name is
entered into the register of members of the Company in respect of such ordinary
Shares. If there is any change in the number or nature of outstanding shares of
the Company's capital stock by reason of share dividend, recapitalization,
merger, consolidation, scheme of arrangement, share split, combination or
exchange, share repurchase or otherwise, which in any such case has a dilutive
or anti-dilutive effect on the Ordinary Shares, the number of Ordinary Shares
subject to each outstanding Initial Option, the exercise price thereof and/or
other terms thereof shall be appropriately adjusted by the Board of Directors of
the Company (or any committee thereof), whose determination shall be conclusive,
so as to restore the option holder to his rights thereunder.

            (b) Other 0ptions. During the Term of Employment, the Employee shall
be eligible to be granted options to purchase Ordinary Shares at such price and
subject to such terms as provided by the Company's Initial Stock Option Plan, in
the sole discretion of the Board of Directors of the Company.

            (c) Restricted Stock. During the Term of Employment, the Employee
shall be eligible to receive restricted stock subject to such terms as provided
by the Company's Restricted Stock Plan, in the sole discretion of the Board of
Directors of the Company.

Section: 7. Employee Benefits.

            During the Term of Employment the Employee shall be entitled to
participate in all employee benefit programs of the Company, as such programs
may be in effect from time to time, including without limitation, pension and
other retirement plans, profit sharing plans, group life insurance, accidental
death and dismemberment insurance, hospitalization, surgical and major medical
coverage, sick leave (including salary continuation arrangements), long term
disability, holidays and vacations.

Section: 8. Business Expenses.

            All reasonable travel and other expenses incidental to the rendering
of services by the Employee hereunder shall be paid by the Company and if
expenses are paid in the first instance by the Employee, the Company will
reimburse him therefor upon presentation of proper invoices; subject in each
case to compliance with the Company's reimbursement policies and procedures.


                                       3


Section: 9. Housing and Travel Expenses.

            The Company shall provide to the Employee the sum of $10,000.00
monthly as an allowance to cover the expenses of housing in Bermuda and for his
personal travel.

Section: 10. Vacations and Sick Leave.

            The Employee shall be entitled to reasonable vacation and reasonable
sick leave each year, in accordance with policies of the Company, as determined
by the Board of Directors, provided, however, that the Employee shall be
entitled to a minimum of 4 weeks vacation per year.

Section: 11. Termination.

            (a) In the event of Serious cause, as defined below, the company may
terminate the Employee's employment and the Term of Employment upon written
notice of such termination stating the Serious Cause upon which the Company
relies for its termination. The Employee's employment and the Term of Employment
shall be terminated effective as of the date specified in such notice, which
shall in no event be earlier than the effective date of such notice.

            "Serious Cause" shall mean (i) the willful and continued failure by
the Employee to perform substantially his duties hereunder, other than by
reasons of health, after demand for substantial performance is delivered by the
Company that identifies the manner in which the Company believes the Employee
has not substantially performed his duties, (ii) the Employee shall have been
indicted by any federal, state or local authority in any jurisdiction for, or
shall have pleaded guilty or nolo contendere to, an act constituting a felony,
(iii) the Employee shall have habitually abused any substance (such as narcotics
or alcohol), or (iv) the Employee shall have (A) engaged in acts of fraud,
material dishonesty or gross misconduct in connection with the business of the
Company or (B) committed a material breach of this Agreement.

            (b) The Employee may terminate his employment and the Term of his
Employment in the event of Good Reason, as defined below, upon 30 days' prior
written notice of such termination stating the Good Reason upon which the
Employee relies for his termination. The Employee's employment and the Term of
Employment shall be terminated effective as of the date specified in such
notice, which in no event shall be earlier than the effective date of such
notice.

            "Good Reason" shall mean (i) a substantial reduction in the
Employee's salary, (ii) a change in title of the Employee, or (iii) a material
breach of this Agreement by the Company.

            (c) In the event of termination of the Employee's employment and the
Term of Employment by the Company for Serious Cause or by the Employee without
Good Reason, the Employee shall forfeit all bonus amounts for the then current
fiscal year and the Company shall be liable to the Employee only for (i) any
accrued but unpaid salary, (ii) any accrued but unpaid bonus from a prior fiscal
year, and (iii) reimbursement of business expenses incurred prior to the date of
termination.


                                       4


            (d) In the event of the death, retirement or disability of the
Employee, the Employee's employment and Term of Employment shall be terminated
as of the date of such death, retirement or disability and the Company shall pay
the Employee, or the Employee's estate or legal representative, as appropriate,
(i) any accrued but unpaid salary, (ii) any earned but unpaid bonus from a prior
fiscal year, (iii) reimbursement of business expenses incurred prior to the date
of termination, (iv) travel and housing allowances under Section 9 for six
months after the date of termination, and (v) reasonable relocation expenses
from Bermuda to the United States. The date of the Employee's disability shall
be deemed to be the last day of the sixth month during which the Employee has
been unable to carry out his position as provided below.

            "Disability" shall mean the Employee's inability, for reasons of
health, to carry out the functions of his position for a total of 6 months
during any 12 month period of this Agreement. "Retirement" shall mean retirement
from employment upon attaining age 65 or such earlier age agreed to by the
Company.

            In addition, in such event, if the Company's Ordinary Shares are not
then publicly traded, the Company shall have the right to call any or all of the
Ordinary Shares of the Company owned by the Employee within six (6) months of
death, retirement or disability, and the Employee, the Employee's estate or
legal representative, whichever is appropriate, shall have the right to put any
or all of the Employee's Ordinary Shares to the Company within twelve (12)
months after death or within six (6) months after retirement or disability. The
price at which such put or call is exercisable shall be equal to the appraised
value, in each case measured as of the date of termination.

            (e) If the company should (i) terminate the Term of Employment and
the Employee's employment herein without Serious Cause; or (ii) if the Employee
should terminate the Term of Employment and his employment hereunder for Good
Reason, the Company shall continue to pay the Employee his base salary for a
period of one year from such termination. In addition, the Employee shall be
entitled to (A) any accrued but unpaid salary, (B) any earned but unpaid bonus
from a prior fiscal year, (C) reimbursement of business expenses incurred prior
to the date of termination, and (D) travel and housing allowances under Section
9 for six months after the date of termination, and (E) reasonable relocation
expenses from Bermuda to the United States.

            (f) In the event of the liquidation of the Company or in the event
that the Board of Directors elects to discontinue permanently operating the
Company, the Term of Employment and the Employee's employment herein shall be
terminated as of the date of such liquidation or discontinuance and the Company
shall pay the Employee (i) any accrued but unpaid salary, (ii) any earned but
unpaid bonus from a prior fiscal year, (iii) unreimbursed business expenses
incurred prior to the date of termination, (iv) travel and housing allowances
under Section 9 for two months after the date of termination, and (v) reasonable
relocation expenses from Bermuda to the United States. In addition, the Employee
shall be entitled to receive one year's base salary from the date on which the
Employee's employment is terminated.


                                       5


Section: 12. Change of Control.

            (a) Notwithstanding any other provision contained herein, the
Employee's Initial Options and other options issued under the Company's share
option plans that are not then exercisable shall become exercisable (and be
deemed to be vested) on the date on which a Change of Control of the Company
occurs. In addition, restricted Ordinary Shares granted under any of the
Company's share option plans shall immediately vest upon a Change of Control of
the Company.

            (b) If (i) the employment of the Employee is terminated by the
Company (or successor thereto) without Serious Cause or (ii) the Employee
terminates employment with the Company (or successor thereto) for Good Reason,
within the period commencing on the date that a Change of Control is formally
proposed to the Company's Board of Directors and ending on the first anniversary
of the date onwhich such Change of Control occurs, then the Employee shall be
entitled to receive (in lieu of the benefits described in Section 11): (1) any
accrued but unpaid salary, (2) a lump sum payment equal to two times such
Employee's annual base salary as of the date of termination, (3) any accrued but
unpaid bonus from a prior fiscal year, (4) reimbursement of business expenses
incurred prior to the date of termination, (5) travel and housing allowances
under Section 9 for one year following the date of termination, (6) reasonable
relocation expenses from Bermuda to the United States, together with (7) a
gross-up of any income taxes payable by the Employee by reason of such payments
occurring in connection with a change of control.

            The Employee shall not be entitled to any benefits or other
entitlements under this section unless a Change of Control actually occurs.

            (c) A "Change of Control" of the Company shall be deemed to have
occurred if (i) any "person" (as such term is defined in Section 3(a)(9) and as
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the
"Exchange Act")), excluding the Company or any of its subsidiaries, a trustee or
any fiduciary holding securities under an employee benefit plan of the Company
or any of its subsidiaries, an underwriter temporarily holding securities
pursuant to an offering of such securities or a corporation owned, directly or
indirectly, by shareholders of the Company in substantially the same proportion
as their ownership of the Company, is or becomes the "beneficial owner" (as
defined in rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the combined voting power
of the Company's then outstanding securities ("Voting Securities"); (ii) during
any period of not more than two years, individuals who constitute the Board of
Directors of the Company (the "Board") as of the beginning of the period and any
new director (other than a director designated by a person who has entered into
an agreement with the Company to effect a transaction described in clause (i) or
(iii) of this sentence) whose election by the Board or nomination for election
by the Company's shareholders was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors at such
time or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof; (iii) the shareholders of
the Company approve a merger, consolidation or reorganization or a court of
competent jurisdiction approves a scheme of arrangement of the Company,


                                       6


other than a merger, consolidation, reorganization or scheme of arrangement
which would result in the Voting Securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into Voting Securities of the surviving
entity) at least 50% of the combined voting power of the Voting Securities of
the Company or such surviving entity outstanding immediately after such merger,
consolidation, reorganization or scheme of arrangement; or (iv) the shareholders
of the Company approve a plan of complete liquidation of the Company or any
agreement for the sale of substantially all of the Company's assets.

Section: 13. Agreement Not to Compete.

            (a) The Employee hereby covenants and agrees that at no time during
the Term of Employment nor for a period of (i) one year immediately following
the termination of the Employee's employment by the Company without Serious
Cause or by the Employee for Good Reason or (ii) two years following the
termination of the Employee's employment for any other reason, will he for
himself or on behalf of any other person, partnership, company or corporation,
directly or indirectly, acquire any financial or beneficial interest in (except
as provided in the next sentence) any entity engaged in any business similar to
the business engaged in by the Company or the Operating Company at the time of
such termination of employment. Notwithstanding the preceding sentence, the
Employee shall not be prohibited from owning less than one (1%) percent of any
publicly traded corporation, whether or not such corporation is in competition
with the Company or the Operating Company. Additionally, the Employee will not
become employed by any non-United States entity engaged in a similar business.
Furthermore, the employee will not enter into competition with the Company or
Operating Company for a period of two years following termination. For purposes
of this Employment Agreement, "competition" will mean soliciting business from
any clients of the Company and/or operating Company. Clients of the Company
and/or operating Company are those companies for whom the Company and/or
Operating Company has reinsured business during the Employee's period of
employment under this agreement.

            (b) The Employee hereby covenants and agrees that, at all times
during the Term of Employment and for a period of two years immediately
following the termination thereof, the Employee shall not directly or indirectly
employ or seek to employ any person or entity employed at that time by the
Company or any of its subsidiaries, or otherwise encourage or entice such person
or entity to leave such employment.

            (c) This Section 13 shall be null and void if the Board of Directors
elects to discontinue permanently Company operations, or, upon the date the
Company's arbitrations with MetLife and Hartford Life Insurance Company have
been withdrawn, resolved or ended, and the Company or any of its subsidiaries
has not announced intentions to engage in assuming life reinsurance.

Section: 14. Confidential Information.

            (a) The Employee agrees to keep secret and retain in the strictest
confidence all confidential matters which relate to the


                                       7


Company or any affiliate of the Company, including, without limitation, customer
lists, client lists, trade secrets, pricing policies and other business affairs
of the Company and any affiliate of the Company learned by him from the Company
or any such affiliate or otherwise before or after the date of this Agreement,
and not to disclose any such confidential matter to anyone outside the company
or any of its affiliates, whether during or after his period of service with the
Company, except as may be required in the course of a legal or governmental
proceeding. Upon request by the Company, the Employee agrees to deliver promptly
to the Company upon termination of his services for the Company, or at any time
thereafter as the Company may request, all Company or affiliate memoranda,
notes, records, reports, manuals, drawings, designs, computer files in any media
and other documents (and all copies thereof) relating to the Company's or any
affiliate's business and all property of the Company or any affiliate associated
therewith, which he may then possess or have under his control.

Section: 15. Remedy.

            (a) Should the Employee engage in or perform, either directly or
indirectly, any of the acts prohibited by Sections 13 or 14 hereof, it is agreed
that the Company shall be entitled to full injunctive relief, to be issued by
any competent court of equity, enjoining and restraining the Employee and each
and every other person, firm, organization, association, or corporation
concerned therein, from the continuance of such violative acts. The foregoing
remedy available to the Company shall not be deemed to limit or prevent the
exercise by the Company of any or all further rights and remedies which may be
available to the Company hereunder or at law or in equity.

            (b) The Employee acknowledges and agrees that the covenants
contained in this Agreement are fair and reasonable in light of the
consideration paid hereunder, and the invalidity or unenforceability of any
particular provision, or part of any provision, of this Agreement shall not
affect the other provisions or parts hereof. If any provision hereof is
determined to be invalid or unenforceable by a court of competent jurisdiction,
the Employee shall negotiate in good faith to provide Company with protection as
nearly equivalent to that found to be invalid or unenforceable and if any such
provision shall be so determined to be invalid or unenforceable by reason of the
duration or geographical scope of the covenants contained therein, such duration
or geographical scope, or both, shall be considered to be reduced to a duration
or geographical scope to the extent necessary to cure such invalidity.

Section: 16. Successors and Assigns.

            This Agreement shall be binding upon and inure to the benefit of the
Employee, his heirs, executors, administrators and beneficiaries, and the
Company, the operating company and their successors and assigns.


                                       8


Section: 17. Governing Law.

            This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without reference to rules
relating to conflicts of law.

Section: 18. Entire Agreement.

            This Agreement constitutes the full and complete understanding and
agreement of the parties and supersedes all prior understandings and agreements
as to employment of the Employee. This Agreement cannot be amended, changed,
modified or terminated without the written consent of the parties hereto.

Section: 19. Waiver of Breach.

            The waiver by either party of a breach of any term of this Agreement
shall not operate nor be construed as a waiver of any subsequent breach thereof.

Section: 20. Notices.

            Any notice, report, request or other communication given under this
Agreement shall be written and shall be effective upon delivery when delivered
personally, by Federal Express or by fax.

            Unless otherwise notified by any of the parties, notices shall be
sent to the parties as follows:

            To Employee:                Robert Reale
                                        "March Hill"
                                        40 Harrington Hundreds Road
                                        Smiths, FL 06
                                        Bermuda

            To the Company:             Annuity and Life Reassurance, Ltd.
                                        c/o Conyers Dill & Pearman
                                        Clarendon House
                                        2 Chuch Street
                                        Hamilton HM-CX

Section: 21. Severability.

            If any one or more of the provisions contained in this Agreement
shall be invalid, illegal or unenforceable in any respect under any applicable
law, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.

Section: 22. Counterparts.

            This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.


                                       9


            IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as on the day and year first above written.


                                        /s/ Robert Reale
                                        ----------------------------------------
                                            Robert Reale


                                        By: /s/ John F. Burke
                                        ----------------------------------------
                                            Annuity and Life Re (Holdings), Ltd.


                                        By: /s/ John F. Burke
                                        ----------------------------------------
                                            Annuity and Life Reassurance, Ltd.


                                       10

EX-10.3

                                                                    EXHIBIT 10.3

              RECAPTURE AGREEMENT AND GENERAL RELEASE OF GUARANTEED
                  MINIMUM DEATH BENEFIT REINSURANCE AGREEMENTS

      This RECAPTURE AGREEMENT AND GENERAL RELEASE OF GUARANTEED MINIMUM DEATH
BENEFIT REINSURANCE AGREEMENTS ("Recapture Agreement") is made on the 30th day
of June, 2003, between and among the following parties: HARTFORD LIFE AND
ANNUITY INSURANCE COMPANY ("Hartford Life & Annuity"), a Connecticut
corporation, HARTFORD LIFE INSURANCE COMPANY ("Hartford Life"), a Connecticut
corporation (collectively, the "Ceding Companies"), and Annuity & Life
Reassurance, Ltd ("ALRe"), a Bermuda corporation.

      WHEREAS, Hartford Life and ALRe entered into a Guaranteed Minimum Death
Benefit Reinsurance Agreement with an effective date of April 1, 1999, which has
been amended by agreement from time to time ("Hartford Life GMDB Agreement");
and Hartford Life & Annuity and ALRe entered into a Guaranteed Minimum Death
Benefit Reinsurance Agreement with an effective date of April 1, 1999, which has
been amended by agreement from time to time ("Hartford Life & Annuity GMDB
Agreement"); and Hartford Life, ALRe, and Mellon Bank, N.A. entered into a
Reinsurance Trust Agreement dated December 27, 2001 (the "Hartford Life Trust
Agreement"), and Hartford Life & Annuity, ALRe, and Mellon Bank, N.A. entered
into a Reinsurance Trust Agreement dated December 27, 2001 (the "Hartford Life &
Annuity Trust Agreement") (collectively, the four above-listed agreements are
the "GMDB Reinsurance Agreements"); and

      WHEREAS, a dispute had arisen between the Ceding Companies and ALRe
relating to the GMDB Reinsurance Agreements; and


                                       1


      WHEREAS the Ceding Companies issued a formal demand for arbitration to
ALRe by letter dated March 18, 2003, pursuant to Article XII of the GMDB
Reinsurance Agreements, and the parties have appointed their arbitrators and
submitted their disputes to be decided by an arbitration panel ("the
Arbitration"); and

      WHEREAS, each of the undersigned on the advice of their respective counsel
wish to terminate the Arbitration, provide for the recapture of the risk assumed
under the GMDB Reinsurance Agreements, and to resolve this matter without any
admission of liability; and

      WHEREAS, bonafide disputes and controversies exist between the parties,
both as to liability and the amount of liability, if any, and by reason of such
disputes and controversies, the parties to this Recapture Agreement desire to
compromise and settle all claims and causes of action of any kind whatsoever,
whether now known or unknown, which any party to this Recapture Agreement either
now has or may have against the other or others, their agents, employees,
employers, directors, officers, representatives, successors, assigns and legal
representatives, relating to the GMDB Reinsurance Agreements, or the
Arbitration, and intend that the full terms and conditions of the recapture,
release and settlement be set forth in this Recapture Agreement and the attached
and incorporated Exhibits A and B; and

      WHEREAS ALRe represents it was solvent as of June 1, 2003, it has been
solvent at all times between June 1, 2003 and the Effective Date of this
Recapture Agreement, and it is solvent as of the date this Recapture Agreement
is signed by ALRe; and


      WHEREAS, the Ceding Companies and ALRe have written a joint Letter of
Termination to Mellon Bank, attached hereto as Exhibit C, terminating the
Hartford Life Trust Agreement and the Hartford Life & Annuity Trust Agreement;
and


                                       2


      NOW, THEREFORE, for the consideration expressed below, the receipt and
sufficiency of which the parties to this Recapture Agreement acknowledge, IT IS
AGREED between and among the undersigned as follows:

      1. RECAPTURE OF THE RISK. In exchange for the payments and the issuance of
Warrants provided for in paragraph 8 below, the Ceding Companies hereby
recapture the risk ceded to ALRe in the GMDB Reinsurance Agreements. All
obligations and rights of all parties to the GMDB Reinsurance Agreements shall
terminate on the Effective Date of this Recapture Agreement, unless specifically
provided otherwise in this Recapture Agreement.

      2. EFFECTIVE DATE. The "Effective Date" of this Recapture Agreement shall
be June 30, 2003.

      3. REPRESENTATIONS THAT NO CLAIMS HAVE BEEN ASSIGNED. The parties
represent and warrant that they have not assigned or transferred any interest in
any action, cause of action, claim, demand, suit, arbitration proceeding and/or
other proceeding, in law or in equity, whether known or unknown, anticipated or
unanticipated, suspected or unsuspected, fixed, contingent or conditional
(collectively "Claims") that they may have or have had against each other, their
divisions, parent companies, subsidiaries, partners, or affiliates, and each of
them, and their directors, partners, officers and employees, at any time,
including, but not limited to, any Claims arising out of or in connection with
or relating to any of the facts, matters or transactions alleged, described, set
forth or referred to in the GMDB Reinsurance Agreements or the Arbitration.

      4. MUTUAL RELEASE. ALRe hereby, for itself, its successors and assigns,
fully and forever RELEASES, ACQUITS, and DISCHARGES the Ceding Companies, and
all persons and entities associated or affiliated with them, the employees,
officers, directors, agents, and representatives of them from any and all Claims
which ALRe may have or claim to have against


                                       3


the Ceding Companies, or their legal representatives, successors and assigns,
whether the same be in existence as of the execution of this Agreement or in the
future, arising out of or in connection with or relating to any of the facts,
matters, or transactions alleged, described, set forth or referred to in the
GMDB Reinsurance Agreements or the Arbitration.

      The Ceding Companies hereby, for themselves, their successors and assigns,
fully and forever RELEASE, ACQUIT, and DISCHARGE ALRe, and all persons and
entities associated or affiliated with it, the employees, officers, directors,
agents, and representatives of it from any and all Claims, which the Ceding
Companies may have or claim to have against ALRe, or its legal representatives,
successors and assigns, whether the same be in existence as of the execution of
this Agreement or in the future, arising out of or in connection with or
relating to any of the facts, matters or transactions alleged, described, set
forth or referred to in the GMDB Reinsurance Agreements or the Arbitration.

      5. NO ADMISSION OF LIABILITY. It is expressly understood and agreed by the
parties to this Recapture Agreement that this is a compromise of disputed claims
in the Arbitration, and that nothing herein shall be construed as an admission
of liability on the part of any of the parties to the Recapture Agreement, all
such liability being expressly denied.

      6. DISMISSAL WITH PREJUDICE OF ARBITRATION. The Ceding Companies and ALRe
hereby dismiss with prejudice all claims in the Arbitration and will cause to be
executed an Agreed Notice of Dismissal with Prejudice in the form attached
hereto as Exhibit A and incorporated herein. No later than July 15, 2003, the
Ceding Companies and ALRe shall notify their own party-appointed arbitrator that
the disputed issues in the Arbitration have settled by furnishing the arbitrator
a signed copy of Exhibit A.


                                       4


      7. COSTS AND EXPENSES. Each party to this Recapture Agreement shall bear
its own respective costs and fees associated with and incurred in the
Arbitration.

      8. RETENTION OF ASSETS, PAYMENT, AND ISSUANCE OF WARRANTS.

            a. The Ceding Companies shall retain all assets and monies available
      from calling on the letters of credit provided by ALRe and from drawing
      down all assets and monies deposited in trust pursuant to the Hartford
      Life Trust Agreement and the Hartford Life & Annuity Trust Agreement in
      connection with the GMDB Reinsurance Agreements.

            b. Within three business days of the execution by both parties of
      this Recapture Agreement, the Ceding Companies shall make payment to ALRe
      in the total amount of Five Million Five Hundred Thousand U.S. Dollars and
      No Cents ($5,500,000.00) to be paid as follows: 1) Two Million Seven
      Hundred Fifty Thousand U.S. Dollars and No Cents ($2,750,000.00) from
      Hartford Life; and 2) Two Million Seven Hundred Fifty Thousand U.S.
      Dollars and No Cents ($2,750,000.00) from Hartford Life & Annuity.

            c. On the Effective Date of this Recapture Agreement, ALRe will
      issue to Hartford Life a Warrant for the right to purchase Five Hundred
      Thousand (500,000) shares of ALRe stock, and a separate Warrant to
      Hartford Life & Annuity for the right to purchase an additional Five
      Hundred Thousand (500,000) shares of ALRe stock. The Warrants shall be
      issued in the form attached hereto as Exhibit B.

            d. ALRe agrees to pay any fees owed to Mellon Bank pertaining to the
      Hartford Life Trust Agreement and the Hartford Life & Annuity Trust
      Agreement.


                                       5


      9. NON-PUBLICATION AND CONFIDENTIALITY. All parties agree that the terms
of this agreement, amount of payment, and issuance of Warrants shall remain
strictly confidential and shall not be published orally or in writing to anyone
other than the parties to this agreement, except to the extent reporting of the
settlement, recapture, or issuance of Warrants is required by tax reporting
requirements, statutory reporting requirements, or other state or federal laws.

      10. CONFIDENTIALITY OF RECORDS. ALRe, Hartford Life, and Hartford Life &
Annuity may have come into the possession or knowledge of Confidential
Information under the GMDB Reinsurance Agreements. ALRe and the Ceding Companies
agree that they will continue to hold such information in confidence and to take
all reasonable steps to ensure that such Confidential Information is not
disclosed in any form by any means by their employees or representatives, except
by advance written authorization by an officer of ALRe or the Ceding Companies;
provided however, that ALRe and the Ceding Companies will be deemed to have
satisfied their obligations as to the Confidential Information by protecting its
confidentiality in the same manner that they would protect their own proprietary
or confidential information of like kind which will be at least a reasonable
manner or, if it is determined that such disclosure is necessary in order to
avoid a violation or potential violation of legal obligations, in accordance
with the following:

            a. If ALRe or the Ceding Company, their employees, directors, or
      advisers are requested or required (by oral questions, interrogatories,
      requests for information or documents, subpoena, civil investigative
      demand or similar process) to disclose Confidential Information, they will
      promptly notify the other party in writing. The party notified will
      promptly determine whether to contest such attempted discovery by legal
      means or to waive compliance by the notifying party with the terms of this
      Recapture


                                       6


      Agreement. If, in the opinion of counsel, ALRe or the Ceding Companies are
      subject to contempt, sanction or other penalty for failure to disclose the
      requested Confidential Information, they may, without violating the terms
      of this Agreement, disclose only that portion of the Confidential
      Information that counsel advises is legally required to be disclosed,
      provided that they exercise all reasonable efforts to preserve the
      confidentiality of such information, including, without limitation, by
      cooperating with ALRe or the Ceding Companies in obtaining a protective
      order or other reliable assurance that the Confidential Information will
      be protected from redisclosure, provided, however, that all expenses of
      such efforts (other than allocated costs of home office employees at such
      location) shall be borne by the party whose confidential information is
      sought to be disclosed.

            b. "Confidential Information" means any and all information acquired
      by ALRe or the Ceding Companies prior or subsequent to the execution of
      the GMDB Reinsurance Agreements with the exception of information readily
      available in the public domain or information acquired from sources other
      than the other party to this Recapture Agreement.

      11. TERMINATION OF RIGHT TO INSPECT RECORDS. ALRe hereby agrees that its
right to inspect the records of the Ceding Companies pursuant to Article VI of
the GMBD Reinsurance Agreements will terminate and be waived on the Effective
Date of this Recapture Agreement.

      12. ENTIRE AGREEMENT. This Recapture Agreement together with Exhibits A
and B, and the Warrants to be issued pursuant to this Recapture Agreement
constitute the entire agreement of the parties relating to the subject matter of
the GMDB Reinsurance Agreements and the Arbitration and supersedes any and all
prior understandings, agreements, or discussions


                                       7


among the parties to the Recapture Agreement with respect to the subject matter
of this Recapture Agreement. The parties to this Recapture Agreement agree and
acknowledge that there have been no representations, agreements or
understandings, oral or written, between or among the parties to the Recapture
Agreement and the Exhibits hereto which are not fully expressed in this
Recapture Agreement, the Warrants to be issued pursuant to this Recapture
Agreement, or the Exhibits to this Recapture Agreement.

      13. NO ORAL MODIFICATION. This Recapture Agreement may not be modified or
amended except by written agreement executed by all parties to this Recapture
Agreement.

      14. GOVERNING LAW. This Recapture Agreement shall be governed by and
entered into in accordance with the laws of the State of Connecticut and is made
and performable in Hartford, Connecticut.

      15. SEVERABILITY OF TERMS. The provisions of this Recapture Agreement are
severable, and the invalidity or unenforceability of any provision of this
Recapture Agreement shall not affect the validity or enforceability of any other
provision. In addition, in the event that any provision of this Recapture
Agreement (or portion thereof) is determined by a United States court of
competent jurisdiction to be unenforceable as drafted by virtue of scope,
duration, extent, or character of any obligation contained therein, the parties
acknowledge that such provisions (or portions thereof) shall be construed in the
manner designed to effectuate the purposes of such provisions to the maximum
extent enforceable under the Connecticut law.

      16. SUCCESSOR AND ASSIGNS. This Recapture Agreement shall be binding upon
and inure to the benefit of the parties' respective successors, assigns and
legal Representatives.

      17. DRAFTING. This Recapture Agreement and the Exhibit attached hereto
were jointly drafted by all parties and their counsel. By their signatures, the
parties hereby represent that they


                                       8


have read this Recapture Agreement and the Exhibit, consulted with counsel, and
understand the purpose and effect of all provisions contained herein.

      18. AUTHORITY. Each signatory to this agreement hereby warrants and
represents that such person has authority to bind the party or parties for whom
such person acts; and the claims, suits, rights, and/or interest which are the
subject matter hereto are owned by the party asserting same, have not been
assigned, transferred or sold, and are free of any encumbrance.

      19. HEADINGS. The headings in this Recapture Agreement are for the
convenience of reference and shall not limit or otherwise affect the meaning, or
be used in the construction of, any provision herein.

      20. COUNTERPARTS. This Recapture Agreement may be executed in counterparts
and by facsimile copies, and all such counterparts taken together shall
constitute one and the same instrument.

Signed for the Reinsurer:              Annuity & Life Reassurance, Ltd.


By: /s/ John F. Burke                 Attest: /s/ Robert Reale
    -------------------------------           ---------------------------------
Title: Chief Executive Officer        Title: SVP and Chief Underwriter
       ----------------------------          ----------------------------------
Date of Signatures for ALRe: 7/15/03
                             ------------------------

Signed for the Ceding Companies:      Hartford Life Insurance Company and
                                      Hartford Life & Annuity Insurance Company


By: /s/ Christine Hayer Repasy        Attest: [Signature illegible]
    -------------------------------           ---------------------------------
Title: Senior Vice President and      Title: VP and Corporate Actuary
       General Counsel                       ----------------------------------
       ----------------------------
Date of Signatures for Ceding Companies: 7/17/03
                                         ------------------------

                                       9



July 11, 2003

Mr. Frank J. Barrett                        Mr. Scott Phelps, President
Lamson, Dugan & Murray, L.L.P.              Alabama Reassurance Company
10306 Regency Parkway Drive                 P.O. Box 20152
Omaha, NE 68114                             Tuscaloosa, AL 35402

Re:   Hartford Life Insurance Company and Hartford Life & Annuity Insurance
      Company v. Annuity & Life Reassurance , Ltd.

Gentlemen:

This letter shall serve as the parties Agreed Notice of Dismissal with Prejudice
of all claims asserted by any party to this arbitration. The parties have
reached a confidential settlement agreement that is not to be disclosed to the
public. Please return all materials you have been provided in connection with
this arbitration to the party who submitted the information to you, or ensure
that any confidential information you have received relating to this arbitration
is disposed of in a secure manner.

Thank you for your assistance with this arbitration.

Sincerely,                                  Sincerely,


Christine Hayer Repasy                      John Burke
Senior Vice President & General Counsel     Senior Vice President & CEO, CFO


                                                                       EXHIBIT A


                                    EXHIBIT B

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS (I) PURSUANT TO
REGISTRATION UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR (II) IN
COMPLIANCE WITH AN EXEMPTION THEREFROM AND ACCOMPANIED, WITH AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER IS IN
COMPLIANCE WITH AN EXEMPTION THEREFROM (UNLESS SUCH TRANSFER IS TO AN AFFILIATE
OF THE REGISTERED HOLDER).

             THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON
                 ITS EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
                 TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT

Warrant No.______                                      Number of Shares: 500,000
                                                         (subject to adjustment)
Date of Issuance: July ______, 2003

                      ANNUITY AND LIFE RE (HOLDINGS), LTD.

                          COMMON STOCK PURCHASE WARRANT

      Annuity and Life Re (Holdings), Ltd., a Bermuda corporation (the
"COMPANY"), for value received, hereby certifies that Hartford Life Insurance
Company, or its registered assigns (the "REGISTERED HOLDER"), is entitled,
subject to the terms and conditions set forth below, to purchase from the
Company, in whole or in part, at any time and from time to time on or after the
date of issuance and on or before 5:00 p.m., New York time, on July __, 2013 and
shall be void thereafter (the "EXERCISE PERIOD"), 500,000 shares of Common
Stock, $1.00 par value per share, of the Company, at an exercise price of $1.25
per share. The shares purchasable upon exercise of this warrant ("WARRANT") and
the exercise price per share, each as adjusted from time to time pursuant to the
provisions of this Warrant, are hereinafter referred to as the "WARRANT SHARES"
and the "EXERCISE PRICE," respectively.

1. EXERCISE.

            (a) This Warrant may be exercised by the Registered Holder by
surrendering this Warrant, along with the purchase form appended hereto as
Exhibit A duly executed and completed by the Registered Holder or by the
Registered Holder's duly authorized attorney, at the principal office of the
Company, or at such other office or agency as the Company may designate by
notice in writing to the Registered Holder, accompanied by either (i) cash or
certified cashier's check payable to the Company (or wire transfer of
immediately available funds), in lawful money of the United States, of the
Exercise Price payable in respect of the number of Warrant Shares purchased upon
such exercise (the "AGGREGATE EXERCISE PRICE") or (ii) a written notice to the
Company that the Registered Holder is exercising this Warrant on a "cashless"
exercise basis by authorizing the Company to withhold from issuance a number of
shares of Common Stock issuable upon such exercise of the Warrant which when
multiplied by the Fair Market Value of the Common Stock is equal to the
Aggregate Exercise Price (and such withheld shares shall no longer be issuable
under this Warrant).

            (b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in subsection
1(a) above (the "EXERCISE DATE"). At such time, the person or persons in whose
name or names any certificates for Warrant Shares shall be issuable upon such
exercise



as provided in subsection 1(c) below shall be deemed to have become the holder
or holders of record of the Warrant Shares represented by such certificates.

            (c) Within ten (10) days after the date of exercise of this Warrant,
the Company, at its expense, will cause to be issued in the name of, and
delivered to, the Registered Holder, or as such Holder (upon payment by such
Holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of full Warrant Shares to which the Registered
Holder shall be entitled upon such exercise plus, in lieu of any fractional
share to which the Registered Holder would otherwise be entitled, cash in an
amount determined pursuant to Section 3 hereof; provided, however, that the
Company shall not be required to pay any tax that may be payable in respect of
any transfer involving the issuance and delivery of any such certificate upon
exercise in a name other than that of the Registered Holder. Notwithstanding the
foregoing, the Registered Holder shall be solely responsible for any income
taxes payable and arising from the issuance or exercise of this Warrant, or any
ad valorem property or intangible tax assessed against the Registered Holder. If
this Warrant shall be exercised in part only, the Company shall, upon surrender
of this Warrant for cancellation, execute and deliver a new Warrant evidencing
the rights of the Registered Holder to purchase the balance of the Warrant
Shares purchasable hereunder.

            (d) The Company shall reasonably assist and cooperate with any
Registered Holder required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company).

            (e) Notwithstanding any other provision of this Warrant, if the
exercise of all or any portion of this Warrant is to be made in connection with
a registered public offering, a sale of the Company or any other transaction or
event, such exercise may, at the election of the Registered Holder, be
conditioned upon consummation of such transaction or event in which case such
exercise shall not be deemed effective until the consummation of such
transaction or event.

2. ADJUSTMENTS. In order to prevent dilution of the rights granted under this
Warrant and to grant the Registered Holder certain additional rights, the
Exercise Price shall be subject to adjustment from time to time as provided in
this Section 2 and the number of Warrant Shares shall be subject to adjustment
from time to time as provided in this Section 2.

            (a) Adjustment for Stock Splits and Combinations. If the Company
shall at any time after the date on which this Warrant was first issued (the
"ORIGINAL ISSUE DATE") while this Warrant remains outstanding and unexpired in
whole or in part, effect a subdivision (by any stock split or otherwise) of the
outstanding Common Stock into a greater number of shares, the Exercise Price in
effect immediately before that subdivision shall be proportionately decreased
and the number of shares of Common Stock obtainable upon exercise of this
Warrant shall be proportionately increased. Conversely, if the Company shall at
any time or from time to time after the Original Issue Date combine (by reverse
stock split or otherwise) the outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect immediately before the
combination shall be proportionately increased and the number of shares of
Common Stock obtainable upon exercise of this Warrant shall be proportionately
decreased. Any adjustment under this paragraph shall become effective at the
close of business on the date the subdivision or combination becomes effective

            (b) Adjustment for Certain Dividends and Distributions. In the event
the Company at any time or from time to time after the Original Issue Date while
this Warrant remains outstanding and unexpired in whole or in part shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of


                                       2


Common Stock, then and in each such event the Exercise Price then in effect
immediately before such event shall be decreased as of the time of such issuance
or, in the event such a record date shall have been fixed, as of the close of
business on such record date, by multiplying the Exercise Price then in effect
by a fraction:

                  (i) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date; and

                  (ii) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the total number
of shares of Common Stock issuable in payment of such dividend or distribution;

provided, however, that if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Exercise Price shall be recomputed accordingly as of the
close of business on such record date and thereafter the Exercise Price shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.

            (c) Adjustment for Reclassification, Exchange and Substitution. If
at any time after the Original Issue Date while this Warrant remains outstanding
and unexpired in whole or in part, the Common Stock issuable upon exercise of
this Warrant is changed into the same or a different number of shares of any
class or classes of stock, this Warrant will thereafter represent the right to
acquire such number and kind of securities as would have been issuable as a
result of exercise of this Warrant and the Exercise Price therefor shall be
appropriately adjusted, all subject to further adjustment in this Section 2.

            (d) Adjustments for Other Dividends and Distributions. In the event
the Company at any time or from time to time after the Original Issue Date while
this Warrant remains outstanding and unexpired in whole or in part shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Company (other than shares of Common Stock) or in cash or other property
(other than cash out of earnings or earned surplus, determined in accordance
with generally accepted accounting principles), then and in each such event
provision shall be made so that the Registered Holder shall receive upon
exercise hereof, in addition to the number of shares of Common Stock issuable
hereunder, the kind and amount of securities of the Company and/or cash and
other property which the Registered Holder would have been entitled to receive
had this Warrant been exercised into Common Stock on the date of such event and
had the Registered Holder thereafter, during the period from the date of such
event to and including the Exercise Date, retained any such securities
receivable, giving application to all adjustments called for during such period
under this Section 2 with respect to the rights of the Registered Holder.

            (e) Adjustment for Mergers or Reorganizations, etc. Any
reorganization, recapitalization, reclassification, consolidation, merger, sale
of all or substantially all of the Company's assets or other transaction
involving the Company in which the Common Stock is converted into or exchanged
for securities, cash or other property while this Warrant remains outstanding
and unexpired in whole or in part (other than a transaction covered by
subsections 2(a), 2(b) or 2(d)) is referred to herein as an "ORGANIC CHANGE".
Prior to the consummation of any such Organic Change, the Company shall make
appropriate provision (in form and substance satisfactory to the Registered
Holders of the Warrants then remaining outstanding and unexpired) to ensure that
the Registered Holder shall have the right to receive, in lieu of or in addition
to (as the case may be) such shares of Common Stock immediately acquirable and
receivable upon exercise of this Warrant, the kind and amount of securities,
cash or other property as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock


                                       3


immediately acquirable and receivable upon exercise of this Warrant had such
Organic Change not taken place. In such case, appropriate adjustment (in form
and substance satisfactory to the Registered Holders of the Warrants then
remaining outstanding and unexpired) shall be made with respect to the
Registered Holder's rights and interests to ensure that the provisions of this
Section 2 shall thereafter be applicable to the Warrants. The Company shall not
effect any reorganization, recapitalization, consolidation or merger unless,
prior to the consummation thereof, the successor entity (if other than the
Company) resulting from the consolidation or merger or the entity purchasing
such assets assumes by written instrument (in form and substance satisfactory to
the Registered Holders of the Warrants then remaining outstanding and unexpired)
the obligation to deliver to each Registered Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to acquire; provided, that any assumption shall not
relieve the Company of its obligations hereunder.

            (f) Other Events. If any event occurs that would adversely affect
the Registered Holder's rights but is not expressly provided for by this Section
2, then the Company's Board of Directors will make an appropriate adjustment in
the Exercise Price and number of Warrant Shares subject to this Warrant so as to
protect the Registered Holder's rights; provided, however, that no such
adjustment will increase the Exercise Price or decrease the number of shares of
Common Stock obtainable as otherwise determined pursuant to this Section 2.

            (h) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Exercise Price pursuant to this Section 2, the
Company at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to the Registered Holder a
certificate setting forth such adjustment or readjustment (including the kind
and amount of securities, cash or other property for which this Warrant shall be
exercisable and the Exercise Price) and showing in detail the facts upon which
such adjustment or readjustment is based. The Company shall, upon the written
request at any time of the Registered Holder, promptly furnish or cause to be
furnished to the Registered Holder a certificate setting forth (i) the Exercise
Price then in effect and (ii) the number of shares of Common Stock and the
amount, if any, of other securities, cash or property which then would be
received upon the exercise of this Warrant, and shall cause a copy of such
certificate to be mailed (by first-class mail, postage prepaid) to the
Registered Holder.

3. FRACTIONAL SHARES. The Company shall not be required upon the exercise of
this Warrant to issue any fractional shares, but shall make an adjustment
therefor in cash on the basis of the fair market value ("FAIR MARKET VALUE") per
share of Common Stock, such Fair Market Value to be determined as follows:

            (a) If traded on a securities exchange or through the Nasdaq
National Market or SmallCap Market, the Fair Market Value shall be deemed to be
the average of the closing prices of the securities on such exchange over the
thirty (30) day period ending three (3) days prior to the closing. If actively
traded over the counter, the value shall be deemed to be the average of the
closing bid or sales prices (whichever is applicable) over the thirty (30) day
period ending three (3) days prior to the closing; or

            (b) If at any time such security is not listed on any securities
exchange or quoted in the Nasdaq National Market or the SmallCap Market, or
actively traded over the counter, the Fair Market Value shall be the fair value
thereof, as determined jointly by the Board of Directors and the Registered
Holders of the Warrants then remaining outstanding and unexpired. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an appraisal conducted, at the Company's
selection, of either CS First Boston, Goldman Sachs, Merrill Lynch, or Morgan
Stanley. If none of these potential appraisers are able to serve, then such fair
value shall be determined by an independent appraiser experienced in valuing
securities jointly selected by the


                                       4


Company's Board of Directors and the Registered Holders of the Warrants then
remaining outstanding and unexpired. The determination of the appraiser shall be
final and binding upon the parties and the parties shall share the fees and
expenses of such appraiser equally.

4. REQUIREMENTS FOR TRANSFER.

            (a) This Warrant and the Warrant Shares shall not be sold or
transferred unless either (i) they first shall have been registered under the
Act or (ii) the Company first shall have been furnished with an opinion of legal
counsel reasonably satisfactory to the Company to the effect that such sale or
transfer is exempt from the registration requirements of the Act.

            (b) Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for (i) a transfer by a Registered Holder which is a
corporation to a wholly owned subsidiary of such corporation or to a corporation
owned by the same parent entity of such corporation, a transfer by a Registered
Holder which is a partnership to a partner of such partnership or a retired
partner of such partnership or to the estate of any such partner or retired
partner, or a transfer by a Registered Holder which is a limited liability
company to a member of such limited liability company or a retired member or to
the estate of any such member or retired member, provided that, as a condition
to the Company effecting such transfer, the transferee in each case agrees in
writing to be subject to the terms of this Section 4, or (ii) a transfer made in
accordance with Rule 144 under the Act, unless in the case of clause (ii) only,
the Company reasonably requests an opinion of counsel regarding compliance with
Rule 144 under the Act.

            (c) Each certificate representing Warrant Shares shall bear a legend
substantially in the following form:

                  "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
                  REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
                  ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED,
                  SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
                  AND UNTIL SUCH SECURITIES ARE REGISTERED UNDER SUCH ACT AND
                  SUCH LAWS OR UNLESS SOLD PURSUANT TO AN EXEMPTION THEREFROM
                  AND AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
                  OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT
                  REQUIRED."

      The foregoing legend shall be removed from the certificates representing
any Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Act.

5. No Impairment. The Company will not, by amendment of its charter or through
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holder of this Warrant against impairment. Without limiting
the generality of the foregoing, the Company will (a) not increase the par


                                       5


value of any shares of Common Stock obtainable upon the exercise of this Warrant
and (b) take all such actions as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.

6. NOTICES OF RECORD DATE, ETC. In the event:

            (a) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive
any other right; or

            (b) of any Organic Change; or

            (c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company,

then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holders at least twenty (20) days prior to the record date specified
therein (or such shorter period approved by a majority of the Registered
Holders) and at least twenty (20) days prior to the effective date of such event
specified in clause (b) or (c) hereof a notice specifying, as the case may be,
(i) the record date for such dividend, distribution or right, and the amount and
character of such dividend, distribution or right, or (ii) the effective date on
which such Organic Change, dissolution, liquidation or winding-up is to take
place, and the time, if any is to be fixed, as of which the holders of record of
Common Stock (or such other stock or securities at the time deliverable upon the
exercise of this Warrant) shall be entitled to exchange their shares of Common
Stock (or such other stock or securities) for securities or other property
deliverable upon such Organic Change, dissolution, liquidation or winding-up;
provided, however, that the failure to mail such notice or any defect therein or
in the mailing thereof shall not affect the validity of the corporate action
required to be specified in such notice. Nothing herein shall prohibit the
Registered Holder from exercising this Warrant during the twenty (20) day period
commencing on the date of such notice.

7. RESERVATION OF STOCK. The Company covenants that for the duration of the
Exercise Period, the Company will at all times reserve and keep available, from
its authorized and unissued Common Stock solely for issuance and delivery upon
the exercise of this Warrant and free of preemptive rights, such number of
Warrant Shares and other securities, cash and/or property, as from time to time
shall be issuable upon the exercise of this Warrant. The Company further
covenants that it shall, from time to time, take all steps necessary to increase
the authorized number of shares of its Common Stock if at any time the
authorized number of shares of Common Stock remaining unissued is insufficient
to permit the exercise of this Warrant.

8. ISSUANCE UPON EXERCISE. All shares of Common Stock issuable upon exercise of
this Warrant will be duly and validly issued, fully paid and nonassessable and
will be free of restrictions on transfer, other than restrictions on transfer
under any agreement between the Registered Holder and the Company and under
applicable state and federal securities laws, and will be free from all taxes,
liens and charges in respect of the issue thereof (other than taxes in respect
of any transfer occurring contemporaneously or otherwise specified herein). The
Company shall take all such actions as may be necessary to ensure that all such
shares of Common Stock may be so issued without violation of any applicable law
or governmental regulation or any requirements of any domestic stock exchange
upon which shares of Common Stock may be listed (except for official notice of
issuance which shall be delivered by the Company upon each such issuance as soon
as practicable).


                                       6


9. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder of this
Warrant, properly endorsed, to the Company at the principal office of the
Registered Company, the Company will, subject to the provisions of Section 4
hereof, issue and deliver to or upon the order of such Registered Holder, at the
Company's expense, a new Warrant or Warrants of like tenor, in the name of the
Registered Holder or as the Registered Holder may direct, calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
(or other securities, cash and/or property) then issuable upon exercise of this
Warrant.

10. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably satisfactory to
the Company (an affidavit of a Registered Holder shall be satisfactory) of the
ownership and loss, theft, destruction or mutilation of any certificate
evidencing this Warrant and, in the case of loss, theft or destruction, upon
delivery of an indemnity agreement of the Registered Holder in form reasonably
satisfactory to the Company, or in the case of mutilation, upon surrender and
cancellation of such certificate, the Company shall, at its expense, execute and
deliver in lieu of such certificate, a new certificate of like kind representing
the same rights represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.

11. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Registered Holder that:

            (a) Organization, Qualifications and Corporate Power. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of Bermuda and is duly licensed or qualified to transact business as a
foreign corporation and is in good standing in each jurisdiction in which the
nature of the business transacted by it or the character of the properties owned
or leased by it requires such licensing or qualification. The Company has full
corporate power and authority to own and hold its properties and to carry on its
business as now conducted and as proposed to be conducted, to execute, deliver
and perform this Agreement.

            (b) Authorization; No Conflict; No Violation. The Company's
execution and delivery of this Agreement and performance of its obligations
hereunder, and issuance and delivery of the Warrant Shares have been duly
authorized by all requisite corporate action and will not (a) result in a
violation of the charter or the Company's bylaws, as amended, (b) result in a
violation of any applicable law, rule or regulation, or any material order,
injunction, judgment or decree of any court or other agency of government, (c)
conflict with, result in a breach of, or constitute (or, with due notice or
lapse of time or both, would constitute) a default under, or give rise to any
right of termination, acceleration or cancellation under, any material
indenture, agreement, contract, license, arrangement, understanding, evidence of
indebtedness, note, lease or other instrument to which the Company or any of its
properties or assets is bound, (d) result in the creation or imposition of any
material lien, charge, restriction, claim or encumbrance of any nature
whatsoever upon the Company or any of the Company's material properties or
assets or (e) require any consent, approval, notification, waiver or other
similar action from any third party.

            (c) Consents and Approvals. No registration or filing with, or
consent or approval of or other action by, any federal, state or other
governmental agency or instrumentality or any third party is or will be
necessary for the Company's valid execution, delivery and performance of this
Agreement or the Company's issuance and delivery of the Warrant Shares, other
than those (a) which have previously been obtained or made or (b) those which
are required to be made under federal or state securities laws, which will be
obtained or made, and will be effective, within the time periods required by
law.

            (d) Validity. This Agreement has been duly executed and delivered by
the Company and constitutes the legal, valid and binding obligations of the
Company, enforceable against the Company


                                       7


in accordance with its terms, except to the extent limited by (a) applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws of general
application related to the enforcement of creditors' rights generally and (b)
general principles of equity, and except that enforcement of rights to
indemnification and contribution contained therein may be limited by applicable
federal or state laws or the public policy underlying such laws, regardless of
whether enforcement is considered in a proceeding in equity or at law.

            (e) Ownership Percentage. This Warrant is one of a series of
Warrants issued by the Company, all dated the date hereof and of like tenor
(collectively, the "COMPANY WARRANTS"). If exercised on the date hereof, the
number of shares of Common Stock issued pursuant to this Warrant together with
all the other Company Warrants, would constitute less than five percent (5%) of
the issued and outstanding Common Stock of the Company following such exercise.

12. TRANSFERS, ETC.

            (a) The Company shall maintain a register at its principal executive
office containing the name and address of the Registered Holder of this Warrant.
The Registered Holder may change its or his address as shown on the warrant
register by written notice to the Company requesting such change.

            (b) Subject to the provisions of Section 4 hereof, this Warrant and
all rights hereunder are transferable, in whole or in part, upon surrender of
this Warrant with a properly executed assignment (in the form of Exhibit B
hereto) at the principal executive office of the Company.

            (c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder as the absolute owner
hereof for all purposes; provided, however, that if and when this Warrant is
properly assigned in blank, the Company may (but shall not be obligated to)
treat the bearer hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.

            (d) The Company shall not close its books against the transfer of
this Warrant or any share of Common Stock issued or issuable upon the exercise
of this Warrant in any manner which interferes with the timely exercise of this
Warrant. The Company shall from time to time take all such action as may be
necessary to ensure that the par value per share of the unissued Common Stock
acquirable upon exercisable of this Warrant is at all times equal to or less
than the Exercise Price then in effect.

13. SPECIAL OWNERSHIP NOTICE. In the event the number of shares of Common Stock
issued upon exercise of this Warrant, together with the exercise of all the
other Company Warrants, would constitute five percent (5%) or more of the issued
and outstanding Common Stock of the Company following such exercise, then the
Company will promptly notify the Registered Holder hereof in accordance with the
provisions of Section 14.

14. MAILING OF NOTICES, ETC. Any notice, request, demand or other communication
required or permitted to be given to a party pursuant to the provisions of this
Agreement will be in writing and will be effective and deemed given under this
Agreement on the earliest of: (a) the date of personal delivery, (b) the date of
transmission by facsimile, with confirmed transmission and receipt, (c) two (2)
days after deposit with a nationally-recognized courier or overnight service
such as Federal Express, or (d) five (5) days after mailing via certified mail,
return receipt requested. All notices not delivered personally or by facsimile
will be sent with postage and other charges prepaid and properly addressed to
the party to be notified at the address set forth below for such party:


                                       8


            If to a Registered Holder:

            Hartford Life Insurance Company
            P.O. Box 2999
            Hartford, Connecticut 06104-2999
            Phone: (860) 843-3560
            Fax: (860) 843-8665
            Attn: Christine Repasy, General Counsel

            With a copy to (which does not constitute notice):

            Akin, Gump, Strauss, Hauer & Feld, L.L.P.
            300 Convent Street, Suite 1500
            San Antonio, Texas 78205
            Phone: (210) 281-7000
            Fax: (210) 224-2035
            Attn: Barry Chasnoff, Esq.

            If to the Company:

            Annuity and Life Re (Holdings), Ltd.
            Cumberland House
            1 Victoria Street
            Hamilton, Bermuda HM11
            Phone: (441) 296-7667
            Fax: (441) 296-7665
            Attn: John Burke, Chief Executive Officer

            With a copy to (which does not constitute notice):

            Clifford Chance US LLP
            200 Park Avenue
            New York, New York 10166
            Attn: Peter R. Chaffetz, Esq.
            Phone: (212) 878-8000
            Fax: (212) 878-8375

      Any party hereto (and such party's permitted assigns) may change such
party's address for receipt of future notices hereunder by giving written notice
to the Company and the other parties hereto.

15. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Subject to the provisions of
Sections 2 and 6 hereof, until the exercise of this Warrant, the Registered
Holder shall not have or exercise any rights by virtue hereof as a stockholder
of the Company, including, without limitation, the right to vote, to receive
dividends and other distributions or to receive notice of or attend meetings of
stockholders or any other proceedings of the Company. Notwithstanding the
foregoing, in the event (a) the Company effects a split of the Common Stock by
means of a stock dividend and the Exercise Price of and the number of Warrant
Shares are adjusted as of the date of the distribution of the dividend (rather
than as of the record date for such dividend), and (b) the Registered Holder
exercises this Warrant between the record date and the distribution date for
such stock dividend, the Registered Holder shall be entitled to receive, on the
distribution date, the stock dividend with respect to the shares of Common Stock
acquired upon such


                                       9


exercise, notwithstanding the fact that such shares were not outstanding as of
the close of business on the record date for such stock dividend.

16. AMENDMENT OR WAIVER. Any term of this Warrant may be amended or waived upon
the written consent of the Company and the holders of Company Warrants
representing at least 50% of the number of shares of Common Stock then subject
to outstanding Company Warrants; provided that any such amendment or waiver must
apply to all Company Warrants then outstanding; and provided further that the
number of Warrant Shares subject to this Warrant, the Exercise Price of this
Warrant and the number of shares or class of stock obtainable upon exercise of
this Warrant may not be amended, and the right to exercise this Warrant may not
be waived, without the written consent of the holder of this Warrant (it being
agreed that an amendment to or waiver under any of the provisions of Section 2
of this Warrant shall not be considered an amendment of the number of Warrant
Shares or the Exercise Price). The Company shall promptly give notice to all
holders of the Company Warrants of any amendments effected in accordance with
this Section 16. No special consideration may be given to any holder as
inducement to waive or amend this Warrant unless such consideration is given
equally and ratably to all holders.

17. SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon and inure to the
benefit of the Registered Owner and its assigns, and shall be binding upon any
entity succeeding to the Company by consolidation, merger or acquisition of all
or substantially all of the Company's assets. The Company may not assign this
Warrant or any rights or obligations hereunder without the prior written consent
of the Registered Holder. The Registered Holder may assign this Warrant without
the Company's prior written consent.

18. REMEDIES. In the event of a breach by the Company of any of its obligations
under this Warrant, the Registered Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The Company
agrees that monetary damages would not provide adequate compensation for any
losses incurred by reason of its breach of any of the provisions of this Warrant
and hereby further agrees that, in the event of any action for specific
performance in respect of such breach, it shall waive the defense that a remedy
at law would be adequate.

19. SECTION HEADINGS. The section headings in this Warrant are for the
convenience of the parties and in no way alter, modify, amend, limit or restrict
the contractual obligations of the parties.

20. COUNTERPARTS. This Warrant may be executed in two or more counterparts, each
of which will be deemed an original but all of which together will constitute
one and the same instrument.

21. SEVERABILITY. The provisions of this Warrant will be deemed severable and
the invalidity or unenforceability of any provision hereof will not affect the
validity or enforceability of the other provisions hereof; provided that if any
provision of this Warrant, as applied to any party or to any circumstance, is
adjudged by a court or governmental body not to be enforceable in accordance
with its terms, the parties agree that the court or governmental body making
such determination will have the power to modify the provision in a manner
consistent with its objectives such that it is enforceable, and/or to delete
specific words or phrases, and in its reduced form, such provision will then be
enforceable and will be enforced.

22. TITLES AND SUBTITLES. The article and section headings contained in this
Warrant are inserted for convenience only and will not affect in any way the
meaning or interpretation of this Warrant.


                                       10


23. THIRD PARTIES. Nothing in this Warrant, express or implied, is intended to
confer upon any person other than the parties hereto and their successors and
assigns, any rights or remedies under or by reason of this Warrant.

24. GOVERNING LAW. This Warrant and the performance of the transactions and the
obligations of the parties hereunder will be governed by and construed and
enforced in accordance with the laws of the State of New York, without giving
effect to any choice of law principles.

                            [SIGNATURE PAGE FOLLOWS]


                                       11


      IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.

                                        ANNUITY AND LIFE RE (HOLDINGS), LTD.


                                        By: ____________________________________
                                            Name:
                                            Title:

[Corporate Seal]

ATTEST:


____________________________________


                                       12


                                                                       EXHIBIT A

                                 PURCHASE FORM

To:_________________                                          Dated:____________

      The undersigned, pursuant to the provisions set forth in the attached
      Warrant (No. ___), hereby irrevocably elects to purchase _____ shares of
      the Common Stock covered by such Warrant.

      The undersigned herewith makes payment of the full exercise price for such
      shares at the price per share provided for in such Warrant, which is
      $________ in lawful money of the United States.


                                       [_______________________________________]

                                        _______________________________________
                                        Name:
                                        Title:

                                        Address: ______________________________

                                                 ______________________________


                                       13


                                                                       EXHIBIT B

                                 ASSIGNMENT FORM

      FOR VALUE RECEIVED, ________________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (No. ____) with respect to the number of shares of Common Stock covered
thereby set forth below, unto:



Name of Assignee                       Address                                No. of Shares
- ----------------                       -------                                -------------
                                                                        





Dated:___________________________

                                       [_______________________________________]

                                        _______________________________________
                                        Name:
                                        Title:

                                        Address: ______________________________

                                                 ______________________________


Signature Guaranteed:


By: ___________________________

The signature should be guaranteed by an eligible guarantor institution (banks,
stockbrokers, savings and loan associations and credit unions with membership in
an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
under the Securities Exchange Act of 1934.


                                       14


                                    EXHIBIT B

NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON ITS EXERCISE
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS (I) PURSUANT TO
REGISTRATION UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS OR (II) IN
COMPLIANCE WITH AN EXEMPTION THEREFROM AND ACCOMPANIED, WITH AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER IS IN
COMPLIANCE WITH AN EXEMPTION THEREFROM (UNLESS SUCH TRANSFER IS TO AN AFFILIATE
OF THE REGISTERED HOLDER).

             THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON
                 ITS EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
                 TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT

Warrant No.                                            Number of Shares: 500,000
                                                         (subject to adjustment)

Date of Issuance: July ______, 2003

                      ANNUITY AND LIFE RE (HOLDINGS), LTD.

                          COMMON STOCK PURCHASE WARRANT

      Annuity and Life Re (Holdings), Ltd., a Bermuda corporation (the
"COMPANY"), for value received, hereby certifies that Hartford Life Insurance
Company, or its registered assigns (the "REGISTERED HOLDER"), is entitled,
subject to the terms and conditions set forth below, to purchase from the
Company, in whole or in part, at any time and from time to time on or after the
date of issuance and on or before 5:00 p.m., New York time, on July __, 2013 and
shall be void thereafter (the "EXERCISE PERIOD"), 500,000 shares of Common
Stock, $1.00 par value per share, of the Company, at an exercise price of $1.25
per share. The shares purchasable upon exercise of this warrant ("WARRANT") and
the exercise price per share, each as adjusted from time to time pursuant to the
provisions of this Warrant, are hereinafter referred to as the "WARRANT SHARES"
and the "EXERCISE PRICE," respectively.

1. EXERCISE.

            (a) This Warrant may be exercised by the Registered Holder by
surrendering this Warrant, along with the purchase form appended hereto as
Exhibit A duly executed and completed by the Registered Holder or by the
Registered Holder's duly authorized attorney, at the principal office of the
Company, or at such other office or agency as the Company may designate by
notice in writing to the Registered Holder, accompanied by either (i) cash or
certified cashier's check payable to the Company (or wire transfer of
immediately available funds), in lawful money of the United States, of the
Exercise Price payable in respect of the number of Warrant Shares purchased upon
such exercise (the "AGGREGATE EXERCISE PRICE") or (ii) a written notice to the
Company that the Registered Holder is exercising this Warrant on a "cashless"
exercise basis by authorizing the Company to withhold from issuance a number of
shares of Common Stock issuable upon such exercise of the Warrant which when
multiplied by the Fair Market Value of the Common Stock is equal to the
Aggregate Exercise Price (and such withheld shares shall no longer be issuable
under this Warrant).

            (b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in subsection
1(a) above (the "EXERCISE DATE"). At such time, the person or persons in whose
name or names any certificates for Warrant Shares shall be issuable upon such
exercise



as provided in subsection 1(c) below shall be deemed to have become the holder
or holders of record of the Warrant Shares represented by such certificates.

            (c) Within ten (10) days after the date of exercise of this Warrant,
the Company, at its expense, will cause to be issued in the name of, and
delivered to, the Registered Holder, or as such Holder (upon payment by such
Holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of full Warrant Shares to which the Registered
Holder shall be entitled upon such exercise plus, in lieu of any fractional
share to which the Registered Holder would otherwise be entitled, cash in an
amount determined pursuant to Section 3 hereof; provided, however, that the
Company shall not be required to pay any tax that may be payable in respect of
any transfer involving the issuance and delivery of any such certificate upon
exercise in a name other than that of the Registered Holder. Notwithstanding the
foregoing, the Registered Holder shall be solely responsible for any income
taxes payable and arising from the issuance or exercise of this Warrant, or any
ad valorem property or intangible tax assessed against the Registered Holder. If
this Warrant shall be exercised in part only, the Company shall, upon surrender
of this Warrant for cancellation, execute and deliver a new Warrant evidencing
the rights of the Registered Holder to purchase the balance of the Warrant
Shares purchasable hereunder.

            (d) The Company shall reasonably assist and cooperate with any
Registered Holder required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company).

            (e) Notwithstanding any other provision of this Warrant, if the
exercise of all or any portion of this Warrant is to be made in connection with
a registered public offering, a sale of the Company or any other transaction or
event, such exercise may, at the election of the Registered Holder, be
conditioned upon consummation of such transaction or event in which case such
exercise shall not be deemed effective until the consummation of such
transaction or event.

2. ADJUSTMENTS. In order to prevent dilution of the rights granted under this
Warrant and to grant the Registered Holder certain additional rights, the
Exercise Price shall be subject to adjustment from time to time as provided in
this Section 2 and the number of Warrant Shares shall be subject to adjustment
from time to time as provided in this Section 2.

            (a) Adjustment for Stock Splits and Combinations. If the Company
shall at any time after the date on which this Warrant was first issued (the
"ORIGINAL ISSUE DATE") while this Warrant remains outstanding and unexpired in
whole or in part, effect a subdivision (by any stock split or otherwise) of the
outstanding Common Stock into a greater number of shares, the Exercise Price in
effect immediately before that subdivision shall be proportionately decreased
and the number of shares of Common Stock obtainable upon exercise of this
Warrant shall be proportionately increased. Conversely, if the Company shall at
any time or from time to time after the Original Issue Date combine (by reverse
stock split or otherwise) the outstanding shares of Common Stock into a smaller
number of shares, the Exercise Price in effect immediately before the
combination shall be proportionately increased and the number of shares of
Common Stock obtainable upon exercise of this Warrant shall be proportionately
decreased. Any adjustment under this paragraph shall become effective at the
close of business on the date the subdivision or combination becomes effective

            (b) Adjustment for Certain Dividends and Distributions. In the event
the Company at any time or from time to time after the Original Issue Date while
this Warrant remains outstanding and unexpired in whole or in part shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of


                                       2


Common Stock, then and in each such event the Exercise Price then in effect
immediately before such event shall be decreased as of the time of such issuance
or, in the event such a record date shall have been fixed, as of the close of
business on such record date, by multiplying the Exercise Price then in effect
by a fraction:

                  (i) the numerator of which shall be the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date; and

                  (ii) the denominator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date plus the total number
of shares of Common Stock issuable in payment of such dividend or distribution;

provided, however, that if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Exercise Price shall be recomputed accordingly as of the
close of business on such record date and thereafter the Exercise Price shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.

            (c) Adjustment for Reclassification, Exchange and Substitution. If
at any time after the Original Issue Date while this Warrant remains outstanding
and unexpired in whole or in part, the Common Stock issuable upon exercise of
this Warrant is changed into the same or a different number of shares of any
class or classes of stock, this Warrant will thereafter represent the right to
acquire such number and kind of securities as would have been issuable as a
result of exercise of this Warrant and the Exercise Price therefor shall be
appropriately adjusted, all subject to further adjustment in this Section 2.

            (d) Adjustments for Other Dividends and Distributions. In the event
the Company at any time or from time to time after the Original Issue Date while
this Warrant remains outstanding and unexpired in whole or in part shall make or
issue, or fix a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in securities of
the Company (other than shares of Common Stock) or in cash or other property
(other than cash out of earnings or earned surplus, determined in accordance
with generally accepted accounting principles), then and in each such event
provision shall be made so that the Registered Holder shall receive upon
exercise hereof, in addition to the number of shares of Common Stock issuable
hereunder, the kind and amount of securities of the Company and/or cash and
other property which the Registered Holder would have been entitled to receive
had this Warrant been exercised into Common Stock on the date of such event and
had the Registered Holder thereafter, during the period from the date of such
event to and including the Exercise Date, retained any such securities
receivable, giving application to all adjustments called for during such period
under this Section 2 with respect to the rights of the Registered Holder.

            (e) Adjustment for Mergers or Reorganizations, etc. Any
reorganization, recapitalization, reclassification, consolidation, merger, sale
of all or substantially all of the Company's assets or other transaction
involving the Company in which the Common Stock is converted into or exchanged
for securities, cash or other property while this Warrant remains outstanding
and unexpired in whole or in part (other than a transaction covered by
subsections 2(a), 2(b) or 2(d)) is referred to herein as an "ORGANIC CHANGE".
Prior to the consummation of any such Organic Change, the Company shall make
appropriate provision (in form and substance satisfactory to the Registered
Holders of the Warrants then remaining outstanding and unexpired) to ensure that
the Registered Holder shall have the right to receive, in lieu of or in addition
to (as the case may be) such shares of Common Stock immediately acquirable and
receivable upon exercise of this Warrant, the kind and amount of securities,
cash or other property as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock


                                       3


immediately acquirable and receivable upon exercise of this Warrant had such
Organic Change not taken place. In such case, appropriate adjustment (in form
and substance satisfactory to the Registered Holders of the Warrants then
remaining outstanding and unexpired) shall be made with respect to the
Registered Holder's rights and interests to ensure that the provisions of this
Section 2 shall thereafter be applicable to the Warrants. The Company shall not
effect any reorganization, recapitalization, consolidation or merger unless,
prior to the consummation thereof, the successor entity (if other than the
Company) resulting from the consolidation or merger or the entity purchasing
such assets assumes by written instrument (in form and substance satisfactory to
the Registered Holders of the Warrants then remaining outstanding and unexpired)
the obligation to deliver to each Registered Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to acquire; provided, that any assumption shall not
relieve the Company of its obligations hereunder.

            (f) Other Events. If any event occurs that would adversely affect
the Registered Holder's rights but is not expressly provided for by this Section
2, then the Company's Board of Directors will make an appropriate adjustment in
the Exercise Price and number of Warrant Shares subject to this Warrant so as to
protect the Registered Holder's rights; provided, however, that no such
adjustment will increase the Exercise Price or decrease the number of shares of
Common Stock obtainable as otherwise determined pursuant to this Section 2.

            (h) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Exercise Price pursuant to this Section 2, the
Company at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to the Registered Holder a
certificate setting forth such adjustment or readjustment (including the kind
and amount of securities, cash or other property for which this Warrant shall be
exercisable and the Exercise Price) and showing in detail the facts upon which
such adjustment or readjustment is based. The Company shall, upon the written
request at any time of the Registered Holder, promptly furnish or cause to be
furnished to the Registered Holder a certificate setting forth (i) the Exercise
Price then in effect and (ii) the number of shares of Common Stock and the
amount, if any, of other securities, cash or property which then would be
received upon the exercise of this Warrant, and shall cause a copy of such
certificate to be mailed (by first-class mail, postage prepaid) to the
Registered Holder.

3. FRACTIONAL SHARES. The Company shall not be required upon the exercise of
this Warrant to issue any fractional shares, but shall make an adjustment
therefor in cash on the basis of the fair market value ("FAIR MARKET VALUE") per
share of Common Stock, such Fair Market Value to be determined as follows:

            (a) If traded on a securities exchange or through the Nasdaq
National Market or SmallCap Market, the Fair Market Value shall be deemed to be
the average of the closing prices of the securities on such exchange over the
thirty (30) day period ending three (3) days prior to the closing. If actively
traded over the counter, the value shall be deemed to be the average of the
closing bid or sales prices (whichever is applicable) over the thirty (30) day
period ending three (3) days prior to the closing; or

            (b) If at any time such security is not listed on any securities
exchange or quoted in the Nasdaq National Market or the SmallCap Market, or
actively traded over the counter, the Fair Market Value shall be the fair value
thereof, as determined jointly by the Board of Directors and the Registered
Holders of the Warrants then remaining outstanding and unexpired. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an appraisal conducted, at the Company's
selection, of either CS First Boston, Goldman Sachs, Merrill Lynch, or Morgan
Stanley. If none of these potential appraisers are able to serve, then such fair
value shall be determined by an independent appraiser experienced in valuing
securities jointly selected by the


                                       4


Company's Board of Directors and the Registered Holders of the Warrants then
remaining outstanding and unexpired. The determination of the appraiser shall be
final and binding upon the parties and the parties shall share the fees and
expenses of such appraiser equally.

4. REQUIREMENTS FOR TRANSFER.

            (a) This Warrant and the Warrant Shares shall not be sold or
transferred unless either (i) they first shall have been registered under the
Act or (ii) the Company first shall have been furnished with an opinion of legal
counsel reasonably satisfactory to the Company to the effect that such sale or
transfer is exempt from the registration requirements of the Act.

            (b) Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for (i) a transfer by a Registered Holder which is a
corporation to a wholly owned subsidiary of such corporation or to a corporation
owned by the same parent entity of such corporation, a transfer by a Registered
Holder which is a partnership to a partner of such partnership or a retired
partner of such partnership or to the estate of any such partner or retired
partner, or a transfer by a Registered Holder which is a limited liability
company to a member of such limited liability company or a retired member or to
the estate of any such member or retired member, provided that, as a condition
to the Company effecting such transfer, the transferee in each case agrees in
writing to be subject to the terms of this Section 4, or (ii) a transfer made in
accordance with Rule 144 under the Act, unless in the case of clause (ii) only,
the Company reasonably requests an opinion of counsel regarding compliance with
Rule 144 under the Act.

            (c) Each certificate representing Warrant Shares shall bear a legend
substantially in the following form:

                  "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
                  REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
                  ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED,
                  SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS
                  AND UNTIL SUCH SECURITIES ARE REGISTERED UNDER SUCH ACT AND
                  SUCH LAWS OR UNLESS SOLD PURSUANT TO AN EXEMPTION THEREFROM
                  AND AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS
                  OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT
                  REQUIRED."

      The foregoing legend shall be removed from the certificates representing
any Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Act.

5. No Impairment. The Company will not, by amendment of its charter or through
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holder of this Warrant against impairment. Without limiting
the generality of the foregoing, the Company will (a) not increase the par


                                       5


value of any shares of Common Stock obtainable upon the exercise of this Warrant
and (b) take all such actions as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.

6. NOTICES OF RECORD DATE, ETC. In the event:

            (a) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive
any other right; or

            (b) of any Organic Change; or

            (c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company,

then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holders at least twenty (20) days prior to the record date specified
therein (or such shorter period approved by a majority of the Registered
Holders) and at least twenty (20) days prior to the effective date of such event
specified in clause (b) or (c) hereof a notice specifying, as the case may be,
(i) the record date for such dividend, distribution or right, and the amount and
character of such dividend, distribution or right, or (ii) the effective date on
which such Organic Change, dissolution, liquidation or winding-up is to take
place, and the time, if any is to be fixed, as of which the holders of record of
Common Stock (or such other stock or securities at the time deliverable upon the
exercise of this Warrant) shall be entitled to exchange their shares of Common
Stock (or such other stock or securities) for securities or other property
deliverable upon such Organic Change, dissolution, liquidation or winding-up;
provided, however, that the failure to mail such notice or any defect therein or
in the mailing thereof shall not affect the validity of the corporate action
required to be specified in such notice. Nothing herein shall prohibit the
Registered Holder from exercising this Warrant during the twenty (20) day period
commencing on the date of such notice.

7. RESERVATION OF STOCK. The Company covenants that for the duration of the
Exercise Period, the Company will at all times reserve and keep available, from
its authorized and unissued Common Stock solely for issuance and delivery upon
the exercise of this Warrant and free of preemptive rights, such number of
Warrant Shares and other securities, cash and/or property, as from time to time
shall be issuable upon the exercise of this Warrant. The Company further
covenants that it shall, from time to time, take all steps necessary to increase
the authorized number of shares of its Common Stock if at any time the
authorized number of shares of Common Stock remaining unissued is insufficient
to permit the exercise of this Warrant.

8. ISSUANCE UPON EXERCISE. All shares of Common Stock issuable upon exercise of
this Warrant will be duly and validly issued, fully paid and nonassessable and
will be free of restrictions on transfer, other than restrictions on transfer
under any agreement between the Registered Holder and the Company and under
applicable state and federal securities laws, and will be free from all taxes,
liens and charges in respect of the issue thereof (other than taxes in respect
of any transfer occurring contemporaneously or otherwise specified herein). The
Company shall take all such actions as may be necessary to ensure that all such
shares of Common Stock may be so issued without violation of any applicable law
or governmental regulation or any requirements of any domestic stock exchange
upon which shares of Common Stock may be listed (except for official notice of
issuance which shall be delivered by the Company upon each such issuance as soon
as practicable).


                                       6


9. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder of this
Warrant, properly endorsed, to the Company at the principal office of the
Registered Company, the Company will, subject to the provisions of Section 4
hereof, issue and deliver to or upon the order of such Registered Holder, at the
Company's expense, a new Warrant or Warrants of like tenor, in the name of the
Registered Holder or as the Registered Holder may direct, calling in the
aggregate on the face or faces thereof for the number of shares of Common Stock
(or other securities, cash and/or property) then issuable upon exercise of this
Warrant.

10. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably satisfactory to
the Company (an affidavit of a Registered Holder shall be satisfactory) of the
ownership and loss, theft, destruction or mutilation of any certificate
evidencing this Warrant and, in the case of loss, theft or destruction, upon
delivery of an indemnity agreement of the Registered Holder in form reasonably
satisfactory to the Company, or in the case of mutilation, upon surrender and
cancellation of such certificate, the Company shall, at its expense, execute and
deliver in lieu of such certificate, a new certificate of like kind representing
the same rights represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.

11. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Registered Holder that:

            (a) Organization, Qualifications and Corporate Power. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of Bermuda and is duly licensed or qualified to transact business as a
foreign corporation and is in good standing in each jurisdiction in which the
nature of the business transacted by it or the character of the properties owned
or leased by it requires such licensing or qualification. The Company has full
corporate power and authority to own and hold its properties and to carry on its
business as now conducted and as proposed to be conducted, to execute, deliver
and perform this Agreement.

            (b) Authorization; No Conflict; No Violation. The Company's
execution and delivery of this Agreement and performance of its obligations
hereunder, and issuance and delivery of the Warrant Shares have been duly
authorized by all requisite corporate action and will not (a) result in a
violation of the charter or the Company's bylaws, as amended, (b) result in a
violation of any applicable law, rule or regulation, or any material order,
injunction, judgment or decree of any court or other agency of government, (c)
conflict with, result in a breach of, or constitute (or, with due notice or
lapse of time or both, would constitute) a default under, or give rise to any
right of termination, acceleration or cancellation under, any material
indenture, agreement, contract, license, arrangement, understanding, evidence of
indebtedness, note, lease or other instrument to which the Company or any of its
properties or assets is bound, (d) result in the creation or imposition of any
material lien, charge, restriction, claim or encumbrance of any nature
whatsoever upon the Company or any of the Company's material properties or
assets or (e) require any consent, approval, notification, waiver or other
similar action from any third party.

            (c) Consents and Approvals. No registration or filing with, or
consent or approval of or other action by, any federal, state or other
governmental agency or instrumentality or any third party is or will be
necessary for the Company's valid execution, delivery and performance of this
Agreement or the Company's issuance and delivery of the Warrant Shares, other
than those (a) which have previously been obtained or made or (b) those which
are required to be made under federal or state securities laws, which will be
obtained or made, and will be effective, within the time periods required by
law.

            (d) Validity. This Agreement has been duly executed and delivered by
the Company and constitutes the legal, valid and binding obligations of the
Company, enforceable against the Company


                                       7


in accordance with its terms, except to the extent limited by (a) applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws of general
application related to the enforcement of creditors' rights generally and (b)
general principles of equity, and except that enforcement of rights to
indemnification and contribution contained therein may be limited by applicable
federal or state laws or the public policy underlying such laws, regardless of
whether enforcement is considered in a proceeding in equity or at law.

            (e) Ownership Percentage. This Warrant is one of a series of
Warrants issued by the Company, all dated the date hereof and of like tenor
(collectively, the "COMPANY WARRANTS"). If exercised on the date hereof, the
number of shares of Common Stock issued pursuant to this Warrant together with
all the other Company Warrants, would constitute less than five percent (5%) of
the issued and outstanding Common Stock of the Company following such exercise.

12. TRANSFERS, ETC.

            (a) The Company shall maintain a register at its principal executive
office containing the name and address of the Registered Holder of this Warrant.
The Registered Holder may change its or his address as shown on the warrant
register by written notice to the Company requesting such change.

            (b) Subject to the provisions of Section 4 hereof, this Warrant and
all rights hereunder are transferable, in whole or in part, upon surrender of
this Warrant with a properly executed assignment (in the form of Exhibit B
hereto) at the principal executive office of the Company.

            (c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder as the absolute owner
hereof for all purposes; provided, however, that if and when this Warrant is
properly assigned in blank, the Company may (but shall not be obligated to)
treat the bearer hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.

            (d) The Company shall not close its books against the transfer of
this Warrant or any share of Common Stock issued or issuable upon the exercise
of this Warrant in any manner which interferes with the timely exercise of this
Warrant. The Company shall from time to time take all such action as may be
necessary to ensure that the par value per share of the unissued Common Stock
acquirable upon exercisable of this Warrant is at all times equal to or less
than the Exercise Price then in effect.

13. SPECIAL OWNERSHIP NOTICE. In the event the number of shares of Common Stock
issued upon exercise of this Warrant, together with the exercise of all the
other Company Warrants, would constitute five percent (5%) or more of the issued
and outstanding Common Stock of the Company following such exercise, then the
Company will promptly notify the Registered Holder hereof in accordance with the
provisions of Section 14.

14. MAILING OF NOTICES, ETC. Any notice, request, demand or other communication
required or permitted to be given to a party pursuant to the provisions of this
Agreement will be in writing and will be effective and deemed given under this
Agreement on the earliest of: (a) the date of personal delivery, (b) the date of
transmission by facsimile, with confirmed transmission and receipt, (c) two (2)
days after deposit with a nationally-recognized courier or overnight service
such as Federal Express, or (d) five (5) days after mailing via certified mail,
return receipt requested. All notices not delivered personally or by facsimile
will be sent with postage and other charges prepaid and properly addressed to
the party to be notified at the address set forth below for such party:



                                       8


            If to a Registered Holder:

            Hartford Life Insurance Company
            P.O. Box 2999
            Hartford, Connecticut 06104-2999
            Phone: (860) 843-3560
            Fax: (860) 843-8665
            Attn: Christine Repasy, General Counsel

            With a copy to (which does not constitute notice):

            Akin, Gump, Strauss, Hauer & Feld, L.L.P.
            300 Convent Street, Suite 1500
            San Antonio, Texas 78205
            Phone: (210) 281-7000
            Fax: (210) 224-2035
            Attn: Barry Chasnoff, Esq.

            If to the Company:

            Annuity and Life Re (Holdings), Ltd.
            Cumberland House
            1 Victoria Street
            Hamilton, Bermuda HM11
            Phone: (441) 296-7667
            Fax: (441) 296-7665
            Attn: John Burke, Chief Executive Officer

            With a copy to (which does not constitute notice):

            Clifford Chance US LLP
            200 Park Avenue
            New York, New York 10166
            Attn: Peter R. Chaffetz, Esq.
            Phone: (212) 878-8000
            Fax: (212) 878-8375

      Any party hereto (and such party's permitted assigns) may change such
party's address for receipt of future notices hereunder by giving written notice
to the Company and the other parties hereto.

15. NO RIGHTS OR LIABILITIES AS STOCKHOLDER. Subject to the provisions of
Sections 2 and 6 hereof, until the exercise of this Warrant, the Registered
Holder shall not have or exercise any rights by virtue hereof as a stockholder
of the Company, including, without limitation, the right to vote, to receive
dividends and other distributions or to receive notice of or attend meetings of
stockholders or any other proceedings of the Company. Notwithstanding the
foregoing, in the event (a) the Company effects a split of the Common Stock by
means of a stock dividend and the Exercise Price of and the number of Warrant
Shares are adjusted as of the date of the distribution of the dividend (rather
than as of the record date for such dividend), and (b) the Registered Holder
exercises this Warrant between the record date and the distribution date for
such stock dividend, the Registered Holder shall be entitled to receive, on the
distribution date, the stock dividend with respect to the shares of Common Stock
acquired upon such


                                       9


exercise, notwithstanding the fact that such shares were not outstanding as of
the close of business on the record date for such stock dividend.

16. AMENDMENT OR WAIVER. Any term of this Warrant may be amended or waived upon
the written consent of the Company and the holders of Company Warrants
representing at least 50% of the number of shares of Common Stock then subject
to outstanding Company Warrants; provided that any such amendment or waiver must
apply to all Company Warrants then outstanding; and provided further that the
number of Warrant Shares subject to this Warrant, the Exercise Price of this
Warrant and the number of shares or class of stock obtainable upon exercise of
this Warrant may not be amended, and the right to exercise this Warrant may not
be waived, without the written consent of the holder of this Warrant (it being
agreed that an amendment to or waiver under any of the provisions of Section 2
of this Warrant shall not be considered an amendment of the number of Warrant
Shares or the Exercise Price). The Company shall promptly give notice to all
holders of the Company Warrants of any amendments effected in accordance with
this Section 16. No special consideration may be given to any holder as
inducement to waive or amend this Warrant unless such consideration is given
equally and ratably to all holders.

17. SUCCESSORS AND ASSIGNS. This Warrant shall be binding upon and inure to the
benefit of the Registered Owner and its assigns, and shall be binding upon any
entity succeeding to the Company by consolidation, merger or acquisition of all
or substantially all of the Company's assets. The Company may not assign this
Warrant or any rights or obligations hereunder without the prior written consent
of the Registered Holder. The Registered Holder may assign this Warrant without
the Company's prior written consent.

18. REMEDIES. In the event of a breach by the Company of any of its obligations
under this Warrant, the Registered Holder, in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The Company
agrees that monetary damages would not provide adequate compensation for any
losses incurred by reason of its breach of any of the provisions of this Warrant
and hereby further agrees that, in the event of any action for specific
performance in respect of such breach, it shall waive the defense that a remedy
at law would be adequate.

19. SECTION HEADINGS. The section headings in this Warrant are for the
convenience of the parties and in no way alter, modify, amend, limit or restrict
the contractual obligations of the parties.

20. COUNTERPARTS. This Warrant may be executed in two or more counterparts, each
of which will be deemed an original but all of which together will constitute
one and the same instrument.

21. SEVERABILITY. The provisions of this Warrant will be deemed severable and
the invalidity or unenforceability of any provision hereof will not affect the
validity or enforceability of the other provisions hereof; provided that if any
provision of this Warrant, as applied to any party or to any circumstance, is
adjudged by a court or governmental body not to be enforceable in accordance
with its terms, the parties agree that the court or governmental body making
such determination will have the power to modify the provision in a manner
consistent with its objectives such that it is enforceable, and/or to delete
specific words or phrases, and in its reduced form, such provision will then be
enforceable and will be enforced.

22. TITLES AND SUBTITLES. The article and section headings contained in this
Warrant are inserted for convenience only and will not affect in any way the
meaning or interpretation of this Warrant.


                                       10


23. THIRD PARTIES. Nothing in this Warrant, express or implied, is intended to
confer upon any person other than the parties hereto and their successors and
assigns, any rights or remedies under or by reason of this Warrant.

24. GOVERNING LAW. This Warrant and the performance of the transactions and the
obligations of the parties hereunder will be governed by and construed and
enforced in accordance with the laws of the State of New York, without giving
effect to any choice of law principles.

                            [SIGNATURE PAGE FOLLOWS]


                                       11


      IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.

                                        ANNUITY AND LIFE RE (HOLDINGS), LTD.


                                        By: ____________________________________
                                            Name:
                                            Title:

[Corporate Seal]

ATTEST:


_________________________________


                                       12


                                                                       EXHIBIT A

                                 PURCHASE FORM

To:_________________                                          Dated:____________

      The undersigned, pursuant to the provisions set forth in the attached
      Warrant (No. ___), hereby irrevocably elects to purchase _____ shares of
      the Common Stock covered by such Warrant.

      The undersigned herewith makes payment of the full exercise price for such
      shares at the price per share provided for in such Warrant, which is
      $________ in lawful money of the United States.


                                       [_______________________________________]

                                        _______________________________________
                                        Name:
                                        Title:

                                        Address: ______________________________

                                                 ______________________________


                                       13


                                                                       EXHIBIT B

                                 ASSIGNMENT FORM

      FOR VALUE RECEIVED, ________________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (No. ____) with respect to the number of shares of Common Stock covered
thereby set forth below, unto: Name of Assignee Address No. of Shares



Name of Assignee                       Address                                No. of Shares
- ----------------                       -------                                -------------
                                                                        





Dated:
      ---------------------------

                                       [_______________________________________]

                                        _______________________________________
                                        Name:
                                        Title:

                                        Address: ______________________________

                                                 ______________________________


Signature Guaranteed:

By: ___________________________

The signature should be guaranteed by an eligible guarantor institution (banks,
stockbrokers, savings and loan associations and credit unions with membership in
an approved signature guarantee medallion program) pursuant to Rule 17Ad-15
under the Securities Exchange Act of 1934.


                                       14


                                    EXHIBIT C

July 7, 2003

Mellon Bank, N.A.
One Mellon Center
Room 151-1035
Pittsburgh, PA 15258

Attn: Tom Spagnol

RE:   Reinsurance Trust Agreement dated December 27, 2001 among Hartford Life
      Insurance Company, Annuity & Life Reassurance, Ltd. and Mellon Bank, N.A.
      Reinsurance Trust Agreement dated December 27, 2001 among Hartford Life &
      Annuity Insurance Company, Annuity & Life Reassurance, Ltd., and Mellon
      Bank, N.A.

Dear Mr. Spagnol,

In accordance with Section 16 of the above referenced agreements this is to
hereby inform you that Annuity & Life Reassurance, Ltd. and Hartford are
terminating the agreements.

Sincerely,                                  Sincerely,


Christine Hayer Repasy                      John Burke
Senior Vice President & General Counsel     Senior Vice President & CEO, CFO

EX-31

                                                                      EXHIBIT 31

                                  CERTIFICATION

I, John F. Burke, 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.    I am responsible for establishing and maintaining disclosure
            controls and procedures (as defined in Exchange Act Rules 13a-15(e)
            and 15d-15(e)) for the registrant and have:

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

                  (b) Evaluated the effectiveness of the registrant's disclosure
                  controls and procedures and presented in this report my
                  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

                  (c) 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.    I have disclosed, based on my 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: August 14, 2003


/s/ John F. Burke
- -----------------
Name:  John F. Burke,
Title:  Chief Executive Officer
and Chief Financial Officer



NS

EX-32

                                                                      EXHIBIT 32

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

      I, John F. Burke, Chief Executive Officer and 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 June 30, 2003 (the "Form 10-Q"), fully complies with the
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: August 14, 2003


/s/ John F. Burke
- -----------------
Name:  John F. Burke,
Title:  Chief Executive Officer
and Chief Financial Officer




NS