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                                                                    EXHIBIT 10.3

                      SETTLEMENT AND COMMUTATION AGREEMENT

        This SETTLEMENT AND COMMUTATION AGREEMENT (the "Agreement") is dated as
of November 4, 2003, by and among XL LIFE LTD ("XL"), XL RE LTD, formerly known
as XL MidOcean Reinsurance Ltd ("XL Re"), ANNUITY AND LIFE REASSURANCE, LTD.
("ALRe"), and ANNUITY AND LIFE RE (HOLDINGS), LTD. ("Holdings").

        WHEREAS, XL and ALRe entered into a Master Agreement dated as of
December 31, 2002 (the "Master Agreement") setting forth, among other things,
the terms under which ALRe would novate certain reinsurance agreements (the
"Novated Contracts");

        WHEREAS, XL and ALRe entered into a retrocession agreement dated as of
December 31, 2002 (the "December 31 Retrocession Agreement") under which XL
retroceded 50% of the business covered by certain of the Novated Contracts (the
"Novated Viva Contracts") to ALRe;

        WHEREAS, XL and ALRe entered into a Reinsurance Administration Agreement
dated as of December 31, 2002 (the "Administration Agreement") for purposes of
facilitating the administration of the Novated Contracts;

        WHEREAS, the Administration Agreement and the December 31 Retrocession
Agreement have been terminated pursuant to a Notice of Termination dated August
5, 2003 delivered to ALRe by XL;

        WHEREAS, XL Re entered into a retrocession agreement effective as of
December 17, 1999 (the "35% Old Mutual Agreement") under which XL Re retroceded
certain reinsurance business to ALRe;

        WHEREAS, XL Re entered into a retrocession agreement effective as of
December 17, 1999 (the "15% Old Mutual Agreement," and, together with the 35%
Old Mutual Agreement the "Old Mutual Agreements" and, together with the December
31 Retrocession Agreement, the "Retrocession Agreements") under which XL Re
retroceded certain reinsurance business to ALRe;

        WHEREAS, XL and ALRe entered into a letter of intent with a stated
effective date of January 1, 2002 (the "TransAmerica LOI") with respect to
Lifetime Minimum Interest Guarantee losses incurred by ALRe under its
reinsurance agreement with TransAmerica Occidental Life Insurance Company;

        WHEREAS, XL and ALRe entered into a letter of intent dated as of
February 28, 2002 (the "Catastrophic Excess of Loss Cover LOI", and, together
with the Transamerica LOI the "Letters of Intent") with respect to certain
losses incurred by ALRe under its reinsurance agreements with certain U.S. and
Canadian insurance companies;



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        WHEREAS, XL, XL Re and ALRe disagree as to and have engaged in extensive
negotiations with respect to, their respective obligations under and in
connection with the Retrocession Agreements, the Master Agreement and the
TransAmerica LOI;

        WHEREAS, ALRe is a wholly-owned subsidiary of Holdings;

        WHEREAS, the board of directors of each of the parties hereto having
approved the terms of this Agreement, the parties hereto now wish to fully and
finally determine and settle all liabilities and obligations of XL, XL Re and
ALRe under the Retrocession Agreements, the Master Agreement, the Administration
Agreement and the Letters of Intent;

        NOW, THEREFORE, in consideration of the mutual covenants contained
herein and the payments to be made hereunder, the parties agree as follows:

                                   ARTICLE I
                         REPRESENTATIONS AND WARRANTIES

       A. The parties hereto expressly warrant and represent (as to themselves
and their affiliates, but not as to the other party):

                (i) that the execution of this Agreement is fully authorized by
        each of them;

                (ii) that the person or persons executing this Agreement have
        the necessary and appropriate authority to do so;

                (iii) that this Agreement is valid, binding and enforceable in
        accordance with its terms;

                (iv) that no consent of any government entity is required to
        make this Agreement valid and binding upon them;

                (v) that the execution of this Agreement does not conflict with,
        result in a breach or violation or imposition of any lien, charge or
        encumbrance upon any property or assets of the parties or any of their
        respective subsidiaries pursuant to, (a) the charter or by-laws or other
        organizational document of the parties or any of their respective
        subsidiaries, (b) the terms of any indenture, contract, lease, mortgage,
        deed of trust, note agreement, loan agreement or other agreement,
        obligation, condition, covenant or instrument to which the parties or
        any of their respective subsidiaries is a party or bound or to which its
        or their respective property is subject, or (c) any statute, law, rule,
        regulation, judgment, order or decree applicable to the parties or any
        of their respective subsidiaries of any court, regulatory body,
        administrative agency, governmental body, arbitrator or other authority
        having jurisdiction over the parties or any of their respective
        subsidiaries or any of their respective properties; and

                (vi) that none of the claims being released pursuant to this
        Agreement have been previously assigned or transferred in any way to any
        person.



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       B. ALRe and Holdings each hereby expressly warrants, represents and
covenants that (before and after giving effect to this Agreement):

                (i) it is a company incorporated in Bermuda;

                (ii) the fair value of its assets and the assets of its
        subsidiaries taken as a whole, at a fair valuation, exceeds and is
        expected to exceed their debts and liabilities, subordinated, contingent
        or otherwise;

                (iii) the present fair salable value of its property and the
        property of its subsidiaries taken as a whole is and is expected to be
        greater than the amount that is expected to be required to pay their
        probable liability on their debts and other liabilities, subordinated,
        contingent, or otherwise, as such debts and other liabilities become
        absolute and matured;

                (iv) it and its subsidiaries taken as a whole are and are
        expected to be able to pay their debts and liabilities, subordinated,
        contingent or otherwise, as such debts and liabilities become absolute
        and matured;

                (v) it and its subsidiaries taken as a whole do not and are not
        expected to have unreasonably small capital with which to conduct the
        businesses in which they are engaged as such businesses are now
        conducted and are presently proposed to be conducted following the date
        hereof;

                (vi) as of the date hereof there is no insolvency proceeding of
        any character, voluntary or involuntary, relating to ALRe, Holdings or
        any of their subsidiaries, which is pending or, to the best of its
        knowledge, threatened (except for possible threats that were disclosed
        to XL in writing on November 2, 2003); neither ALRe, Holdings nor any of
        their subsidiaries has made any assignment for the benefit of creditors
        or taken any action with a view to, or which would constitute a basis
        for, the institution of an insolvency proceeding;

                (vii) it is not insolvent under Bermuda law;

                (viii) all known claims under the Novated Contracts in respect
        of deaths before December 31, 2002 (after due inquiry) have been
        disclosed fully and accurately to XL; and

                (ix) all expectations and all statements regarding contingent
        liabilities in the foregoing representations and warranties are held in
        good faith and ALRe and Holdings have a reasonable basis therefor.

                                   ARTICLE II
                    PAYMENTS; PREPAYMENTS; EVENTS OF DEFAULT

        A. Payments. In full settlement and commutation of all obligations and
liabilities, known and unknown, under the Retrocession Agreements, the Master
Agreement, the Administration Agreement and the TransAmerica LOI, ALRe agrees to
pay XL the sum of US



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$7,000,000 (Seven Million Dollars). Said funds are to be paid in an installment
of $750,000 on the date hereof and the balance in equal monthly installments of
$250,000 on the 15th day of each month beginning November 15, 2003. Such
payments to XL shall be made by wire transfer to the account of XL at Citibank
NA, ABA# 021000089, CHIPS# 0008, SWIFT CITIUS33, For further credit to: The Bank
of Bermuda Limited, CHIPS UID# 005584, SWIFT Code BBDA BMHM, Account Number:
10921671, For further credit to: Account Name: XL Life Ltd. - Lighthouse,
Account Number: 1510 816253

        B. Mandatory Prepayments. Amounts owed to XL pursuant to paragraph A
above shall be mandatorily prepayable in an amount equal to 100% of the proceeds
of any indebtedness for borrowed money or the equivalent incurred by ALRe,
Holdings or any of their subsidiaries unless such indebtedness is expressly
subordinated to such amounts owed to XL on terms satisfactory to XL.

        C. Optional Prepayments. Amounts owed to XL pursuant to paragraph A
above shall be prepayable at any time at the option of ALRe. Prior to November
15, 2003, ALRe may at its option elect to pay to XL $6,000,000 (Six Million
Dollars), less any other amounts paid to XL hereunder, in full satisfaction of
the amounts due under Article II.A above.

        D. No Penalty. There shall be no prepayment penalties for any mandatory
or optional prepayments made by ALRe to XL pursuant to this Article II.

        E. Application of Prepayments. Any mandatory or optional prepayments
made pursuant to this Article II shall be applied in inverse order to the
installments then due pursuant to paragraph A above.

        F. Events of Default. Each of the following is an "Event of Default:"

                (i) the default by ALRe for more than ten (10) business days in
        the payment when due of any installment set forth in paragraph A above;

                (ii) the failure by ALRe or Holdings to comply with any of the
        other agreements set forth herein;

                (iii) the institution of any bankruptcy, rehabilitation,
        liquidation, conservation or other delinquency or insolvency
        proceedings, including, without limitation, the filing of any scheme of
        arrangement, concerning ALRe, Holdings or any of their affiliates;
        provided that, in the case of any such institution or filing that is
        involuntary, if not dismissed within 60 days.

                (iv) ALRe shall cease to be a wholly-owned subsidiary of
        Holdings.

        G. Remedies. Upon the occurrence of an Event of Default set forth in
clause F(iii) above, all outstanding amounts owed pursuant to this Article II
shall become due and payable immediately without further action or notice by XL.
Upon the occurrence of any other Event of Default, XL may declare all
outstanding amounts owed pursuant to this Article II due and payable upon
written notice to ALRe.

        H. Business Days. If any payment would otherwise be due on a day that is
not a business day it shall be paid on the next business day. A business day is
a day on which banks in New York and Bermuda are open for business.



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                                  ARTICLE III
                   TERMINATION AND COMMUTATION OF AGREEMENTS

        A. As of the date hereof, the Master Agreement and the TransAmerica LOI
are terminated with all past, present and future obligations or liabilities of
any of the parties thereto being extinguished; provided that Section 6.3 of the
Master Agreement is hereby amended to read as set forth on Exhibit A attached
hereto and (together with the relevant defined terms from the Master Agreement)
shall remain in full force and effect as so amended.

        B. ALRe acknowledges that (i) the Catastrophic Excess of Loss Cover LOI
has not been in effect since December 31, 2002 and (ii) the December 31
Retrocession Agreement and the Administration Agreement were validly and
effectively terminated by notice dated August 5, 2003 but the parties agree
that, for their mutual convenience, such terminations shall be deemed to have
occurred as of July 1, 2003. The parties to the Catastrophic Excess of Loss
Cover LOI, the December 31 Retrocession Agreement and the Administration
Agreement agree that all past, present and future obligations or liabilities of
any of the parties thereto are extinguished; provided that Section 5.D of the
December 31 Retrocession Agreement shall be amended by adding the words "50% of"
before the words "such Federal Excise Tax Liability" and, as so amended, shall
remain in full force and effect.

        C. The parties agree that the Old Mutual Agreements are terminated with
all past, present and future obligations or liabilities of any of the parties
thereto being extinguished but the parties agree that, for their mutual
convenience, such terminations shall be deemed to have occurred as of July 1,
2003.

        D. This Agreement supercedes all of the provisions of the other
documents referred to this Article III including without limitation the
arbitration provisions thereof.

                                   ARTICLE IV
                                 MUTUAL RELEASES

        A. In consideration of the agreements of ALRe and Holdings hereunder, XL
and XL Re release and forever discharge ALRe and Holdings, their subsidiaries,
predecessors, successors and assigns, and each of their respective officers,
directors and affiliates (the "ALRe Related Parties") from any and all
liabilities and obligations of the ALRe Related Parties arising under or related
to the Retrocession Agreements, the Administration Agreement, the Master
Agreement and the Letters of Intent, whether known or unknown, reported or
unreported and whether currently existing or arising in the future, including,
but not limited to, all claims, debts, demands, causes of action, duties, sums
of money, covenants, contracts, controversies, agreements, promises, doings,
omissions, damages, judgments, costs, expenses, and losses whatsoever (including
without limitation any claims based on fraud, bad faith or extracontractual
liabilities). XL and XL Re further acknowledge that the provisions of this
Agreement are in complete accord, satisfaction, settlement and commutation of
ALRe's liabilities and obligations under the Retrocession Agreements, the
Administration Agreement, the Master Agreement and the Letters of Intent;
provided that, for the avoidance of doubt, nothing in this Agreement shall be
construed to (i) release or relieve ALRe or Holdings from any indemnification
obligation that it owes or may owe in the future to any of its directors that
are officers, directors, or designees of, or otherwise related to, XL, (ii)
release or relieve ALRe or Holdings from any obligation that it may have, now or
in the future, to any affiliate of XL as a shareholder or warrantholder of



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Holdings, (iii) release any party from its obligations under this Agreement or
(iv) preclude XL from making any claims or cross-claims in connection with
existing or future shareholder lawsuits against Holdings.

        B. In consideration of the agreements of XL and XL Re hereunder, ALRe
and Holdings hereby release and forever discharge XL and XL Re, their
subsidiaries , predecessors, successors and assigns, and each of their
respective officers, directors and affiliates (the "XL Related Parties") from
any and all liabilities and obligations of the XL Related Parties arising under
or related to the Retrocession Agreements, the Administration Agreement, the
Master Agreement, and the Letters of Intent, whether known or unknown, reported
or unreported, and whether currently existing or arising in the future,
including, but not limited to, all claims, debts, demands, causes of action,
duties, sums of money, covenants, contracts, controversies, agreements,
promises, doings, omissions, damages, judgments, costs, expenses, and losses
whatsoever (including without limitation all claims based on fraud, bad faith or
extracontractual liabilities). ALRe and Holdings further acknowledge that the
provisions of this Agreement are in complete accord, satisfaction, settlement
and commutation of XL's and XL Re's liabilities and obligations under the
Retrocession Agreements, the Master Agreement and the Letters of Intent,
provided that nothing in this Agreement shall be construed to release any party
from its obligations under this Agreement.

        C. In the event that a court of Bermuda, the United States or any state
of the United States (i) avoids or does not enforce or give full effect to the
releases given by any party herein or (ii) avoids or does not give full effect
to any payment or obligation made or required to be made by any party hereunder,
then this Agreement and the releases herein by the parties shall, at the option
of XL if the party referred to in (i) or (ii) is ALRe or Holdings or at the
option of ALRe if the party referred to in (i) is XL or XL Re, be null and void.

        D. Each of the parties agrees and covenants that it will not file or
cause to be filed any lawsuit, arbitration or other proceeding asserting any
claim released by the release executed by it. In the event a party files any
such lawsuit, arbitration or other proceeding, the party so filing will
indemnify the other parties for all costs incurred in defending against such
proceeding, including attorneys' fees.

        E. The parties shall not seek to reopen, set aside or otherwise dispute
the effectiveness of this Agreement on any grounds whatsoever, including without
limitation, (i) that this Agreement is void or voidable on the grounds of
intentional fraud, misrepresentation, mistake of law, mistake of fact or any
other basis (it being understood that neither party has relied on any statement
of any other party not set forth as an express warranty herein and that there is
no fact that is or could be known to one party the disclosure of which would
have caused the other party not to enter into this Agreement), (ii) that any of
the parties in the future becomes aware of any mistake of law (including such
mistake arising as a result of a subsequent change of law, which shall include,
without limitation, a settled understanding of the law which is subsequently
departed from by judicial decision) and/or (iii) any mistake of fact in any way
whatsoever connected with this Agreement.



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                                   ARTICLE V
                               FURTHER ASSURANCES

        The parties hereto agree to do or cause to be done such further acts and
things and deliver or cause to be delivered to the other parties such additional
assignments, agreements, powers and instruments as such parties may reasonably
require or deem advisable to carry into effect the purposes of this Agreement or
to better assure and confirm unto the other parties hereto the rights, powers
and remedies of each hereunder.

                                   ARTICLE VI
                                    EXPENSES

        All expenses incurred in connection with this Agreement (including the
fees and disbursements of legal, actuarial, accounting and other advisors
incurred on or before the date hereof) shall be paid by the party incurring such
expenses.

                                  ARTICLE VII
                                   SUCCESSORS

        The rights, duties and obligations of this Agreement shall be binding
upon and inure to the benefit of any and all successors, assigns, parents,
shareholders, affiliates, officers, directors, employees, liquidators,
rehabilitators, receivers, or trustees of the parties hereto.

                                  ARTICLE VIII
                                ENTIRE AGREEMENT

        A. This Agreement shall constitute the entire agreement between the
parties hereto related to the subject matter hereof. All discussions and
agreements previously entertained between the parties concerning the subject
matter of this settlement and commutation are merged into this Agreement. This
Agreement may not be amended, nor any of its provisions waived, except by
written amendment or waiver executed by all of the parties.

        B. This Agreement may be executed and delivered in multiple
counterparts, each of which, when so executed and delivered, shall be an
original, but such counterparts shall together constitute but one and the same
instrument and agreement.



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                                   ARTICLE IX
                    GOVERNING LAW AND EXCLUSIVE JURISDICTION

        This Agreement shall be governed by and construed in accordance with the
substantive laws of the State of New York that would be applicable to agreements
made and to be performed entirely within such state without regard to the
principals of conflicts of law thereof and the parties hereto submit to the
exclusive jurisdiction of any state or federal court sitting in the borough of
Manhattan, State of New York in respect of any dispute, action, proceeding or
counterclaim hereunder. The parties hereto hereby irrevocably waive, to the
fullest extent they may effectively do so under applicable law, any objection
which they may now or hereafter have to the laying of the venue of any such
suit, action or proceeding brought in any such court and any claim that any such
suit, action or proceeding brought in any such court has been brought in an
inconvenient forum. The parties hereby agree and consent that service of process
shall be effective if served in any manner permitted by the New York Civil
Practice Law and Rules or the United States Federal Rules of Civil Procedure or
by any form of mail requiring a return receipt at the addresses set forth below:

        If to be served on XL or XL Re:

               c/o XL Capital Ltd
               XL House
               One Bermudiana Road
               Hamilton, Bermuda  HM 11

        If to be served on ALRe or Holdings:

               c/o Annuity and Life Reassurance, Ltd.
               Cumberland House
               One Victoria Street
               Hamilton, Bermuda  HM 11



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        IN WITNESS WHEREOF, the parties have executed this Agreement by their
respective authorized officers.


Signed in Hamilton, Bermuda,          XL LIFE LTD
this 4th day of November, 2003

                                      By:     /s/ Paul S. Giordano
                                         ---------------------------------------
                                      Name:  Paul S. Giordano
                                      Title: EVP & Secretary

Signed in Hamilton, Bermuda,          XL RE LTD
this 4th day of November, 2003

                                      By:     /s/ Paul S. Giordano
                                         ---------------------------------------
                                      Name:  Paul S. Giordano
                                      Title: EVP & Secretary

Signed in Hamilton, Bermuda,          ANNUITY AND LIFE REASSURANCE, LTD.
this 4th day of November, 2003

                                      By:       /s/ John F. Burke
                                         ---------------------------------------
                                      Name:  John F. Burke
                                      Title:  CEO & CFO

Signed in Hamilton Bermuda,           ANNUITY AND LIFE RE (HOLDINGS), LTD.
this 4th day of November, 2003

                                      By:       /s/ John F. Burke
                                         ---------------------------------------
                                      Name:  John F. Burke
                                      Title:  CEO & CFO



<PAGE>

                                                                       EXHIBIT A

        A. 6.3 Success Fee.

        If (i) ALRe and/or Annuity and Life Re (Holdings) Ltd. complete one or
more equity and/or debt financings during the eighteen (18) months following the
Closing Date in an aggregate amount of at least $35.0 million and (ii) at any
time during such eighteen month period, the trading price of the common shares
of Annuity and Life Re (Holdings) Ltd. is at or above $2.00 per share for at
least twenty (20) out of any thirty (30) consecutive trading days, then, in
recognition of XL's and its Affiliates' participation in the Transactions and
the contribution that such participation has made to the ability of ALRe to
complete such debt and/or equity financings, to pay to XL $2.0 million in cash
(or, in the sole discretion of XL, the equivalent thereof).