##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 
 FORM 10-Q
 
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended June 30,
2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the transition period from ______________ to
______________
 Commission File Number 1-16561
 ANNUITY AND LIFE RE (HOLDINGS), LTD.
 (Exact Name of Registrant as Specified in Its Charter)
 Bermuda(State or Other Jurisdiction of
Incorporation or Organization)
    
    66-0619270(IRS Employer
Identification No.)
 Cumberland House, 1 Victoria Street, Hamilton, Bermuda(Address of Principal Executive Offices)
    
    HM11(Zip Code)
 441-296-7667  (Registrants Telephone Number, Including Area Code)
 þ o
 þ o




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INDEX TO FORM 10-Q
 PAGEPART IFINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets
June 30, 2005 and December 31, 2004
    
    1Condensed Consolidated Statements of Operations
Three Months and Six Months ended June 30, 2005 and June 30, 2004
    
    2Condensed Consolidated Statements of Comprehensive Income (Loss)
Three Months and Six Months ended June 30, 2005 and June 30, 2004
    
    3Condensed Consolidated Statements of Changes in Stockholders Equity
Six Months ended June 30, 2005 and June 30, 2004
    
    4Condensed Consolidated Statements of Cash Flows
Six Months ended June 30, 2005 and June 30, 2004
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    6Item 2.
    
    Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    19Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    41Item 4.
    
    Controls and Procedures
    
    42PART IIOTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    43Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    45Item 6.
    
    Exhibits
    
    45Signatures
    
    
    
    46Rule 13a-14(a)/15d-14(a) Certification of the Company's Chief Executive OfficerRule 13a-14(a)/15d-14(a) Certification of the Company's Chief Financial OfficerSection 1350 Certification of the Company's Chief Executive OfficerSection 1350 Certification of the Company's Chief Financial Officer




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##### Table of Contents



PART I
FINANCIAL INFORMATION
 
 Item 1. Condensed Consolidated Financial Statements
 
 ANNUITY AND LIFE RE (HOLDINGS), LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(U.S. dollars)
 June 30, 2005
    
    
    December 31, 2004(Unaudited)AssetsCash and cash equivalents
    
    $
    33,637,082
    
    
    $
    56,394,484Fixed maturity investments at fair value (amortized cost of
$62,085,120 and $80,767,893 at June 30, 2005 and December 31,
2004, respectively)
    
    
    62,750,761
    
    
    
    82,034,410Funds withheld at interest
    
    
    53,305,982
    
    
    
    56,415,386Accrued investment income
    
    
    870,796
    
    
    
    1,155,762Receivable for investments sold
    
    
    309,525
    
    
    
    Receivable for reinsurance ceded
    
    
    77,982,650
    
    
    
    82,433,270Other reinsurance receivables
    
    
    2,711,210
    
    
    
    4,306,931Deferred policy acquisition costs
    
    
    5,683,172
    
    
    
    6,084,488Other assets
    
    
    585,984
    
    
    
    580,625Total Assets
    
    $
    237,837,162
    
    
    $
    289,405,356LiabilitiesReserves for future policy benefits
    
    $
    106,589,798
    
    
    $
    109,860,843Interest sensitive contracts liability
    
    
    53,810,806
    
    
    
    57,754,009Other reinsurance liabilities
    
    
    10,471,084
    
    
    
    49,186,297Accounts payable and accrued expenses
    
    
    1,949,337
    
    
    
    6,186,995Total liabilities
    
    
    172,821,025
    
    
    
    222,988,144Stockholders EquityPreferred shares (par value $1.00; 50,000,000 shares authorized;
no shares outstanding)
    
    
    
    
    
    
    Common shares (par value $1.00; 100,000,000 shares authorized;
26,316,861 and 26,338,528 shares issued and outstanding at
June 30, 2005
and December 31, 2004, respectively)
    
    
    26,316,861
    
    
    
    26,338,528Additional paid-in capital
    
    
    333,797,708
    
    
    
    333,810,766Stock warrants
    
    
    1,350,000
    
    
    
    1,350,000Unamortized stock based compensation
    
    
    (205,550
    )
    
    
    (490,415
    )Accumulated other comprehensive income
    
    
    673,675
    
    
    
    1,016,260Accumulated deficit
    
    
    (296,916,557
    )
    
    
    (295,607,927
    )Total Stockholders Equity
    
    
    65,016,137
    
    
    
    66,417,212Total Liabilities and Stockholders Equity
    
    $
    237,837,162
    
    
    $
    289,405,356
  -1-




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##### Table of Contents



ANNUITY AND LIFE RE (HOLDINGS), LTD.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in U.S. dollars)
 For the Three Months Ended June 30,
    
    
    For the Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004RevenuesNet premiums
    
    $
    2,927,917
    
    
    $
    10,348,881
    
    
    $
    8,416,183
    
    
    $
    24,659,522Investment income, net of related expenses
    
    
    1,609,615
    
    
    
    3,844,066
    
    
    
    3,275,624
    
    
    
    13,094,801Net realized investment (losses) gains
    
    
    (6
    )
    
    
    (137,885
    )
    
    
    401,144
    
    
    
    541,040Net change in fair value of embedded derivatives
    
    
    (35,736
    )
    
    
    518,786
    
    
    
    451,409
    
    
    
    1,126,174Surrender fees and other revenues
    
    
    30,677
    
    
    
    1,510,568
    
    
    
    61,313
    
    
    
    2,585,500Total Revenues
    
    
    4,532,467
    
    
    
    16,084,416
    
    
    
    12,605,673
    
    
    
    42,007,037Benefits and ExpensesClaim and policy benefits
    
    
    1,587,086
    
    
    
    8,769,049
    
    
    
    6,189,529
    
    
    
    19,013,707Interest credited to interest sensitive products
    
    
    257,075
    
    
    
    1,822,643
    
    
    
    626,253
    
    
    
    5,351,892Policy acquisition costs and other insurance
expenses
    
    
    1,008,209
    
    
    
    4,654,527
    
    
    
    2,364,446
    
    
    
    12,835,524Operating expenses
    
    
    2,220,065
    
    
    
    7,268,575
    
    
    
    4,734,076
    
    
    
    10,035,937Total Benefits and Expenses
    
    
    5,072,435
    
    
    
    22,514,794
    
    
    
    13,914,304
    
    
    
    47,237,060Loss before cumulative effect of a change in
accounting principle (Note 5)
    
    
    (539,968
    )
    
    
    (6,430,378
    )
    
    
    (1,308,631
    )
    
    
    (5,230,023
    )Cumulative effect of a change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (365,960
    )Net Loss
    
    $
    (539,968
    )
    
    $
    (6,430,378
    )
    
    $
    (1,308,631
    )
    
    $
    (5,595,983
    )Loss per common share before cumulative effect
of a change in accounting principle per common
shareBasic
    
    $
    (0.02
    )
    
    $
    (0.25
    )
    
    $
    (0.05
    )
    
    $
    (0.21
    )Diluted
    
    $
    (0.02
    )
    
    $
    (0.25
    )
    
    $
    (0.05
    )
    
    $
    (0.21
    )Cumulative effect of a change in accounting
principle per common shareBasic
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (0.01
    )Diluted
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (0.01
    )Net loss per common shareBasic
    
    $
    (0.02
    )
    
    $
    (0.25
    )
    
    $
    (0.05
    )
    
    $
    (0.22
    )Diluted
    
    $
    (0.02
    )
    
    $
    (0.25
    )
    
    $
    (0.05
    )
    
    $
    (0.22
    )
  -2-




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ANNUITY AND LIFE RE (HOLDINGS), LTD.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited and in U.S. dollars)
 For the Three Months Ended June 30,
    
    
    For the Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss for the period
    
    $
    (539,968
    )
    
    $
    (6,430,378
    )
    
    $
    (1,308,631
    )
    
    $
    (5,595,983
    )Other comprehensive income (loss):Unrealized holding gains (losses)
on securities arising during the
period
    
    
    787,616
    
    
    
    (3,457,243
    )
    
    
    58,559
    
    
    
    (2,068,612
    )Less reclassification
adjustment for net realized
(losses) gains in net loss
    
    
    (6
    )
    
    
    (137,885
    )
    
    
    401,144
    
    
    
    541,040Other comprehensive income (loss)
    
    $
    787,622
    
    
    $
    (3,319,358
    )
    
    $
    (342,585
    )
    
    $
    (2,609,652
    )Total comprehensive income (loss)
    
    $
    247,654
    
    
    $
    (9,749,736
    )
    
    $
    (1,651,216
    )
    
    $
    (8,205,635
    )
  -3-




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##### Table of Contents



ANNUITY AND LIFE RE (HOLDINGS), LTD.
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS EQUITY
(Unaudited and in U.S. dollars)
 For the Six Months Ended June 30,2005
    
    
    2004Preferred shares par value $1.00Balance at beginning and end of period
    
    $
    
    
    
    $
    Common shares par value $1.00Balance at beginning of period
    
    $
    26,338,528
    
    
    $
    26,454,195Issuance of shares
    
    
    
    
    
    
    Cancellation of shares
    
    
    (21,667
    )
    
    
    (53,267
    )Balance at end of period
    
    $
    26,316,861
    
    
    $
    26,400,928Additional paid-in capitalBalance at beginning of period
    
    $
    333,810,766
    
    
    $
    334,418,029Issuance of shares
    
    
    
    
    
    
    Cancellation of stock based compensation
    
    
    (13,058
    )
    
    
    (385,085
    )Balance at end of period
    
    $
    333,797,708
    
    
    $
    334,032,944Stock warrantsBalance at beginning of period
    
    $
    1,350,000
    
    
    $
    1,250,000Issuance of warrants
    
    
    
    
    
    
    Balance at end of period
    
    $
    1,350,000
    
    
    $
    1,250,000Unamortized stock based compensationBalance at beginning of period
    
    $
    (490,415
    )
    
    $
    (1,509,022
    )Issuance of stock based compensation
    
    
    
    
    
    
    Cancellation of stock based compensation
    
    
    34,725
    
    
    
    438,352Amortization of stock based
compensation
    
    
    250,140
    
    
    
    97,562Balance at end of period
    
    $
    (205,550
    )
    
    $
    (973,108
    )Accumulated other comprehensive incomeBalance at beginning of period
    
    $
    1,016,260
    
    
    $
    1,840,849Net unrealized losses on fixed maturity investments
    
    
    (342,585
    )
    
    
    (2,609,652
    )Balance at end of period
    
    $
    673,675
    
    
    $
    (768,803
    )Accumulated deficitBalance at beginning of period
    
    $
    (295,607,926
    )
    
    $
    (227,281,472
    )Net loss
    
    
    (1,308,631
    )
    
    
    (5,595,983
    )Balance at end of period
    
    $
    (296,916,557
    )
    
    $
    (232,877,455
    )Total Stockholders Equity
    
    $
    65,016,137
    
    
    $
    127,064,506
  -4-




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##### Table of Contents



ANNUITY AND LIFE RE (HOLDINGS), LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in U.S. dollars)
 For the Six Months Ended June 30,2005
    
    
    2004Cash flows from operating activitiesNet loss
    
    $
    (1,308,631
    )
    
    $
    (5,595,983
    )Adjustments to reconcile net loss to cash used from operating activities:Net realized investment gains
    
    
    (401,144
    )
    
    
    (541,040
    )Net change in fair value of embedded derivatives
    
    
    (451,409
    )
    
    
    (1,126,174
    )Amortization of premiums on fixed maturity investments
    
    
    532,821
    
    
    
    468,508Amortization of stock based compensation
    
    
    250,140
    
    
    
    97,562Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    365,960Changes in:Accrued investment income
    
    
    284,966
    
    
    
    221,009Receivable for investments sold
    
    
    (309,525
    )
    
    
    Other reinsurance receivables
    
    
    6,046,341
    
    
    
    5,119,810Deferred policy acquisition costs
    
    
    401,316
    
    
    
    6,166,176Other assets
    
    
    (5,359
    )
    
    
    (264,660
    )Reserves for future policy benefits
    
    
    (3,271,045
    )
    
    
    3,948,496Interest sensitive contracts liability, net of funds withheld at interest
    
    
    (382,390
    )
    
    
    (13,292,714
    )Other reinsurance liabilities
    
    
    (38,715,213
    )
    
    
    (31,021,402
    )Payable for investments purchased
    
    
    
    
    
    
    5,909,652Accounts payable and accrued expenses
    
    
    (4,237,658
    )
    
    
    1,094,510Net cash used by operating activities
    
    
    (41,566,790
    )
    
    
    (28,450,290
    )Cash flows from investing activitiesProceeds from sales and maturity of fixed maturity investments
    
    
    20,414,759
    
    
    
    47,830,721Purchase of fixed maturity investments
    
    
    (1,605,371
    )
    
    
    (18,952,781
    )Net cash provided by investing activities
    
    
    18,809,388
    
    
    
    28,877,940(Decrease) increase in cash and cash equivalents
    
    
    (22,757,402
    )
    
    
    427,650Cash and cash equivalents, beginning of period
    
    
    56,394,484
    
    
    
    80,068,310Cash and cash equivalents, end of period
    
    $
    33,637,082
    
    
    $
    80,495,960Non-Cash disclosures: amounts recorded in connection
with the cumulative effect of a change in accounting
principleDeferred policy acquisition costs
    
    $
    
    
    
    $
    (36,154,010
    )Reserves for future policy benefits
    
    
    
    
    
    
    (1,878,760
    )Interest sensitive contracts, net of funds withheld
    
    
    
    
    
    
    38,398,730Cumulative effect of a change in accounting principle
    
    $
    
    
    
    $
    365,960
  -5-




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##### Table of Contents



ANNUITY AND LIFE RE (HOLDINGS), LTD.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Organization
    2. Significant Events
   -6-




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##### Table of Contents



Annuity and Life Re (Holdings), Ltd.
Pro Forma Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2004
 For the Period Ended June 30, 2004Three Months
    
    
    Six MonthsPro FormaTotal Revenues
    
    $
    6,088,657
    
    
    $
    14,548,710Total Benefits and Expenses
    
    
    12,128,148
    
    
    
    20,524,100Income before cumulative effect of a change in
accounting principle
    
    
    (6,039,491
    )
    
    
    (5,975,390
    )Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    Net loss
    
    $
    (6,039,491
    )
    
    $
    (5,975,390
    )Loss per common share before cumulative effect of a change
in accounting principle per common share:Basic
    
    $
    (0.23
    )
    
    $
    (0.23
    )Diluted
    
    $
    (0.23
    )
    
    $
    (0.23
    )Cumulative effect of a change in accounting principle per
common share:Basic
    
    $
    0.00
    
    
    $
    0.00Diluted
    
    $
    0.00
    
    
    $
    0.00Net loss per common share:Basic
    
    $
    (0.23
    )
    
    $
    (0.23
    )Diluted
    
    $
    (0.23
    )
    
    $
    (0.23
    )
 -7-




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##### Table of Contents



3. Loss per Common Share
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Loss before cumulative
effect of a change in
accounting
principle
    
    $
    (539,968
    )
    
    $
    (6,430,378
    )
    
    $
    (1,308,631
    )
    
    $
    (5,230,023
    )Cumulative effect of a
change in accounting
principle (Note 5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (365,960
    )Net loss
    
    $
    (539,968
    )
    
    $
    (6,430,378
    )
    
    $
    (1,308,631
    )
    
    $
    (5,595,983
    )Basic:Weighted average number
of common shares
outstanding
    
    
    26,107,695
    
    
    
    25,874,495
    
    
    
    26,054,011
    
    
    
    25,841,161Loss before cumulative
effect of a change in
accounting principle per
common share
    
    $
    (0.02
    )
    
    $
    (0.25
    )
    
    $
    (0.05
    )
    
    $
    (0.21
    )Cumulative effect of a
change in accounting
principle per common
share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (0.01
    )Net loss per common share
    
    $
    (0.02
    )
    
    $
    (0.25
    )
    
    $
    (0.05
    )
    
    $
    (0.22
    )Diluted:Weighted average number
of common shares
outstanding
    
    
    26,107,695
    
    
    
    25,874,495
    
    
    
    26,054,011
    
    
    
    25,841,161Plus: incremental shares
from assumed exercise of
options and warrants and
vesting of restricted
stock outstanding
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss before cumulative
effect of a change in
accounting principle per
common share
    
    $
    (0.02
    )
    
    $
    (0.25
    )
    
    $
    (0.05
    )
    
    $
    (0.21
    )Cumulative effect of a
change in accounting
principle per common
share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (0.01
    )Net loss per common share
    
    $
    (0.02
    )
    
    $
    (0.25
    )
    
    $
    (0.05
    )
    
    $
    (0.22
    )
   -8-




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##### Table of Contents



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss  as reported
    
    $
    (539,968
    )
    
    $
    (6,430,378
    )
    
    $
    (1,308,631
    )
    
    $
    (5,595,983
    )Stock option expense recognized
    
    
    43,633
    
    
    
    20,833
    
    
    
    88,592
    
    
    
    41,667Pro forma effect on net loss
of applying fair value
accounting to all stock option
grants (a)
    
    
    (43,633
    )
    
    
    (173,456
    )
    
    
    (88,592
    )
    
    
    (406,144
    )Net loss  pro forma
    
    $
    (539,968
    )
    
    $
    (6,583,001
    )
    
    $
    (1,308,631
    )
    
    $
    (5,960,460
    )Net loss per common share  as
reported:Basic
    
    $
    (0.02
    )
    
    $
    (0.25
    )
    
    $
    (0.05
    )
    
    $
    (0.22
    )Diluted
    
    $
    (0.02
    )
    
    $
    (0.25
    )
    
    $
    (0.05
    )
    
    $
    (0.22
    )Net loss per common share  pro
forma:Basic
    
    $
    (0.02
    )
    
    $
    (0.26
    )
    
    $
    (0.05
    )
    
    $
    (0.23
    )Diluted
    
    $
    (0.02
    )
    
    $
    (0.26
    )
    
    $
    (0.05
    )
    
    $
    (0.23
    )
 (a)
    
    The pro forma effect of applying fair value accounting to all stock option grants is
equal to the stock option expense recognized in the determination of net loss for the three
and six months ended June 30, 2005 because the Company no longer has any unvested stock
options that were granted prior to the adoption of SFAS No. 123 and No. 148.
  4. Business Segments
   -9-




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##### Table of Contents



Three Months Ended
    
    Life
    
    
    AnnuityJune 30, 2005
    
    Reinsurance
    
    
    Reinsurance
    
    
    Corporate
    
    
    ConsolidatedRevenues
    
    $
    3,314,514
    
    
    $
    644,128
    
    
    $
    573,825
    
    
    $
    4,532,467Benefits and Expenses
    
    
    2,363,635
    
    
    
    686,340
    
    
    
    2,022,460
    
    
    
    5,072,435Segment Income (Loss)
    
    $
    950,879
    
    
    $
    (42,212
    )
    
    $
    (1,448,635
    )
    
    $
    (539,968
    )Total Assets
    
    $
    121,460,882
    
    
    $
    55,510,806
    
    
    $
    60,865,474
    
    
    $
    237,837,162
 Three Months Ended
    
    Life
    
    
    AnnuityJune 30, 2004
    
    Reinsurance
    
    
    Reinsurance
    
    
    Corporate
    
    
    ConsolidatedRevenues
    
    $
    10,515,041
    
    
    $
    5,002,269
    
    
    $
    567,106
    
    
    $
    16,084,416Benefits and Expenses
    
    
    9,780,675
    
    
    
    6,215,881
    
    
    
    6,518,238
    
    
    
    22,514,794Segment Income (Loss)
    
    $
    734,366
    
    
    $
    (1,213,612
    )
    
    $
    (5,951,132
    )
    
    $
    (6,430,378
    )Total Assets
    
    $
    220,280,815
    
    
    $
    666,102,422
    
    
    $
    86,128,401
    
    
    $
    972,511,638
 Six Months Ended
    
    Life
    
    
    AnnuityJune 30, 2005
    
    Reinsurance
    
    
    Reinsurance
    
    
    Corporate
    
    
    ConsolidatedRevenues
    
    $
    9,282,433
    
    
    $
    1,837,937
    
    
    $
    1,485,303
    
    
    $
    12,605,673Benefits and Expenses
    
    
    8,151,872
    
    
    
    1,442,989
    
    
    
    4,319,443
    
    
    
    13,914,304Segment Income (Loss)
    
    $
    1,130,561
    
    
    $
    394,948
    
    
    $
    (2,834,140
    )
    
    $
    (1,308,631
    )Total Assets
    
    $
    121,460,882
    
    
    $
    55,510,806
    
    
    $
    60,865,474
    
    
    $
    237,837,162
 Six Months Ended
    
    Life
    
    
    AnnuityJune 30, 2004
    
    Reinsurance
    
    
    Reinsurance
    
    
    Corporate
    
    
    ConsolidatedRevenues
    
    $
    25,130,541
    
    
    $
    14,922,344
    
    
    $
    1,954,152
    
    
    $
    42,007,037Benefits and Expenses
    
    
    24,221,596
    
    
    
    14,802,342
    
    
    
    8,213,123
    
    
    
    47,237,060Segment Income
(Loss) before
cumulative effect of
a change in
accounting principle
    
    $
    908,946
    
    
    $
    120,002
    
    
    $
    (6,258,971
    )
    
    $
    (5,230,023
    )Cumulative effect of
a change in
accounting principle
    
    $
    
    
    
    $
    (365,960
    )
    
    $
    
    
    
    $
    (365,960
    )Segment Income (Loss)
    
    $
    908,946
    
    
    $
    (245,958
    )
    
    $
    (6,258,971
    )
    
    $
    (5,595,983
    )Total Assets
    
    $
    220,280,815
    
    
    $
    666,102,422
    
    
    $
    86,128,401
    
    
    $
    972,511,638
 5. Accounting Standards
 Emerging Issues Task Force
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AICPA Statement of Position (SOP) 03-1
  Share-Based Payments
  6. Related Party Transactions
  7. Restricted Stock
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##### Table of Contents



Employee SharesOutstanding at
    
    
    Shares Vested at
    
    
    Shares Vesting in
    
    
    Shares Vesting inGrant Date
    
    June 30, 2005
    
    
    June 30, 2005
    
    
    2005
    
    
    2006February 13, 2002
    
    
    40,700
    
    
    
    40,700
    
    
    
    
    
    
    
    September 30, 2002
    
    
    75,000
    
    
    
    50,000
    
    
    
    25,000
    
    
    
    February 28, 2003
    
    
    200,000
    
    
    
    133,333
    
    
    
    
    
    
    
    66,667June 25, 2003
    
    
    235,000
    
    
    
    156,666
    
    
    
    
    
    
    
    78,334Total
    
    
    550,700
    
    
    
    380,699
    
    
    
    25,000
    
    
    
    145,001
  8. Vulnerability Due to Concentrations
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9. Contingencies
    -13-




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 General
      -15-




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Critical Accounting Policies
  Deferred Policy Acquisition Costs.
 -16-




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Embedded Derivatives.
  -17-




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Recognition of Revenues and Expenses.
 Reserves for Policy Benefits, Including Claims Incurred but not Reported (IBNR) and Interest
Sensitive Contracts Liability.
  AICPA Statement of Position (SOP) 03-1.
 Stock-Based Compensation
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Operating Results
 Net Loss.
  Net Premiums
 Net Investment Income
  -19-




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Net Realized Investment (Losses) Gains.
 Net Change in the Fair Value of Embedded Derivatives
 Surrender Fees and Other Revenue.
 Claims and Policy Benefits.
 -20-




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Interest Credited to Interest Sensitive Products
 Policy Acquisition Costs and Other Insurance Expenses
 Operating Expenses
 Segment Results
  -21-




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Life Segment.
    Annuity Segment.
 -22-




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Corporate Segment
  -23-




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Financial Condition
 Investments
    -24-




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Investment Results
 Six Months Ended June 30,
    
    
    Twelve Months Ended December 31,2005
    
    
    2004
    
    
    2004
    
    
    2003
    
    
    2002(Dollars in thousands)Total invested assets,
including cash and
equivalents (1)
    
    $
    96,388
    
    
    $
    166,893
    
    
    $
    138,429
    
    
    $
    197,881
    
    
    $
    306,346Investment income, net
of related expenses
    
    $
    1,941
    
    
    $
    2,951
    
    
    $
    5,335
    
    
    $
    5,924
    
    
    $
    25,931Effective annualized
yield rate (2)
    
    
    3.48
    %
    
    
    3.24
    %
    
    
    3.51
    %
    
    
    2.53
    %
    
    
    5.28
    %Realized investment gains
    
    $
    401
    
    
    $
    541
    
    
    $
    440
    
    
    $
    6,407
    
    
    $
    19,749
 
 (1)
    
    Fair value at end of the indicated period.(2)
    
    The effective yield rate equals (i) net investment income divided by (ii) the average of
total adjusted invested assets (fixed maturities at amortized cost, including assets on
deposit with reinsurers) at the end of each calendar quarter included in the indicated
period. Funds Withheld at Interest
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Lafayette Annuity Reinsurance Agreement
    % of TotalType of Security
    
    Book Value(1)
    
    
    Market Value
    
    
    Market ValueInvestment grade US corporate bonds
    
    $
    44,273,372
    
    
    $
    46,033,804
    
    
    
    82.9
    %Mortgage-backed securities
    
    
    5,800,969
    
    
    
    6,306,895
    
    
    
    11.4
    %Government bonds
    
    
    3,186,099
    
    
    
    3,186,099
    
    
    
    5.7
    %Total invested assets
    
    $
    53,260,440
    
    
    $
    55,526,798
    
    
    
    100.0
    %Accrued investment income
    
    
    
    
    
    
    769,702Total market value, including
accrued investment income
    
    
    
    
    
    $
    56,296,500
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(1)
    
    Book values are statutory book values reported to us by Lafayette for the underlying
investments and represent the value of our Funds withheld at interest receivable. We
present statutory book values in the above table because that is the basis upon which we
settle with Lafayette. We believe this presents a better understanding of potential future
returns and cash flows under the agreement.  % of TotalRatings(1)
    
    Book Value(2)
    
    
    Market Value
    
    
    Market ValueAAA
    
    $
    5,473,766
    
    
    $
    5,475,141
    
    
    
    9.9
    %AA
    
    
    3,287,147
    
    
    
    3,447,999
    
    
    
    6.2
    %A
    
    
    14,376,284
    
    
    
    15,040,999
    
    
    
    27.1
    %BBB
    
    
    30,123,243
    
    
    
    31,562,659
    
    
    
    56.8
    %Total invested assets
    
    $
    53,260,440
    
    
    $
    55,526,798
    
    
    
    100.0
    %Accrued investment income
    
    
    
    
    
    
    769,702Total market value,
including accrued
investment income
    
    
    
    
    
    $
    56,296,500
 
 (1)
    
    As assigned by Standard & Poors, or, if unrated by Standard & Poors, based on an
equivalent rating assigned by the National Association of Insurance Commissioners.(2)
    
    Book values are statutory book values reported to us by Lafayette for the underlying
investments and represent the value of our Funds withheld at interest receivable. We
present statutory book values in the above table because that is the basis upon which we
settle with Lafayette. We believe this presents a better understanding of potential future
returns and cash flows under the agreement.  % of TotalMaturity
    
    Book Value(1)
    
    
    Market Value
    
    
    Book ValueWithin one year
    
    $
    10,596,958
    
    
    $
    10,659,512
    
    
    
    19.2
    %From one to five years
    
    
    21,160,922
    
    
    
    22,321,940
    
    
    
    40.2
    %From six to ten years
    
    
    18,909,687
    
    
    
    19,630,082
    
    
    
    35.3
    %More than ten years
    
    
    2,592,873
    
    
    
    2,915,264
    
    
    
    5.3
    %Total all years
    
    $
    53,260,440
    
    
    $
    55,526,798
    
    
    
    100.0
    %
 
 (1)
    
    Book values are those statutory book values reported to us by Lafayette for the
underlying investments and represent the value of our Funds withheld at interest
receivable. We present statutory book values in the above table because that is the basis
upon which we settle with Lafayette. We believe this presents a better understanding of
potential future returns and cash flows under the agreement. Liquidity and Capital Resources
  -28-




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-29-




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Forward-Looking and Cautionary Statements
  -30-




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Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
 Evaluation of disclosure controls and procedures
  Changes in internal control over financial reporting
   -31-




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PART II
 OTHER INFORMATION
 
 Item 1. Legal Proceedings
    -32-




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total Number of
    
    
    Approximate DollarShares Purchased as
    
    
    Value of Shares thatPart of Publicly
    
    
    May Yet Be PurchasedTotal Number of
    
    
    Average Price Paid
    
    
    Announced Plans or
    
    
    Under thePeriod
    
    Shares Purchased
    
    
    per Share
    
    
    Programs
    
    
    Plans or Programs (1)April 1
 April 30, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    25,000,000May 1  May 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    25,000,000June 1  June 30, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    25,000,000Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    25,000,000
 
 (1)
    
    During 2001, the Companys Board of Directors approved a share repurchase program to allow
the Company to repurchase up to an aggregate $25,000,000 of its common shares in the future if
market conditions so dictate. As of June 30, 2005, no shares had been repurchased under the
program. 
 Item 6. Exhibits
 31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of the Companys Chief Executive Officer.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of the Companys Chief Financial Officer.32.1
    
    Section 1350 Certification of the Companys Chief Executive Officer.32.2
    
    Section 1350 Certification of the Companys Chief Financial Officer.
 -33-




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ANNUITY AND LIFE RE (HOLDINGS), LTD.
 
 SIGNATURES
  ANNUITY AND LIFE RE (HOLDINGS), LTD./s/ John F. BurkeName: John F. BurkeDate: August 5, 2005
    
    Title: Chief Executive Officer/s/ John W. LockwoodName: John W. LockwoodDate: August 5, 2005
    
    Title: Chief Financial Officer
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Exhibit Index
 31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of the Companys Chief Executive Officer.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of the Companys Chief Financial Officer.32.1
    
    Section 1350 Certification of the Companys Chief Executive Officer.32.2
    
    Section 1350 Certification of the Companys Chief Financial Officer.
 -35-