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




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INDEX TO FORM 10-Q
 PAGEPART IFINANCIAL INFORMATIONItem 1.
    
    Condensed Consolidated Financial StatementsCondensed Consolidated Balance Sheets
September 30, 2005 and December 31, 2004
    
    
    1Condensed Consolidated Statements of Operations for the
Three Months and Nine Months ended September 30, 2005 and
September 30, 2004
    
    
    2Condensed Consolidated Statements of Comprehensive Loss for the
Three Months and Nine Months ended September 30, 2005 and
September 30, 2004
    
    
    3Condensed Consolidated Statements of Changes in Stockholders
Equity for the Nine Months ended September 30, 2005 and
September 30, 2004
    
    
    4Condensed Consolidated Statements of Cash Flows for the
Nine Months ended September 30, 2005 and September 30, 2004
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    24Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    47Item 4.
    
    Controls and Procedures
    
    
    47PART IIOTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    48Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    49Item 6.
    
    Exhibits
    
    
    50Signatures
    
    
    
    
    51Master Agreement dated as of August 10, 2005Rule 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)
 September 30, 2005
    
    
    December 31, 2004(unaudited)AssetsCash and cash equivalents
    
    $
    21,749,463
    
    
    $
    56,394,484Fixed maturity investments at fair value (amortized cost of
$71,455,17 and $80,767,893 at September 30, 2005 and December
31, 2004, respectively)
    
    
    71,150,222
    
    
    
    82,034,410Funds withheld at interest
    
    
    50,962,885
    
    
    
    56,415,386Accrued investment income
    
    
    677,662
    
    
    
    1,155,762Receivable for reinsurance ceded
    
    
    77,016,411
    
    
    
    82,433,270Other reinsurance receivables
    
    
    3,021,878
    
    
    
    4,306,931Deferred policy acquisition costs
    
    
    5,592,316
    
    
    
    6,084,488Other assets
    
    
    401,850
    
    
    
    580,625Total Assets
    
    $
    230,572,687
    
    
    $
    289,405,356LiabilitiesReserves for future policy benefits
    
    $
    103,758,582
    
    
    $
    109,860,843Interest sensitive contracts liability
    
    
    50,691,337
    
    
    
    57,754,009Other reinsurance liabilities
    
    
    13,202,482
    
    
    
    49,186,297Accounts payable and accrued expenses
    
    
    2,867,363
    
    
    
    6,186,995Total Liabilities
    
    
    170,519,764
    
    
    
    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;
24,543,811 and 26,338,528 shares issued and outstanding at
September 30, 2005 and December 31, 2004, respectively)
    
    
    24,543,811
    
    
    
    26,338,528Additional paid-in capital
    
    
    334,116,857
    
    
    
    333,810,766Stock warrants
    
    
    1,350,000
    
    
    
    1,350,000Unamortized stock based compensation
    
    
    (107,050
    )
    
    
    (490,415
    )Accumulated other comprehensive (loss) income
    
    
    (305,655
    )
    
    
    1,016,260Accumulated deficit
    
    
    (299,545,040
    )
    
    
    (295,607,927
    )Total Stockholders Equity
    
    
    60,052,923
    
    
    
    66,417,212Total Liabilities and Stockholders Equity
    
    $
    230,572,687
    
    
    $
    289,405,356
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ANNUITY AND LIFE RE (HOLDINGS), LTD.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited and in U.S. dollars)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004RevenuesNet premiums
    
    $
    3,584,825
    
    
    $
    9,906,337
    
    
    $
    12,001,008
    
    
    $
    34,565,859Investment income, net of related expenses
    
    
    1,531,065
    
    
    
    4,780,211
    
    
    
    4,806,689
    
    
    
    17,875,012Net realized investment gains (losses)
    
    
    99,507
    
    
    
    (84,868
    )
    
    
    500,650
    
    
    
    456,172Net change in fair value of embedded derivatives
    
    
    654,444
    
    
    
    565,939
    
    
    
    1,105,853
    
    
    
    1,692,113Surrender fees and other revenues
    
    
    33,574
    
    
    
    1,024,405
    
    
    
    94,887
    
    
    
    3,609,905Total Revenues
    
    
    5,903,415
    
    
    
    16,192,024
    
    
    
    18,509,087
    
    
    
    58,199,061Benefits and ExpensesClaim and policy benefits
    
    
    4,591,875
    
    
    
    5,669,394
    
    
    
    10,781,404
    
    
    
    24,683,101Interest credited to interest sensitive products
    
    
    359,361
    
    
    
    5,513,653
    
    
    
    985,614
    
    
    
    10,865,545Policy acquisition costs and other insurance
expenses
    
    
    715,013
    
    
    
    5,693,745
    
    
    
    3,079,459
    
    
    
    18,529,269Operating expenses
    
    
    2,865,648
    
    
    
    2,410,937
    
    
    
    7,599,723
    
    
    
    12,446,874Total Benefits and Expenses
    
    
    8,531,897
    
    
    
    19,287,729
    
    
    
    22,446,200
    
    
    
    66,524,789Loss before cumulative effect of a change in
accounting principle (Note 5)
    
    
    (2,628,482
    )
    
    
    (3,095,705
    )
    
    
    (3,937,113
    )
    
    
    (8,325,728
    )Cumulative effect of a change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (365,960
    )Net Loss
    
    $
    (2,628,482
    )
    
    $
    (3,095,705
    )
    
    $
    (3,937,113
    )
    
    $
    (8,691,688
    )Loss per common share before cumulative effect
of a change in accounting principle per common
shareBasic
    
    $
    (0.10
    )
    
    $
    (0.12
    )
    
    $
    (0.16
    )
    
    $
    (0.32
    )Diluted
    
    $
    (0.10
    )
    
    $
    (0.12
    )
    
    $
    (0.16
    )
    
    $
    (0.32
    )Cumulative effect of a change in accounting
principle per common shareBasic
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (0.01
    )Diluted
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (0.01
    )Net loss per common shareBasic
    
    $
    (0.10
    )
    
    $
    (0.12
    )
    
    $
    (0.16
    )
    
    $
    (0.33
    )Diluted
    
    $
    (0.10
    )
    
    $
    (0.12
    )
    
    $
    (0.16
    )
    
    $
    (0.33
    )
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ANNUITY AND LIFE RE (HOLDINGS), LTD.
 
 CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
 (Unaudited and in U.S. dollars)
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss for the period
    
    $
    (2,628,482
    )
    
    $
    (3,095,705
    )
    
    $
    (3,937,113
    )
    
    $
    (8,691,688
    )Other comprehensive (loss) income:Unrealized holding (losses) gains
on securities arising during the
period
    
    
    (879,823
    )
    
    
    1,722,029
    
    
    
    (821,265
    )
    
    
    (346,583
    )Less reclassification
adjustment for net realized
gains (losses) in net loss
    
    
    99,507
    
    
    
    (84,868
    )
    
    
    500,650
    
    
    
    456,172Other comprehensive (loss) income
    
    $
    (979,330
    )
    
    $
    1,806,897
    
    
    $
    (1,321,915
    )
    
    $
    (802,755
    )Total comprehensive loss
    
    $
    (3,607,812
    )
    
    $
    (1,288,808
    )
    
    $
    (5,259,028
    )
    
    $
    (9,494,443
    )
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ANNUITY AND LIFE RE (HOLDINGS), LTD.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
 (Unaudited and in U.S. dollars)
 For the Nine Months EndedSeptember 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
    
    
    (1,794,717
    )
    
    
    (58,267
    )Balance at end of period
    
    $
    24,543,811
    
    
    $
    26,395,928Additional paid-in capitalBalance at beginning of period
    
    $
    333,810,766
    
    
    $
    334,418,029Issuance of shares
    
    
    
    
    
    
    15,000Cancellation of shares
    
    
    306,091
    
    
    
    (391,085
    )Balance at end of period
    
    $
    334,116,857
    
    
    $
    334,041,944Stock warrantsBalance at beginning of period
    
    $
    1,350,000
    
    
    $
    1,250,000Issuance of warrants
    
    
    
    
    
    
    100,000Balance at end of period
    
    $
    1,350,000
    
    
    $
    1,350,000Unamortized stock based compensationBalance at beginning of period
    
    $
    (490,415
    )
    
    $
    (1,509,022
    )Issuance of stock based compensation
    
    
    
    
    
    
    Cancellation of stock based compensation
    
    
    34,725
    
    
    
    449,352Amortization of stock based
compensation
    
    
    348,640
    
    
    
    278,294Balance at end of period
    
    $
    (107,050
    )
    
    $
    (781,376
    )Accumulated other comprehensive (loss) incomeBalance at beginning of period
    
    $
    1,016,260
    
    
    $
    1,840,849Net unrealized losses on fixed maturity investments
    
    
    (1,321,915
    )
    
    
    (802,755
    )Balance at end of period
    
    $
    (305,655
    )
    
    $
    1,038,094Accumulated deficitBalance at beginning of period
    
    $
    (295,607,927
    )
    
    $
    (227,281,472
    )Net loss
    
    
    (3,937,113
    )
    
    
    (8,691,688
    )Balance at end of period
    
    $
    (299,545,040
    )
    
    $
    (235,973,160
    )Total Stockholders Equity
    
    $
    60,052,923
    
    
    $
    126,071,430
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ANNUITY AND LIFE RE (HOLDINGS), LTD.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited and in U.S. dollars)
 For the Nine Months EndedSeptember 30,2005
    
    
    2004Cash flows from operating activitiesNet loss
    
    $
    (3,937,113
    )
    
    $
    (8,691,688
    )Adjustments to reconcile net loss to cash used by operating activities:Net realized investment gains
    
    
    (500,650
    )
    
    
    (456,172
    )Net change in fair value of embedded derivatives
    
    
    (1,105,853
    )
    
    
    (1,692,113
    )Amortization of premiums on fixed maturity investments
    
    
    775,412
    
    
    
    816,630Amortization of stock based compensation
    
    
    348,640
    
    
    
    278,294Stock warrants expense
    
    
    
    
    
    
    100,000Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    365,960Changes in:Accrued investment income
    
    
    478,100
    
    
    
    457,700Other reinsurance receivables
    
    
    6,701,912
    
    
    
    6,776,590Deferred policy acquisition costs
    
    
    492,172
    
    
    
    9,309,181Other assets
    
    
    178,775
    
    
    
    (70,940
    )Reserves for future policy benefits
    
    
    (6,102,261
    )
    
    
    (7,553,564
    )Interest sensitive contracts liability, net of funds withheld at interest
    
    
    (504,318
    )
    
    
    (14,164,633
    )Other reinsurance liabilities
    
    
    (35,983,815
    )
    
    
    (40,445,842
    )Accounts payable and accrued expenses
    
    
    (3,319,632
    )
    
    
    (1,540,624
    )Net cash used in operating activities
    
    
    (42,478,631
    )
    
    
    (56,511,221
    )Cash flows from investing activitiesProceeds from sales and maturity of fixed maturity investments
    
    
    43,514,786
    
    
    
    52,924,881Purchase of fixed maturity investments
    
    
    (34,227,275
    )
    
    
    (19,548,197
    )Net cash provided by investing activities
    
    
    9,287,511
    
    
    
    33,376,684Cash flows from financing activitiesPurchase and cancellation of company stock
    
    
    (1,453,901
    )
    
    
    Net cash used in financing activities
    
    
    (1,453,901
    )
    
    
    Decrease in cash and cash equivalents
    
    
    (34,645,021
    )
    
    
    (23,134,537
    )Cash and cash equivalents, beginning of period
    
    
    56,394,484
    
    
    
    80,068,310Cash and cash equivalents, end of period
    
    $
    21,749,463
    
    
    $
    56,933,773Non-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 at interest
    
    
    
    
    
    
    38,398,730Cumulative effect of a change in accounting principle
    
    $
    
    
    
    $
    365,960
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ANNUITY AND LIFE RE (HOLDINGS), LTD.
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. Organization
    2. Significant Events
 Wilton Re Transaction
  -6-




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Annuity and Life Re (Holdings), Ltd.
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2005
 100% Novation
    
    
    100% CoinsuranceReported
    
    
    Adjustments
    
    
    Pro Forma
    
    
    Adjustments
    
    
    Pro FormaAssetsCash & invested assets
    
    $
    92,899,685
    
    
    $
    (32,490,788
    )(A)
    
    $
    60,408,897
    
    
    $
    (32,490,788
    )(K)
    
    $
    60,408,897Funds withheld at interest
    
    
    50,962,885
    
    
    
    (50,962,885
    )(B)
    
    
    
    
    
    
    (50,962,885
    )(L)
    
    
    Accrued investment income
    
    
    677,662
    
    
    

    
    
    
    
    677,662
    
    
    
    

    
    
    
    677,662Receivable for reinsurance ceded
    
    
    77,016,411
    
    
    
    (211,956
    )(C)
    
    
    76,804,455
    
    
    
    25,863,490
    (M)
    
    
    102,879,901Other reinsurance receivables
    
    
    3,021,878
    
    
    
    (2,586,522
    )(D)
    
    
    435,356
    
    
    
    (2,586,522
    )(N)
    
    
    435,356Deferred policy acquisition costs
    
    
    5,592,316
    
    
    
    (5,592,316
    )(E)
    
    
    
    
    
    
    (5,592,316
    )(O)
    
    
    Other assets
    
    
    401,850
    
    
    
    
    
    
    
    401,850
    
    
    
    
    
    
    
    401,850Total assets
    
    $
    230,572,687
    
    
    $
    (91,844,467
    )
    
    $
    138,728,220
    
    
    $
    (65,769,021
    )
    
    $
    164,803,666LiabilitiesReserves for future policy benefits
    
    $
    103,758,582
    
    
    $
    (26,075,446
    )(F)
    
    $
    77,683,136
    
    
    $
    
    
    
    $
    103,758,582Interest sensitive contracts liability
    
    
    50,691,337
    
    
    
    (50,691,337
    )(G)
    
    
    
    
    
    
    (50,691,337
    )(P)
    
    
    Other reinsurance liabilities
    
    
    13,202,482
    
    
    
    (5,767,747
    )(H)
    
    
    7,434,735
    
    
    
    (5,767,747
    )(Q)
    
    
    7,434,735Accounts payable and accrued expenses
    
    
    2,867,363
    
    
    
    (49,145
    )(I)
    
    
    2,818,218
    
    
    
    (49,145
    )(R)
    
    
    2,818,218Total liabilities
    
    $
    170,519,764
    
    
    $
    (82,583,675
    )
    
    $
    87,936,089
    
    
    $
    (56,508,229
    )
    
    $
    114,011,535Stockholders EquityTotal Stockholders Equity
    
    $
    60,052,923
    
    
    $
    (9,260,792
    )(J)
    
    $
    50,792,131
    
    
    $
    (9,260,792
    )(S)
    
    $
    50,792,131Total Liabilities and Stockholders Equity
    
    $
    230,572,687
    
    
    $
    (91,844,467
    )
    
    $
    138,728,220
    
    
    $
    (65,769,021
    )
    
    $
    164,803,666
 
 (A)
    
    To record the transfer of cash and invested assets to Wilton.(B)
    
    To record the transfer of Funds withheld at interest to Wilton.(C)
    
    To record the transfer of ceded benefit reserves to Wilton.(D)
    
    To record the transfer of premiums receivable related to the life reinsurance agreements novated to Wilton.(E)
    
    To write-off the Deferred policy acquisition costs associated with the life and annuity reinsurance agreements novated to Wilton.(F)
    
    To record the transfer of benefit reserves associated with the life reinsurance agreements novated to Wilton.(G)
    
    To record the transfer of Interest sensitive contracts liabilities associated with the annuity reinsurance agreement novated to Wilton.(H)
    
    To record the transfer of Other reinsurance liabilities associated with the life reinsurance agreements novated to Wilton.(I)
    
    To record the transfer of excise tax payable associated with the life reinsurance agreements novated to Wilton.(J)
    
    To record to net effect of the Wilton novation transaction in Stockholders equity.(K)
    
    To record the transfer of cash and invested assets to Wilton.(L)
    
    To record the transfer of Funds withheld at interest to Wilton.(M)
    
    To record the ceded life reserves recoverable for the life reinsurance agreements coinsured by Wilton.(N)
    
    To record the ceded premiums payable related to the life reinsurance agreements coinsured by Wilton.(O)
    
    To record ceded Deferred policy acquisition costs associated with the life and annuity reinsurance agreements coinsured by Wilton.(P)
    
    To record the ceded Interest sensitive contracts liabilities associated with the annuity reinsurance agreement coinsured by Wilton.(Q)
    
    To record the ceded amount of Other reinsurance liabilities associated with the life reinsurance agreements coinsured by Wilton.(R)
    
    To record the ceded excise tax receivable associated with the life reinsurance agreements
coinsured by Wilton.(S)
    
    To record the net effect of the coinsurance transaction in Stockholders equity.  -9-




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Annuity & Life Re (Holdings) Ltd.
Pro Forma Consolidated Statement of Operations for the Nine Months Ended September 30, 2005
(Unaudited and in U.S. Dollars)
 WiltonTransactionReported
    
    
    Adjustments
    
    
    Pro FormaRevenuesNet premiums
    
    $
    12,001,008
    
    
    $
    (11,325,272
    )(A)
    
    $
    675,736Investment income, net of related expenses
    
    
    4,806,689
    
    
    
    (1,938,486
    )(B)
    
    
    2,868,203Net realized investment gains
    
    
    500,650
    
    
    
    
    
    
    
    500,650Net change in fair value of embedded derivatives
    
    
    1,105,853
    
    
    
    (1,105,853
    )(C)
    
    
    Surrender fees and other revenues
    
    
    94,887
    
    
    
    (94,887
    )(D)
    
    
    Total Revenues
    
    $
    18,509,087
    
    
    $
    (14,464,498
    )
    
    $
    4,044,589Benefits and ExpensesClaims and policy benefits
    
    $
    10,781,404
    
    
    $
    (12,675,325
    )(E)
    
    $
    (1,893,921
    )Interest credited to interest sensitive products
    
    
    985,614
    
    
    
    (985,614
    )(F)
    
    
    Policy acquisition costs and other insurance expenses
    
    
    3,079,459
    
    
    
    (2,370,965
    )(G)
    
    
    708,494Operating expenses
    
    
    7,599,723
    
    
    
    
    
    
    
    7,599,723Total Benefits and Expenses
    
    $
    22,446,200
    
    
    $
    (16,031,904
    )
    
    $
    6,414,296Loss before cumulative effect of a change in accounting principal
    
    $
    (3,937,113
    )
    
    $
    1,567,406
    
    
    $
    (2,369,707
    )Cumulative effect of a change in accounting principal
    
    
    
    
    
    
    
    
    
    
    Net Loss
    
    $
    (3,937,113
    )
    
    $
    1,567,406
    
    
    $
    (2,369,707
    )Loss per common share before cumulative effect of change in accounting
principal per common share:Basic
    
    $
    (0.16
    )
    
    $
    0.06
    
    
    $
    (0.09
    )Diluted
    
    $
    (0.16
    )
    
    $
    0.06
    
    
    $
    (0.09
    )Cumulative effect of a change in accounting principal per common share:Basic
    
    $
    
    
    
    
    
    
    
    $
    Diluted
    
    $
    
    
    
    
    
    
    
    $
    Net loss per common share:Basic
    
    $
    (0.16
    )
    
    $
    0.06
    
    
    $
    (0.09
    )Diluted
    
    $
    (0.16
    )
    
    $
    0.06
    
    
    $
    (0.09
    )
 
 (A)
    
    To reflect reduced Premiums as if the life reinsurance treaties novated to or coinsured by Wilton did
not exist during the first nine months of 2005.(B)
    
    To reflect reduced Net investment income as if the annuity reinsurance treaty novated to or coinsured by Wilton did not exist
during the first nine months of 2005.(C)
    
    To reflect no embedded derivative as if the annuity reinsurance treaty novated or coinsured by Wilton did not exist during the
first nine months of 2005.(D)
    
    To reflect reduced Surrender fees as if the annuity reinsurance treaty novated to or coinsured by Wilton did not exist during the
first nine months of 2005.(E)
    
    To reflect reduced Claim and Policy Benefits as if the life reinsurance treaties novated to or coinsured by Wilton did not exist
during the first nine months of 2005.(F)
    
    To reflect reduced Interest credited to interest sensitive products as if the annuity reinsurance treaty novated to or coinsured
by Wilton did not exist during the first nine months of 2005.(G)
    
    To reflect reduced Policy acquisition costs and other insurance expenses as if the life and annuity reinsurance treaties novated
to or -10-




---



##### Table of Contents



coinsured by Wilton did not exist during the first nine months of 2005.  Annuity and Life Re (Holdings), Ltd.
Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2004
(Unaudited and in U.S. Dollars)
 Pro Forma(as adjustedfor the 2004Pro Forma
    
    
    Adjustments
    
    
    transactionsAdjustments
    
    
    (as adjusted
    
    
    (for the
    
    
    and the(for the 2004
    
    
    for the 2004
    
    
    Wilton
    
    
    WiltonReported
    
    
    transactions)
    
    
    transactions)
    
    
    transaction)
    
    
    transaction)RevenuesNet premiums
    
    $
    48,297,706
    
    
    $
    (30,325,348
    )(A)
    
    $
    17,972,358
    
    
    $
    (15,898,984
    )(H)
    
    $
    2,073,374Investment income, net of related expenses
    
    
    21,697,563
    
    
    
    (13,439,098
    )(B)
    
    
    8,258,465
    
    
    
    (2,923,139
    )(I)
    
    
    5,335,326Net realized investment gains
    
    
    439,536
    
    
    
    
    
    
    
    439,536
    
    
    
    
    
    
    
    439,536Net change in fair value of embedded derivatives
    
    
    2,181,070
    
    
    
    
    
    
    
    2,181,070
    
    
    
    (2,181,070
    )(J)
    
    
    Surrender fees and other revenues
    
    
    4,475,691
    
    
    
    (4,257,721
    )(C)
    
    
    217,970
    
    
    
    (217,970
    )(K)
    
    
    Total Revenues
    
    $
    77,091,566
    
    
    $
    (48,022,167
    )
    
    $
    29,069,399
    
    
    $
    (21,221,163
    )
    
    $
    7,848,236Benefits and ExpensesClaims and policy benefits
    
    $
    14,101,129
    
    
    
    (306,552
    )(D)
    
    $
    13,794,577
    
    
    
    (13,990,062
    )(L)
    
    
    (195,485
    )Interest credited to interest sensitive products
    
    
    5,399,460
    
    
    
    (3,530,883
    )(E)
    
    
    1,868,577
    
    
    
    (1,868,577
    )(M)
    
    
    Policy acquisition costs and other insurance expenses
    
    
    110,922,948
    
    
    
    (105,602,277
    )(F)
    
    
    5,320,671
    
    
    
    (3,987,088
    (N)
    
    
    1,333,583Operating expenses
    
    
    14,628,524
    
    
    
    
    
    
    
    14,628,524
    
    
    
    
    
    
    
    14,628,524Total Benefits and Expenses
    
    $
    145,052,061
    
    
    
    (109,439,712
    )
    
    $
    35,612,349
    
    
    $
    (19,845,727
    )
    
    $
    15,766,622Loss before cumulative effect of a change in
accounting principal
    
    $
    (67,960,495
    )
    
    
    61,417,545
    
    
    $
    (6,542,950
    )
    
    $
    (1,375,436
    )
    
    $
    (7,918,386
    )Cumulative effect of a change in accounting principal
    
    
    (365,960
    )
    
    
    365,960
    (G)
    
    
    
    
    
    
    
    
    
    
    Net Loss
    
    $
    (68,326,455
    )
    
    $
    61,783,505
    
    
    $
    (6,542,950
    )
    
    $
    (1,375,436
    )
    
    $
    (7,918,386
    )Loss per common share before cumulative effect of
change in accounting principal per common share:Basic
    
    $
    (2.63
    )
    
    $
    2.38
    
    
    $
    (0.25
    )
    
    $
    (0.05
    )
    
    $
    (0.31
    )Diluted
    
    $
    (2.63
    )
    
    $
    2.38
    
    
    $
    (0.25
    )
    
    $
    (0.05
    )
    
    $
    (0.31
    )Cumulative effect of a change in accounting principal
per common share:Basic
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.00Diluted
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.00Net loss per common share:Basic
    
    $
    (2.64
    )
    
    $
    2.39
    
    
    $
    (0.25
    )
    
    $
    (0.05
    )
    
    $
    (0.31
    )Diluted
    
    $
    (2.64
    )
    
    $
    2.39
    
    
    $
    (0.25
    )
    
    $
    (0.05
    )
    
    $
    (0.31
    )
 
 (A)
    
    To reflect reduced Premiums as if the Scottish Re and F&G life reinsurance agreements novated to Transamerica and as if the GMDB/ GMIB agreement recaptured by CIGNA did not exist in 2004(B)
    
    To reflect reduced Net investment income as if the Transamerica annuity agreement did not exist in 2004.(C)
    
    To reflect reduced Surrender fees and other revenues as if the Transamerica annuity agreement did not exist in 2004.(D)
    
    To reflect reduced Claim and Policy Benefits as if the Scottish Re and F&G life reinsurance agreements novated to Transamerica and as if the GMDB/ GMIB agreement recaptured by CIGNA did not exist in 2004.(E)
    
    To reflect reduced Interest credited to interest sensitive products as if the Transamerica annuity agreement did not exist in 2004. Includes the release of interest sensitive contracts liability net of
funds withheld at interest and the termination premium of $14,000,000 paid to Transamerica in consideration of the termination of this agreement as of December 1, 2004. -11-




---



##### Table of Contents



(F)
    
    To reflect reduced Policy acquisition costs and other insurance expenses as if the Transamerica annuity agreement, the Scottish Re and F&G life reinsurance agreements novated to Transamerica and the GMDB/
GMIB agreement recaptured by CIGNA did not exist in 2004. Includes the write down of deferred acquisition costs of approximately $63,100,000 associated with the termination of the Transamerica annuity
agreement and approximately $24,900,000 associated with the novation of Scottish Re and F&G life agreements as of December 31, 2004.(G)
    
    To reflect the reversal of the application of SOP 03-1 to the GMDB/ GMIB agreement recaptured by CIGNA and the Transamerica annuity agreement as if those agreements did not exist in 2004.(H)
    
    To reflect reduced Premiums as if the life reinsurance agreements novated to or coinsured by Wilton did not exist in 2004.(I)
    
    To reflect reduced Net investment income as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.(J)
    
    To reflect no embedded derivative as if the annuity reinsurance treaty novated to or coinsured by Wilton did not exist in 2004.(K)
    
    To reflect reduced Surrender fees as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.(L)
    
    To reflect reduced Claim and Policy Benefits as if the life reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.(M)
    
    To reflect reduced Interest credited to interest sensitive products as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist during the first six months of 2005.(N)
    
    To reflect reduced Policy acquisition costs and other insurance expenses as if the life and annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.  Annuity and Life Re (Holdings), Ltd.
Pro Forma Consolidated Statement of Operations for the Nine Months Ended September 30, 2004
(Unaudited and in U.S. Dollars)
 Pro Forma(as adjustedfor the 2004Pro Forma
    
    
    Adjustments
    
    
    transactionsAdjustments
    
    
    (as adjusted
    
    
    (for the
    
    
    and the(for the 2004
    
    
    for the 2004
    
    
    Wilton
    
    
    WiltonReported
    
    
    transactions)
    
    
    transactions)
    
    
    transaction)
    
    
    Transaction)RevenuesNet premiums
    
    $
    34,565,859
    
    
    $
    (21,253,833
    )(A)
    
    $
    13,312,026
    
    
    $
    (11,804,417
    )(H)
    
    $
    1,507,609Investment income, net of related expenses
    
    
    17,875,012
    
    
    
    (11,476,353
    )(B)
    
    
    6,398,659
    
    
    
    (2,253,938
    )(I)
    
    
    4,144,721Net realized investment gains
    
    
    456,172
    
    
    
    
    
    
    
    456,172
    
    
    
    
    
    
    
    456,172Net change in fair value of embedded derivatives
    
    
    1,692,113
    
    
    
    
    
    
    
    1,692,113
    
    
    
    (1,692,113
    )(J)
    
    
    Surrender fees and other revenues
    
    
    3,609,905
    
    
    
    (3,467,072
    )(C)
    
    
    142,833
    
    
    
    (142,833
    )(K)
    
    
    Total Revenues
    
    $
    58,199,061
    
    
    $
    (36,197,258
    )
    
    $
    22,001,803
    
    
    $
    (15,893,301
    )
    
    $
    6,108,502Benefits and ExpensesClaims and policy benefits
    
    $
    24,683,101
    
    
    
    (14,068,562
    )(D)
    
    $
    10,614,539
    
    
    
    (9,197,418
    )(L)
    
    
    1,417,121Interest credited to interest sensitive products
    
    
    10,865,545
    
    
    
    (9,584,687
    )(E)
    
    
    1,280,858
    
    
    
    (1,280,858
    )(M)
    
    
    Policy acquisition costs and other insurance expenses
    
    
    18,529,269
    
    
    
    (14,795,810
    )(F)
    
    
    3,733,459
    
    
    
    (3,112,693
    )(N)
    
    
    620,766Operating expenses
    
    
    12,446,874
    
    
    
    
    
    
    
    12,446,874
    
    
    
    
    
    
    
    12,446,874Total Benefits and Expenses
    
    $
    66,524,789
    
    
    
    (38,449,059
    )
    
    $
    28,075,730
    
    
    $
    (13,590,969
    )
    
    $
    14,484,761Loss before cumulative effect of a change in
accounting principal
    
    $
    (8,325,728
    )
    
    
    2,251,801
    
    
    $
    (6,073,927
    )
    
    $
    (2,302,332
    )
    
    $
    (8,376,259
    )Cumulative effect of a change in accounting principal
    
    
    (365,960
    )
    
    
    365,960
    (G)
    
    
    
    
    
    
    
    
    
    
    Net Loss
    
    $
    (8,691,688
    )
    
    $
    2,617,761
    
    
    $
    (6,073,927
    )
    
    $
    (2,302,332
    )
    
    $
    (8,376,259
    )Loss per common share before cumulative effect of
change in accounting principal per common share:Basic
    
    $
    (0.32
    )
    
    $
    0.09
    
    
    $
    (0.23
    )
    
    $
    (0.09
    )
    
    $
    (0.32
    )Diluted
    
    $
    (0.32
    )
    
    $
    0.09
    
    
    $
    (0.23
    )
    
    $
    (0.09
    )
    
    $
    (0.32
    )
 -12-




---



##### Table of Contents



Pro Forma(as adjustedfor the 2004Pro Forma
    
    
    Adjustments
    
    
    transactionsAdjustments
    
    
    (as adjusted
    
    
    (for the
    
    
    and the(for the 2004
    
    
    for the 2004
    
    
    Wilton
    
    
    WiltonReported
    
    
    transactions)
    
    
    transactions)
    
    
    transaction)
    
    
    Transaction)Cumulative effect of a change in accounting principal
per common share:Basic
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.00Diluted
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.00Net loss per common share:Basic
    
    $
    (0.33
    )
    
    $
    0.10
    
    
    $
    (0.23
    )
    
    $
    (0.09
    )
    
    $
    (0.32
    )Diluted
    
    $
    (0.33
    )
    
    $
    0.10
    
    
    $
    (0.23
    )
    
    $
    (0.09
    )
    
    $
    (0.32
    )
 
 (A)
    
    To reflect reduced Premiums as if the Scottish Re and F&G life reinsurance agreements novated to Transamerica and as if the GMDB/ GMIB agreement recaptured by CIGNA did not exist in 2004(B)
    
    To reflect reduced Net investment income as if the Transamerica annuity agreement did not exist in 2004.(C)
    
    To reflect reduced Surrender fees and other revenues as if the Transamerica annuity agreement did not exist in 2004.(D)
    
    To reflect reduced Claim and Policy Benefits as if the Scottish Re and F&G life reinsurance agreements novated to Transamerica and as if the GMDB/ GMIB agreement recaptured by CIGNA did not exist in 2004.(E)
    
    To reflect reduced Interest credited to interest sensitive products as if the Transamerica annuity agreement did not exist in 2004.(F)
    
    To reflect reduced Policy acquisition costs and other insurance expenses as if the Transamerica annuity agreement, the Scottish Re and F&G life reinsurance agreements novated to Transamerica and the GMDB/ GMIB
agreement recaptured by CIGNA did not exist in 2004.(G)
    
    To reflect the reversal of the application of SOP 03-1 to the GMDB/ GMIB agreement recaptured by CIGNA and the Transamerica annuity agreement as if those agreements did not exist in 2004.(H)
    
    To reflect reduced Premiums as if the life reinsurance agreements novated to or coinsured by Wilton did not exist in 2004.(I)
    
    To reflect reduced Net investment income as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.(J)
    
    To reflect no embedded derivative as if the annuity reinsurance treaty novated to or coinsured by Wilton did not exist in 2004.(K)
    
    To reflect reduced Surrender fees as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.(L)
    
    To reflect reduced Claim and Policy Benefits as if the life reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.(M)
    
    To reflect reduced Interest credited to interest sensitive products as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist during the first nine months of 2005.(N)
    
    To reflect reduced Policy acquisition costs and other insurance expenses as if the life and annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004. Repurchase of Common Shares
  Separation of Chief Executive Officer
   -13-




---



##### Table of Contents



Transamerica Transaction
    -14-




---



##### Table of Contents



Annuity and Life Re (Holdings), Ltd.
Pro Forma Condensed Consolidated Statements of Operations
for the Three and Nine Months Ended September 30, 2004
 For the Period Ended September 30, 2004Three Months
    
    
    Nine MonthsPro FormaTotal Revenues
    
    $
    7,453,090
    
    
    $
    22,001,800Total Benefits and Expenses
    
    
    7,551,700
    
    
    
    28,075,800Income before cumulative effect of a change in
accounting principle
    
    
    (98,610
    )
    
    
    (6,074,000
    )Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    Net loss
    
    $
    (98,610
    )
    
    $
    (6,074,000
    )Loss per common share before cumulative effect of a change
in accounting principle per common share:Basic
    
    $
    (0.00
    )
    
    $
    (0.23
    )Diluted
    
    $
    (0.00
    )
    
    $
    (0.23
    )Cumulative effect of a change in accounting principle per
common share:Basic
    
    $
    0.00
    
    
    $
    0.00Diluted
    
    $
    0.00
    
    
    $
    0.00Net loss per common share:Basic
    
    $
    (0.00
    )
    
    $
    (0.23
    )Diluted
    
    $
    (0.00
    )
    
    $
    (0.23
    )
 Settlement of Shareholder Lawsuit
  3. Loss per Common Share
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Loss before cumulative
effect of a change in
accounting
principle
    
    $
    (2,628,482
    )
    
    $
    (3,095,705
    )
    
    $
    (3,937,113
    )
    
    $
    (8,325,728
    )Cumulative effect of a
change in accounting
principle (Note 5)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (365,960
    )Net loss
    
    $
    (2,628,482
    )
    
    $
    (3,095,705
    )
    
    $
    (3,937,113
    )
    
    $
    (8,691,688
    )Basic:Weighted average number
of common shares
outstanding
    
    
    25,306,170
    
    
    
    25,945,328
    
    
    
    25,213,320
    
    
    
    25,856,995Loss before cumulative
effect of a change in
accounting principle per common share
    
    $
    (0.10
    )
    
    $
    (0.12
    )
    
    $
    (0.16
    )
    
    $
    (0.32
    )Cumulative effect of a
change in accounting
principle per common
share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (0.01
    )
 -15-




---



##### Table of Contents



Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss per common share
    
    $
    (0.10
    )
    
    $
    (0.12
    )
    
    $
    (0.16
    )
    
    $
    (0.33
    )Diluted:Weighted average number
of common shares
outstanding
    
    
    25,306,170
    
    
    
    25,945,328
    
    
    
    25,213,320
    
    
    
    25,856,995Loss before cumulative
effect of a change in
accounting principle per
common share
    
    $
    (0.10
    )
    
    $
    (0.12
    )
    
    $
    (0.16
    )
    
    $
    (0.32
    )Cumulative effect of a
change in accounting
principle per common
share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (0.01
    )Net loss per common share
    
    $
    (0.10
    )
    
    $
    (0.12
    )
    
    $
    (0.16
    )
    
    $
    (0.33
    )
    Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss  as reported
    
    $
    (2,628,482
    )
    
    $
    (3,095,705
    )
    
    $
    (3,937,113
    )
    
    $
    (8,691,688
    )Stock option expense recognized
    
    
    41,667
    
    
    
    20,833
    
    
    
    130,258
    
    
    
    62,500Pro forma effect on net loss
of applying fair value
accounting to all stock option
grants (a)
    
    
    (41,667
    )
    
    
    (165,128
    )
    
    
    (130,258
    )
    
    
    (571,273
    )Net loss  pro forma
    
    $
    (2,628,482
    )
    
    $
    (3,240,000
    )
    
    $
    (3,937,113
    )
    
    $
    (9,200,461
    )Net loss per common share  as
reported:Basic
    
    $
    (0.10
    )
    
    $
    (0.12
    )
    
    $
    (0.16
    )
    
    $
    (0.33
    )Diluted
    
    $
    (0.10
    )
    
    $
    (0.12
    )
    
    $
    (0.16
    )
    
    $
    (0.33
    )Net loss
per common share 
pro forma:Basic
    
    $
    (0.10
    )
    
    $
    (0.13
    )
    
    $
    (0.16
    )
    
    $
    (0.35
    )Diluted
    
    $
    (0.10
    )
    
    $
    (0.13
    )
    
    $
    (0.16
    )
    
    $
    (0.35
    )
 
 (a)
    
    The pro forma effect of applying fair value accounting to all stock option grants is
equal to the stock option expense recognized in the determination of net loss for the three
and nine months ended September 30, 2005 because the Company no longer has any unvested
stock options that were granted prior to the adoption of SFAS No. 123 and No. 148. -16-




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##### Table of Contents



4. Business Segments
   Three Months Ended
    
    Life
    
    
    AnnuitySeptember 30, 2005
    
    Reinsurance
    
    
    Reinsurance
    
    
    Corporate
    
    
    ConsolidatedRevenues
    
    $
    3,957,221
    
    
    $
    1,283,347
    
    
    $
    662,847
    
    
    $
    5,903,415Benefits and Expenses
    
    
    5,180,216
    
    
    
    646,343
    
    
    
    2,705,338
    
    
    
    8,531,897Segment (Loss) Income
    
    $
    (1,222,995
    )
    
    $
    637,004
    
    
    $
    (2,042,491
    )
    
    $
    (2,628,482
    )Total Assets
    
    $
    121,261,064
    
    
    $
    52,291,337
    
    
    $
    57,020,286
    
    
    $
    230,572,687Three Months Ended
    
    Life
    
    
    AnnuitySeptember 30, 2005
    
    Reinsurance
    
    
    Reinsurance
    
    
    Corporate
    
    
    ConsolidatedRevenues
    
    $
    10,620,367
    
    
    $
    5,026,576
    
    
    $
    545,081
    
    
    $
    16,192,024Benefits and Expenses
    
    
    8,016,909
    
    
    
    9,781,795
    
    
    
    1,489,025
    
    
    
    19,287,729Segment Income (Loss)
    
    $
    2,603,458
    
    
    $
    (4,755,219
    )
    
    $
    (943,944
    )
    
    $
    (3,095,705
    )Total Assets
    
    $
    197,754,315
    
    
    $
    642,979,101
    
    
    $
    79,890,539
    
    
    $
    920,623,955Nine Months Ended
    
    Life
    
    
    AnnuitySeptember 30, 2005
    
    Reinsurance
    
    
    Reinsurance
    
    
    Corporate
    
    
    ConsolidatedRevenues
    
    $
    13,239,655
    
    
    $
    3,121,282
    
    
    $
    2,148,150
    
    
    $
    18,509,087Benefits and Expenses
    
    
    13,332,089
    
    
    
    2,089,331
    
    
    
    7,024,780
    
    
    
    22,446,200Segment (Loss) Income
    
    $
    (92,434
    )
    
    $
    1,031,951
    
    
    $
    (4,876,630
    )
    
    $
    (3,937,113
    )Total Assets
    
    $
    121,261,064
    
    
    $
    52,291,337
    
    
    $
    57,020,286
    
    
    $
    230,572,687
 -17-




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##### Table of Contents



Nine Months Ended
    
    Life
    
    
    AnnuitySeptember 30, 2005
    
    Reinsurance
    
    
    Reinsurance
    
    
    Corporate
    
    
    ConsolidatedRevenues
    
    $
    35,750,909
    
    
    $
    19,948,919
    
    
    $
    2,499,233
    
    
    $
    58,199,061Benefits and Expenses
    
    
    32,238,504
    
    
    
    24,584,137
    
    
    
    9,702,148
    
    
    
    66,524,789Segment Income
(Loss) before
cumulative effect of
a change in
accounting principle
    
    $
    3,512,405
    
    
    $
    (4,635,218
    )
    
    $
    (7,202,915
    )
    
    $
    (8,325,728
    )Cumulative effect of
a change in
accounting principle
    
    $
    
    
    
    $
    (365,960
    )
    
    $
    
    
    
    $
    (365,960
    )Segment Income (Loss)
    
    $
    3,512,405
    
    
    $
    (5,001,178
    )
    
    $
    (7,202,915
    )
    
    $
    (8,691,688
    )Total Assets
    
    $
    197,754,315
    
    
    $
    642,979,101
    
    
    $
    79,890,539
    
    
    $
    920,623,955
 5. Accounting Standards
 Emerging Issues Task Force
  AICPA Statement of Position (SOP) 03-1
  -18-




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##### Table of Contents



Share-Based Payments
  6. Related Party Transactions
  7. Restricted Stock
    -19-




---



##### Table of Contents



8. Vulnerability Due to Concentrations
    9. Contingencies
  -20-




---



##### Table of Contents



-21-




---



##### Table of Contents



10. Subsequent Events
      -22-




---



##### Table of Contents



-23-




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 General
  Wilton Re Transaction
    Wilton Re Transaction
  -24-




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##### Table of Contents



-25-




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##### Table of Contents



Annuity and Life Re (Holdings), Ltd.
Pro Forma Condensed Consolidated Balance Sheet as of September 30, 2005
 100% Novation
    
    
    100% CoinsuranceReported
    
    
    Adjustments
    
    
    Pro Forma
    
    
    Adjustments
    
    
    Pro FormaAssetsCash & invested assets
    
    $
    92,899,685
    
    
    $
    (32,490,788
    )(A)
    
    $
    60,408,897
    
    
    $
    (32,490,788
    )(K)
    
    $
    60,408,897Funds withheld at interest
    
    
    50,962,885
    
    
    
    (50,962,885
    )(B)
    
    
    
    
    
    
    (50,962,885
    )(L)
    
    
    Accrued investment income
    
    
    677,662
    
    
    
    
    
    
    
    677,662
    
    
    
    
    
    
    
    677,662Receivable for reinsurance ceded
    
    
    77,016,411
    
    
    
    (211,956
    )(C)
    
    
    76,804,455
    
    
    
    25,863,490
    (M)
    
    
    102,879,901Other reinsurance receivables
    
    
    3,021,878
    
    
    
    (2,586,522
    )(D)
    
    
    435,356
    
    
    
    (2,586,522
    )(N)
    
    
    435,356Deferred policy acquisition costs
    
    
    5,592,316
    
    
    
    (5,592,316
    )(E)
    
    
    
    
    
    
    (5,592,316
    )(O)
    
    
    Other assets
    
    
    401,850
    
    
    
    
    
    
    
    401,850
    
    
    
    
    
    
    
    401,850Total assets
    
    $
    230,572,687
    
    
    $
    (91,844,467
    )
    
    $
    138,728,220
    
    
    $
    (65,769,021
    )
    
    $
    164,803,666LiabilitiesReserves for future policy benefits
    
    $
    103,758,582
    
    
    $
    (26,075,446
    )(F)
    
    $
    77,683,136
    
    
    $
    
    
    
    $
    103,758,582Interest sensitive contracts liability
    
    
    50,691,337
    
    
    
    (50,691,337
    )(G)
    
    
    
    
    
    
    (50,691,337
    )(P)
    
    
    Other reinsurance liabilities
    
    
    13,202,482
    
    
    
    (5,767,747
    )(H)
    
    
    7,434,735
    
    
    
    (5,767,747
    )(Q)
    
    
    7,434,735Accounts payable and accrued expenses
    
    
    2,867,363
    
    
    
    (49,145
    )(I)
    
    
    2,818,218
    
    
    
    (49,145
    )(R)
    
    
    2,818,218Total liabilities
    
    $
    170,519,764
    
    
    $
    (82,583,675
    )
    
    $
    87,936,089
    
    
    $
    (56,508,229
    )
    
    $
    114,011,535Stockholders EquityTotal Stockholders Equity
    
    $
    60,052923
    
    
    $
    (9,260,792
    )(J)
    
    $
    50,792,131
    
    
    $
    (9,260,792
    )(S)
    
    $
    50,792,131Total Liabilities and Stockholders Equity
    
    $
    230,572,687
    
    
    $
    (91,844,467
    )
    
    $
    138,728,220
    
    
    $
    (65,769,021
    )
    
    $
    164,803,666
 
 (A)
    
    To record the transfer of cash and invested assets to Wilton.(B)
    
    To record the transfer of Funds withheld at interest to Wilton.(C)
    
    To record the transfer of ceded benefit reserves to Wilton.(D)
    
    To record the transfer of premiums receivable related to the life reinsurance agreements novated to Wilton.(E)
    
    To write-off the Deferred policy acquisition costs associated with the life and annuity reinsurance agreements novated to Wilton.(F)
    
    To record the transfer of benefit reserves associated with the life reinsurance agreements novated to Wilton.(G)
    
    To record the transfer of Interest sensitive contracts liabilities associated with the annuity reinsurance agreement novated to Wilton.(H)
    
    To record the transfer of Other reinsurance liabilities associated with the life reinsurance agreements novated to Wilton.(I)
    
    To record the transfer of excise tax payable associated with the life reinsurance agreements novated to Wilton.(J)
    
    To record to net effect of the Wilton novation transaction in Stockholders equity.(K)
    
    To record the transfer of cash and invested assets to Wilton.(L)
    
    To record the transfer of Funds withheld at interest to Wilton.(M)
    
    To record the ceded life reserves recoverable for the life reinsurance agreements coinsured by Wilton.(N)
    
    To record the ceded premiums payable related to the life reinsurance agreements coinsured by Wilton.(O)
    
    To record ceded Deferred policy acquisition costs associated with the life and annuity reinsurance agreements coinsured by Wilton.(P)
    
    To record the ceded Interest sensitive contracts liabilities associated with the annuity reinsurance agreement coinsured by Wilton.(Q)
    
    To record the ceded amount of Other reinsurance liabilities associated with the life reinsurance agreements coinsured by Wilton.(R)
    
    To record the ceded excise tax receivable associated with the life reinsurance agreements coinsured by Wilton.(S)
    
    To record the net effect of the coinsurance transaction in Stockholders equity. -26-




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##### Table of Contents



Pro Forma Consolidated Statement of Operations for the Nine Months Ended September 30, 2005
(Unaudited and in U.S. Dollars)
 WiltonTransactionReported
    
    
    Adjustments
    
    
    Pro FormaRevenuesNet premiums
    
    $
    12,001,008
    
    
    $
    (11,325,272
    )(A)
    
    $
    675,736Investment income, net of related expenses
    
    
    4,806,689
    
    
    
    (1,938,486
    )(B)
    
    
    2,868,203Net realized investment gains
    
    
    500,650
    
    
    
    
    
    
    
    500,650Net change in fair value of embedded derivatives
    
    
    1,105,853
    
    
    
    (1,105,853
    )(C)
    
    
    Surrender fees and other revenues
    
    
    94,887
    
    
    
    (94,887
    )(D)
    
    
    Total Revenues
    
    $
    18,509,087
    
    
    $
    (14,464,498
    )
    
    $
    4,044,589Benefits and ExpensesClaims and policy benefits
    
    $
    10,781,404
    
    
    $
    (12,675,325
    )(E)
    
    $
    (1,893,921
    )Interest credited to interest sensitive products
    
    
    985,614
    
    
    
    (985,614
    )(F)
    
    
    Policy acquisition costs and other insurance expenses
    
    
    3,079,459
    
    
    
    (2,370,965
    )(G)
    
    
    708,494Operating expenses
    
    
    7,599,723
    
    
    
    
    
    
    
    7,599,723Total Benefits and Expenses
    
    $
    22,446,200
    
    
    $
    (16,031,904
    )
    
    $
    6,414,296Loss before cumulative effect of a change in accounting principal
    
    $
    (3,937,113
    )
    
    $
    1,567,406
    
    
    $
    (2,369,707
    )Cumulative effect of a change in accounting principal
    
    
    
    
    
    
    
    
    
    
    Net Loss
    
    $
    (3,937,113
    )
    
    $
    1,567,406
    
    
    $
    ((2,369,707
    )Loss per common share before cumulative effect of change in accounting
principal per common share:Basic
    
    $
    (0.16
    )
    
    $
    0.06
    
    
    $
    (0.09
    )Diluted
    
    $
    (0.16
    )
    
    $
    0.06
    
    
    $
    (0.09
    )Cumulative effect of a change in accounting principal per common share:Basic
    
    $
    
    
    
    
    
    
    
    $
    Diluted
    
    $
    
    
    
    
    
    
    
    $
    Net loss per common share:Basic
    
    $
    (0.16
    )
    
    $
    0.06
    
    
    $
    (0.09
    )Diluted
    
    $
    (0.16
    )
    
    $
    0.06
    
    
    $
    (0.09
    )
 
 (A)
    
    To reflect reduced Premiums as if the life reinsurance treaties novated to or coinsured by Wilton did
not exist during the first nine months of 2005.(B)
    
    To reflect reduced Net investment income as if the annuity reinsurance treaty novated to or coinsured by Wilton did not exist
during the first nine months of 2005.(C)
    
    To reflect no embedded derivative as if the annuity reinsurance treaty novated or coinsured by Wilton did not exist during the
first nine months of 2005.(D)
    
    To reflect reduced Surrender fees as if the annuity reinsurance treaty novated to or coinsured by Wilton did not exist during the
first nine months of 2005.(E)
    
    To reflect reduced Claim and Policy Benefits as if the life reinsurance treaties novated to or coinsured by Wilton did not exist
during the first nine months of 2005.(F)
    
    To reflect reduced Interest credited to interest sensitive products as if the annuity reinsurance treaty novated to or coinsured by
Wilton did not exist during the first nine months of 2005. -27-




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##### Table of Contents



(G)
    
    To reflect reduced Policy acquisition costs and other insurance expenses as if the life and annuity reinsurance treaties novated to
or coinsured by Wilton did not exist during the first nine months of 2005.  Annuity and Life Re (Holdings), Ltd.
Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2004
(Unaudited and in U.S. Dollars)
 Pro Forma(as adjustedfor the 2004Pro Forma
    
    
    Adjustments
    
    
    transactionsAdjustments
    
    
    (as adjusted
    
    
    (for the
    
    
    and the(for the 2004
    
    
    for the 2004
    
    
    Wilton
    
    
    WiltonReported
    
    
    transactions)
    
    
    transactions)
    
    
    transaction)
    
    
    transaction)RevenuesNet premiums
    
    $
    48,297,706
    
    
    $
    (30,325,348
    )(A)
    
    $
    17,972,358
    
    
    $
    (15,898,984
    )(H)
    
    $
    2,073,374Investment income, net of related expenses
    
    
    21,697,563
    
    
    
    (13,439,098
    )(B)
    
    
    8,258,465
    
    
    
    (2,923,139
    )(I)
    
    
    5,335,326Net realized investment gains
    
    
    
    
    
    
    439,536
    
    
    
    439,536
    
    
    
    
    
    
    
    439,536Net change in fair value of embedded derivatives
    
    
    2,181,070
    
    
    
    
    
    
    
    2,181,070
    
    
    
    (2,181,070
    )(J)
    
    
    Surrender fees and other revenues
    
    
    4,475,691
    
    
    
    (4,257,721
    )(C)
    
    
    217,970
    
    
    
    (217,970
    )(K)
    
    
    Total Revenues
    
    $
    77,091,566
    
    
    $
    (48,022,167
    )
    
    $
    29,069,399
    
    
    $
    (21,221,163
    )
    
    $
    7,848,237Benefits and ExpensesClaims and policy benefits
    
    $
    14,101,129
    
    
    
    (306,552
    )(D)
    
    $
    13,794,577
    
    
    
    (13,990,062
    )(L)
    
    
    (195,485
    )Interest credited to interest sensitive products
    
    
    5,399,460
    
    
    
    (3,530,883
    )(E)
    
    
    1,868,577
    
    
    
    (1,868,577
    )(M)
    
    
    Policy acquisition costs and other insurance expenses
    
    
    110,922,948
    
    
    
    (105,602,277
    )(F)
    
    
    5,320,671
    
    
    
    (3,987,088
    )(N)
    
    
    1,333,583Operating expenses
    
    
    14,628,524
    
    
    
    
    
    
    
    14,628,524
    
    
    
    
    
    
    
    14,628,524Total Benefits and Expenses
    
    $
    145,052,061
    
    
    
    (109,439,712
    )
    
    $
    35,612,349
    
    
    $
    (19,845,727
    )
    
    $
    15,766,622Loss before cumulative effect of a change in
accounting principal
    
    $
    (67,960,495
    )
    
    
    61,417,545
    
    
    $
    (6,542,950
    )
    
    $
    (1,375,436
    )
    
    $
    (7,918,386
    )Cumulative effect of a change in accounting principal
    
    
    (365,960
    )
    
    
    365,960
    (G)
    
    
    
    
    
    
    
    
    
    
    Net Loss
    
    $
    (68,326,455
    )
    
    $
    61,783,505
    
    
    $
    (6,542,950
    )
    
    $
    (1,375,436
    )
    
    $
    (7,918,386
    )Loss per common share before cumulative effect of
change in accounting principal per common share:Basic
    
    $
    (2.63
    )
    
    $
    2.38
    
    
    $
    (0.25
    )
    
    $
    (0.05
    )
    
    $
    (0.31
    )Diluted
    
    $
    (2.63
    )
    
    $
    2.38
    
    
    $
    (0.25
    )
    
    $
    (0.05
    )
    
    $
    (0.31
    )Cumulative effect of a change in accounting principal
per common share:Basic
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.00Diluted
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.00Net loss per common share:Basic
    
    $
    (2.64
    )
    
    $
    2.39
    
    
    $
    (0.25
    )
    
    $
    (0.05
    )
    
    $
    (0.31
    )Diluted
    
    $
    (2.64
    )
    
    $
    2.39
    
    
    $
    (0.25
    )
    
    $
    (0.05
    )
    
    $
    (0.31
    )
 
 (A)
    
    To reflect reduced Premiums as if the Scottish Re and F&G life reinsurance agreements novated to Transamerica and as if the GMDB/ GMIB agreement recaptured by CIGNA did not exist in 2004(B)
    
    To reflect reduced Net investment income as if the Transamerica annuity agreement did not exist in 2004.(C)
    
    To reflect reduced Surrender fees and other revenues as if the Transamerica annuity agreement did not exist in 2004.(D)
    
    To reflect reduced Claim and Policy Benefits as if the Scottish Re and F&G life reinsurance agreements novated to Transamerica and as if the GMDB/ GMIB agreement recaptured by CIGNA did not exist in 2004.(E)
    
    To reflect reduced Interest credited to interest sensitive products as if the Transamerica annuity agreement did not exist in 2004. Includes the release of interest sensitive contracts liability net of
funds withheld at interest and the termination premium of $14,000,000 paid to Transamerica in consideration of the termination of this agreement as of December 1, 2004. - 28 -




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##### Table of Contents



(F)
    
    To reflect reduced Policy acquisition costs and other insurance expenses as if the Transamerica annuity agreement, the Scottish Re and F&G life reinsurance agreements novated to Transamerica and the GMDB/
GMIB agreement recaptured by CIGNA did not exist in 2004. Includes the write down of deferred acquisition costs of approximately $63,100,000 associated with the termination of the Transamerica annuity
agreement and approximately $24,900,000 associated with the novation of Scottish Re and F&G life agreements as of December 31, 2004.(G)
    
    To reflect the reversal of the application of SOP 03-1 to the GMDB/ GMIB agreement recaptured by CIGNA and the Transamerica annuity agreement as if those agreements did not exist in 2004.(H)
    
    To reflect reduced Premiums as if the life reinsurance agreements novated to or coinsured by Wilton did not exist in 2004.(I)
    
    To reflect reduced Net investment income as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.(J)
    
    To reflect no embedded derivative as if the annuity reinsurance treaty novated to or coinsured by Wilton did not exist in 2004.(K)
    
    To reflect reduced Surrender fees as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.(L)
    
    To reflect reduced Claim and Policy Benefits as if the life reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.(M)
    
    To reflect reduced Interest credited to interest sensitive products as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist during the first six months of 2005.(N)
    
    To reflect reduced Policy acquisition costs and other insurance expenses as if the life and annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.  Annuity and Life Re (Holdings), Ltd.
Pro Forma Consolidated Statement of Operations for the Nine Months Ended September 30, 2004
(Unaudited and in U.S. Dollars)
 Pro Forma(as adjustedfor the 2004Pro Forma
    
    
    Adjustments
    
    
    transactionsAdjustments
    
    
    (as adjusted
    
    
    (for the
    
    
    and the(for the 2004
    
    
    for the 2004
    
    
    Wilton
    
    
    WiltonReported
    
    
    transactions)
    
    
    transactions)
    
    
    transaction)
    
    
    Transaction)RevenuesNet premiums
    
    $
    34,565,859
    
    
    $
    (21,253,833
    )(A)
    
    $
    13,312,026
    
    
    $
    (11,804,417
    )(H)
    
    $
    1,507,609Investment income, net of related expenses
    
    
    17,875,012
    
    
    
    (11,476,353
    )(B)
    
    
    6,398,659
    
    
    
    (2,253,938
    )(I)
    
    
    4,144,721Net realized investment gains
    
    
    456,172
    
    
    
    
    
    
    
    456,172
    
    
    
    
    
    
    
    456,172Net change in fair value of embedded derivatives
    
    
    1,692,113
    
    
    
    

    
    
    
    1,692,113
    
    
    
    (1,692,113
    )(J)
    
    
    Surrender fees and other revenues
    
    
    3,609,905
    
    
    
    (3,467,072
    )(C)
    
    
    142,833
    
    
    
    (142,833
    )(K)
    
    
    Total Revenues
    
    $
    58,199,061
    
    
    $
    (36,197,258
    )
    
    $
    22,001,803
    
    
    $
    (15,893,301
    )
    
    $
    6,108,502Benefits and ExpensesClaims and policy benefits
    
    $
    24,683,101
    
    
    
    (14,068,562
    )(D)
    
    $
    10,614,539
    
    
    
    (9,197,418
    )(L)
    
    
    1,417,121Interest credited to interest sensitive products
    
    
    10,865,545
    
    
    
    (9,584,687
    )(E)
    
    
    1,280,858
    
    
    
    (1,280,858
    )(M)Policy acquisition costs and other insurance expenses
    
    
    18,529,269
    
    
    
    (14,795,810
    )(F)
    
    
    3,733,459
    
    
    
    (3,112,693
    )(N)
    
    
    620,766Operating expenses
    
    
    12,446,874
    
    
    
    
    
    
    
    12,446,874
    
    
    
    
    
    
    
    12,446,874Total Benefits and Expenses
    
    $
    66,524,789
    
    
    
    (38,449,059
    )
    
    $
    28,075,730
    
    
    $
    (13,590,969
    )
    
    $
    14,484,761Loss before cumulative effect of a change in
accounting principal
    
    $
    (8,325,728
    )
    
    
    2,251,801
    
    
    $
    (6,073,927
    )
    
    $
    (2,302,332
    )
    
    $
    (8,376,259
    )Cumulative effect of a change in accounting principal
    
    
    (365,960
    )
    
    
    365,960
    (G)
    
    
    Net Loss
    
    $
    (8,691,688
    )
    
    $
    2,617,761
    
    
    $
    (6,073,927
    )
    
    $
    (2,302,332
    )
    
    $
    (8,376,259
    )Loss per common share before cumulative effect of
change in accounting principal per common share:Basic
    
    $
    (0.32
    )
    
    $
    0.09
    
    
    $
    (0.23
    )
    
    $
    (0.09
    )
    
    $
    (0.32
    )
 -29-




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##### Table of Contents



Pro Forma(as adjustedfor the 2004Pro Forma
    
    
    Adjustments
    
    
    transactionsAdjustments
    
    
    (as adjusted
    
    
    (for the
    
    
    and the(for the 2004
    
    
    for the 2004
    
    
    Wilton
    
    
    WiltonReported
    
    
    transactions)
    
    
    transactions)
    
    
    transaction)
    
    
    Transaction)Diluted
    
    $
    (0.32
    )
    
    $
    0.09
    
    
    $
    (0.23
    )
    
    $
    (0.09
    )
    
    $
    (0.32
    )Cumulative effect of a change in accounting principal
per common share:Basic
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.00Diluted
    
    $
    (0.01
    )
    
    $
    0.01
    
    
    $
    0.00
    
    
    $
    0.00
    
    
    $
    0.00Net loss per common share:Basic
    
    $
    (0.33
    )
    
    $
    0.10
    
    
    $
    (0.23
    )
    
    $
    (0.09
    )
    
    $
    (0.32
    )Diluted
    
    $
    (0.33
    )
    
    $
    0.10
    
    
    $
    (0.23
    )
    
    $
    (0.09
    )
    
    $
    (0.32
    )
 
 (A)
    
    To reflect reduced Premiums as if the Scottish Re and F&G life reinsurance agreements novated to Transamerica and as if the GMDB/ GMIB agreement recaptured by CIGNA did not exist in 2004(B)
    
    To reflect reduced Net investment income as if the Transamerica annuity agreement did not exist in 2004.(C)
    
    To reflect reduced Surrender fees and other revenues as if the Transamerica annuity agreement did not exist in 2004.(D)
    
    To reflect reduced Claim and Policy Benefits as if the Scottish Re and F&G life reinsurance agreements novated to Transamerica and as if the GMDB/ GMIB agreement recaptured by CIGNA did not exist in 2004.(E)
    
    To reflect reduced Interest credited to interest sensitive products as if the Transamerica annuity agreement did not exist in 2004.(F)
    
    To reflect reduced Policy acquisition costs and other insurance expenses as if the Transamerica annuity agreement, the Scottish Re and F&G life reinsurance agreements novated to Transamerica and the GMDB/ GMIB
agreement recaptured by CIGNA did not exist in 2004.(G)
    
    To reflect the reversal of the application of SOP 03-1 to the GMDB/ GMIB agreement recaptured by CIGNA and the Transamerica annuity agreement as if those agreements did not exist in 2004.(H)
    
    To reflect reduced Premiums as if the life reinsurance agreements novated to or coinsured by Wilton did not exist in 2004.(I)
    
    To reflect reduced Net investment income as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.(J)
    
    To reflect no embedded derivative as if the annuity reinsurance treaty novated to or coinsured by Wilton did not exist in 2004.(K)
    
    To reflect reduced Surrender fees as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.(L)
    
    To reflect reduced Claim and Policy Benefits as if the life reinsurance agreement novated to or coinsured by Wilton did not exist in 2004.(M)
    
    To reflect reduced Interest credited to interest sensitive products as if the annuity reinsurance agreement novated to or coinsured by Wilton did not exist during the first nine months of 2005.(N)
    
    To reflect reduced Policy acquisition costs and other insurance expenses as if the life and annuity reinsurance agreement novated to or coinsured by Wilton did not exist in 2004. Transamerica Transaction
    -30-




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##### Table of Contents



Critical Accounting Policies
  Deferred Policy Acquisition Costs.
  - 31 -




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##### Table of Contents



Embedded Derivatives.
  Recognition of Revenues and Expenses.
 - 32 -




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##### Table of Contents



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
  Operating Results
 Net Loss.
 - 33 -




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Net Premiums
 Net Investment Income
   - 34 -




---



##### Table of Contents



Net Realized Investment Gains.
 Net Change in the Fair Value of Embedded Derivatives
 Surrender Fees and Other Revenue.
 Claims and Policy Benefits.
 - 35 -




---



##### Table of Contents



Interest Credited to Interest Sensitive Products
 Policy Acquisition Costs and Other Insurance Expenses
 Operating Expenses
 Segment Results
  - 36 -




---



##### Table of Contents



Life Segment.
    Annuity Segment.
  - 37 -




---



##### Table of Contents



Corporate Segment
 - 38 -




---



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Financial Condition
 Investments
   - 39 -




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- 40 -




---



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Investment Results
 Nine months Ended September 30,
    
    Twelve Months Ended December 31,2005
    
    2004
    
    2004
    
    2003
    
    2002(Dollars in thousands)Total invested assets,
including cash and
equivalents (1)
    
    $
    92,900
    
    
    $
    140,221
    
    
    $
    138,429
    
    
    $
    197,881
    
    
    $
    306,346Investment income, net
of related expenses
    
    $
    2,868
    
    
    $
    4,145
    
    
    $
    5,335
    
    
    $
    5,924
    
    
    $
    25,931Effective annualized
yield rate (2)
    
    
    3.57
    %
    
    
    3.53
    %
    
    
    3.51
    %
    
    
    2.53
    %
    
    
    5.28
    %Realized investment gains
    
    $
    501
    
    
    $
    456
    
    
    $
    440
    
    
    $
    6,407
    
    
    $
    19,749
 
 (1)
    
    Fair value at end of the indicated period.(2)
    
    The effective yield rate equals (i) net investment income divided by (ii) the average of
total adjusted invested assets (fixed maturities at amortized cost, including assets on
deposit with reinsurers) at the end of each calendar quarter included in the indicated
period. Funds Withheld at Interest
     - 41 -




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##### Table of Contents



Lafayette Annuity Reinsurance Agreement
    % of TotalType of Security
    
    Book Value(1)
    
    
    Market Value
    
    
    Market ValueInvestment grade US corporate bonds
    
    $
    39,605,135
    
    
    $
    40,603,096
    
    
    
    78.6
    %Mortgage-backed securities
    
    
    5,527,012
    
    
    
    5,978,893
    
    
    
    11.6
    %Government bonds
    
    
    5,114,039
    
    
    
    5,084,687
    
    
    
    9.8
    %Total invested assets
    
    $
    50,246,186
    
    
    $
    51,666,676
    
    
    
    100.0
    %Accrued investment income
    
    
    
    
    
    
    762,281Total market value, including
accrued investment income
    
    
    
    
    
    $
    52,428,957
 - 42 -




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##### Table of Contents



(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
    
    $
    5,822,578
    
    
    $
    5,771,383
    
    
    
    11.2
    %AA
    
    
    3,265,558
    
    
    
    3,342,010
    
    
    
    6.5
    %A
    
    
    14,259,514
    
    
    
    14,695,695
    
    
    
    28.4
    %BBB
    
    
    26,898,536
    
    
    
    27,857,588
    
    
    
    53.9
    %Total invested assets
    
    $
    50,246,186
    
    
    $
    51,666,676
    
    
    
    100.0
    %Accrued investment income
    
    
    
    
    
    
    762,281Total market value,
including accrued
investment income
    
    
    
    
    
    $
    52,428,957
 
 (1)
    
    As assigned by Standard & Poors, or, if unrated by Standard & Poors, based on an
equivalent rating assigned by the National Association of Insurance Commissioners.(2)
    
    Book values are statutory book values reported to us by Lafayette for the underlying
investments and represent the value of our Funds withheld at interest receivable. We
present statutory book values in the above table because that is the basis upon which we
settle with Lafayette. We believe this presents a better understanding of potential future
returns and cash flows under the agreement.  % of TotalMaturity
    
    Book Value(1)
    
    
    Market Value
    
    
    Book ValueWithin one year
    
    $
    5,284,689
    
    
    $
    5,309,945
    
    
    
    10.3
    %From one to five years
    
    
    22,356,515
    
    
    
    23,173,587
    
    
    
    44.9
    %From six to ten years
    
    
    19,389,936
    
    
    
    19,693,693
    
    
    
    38.1
    %More than ten years
    
    
    3,215,046
    
    
    
    3,489,451
    
    
    
    6.7
    %Total all years
    
    $
    50,246,186
    
    
    $
    51,666,676
    
    
    
    100.0
    %
 
 (1)
    
    Book values are those statutory book values reported to us by Lafayette for the
underlying investments and represent the value of our Funds withheld at interest
receivable. We present statutory book values in the above table because that is the basis
upon which we settle with Lafayette. We believe this presents a better understanding of
potential future returns and cash flows under the agreement. Liquidity and Capital Resources
  - 43 -




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- 44 -




---



##### Table of Contents



- 45 -




---



##### Table of Contents



Forward-Looking and Cautionary Statements
  - 46 -




---



##### Table of Contents



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
  - 47 -




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##### Table of Contents



PART II
 OTHER INFORMATION
 
 Item 1. Legal Proceedings
     - 48 -




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total Number of
    
    Approximate DollarTotal
    
    
    
    
    
    Share Purchased
    
    Value of Shares thatNumber of
    
    Average
    
    as part of Publicly
    
    May Yet Be PurchasedShares
    
    Price Paid
    
    Announced Plans
    
    Under thePeriod
    
    Purchased
    
    per Share
    
    or Programs
    
    Plans or Programs (1)July 1  July 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    25,000,000August 1  August 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    25,000,000September 1  September
30, 2005
    
    
    1,773,050
    (2)
    
    $
    0.82
    
    
    
    
    
    
    $
    25,000,000Total
    
    
    1,773,050
    (2)
    
    $
    0.82
    
    
    
    
    
    
    $
    25,000,000
 
 (1)
    
    During 2001, the Companys Board of Directors approved a share repurchase program to allow
the Company to repurchase up to an aggregate $25,000,000 of its common shares in the future if
market conditions so dictate. As of September 30, 2005, no shares had been repurchased under
the program.(2)
    
    On September 14, 2005, the Company entered into a Purchase Agreement (the Agreement) with
Overseas Partners, Ltd. (Overseas Partners). The Agreement provided for the purchase by the
Company from Overseas Partners of 1,773,050 common shares of the Company (the Shares) and
Class B warrants to purchase an additional 133,396 common shares of the Company (the
Warrants) for a total cash purchase price of $1,453,901. The Company completed the
acquisition of the Shares and Warrants pursuant to the terms of the Agreement on September 14,
2005. The Shares represented approximately 6.74% of the Companys outstanding common shares,
and the Warrants had an exercise price of $14.06 per share. Following the acquisition, the
Shares and the Warrants were cancelled by the Company. - 49 -




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##### Table of Contents



Item 6. Exhibits
 10.1
    
    Master Agreement dated as of August 10, 2005 by and between Prudential Select
Life Insurance Company of America, Wilton Reinsurance Bermuda Limited, Annuity and Life
Reassurance America, Inc. and Annuity and Life Reassurance, Ltd.10.2
    
    Purchase Agreement dated as of September 14, 2005 by and between Annuity and
Life Re (Holdings), Ltd. and Overseas Partners, Ltd. (incorporated by reference to the
issuers Current Report on Form 8-K dated September 14, 2005, as filed with the
Commission on September 15, 2005).10.3
    
    Separation of Employment Agreement and General Release, dated September 23,
2005, by and among Annuity and Life Re (Holdings), Ltd., Annuity and Life Reassurance,
Ltd., and John F. Burke (incorporated by reference to the issuers Current Report on
Form 8-K dated September 23, 2005, as filed with the Commission on September 26, 2005).10.4
    
    Employment Letter, dated October 19, 2005, by and among Annuity and Life Re
(Holdings), Ltd. and William H. Mawdsley (incorporated by reference to the issuers
Current Report on Form 8-K dated October 19, 2005, as filed with the Commission on
October 20, 2005).10.5
    
    Employment Letter, dated October 19, 2005, by and among Annuity and Life Re
(Holdings), Ltd. and John W. Lockwood. (incorporated by reference to the issuers
Current Report on Form 8-K dated October 19, 2005, as filed with the Commission on
October 20, 2005).31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of the Companys Chief Executive Officer.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of the Companys Chief Financial Officer.32.1
    
    Section 1350 Certification of the Companys Chief Executive Officer.32.2
    
    Section 1350 Certification of the Companys Chief Financial Officer.
 - 50 -




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##### Table of Contents



ANNUITY AND LIFE RE (HOLDINGS), LTD.
 
 SIGNATURES
  ANNUITY AND LIFE RE (HOLDINGS), LTD./s/ William H. MawdsleyName:
    William H. MawdsleyDate: November 9, 2005
    Title:
    Chief Executive Officer/s/ John W. LockwoodName:
    John W. LockwoodDate: November 9, 2005
    Title:
    Chief Financial Officer - 51 -




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##### Table of Contents



Exhibit Index
 10.1
    
    Master Agreement dated as of August 10, 2005 by and between Prudential Select
Life Insurance Company of America, Wilton Reinsurance Bermuda Limited, Annuity and Life
Reassurance America, Inc. and Annuity and Life Reassurance, Ltd.10.2
    
    Purchase Agreement dated as of September 14, 2005 by and between Annuity and
Life Re (Holdings), Ltd. and Overseas Partners, Ltd. (incorporated by reference to the
issuers Current Report on Form 8-K dated September 14, 2005, as filed with the
Commission on September 15, 2005).10.3
    
    Separation of Employment Agreement and General Release, dated September 23,
2005, by and among Annuity and Life Re (Holdings), Ltd., Annuity and Life Reassurance,
Ltd., and John F. Burke (incorporated by reference to the issuers Current Report on
Form 8-K dated September 23, 2005, as filed with the Commission on September 26, 2005).10.4
    
    Employment Letter, dated October 19, 2005, by and among Annuity and Life Re
(Holdings), Ltd. and William H. Mawdsley (incorporated by reference to the issuers
Current Report on Form 8-K dated October 19, 2005, as filed with the Commission on
October 20, 2005).10.5
    
    Employment Letter, dated October 19, 2005, by and among Annuity and Life Re
(Holdings), Ltd. and John W. Lockwood. (incorporated by reference to the issuers
Current Report on Form 8-K dated October 19, 2005, as filed with the Commission on
October 20, 2005).31.1
    
    Rule 13a-14(a)/15d-14(a) Certification of the Companys Chief Executive Officer.31.2
    
    Rule 13a-14(a)/15d-14(a) Certification of the Companys Chief Financial Officer.32.1
    
    Section 1350 Certification of the Companys Chief Executive Officer.32.2
    
    Section 1350 Certification of the Companys Chief Financial Officer.
 - 52 -