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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                            ------------------------

                                   FORM 10-K
                            ------------------------

           FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13

                                       OR

                  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                       OR

[ ]   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 0-23625

                      ANNUITY AND LIFE RE (HOLDINGS), LTD.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                              <C>
                    BERMUDA                                       NOT APPLICABLE
          (STATE OR OTHER JURISDICTION                           (I.R.S. EMPLOYER
       OF INCORPORATION OR ORGANIZATION)                       IDENTIFICATION NO.)
      CUMBERLAND HOUSE, 1 VICTORIA STREET,                            HM 11
               HAMILTON, BERMUDA                                    (ZIP CODE)
    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (441) 296-7667

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

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<CAPTION>
              TITLE OF EACH CLASS                   NAME OF EACH EXCHANGE ON WHICH REGISTERED
              -------------------                   -----------------------------------------
<S>                                              <C>
         COMMON SHARES, $1.00 PAR VALUE                     THE NASDAQ NATIONAL MARKET
</TABLE>

        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

                                      NONE
                                (TITLE OF CLASS)

     Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]

     As of March 9, 2001, the aggregate market value of Common Shares, $1.00 par
value, held by non-affiliates was $800,062,469.

     As of March 9, 2001, 25,499,999 Common Shares, $1.00 par value, were
outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE.

     List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).

     Certain information required by Items 10, 11, 12 and 13 of Form 10-K is
incorporated by reference into Part III hereof from the registrant's proxy
statement for its 2001 Annual Meeting of Shareholders, which is expected to be
filed with the Securities and Exchange Commission (the "Commission") within 120
days of the close of the registrant's fiscal year ended December 31, 2000.
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<PAGE>   2

                               TABLE OF CONTENTS

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                                                                        PAGE
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<S>       <C>                                                           <C>
                                   PART I
Item 1.   Business....................................................    1
Item 2.   Properties..................................................    8
Item 3.   Legal Proceedings...........................................    8
Item 4.   Submission of Matters to a Vote of Security Holders.........    8

                                  PART II
Item 5.   Market for Registrant's Common Equity and Related
          Stockholder Matters.........................................    8
Item 6.   Selected Financial Data.....................................    8
Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations...................................    9
Item 7A.  Quantitative and Qualitative Disclosures about Market
          Risk........................................................   17
Item 8.   Financial Statements and Supplementary Data.................   19
Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure....................................   42

                                  PART III
Item 10.  Directors and Executive Officers of the Registrant..........   42
Item 11.  Executive Compensation......................................   42
Item 12.  Security Ownership of Certain Beneficial Owners and
          Management..................................................   42
Item 13.  Certain Relationships and Related Transactions..............   42

                                  PART IV
Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form
          8-K.........................................................   42
</TABLE>

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                                     PART I

ITEM 1.  BUSINESS.

OVERVIEW

     Annuity and Life Re (Holdings), Ltd. ("the Company") was incorporated on
December 2, 1997 under the laws of Bermuda. We provide annuity and life
reinsurance to select insurers and reinsurers through our wholly-owned
subsidiaries: Annuity and Life Reassurance, Ltd., which is licensed under the
insurance laws of Bermuda as a long term insurer; and Annuity and Life Re
America, Inc., an insurance holding company based in the United States which was
incorporated on May 28, 1999, and its subsidiary, Annuity and Life Reassurance
America, Inc., formerly Capitol Bankers Life Insurance Company, ("Annuity and
Life Reassurance America") a life insurance company authorized to conduct
business in 43 states of the United States. We acquired Annuity and Life
Reassurance America on June 1, 2000.

BUSINESS WRITTEN

  General

     The business of reinsurance generally consists of reinsurers, such as
Annuity and Life Re, entering into contractual arrangements (known as treaties)
with primary insurers (known as ceding companies) whereby the reinsurer agrees
to indemnify the ceding company for all or a portion of the risks associated
with the underlying insurance policy in exchange for a reinsurance premium
payable to the reinsurer. Reinsurers also may enter into retrocessional
reinsurance arrangements with other reinsurers, which operate in a manner
similar to the underlying reinsurance arrangement described above. Under
retrocessional reinsurance arrangements, the reinsurer shifts a portion of the
risk associated with the underlying insurance policy to the retrocessionaires.

     Reinsurance agreements may be written on an automatic treaty basis or
facultative basis, and reinsurance may be marketed directly by the reinsurer or
through reinsurance intermediaries or brokers. An automatic treaty provides for
a ceding company to cede contractually agreed-upon risks on identified types of
business that meet established criteria to a reinsurer and binds that reinsurer
without obtaining further approval from that reinsurer. Facultative reinsurance
is the reinsurance of individual risks, which allows a reinsurer the opportunity
to analyze and separately underwrite a risk before agreeing to accept the risk.
Both automatic treaty and facultative reinsurance may be written on either a
quota share basis, where a percentage of each risk in the reinsured class of
risk is assumed by the reinsurer from the ceding company with premiums
proportional to the assumed risk being paid to reinsurers, or an excess of loss
basis, where reinsurers indemnify the ceding company up to a
contractually-specified amount for a portion of claims exceeding a specified
retention amount in consideration of non-proportional premiums being paid to the
reinsurer.

     The Company's major product lines are traditional life reinsurance and
annuity reinsurance, which cover the following categories of risks: (i)
mortality, (ii) investment, (iii) lapsation, (iv) interest rate and (v) expense.
We write reinsurance predominantly on a direct basis with primary life insurance
companies.

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     The following table sets forth selected information for the indicated
period concerning our insurance operations:

  Distribution of Policy Revenues and Insurance in Force

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<CAPTION>
                                                                   YEAR ENDED DECEMBER 31
                                                              --------------------------------
                                                                   2000              1999
                                                              --------------    --------------
<S>                                                           <C>               <C>
Policy Revenues
  Life Reinsurance:
     First Year.............................................  $   55,047,163    $   72,268,437
     Renewal................................................      96,151,918        28,566,570
  Annuity Reinsurance.......................................      17,204,941                --
                                                              --------------    --------------
       Total................................................  $  168,404,022    $  100,835,007
                                                              ==============    ==============
Insurance In-force at end of year (in thousands)............  $   77,019,000    $   45,407,000
                                                              ==============    ==============
Annuity Reinsurance
  Annuity Deposits..........................................  $1,595,128,506    $1,603,382,955
                                                              ==============    ==============
</TABLE>

     Our life reinsurance business is the reinsurance of ordinary life
insurance, primarily for mortality risks. Ordinary life reinsurance generally is
the reinsurance of individual term life insurance policies, whole life insurance
policies, universal life insurance policies, and joint and survivor insurance
policies. Our ordinary life line of business reinsures all of these products.

     Our annuity reinsurance business is the reinsurance of general account
fixed deferred annuities and general account payout annuity structures. In the
future, we may also reinsure "variable" annuities and certain structured
settlement contracts.

  Underwriting

     We have developed underwriting guidelines with the objective of controlling
the risks of the reinsurance policies written as well as to determine
appropriate pricing levels. Any deviation from the approved guidelines requires
the approval of our Board of Directors. Subject to the approval of our Board,
the guidelines may be amended from time to time in response to changing industry
conditions, market developments, changes in technology and other factors.

     In implementing the underwriting guidelines, we utilize an experienced
underwriting team to select opportunities with acceptable risk/return profiles.
We determine whether to assume any particular reinsurance business by
considering many factors, including the type of risks to be covered, actuarial
evaluations, historical performance data for the cedent and the industry as a
whole, the cedent's retention, the product to be reinsured, pricing assumptions,
underwriting standards, reputation and financial strength of the cedent, the
likelihood of establishing a long term relationship with the cedent and the
market share of the cedent. Pricing of our reinsurance products is based on our
sophisticated actuarial and investment models which incorporate a number of
factors including assumptions for mortality, expenses, demographics, persistency
and investment returns as well as certain macroeconomic factors, such as
inflation, and certain regulatory factors, such as taxation and surplus
requirements.

     The majority of our policy revenues with respect to ordinary life and
annuity reinsurance are written on an automatic treaty quota share basis with a
focus on large blocks of business where the underlying policies meet the
Company's underwriting criteria. To a lesser extent, we may enter into
facultative reinsurance arrangements with primary insurers with which we have
automatic treaty reinsurance business. We generally require ceding companies to
retain at least 10% of every life insurance risk reinsured, and we will limit
our own net liability on any single-life risk to $2.0 million.

     The reinsurance agreements typically remain in force for the life of the
underlying policies reinsured. These agreements may provide for recapture rights
on the part of the ceding company. Recapture rights

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permit the ceding company to reassume all or a portion of the risk formerly
ceded to the reinsurer after an agreed upon period of time (generally 10 years),
subject to certain other conditions. Recapture is a factor taken into
consideration when pricing a reinsurance agreement and is mitigated by various
contractual provisions.

POLICY BENEFIT LIABILITIES

     Policy benefit liabilities comprise the majority of our financial
obligations. Policy benefit liabilities for other than annuities and interest
sensitive life insurance products reflected in our consolidated financial
statements included elsewhere in this report are based upon our estimates of
mortality, persistency and investment income, with allowances for adverse
deviation. The liabilities for policy benefits established by us with respect to
individual risks or classes of business may be greater or less than those
established by ceding companies due to the use of different mortality and other
assumptions. Policy benefit liabilities for annuities and interest sensitive
life insurance products are reported at the accumulated fund balance of these
contracts. Policy benefit liabilities include both mortality and morbidity
claims in the process of settlement and claims that have been incurred but not
yet reported. Actual experience in a particular period may be worse than assumed
experience and, consequently, may adversely affect our operating results for the
period. See Note 2(e) of "Notes to Consolidated Financial Statements" for
certain additional information regarding reserve assumptions under accounting
principles generally accepted in the United States of America ("U.S. GAAP").

INVESTMENTS

  Invested Assets

     All investments we make are governed by the investment guidelines
established and approved by our Board of Directors.

     Our investment policy is designed to achieve above average risk-adjusted
total returns, maintain a high quality portfolio, maximize current income,
maintain an adequate level of liquidity, and match the cash flows of the
portfolio to the required cash flows of the related insurance liabilities. The
investment guidelines require our overall fixed income investment portfolio to
maintain a minimum weighted average rating of "A." A fixed income security rated
"A" by Standard & Poor's is somewhat susceptible to the adverse effects of
changes in circumstances and economic conditions, however, the issuer's capacity
to meet its financial commitment on the security is still considered to be
strong. We will not invest in any fixed income securities in emerging markets or
which are not rated by a major rating agency. The investment guidelines allow us
to invest in fixed income securities that are rated below investment grade.
These investments are limited to 25% of the amount by which the invested assets
exceed the related insurance liabilities. At December 31, 2000 below investment
grade securities were less than 2% of this amount.

     Our investment securities are managed by two professional investment
advisors, Alliance Capital Management Corporation ("ACM") and Prudential
Investment Corporation ("PRU"), each of which manages a segment of the
portfolio. We directly manage certain short-term investments of approximately $5
million on average during the year. The agreement with PRU may be terminated by
either party upon thirty days notice; the agreement with ACM may be terminated
by either party upon forty-five days notice. The performance of ACM and PRU and
the fees associated with the arrangements are periodically reviewed by our
Boards of Directors.

     At December 31, 2000, our invested assets, including cash and cash
equivalents, had an aggregate fair value of $321,819,396, and all of the
securities held were fixed maturities with a weighted average investment quality
rating of "AA". At December 31, 2000, the weighted average duration of invested
assets was 3.2. If the duration of invested assets was to differ materially from
the duration of liabilities and if significant rapid increases in market
interest rates were to occur, we could be required to sell invested assets at a
loss. Conversely, if significant rapid decreases in market interest rates were
to occur, we could earn less income than is credited on our contracts. The
consequences could have a material adverse effect on our capital resources and
financial condition.

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<PAGE>   6

  Funds Withheld at Interest

     Assets related to annuity reinsurance agreements are held and managed by
the ceding companies in segmented portfolios. Under the terms of the reinsurance
agreements, the investment income that accrues to us is dependent upon the
performance of the underlying portfolios. The underlying segmented portfolios
are managed by investment managers appointed by the ceding company. These assets
are included on our Balance Sheet as Funds Withheld at Interest. At December 31,
2000, the carrying value was $1,530,109,853.

COMPETITION

     The reinsurance industry is highly competitive, and we compete with the
major reinsurers. Our target market is North America. There are approximately 25
reinsurers of annuity or life insurance products located in the United States.
There are also numerous foreign reinsurers who compete for reinsurance business
in the United States and abroad. These competitors primarily reinsure life
insurance and health insurance risks and, to a lesser degree, annuity risks.
Most, if not all, of these competitors are expected to compete for annuity and
life reinsurance business in the future. Most of these competitors are well
established, have significant operating histories and strong claims paying
ability ratings, and have developed long-standing client relationships through
existing treaties with cedents.

     Reinsurers compete on the basis of many factors, including premium charges,
their reputation and perceived financial strength, other terms and conditions of
the products offered, ratings assigned by independent rating agencies, speed of
claims payment and reputation and experience in the particular line of
reinsurance to be written. We believe that our primary competitors include
Lincoln National Corporation, Transamerica Occidental Life Insurance Company,
Reinsurance Group of America, Inc., ING Reinsurance, Employers Reassurance
Corporation and Swiss Reinsurance. However, within the reinsurance industry, our
competitors can change from year to year.

RATINGS

     A.M. Best, an independent insurance company rating organization, has rated
Annuity & Life Reassurance "A-" (Excellent). A.M. Best assigns an "A-"
(Excellent) rating to companies that have on balance, in its opinion, excellent
financial strength, operating performance and market profile as well as strong
abilities to meet their ongoing obligations to policyholders.

     Additionally, Annuity & Life Reassurance has received an "A" (high) rating
from Duff & Phelps and an "A-" (good financial security) rating from Standard &
Poor's.

EMPLOYEES

     As of December 31, 2000, we have thirteen employees located in Bermuda and
seven employees located in the United States.

REGULATION

  Bermuda

     Annuity & Life Reassurance is licensed as a long-term insurer under the
Bermuda Insurance Act of 1978, as amended, and Related Regulations
(collectively, the "Insurance Act"). The Insurance Act, which regulates the
insurance business of Annuity & Life Reassurance, provides that no person shall
carry on an insurance business in Bermuda unless registered as an insurer under
the Insurance Act by the Bermuda Minister of Finance. The registration of an
applicant as an insurer is subject to its complying with the terms of its
registration and such other conditions as the Minister may impose at any time.

     The Insurance Act imposes on Bermuda insurance companies solvency and
liquidity standards and auditing and reporting requirements and grants to the
Minister powers to supervise, investigate and intervene in the affairs of
insurance companies. Some of the significant aspects of the Bermuda insurance
regulatory framework are set forth below.

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<PAGE>   7

     Classification of Insurers.  The Insurance Act distinguishes between
insurers carrying on long term business and insurers carrying on general
business. Because Annuity & Life Reassurance has been incorporated to provide
reinsurance of annuity and life insurance related risks, it has been registered
as a long term insurer in Bermuda and is regulated as such under the Insurance
Act.

     Cancellation of Insurer's Registration.  An insurer's registration may be
cancelled by the Minister on certain grounds specified in the Insurance Act,
including failure of the insurer to comply with its obligations under the
Insurance Act or, if in the opinion of the Minister after consultation with the
Insurance Advisory Committee, the insurer has not been carrying on business in
accordance with sound insurance principles.

     Independent Approved Auditor.  Every registered insurer must appoint an
independent auditor who will annually audit and report on the Statutory
Financial Statements and the Statutory Financial Return of the insurer, which
are required to be filed annually with the Registrar of Companies in Bermuda.
The independent auditor of the insurer must be approved by the Minister and may
be the same person or firm that audits the insurer's financial statements and
reports for presentation to its shareholders. Annuity & Life Reassurance's
independent auditor is KPMG.

     Approved Actuary.  Annuity & Life Reassurance, as a registered long term
insurer, is required to submit an annual actuary's certificate when filing its
Statutory Financial Return. The actuary's certificate must state whether or not,
in the opinion of the insurer's approved actuary, the aggregate amount of the
liabilities of the insurer in relation to long term business as at the end of
the relevant year exceeded the aggregate amount of those liabilities as shown in
the insurer's statutory balance sheet. The approved actuary, who will normally
be a qualified life actuary, must be approved by the Minister. Annuity & Life
Reassurance's approved actuary is Robert P. Mills.

     Statutory Financial Statements.  An insurer must prepare annual Statutory
Financial Statements. The Insurance Act prescribes rules for the preparation and
substance of these Statutory Financial Statements (which include, in statutory
form, a balance sheet, income statement, a statement of capital and surplus and
notes thereto). The insurer is required to give detailed information and
analyses regarding premiums, claims, reinsurance and investments. An insurer is
required to submit the annual Statutory Financial Statements as part of the
annual Statutory Financial Return.

     Minimum Solvency Margin.  The Insurance Act provides that the value of the
long-term business assets of an insurer carrying on long term business must
exceed the amount of its long-term business liabilities by at least $250,000.
Annuity & Life Reassurance met the minimum statutory capital and surplus
requirement as of December 31, 2000.

     Annual Statutory Financial Return.  Annuity and Life Reassurance is
required to file with the Registrar of Companies in Bermuda a Statutory
Financial Return no later than four months after its financial year-end (unless
specifically extended). The Statutory Financial Return includes, among other
matters, a report of the approved independent auditor on the Statutory Financial
Statements of the insurer, a solvency certificate, the Statutory Financial
Statements themselves and a certificate of the approved actuary. The solvency
certificate must be signed by the principal representative and at least two
directors of the insurer who are required to certify whether the Minimum
Solvency Margin has been met, and the independent approved auditor is required
to state whether in its opinion it was reasonable for the directors to so
certify. Where an insurer's accounts have been audited for any purpose other
than compliance with the Insurance Act, a statement to that effect must be filed
with the Statutory Financial Return.

     Supervision, Investigation and Intervention.  The Minister may appoint an
inspector with extensive powers to investigate the affairs of an insurer if the
Minister believes that an investigation is required in the interest of the
insurer's policyholders or persons who may become policyholders. In order to
verify or supplement information otherwise provided to the Minister, the
Minister may direct an insurer to produce documents or information relating to
matters connected with the insurer's business.

     If it appears to the Minister that there is a risk of the insurer becoming
insolvent, or that it is in breach of the Insurance Act or any conditions
imposed upon its registration, the Minister may, among other things, direct the
insurer (i) not to take on any new insurance business, (ii) not to vary any
insurance contract if the

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effect would be to increase the insurer's liabilities, (iii) not to make certain
investments, (iv) to realize certain investments, (v) to maintain, or transfer
to the custody of a specified bank, certain assets, (vi) not to declare or pay
any dividends or other distributions or to restrict the making of such payments,
and/or (vii) to limit its premium income.

     Under the Insurance Act, an insurer is required to maintain a principal
office in Bermuda and to appoint and maintain a principal representative in
Bermuda. For the purpose of the Insurance Act, the principal office of Annuity &
Life Reassurance is at the Company's offices in Hamilton, Bermuda, and Lawrence
S. Doyle, the Company's President and Chief Executive Officer, is the principal
representative of Annuity & Life Reassurance. Without a reason acceptable to the
Minister, an insurer may not terminate the appointment of its principal
representative, and the principal representative may not cease to act as such,
unless 30 days notice in writing to the Minister is given of the intention to do
so. It is the duty of the principal representative, within 30 days of reaching
the view that there is a likelihood of the insurer, for which the principal
representative acts, of becoming insolvent or that a reportable "event" has, to
the principal representative's knowledge, occurred or is believed to have
occurred, to make a report in writing to the Minister setting out all the
particulars of the case that are available to the principal representative.
Examples of such a reportable "event" include failure by the insurer to comply
substantially with a condition imposed upon the insurer by the Minister relating
to a solvency margin or liquidity or other ratio.

     Certain Bermuda Law Considerations.  We have been designated as
non-resident for exchange control purposes by the Bermuda Monetary Authority
whose permission for the issue and transfer of the Common Shares has been
obtained. This designation allows us to engage in transactions, or to pay
dividends to non-residents of Bermuda who are holders of our common shares, in
currencies other than the Bermuda Dollar.

     The transfer of our common shares between persons regarded as non-resident
in Bermuda for exchange control purposes and our issuance of common shares to
such persons may be effected without specific consent under the Exchange Control
Act 1972 and regulations thereunder. Issues and transfers of the common shares
to any person regarded as resident in Bermuda for exchange control purposes
requires specific prior approval under the Exchange Control Act 1972. The common
shares of Annuity and Life Reassurance cannot be transferred without the consent
of the Bermuda Monetary Authority.

     As "exempted companies," we are exempt from Bermuda laws restricting the
percentage of share capital that may be held by non-Bermudians, but as exempted
companies we may not participate in certain business transactions, including (i)
the acquisition or holding of land in Bermuda (except that required for our
business and held by way of lease or tenancy for terms of not more than 21
years) without the express authorization of the Bermuda legislature, (ii) the
taking of mortgages on land in Bermuda to secure an amount in excess of $50,000
without the consent of the Minister, (iii) the acquisition of any bonds or
debentures secured by any land in Bermuda, other than certain types of Bermuda
government securities, or (iv) the carrying on of business of any kind in
Bermuda, including insuring domestic risks, except in furtherance of their
business risks undertaken by any company incorporated in Bermuda and permitted
to engage in the insurance and reinsurance business, or under a license granted
by the Minister.

  United States

     General.  Our Bermuda operating subsidiary, Annuity and Life Reassurance,
is not licensed or admitted as an insurer in any state of the United States and
is not directly subject to regulation in any state of the United States. The
insurance laws of each state in the United States regulate the sale of insurance
and reinsurance within their jurisdiction by reinsurers, such as Annuity and
Life Reassurance, which are not admitted to do business within such
jurisdiction. Annuity and Life Reassurance conducts its business through its
Bermuda office either directly or through intermediaries, such as brokers and
consultants. Annuity and Life Reassurance does not maintain an office, and its
personnel do not solicit, advertise, settle claims or conduct other activities
which may constitute the transaction of the business of insurance, in any
jurisdiction in which it is not licensed or otherwise authorized to engage in
such activities.

     Our United States operating subsidiary, Annuity and Life Reassurance
America is licensed and authorized to conduct life insurance business in 43
states of the United States. The insurance laws and

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<PAGE>   9

regulations, as well as the supervisory authority that may be exercised by the
various insurance departments, vary by jurisdiction, but generally grant broad
powers to supervisory agencies or regulators to examine and supervise insurance
companies and insurance holding companies with respect to every significant
aspect of the conduct of the insurance business. These laws and regulations
generally require insurance companies to meet certain solvency standards and
asset tests, to maintain minimum standards of business conduct, and to file
certain reports with regulatory authorities, including information concerning
their capital structure, ownership, and financial condition, and subject
insurers to potential assessments for amounts paid by guarantee funds. The
insurance laws of Connecticut have the most significant impact on Annuity and
Life Reassurance America because that is the jurisdiction in which it is
domiciled.

     Annuity and Life Re America, Inc. is domiciled in Delaware and regulated as
a Delaware corporation. The Delaware insurance holding company system laws and
regulations generally do not apply to Annuity and Life Re America, Inc. because
it is not an insurer and because Annuity and Life Reassurance America is not
required to register with the Delaware Insurance Commissioner under applicable
provisions of such laws and regulations. Nevertheless, the books and records of
Annuity and Life Re America, Inc. may be subject to inspection by the
Connecticut insurance regulators because Annuity and Life Re America, Inc. is an
affiliate of Annuity and Life Reassurance America, which is subject to
Connecticut's holding company laws.

     The Connecticut insurance laws (applicable to Annuity and Life Reassurance
America) require that transactions between or among Annuity and Life Reassurance
America and any of its affiliates, including the payment of ordinary dividends
to shareholders, shall be subject to the following requirements: (1) the terms
shall be fair and reasonable; (2) charges or fees for services performed shall
be reasonable; (3) expenses incurred and payment received shall be allocated to
Annuity and Life Reassurance America in conformity with customary insurance
accounting practices consistently applied; (4) the books, accounts and records
of each party shall be so maintained as to clearly and accurately disclose the
precise nature and details of the transactions; and (5) Annuity and Life
Reassurance America's surplus shall be reasonable in relation to its outstanding
liabilities and adequate to its financial needs. In addition, notice to the
Connecticut Insurance Commissioner, and sometimes the Commissioner's approval,
is required prior to Annuity and Life Reassurance America entering into certain
transactions with its affiliates.

     Current Connecticut law permits the payment of ordinary shareholder
dividends or distributions, the fair market value of which, together with that
of other dividends or distributions made during the preceding twelve months,
does not exceed the greater of (i) 10% of Annuity and Life Reassurance America's
statutory surplus as regards policyholders as of the immediately preceding
December 31, or (ii) statutory net gain from operations for the immediately
preceding calendar year, excluding pro rata distributions of any class of
Annuity and Life Reassurance America's own securities. Any proposed dividend in
excess of this amount is considered an "extraordinary dividend" and may not be
paid until it has been approved, or a 30-day waiting period has passed during
which it has not been disapproved, by the Connecticut Insurance Commissioner. In
addition, except as otherwise provided by law, no dividend or other distribution
exceeding an amount equal to Annuity and Life Reassurance America's "earned
surplus" may be paid without the prior approval of the Connecticut Insurance
Commissioner.

     If the Connecticut Insurance Commissioner determines that Annuity and Life
Reassurance America paid or is about to pay a dividend, or committed or is about
to commit another act, in violation of the Connecticut insurance laws referenced
above, the Commissioner may, among other things, apply for an order enjoining
Annuity and Life Reassurance America from violating or continuing such violation
of the insurance laws.

     Credit for Reinsurance.  In addition to the regulatory requirements imposed
by the jurisdictions in which a reinsurer is licensed, a reinsurer's business
operations are affected by regulatory requirements in other jurisdictions in
which ceding companies are located governing "credit for reinsurance" which are
imposed on its ceding companies. In general, a ceding company which obtains
reinsurance from a reinsurer that is licensed, accredited or approved by the
jurisdiction in which the ceding company files statutory financial statements is
permitted to reflect in its statutory financial statements a credit in an
aggregate amount equal to the liability for policy reserves, claims and other
amounts ceded to the reinsurers. Many jurisdictions permit

                                        7
<PAGE>   10

ceding companies to take credit on their statutory financial statements for
reinsurance obtained from unlicensed or non-admitted reinsurers if adequate
security is posted.

ITEM 2.  PROPERTIES.

     We conduct our operations from leased office space located at Cumberland
House, 1 Victoria Street, Hamilton, and HM 11, Bermuda. Annuity and Life Re
America conducts its operations from leased space located at 280 Trumbull
Street, Hartford, Connecticut, USA. We believe our space is adequate to meet our
current and expected needs.

ITEM 3.  LEGAL PROCEEDINGS.

     We are not currently involved in any litigation or arbitration. We
anticipate that we may be subject to litigation and arbitration in the ordinary
course of business at some future date.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     During the fourth quarter of 2000, no matters were submitted to our
security holders for a vote.

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

MARKET INFORMATION

     Our common shares have been listed for trading on the Nasdaq National
Market since April 17, 1998, the date of our initial public offering, under the
symbol "ALRE". Based upon information reported in the NASDAQ ONLINE reporting
system, the high, low and closing sales prices per common share for each
quarterly period from January 1, 1999 to December 31, 2000 were as follows:

<TABLE>
<CAPTION>
                                              2000                       1999
                                    ------------------------   ------------------------
PERIOD                               HIGH     LOW     CLOSE     HIGH     LOW     CLOSE
------                              ------   ------   ------   ------   ------   ------
<S>                                 <C>      <C>      <C>      <C>      <C>      <C>
January 1 - March 31..............  27.531   21.000   26.000   27.000   19.750   22.875
April 1 - June 30.................  27.000   16.750   24.500   26.375   19.094    2.438
July 1 - September 30.............  26.500   22.313   24.125   24.875   20.875   24.875
October 1 - December 31...........  31.938   23.375   31.938   28.500   20.375   26.125
</TABLE>

     As of March 9, 2001, there were approximately 3,000 holders of the
outstanding common shares, including participants in securities position
listings.

DIVIDENDS

     Dividends of $0.16 per common share were declared in 2000 and 1999. On
February 14, 2001, our Board of Directors declared a dividend of $0.05 per share
to be paid in March 2001.

     The declaration and payment of future dividends to holders of our common
shares will be at the discretion of our Board of Directors and will depend upon
the company's earnings and financial condition, capital requirements of its
subsidiaries, regulatory considerations and other factors the Board of Directors
deems relevant. (See "Liquidity" in Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 14 of "Notes to
Consolidated Financial Statements" included elsewhere in this report.). Our
general policy is to retain most of our earnings to finance the growth and
development of our business.

ITEM 6.  SELECTED FINANCIAL DATA.

     The following table sets forth selected financial data and other operating
information. The selected financial data have been derived from our consolidated
financial statements and should be read in conjunction

                                        8
<PAGE>   11

with our consolidated financial statements and accompanying notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere herein.

<TABLE>
<CAPTION>
                                                   2000              1999              1998
                                              --------------    --------------    --------------
<S>                                           <C>               <C>               <C>
INCOME STATEMENT DATA FOR THE YEAR ENDED
  DECEMBER 31, 2000, 1999 AND 1998:
Revenues:
  Net premiums..............................  $  168,404,022    $  100,835,007    $   27,943,890
  Investment income, net of related
     expenses...............................      36,648,327        85,089,811        24,130,550
  Net realized investment gains (losses)....      (4,817,121)       (1,284,769)        2,673,281
  Other.....................................       6,915,870         3,215,429           311,243
                                              --------------    --------------    --------------
  Total revenues............................  $  307,151,098    $  187,855,478    $   55,058,964
                                              --------------    --------------    --------------
Benefits and expenses
  Claims and other policy benefits..........  $  132,810,192    $   79,953,160    $   23,297,115
  Interest credited to interest sensitive
     contract liabilities...................      63,041,991        22,312,684         1,989,000
  Policy acquisition costs and other
     insurance expenses.....................      60,900,376        42,200,688         6,541,872
  Operating expenses........................      10,411,344         7,685,802         4,150,321
  Organizational expenses...................              --                --            69,039
                                              --------------    --------------    --------------
  Total benefits and expenses...............  $  267,163,903    $  152,152,334    $   36,047,347
                                              --------------    --------------    --------------
Net Income..................................  $   39,987,195    $   35,703,144    $   19,011,617
                                              ==============    ==============    ==============
Basic Earnings per common share.............  $         1.57    $         1.40    $         0.81
Diluted Earnings per common share...........  $         1.46    $         1.31    $         0.76
Dividends per common share..................  $         0.16    $         0.16    $         0.04
Weighted average shares outstanding.........      25,499,999        25,499,999        24,020,999
BALANCE SHEET DATA:
Invested Assets.............................  $  321,819,396    $  304,060,124    $  342,614,194
Funds Withheld..............................  $1,530,109,853    $1,532,652,990    $1,200,101,268
Total Assets................................  $2,224,686,891    $2,056,085,988    $1,706,510,180
Stockholders' equity........................  $  441,215,776    $  392,054,894    $  375,340,246
OTHER FINANCIAL DATA:
Book value per common share(1)..............  $        17.22    $        15.82    $        14.57
Life insurance in force (in thousands)......  $   77,019,000    $   45,407,000    $   22,538,000
</TABLE>

---------------
(1) Book value per share is calculated by dividing end of period stockholders'
    equity (excluding unrealized investment gains or losses) by the end of
    period common shares outstanding.

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

     The following analysis of our consolidated financial condition and results
of operations should be read in conjunction with "Selected Financial Data" and
the consolidated financial statements and accompanying notes included elsewhere
in this report. The preparation of financial statements in conformity with
generally accepted accounting principles requires the use of estimates and
assumptions developed by our management. Any adjustments to reported bases of
assets or liabilities resulting from changes in estimates are reflected in
earnings in the period the estimates are revised. Certain management estimates
are based, in part, on information provided by ceding companies. As is usual in
the reinsurance business, our ceding companies periodically update, refine and
revise the reinsurance information they provide to us. The financial effects
resulting from the incorporation of revised data are reflected in earnings as
changes in estimates.

                                        9
<PAGE>   12

     With the exception of historical information, the matters contained in the
following analysis are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act. Such statements may include, but are
not limited to, projections of earnings, revenues, income or loss, capital
expenditures, plans for future operations and financing needs or plans, as well
as assumptions relating to the foregoing. The words "expect", "project",
"estimate", "predict", "anticipate", "believes", and similar expressions are
also intended to identify forward-looking statements. Forward-looking statements
are inherently subject to risks and uncertainties, some of which cannot be
predicted or quantified. Future events and actual results, performance and
achievements could differ materially from those set forth in, contemplated by or
underlying the forward-looking statements. We assume no obligation to update any
forward-looking statement to reflect actual results or changes in or additions
to the factors affecting such forward-looking statements.

     The factors that could affect forward-looking statements include, but are
not limited to: uncertainties relating to general economic and business
conditions that may impact the reinsurance marketplace, including, among other
things, changes in interest rate levels and the liquidity of certain securities;
changes in laws and government regulations applicable to the company; the
ability of the company to successfully implement its operating strategies;
material changes in the level of the company's operating expenses; material
changes in mortality and morbidity experience; and material changes in
persistency. In addition, as part of our business strategy we evaluate from time
to time opportunities to acquire, make investments in, or enter into joint
ventures or other strategic alliances with companies whose businesses compliment
our business, some of which could be material. If an acquisition is consummated,
we may need to incur indebtedness in connection with such acquisition. In
addition, we could have difficulty assimilating the personnel and operations of
the acquired company, which would prevent us from realizing, expected synergies
and could disrupt our ongoing business and distract management and resources.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual outcomes may vary materially from
those indicated.

GENERAL

     Our two major product lines are traditional ordinary life reinsurance and
annuity reinsurance. The reinsurance agreements typically remain in force for
the life of the underlying policies reinsured, which on average range from ten
to thirty years. Each year, a portion of the business under an existing treaty
terminates due to among other things, surrenders and/or lapses of underlying
policies, deaths of underlying insureds and the exercise of recapture options.

     The profitability of the life reinsurance product line depends in large
part on the volume and amount of death claims incurred. While death claims are
reasonably predictable over many years, claims become less predictable over
shorter periods and are subject to fluctuation from quarter to quarter and year
to year. Significant fluctuations from period to period could adversely affect
the results of operations.

     At December 31, 2000 and 1999, our life insurance in force amounted to
approximately $77.0 billion and $45.4 billion, respectively. We retrocede
portions of certain risks in excess of a predetermined retention amount for
which we have accepted liability. At December 31, 2000 and 1999, we ceded
approximately $192.6 million and $34.9 million of life insurance coverage,
respectively, or 0.25% and 0.08 % of our life insurance in force, respectively.

     Our primary annuity products are reinsurance of general account fixed
deferred annuity and general account payout annuity structures. The
profitability of the annuity reinsurance product line is primarily dependent on
earning a targeted spread between the interest rate earned on the supporting
asset base, the interest rate credited to or priced in to the liabilities and
persistency of the underlying business. This product line can be interest rate
sensitive, as fluctuations in the general level of interest rates from period to
period may cause fluctuations in the results of operations. At December 31, 2000
and 1999, our liability for annuity contracts amounted to $1.6 billion.

                                        10
<PAGE>   13

OPERATING RESULTS

  Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

     Net Income.  For the year ended December 31, 2000, we had consolidated net
income of $39,987,000, which is $1.57 per common share, or $1.46 per common
share on a fully diluted basis, compared with $1.40 per common share, $1.31 per
common share on a fully diluted basis for the year ended December 31, 1999.

     Net Operating Income.  In addition to net income, we report net operating
income. This is not a substitute for net income computed in accordance with
accounting principles generally accepted in the United States of America (U.S.
GAAP), but is an important measure used by management, equity analysts and
investors to measure our results. We define net operating income as net income
excluding realized gains and losses from the sale of investments. Our definition
of net operating income may differ from that used by other public life and
annuity companies.

     For the year ended December 31, 2000 net operating income increased 21%
over the prior year. Net operating income for the year ending December 31, 2000
was $44,804,000 or $1.76 per common share, $1.63 per common share on a fully
diluted basis, compared with $36,988,000 or $1.45 per common share, $1.36 per
common share on a fully diluted basis for the year ended December 31, 1999. The
increase in net operating income was due to the growth and development of our
reinsurance operations and favorable underwriting and investment results.

     Net Premiums.  Net premium revenue for the year ended December 31, 2000 was
$168,404,000, an increase of 67% over the year ended December 31, 1999. The
majority of premium revenue was derived from traditional ordinary life
reinsurance developed directly and through the use of intermediaries. The growth
reflects the level of new business written and the increase in the face amount
of insurance in force. At December 31, 2000 the total face amount of life
insurance in force was approximately $77.0 billion compared with approximately
$45.4 billion at December 31, 1999, an increase of 70%. New business writings
and premium revenue levels are significantly influenced by the seasonal nature
of the life reinsurance marketplace and by large transactions and therefore can
fluctuate from period to period.

     Net Investment Income.  Total net investment income for the year ended
December 31, 2000 was $136,648,000, an increase of 61% over the year ended
December 31,1999. The growth in the investment income was primarily due to the
income earned on Funds Withheld under modified coinsurance agreements related to
our Interest Sensitive Contracts Liabilities. The income earned on the Funds
Withheld was approximately $116,522,000 for the year ended December 31, 2000
compared with $64,606,000 for the year ended December 31, 1999. The average
yield rate earned on an annualized basis on the invested assets, excluding Funds
Withheld, was approximately 6.85% for the year ended December 31, 2000 compared
with 6.29% for the year ending December 31, 1999.

     Realized Investment Gains (Losses).  Realized investment losses were
approximately $4,817,000 for the year ended December 31, 2000 compared with
realized losses of $1,285,000 for the year ended December 31, 1999. These gains
and losses result from normal active management of our investment portfolio
intended to improve performance and increase operating income.

     We do not consider realized gains and losses to be recurring components of
earnings. We make decisions concerning the sales of invested assets based on a
variety of market, business and other factors.

     During the year ended December 31, 2000 we had unrealized gains of
approximately $13,334,000, as compared with unrealized losses of $14,992,000
during the year ended December 31,1999 which were included in Other
Comprehensive Income (Loss). The change in unrealized gains and losses is
principally related to movements in the general level of interest rates.

     Claims and Policy Benefits.  Life Insurance Claims and Policy Benefits for
the year ended December 31, 2000 were $115,953,000 or 77% of net premium as
compared with $79,953,000 or 79% of net premium for the year ended December 31,
1999. Aggregate mortality experience has been favorable, falling within pricing
parameters. Although we expect mortality to be fairly constant over long periods
of time, it will fluctuate from

                                        11
<PAGE>   14

period to period. Reserves for future policy benefits are in part determined by
claims reported from ceding companies, our aggregate experience and overall
mortality trends.

     Interest Credited to Interest Sensitive Contract Liabilities.  Interest
credited to interest sensitive contract liabilities was approximately
$63,042,000 for the year ended December 31, 2000, as compared with approximately
$22,312,000 for the year ended December 31, 1999. This increase reflects the
level of our Interest Sensitive Contracts Liabilities and is directly related to
income earned on the related Funds Withheld at Interest. The income earned on
Funds Withheld was approximately $116,522,000 for the year ended December 31,
2000, as compared with $64,606,000 for the year ended December 31, 1999.

     Policy Acquisition Costs and Other Insurance Expenses.  Policy Acquisition
Costs and Other Insurance Expenses, consisting primarily of allowances and
amortization of deferred policy acquisition costs, were approximately
$60,900,000 for the year ended December 31, 2000, as compared with $42,201,000
for the year ended December 31, 1999. Generally, policy acquisition costs and
other insurance expenses fluctuate with business volume and changes in product
mix. The increase in these costs reflects the growth and development of our
reinsurance business.

     Other Operating Expenses.  Operating expenses were approximately
$10,411,000 or 3.4% of total revenue for the year ended December 31, 2000, as
compared with $7,686,000 or 4.1% of total revenue for the year ended December
31, 1999. The decrease in the ratio of operating expenses to total revenue is
due to the growth and development of our reinsurance operations and our revenue
base. We consider the operating expense level to be low by industry standards
and is in line with our plan to be a low cost provider.

  Year Ended December 31, 1999 Compared to the Eight and One Half Month Period
Ended December 31, 1998

     Net Income.  For the year ended December 31, 1999, we had consolidated net
income of approximately $35,703,000, which is $1.40 per common share, or $1.31
per common share on a fully diluted basis, compared with $0.81 per common share,
$0.76 per common share on a fully diluted basis for the initial operating period
of approximately eight and one-half months ended December 31, 1998. We began our
insurance operations on April 17,1998 following the completion of our initial
public offering and direct sales of our common shares. Earnings per share for
the year ended December 31, 1998 has been calculated using earnings and the
number of shares outstanding since the beginning of the second fiscal quarter. A
loss of approximately $449,000 was incurred during the three month period ended
March 31, 1998 relating to expenses and costs incurred in the formation and
organization of the company.

     Net Operating Income.  In addition to net income, we report net operating
income. This is not a substitute for net income computed in accordance with
accounting principles generally accepted in the United States of America (U.S.
GAAP), but is an important measure used by management, equity analysts and
investors to measure our results. We define net operating income as net income
excluding realized gains and losses from the sale of investments. Our definition
of net operating income may differ from that used by other public life and
annuity companies.

     For the year ended December 31, 1999 net operating income increased 120%
over the prior year. Net operating income for the year ending December 31, 1999
was approximately $36,988,000 or $1.45 per common share, $1.36 per common share
on a fully diluted basis, compared with $16,338,000 or $0.70 per common share,
$0.66 per common share on a fully diluted basis for the initial operating period
of approximately eight and one-half months ended December 31, 1998. The increase
in net operating income is due to the growth and development of our insurance
operations and favorable underwriting and investment results.

     Net Premiums.  Net premium revenue for the year ended December 31, 1999 was
approximately $100,835,000, an increase of 261% over the initial operating
period of approximately eight and one-half months ended December 31, 1998. All
premium revenue was derived from traditional ordinary life reinsurance developed
directly by the company and through the use of intermediaries. The growth
reflects the level of new business written and the increase in the face amount
of insurance in force. At December 31, 1999 the total

                                        12
<PAGE>   15

face amount of life insurance in force was approximately $45.4 billion compared
with approximately $22.5 billion at December 31, 1998. New business writings and
premium revenue levels are significantly influenced by the seasonal nature of
the life reinsurance marketplace and by large transactions and therefore can
fluctuate from period to period.

     Net Investment Income.  Total net investment income for the year ended
December 31, 1999 was approximately $85,090,000, an increase of 253% over the
initial operating period of eight and one half months ended December 31,1998.
The growth in the investment income is primarily due to the income earned on
Funds Withheld under modified coinsurance agreements related to our Interest
Sensitive Contracts Liabilities. The income earned on the Funds Withheld was
approximately $64,606,000 for the year ended December 31, 1999 compared with
$8,927,000 for the initial operating of eight and one-half months ended December
31, 1998. The average yield rate earned on an annualized basis on the invested
assets, excluding Funds Withheld, was approximately 6.29% for the year ended
December 31, 1999 compared with 6.32% for the period ending December 31, 1998.

     Realized Investment Gains (Losses).  Realized investment losses were
approximately $1,285,000 for the year ended December 31, 1999 compared with
realized gains of approximately $2,673,000 for the initial operating period of
eight and one-half months ended December 31, 1998. Such gains and losses result
from normal activity in the management of our investment portfolio.

     We do not consider realized gains and losses to be recurring components of
earnings. We make decisions concerning the sales of invested assets based on a
variety of market, business and other factors.

     During the year ended December 31, 1999 we incurred unrealized losses of
approximately $14,992,000, as compared with unrealized gains of approximately
$3,723,000 incurred during the period ended December 31,1998 which were included
in Other Comprehensive Income (Loss). The change in unrealized gains and losses
is principally related to the increase in the general level of interest rates
during 1999.

     Claims and Policy Benefits.  Claims and Policy Benefits for the year ended
December 31, 1999 were approximately $79,953,000 or 79% of net premium as
compared with $23,297,000 or 83% of net premium for the initial operating period
of eight and one-half months ended December 31, 1998. Mortality experience has
been favorable, falling within pricing parameters. We expect mortality to be
fairly constant over long periods of time, but it will fluctuate from period to
period. Reserve levels are in part determined by claims reported from ceding
companies, our aggregate experience and overall mortality trends.

     Interest Credited to Interest Sensitive Contract Liabilities.  Interest
credited to interest sensitive contract liabilities was approximately
$22,313,000 for the year ended December 31, 1999, as compared with approximately
$1,989,000 for the initial operating period of eight and one-half months ended
December 31, 1998. This increase reflects the growth in the Interest Sensitive
Contracts Liabilities and is directly related to income earned on the related
Funds Withheld at Interest. The income earned on Funds Withheld was
approximately $64,606,000 for the year ended December 31, 1999, as compared with
$8,927,000 for the initial operating period of eight and one-half months ended
December 31, 1998.

     Policy Acquisition Costs and Other Insurance Expenses.  Policy Acquisition
Costs and Other Insurance Expenses, consisting primarily of allowances and
amortization of deferred policy acquisition costs, were approximately
$42,201,000 for the year ended December 31, 1999, as compared with $6,542,000
for the initial operating period of eight and one-half months ended December 31,
1998. Generally, policy acquisition costs and other insurance expenses fluctuate
with business volume and changes in product mix. The increase in these costs
reflects the growth and development of our life insurance and annuity business.

     Other Operating Expenses.  Operating expenses were approximately $7,686,000
or 4.1% of total revenue for the year ended December 31, 1999, as compared with
$3,770,000 or 6.8% of total revenue for the initial operating period of eight
and one-half months ended December 31, 1998. The decrease in the ratio of
operating expenses to total revenue is due to the growth and development of our
insurance operations and our revenue base. We consider the operating expense
level to be low by industry standards and is in line with our plan to be a low
cost provider.

                                        13
<PAGE>   16

FINANCIAL CONDITION

Investments.

  Cash & Fixed Maturity Investments

     Invested assets, including cash and cash equivalents, amounted to
approximately $321,819,000 at December 31, 2000 as compared with approximately
$304,060,000 at December 31, 1999. The change in invested assets during 2000 is
due to the unrealized gains incurred in the year, the funds provided in the
Company's operating activities less the payment of shareholder dividends and the
assets included with the purchase of Annuity and Life Reassurance America. At
December 31, 2000 unrealized gains total approximately $2,065,000 as compared
with total unrealized losses of approximately $11,269,000 at December 31, 1999.
The change in unrealized gains and losses is principally related to the movement
in the general level of interest rates during 2000.

     Our investment policy is designed to achieve above average risk adjusted
total returns, maintain a high quality portfolio, maximize current income,
maintain an adequate level of liquidity and match the cash flows of the
portfolio to the required cash flows for the related liabilities.

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

     At December 31, 2000, fixed maturity securities, which constituted all of
the total fair value of our invested assets, were 97 % investment grade, liquid
securities with varying maturity dates, as compared with 88% at December 31,
1999. The fair value of such investments may vary depending on economic and
market conditions, the level of interest rates and the perceived
creditworthiness of the issuer. At December 31, 2000 and 1999, the weighted
average duration of invested assets was 3.2 and 3.7, respectively, and the
weighted average investment quality rating was "AA" and "AA-", respectively.

     At December 31, 2000, $7,800,000 at fair value, 2.9% of the invested
assets, consisted of below investment grade securities, as compared with
approximately $34,500,000 or 12% of invested assets at December 31, 1999. We
limit our investments in fixed maturities that are rated below investment grade
to 25% of capital, as these investments are subject to a higher degree of credit
risk than investment grade securities. We monitor these securities as well as
the creditworthiness of the portfolio as a whole. When fair market values
decline for reasons other than changes in interest rates or other perceived
temporary conditions, the security is written down to its net realizable value.
At December 31, 2000 there was one security in default with a fair value of
$499,000. This security was written down by $1,000,000 during 2000. At December
31, 1999 there were no securities in default and no securities were written down
during 1999.

     Our results of operations and our financial condition are significantly
affected by the performance of our investments and by changes in interest rates.
During a period of declining interest rates, if our investments are prematurely
sold, called, prepaid or redeemed, we may be unable to reinvest the proceeds in
securities of equivalent risk with comparable rates of return. During a period
of rising interest rates, the fair value of our invested assets could decline.
In addition, rising interest rates could also cause disintermediation, which in
turn could cause us to sell investments at prices and times when the fair values
of such investments are less than their amortized cost. We believe that our
traditional life insurance liabilities are not highly interest rate sensitive
and, therefore, the effects of fluctuating interest rates on these liability
cash flows are not significant. For interest sensitive liabilities, the cedent
utilizes asset/liability matching to minimize the impact of changes in interest
rates. We have not engaged in hedging activities to mitigate the effects of
interest rate changes on our invested assets and related liabilities, although
we may do so in the future.

     The following table summarizes certain of our investment results, excluding
interest earned on funds withheld under modified coinsurance agreements, for the
periods ended December 31, 2000 and 1999.

                                        14
<PAGE>   17

                               INVESTMENT RESULTS

<TABLE>
<CAPTION>
                                                                YEAR ENDED           YEAR ENDED
                                                             DECEMBER 31, 2000    DECEMBER 31, 1999
                                                             -----------------    -----------------
<S>                                                          <C>                  <C>
Total invested assets, cash and cash equivalents(1)........    $321,819,396         $304,060,124
Investment income, net of related expense..................    $ 20,126,486         $ 20,483,345
Effective yield rate(2)....................................            6.85%                6.29%
Realized investment (losses)...............................    $ (4,817,121)        $ (1,284,769)
</TABLE>

---------------
(1) Fair value at end of the indicated year.

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

     Our invested assets consist primarily of fixed maturity securities. These
fixed maturity securities are invested primarily in U.S. government obligations,
foreign government obligations, public utilities obligations, corporate fixed
maturities, and mortgage backed securities.

     At December 31, 2000, mortgage backed securities represented approximately
36% of invested assets, as compared with 37% at December 31, 1999. Investors in
these securities are compensated primarily for reinvestment risk rather than
credit quality risk. Investments in mortgage backed securities include
collateralized mortgage obligations ("CMO's") and mortgage backed pass-through
securities. Mortgage backed securities generally are collateralized by mortgages
issued by the Government National Mortgage Association ("GNMA"), the Federal
National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC"), all of which are agencies of the U.S. government. Of
these, only GNMA mortgages are backed by the full faith and credit of the U.S.
government. Credit risk generally is not a consideration when investing in
agency mortgage backed securities. Our mortgage backed securities portfolio had
a weighted average investment quality rating of "AAA" at December 31, 2000 and
1999.

     At December 31, 2000, approximately 25% of our mortgage backed investment
portfolio consisted of planned amortization class ("PAC"), target amortization
class ("TAC") and sequential instruments, as compared with 19% at December 31,
1999. These investments are designed to amortize in a more predictable manner by
shifting the primary risk of prepayment of the underlying collateral to
investors in other tranches ("support classes") of the CMO.

     Funds Withheld at Interest -- Interest Sensitive Liabilities Contracts.  At
December 31, 2000 and 1999 assets with a carrying value of $1,530,110,000 and
$1,532,653,000, respectively, related to annuity reinsurance agreements are held
by and managed by the ceding companies in segmented portfolios. The liability
for the annuity reinsurance is included on our Balance Sheet as Interest
Sensitive Contracts Liabilities. Under the terms of the reinsurance agreements,
the investment income, which accrues to us, is based on the underlying
portfolios. The assets in the underlying segmented portfolios are managed by
investment managers appointed by the cedent.

LIQUIDITY AND CAPITAL RESOURCES

     Our liquidity and capital resources are a measure of our overall financial
strength and our ability to generate cash flows from our operations to meet
operating and growth needs. Our principal sources of funds are premiums
received, net investment income, proceeds from investments called, redeemed or
sold, cash and short term investments. The principal obligations and uses of the
funds are the payment of policy benefits, acquisition and operating expenses and
the purchase of investments.

     Net cash provided by operating activities was $16,260,000 for the year
ended December 31, 2000, as compared with cash used by operations of $18,920,000
for the year ended December 31, 1999. The increase in the cash provided by
operating activities is primarily related to the growth and development of our
insurance operations offset by the initial costs associated with writing new
life reinsurance and annuity reinsurance business.

                                        15
<PAGE>   18

     Our capital structure currently consists entirely of equity. At December
31, 2000 our total capitalization after deducting certain loans to management
and including retained earnings and accumulated other comprehensive income
(loss) amounted to approximately $441,216,000, as compared with $392,055,000 at
December 31, 1999. We believe this level of capital is sufficient to support our
insurance writings and growth for the near future.

     At December 31, 2000 and 1999 we had no outstanding debt. At December 31,
2000 and 1999, letters of credit totaling $183,687,000 and $121,475,000,
respectively, issued in the ordinary course of our business had been issued by
our bankers in favor of certain ceding insurance companies to provide security
and to meet regulatory requirements. At December 31, 2000 and 1999 letters of
credit totaling $138,000,000 and $121,475,000, respectively, were fully
collateralized by our investments. We may incur indebtedness in the future in
connection with possible acquisitions of, investments in, joint ventures with or
other strategic alliances with companies whose businesses complement the
company's business.

     At the February 9, 2000, April 27, 2000, July 27, 2000 and October 26, 2000
Board of Directors meetings, shareholder dividends of $.04 per share were
declared. The Board intends to continue to declare and pay out of earnings a
quarterly dividend. The continued payment of dividends is dependent on the
ability of our operating subsidiaries to achieve satisfactory underwriting and
investment results, and no assurance can be given that dividends will be
declared or paid in the future.

     The Company has no material commitments for capital expenditures as of
December 31, 2000.

ACQUISITION

     On June 1, 2000 the Company, through Annuity and Life Re America, completed
the acquisition of Annuity and Life Reassurance America, Inc., formerly Capitol
Bankers Life Insurance Company. Annuity and Life Reassurance America is a life
insurance company domiciled in the United States which is authorized to conduct
its life insurance business in 43 states of the United States, and will focus
its operations on the United States life reinsurance markets. The Company
contributed additional capital to Annuity and Life Reassurance America during
the fiscal year of $19,550,000 to bring the total capital and surplus of Annuity
and Life Reassurance America to $25,000,000. The acquisition price and capital
contribution was funded from available cash balances and proceeds from the sales
of fixed maturity securities held by the Company.

     The acquisition has been accounted for as a purchase and the operating
results of Annuity and Life Reassurance America have been included in the
Company's financial statements since the date of acquisition. Prior to closing,
the inforce insurance business of Annuity and Life Reassurance America was 100%
reinsured by Annuity and Life Reassurance America with its former owner, a
subsidiary of Swiss Re, who will continue to administer the business reinsured.
Accordingly, there will be no earnings from the in-force business at the
acquisition date accruing to the Company currently or in the future.

     The amounts related to the reinsured business referred to above are
included on the Company's Balance Sheet in the assets as Receivable for
Reinsurance Ceded and in the liabilities as Reserves for Future Policy Benefits;
at December 31, 2000 both amounts were $104,500,000.

     The purchase price exceeded the fair value of the net assets acquired (the
capital and surplus of Annuity and Life Reassurance America) by $2,301,000 which
has been allocated to the value of the 43 insurance licenses of Annuity and Life
Reassurance America. This is being amortized over 20 years.

                                        16
<PAGE>   19

     The proforma balance sheet of Annuity and Life Reassurance America as of
the date of acquisition after giving effect to the reinsurance transaction is as
follows:

<TABLE>
<CAPTION>
ASSETS
------
<S>                                                           <C>
Cash & invested assets......................................  $ 10,880,686
Receivable for reinnurance ceded............................   108,766,677
Insurance licenses..........................................     2,301,104
                                                              ------------
Total Assets................................................  $121,948,467
                                                              ============
LIABILITIES AND STOCKHOLDERS EQUITY
------------------------------------------------------------
Reserves for future policy benefits.........................  $108,766,677
Stockholders equity.........................................    13,181,790
                                                              ------------
Total Liabilities and Stockholders Equity...................  $121,948,467
                                                              ============
</TABLE>

YEAR 2000

     We experienced no disruptions to our business as a result of the conversion
to the year 2000. We incurred no material Year 2000 expenses during the years
ended December 31, 2000 and 1999 and all expenses incurred were funded from
operations.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     Market risk is the risk of loss arising from adverse changes in market
rates and prices, such as interest rates, foreign currency exchange rates, and
other relevant market rate or price changes. The following is a discussion of
the Company's primary market risk exposures and how those exposures are
currently managed as of December 31, 2000.

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

     We do not have any foreign currency risk or market risks arising from
equity securities. We do not currently use derivative financial instruments such
as futures and options to manage risk, although we may do so in the future. In
addition, we manage other risks, including credit and liquidity, in the normal
course of business. In managing credit risk we establish overall quality and
rating guidelines and place limits on credit exposure by issuer industry to
achieve appropriate diversification in the portfolio. We do not have a trading
portfolio and are not exposed to market risk from trading activities.

     There were no significant changes in the Company's primary market risk
exposures or in how those exposures are managed compared to the year ended
December 31, 1999.

     The table below (expressed in millions of U.S. dollars) presents as of
December 31, 2000 the amortized cost amounts and related weighted average
interest rates by years of maturity for our investment portfolio. Mortgage
backed securities are included in the table by relevant year of maturity.

                                        17
<PAGE>   20

<TABLE>
<CAPTION>
                                  CASH AND CASH    WEIGHTED AVERAGE    FIXED MATURITY    WEIGHTED AVERAGE
                                   EQUIVALENTS      INTEREST RATE       INVESTMENTS       INTEREST RATE
                                  -------------    ----------------    --------------    ----------------
<S>                               <C>              <C>                 <C>               <C>
2001............................      $52.6              5.80%             $ 11.3              6.43%
2002............................                                             26.4              6.30%
2003............................                                             20.3              6.46%
2004............................                                             16.7              6.71%
2005............................                                             28.4              8.20%
Thereafter......................                                            163.9              6.77%
Total...........................      $52.6              5.80%             $267.0              6.84%
Fair Value......................      $52.6                                $269.1
</TABLE>

     Sensitivity analysis and duration modeling are used to estimate changes in
fair values of fixed maturity investments and the potential effects on operating
earnings and cash flows resulting from possible near term changes in interest
rates. The term "near term" means a period of time going forward up to one year
from the date of the Consolidated Financial Statements. Durations of fixed
maturity investments are adjusted for call, put and reset features. Portfolio
durations are calculated on a market value weighted basis, including accrued
investment income. The Company's duration model uses a 100 basis point change in
interest rates to measure the hypothetical change in fair value of financial
instruments included in the model. The duration model produces a loss in fair
value of the fixed maturity investments of approximately $8.6 million based on a
100 basis point increase in interest rates as of December 31, 2000 and a loss of
$10.1 million as of December 31, 1999. Conversely, gains of similar amounts will
be produced with a 100 basis point decrease in interest rates. Actual results
may differ from the hypothetical change in fair values assumed in this
disclosure, especially since the analysis does not and cannot reflect the
results of any actions that would be taken by us to mitigate losses or to
optimize gains in fair values.

     We believe that our life insurance liabilities are not highly interest rate
sensitive as they arise from traditional reinsurance arrangements and,
therefore, the effects of fluctuating interest rates on these liability cash
flows are not significant.

     The annuity product line is generally regarded as interest sensitive as
fluctuations in the general level of interest rates may cause fluctuations in
the results of operations. The future earnings and cash flows of the annuity
product line are primarily dependent on earning a spread between the interest
earned on the supporting asset base, the interest rate credited to or priced
into the liabilities and the persistency of the underlying business. We believe
the interest rate risk associated with our annuity reinsurance product line is
mitigated to a large extent because of the product types reinsured and the
modified coinsurance structure of our reinsurance agreements. Additionally,
actions taken by us and the ceding company may further mitigate the effect of
such market movements. The model used by the Company indicates that a 100 basis
point change in interest rates would not have a significant impact on the net
investment spread earned by the Company as of December 31, 2000 or December 31,
1999.

     The company does not anticipate significant changes in its primary market
risk exposures or how these exposures are managed in future reporting periods
based on what we currently know and what we expect to be in effect in future
reporting periods. The statements above are forward-looking statements within
the meaning of the Private Securities Litigation Reform Act. See
"Forward-Looking Statements" on page 11.

                                        18
<PAGE>   21

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                       INDEX TO FINANCIAL STATEMENTS AND
                          FINANCIAL STATEMENT SCHEDULE
             ANNUITY AND LIFE RE (HOLDINGS), LTD. AND SUBSIDIARIES

<TABLE>
<S>                                                             <C>
FINANCIAL STATEMENTS
Report of Independent Auditors..............................     21
Consolidated Balance Sheets at December 31, 2000 and 1999...     22
Consolidated Statements of Operations for the years ended
  December 31, 2000, 1999 and 1998..........................     23
Consolidated Statements of Comprehensive Income for the
  years ended December 31, 2000, 1999 and 1998..............     24
Consolidated Statements of Changes in Stockholders' Equity
  for the years ended December 31, 2000, 1999 and 1998......     25
Consolidated Statements of Cash Flows for the years ended
  December 31, 2000, 1999 and 1998..........................     26
Notes to Consolidated Financial Statements..................     27
FINANCIAL STATEMENT SCHEDULE
Schedule II Condensed Financial Information of Registrant...     39
</TABLE>

     All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted, or the information is presented in the consolidated financial
statements or accompanying notes.

                                        19
<PAGE>   22

                              REPORT OF MANAGEMENT

     Management of the Company has primary responsibility for preparing the
accompanying consolidated financial statements and for their integrity and
objectivity. The consolidated financial statements included in this report were
prepared in accordance with accounting principles generally accepted in the
United States of America applied on a consistent basis. The consolidated
financial statements include amounts that are based on management's best
estimates and judgements. Management also prepared the other information
presented in the annual report and is responsible for its accuracy and
consistency with the consolidated financial statements.

     Management of the Company has established and maintains a system of
internal controls designed to provide reasonable assurance as to the integrity
and reliability of the consolidated financial statements, the protection of
assets from unauthorized use or disposition and the prevention and detection of
fraudulent financial reporting.

     The Company's consolidated financial statements have been audited by our
independent auditors, KPMG. Our independent auditors had unrestricted access to
each member of management in conducting their audit. Management has made
available to our auditors all of the Company's financial records and related
data, as well as the minutes of shareholders' and directors' meetings.
Management believes that all representations made to our auditors during their
audits were valid and appropriate.

     The Audit Committee of the Board of Directors is comprised of certain
directors who are neither employees nor officers of the Company. The Audit
Committee meets periodically with management and KPMG regarding audit scope,
timing, and results and to discuss other auditing and financial reporting
matters. Our auditors have direct access to and meet privately with the Audit
Committee.

LAWRENCE S. DOYLE
President and
Chief Executive Officer

WILLIAM W. ATKIN
Senior Vice President and
Chief Financial Officer

                                        20
<PAGE>   23

                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Annuity and Life Re (Holdings), Ltd.

     We have audited the consolidated financial statements of Annuity and Life
Re (Holdings), Ltd. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule listed in the accompanying index.
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.

     We conducted our audits in accordance auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
and its subsidiaries as at December 31, 2000 and 1999 and the results of their
operations and cash flows for the years ended December 31, 2000, 1999 and 1998
in conformity with accounting principles generally accepted in the United States
of America. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.

KPMG
Chartered Accountants
Hamilton, Bermuda
February 5, 2001

                                        21
<PAGE>   24

                      ANNUITY AND LIFE RE (HOLDINGS), LTD.

                          CONSOLIDATED BALANCE SHEETS
                      (EXPRESSED IN UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
                                                             DECEMBER 31, 2000    DECEMBER 31, 1999
                                                             -----------------    -----------------
<S>                                                          <C>                  <C>
ASSETS
Cash and cash equivalents..................................   $   52,691,974       $   31,187,242
Fixed interest investments, available for sale, at fair
  value (amortized cost of $266,967,810 at December 31,
  2000 and $284,142,098 at December 31, 1999)..............      269,127,422          272,872,882
Funds withheld at interest.................................    1,530,109,853        1,532,652,990
Accrued investment income..................................        3,760,138            4,279,480
Other reinsurance receivables..............................       29,552,630            7,834,806
Receivable for reinsurance ceded...........................      104,495,543                   --
Deferred policy acquisition costs..........................      228,728,083          203,510,250
Insurance licenses, net of amortization....................        2,243,330                   --
Other assets...............................................        3,977,918            3,748,338
                                                              --------------       --------------
  Total Assets.............................................   $2,224,686,891       $2,056,085,988
                                                              ==============       ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Reserves for future policy benefits........................   $  174,953,018       $   43,753,923
Interest sensitive contracts liabilities...................    1,595,128,506        1,603,382,955
Other reinsurance liabilities..............................        7,623,822           10,746,269
Payable for investments purchased..........................           25,863              639,352
Accounts payable and accrued expenses......................        5,739,906            5,508,595
                                                              --------------       --------------
  Total Liabilities........................................   $1,783,471,115       $1,664,031,094
                                                              --------------       --------------
STOCKHOLDERS' EQUITY
Preferred shares (par value $1.00; 50,000,000 shares
  authorized; no shares outstanding).......................   $           --       $           --
Common shares (par value $1.00; 100,000,000 shares
  authorized; 25,499,999 shares outstanding)...............       25,499,999           25,499,999
Additional paid-in capital.................................      329,496,091          329,496,091
Notes receivable from stock sales..........................       (1,367,241)          (1,286,741)
Accumulated other comprehensive income (loss)..............        2,064,971          (11,269,216)
Retained earnings..........................................       85,521,956           49,614,761
                                                              --------------       --------------
  Total Stockholders' Equity...............................   $  441,215,776       $  392,054,894
                                                              --------------       --------------
  Total Liabilities and Stockholders' Equity...............   $2,224,686,891       $2,056,085,988
                                                              ==============       ==============
</TABLE>

          See accompanying notes to consolidated financial statements

                                        22
<PAGE>   25

                      ANNUITY AND LIFE RE (HOLDINGS), LTD.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                      (EXPRESSED IN UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31
                                                    -------------------------------------------
                                                        2000            1999           1998
                                                    ------------    ------------    -----------
<S>                                                 <C>             <C>             <C>
REVENUES
Net premiums......................................  $168,404,022    $100,835,007    $27,943,890
Investment income, net of related expenses........   136,648,327      85,089,811     24,130,550
Net realized investment gains (losses)............    (4,817,121)     (1,284,769)     2,673,281
Other revenue.....................................     6,915,870       3,215,429        311,243
                                                    ------------    ------------    -----------
Total Revenues....................................  $307,151,098    $187,855,478    $55,058,964
                                                    ------------    ------------    -----------
BENEFITS AND EXPENSES
Claims and other policy benefits..................  $132,810,192    $ 79,953,160    $23,297,115
Interest credited to interest sensitive contract
  liabilities.....................................    63,041,991      22,312,684      1,989,000
Policy acquisition costs and other insurance
  expenses........................................    60,900,376      42,200,688      6,541,872
Operating expenses................................    10,411,344       7,685,802      4,150,321
Organizational expenses...........................            --              --         69,039
                                                    ------------    ------------    -----------
Total Benefits and Expenses.......................  $267,163,903    $152,152,334    $36,047,347
                                                    ------------    ------------    -----------
  Net Income......................................  $ 39,987,195    $ 35,703,144    $19,011,617
                                                    ============    ============    ===========
NET INCOME PER COMMON SHARE
  Basic...........................................  $       1.57    $       1.40    $      0.81
                                                    ------------    ------------    -----------
  Diluted.........................................  $       1.46    $       1.31    $      0.76
                                                    ------------    ------------    -----------
</TABLE>

          See accompanying notes to consolidated financial statements

                                        23
<PAGE>   26

                      ANNUITY AND LIFE RE (HOLDINGS), LTD.

                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                      (EXPRESSED IN UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31
                                                     ------------------------------------------
                                                        2000            1999           1998
                                                     -----------    ------------    -----------
<S>                                                  <C>            <C>             <C>
Net Income.........................................  $39,987,195    $ 35,703,144    $19,011,617
                                                     -----------    ------------    -----------
OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized holding gains (losses) on securities
  arising during the period........................    8,517,066     (16,276,579)     6,395,875
Less reclassification adjustment for realized gains
  and (losses) in net income.......................   (4,817,121)     (1,284,769)     2,673,281
                                                     -----------    ------------    -----------
Other comprehensive income (loss)..................   13,334,187     (14,991,810)     3,722,594
                                                     -----------    ------------    -----------
Total Comprehensive Income.........................  $53,321,382    $ 20,711,334    $22,734,211
                                                     ===========    ============    ===========
</TABLE>

          See accompanying notes to consolidated financial statements

                                        24
<PAGE>   27

                      ANNUITY AND LIFE RE (HOLDINGS), LTD.

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                      (EXPRESSED IN UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31
                                                   --------------------------------------------
                                                       2000            1999            1998
                                                   ------------    ------------    ------------
<S>                                                <C>             <C>             <C>
PREFERRED SHARES PAR VALUE $1.00
Balance at beginning and end of period...........  $         --    $         --    $         --
                                                   ------------    ------------    ------------
COMMON SHARES PAR VALUE $1.00
Balance at beginning of period...................  $ 25,499,999    $ 25,499,999    $     12,000
Issuance of shares...............................            --              --      25,499,999
Retirement of shares.............................            --              --         (12,000)
                                                   ------------    ------------    ------------
Balance at end of period.........................  $ 25,499,999    $ 25,499,999    $ 25,499,999
                                                   ------------    ------------    ------------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period...................  $329,496,091    $329,517,104    $    238,000
Issuance of shares...............................            --              --     334,049,964
Direct equity offering expenses..................            --         (21,013)     (4,770,860)
                                                   ------------    ------------    ------------
Balance at end of period.........................  $329,496,091    $329,496,091    $329,517,104
                                                   ------------    ------------    ------------
NOTES RECEIVABLE FROM STOCK SALES
Balance at beginning of period...................  $ (1,286,741)   $ (1,391,068)   $         --
Notes Issued.....................................            --              --      (1,325,000)
Repayments.......................................            --         175,000              --
Accrued interest during period...................       (80,500)        (70,673)        (66,068)
                                                   ------------    ------------    ------------
Balance at end of period.........................  $ (1,367,241)   $ (1,286,741)   $( 1,391,068)
                                                   ------------    ------------    ------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance at beginning of period...................  $(11,269,216)   $  3,722,594    $         --
Net unrealized holding gains (losses) on
  securities.....................................    13,334,187     (14,991,810)      3,722,594
                                                   ------------    ------------    ------------
Balance at end of period.........................  $  2,064,971    $(11,269,216)   $  3,722,594
                                                   ------------    ------------    ------------
RETAINED EARNINGS
Balance at beginning of period...................  $ 49,614,761    $ 17,991,617    $         --
Net income.......................................    39,987,195      35,703,144      19,011,617
Stockholder dividends............................    (4,080,000)     (4,080,000)     (1,020,000)
                                                   ------------    ------------    ------------
Balance at end of period.........................  $ 85,521,956    $ 49,614,761    $ 17,991,617
                                                   ------------    ------------    ------------
TOTAL STOCKHOLDERS' EQUITY.......................  $441,215,776    $392,054,894    $375,340,246
                                                   ============    ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements

                                        25
<PAGE>   28

                      ANNUITY AND LIFE RE (HOLDINGS), LTD.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                      (EXPRESSED IN UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31
                                                  -----------------------------------------------
                                                      2000             1999             1998
                                                  -------------    -------------    -------------
<S>                                               <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income......................................  $  39,987,195    $  35,703,144    $  19,011,617
Adjustments to reconcile net income to net cash
  Provided (used) by operating activities:
Net realized investment (gains) losses..........      4,817,121        1,284,769       (2,673,281)
Changes in:
Accrued investment income.......................        519,342         (467,418)      (3,812,062)
Deferred policy acquisition costs...............    (25,217,833)     (43,927,964)    (159,582,286)
Other reinsurance receivables...................    (21,717,824)      (7,834,806)              --
Other assets....................................       (229,580)      (3,347,968)        (167,370)
Reserves for future policy benefits, net of
  reinsurance...................................     26,703,552       21,727,514       22,026,409
Interest sensitive contracts, net of funds
  withheld......................................     (5,711,312)     (12,844,576)      83,574,541
Other reinsurance liabilities...................     (3,122,447)     (11,709,168)      22,455,437
Accounts payable and accrued expenses...........        231,311        2,496,316        2,779,279
                                                  -------------    -------------    -------------
Net cash provided (used) by operating
  activities....................................     16,259,525      (18,920,157)     (16,387,716)
                                                  -------------    -------------    -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales of fixed interest
  securities....................................    284,671,582      226,566,212      309,328,762
Purchase of fixed interest securities...........   (262,084,085)    (239,048,394)    (578,960,814)
Acquisition of business.........................    (13,181,790)              --               --
                                                  -------------    -------------    -------------
Net cash provided (used) by investing
  activities....................................      9,405,707      (12,482,182)    (269,632,052)
                                                  -------------    -------------    -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Proceeds from sale of company stock.........             --          (21,013)     353,376,035
Repayment of notes receivable, less accrued
  interest......................................        (80,500)         104,327               --
Dividends paid to stockholders..................     (4,080,000)      (4,080,000)      (1,020,000)
                                                  -------------    -------------    -------------
Net cash provided (used) by financing
  activities....................................     (4,160,500)      (3,996,686)     352,356,035
                                                  -------------    -------------    -------------
Increase (decrease) in cash and cash
  equivalents...................................     21,504,732      (35,399,025)      66,336,267
Cash and cash equivalents, beginning of
  period........................................     31,187,242       66,586,267          250,000
                                                  -------------    -------------    -------------
Cash and cash equivalents, end of period........  $  52,691,974    $  31,187,242    $  66,586,267
                                                  =============    =============    =============
</TABLE>

          See accompanying notes to consolidated financial statements

                                        26
<PAGE>   29

                      ANNUITY AND LIFE RE (HOLDINGS), LTD.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION

     Annuity and Life Re (Holdings), Ltd. ("Holdings") was incorporated on
December 2, 1997 under the laws of Bermuda. Holdings provides annuity and life
reinsurance to insurers and reinsurers through its wholly-owned subsidiaries:
Annuity and Life Reassurance, Ltd. ("Annuity and Life Reassurance"), licensed
under the laws of Bermuda as a long term insurer; and Annuity and Life Re
America, Inc. (Annuity and Life Re America), an insurance holding company based
in the United States and Annuity and Life Reassurance America, Inc., formerly
Capitol Bankers Life Insurance Company ("Annuity and Life Reassurance America"),
a life insurance company domiciled in the United States. Holdings, Annuity and
Life Reassurance, Annuity and Life Re America and Annuity and Life Reassurance
America are collectively referred to herein as the "Company". The Company
completed an initial public offering of its equity securities and commenced
operations on April 17, 1998.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The accompanying consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States of
America which require management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements.
Actual results could differ from those estimates. The following are the
significant accounting policies adopted by the Company:

  (a) Basis of consolidation

     The consolidated financial statements include the accounts of Holdings and
its subsidiaries, Annuity and Life Reassurance, Annuity & Life Re America and
Annuity and Life Reassurance America. All significant inter-company accounts and
transactions have been eliminated upon consolidation.

  (b) Premium income and related expenses

     Reinsurance premiums from traditional life and annuity policies with life
contingencies are generally recognized as revenue when due from policyholders.
Traditional life policies include those contracts with fixed and guaranteed
premiums and benefits, and consist principally of whole life and term insurance
policies. Benefits and expenses are matched with such income so as to result in
the recognition of profits over the life of the contracts. This is achieved by
means of the provision for liabilities for future policy benefits and deferral
and subsequent amortization of policy acquisition costs.

     For contracts with a single premium or a limited number of premium payments
due over a significantly shorter period than the total period over which
benefits are provided ("limited payment contracts"), reinsurance premiums are
recorded as income when due with any excess profit deferred and recognized in
income in a constant relationship to the insurance in force or, for annuities,
in relation to the amount of expected future benefit payments.

     Premiums from universal life and investment-type contracts are reported as
deposits to policyholders' account balances. Revenues from these contracts
consist of amounts assessed during the period against policyholders' account
balances for mortality charges, policy administration charges and surrender
charges. Policy benefits and claims that are charged to expense include benefit
claims incurred in the period in excess of related policyholders' account
balances.

  (c) Deferred policy acquisition costs

     The costs of acquiring new business, principally allowances, which vary
with and are primarily related to the production of new business, are deferred.
Deferred policy acquisition costs are subject to recoverability testing at the
time of the policy issuance and loss recognition testing at the end of each
accounting period.

                                        27
<PAGE>   30
                      ANNUITY AND LIFE RE (HOLDINGS), LTD.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     For traditional life and annuity policies with life contingencies, deferred
policy acquisition costs are charged to expense using assumptions consistent
with those used in computing policy reserves. Assumptions as to anticipated
premiums are estimated at the date of the policy issuance and are consistently
applied during the life of the contracts. Deviations from estimated experience
are reflected in earnings in the period such deviations occur. For these
contracts, the amortization periods generally are for the estimated life of the
policies.

     For universal life and investment-type products, deferred policy
acquisition costs are amortized over the expected average life of the contracts
as a constant percentage of the present value of estimated gross profits arising
principally from investment results, mortality and expense margins and surrender
charges based on historical and anticipated future experience, which is updated
at the end of each accounting period. In computing amortization, interest
accrues to the unamortized balance of capitalized policy acquisition costs at
the rate used to discount expected gross profit. The effect on the amortization
of deferred policy acquisition costs of revisions to estimated gross profits are
reflected in earnings in the period such estimated gross profits are revised.

  (d) Insurance Licenses, net of amortization

     The Company has classified as insurance licenses the cost in excess of fair
value of net assets acquired in a purchase transaction. This cost is being
amortized on a straight-line basis over 20 years.

  (e) Policyholders' account balances and future policy benefits

     The development of policy reserves for the Company's products requires
management to make estimates and assumptions regarding mortality, lapse, expense
and investment experience. Such estimates are primarily based on historical
experience and information provided by ceding companies. Actual results could
differ materially from those estimates. Management monitors actual experience,
and where circumstances warrant, will revise its assumptions and the related
reserve estimates.

     For traditional life policies, future policy benefits and dividend
liabilities are estimated using a net level premium method on the basis of
actuarial assumptions as to mortality, persistency and interest established at
policy issue. Assumptions established at policy issue as to mortality and
persistency are based on anticipated experience, which, together with interest
and expense assumptions, provide a margin for adverse deviation. When the
liabilities for future policy benefits plus the present value of expected future
gross premiums for a product are insufficient to provide for expected future
benefits and expenses for that product, deferred policy acquisition costs are
written off and thereafter, if required, a premium deficiency reserve is
established by a charge to income. Benefit liabilities for traditional annuities
during the accumulation period are equal to the accumulated present value of
expected future benefit payments.

     Premiums for universal life and investment-type contracts are reported as
deposits to policyholders' account balances. Revenues from these contracts will
consist of amounts assessed during the period against clients' account balances
for mortality charges, policy administration and surrender charges. Policy
benefits and claims that are charged to expense include benefit claims incurred
in the period in excess of related clients' account balances and interest
credited to clients' account balances.

  (f) Investments

     The Company classifies its investments in fixed income securities as
available for sale and, accordingly, such securities are carried at fair value.
The cost of fixed income securities is adjusted for amortization of premiums and
discounts. The cost of fixed income securities is adjusted for declines in value
that are considered other than temporary and is considered a realized loss.

                                        28
<PAGE>   31
                      ANNUITY AND LIFE RE (HOLDINGS), LTD.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Realized gains and losses on investments are recognized in net income,
using the specific identification method. Changes in fair values of securities
carried at fair value are reflected in other comprehensive income.

  (g) Translation of foreign currencies

     The Company's functional currency is the United States dollar. Premiums
written and receivable in foreign currencies are recorded at exchange rates
prevailing on the date the contract attaches and liabilities for future benefits
payable in foreign currencies at the time such liabilities are first recorded.
Exchange gains or losses resulting from the periodic revaluation and settlement
of such assets and liabilities are recorded in the Company's statement of
operations.

  (h) Earnings per common share

     The Company calculates basic earnings per common share and earnings per
common share assuming dilution.

     Basic earnings per common share is calculated by dividing net income
attributable to common shareholders by the weighted average number of common
shares outstanding during the period.

     Diluted earnings per common share is calculated by dividing the net income
attributable to common shareholders by the weighted average number of common
shares outstanding during the period, plus dilutive potential common shares.
Options and warrants issued by the Company are considered dilutive potential
common shares and are included in the calculation using the treasury stock
method.

  (i) Cash and cash equivalents

     For the purposes of the statements of cash flows, the Company considers all
time deposits and short term investments with an original maturity of 90 days or
less as equivalent to cash.

  (j) Stock plans

     The Company accounts for stock option grants in accordance with APB opinion
No. 25, "Accounting for Stock Issued to Employees" and FASB Interpretation No.
44, "Accounting for Certain Transactions Involving Stock Compensation, an
Interpretation of APB No. 25". Compensation expense for stock option grants is
recognized to the extent that the fair value of the stock exceeds the exercise
price of the option at the measurement date. Any resulting compensation expense
is recorded over the shorter of the vesting or service period.

  (k) Accounting pronouncements

     In September 2000, the Financial Accounting Standards Board (FASB) issued
Statement No. 140 "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities". It revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures. However, most of the provisions of SFAS No. 125
have been carried over without change. The Statement is effective for
transactions occurring after March 31, 2001 and is effective for recognition,
reclassification and disclosures of transactions and collateral for fiscal years
ending after December 15, 2000. This Statement is to be applied prospectively,
with certain exceptions. Management has reviewed this statement and has
concluded that it is not likely to significantly affect the Company's current
financial reporting.

     In June 1998, the FASB issued Statement No. 133 "Accounting for Derivative
Instruments and Hedging Activities." This Statement establishes accounting and
reporting standards for derivative instruments, including derivative instruments
embedded in other contracts, and for hedging activities. In June 2000 the

                                        29
<PAGE>   32
                      ANNUITY AND LIFE RE (HOLDINGS), LTD.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

FASB issued Statement No 138, which amended Statement No. 133. Statements No.
133 and 138 are effective for all fiscal periods beginning after June 15, 2000.
The Company currently does not hold any derivatives and does not engage in any
derivative hedging activities, although it may do so in the future. Management
has reviewed these Statements and has concluded that they are not likely to
significantly affect the Company's current financial reporting.

3. INVESTMENTS

     (a) The amortized cost and fair values of investments in fixed interest
securities classified as available for sale at December 31, 2000 and 1999 are as
follows:

<TABLE>
<CAPTION>
                                      AMORTIZED     UNREALIZED   UNREALIZED        FAIR
2000                                     COST          GAIN         LOSS          VALUE
----                                 ------------   ----------   -----------   ------------
<S>                                  <C>            <C>          <C>           <C>
U.S. Government Securities.........  $ 74,968,192   $1,280,454   $    10,661   $ 76,237,985
Non U.S. Government Securities.....     6,396,324       22,824            --      6,419,148
U.S. Corporate Securities..........    84,615,039      359,949       172,612     84,802,376
Non U.S. Corporate Securities......     5,280,484      193,741            --      5,474,225
Mortgage Securities................    95,707,771      614,242       128,325     96,193,688
                                     ------------   ----------   -----------   ------------
                                     $266,967,810   $2,471,210   $   311,598   $269,127,422
                                     ============   ==========   ===========   ============
</TABLE>

<TABLE>
<CAPTION>
                                      AMORTIZED     UNREALIZED   UNREALIZED        FAIR
1999                                     COST          GAIN         LOSS          VALUE
----                                 ------------   ----------   -----------   ------------
<S>                                  <C>            <C>          <C>           <C>
U.S. Government Securities.........  $ 42,942,928   $       --   $ 1,631,493   $ 41,311,435
Non U.S. Government Securities.....     2,592,517           --        82,567      2,509,950
U.S. Corporate Securities..........   122,134,896           --     4,807,736    117,327,160
Non U.S. Corporate Securities......    11,981,240           --       363,774     11,617,466
Mortgage Securities................   104,490,517           --     4,383,646    100,106,871
                                     ------------   ----------   -----------   ------------
                                     $284,142,098   $       --   $11,269,216   $272,872,882
                                     ============   ==========   ===========   ============
</TABLE>

     A deferred tax liability of $94,641 at December 31, 2000 (1999: $nil) has
been provided against unrealized gains on fixed interest securities which has
been presented as a separate component of accumulated other comprehensive
income.

     (b) The following table sets forth certain information regarding the
investment ratings of the Company's fixed interest securities portfolio at
December 31, 2000 and 1999.

<TABLE>
<CAPTION>
                                                     2000                     1999
                                            ----------------------   ----------------------
RATINGS(1)                                  AMORTIZED COST     %     AMORTIZED COST     %
----------                                  --------------   -----   --------------   -----
<S>                                         <C>              <C>     <C>              <C>
AAA.......................................   $173,372,069     64.9%   $128,530,965     45.2%
AA........................................     18,789,047      7.0      16,384,799      5.8
A.........................................     38,004,996     14.2      59,199,639     20.8
BBB.......................................     27,818,913     10.4      45,318,510     15.9
BB........................................      7,465,525      2.8      30,197,599     10.6
B and below...............................      1,517,260      0.7       4,510,586      1.7
                                             ------------    -----    ------------    -----
                                             $266,967,810    100.0%   $284,142,098    100.0%
                                             ============    =====    ============    =====
</TABLE>

---------------
(1) Rating as assigned by Moody's.

                                        30
<PAGE>   33
                      ANNUITY AND LIFE RE (HOLDINGS), LTD.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     (c) At December 31, 2000 and 1999 letters of credit totaling $183,687,000
and $121,475,000, respectively, issued in the ordinary course of the Company's
business had been issued by the Company's bankers in favor of certain ceding
insurance companies. At December 31, 2000 and 1999 investments of $161,392,000
and $147,898,000, respectively, were pledged as collateral for these letters of
credit.

     At December 31, 2000 investments of $66,435,000 were held in trust for the
benefit of certain ceding companies (December 31, 1999: $nil).

     (d) For fixed interest securities held on December 31, 2000 and 1999 the
maturity distribution is shown below. Actual maturity dates may differ from
contractual maturity dates because certain borrowers have the ability to prepay
their obligations without penalty.

<TABLE>
<CAPTION>
                                        2000                            1999
                            ----------------------------    ----------------------------
                             AMORTIZED          FAIR         AMORTIZED          FAIR
                                COST           VALUE            COST           VALUE
                            ------------    ------------    ------------    ------------
<S>                         <C>             <C>             <C>             <C>
Within one year...........  $ 11,275,786    $ 11,265,144    $ 11,640,513    $ 11,590,592
From one to five years....    93,260,097      93,066,484      76,025,504      73,582,344
From five to ten years....    53,652,320      55,105,843      58,714,280      56,036,156
After more than ten
  years...................    13,071,836      13,496,263      33,271,284      31,556,919
Mortgage Securities.......    95,707,771      96,193,688     104,490,517     100,106,871
                            ------------    ------------    ------------    ------------
                            $266,967,810    $269,127,422    $284,142,098    $272,872,882
                            ============    ============    ============    ============
</TABLE>

     (e) Investment income earned during the year is comprised as follows:

<TABLE>
<CAPTION>
                                                 2000           1999           1998
                                             ------------    -----------    -----------
<S>                                          <C>             <C>            <C>
Interest income............................  $ 21,181,034    $22,004,986    $16,539,911
Interest earned on funds withheld under
  modified coinsurance agreements..........   116,521,841     64,606,466      8,927,340
Amortization of premium/discount...........      (360,445)      (659,506)      (749,899)
Investment Expenses........................      (694,103)      (862,135)      (586,802)
                                             ------------    -----------    -----------
                                             $136,648,327    $85,089,811    $24,130,550
                                             ============    ===========    ===========
</TABLE>

     Net realized investment gains (losses) comprise $1,376,373 gross realized
gains and $6,193,494 gross realized losses for the year ended December 31, 2000
(1999: $1,104,026 and $2,388,795, respectively; 1998: $3,492,358 and $819,077,
respectively).

4. STOCKHOLDERS' EQUITY

  Preferred Stock

     The Company is authorized to issue 50,000,000 preferred shares of par value
$1.00 each. At the balance sheet date there were no preferred shares issued or
outstanding.

  Common Stock

     The Company is authorized to issue 100,000,000 common shares of par value
$1.00 each.

     The common shareholders have no pre-emptive, redemption, conversion or
sinking fund rights. Subject to certain voting restrictions, which limit the
voting power of United States persons to less than 10% of the combined voting
power of the issued voting shares of the Company, each holder is entitled to one
vote per share.

                                        31
<PAGE>   34
                      ANNUITY AND LIFE RE (HOLDINGS), LTD.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In the event of a liquidation, dissolution or winding up of the Company,
the holders of the common shares are able to share equally in the assets of the
Company, if any remain after payment of all liabilities and the liquidation
preference of any outstanding preference shares. Certain restrictions exist with
respect to the transfer of shares, should such a transfer cause the number of
shares held by one person to be 10% or more of the Company's outstanding common
shares.

  Class A Warrants

     In connection with the initial capitalization of the Company, the Company
issued Class A Warrants which entitle the holders to purchase up to 3,059,990
common shares in the Company.

     The exercise price of the Warrants is $15.00, which was equal to the
initial public offering price per share of the Company's common shares. The
Class A Warrants become exercisable over three years commencing on the first
anniversary of the consummation of the Company's initial public offering. The
Class A Warrants will expire on January 15, 2008. No Class A Warrants have been
exercised at December 31, 2000.

  Class B Warrants

     In connection with the Direct Sales of equity securities to the "Strategic
Investors," the Company issued Class B Warrants that enable the holders to
purchase an aggregate of 397,500 common shares of the Company. The exercise
price of the Warrants is $15.00 per share, which was equal to the price of the
common shares in the initial public offering. The Class B Warrants become
exercisable in three equal annual installments commencing on the first
anniversary of the date of the Direct Sales. The Class B Warrants expire on the
tenth anniversary of the consummation of the Direct Sales. No Class B Warrants
have been exercised at December 31, 2000.

5. EARNINGS PER SHARE

     The following table sets forth the computation of basic and diluted
earnings per share.

<TABLE>
<CAPTION>
                                                 2000           1999           1998
                                              -----------    -----------    -----------
<S>                                           <C>            <C>            <C>
BASIC:
Net income available to common
  shareholders..............................  $39,987,195    $35,703,144    $19,460,603
                                              ===========    ===========    ===========
Weighted average number of common shares
  outstanding...............................   25,499,999     25,499,999     24,020,999
                                              -----------    -----------    -----------
Earnings per common share...................  $      1.57    $      1.40    $      0.81
                                              ===========    ===========    ===========
DILUTED:
Net income available to common
  shareholders..............................  $39,987,195    $35,703,144    $19,460,603
                                              ===========    ===========    ===========
Weighted average number of common shares
  outstanding...............................   25,499,999     25,499,999     24,202,999
  Plus: incremental shares from assumed
     exercise of options and warrants.......    1,970,746      1,722,636      1,499,846
                                              -----------    -----------    -----------
Adjusted weighted average number of common
  shares outstanding........................   27,470,745     27,222,635     25,520,845
                                              ===========    ===========    ===========
Earnings per common share assuming
  dilution..................................  $      1.46    $      1.31    $      0.76
                                              ===========    ===========    ===========
</TABLE>

     As of December 31, 2000, 1999 and 1998 the Company had 1,903,365, 1,497,865
and 1,415,865 options outstanding, respectively, and 3,457,490 warrants
outstanding.

                                        32
<PAGE>   35
                      ANNUITY AND LIFE RE (HOLDINGS), LTD.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. AGREEMENTS WITH RELATED PARTIES

  Inter-Atlantic Capital Partners, Inc.

     Certain directors of the Company are also owners, directors, or officers of
Inter-Atlantic Capital Partners, Inc. (Inter-Atlantic). In 1998 Inter-Atlantic
agreed to provide financial advisory and other services to the Company for a
term of five years in exchange for four annual payments of $600,000. Such
services include, among other things, assistance in the development of products,
financial planning, management of assets and liabilities, international
marketing efforts and such other services as the Company may request. In 1999
the Company prepaid this fee at a discount of 10%. The prepayment is being
amortized over the period the services are provided. At December 31, 2000 and
1999 the unamortized prepayment was $1,235,642 and $1,702,225, respectively.
This is included in other assets.

  Shareholders

     One of the Company's major shareholders is affiliated with The Prudential
Investment Corporation, which serves as one of the Company's investment
managers. The Company has agreed to pay a fee for investment management services
to The Prudential Investment Corporation based upon the amount of funds managed.
The fee is based upon a sliding scale and has been determined on an arms-length
basis. The Company has entered into a life reinsurance agreement with the
Prudential Insurance Company of America and an annuity reinsurance agreement
with XL Mid Ocean Reinsurance, Ltd., a subsidiary of XL Capital, Ltd., one of
the Company's major shareholders. These contracts have been negotiated under
normal commercial terms.

  Transactions with management

     During 1998 certain of the Company's officers purchased 163,121 shares in
the Company and the Company made loans to the officers to partially finance such
purchases. The loans bear interest at 7% per annum and must be repaid within
five years. At December 31, 2000 and 1999 loans outstanding from management for
such stock purchases were $1,150,000, with accrued interest thereon of $217,241
and $136,741, respectively. Interest income of $80,500, $70,673 and $66,068 has
been recognized for the years December 31, 2000, 1999 and 1998, respectively, on
these loans.

7. STOCK OPTION PLANS

     In 1998 the Board of Directors adopted a Stock Option Plan (the "Plan")
under which it may grant, subject to certain restrictions, Incentive Stock
Options ("ISO's") and Non-Qualified Stock Options ("NQSO's"). The aggregate
number of common shares for which options may be granted under the initial plan
is limited to 1,552,500 Common Shares. In 1999 the plan was amended such that
options may be granted in any fiscal year equal to not more than 2% of the
adjusted average of the outstanding common shares of the Company, as that number
is determined by the Company to calculate fully diluted earnings per share. Only
eligible employees of the Company are entitled to ISO's, while NQSO's may be
granted to eligible employees, non-employee Directors and consultants.

     The Plan is administered by the Compensation Committee of the Board of
Directors.

     The minimum exercise price of the options is equal to the fair market
value, as defined in the Plan, of the Company's optioned Common Shares at the
date of grant. The term of the options is not more than ten years from the date
of grant. Unless otherwise provided in the option agreement, they are
exercisable in three equal annual installments, commencing on the first
anniversary of the grant date.

     Each person who becomes an eligible non-employee Director, as defined in
the plan, is granted an option to purchase 15,000 common shares on the date he
or she becomes an eligible non-employee Director. These

                                        33
<PAGE>   36
                      ANNUITY AND LIFE RE (HOLDINGS), LTD.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

options have an exercise price equal to the fair market value of the optioned
Common Shares on the date the options are granted and are exercisable in three
equal installments commencing with the first anniversary of the grant date. In
addition, subject to certain conditions, each non-employee Director is granted
an option to purchase 2,500 Common Shares at each successive annual general
meeting. These options have an exercise price equal to the fair market value of
the optioned Common Shares on the date the options are granted and are
immediately exercisable if granted after April 8, 1999.

<TABLE>
<CAPTION>
                                                   2000                             1999
                                       -----------------------------    -----------------------------
                                        NUMBER      WEIGHTED AVERAGE     NUMBER      WEIGHTED AVERAGE
                                       OF SHARES     EXERCISE PRICE     OF SHARES     EXERCISE PRICE
                                       ---------    ----------------    ---------    ----------------
<S>                                    <C>          <C>                 <C>          <C>
Outstanding at beginning of year...    1,497,865         $15.65         1,415,865         $15.28
Granted............................      422,500         $22.46            82,000         $22.08
Forfeitures........................      (17,000)        $15.60                --         $   --
                                       ---------         ------         ---------         ------
Outstanding at end of year.........    1,903,365         $17.17         1,497,865         $15.65
                                       =========         ======         =========         ======
</TABLE>

     At December 31, 2000, 1,007,406 options outstanding are presently
exercisable with a weighted average remaining contractual life of 7.5 years.

     The weighted average fair value of options granted during 1998 is $6.47.
The fair value of the options is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions; dividend
yield of 1.07% per annum; expected volatility of 26%; expected life of 10 years;
and a risk free interest rate of 5.6%.

     The weighted average fair value of options granted during 1999 is $9.85 per
share. The fair values of the options granted in 1999 are estimated on the date
of the grant using the Black-Scholes option pricing model with the following
assumptions; dividend yield of 0.8% per annum; expected volatility of 25%;
expected life of 10 years and a risk free interest rate of 5.6%.

     The weighted average fair value of options granted during 2000 is $11.79
per share. The fair values of the options granted in 2000 are estimated on the
date of the grant using the Black-Scholes option pricing model with the
following assumptions; dividend yield of 0.7% per annum; expected volatility of
35%; expected life of 10 years and a risk free interest rate of 5.8%.

     The Company applies APB Opinion No. 25 and FASB Interpretation No. 44 in
accounting for the Stock Option Plan. Accordingly, no compensation cost has been
recognized as the intrinsic value of the options was $nil at the measurement
date. The net income and earnings per Common Share would have been reduced to
the pro forma amounts indicated below, had compensation cost been determined
based on the fair value of the options at the grant date, consistent with the
method of SFAS No. 123, "Accounting for Stock-Based Compensation."

<TABLE>
<CAPTION>
                                                 2000           1999           1998
                                              -----------    -----------    -----------
<S>                                           <C>            <C>            <C>
Net income
  - as reported.............................  $39,987,195    $35,703,144    $19,011,617
  - pro forma...............................  $35,282,618    $32,437,835    $16,903,501
Earnings per share as stated:
  - Basic...................................        $1.57          $1.40          $0.81
  - Diluted.................................        $1.46          $1.31          $0.76
Pro forma Earnings per share:
  - Basic...................................        $1.38          $1.27          $0.70
  - Diluted.................................        $1.28          $1.19          $0.66
</TABLE>

                                        34
<PAGE>   37
                      ANNUITY AND LIFE RE (HOLDINGS), LTD.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. RETROCESSION AGREEMENTS

     The Company has entered into a retrocession agreement, which enables it to
limit the amount of life reinsurance it retains to $2,000,000 per single life.
The contract is on an automatic basis and is effective for risks assumed and in
force from January 1, 1997. The limit of cover is $50 million and covers all
single and joint life reinsurance assumed by the Company on an automatic basis.
At December 31, 2000 and 1999 the Company ceded approximately $192.6 and $34.9
million of in force insurance coverage for a premium of $1,146,000 and $396,000,
respectively. No claims are recoverable at December 31, 2000 or 1999.

     Annuity and Life Reassurance America also purchased reinsurance as
discussed in Note 12.

     It should be noted that such agreements do not relieve the Company from its
obligations to its reinsureds and failure of reinsurers to honor their
obligations could result in losses to the Company. The Company evaluates the
financial condition of its reinsurers and monitors any concentrations of credit
risk that may develop to minimize its exposure. The other party to this
retrocession agreement has a current credit rating of AA+, as assigned by A.M.
Best.

9. VULNERABILITY FROM CONCENTRATIONS

     At December 31, 2000 and 1999, the Company did not have a material
concentration of investments in fixed income securities in a single issuer,
industry or geographic location.

     The Company has entered into several significant life reinsurance contracts
and one significant deferred annuity contract. Due to the size of certain of
these contracts, there is a material concentration of net premiums, funds
withheld at interest, deferred policy acquisition costs and balances related to
interest-sensitive contract liabilities with the underlying parties to these
significant contracts. The underlying parties to these contracts are large
insurance companies based in the United States and Canada.

10. FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following discussion outlines the methodologies and assumptions used to
determine the estimated fair value of the Company's financial instruments.
Considerable judgment is required to develop these fair values. Accordingly, the
estimates shown are not necessarily indicative of the amounts that would be
realized in a one-time, current market exchange of all of the Company's
financial instruments.

  Fixed Interest Securities

     Fair values for fixed interest securities are based on quoted market
prices, where available. For fixed interest securities not actively traded, fair
values are estimated using values obtained from independent pricing services.

  Cash and Cash Equivalents

     The carrying value of assets classified as cash and cash equivalents is
approximately their fair value.

  Funds Withheld at Interest and Interest -- Sensitive Contract Liabilities

     The balance sheet captions "Funds Withheld at Interest" and "Interest
Sensitive Contracts Liabilities" relate to deferred annuity contracts reinsured
on a modified coinsurance basis. Taking into consideration the structure of the
reinsurance agreement, the carrying value of the liabilities and related assets
approximate their fair value.

                                        35
<PAGE>   38
                      ANNUITY AND LIFE RE (HOLDINGS), LTD.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Other items

     Fair value disclosures are not required for reinsurance recoverables
deferred policy acquisition costs and liabilities arising from insurance
contracts and, therefore, they have not been determined by the Company.

     Fair values of other assets and liabilities approximate their carrying
values due to their short-term nature.

11. SEGMENTS

     SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information" requires public companies to report financial and descriptive
information about their reportable operating segments. Operating segments, as
defined, are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision-maker in deciding how to allocate resources and in assessing
performance.

     To date the Company has written of a number of ordinary life reinsurance
and annuity reinsurance contracts. The Company views life and annuity
reinsurance as one business segment and accumulates financial data for this
segment when assessing performance and allocating resources. As the Company only
has one business segment at the current time, management feels that the
information presented in the balance sheet and statement of operations is
sufficient to understand the business segment of the Company.

12. SIGNIFICANT TRANSACTION

     On June 1, 2000 the Company, through Annuity and Life Re America, completed
the acquisition of Annuity and Life Reassurance America, Inc., formerly Capitol
Bankers Life Insurance Company. Annuity and Life Reassurance America is a life
insurance company domiciled in the United States which is authorized to conduct
its life insurance business in 43 states of the United States, and will focus
its operations on the United States life reinsurance markets. The Company
contributed additional capital to Annuity and Life Reassurance America during
the fiscal year of $19,550,000 to bring the total capital and surplus of Annuity
and Life Reassurance America to $25,000,000. The acquisition price and capital
contribution was funded from available cash balances and proceeds from the sales
of fixed interest securities held by the Company.

     The acquisition has been accounted for as a purchase and the operating
results of Annuity and Life Reassurance America have been included in the
Company's financial statements since the date of acquisition. Prior to closing,
the inforce insurance business of Annuity and Life Reassurance America was 100%
reinsured by Annuity and Life Reassurance America with its former owner, a
subsidiary of Swiss Re, who will continue to administer the business reinsured.
Accordingly, there will be no earnings from the in-force business at the
acquisition date accruing to the Company currently or in the future.

     The amounts related to the reinsured business referred to above are
included on the Company's Balance Sheet in assets as Receivable for Reinsurance
Ceded and in liabilities as Reserves for Future Policy Benefits; at December 31,
2000 the amounts were $104,500,000.

     The purchase price of $13,200,000 exceeded the fair value of the net assets
acquired (the capital and surplus of Annuity and Life Reassurance America) by
$2,301,000 which has been allocated to the value of the 43 insurance licenses of
Annuity and Life Reassurance America. This is being amortized over 20 years.

13. TAXATION

     The effective tax rate provided for in the financial statements is computed
at a rate of zero. Substantially all income is not subject to taxation.

     Under current Bermuda law neither Holdings nor Annuity and Life Reassurance
is required to pay any taxes in Bermuda on either income or capital gains.
Holdings and Annuity and Life Reassurance have each

                                        36
<PAGE>   39
                      ANNUITY AND LIFE RE (HOLDINGS), LTD.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

received an assurance from the Minister of Finance in Bermuda that in the event
of any such taxes being imposed the Company will be exempted from taxation until
the year 2016. Annuity and Life Reassurance intends to operate in a manner such
that it will not be liable to United States tax other than premium excise taxes
and withholding taxes on certain investments.

     Annuity and Life Re America and Annuity and Life Reassurance America, Inc.
are subject to all applicable Federal and State taxes of the United States. The
tax effect related to the current year's operating result is not material to the
consolidated financial statements and, therefore, no separate item appears on
the income statement or balance sheet. Temporary differences give rise to a net
deferred tax asset of $252,000 against which a valuation allowance of $354,000
was established with respect to the utilization of the net operating loss
carryforward. Temporary differences primarily related to net operating losses
give rise to a gross deferred tax asset of $1,000,000 which is offset by
temporary differences relating to deferred acquisition costs and unrealized
gains on securities give rise to a gross tax liability. The net operating loss
of $945,000 and $219,000 incurred in 2000 and 1999, respectively, are due to
expire beginning in 2019.

14. STATUTORY REQUIREMENTS AND DIVIDEND RESTRICTIONS

     The Company's ability to pay dividends depends on the ability of its
operating subsidiaries to pay dividends to the Company. While the Company itself
is not subject to any significant legal prohibitions on the payment of
dividends, its operating subsidiaries may be subject to regulatory constraints,
which affect their ability to pay dividends to the Company.

     Under the Bermuda Insurance Act, 1978, and related regulations, Annuity and
Life Reassurance is required to maintain certain solvency levels. Annuity and
Life Reassurance is prohibited from declaring or paying a dividend if such a
payment would reduce its statutory surplus below the required minimum of
$250,000. This requirement was met at the balance sheet date and, therefore, no
such restriction currently exists.

     Annuity and Life Reassurance America is subject to statutory regulations of
the state of Connecticut of the United States that restrict the payment of
dividends. It may not pay dividends in any 12-month period in excess of the
greater of the prior year's statutory operating income or 10% of capital and
surplus at the end of the preceding year, without regulatory approval. At
December 31, 2000 the statutory capital and surplus of Annuity and life
Reassurance America is $22,104,000.

15. UNAUDITED QUARTERLY FINANCIAL DATA

     The unaudited quarterly financial data for the years ended December 31,
2000 and 1999 are as follows:

<TABLE>
<CAPTION>
                                   FIRST         SECOND          THIRD         FOURTH
2000                              QUARTER        QUARTER        QUARTER        QUARTER
----                            -----------    -----------    -----------    -----------
<S>                             <C>            <C>            <C>            <C>
Net premiums..................  $36,230,006    $37,684,372    $44,588,022    $49,901,622
Net investment income.........  $26,797,697    $25,819,232    $23,745,266    $60,286,132
Net realized investment gains
  (losses)....................  $  (562,825)   $(2,417,880)   $  (702,549)   $(1,133,867)
Claims and policy benefits....  $32,958,111    $29,898,304    $36,040,180    $33,913,597
Interest credited.............  $ 8,427,558    $ 7,475,510    $ 4,734,374    $42,404,549
Net income....................  $ 7,813,768    $ 7,822,293    $10,900,901    $13,450,233
Net income per common share
  (diluted)...................  $      0.28    $      0.29    $      0.40    $      0.49
</TABLE>

                                        37
<PAGE>   40
                      ANNUITY AND LIFE RE (HOLDINGS), LTD.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                   FIRST         SECOND          THIRD         FOURTH
1999                              QUARTER        QUARTER        QUARTER        QUARTER
----                            -----------    -----------    -----------    -----------
<S>                             <C>            <C>            <C>            <C>
Net premiums..................  $18,247,012    $18,372,285    $21,101,366    $43,114,344
Net investment income.........  $18,159,060    $20,677,325    $19,528,879    $26,724,547
Net realized investment gains
  (losses)....................  $   263,458    $  (157,755)   $  (793,008)   $  (597,464)
Claims and policy benefits....  $15,765,869    $15,507,499    $17,232,038    $31,447,754
Interest credited.............  $ 3,876,829    $ 3,948,668    $ 4,762,521    $ 9,724,666
Net income....................  $ 8,482,279    $ 8,746,243    $ 8,715,060    $ 9,759,562
Net income per common share
  (diluted)...................  $      0.31    $      0.32    $      0.32    $      0.36
</TABLE>

                                        38
<PAGE>   41

                      ANNUITY AND LIFE RE (HOLDINGS), LTD.

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                  SCHEDULE II

                                 BALANCE SHEETS
                                (PARENT COMPANY)

<TABLE>
<CAPTION>
                                                             DECEMBER 31, 2000    DECEMBER 31, 1999
                                                             -----------------    -----------------
<S>                                                          <C>                  <C>
ASSETS
Investment in common stock of subsidiaries(1)..............    $438,279,201         $388,423,856
Cash and cash equivalents..................................       2,965,855            3,652,821
Other assets...............................................          15,813               15,813
                                                               ------------         ------------
Total Assets...............................................    $441,260,869         $392,092,490
                                                               ============         ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable...........................................    $     45,093         $     37,596
                                                               ------------         ------------
Total Liabilities..........................................    $     45,093         $     37,596
                                                               ------------         ------------
STOCKHOLDERS' EQUITY
Preferred shares (par value $1.00; 50,000,000 shares
  authorized; no shares outstanding).......................    $         --         $         --
Common shares (par value $1.00; 100,000,000 shares
  authorized; 25,499,999 shares outstanding)...............      25,499,999           25,499,999
Additional paid-in capital.................................     329,496,091          329,496,091
Notes receivable from stock sales..........................      (1,367,241)          (1,286,741)
Accumulated other comprehensive income (loss)..............       2,064,971          (11,269,216)
Retained earnings..........................................      85,521,956           49,614,761
                                                               ------------         ------------
                                                               $441,215,776         $392,054,894
                                                               ------------         ------------
Total Liabilities and Stockholders' Equity.................    $441,260,869         $392,092,490
                                                               ============         ============
</TABLE>

---------------
(1) Eliminated on consolidation

                                        39
<PAGE>   42

                      ANNUITY AND LIFE RE (HOLDINGS), LTD.

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                  SCHEDULE II

                            STATEMENTS OF OPERATIONS
                                (PARENT COMPANY)

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31
                                                      -----------------------------------------
                                                         2000           1999           1998
                                                      -----------    -----------    -----------
<S>                                                   <C>            <C>            <C>
REVENUES
Interest income.....................................  $   264,853    $   305,605    $   573,683
                                                      -----------    -----------    -----------
Total revenues......................................      264,853        305,065        573,683
                                                      -----------    -----------    -----------
EXPENSES
Operating expenses..................................      878,816        860,899        573,200
                                                      -----------    -----------    -----------
Net Income (loss) before equity in earnings of
  subsidiaries......................................     (613,963)      (555,294)           483
Equity in earnings of subsidiaries(1)...............   40,601,158     36,258,438     19,011,134
                                                      -----------    -----------    -----------
  Net Income........................................  $39,987,195    $35,703,144    $19,011,617
                                                      ===========    ===========    ===========
</TABLE>

---------------
(1) Eliminated on consolidation

                                        40
<PAGE>   43

                      ANNUITY AND LIFE RE (HOLDINGS), LTD.

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                  SCHEDULE II

                            STATEMENTS OF CASH FLOWS
                                (PARENT COMPANY)

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31
                                                  ---------------------------------------------
                                                      2000            1999            1998
                                                  ------------    ------------    -------------
<S>                                               <C>             <C>             <C>
OPERATING ACTIVITIES
Net Income......................................  $ 39,987,195    $ 35,703,144    $  19,011,617
Adjustments to reconcile net income to net cash
  provided (used) by operations:
Equity in earnings of subsidiaries(1)...........   (40,601,158)    (36,258,438)     (19,011,134)
Other assets....................................            --            (813)         218,000
Accounts payable................................         7,497          26,075         (221,479)
                                                  ------------    ------------    -------------
Net cash provided (used) by operating
  activities....................................      (606,466)       (530,032)          (2,996)
                                                  ------------    ------------    -------------
INVESTING ACTIVITIES
Dividend received from subsidiary...............     4,080,000       1,020,000               --
Return of capital from subsidiary(1)............    19,550,000       9,000,000               --
Investment in subsidiary(1).....................   (19,550,000)     (9,193,500)    (345,000,000)
                                                  ------------    ------------    -------------
Net cash provided (used) by investing
  activities....................................     4,080,000         826,500     (345,000,000)
                                                  ------------    ------------    -------------
FINANCING ACTIVITIES
Net proceeds from sale of company stock.........            --         (21,013)     353,376,035
Repayment of notes receivable, less accrued
  interest......................................       (80,500)        104,327               --
Dividends paid to stockholders..................    (4,080,000)     (4,080,000)      (1,020,000)
                                                  ------------    ------------    -------------
Net cash provided (used) by financing
  activities....................................    (4,160,500)     (3,996,686)     352,356,035
                                                  ------------    ------------    -------------
Increase (Decrease) in cash and cash
  equivalents...................................      (686,966)     (3,700,218)       7,353,039
Cash and cash equivalents, beginning of
  period........................................     3,652,821       7,353,039               --
                                                  ------------    ------------    -------------
Cash and cash equivalents, end of period........  $  2,965,855    $  3,652,821    $   7,353,039
                                                  ============    ============    =============
</TABLE>

---------------
(1) Eliminated on consolidation

                                        41
<PAGE>   44

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE.

     None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     The information required by Item 10 is hereby incorporated by reference to
our definitive proxy statement to be filed with the Commission pursuant to
Regulation 14A within 120 days after December 31, 2000.

ITEM 11.  EXECUTIVE COMPENSATION.

     The information required by Item 11 is hereby incorporated by reference to
our definitive proxy statement to be filed with the Commission pursuant to
Regulation 14A within 120 days after December 31, 2000.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The information required by Item 12 is hereby incorporated by reference to
our definitive proxy statement to be filed with the Commission pursuant to
Regulation 14A within 120 days after December 31, 2000.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The information required by Item 13 is hereby incorporated by reference to
our definitive proxy statement to be filed with the Commission pursuant to
Regulation 14A within 120 days after December 31, 2000.

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

     (a) The following documents are filed or incorporated by reference as part
of this Form 10-K.

          1. Financial Statements

     The audited consolidated financial statements of Annuity and Life Re
(Holdings), Ltd. and the related auditor's report listed in the Index to
Financial Statements and Financial Statement Schedule appearing on page 21.

          2. Financial Statement Schedule

     The schedule listed in the Index to Financial Statements and Financial
Statement Schedule appearing on pages 42-44.

          3. Exhibits

     The following exhibits are filed or incorporated by reference as part of
this Form 10-K:

<TABLE>
<C>      <S>
  *3.1   Memorandum of Association, as amended, of the Company
         (Exhibit 3.1 to the Company's Registration Statement on Form
         S-1, Registration No. 333-43301, declared effective on April
         8, 1998 (the "Registration Statement")).
  *3.2   Bye-laws, as amended, of the Company (Exhibit 3.2 of the
         Registration Statement).
  *4.1   Form of Amended and Restated Class A Warrant (Exhibit 4.2 to
         the Registration Statement).
  *4.2   Form of Class B Warrant (Exhibit 4.3 to the Registration
         Statement).
*+10.1   Employment Agreement, dated as of December 5, 1997, between
         Lawrence S. Doyle and the Company (Exhibit 10.1 to the
         Registration Statement).
*+10.2   Amendment No. 1, dated as of February 27, 1998, to
         Employment Agreement, dated as of December 5, 1997, between
         Lawrence S. Doyle and the Company (Exhibit 10.8 to the
         Registration Statement).
*+10.3   Employment Agreement, dated as of January 5, 1998, between
         Robert P. Mills, Jr. and the Company (Exhibit 10.7 to the
         Registration Statement).
</TABLE>

                                        42
<PAGE>   45
<TABLE>
<C>      <S>
*+10.4   Amendment No. 1, dated as of February 27, 1998, between
         Robert P. Mills, Jr. and the Company (Exhibit 10.10 to the
         Registration Statement).
*+10.5   Employment Agreement, dated as of January 8, 1998, between
         Robert J. Reale and the Company (Exhibit 10.6 to the
         Registration Statement).
*+10.6   Amendment No. 1, dated as of February 1, 1998, to Employment
         Agreement, dated as of January 8, 1998, between Robert J.
         Reale and the Company (Exhibit 10.9 to the Registration
         Statement).
*+10.7   Employment Agreement dated as of March 2, 1998, between
         William W. Atkin and the Company (Exhibit 10.15 to the
         Registration Statement).
*+10.8   Employment Agreement, dated as of March 5, 1998, between
         Richard Tucker and the Company (Exhibit 10.16 to the
         Registration Statement).
 *10.9   Agreement, dated as of December 23, 1997, between
         Inter-Atlantic Securities Corp. and the Company (Exhibit
         10.4 to the Registration Statement).
*+10.10  Initial Stock Option Plan, as amended and restated effective
         April 29, 1999 (Exhibit 4 to the Company's Quarterly Report
         on Form 10-Q for the quarter ended March 31, 1999).
 *10.11  Registration Rights Agreement, dated as of January 9, 1998,
         between the Company and the holders of the Class A Warrants
         (Exhibit 10.5 to the Registration Statement).
 *10.12  Form of Securities Purchase Agreement entered into by The
         Prudential Insurance Company of America and the Company,
         EXEL Limited and the Company, Risk Capital Reinsurance
         Company and the Company, Insurance Partners, L.P. and the
         Company and Insurance Partners Offshore (Bermuda), L.P. and
         the Company (Exhibit 10.12 to the Registration Statement).
 *10.13  Form of Registration Rights Agreement entered into between
         The Prudential Insurance Company of America and the Company,
         EXEL Limited and the Company, Risk Capital Reinsurance
         Company and the Company, Insurance Partners, L.P. and the
         Company and Insurance Partners Offshore (Bermuda), L.P. and
         the Company (Exhibit 10.13 to the Registration Statement).
  10.14  Letter Agreement, dated as of May 1, 2000, between Risk
         Capital Reinsurance Company, the Company and XL Capital Ltd.
 *10.15  Letter Agreement, dated as of December 23, 1997, between
         Prudential Securities Incorporated and the Company and
         related indemnification agreement (Exhibit 10.17 to the
         Registration Statement).
 *10.16  Letter Agreement, dated as of March 19, 1998, among
         Insurance Partners, L.P., Insurance Partners Offshore
         (Bermuda), L.P. and the Company, which has been assigned to
         Overseas Partners, Ltd. (Exhibit 10.18 to the Registration
         Statement).
*+10.17  Employment Agreement, dated as of January 1, 1999, among
         Gary Scofield, Annuity and Life Reassurance, Ltd. and the
         Company (Exhibit 10.17 to the Company's Form 10-K filed on
         March 29, 2000).
*+10.18  Employment Agreement, dated as of July 1, 1999, among Bryan
         Featherstone, Annuity and Life Re America, Inc. and the
         Company (Exhibit 10.18 to the Company's Form 10-K filed on
         March 29, 2000).
  21.1   Subsidiaries of the Company.
  23.1   Consent of KPMG (Independent Accountants).
</TABLE>

---------------
 *  Previously filed with the Commission and incorporated herein by reference.

+ Management contract or compensatory plan or arrangement required to be filed
  as an exhibit to this form.

     (b) No reports on Form 8-K were filed with the Securities and Exchange
Commission during the three months ended December 31, 2000.

                                        43
<PAGE>   46

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                          ANNUITY AND LIFE RE (HOLDINGS), LTD.

                                          /s/      LAWRENCE S. DOYLE
                                          --------------------------------------
                                          Lawrence S. Doyle
                                          President, Chief Executive Officer and
                                          Director

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                       SIGNATURE                                DATE
                       ---------                                ----
<S>                                                       <C>
                 /s/ LAWRENCE S. DOYLE                    February 14, 2001
--------------------------------------------------------
             Lawrence S. Doyle, President,
          Chief Executive Officer and Director

                  /s/ WILLIAM W. ATKIN                    February 14, 2001
--------------------------------------------------------
        William W. Atkin, Senior Vice President,
         Chief Financial Officer and Treasurer

                /s/ FREDERICK S. HAMMER                   February 15, 2001
--------------------------------------------------------
       Frederick S. Hammer, Chairman and Director

                 /s/ ROBERT M. LICHTEN                    February 15, 2001
--------------------------------------------------------
    Robert M. Lichten, Deputy Chairman and Director

                  /s/ ROBERT CLEMENTS                     March 6, 2001
--------------------------------------------------------
               Robert Clements, Director

              /s/ MICHAEL P. ESPOSITO, JR.                February 15, 2001
--------------------------------------------------------
           Michael P. Esposito, Jr., Director

                /s/ LEE M. GAMMILL, JR.                   February 15, 2001
--------------------------------------------------------
             Lee M. Gammill, Jr., Director

                     /s/ MARK GRIER                       February 15, 2001
--------------------------------------------------------
                  Mark Grier, Director

                  /s/ MARY R. HENNESSY                    February 15, 2001
--------------------------------------------------------
                    Mary R. Hennessy

                 /s/ DONALD J. MATTHEWS                   February 15, 2001
--------------------------------------------------------
              Donald J. Matthews, Director
</TABLE>

                                        44
<PAGE>   47

<TABLE>
<CAPTION>
                       SIGNATURE                                DATE
                       ---------                                ----

<S>                                                       <C>
                  /s/ BRIAN M. O'HARA                     February 22, 2001
--------------------------------------------------------
               Brian M. O'Hara, Director

                /s/ JERRY S. ROSENBLOOM                   February 15, 2001
--------------------------------------------------------
             Jerry S. Rosenbloom, Director

                  /s/ WALTER A. SCOTT                     February 15, 2001
--------------------------------------------------------
               Walter A. Scott, Director

                   /s/ JON W. YOSKIN                      February 15, 2001
--------------------------------------------------------
              Jon W. Yoskin, II, Director
</TABLE>

                                        45