##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-K
 For Annual and Transition Reports Pursuant
to Sections 13 or 15(d) of the Securities Exchange Act of 1934
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2007
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Transition period from           to
 Commission File Number 001-16855
 
 SCOTTISH RE GROUP LIMITED
 (Exact name of registrant as specified in its charter)
 Cayman Islands
    
    98-0362785(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)Crown House, Second Floor 
4 Par-la-Ville RoadHamilton HM08, Bermuda
    
    Not Applicable(Address of Principal Executive Office)
    
    (Zip Code)
 Registrants telephone number, including area code: (441) 295-4451
 Securities Registered Pursuant to Section 12(b) of the Act:
 None
 Securities Registered Pursuant to Section 12(g) of the Act:
None
 o þ
 þ o
 o þ
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Small reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



SCOTTISH RE GROUP LIMITED
 FORM 10-K
 YEAR ENDED DECEMBER 31, 2007
 TABLE OF CONTENTS
 PagePART I
    
    
    1Item 1: BUSINESS
    
    
    1Item 1A: RISK FACTORS
    
    
    19Item 1B: UNRESOLVED STAFF COMMENTS
    
    
    36Item 2: PROPERTIES
    
    
    36Item 3: LEGAL PROCEEDINGS
    
    
    36Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    37PART II
    
    
    38Item 5: MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
    
    
    38Item 6: SELECTED FINANCIAL DATA
    
    
    40Item 7: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    43Item 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    102Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    102PART III
    
    
    107Item 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    
    
    107Item 11: EXECUTIVE COMPENSATION
    
    
    111Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
    
    
    144Item 13: CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
    
    
    146Item 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    147PART IV
    
    
    148Item 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
    
    
    148
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PART I
 
 Item 1: BUSINESS
 Overview
   
    
    The continuing deterioration in the U.S. residential housing market in general and the
market for sub-prime and Alt-A residential mortgage-backed securities specifically. These
conditions have had, and will likely continue to have, a material adverse effect on the
value of our consolidated investment portfolio and our capital and liquidity position;
    
    The negative outlooks placed on our financial strength ratings by each of the rating
agencies in November 2007, followed by the ratings action taken by Standard & Poors (S&P)
in early 2008 lowering the financial strength ratings of our operating subsidiaries from
BB+ to BB (marginal) and placing the ratings on CreditWatch with negative implications,
as well as the subsequent ratings downgrades and negative outlooks placed on our financial
strength ratings by other rating agencies (which ratings were subsequently lowered further,
as described under Competition and Ratings), with the resulting material negative impact
on our ability to achieve our previous goal of attaining an A- or better rating by the
middle of 2009; and
    
    The material negative impact of ratings declines and negative outlooks by rating
agencies on our ability to grow our life reinsurance businesses and maintain our core
competitive capabilities.
  
    
    Dispose of our non-core assets or lines of business, including the Life Reinsurance
International Segment and the Wealth Management business;
    
    Develop, through strategic alliances or other means, opportunities to maximize the value
of our core competitive capabilities within the Life Reinsurance North America Segment,
including mortality assessment and treaty administration; and
    
    Rationalize our cost structure to preserve capital and liquidity.




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
    
    As required by U.S. Generally Accepted Accounting Principles in the United States (U.S.
GAAP), we reported significant impairment charges of approximately $971.7 million on our
invested assets for the year ended December 31, 2007 as a result of, among other factors,
(1) the continuing deterioration in the U.S. residential housing market in general and the
market for sub-prime and Alt-A residential mortgage-backed securities specifically, (2) our
inability to assert our intent and ability to hold certain investment securities over the
forecasted recovery period as of December 31, 2007 and (3) other-than-temporary impairments
in invested assets. The U.S. residential housing market and the market for sub-prime and
Alt-A residential mortgage-backed securities have continued to deteriorate through the
first half of 2008 and we have determined that additional impairment charges of
approximately $751.7 million will be recognized in our financial statements for the quarter
ended March 31, 2008. In addition to causing significant impairment charges and reported
losses, the adverse market conditions impact the value of the underlying collateral used to
secure our life reinsurance obligations and statutory reserves. A large portion of the
impairment charges are primarily held in two of our three securitization structures,
Ballantyne Re plc (Ballantyne Re) and Orkney Re II plc (Orkney Re II). Although these
securitization structures are without recourse to us, they are consolidated in our
financial statements under U.S. GAAP and changes in the fair value of investments can
adversely impact our reported financial results and the statutory reserve credit that
Scottish Re (U.S.), Inc., our Delaware subsidiary (SRUS), is able to recognize for these
transactions.
    
    As discussed in more detail below in Regulation XXX Reserves  Acquired ING Business
and as disclosed in a Form 8-K filed on April 4, 2008, with respect to one of our
securitization structures, Ballantyne Re, we executed a letter of intent with ING North
America Insurance Corporation (ING North America), ING America Insurance Holdings, Inc.
(ING Holdings), Security Life of Denver Insurance Company (SLD) and Security Life of
Denver International Limited (SLDI and collectively with ING North America, ING Holdings
and SLD, ING) whereby we had the ability to recapture business from Ballantyne Re and to
access up to $375.0 million of letters of credit to support the excess statutory reserves
related to the recaptured business. In this regard, and effective March 31, 2008, we
recaptured $375.0 million of the $1.2 billion in excess reserves in Ballantyne Re and ING
immediately thereafter recaptured the same amount of business from us and, in turn
retroceded the business to one of our operating subsidiaries. The effect of this recapture
transaction was to reduce the collateral requirements of SRUS related to Ballantyne Re. As
part of the letter of intent, we, along with ING, Ballantyne Re and the financial
guarantors of certain of the debt securities issued by Ballantyne Re agreed to enter into a
novation and assignment of SRUSs reinsurance agreement with Ballantyne Re to ING, with the
aim of permanently relieving SRUS from its requirement to hold reserves with respect to the
business in Ballantyne Re. Accordingly, on June 30, 2008 we and those parties executed a
binding letter of intent to effect this novation and assignment transaction. In addition,
on June 30, 2008 we and ING executed a binding letter of intent whereby we have the ability
to recapture up to $200 million of additional excess reserves of the Ballantyne Re business
if, prior to completion of the assignment transaction, we deem it necessary to do so in
order to allow SRUS to obtain full statutory reserve credit. We expect to execute
additional recaptures and complete the assignment transaction during the third quarter of
2008. See Managements Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources.
    
    With respect to another of our securitization structures, Orkney Re II, in May 2008 we
executed amendments to certain transaction documents that give us flexibility in dealing
with additional near term estimated fair value declines in the sub-prime and Alt-A
securities held by Orkney Re II. The amendments eliminate certain priority of payment
limitations and provide us with the ability to recapture business from Orkney Re II. To
the extent that we continue to experience fair value declines in the sub-prime and Alt-A
assets, we may need to recapture a pro-rata portion of the underlying business in Orkney Re
II and find alternative collateral support for the recaptured business. No assurances can
be given that we will be successful in securing alternative collateral support.
    
    On May 30, 2008 we received notice from the counterparties to our Clearwater Re
collateral finance facility that Clearwater Re was in breach of certain covenants to
deliver financial statements in a timely manner. We were required to cure such breach
within 30 days of notice or an event of default would have occurred in Clearwater Re. In
addition, we project that, due to reported impairment charges in our 2007 year end
financial results and anticipated additional impairment charges in 2008, we will not be in
compliance with minimum net worth covenants in Clearwater Re and another of our collateral
finance facilities, HSBC II. These facilities involve an aggregate of $1.5 billion of
financing as of December 31, 2007 and have full recourse to Scottish Annuity & Life
Insurance Company (Cayman) Ltd. (SALIC). As a result, if we were unable to successfully
negotiate a solution with the relevant counterparties, both the
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Clearwater Re and HSBC II facilities could default with full recourse to SALIC. However, on
June 30, 2008 we executed forbearance agreements with the relevant counterparties to the
Clearwater Re and HSBC II facilities whereby the relevant counterparties have agreed to
forbear taking action until December 15, 2008. In order to achieve forbearance, we agreed
to certain economic and non-economic terms which have led to constraints on our available
liquidity. We believe the forbearance agreements give us adequate time to execute our
revised strategic plan and seek out, if necessary, alternative collateral support for each
of these facilities. To the extent we are not successful, by December 15, 2008, in either
reaching definitive agreement for the sale of our Life Reinsurance North America Segment (as
discussed in more detail below) or finding alternative collateral support for each facility,
we will be in default of the forbearance agreements and will need to obtain additional
forbearance from the relevant counterparties or consider seeking bankruptcy protection. No
assurances can be given that we will succeed in selling our Life Reinsurance North America
Segment by December 15, 2008, finding alternative collateral support for the facilities or
obtaining additional forbearance from the relevant counterparties. See Managements
Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and
Capital ResourcesForbearance Agreements with Counterparties.
 
    
    As a result of an asset adequacy analysis required by the Actuarial Opinion and
Memorandum under U.S. Statutory Accounting Rules, formula reserves at SRUS were
strengthened by $208 million as of December 31, 2007. The primary factors driving the
reserve strengthening were a decrease in the interest rate environment, higher allocated
maintenance expenses, lower than expected cash flows from the annuity business and revised
lapse assumptions for the life reinsurance business. The reserve strengthening
necessitated the infusion of $211 million of capital from SALIC to SRUS and had the effect
of significantly reducing available liquidity not contained within our insurance operating
subsidiaries. There can be no assurances that these, or other factors, will not require us
to further strengthen reserves at SRUS in the future. See Managements Discussion and
Analysis of Financial Condition and Results of OperationsLiquidity and Capital
ResourcesLiquidity.
    
    In an effort to preserve capital and to mitigate growing liquidity demands, we have
ceased writing new reinsurance treaties and have notified our existing clients that we will
not be accepting any new reinsurance risks under existing treaties. We have also taken
steps to reduce expenses, including reducing staffing levels. If we are not successful in
selling our Life Reinsurance North America Segment (as discussed in more detail below), we
will follow a run-off strategy for our Life Reinsurance North America Segment whereby we
will continue to receive premiums, pay claims and perform key activities under our existing
reinsurance treaties and will be required to record appropriate statutory reserves for the
duration of these reinsurance obligations. We have determined it is likely that, during
the first quarter of 2009, we will need additional capital and liquidity to support our
run-off strategy and other corporate financial obligations. To the extent we are not
successful in securing additional sources of capital and liquidity, our insurance operating
subsidiaries could become insolvent and we may need to seek bankruptcy protection. See
Managements Discussion and Analysis of Financial Condition and Results of
OperationsLiquidity and Capital Resources.
    
    Our ordinary and perpetual preferred shares were delisted from the New York Stock
Exchange as of April 7, 2008 and, therefore, we have no further reporting obligations under
Section 12(b) of the Securities Exchange Act of 1934, as amended (the Exchange Act). We
also had fewer than 300 holders of our securities as of January 1, 2008 and, as a result,
our reporting obligations under Sections 13 and 15(d) of the Exchange Act, were suspended.
On May 13, 2008 we filed a Form 15 indicating the suspension of our reporting obligations.
Our ordinary shares and perpetual preferred shares are no longer registered under Section
12(b) of the Exchange Act. As a result, notwithstanding the occurrence of material
developments (either positive or negative), we are not required to, nor do we intend to,
make future public filings or issue press releases as we have in the past. These
developments may have an adverse impact on the market liquidity in our ordinary and
perpetual preferred shares and other securities.
    
    As part of our revised business plan, we recently entered into definitive agreements for
the sale of our Life Reinsurance International Segment and Wealth Management business, the
cash proceeds of which, net of transaction expenses, will supplement our available
liquidity. The agreement to sell the Life Reinsurance International Segment is with
Pacific Life Insurance Company and was entered into on June 8, 2008 with a sale price of
$71.2 million, subject to certain potential downward adjustments. The agreement includes
the sale of Scottish Re Limited, Scottish Re Holdings Limited, and all Life Reinsurance
International Segment business written by SALIC, together with certain business retroceded
within our Company, and the staff
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and physical assets that we have in Singapore and Japan. The transaction is subject to
regulatory approvals and other customary closing conditions. The agreement to sell the
Wealth Management business is with Northstar Financial Services Ltd. and was entered into on
May 30, 2008. The sale includes the sale of three legal entities: The Scottish Annuity
Company (Cayman) Ltd., Scottish Annuity & Life Insurance Company (Bermuda) Ltd. and Scottish
Annuity & Life International Insurance Company (Bermuda) Ltd. The combined sale price for
all three entities is $6.75 million, subject to certain sale price adjustments. We
currently plan to complete these transactions during the third quarter of 2008. No
assurances can be given that the conditions to closing these transactions will be satisfied
and that we will realize cash proceeds from these sales to address our liquidity needs.
 
    
    In addition to the non-core assets or line of business sales, and as previously
disclosed in a Form 8-K filed on April 4, 2008, we have engaged Merrill Lynch as financial
advisor for the sale of our Life Reinsurance North America Segment. Following the
announcement of our change in strategic focus in February 2008 we received a number of
inquiries and expressions of interest to acquire our Life Reinsurance North America Segment
and concluded that a sale may provide the best method for preserving capital and liquidity
and maximizing shareholder value. Merrill Lynch has initiated a process to identify and
enter into negotiations with prospective qualified buyers. Our objective is to reach a
definitive agreement for the sale of our Life Reinsurance North America Segment by December
15, 2008. No assurances can be given that we will be successful in negotiating a sale of
our Life Reinsurance North America Segment in a timely manner. See Managements
Discussion and Analysis of Financial Condition and Results of OperationsLiquidity and
Capital Resources.
  Restatements
   4




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History
          5




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Our Business
 Segments
  Life Reinsurance North America
  6




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Traditional
Solutions:
 Financial
Solutions:
   Life Reinsurance International
     7




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Corporate and Other
     Regulation XXX Reserves
 Background
   Acquired ING Business
   8




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Collateral Facilities Supporting Regulation XXX Business
  9




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10




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Risk Management
 Life Reinsurance
  
    
    mortality risk,
    
    investment risk,
    
    persistency risk,
    
    expense risk, and
    
    counter-party risk.
       11




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Competition and Ratings
    12




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Moodys
    
    StandardA.M. Best
    
    Fitch
    
    Investors
    
    &Company(1)
    
    Ratings(2)
    
    Service(3)
    

Poors(1)Insurer Financial Strength Ratings:Scottish Annuity and Life Insurance
Company (Cayman) Ltd.
    
    C+
    
    CCC+
    
    B3
    
    B-Scottish Re (U.S.), Inc
    
    C+
    
    CCC+
    
    Ba3
    
    B-Scottish Re Limited
    
    B-(2)
    
    BB (4)
    
    
    
    B-(4)Scottish Re Life Corporation
    
    C+
    
    
    
    
    
    B-Scottish Re Group Limited Credit Ratings:Senior unsecured
    
    cc
    
    CCC
    
    Caa1
    
    CCC-Preferred stock
    
    d
    
    C
    
    Caa3
    
    D
 
 (1)
    
    Negative(2)
    
    Evolving/Developing(3)
    
    Uncertain(4)
    
    Positive     Employees
  13




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Regulation
 United States
 General U.S. State Supervision
  Insurance Holding Company Regulation
   Regulatory Inquiries
  14




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Dividend Restrictions
   U.S. Reinsurance Regulation
   U.S.
Reinsurance Regulation of Our Non-U.S. Reinsurance Subsidiaries
  15




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U.S.
Insurance Regulation of Our Non-U.S. Insurance Subsidiaries
  Risk-Based Capital
   Bermuda
   Ireland
   16




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United Kingdom
    17




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Cayman Islands
  Singapore
  18




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Additional Information
  
 Item 1A: RISK FACTORS
  Risks Related to Our Business
 Our available liquidity is currently insufficient to fund our needs beyond the near term and our
failure to successfully execute on our current strategies could result in our running out of
liquidity by the first quarter of 2009 or sooner.
  If we fail to successfully execute our current strategies, we will be required to raise new sources
of equity or debt capital, which sources may not be available, or if available, will likely be on
significantly less advantageous terms than our historical sources.
  19




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Our statutory capital position and our ability to continue to take reserve credit for the
reinsurance ceded to Ballantyne Re and Orkney Re II has been significantly reduced as a result of
fair value declines in our sub-prime and Alt-A securities.
     Our inability to comply with the terms of our forbearance agreements, or renew or replace the
forbearance agreements prior to December 15, 2008 could result in us having to seek bankruptcy
protection.
  20




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Our inability to successfully sell our Life Reinsurance North America Segment in a timely manner
could result in us having to seek bankruptcy protection.
   Additional adverse impact from our annual asset adequacy analysis could materially impact our
business.
  Our inability to successfully close the sales of our Life Reinsurance International Segment and
Wealth Management business could materially impact our business.
  Our inability to attract and retain qualified executives and employees or the loss of any of these
personnel could negatively impact our business.
  21




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Our ability to pay dividends depends on our subsidiaries ability to distribute funds to us.
    Our investment portfolio has significant exposure to sub-prime and Alt-A securities; in recent
periods, we have suffered substantial realized and unrealized investment losses related to this
exposure, which has adversely affected our financial condition, and we could suffer additional
losses in future periods.
  22




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We face the risk of continued declines in the estimated fair values of our invested assets which
could adversely affect our earnings, liquidity position and financial condition.
   
    
    market risk, which is the risk that our invested assets will decrease in value due
to a change in the yields realized on our assets and prevailing market yields for
similar assets, including changes in credit spreads, or an unfavorable change in the
liquidity of the investment. Estimated fair value decreases for trust assets used to
obtain reserve credit may result in loss of reinsurance reserve credit to the extent
the estimated fair value of assets is less than the statutory reserves;
    
    credit risk, which is the risk that our invested assets will decrease in value due
to a deterioration in the creditworthiness, downgrade in the credit rating, or default
of the issuer of the investment;
    
    reinvestment risk, which is the risk that interest rates will decline and funds
reinvested will earn less interest than expected; and
    
    liquidity risk, which is the risk that investments must be liquidated at an
undesirable time to satisfy liability cash outflows due to a mismatch of the timing of
asset and liability cash flows.
     In certain reinsurance contracts and in our collateral finance facilities we do not maintain
control of the invested assets, which may limit our ability to control investment risks on these
assets and may expose us to credit risk of the ceding company.
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Interest rate fluctuations could lower the income we derive from the difference between the
interest rates we earn on our investments and interest we pay under our reinsurance contracts.
     Inadequate risk analysis and underwriting may result in a decline in our profits.
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Our life reinsurance contracts and variable life insurance policies expose us to mortality risk
which could negatively affect our net income.
  Several class action securities lawsuits have been filed against us and certain of our current and
former officers and directors, and we cannot predict the outcome of these lawsuits.
  The adjustment of the conversion ratio of the Convertible Cumulative Participating Preferred Shares
as a result of a successful indemnification claim by the Investors could significantly dilute the
interests of our existing ordinary shareholders.
 .
 The Investors are our majority shareholders and their interests may differ from our interests and
those of our other security holders.
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Natural disasters, catastrophes and disasters caused by humans, including the threat of terrorist
attacks and related events, epidemics, and pandemics may adversely affect our business and results
of operations.
   Our insurance subsidiaries are highly regulated and changes in these regulations could harm our
business.
  
    
    establish solvency requirements, including minimum reserves and capital and surplus
requirements;
    
    limit the amount of dividends, tax distributions, inter-company loans and other
payments our insurance subsidiaries can make without prior regulatory approval;
    
    impose restrictions on the amount and type of investments we may hold; and
    
    require assessments to pay claims of insolvent insurance companies.
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Our ordinary shares are subject to voting and transfer limitations.
   Our articles of association make it difficult to replace directors and to effect a change in
control.
  27




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
    
    election of our directors is staggered, meaning that the members of only one of
three classes of our directors are elected each year;
    
    the total voting power of any shareholder owning 10% or more of the total voting
rights attached to our ordinary shares will be reduced to approximately 9.9% of the
total voting rights of our ordinary shares;
    
    our directors must decline to register the transfer of ordinary shares on our share
register that would result in a person owning 10% or more of any class of our shares
and may decline certain transfers that they believe may have adverse tax or regulatory
consequences;
    
    shareholders do not have the right to act by written consent; and
    
    our directors have the ability to change the size of the Board.
   Applicable insurance laws make it difficult to effect a change in control.
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It may be difficult to sue or enforce judgments against us in the United States.
  We cede some of the business that we reinsure to other reinsurance companies who may not pay
amounts due to us, which could materially harm our business.
  The declines in our ratings have increased our cost of capital and forced us to cease pursuing new
business.
   The market price for our ordinary shares has been and may continue to be highly volatile, and there
is limited liquidity for our ordinary shares.
  29




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
    
    changes in investors and analysts perceptions of the risks and conditions of our
business including our liquidity needs,
    
    the size of the public float of our ordinary shares,
    
    variations in our anticipated or actual operating results or the results of our
competitors,
    
    regulatory developments,
    
    market conditions, and
    
    general economic conditions.
  We are exposed to foreign currency risk which could negatively affect our business.
  Risks Related to Taxation
 If we or any of our non-U.S. subsidiaries are determined to be conducting business in the United
States, we could be liable for U.S. federal income taxes which could negatively affect our net
income.
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The potential application of the Federal Insurance Excise Tax to transactions between non-U.S.
entities could cause us to incur additional tax liabilities.
  Holders of 10% or more of our shares may be subject to U.S. income taxation under the controlled
foreign corporation rules.
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U.S. Persons who hold our shares may be subject to U.S. federal income taxation at ordinary income
rates on their proportionate share of our non-U.S. insurance subsidiaries related person insurance
income.
      32




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U.S. Persons who dispose of our shares may be subject to U.S. federal income taxation at the rates
applicable to dividends on a portion of their gains, if any.
  33




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U.S. tax-exempt organizations that own our shares may recognize unrelated business taxable income.
  U.S. Persons who hold our shares will be subject to adverse U.S. federal income tax consequences if
we are considered to be a passive foreign investment company.
    34




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Changes in U.S. federal income tax law could materially adversely affect an investment in our
shares.
    If we do not receive further undertakings from the Cayman Islands, we may become subject to taxes
in the Cayman Islands in the future.
  If Bermuda law changes, we may become subject to taxes in Bermuda in the future.
  35




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The impact of letters of commitment from Bermuda and the Cayman Islands to the Organization for
Economic Cooperation and Development to eliminate harmful tax practices may impact us negatively.
  
 Item 1B: UNRESOLVED STAFF COMMENTS
  
 Item 2: PROPERTIES
   
 Item 3: LEGAL PROCEEDINGS
  36




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Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  37




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PART II
 
 Item 5: MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
 Market for the Ordinary Shares
 .
 Per ShareHigh
    
    Low
    
    DividendYear ended December 31, 2005First Quarter
    
    $
    25.50
    
    
    $
    22.10
    
    
    $
    0.05Second Quarter
    
    
    24.24
    
    
    
    21.92
    
    
    
    0.05Third Quarter
    
    
    25.82
    
    
    
    23.46
    
    
    
    0.05Fourth Quarter
    
    
    25.49
    
    
    
    23.35
    
    
    
    0.05Year ended December 31, 2006First Quarter
    
    $
    25.20
    
    
    $
    23.99
    
    
    $
    0.05Second Quarter
    
    
    24.84
    
    
    
    16.68
    
    
    
    0.05Third Quarter
    
    
    16.67
    
    
    
    3.99
    
    
    
    Fourth Quarter
    
    
    11.43
    
    
    
    5.19
    
    
    
    Year ended December 31, 2007First Quarter
    
    $
    5.41
    
    
    $
    3.38
    
    
    $
    Second Quarter
    
    
    5.30
    
    
    
    3.86
    
    
    
    Third Quarter
    
    
    4.91
    
    
    
    2.54
    
    
    
    Fourth Quarter
    
    
    3.59
    
    
    
    0.60
    
    
    
    Period Ended June 30, 2008First Quarter
    
    $
    1.15
    
    
    $
    0.09
    
    
    $
    Second Quarter
    
    
    0.19
    
    
    
    0.08
    
    
    
    
      38




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##### Table of Contents



Equity Compensation Plan Information
  Number of
    
    
    Weighted-
    
    
    Number of SecuritiesSecurities to
    
    
    Average
    
    
    Remaining Availablebe Issued Upon
    
    
    Exercise Price
    
    
    forExercise
    
    
    of
    
    
    Future Issuance Underof Outstanding
    
    
    Outstanding
    
    
    Equity CompensationOptions,
    
    
    Options,
    
    
    Plans (ExcludingWarrants and
    
    
    Warrants and
    
    
    Securities Reflected inPlan Category
    

Rights
    
    

Rights
    
    

Column (a))(a)
    
    
    (b)
    
    
    (c)OptionsEquity
compensation plans
approved by
security holders
    
    
    8,686,844
    
    
    $
    6.74
    
    
    
    11,500,130Equity
compensation plans
not approved by
security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    8,686,844
    
    
    $
    6.74
    
    
    
    11,500,130WarrantsEquity
compensation plans
approved by
security holders
    
    
    2,650,000
    
    
    $
    15.00
    
    
    
    Equity
compensation plans
not approved by
security holders
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    2,650,000
    
    
    $
    15.00
    
    
    
    
  Comparison of Cumulative Shareholder Return
  Indexed ReturnsYear Ended BaseBasePeriod
    
    December
    
    December
    
    December
    
    December
    
    DecemberDecember
    
    31,
    
    31,
    
    31,
    
    31,
    
    31,Company / Index
    
    31, 2002
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007Scottish Re Group Limited
    
    $
    100
    
    
    $
    120.29
    
    
    $
    151.27
    
    
    $
    144.58
    
    
    $
    31.59
    
    
    $
    4.29S&P 500 Index
    
    $
    100
    
    
    $
    128.68
    
    
    $
    142.69
    
    
    $
    149.70
    
    
    $
    173.34
    
    
    $
    182.86S&P 500 Life & Health
Insurance
    
    $
    100
    
    
    $
    127.09
    
    
    $
    155.24
    
    
    $
    190.19
    
    
    $
    221.60
    
    
    $
    245.97
 39




---



##### Table of Contents



Annual Return PercentageYear EndedDecember
    
    December
    
    December
    
    December
    
    December31,
    
    31,
    
    31,
    
    31,
    
    31,Company / Index
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007Scottish Re Group Limited
    
    
    20.29
    %
    
    
    25.75
    %
    
    
    (4.42
    )%
    
    
    (78.15
    )%
    
    
    (86.42
    )%S&P 500 Index
    
    
    28.68
    %
    
    
    10.88
    %
    
    
    4.91
    %
    
    
    15.79
    %
    
    
    5.49
    %S&P 500 Life & Health Insurance
    
    
    27.09
    %
    
    
    22.15
    %
    
    
    22.51
    %
    
    
    16.51
    %
    
    
    11.00
    %
 Performance Graph
  
 
 Item 6: SELECTED FINANCIAL DATA
  Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember
    
    
    December
    
    
    December
    
    
    December
    
    
    December(U.S. dollars in
thousands, except share data)
    
    31, 2007
    
    
    31, 2006
    
    
    31, 2005
    
    
    31, 2004
    
    
    31, 2003Income
statement
data:(1)Total revenues
    
    $
    1,505,373
    
    
    $
    2,429,500
    
    
    $
    2,297,329
    
    
    $
    814,387
    
    
    $
    556,045Total benefits and expenses
    
    
    2,558,054
    
    
    
    2,576,990
    
    
    
    2,183,705
    
    
    
    758,936
    
    
    
    518,299
 40




---



##### Table of Contents



Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember
    
    
    December
    
    
    December
    
    
    December
    
    
    December31, 2007
    
    
    31, 2006
    
    
    31, 2005
    
    
    31, 2004
    
    
    31, 2003(Loss) income before income taxes and minority
interest
    
    
    (1,052,681
    )
    
    
    (147,490
    )
    
    
    113,624
    
    
    
    55,451
    
    
    
    37,746(Loss) income from continuing operations
before cumulative effect of change in
accounting principle
    
    
    (895,742
    )
    
    
    (366,714
    )
    
    
    130,197
    
    
    
    71,599
    
    
    
    48,789Net (loss) income
    
    
    (895,742
    )
    
    
    (366,714
    )
    
    
    130,197
    
    
    
    71,391
    
    
    
    27,281Dividend declared on non-cumulative perpetual
preferred shares
    
    
    (9,062
    )
    
    
    (9,062
    )
    
    
    (4,758
    )
    
    
    
    
    
    
    Deemed dividend on beneficial conversion
feature related to convertible cumulative
participating preferred shares
    
    
    (120,750
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Imputed dividend on prepaid variable share
forward contract
    
    
    
    
    
    
    (881
    )
    
    
    
    
    
    
    
    
    
    
    Net (loss) income (attributable) available to
ordinary shareholders
    
    $
    (1,025,554
    )
    
    $
    (376,657
    )
    
    $
    125,439
    
    
    $
    71,391
    
    
    $
    27,281Per share
data:(1)Basic (loss) earnings per ordinary share:(Loss) income from continuing operations
before cumulative effect of change in
accounting principle and discontinued
operations(2)
    
    $
    (15.24
    )
    
    $
    (6.70
    )
    
    $
    2.86
    
    
    $
    2.00
    
    
    $
    1.59Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.64
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.06
    )Net (loss) income (attributable)
available to ordinary shareholders
    
    $
    (15.24
    )
    
    $
    (6.70
    )
    
    $
    2.86
    
    
    $
    1.99
    
    
    $
    0.89Diluted (loss) earnings per ordinary share:(Loss) income from continuing operations
before cumulative effect of change in
accounting principle and discontinued
operations(2)
    
    $
    (15.24
    )
    
    $
    (6.70
    )
    
    $
    2.64
    
    
    $
    1.91
    
    
    $
    1.51Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.60
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.06
    )Net (loss) income available (attributable) to
ordinary shareholders
    
    $
    (15.24
    )
    
    $
    (6.70
    )
    
    $
    2.64
    
    
    $
    1.90
    
    
    $
    0.85Book value per ordinary share(3)
    
    $
    3.24
    
    
    $
    15.39
    
    
    $
    21.48
    
    
    $
    21.60
    
    
    $
    18.73Market value per share
    
    $
    0.73
    
    
    $
    5.34
    
    
    $
    24.55
    
    
    $
    25.90
    
    
    $
    20.78Cash dividends per ordinary share
    
    $
    
    
    
    $
    0.10
    
    
    $
    0.20
    
    
    $
    0.20
    
    
    $
    0.20
 41




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##### Table of Contents



Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember
    
    
    December
    
    
    December
    
    
    December
    
    
    December31, 2007
    
    
    31, 2006
    
    
    31, 2005
    
    
    31, 2004
    
    
    31, 2003Weighted average number of ordinary shares
outstanding:Basic
    
    
    67,303,066
    
    
    
    56,182,222
    
    
    
    43,838,261
    
    
    
    35,732,522
    
    
    
    30,652,719Diluted
    
    
    67,303,066
    
    
    
    56,182,222
    
    
    
    47,531,116
    
    
    
    37,508,292
    
    
    
    32,228,001Balance
sheet data (at end of
year):(1)Total fixed maturity investments
    
    $
    7,621,242
    
    
    $
    8,065,524
    
    
    $
    5,292,595
    
    
    $
    3,392,463
    
    
    $
    2,014,719Total assets
    
    
    12,821,063
    
    
    
    13,606,090
    
    
    
    12,116,303
    
    
    
    8,952,237
    
    
    
    6,053,517Long-term debt
    
    
    129,500
    
    
    
    129,500
    
    
    
    244,500
    
    
    
    244,500
    
    
    
    162,500Total liabilities
    
    
    11,909,454
    
    
    
    12,397,323
    
    
    
    10,692,229
    
    
    
    7,937,417
    
    
    
    5,242,450Minority interest
    
    
    9,025
    
    
    
    7,910
    
    
    
    9,305
    
    
    
    9,697
    
    
    
    9,295Mezzanine equity
    
    
    555,857
    
    
    
    143,665
    
    
    
    143,057
    
    
    
    142,449
    
    
    
    141,928Total shareholders equity
    
    $
    346,727
    
    
    $
    1,057,192
    
    
    $
    1,271,712
    
    
    $
    862,674
    
    
    $
    659,844Actual number of ordinary shares outstanding
    
    
    68,383,370
    
    
    
    60,554,104
    
    
    
    53,391,939
    
    
    
    39,931,145
    
    
    
    35,228,411
 
 (1)
    
    Scottish Re Holdings Limited was acquired on December 31, 2001 and is included in balance
sheet data for 2002-2006 and income statement data for years 2002-2006. SRLC was acquired on
December 22, 2003 and is included in balance sheet data and income statement data for years
2003-2006. Consolidated statement of income data for the year ended December 31, 2003 includes
net income of $1.2 million in respect of SRLC. The ING individual life reinsurance business
was acquired on December 31, 2004 and is included in balance sheet data for years 2004-2006
and income statement data for years 2005 and 2006.(2)
    
    Reflects reduction for dividends declared on non-cumulative perpetual preferred shares.(3)
    
    Book value per ordinary share is calculated as shareholders equity less preferred shares
divided by the number of ordinary shares outstanding. 42




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##### Table of Contents



Item 7: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Forward-Looking & Cautionary Statements
   
    
    the risk that available liquidity will be insufficient beyond the short term;
    
    uncertainties in our ability to raise new sources of equity or debt capital to
support ongoing capital, liquidity and collateral needs;
    
    uncertainties in our statutory capital position and ability to continue to take
reserve credit for our securitization facilities;
    
    uncertainties in our ability to comply with the terms of our forbearance or renew
the forbearance agreements prior to December 15, 2008;
    
    uncertainties relating to future actions that may be taken by creditors, regulators
and ceding insurers relating to our ratings and financial condition;
    
    uncertainties in our ability to successfully dispose of our Life Reinsurance North
America Segment in a timely manner;
    
    Additional negative impact from our annual asset adequacy analysis;
    
    changes in expectations regarding future realization of gross deferred tax assets;
    
    risks relating to the sale of our Life Reinsurance International Segment or Wealth
Management business;
    
    our ability to successfully rationalize expenses;
    
    loss of the services of any of our key employees;
    
    limitations on our ability to pay dividends;
    
    risks related to recent negative developments in the residential mortgage market,
especially in the sub-prime sector, and our exposure to such market;
 43




---



##### Table of Contents




    
    risks arising from our investment strategy, including risks related to the estimated
fair value of our investments, fluctuations in interest rates and our need for
liquidity;
    
    uncertainties arising from control of our invested assets by third parties;
    
    interest rate fluctuations;
    
    the risk that our risk analysis and underwriting may be inadequate;
    
    exposure to mortality experience which differs from our assumptions;
    
    risks relating to recent class action litigations;
    
    potential indemnification claim by the Investors;
    
    conflicts of interest with the Investors, who are our majority shareholders;
    
    catastrophes and their impact on the economy in general and on our business in
particular;
    
    uncertainties relating to government and regulatory policies (such as subjecting us
to insurance regulation or taxation in additional jurisdictions);
    
    voting and transfer limitations on our voting securities;
    
    restrictions in our articles of association to effect a change in control;
    
    insurance regulatory restrictions that impact our ability to effect a change in
control;
    
    the enforceability of judgments against us in the United States;
    
    the risk that our retrocessionaires may not honor their obligations to us;
    
    uncertainties relating to the ratings accorded to us and our insurance subsidiaries;
    
    the volatility of our share price;
    
    losses due to foreign currency exchange rate fluctuations;
    
    changes in accounting principles;
    
    risks that one or more of our non  U.S. subsidiaries may be considered a passive
foreign investment company for U.S. federal income tax purposes; and
    
    risk that one or more of our non  U.S. subsidiaries may be characterized as engaged
in a U.S. trade or business.
  44




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##### Table of Contents



Overview
 Our Business
     Management Changes
  
    
    In May 2007, Dean E. Miller resigned from his position as Executive Vice President
and Chief Financial Officer.
    
    In May 2007, Dan Roth, a former executive officer of Cerberus, was appointed as
Chief Restructuring Officer.
    
    In June 2007, Hugh T. McCormick, Executive Vice President of Corporate Development,
left the Company to return to the New York law office of Dewey & LeBoeuf LLP.
 45




---



##### Table of Contents




    
    In July 2007, Duncan Hayward was appointed Chief Accounting Officer. Mr. Hayward
also serves as the Chief Financial Officer of our Life Reinsurance International
Segment, a position he held since August 2006. He stepped down from the Chief
Accounting Officer position effective November 2007 and continues in his role as Chief
Financial Officer of the Life Reinsurance International Segment.
    
    In August 2007, George Zippel, former President and CEO of Genworth Financials
Protection segment, joined us to serve as our President and Chief Executive Officer.
    
    In August 2007, Paul Goldean, who had been serving as our President and Chief
Executive Officer for the past year, assumed the role of Chief Administrative Officer
and interim President and Chief Executive OfficerNorth America.
    
    In August 2007, Cliff Wagner resigned from his position as President and Chief
Executive OfficerNorth America
    
    In August 2007, Meredith Ratajczak assumed the role of interim Chief Financial
Officer, North America. She continues to also serve as our Chief Actuary, North
America.
    
    In October 2007, Michael Baumstein assumed the role of Executive Vice President,
Investments, Treasury and Capital Markets. He previously served as our Senior Vice
President, Corporate Finance since March 2004.
    
    In October 2007, Terry Eleftheriou, a former executive with XL Capital, joined the
Company and assumed responsibility as Chief Financial Officer in November 2007.
    
    In December 2007, Chris Shanahan was appointed interim President and Chief Executive
Officer  North America.
    
    In December 2007, Thomas A. McAvity, Jr. retired from the Company and, as a result,
left his position as Chief Investment Strategist.
    
    In December 2007, Samir Shah was appointed to the position of Chief Risk Officer.
 Our Financial Information
 Revenues
  
    
    Our primary business is life reinsurance, which involves reinsuring life insurance
policies, with premiums earned over the associated policy period. Each year, however, a
portion of the business under existing treaties terminates, principally due to lapses
or surrenders of underlying policies, deaths of policyholders and the exercise of
recapture options by ceding companies.
    
    Premiums from reinsurance assumed on life reinsurance business are included in
revenues over the premium paying period of the underlying policies. When we acquire
blocks of in-force business, we account for these transactions as purchases, and our
results of operations include the net income from these blocks as of their respective
dates of acquisition. Premium from reinsurance assumed on annuity business generates
investment income over time on the assets we receive from the ceding company. We also
earn revenues on funding agreements. A deposit received on a funding agreement creates
income to the extent we earn an investment return in excess of our interest payment
obligations thereon.
 46




---



##### Table of Contents




    
    Our investment income includes interest earned on our fixed income investments and
income from funds withheld at interest under modified coinsurance agreements or
coinsurance funds withheld agreements. Realized gains and losses include gains and
losses on investment securities that we sell during a period, write downs of securities
deemed to be other than temporarily impaired and foreign currency exchange gains and
losses.
 Expenses
  
    
    Reserves for claims and future policy benefits are our estimates of what we expect
to pay in claims and policy benefits and related expenses under the contract or policy.
From time to time, we may change the reserves if our experience leads us to believe
that benefit claims and expenses will ultimately be greater than the existing reserve.
We report the change in these reserves as an expense during the period when the reserve
or additional reserve is established.
    
    For our annuity-type reinsurance products, we record a liability for interest
sensitive contract liabilities, which represents the amount ultimately due to the
policyholder. We credit interest to these contracts each period at the rates determined
in the underlying contract, and the amount is reported as interest credited to interest
sensitive contract liabilities on our consolidated statements of income (loss).
    
    Acquisition costs consist principally of commissions, certain internal expenses
related to our policy issuance and underwriting departments and other variable selling
expenses. These costs are dependent on the structure, size and type of business
written. These costs are deferred and amortized over future periods based on our
expectations as to the emergence of premiums or future gross profits from the
underlying contracts.
    
    Operating expenses consist of salary and salary related expenses, legal and
professional fees, rent and office expenses, directors expenses, insurance and other
similar expenses.
    
    Collateral finance facilities expense includes costs incurred on our Regulation XXX
funding arrangements and other collateral finance facilities.
    
    Interest expense consists of interest charges on our long-term debt.
 Other Factors Affecting Profitability
  
    
    our ability to manage our assets and liabilities and to control investment and
liquidity risk;
    
    changes in our assessment of the ability to realize deferred tax assets;
    
    the volume and type of new business we write;
    
    volume and amount of death claims incurred and lapse experience;
    
    our ability to assess and price adequately for the risks we assumed;
 47




---



##### Table of Contents




    
    the mix of different types of business that we reinsure, because profits on some
lines of business emerge later than on other lines; and
    
    our ability to control expenses.
   Financial Measures
  
    
    Financial condition: liquidity to ensure adequate resources are available to meet
our normal operating cash flow needs and book value per share to maximize returns to
shareholders;
    
    Operations: premiums, changes in the number of treaties and life insurance in-force,
investment results, claim frequency and severity trends, claims and benefit ratio and
acquisition and expense ratios and operating earnings per share; and
    
    Investments: credit quality/experience, concentration risk, stability of long-term
returns, cash flows and asset and liability duration.
 Year Ended
    
    Year Ended
    
    Year EndedDecember 31,
    
    December 31,
    
    December 31,Operations
    
    2007
    
    2006
    
    2005Traditional life reinsurance in-force
(U.S. dollars in millions)
    
    $
    970.3
    
    
    $
    1,022.9
    
    
    $
    1,025.8Lives covered (in millions)
    
    
    13.0
    
    
    
    14.3
    
    
    
    13.5Average benefit per life
    
    $
    74,896
    
    
    $
    71,440
    
    
    $
    75,757Benefit ratio
    
    
    77.0
    %
    
    
    78.4
    %
    
    
    70.5
    %Acquisition expense ratio
    
    
    17.7
    %
    
    
    18.4
    %
    
    
    19.0
    %Financial ConditionLiquidity (U.S. dollars in millions)*
    
    $
    399.6
    
    
    $
    27.8
    
    
    $
    327.9Return on equity
    
    
    (36.8
    )%
    
    
    (32.9
    )%
    
    
    13.0
    %Book value per ordinary share
    
    $
    3.24
    
    
    $
    15.39
    
    
    $
    21.48
 
 *
    
    This amount represents liquidity in excess of liquidity held by our insurance operating
subsidiaries and includes cash and marketable securities as well as $275.0 million available under
the Stingray facility as at December 31, 2007 (2006  $2.0 million and 2005  $275.0 million). See
Managements Discussion and Analysis of Financial Condition and Results of OperationsLiquidity
and AnalysisLiquidity. 48




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##### Table of Contents



General Conditions and Trends Affecting Our Business
  Volatility in Credit Markets
 Highly-Leveraged Business
 Interest Rate Fluctuations
 Life Reinsurance
 49




---



##### Table of Contents



(i)
    
    Mortality Risk  Mortality risk is the primary risk transferred in most of our
life reinsurance agreements. While we maintain a significant amount of expertise
related to mortality expectations, actual claim results will exhibit a moderate amount
of volatility on a period by period basis related to the number and average size of
reported deaths during a given accounting period. During 2007, actual claims in our
Life Reinsurance North America Segment were approximately 96% of our current best estimate of mortality.
The favorable experience during 2007 was driven by consistently favorable results
throughout the year on the acquired ING block of business as well as favorable results
on the organic block. The favorable mortality in 2007 was a turnaround from 2006 when
overall North America claims results ran at about 104% of expectation. Both years
results fall within the expected reasonable range of variation for the North America
business.(ii)
    
    Investment Risk  Our asset portfolio consists predominantly of investments in
fixed and floating-rate debt securities with stated maturity dates, the fair value of
which are sensitive to changes in both the general level of interest rates and credit
spreads representing perceived risk of default. In general, we manage our investment
portfolio so as to minimize the duration gap between our assets and liabilities, in
order to reduce our exposure to changes in interest rates. If the duration of our
assets does not properly match that of our liabilities, we risk earning less interest
on our assets than expected, thereby preventing us from satisfying our guaranteed fixed
benefit obligations, or having to sell assets at an unfavorable time to meet
policyholder surrenders or withdrawals. Our investment portfolio includes
mortgage-backed securities, known as MBSs, and collateralized mortgage obligations,
known as CMOs. As of December 31, 2007, MBSs and CMOs constituted approximately
19.3% of our invested assets (at December 31, 2006 - 21.4%). As with other fixed income investments, the fair value
of these securities will fluctuate depending on market and other general economic
conditions and the interest rate environment; however, changes in interest rates can
also expose us to prepayment risks on these investments, as during periods of declining
interest rates, mortgage prepayments generally increase and MBSs and CMOs are prepaid
more rapidly, requiring us to reinvest the proceeds at the then-current market rates,
which may not be favorable. Recently, the residential mortgage market in the United
States has experienced a variety of difficulties and changed economic conditions. We
have exposure to the sub-prime market as a result of securities held in our investment
portfolio, as described in more detail under Financial
ConditionStructured Securities Backed by Sub-prime and Alt-A
Residential Mortgage Loans. Due to these recent developments, especially in the sub-prime
sector, we have suffered significant realized and unrealized investment losses; as the
market for these securities continues to be highly volatile and illiquid, there is a
risk that these investment values may further decline, which may adversely affect our
financial condition. Also, declines in the value of our investments that provide
collateral for reinsurance contracts would require us to post additional collateral.(iii)
    
    Persistency Risk  Persistency risk relates to variation in financial results
associated with more or less policyholders choosing to lapse their policies than
planned. The impact of lapse rates varies significantly by a number of factors
including plan of insurance, treaty, and policy year. As such, one can not generalize
that higher lapse rates represent a positive or negative event. During 2006 and 2007
persistency has generally been stronger than previously assumed. Much of this relates
to the flattening of direct life insurance rates which has reduced the incentive for
replacement activity in the direct market. The stronger persistency is favorable to
our long term value, but does also result in higher capital and collateral requirements
to back the larger amount of in-force that persists. During the past two years we have
also observed differences in the distribution of lapse rates in the acquired ING block
of business relative to the assumptions contemplated in the Purchase Generally Accepted
Accounting Principles (PGAAP) reserves. Effectively business with relatively higher
margins is lapsing somewhat faster than planned while lower margin business is
exhibiting higher persistency. This results in an erosion in margin on the block of
business for which the impact is accelerated by the mechanics of the PGAAP reserve
mechanisms. It should be noted that this impact is driven by differences in early
policy year lapse rates on level term business by underlying policyholders and does not
relate to our ratings or perceived creditworthiness.(iv)
    
    Counter-party Risk  We take on counterparty risk from external parties with
whom we retrocede business to. During 2006 and 2007 we had no losses associated with
retrocession counter-party
 50




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##### Table of Contents



risk on any of our excess retrocession programs. Within the acquired ERC block of
business there are several first-dollar retrocession pools which cede a quota share
of the business to a pool of external parties. During 2007 we negotiated an extra
contractual recapture of the quota share retrocession to one of those external
parties. As a result of that recapture we wrote off approximately $4.5 million of
outstanding reinsurance recoverables from that external party. The entire amount of
that write off was covered by a previously established valuation allowance.
 Critical Accounting Policies
   Consolidation of Variable Interest Entities
  Investment Valuation and Impairments
   51




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##### Table of Contents



(i) Intent
to Sell Our Businesses and Related Investment Portfolios
 (ii) Going Concern Uncertainties
 (iii) ING Assignment
  52




---



##### Table of Contents



Derivatives
     Assessment of Risk Transfer for Structured Insurance and Reinsurance Contracts
   Estimates of Premiums
  53




---



##### Table of Contents



Valuation of Present Value of In-force Business
  54




---



##### Table of Contents



Reserves for Future Policy Benefits
      Capitalization and Amortization of Deferred Acquisition Costs
  55




---



##### Table of Contents



Retrocession Arrangements and Amounts Recoverable from Reinsurers
  56




---



##### Table of Contents



Interest Sensitive Contract Liabilities
  Taxation
  57




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##### Table of Contents



Stock Based Compensation
   Consolidated Results of Operations
  Year Ended
    
    Year Ended
    
    Year EndedDecember 31,
    
    December 31,
    
    December 31,(U.S. dollars in
thousands, except share data)
    
    2007
    
    2006
    
    2005Total revenue
    
    $
    1,505,373
    
    
    $
    2,429,500
    
    
    $
    2,297,329Operating (loss) income(1)
    
    
    (49,754
    )
    
    
    (103,888
    )
    
    
    118,378Net (loss) income
    
    
    (895,742
    )
    
    
    (366,714
    )
    
    
    130,197Net (loss) income(attributable) available to
ordinary shareholders
    
    
    (1,025,554
    )
    
    
    (376,657
    )
    
    
    125,439Net realized losses
    
    
    (979,343
    )
    
    
    (27,405
    )
    
    
    3,738Loss (earnings) per ordinary share  basic
    
    $
    (15.24
    )
    
    $
    (6.70
    )
    
    $
    2.86Loss (earnings) per ordinary share  diluted
    
    $
    (15.24
    )
    
    $
    (6.70
    )
    
    $
    2.64Book value per ordinary share(2)
    
    $
    3.24
    
    
    $
    15.39
    
    
    $
    21.48Fully diluted book value per ordinary share(3)
    
    $
    3.89
    
    
    $
    15.69
    
    
    $
    20.84
 
 (1)
    
    Operating income (loss) is a non-GAAP measure. We define operating income (loss) as income
(loss) before income taxes and minority interest before realized gains and losses and the net
change in value of embedded derivatives. While these 58




---



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items may be significant components in understanding and assessing our consolidated financial
performance, we believe that the presentation of operating income (loss) enhances the
understanding of our results of operations by highlighting earnings attributable to the
normal, recurring operation of our reinsurance business. However, operating income (loss) is
not a substitute for net income determined in accordance with U.S. GAAP.(2)
    
    Book value per share is calculated as shareholders equity less preferred shares divided by
the number of ordinary shares outstanding.(3)
    
    Fully diluted book value per ordinary share is a non-GAAP measure, based on total
shareholders equity less preferred shares plus the assumed proceeds from the exercise of
outstanding options, warrants, and other convertible securities, divided by the sum of shares,
options and warrants outstanding, and the number of shares required upon the conversion of
convertible securities. We believe that fully diluted book value per ordinary share more
accurately reflects the book value that is attributable to an ordinary share.    Investment Results and Impairment Charges for Sub-prime and Alt-A Residential Mortgage Securities
   59




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Credit Ratings
    Decreased Business Volume
  Mortality and Lapse Experience
   60




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##### Table of Contents



Collateral
Finance Facilities and Securitization Structures
   .
 Higher Operating Costs
    61




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Taxation
  Section 382 Event
  Redomestication of Orkney I
  Segment Operating Results
 Life Reinsurance North America
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,(U.S. dollars in
thousands)
    
    2007
    
    
    2006
    
    
    2005RevenuesPremiums earned, net
    
    $
    1,773,388
    
    
    $
    1,719,239
    
    
    $
    1,814,875Investment income, net
    
    
    577,256
    
    
    
    584,359
    
    
    
    341,539Fee income
    
    
    14,917
    
    
    
    11,491
    
    
    
    9,233Net realized (losses) gains
    
    
    (969,494
    )
    
    
    (19,043
    )
    
    
    1,121Gain on extinguishment of third party debt
    
    
    20,043
    
    
    
    
    
    
    
    Change in value of embedded derivatives, net
    
    
    (43,627
    )
    
    
    (16,197
    )
    
    
    (8,492
    )Total revenues
    
    
    1,372,483
    
    
    
    2,279,849
    
    
    
    2,158,276Benefits
and expensesClaims and other policy benefits
    
    
    1,473,563
    
    
    
    1,468,346
    
    
    
    1,365,599Interest credited to interest sensitive contract liabilities
    
    
    135,366
    
    
    
    172,967
    
    
    
    132,968Acquisition costs and other insurance expenses, net
    
    
    354,347
    
    
    
    360,737
    
    
    
    400,992Operating expenses
    
    
    53,358
    
    
    
    58,133
    
    
    
    48,849Collateral finance facilities expense
    
    
    274,734
    
    
    
    205,210
    
    
    
    43,113Interest expense
    
    
    12,726
    
    
    
    11,613
    
    
    
    10,823Total benefits and expenses
    
    
    2,304,094
    
    
    
    2,277,006
    
    
    
    2,002,344(Loss) income before income taxes and minority interest
    
    $
    (931,611
    )
    
    $
    2,843
    
    
    $
    155,932
 62




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Comparison of 2007 to 2006
 Revenues
        Expenses
  63




---



##### Table of Contents



Comparison of 2006 to 2005
 Revenues
    64




---



##### Table of Contents



65




---



##### Table of Contents



Expenses
       66




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Life Reinsurance International
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,(U.S. dollars in thousands)
    
    2007
    
    
    2006
    
    
    2005RevenuesPremiums earned, net
    
    $
    116,369
    
    
    $
    122,746
    
    
    $
    119,055Investment income, net
    
    
    12,529
    
    
    
    24,106
    
    
    
    11,488Fee and other income
    
    
    818
    
    
    
    
    
    
    
    Net realized (losses) gains
    
    
    (3,482
    )
    
    
    (10,851
    )
    
    
    624Total revenues
    
    
    126,234
    
    
    
    136,001
    
    
    
    131,167Benefits and expensesClaims and other policy benefits
    
    
    84,686
    
    
    
    101,126
    
    
    
    76,906Acquisition costs and other insurance expenses, net
    
    
    26,587
    
    
    
    37,332
    
    
    
    20,722Operating expenses
    
    
    39,450
    
    
    
    31,236
    
    
    
    25,276Goodwill impairment
    
    
    
    
    
    
    33,758
    
    
    
    Interest expense
    
    
    11
    
    
    
    
    
    
    
    Total benefits and expenses
    
    
    150,734
    
    
    
    203,452
    
    
    
    122,904(Loss) income before income taxes
    
    $
    (24,500
    )
    
    $
    (67,451
    )
    
    $
    8,263
 Comparison of 2007 to 2006
 Revenues
   Expenses
   67




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Comparison of 2006 to 2005
 Revenues
    Expenses
    68




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##### Table of Contents



Corporate and Other
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,(U.S. dollars in thousands)
    
    2007
    
    
    2006
    
    
    2005RevenuesInvestment income, net
    
    $
    9,913
    
    
    $
    8,159
    
    
    $
    2,810Fee income
    
    
    3,110
    
    
    
    3,002
    
    
    
    3,083Net realized (losses) gains
    
    
    (6,367
    )
    
    
    2,489
    
    
    
    1,993Total revenues
    
    
    6,656
    
    
    
    13,650
    
    
    
    7,886Benefits and expensesAcquisition costs and other insurance expenses, net
    
    
    7,319
    
    
    
    11,116
    
    
    
    2,061Operating expenses
    
    
    76,108
    
    
    
    62,942
    
    
    
    41,448Goodwill impairment
    
    
    
    
    
    
    367
    
    
    
    Collateral finance facilities expense
    
    
    14,364
    
    
    
    10,581
    
    
    
    5,033Interest expenses
    
    
    5,435
    
    
    
    11,526
    
    
    
    9,915Total benefits and expenses
    
    
    103,226
    
    
    
    96,532
    
    
    
    58,457Loss before income taxes
    
    $
    (96,570
    )
    
    $
    (82,882
    )
    
    $
    (50,571
    )
 Comparison of 2007 to 2006
 Revenues
   Expenses
  69




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Comparison of 2006 to 2005
 Revenues
   Expenses
    70




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##### Table of Contents



Financial Condition
 Investments
 General
       Investment Oversight
  71




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##### Table of Contents



Investment Policy
   
    
    mitigating interest rate risk through management of asset duration and convexity,
and the pattern of asset cash flows relative to those of the respective reinsurance
obligations;
    
    seeking opportunities to diversify and diminish the overall credit risk of the
portfolio;
    
    deploying available cash primarily into low-volatility liquid fixed income assets
while selectively pursuing strategies to enhance yield;
    
    maintaining sufficient liquidity to meet unexpected financial obligations;
    
    regularly evaluating our asset class mix and pursuing additional investment classes;
and
    
    continuously monitoring asset quality.
     72




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##### Table of Contents



Controlled Portfolio
    December 31, 2007
    
    
    December 31, 2006(U.S. dollars in millions)
    
    Estimated Fair
    
    
    
    
    
    
    Estimated FairRatings
    

Value
    
    
    %
    
    

Value
    
    
    %AAA
    
    $
    3,797.4
    
    
    
    45.1
    %
    
    $
    3,350.5
    
    
    
    38.5
    %AA
    
    
    1,914.6
    
    
    
    22.8
    
    
    
    2,353.1
    
    
    
    27.0A
    
    
    1,822.8
    
    
    
    21.7
    
    
    
    2,050.9
    
    
    
    23.6BBB
    
    
    802.6
    
    
    
    9.5
    
    
    
    918.5
    
    
    
    10.6BB or below
    
    
    73.5
    
    
    
    0.9
    
    
    
    24.9
    
    
    
    0.3Total
    
    $
    8,410.9
    
    
    
    100.0
    %
    
    $
    8,697.9
    
    
    
    100.0
    %
  December 31, 2007
    
    
    December 31, 2006(U.S. dollars in millions)
    
    Estimated Fair
    
    
    
    
    
    
    Estimated FairSector
    

Value
    
    
    %
    
    

Value
    
    
    %Cash
    
    $
    700.7
    
    
    
    8.3
    %
    
    $
    515.5
    
    
    
    5.9
    %Governments
and agencies
    
    
    89.4
    
    
    
    1.1
    
    
    
    68.0
    
    
    
    0.8Municipals
    
    
    56.2
    
    
    
    0.7
    
    
    
    52.2
    
    
    
    0.6Corporate obligationsCorporate bonds
    
    
    2,798.3
    
    
    
    33.3
    
    
    
    2,700.1
    
    
    
    31.0Hybrid preferreds
    
    
    41.1
    
    
    
    0.5
    
    
    
    71.5
    
    
    
    0.8Non hybrid preferreds
    
    
    47.9
    
    
    
    0.6
    
    
    
    48.9
    
    
    
    0.6
 73




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December 31, 2007
    
    
    December 31, 2006(U.S. dollars in millions)
    
    Estimated Fair
    
    
    
    
    
    
    Estimated FairSector
    

Value
    
    
    %
    
    

Value
    
    
    %Structured and
pass-through securitiesAgency MBSPass-through
    
    
    206.0
    
    
    
    2.4
    
    
    
    171.9
    
    
    
    2.0CMOs
    
    
    250.8
    
    
    
    3.0
    
    
    
    235.7
    
    
    
    2.7Non-agency MBSPrime
    
    
    320.8
    
    
    
    3.8
    
    
    
    352.0
    
    
    
    4.1Alt-A
    
    
    849.3
    
    
    
    10.1
    
    
    
    1,093.8
    
    
    
    12.6Asset backed
securitiesHome equity
/ sub-prime
    
    
    1,282.5
    
    
    
    15.2
    
    
    
    1,945.5
    
    
    
    22.4Auto
    
    
    441.6
    
    
    
    5.3
    
    
    
    350.4
    
    
    
    4.0Credit card
    
    
    445.0
    
    
    
    5.3
    
    
    
    251.9
    
    
    
    2.9Other
    
    
    262.6
    
    
    
    3.1
    
    
    
    220.5
    
    
    
    2.5CMBS
    
    
    604.3
    
    
    
    7.2
    
    
    
    602.9
    
    
    
    6.9CDOs
    
    
    14.4
    
    
    
    0.1
    
    
    
    17.1
    
    
    
    0.2Total
    
    $
    8,410.9
    
    
    
    100.0
    %
    
    $
    8,697.9
    
    
    
    100.0
    %
    December 31, 2006(U.S. dollars in millions)
    
    Amortized
    
    
    
    
    
    
    Estimated
    
    
    
    
    
    
    UnrealizedIndustry
    
    Cost
    
    
    %
    
    
    Fair Value
    
    
    %
    
    
    Loss
    
    
    %Mortgage and asset
backed securities
    
    $
    1,827
    
    
    
    49.3
    %
    
    $
    1,799
    
    
    
    49.6
    %
    
    $
    (28
    )
    
    
    35.4
    %Banking
    
    
    303
    
    
    
    8.2
    
    
    
    296
    
    
    
    8.2
    
    
    
    (7
    )
    
    
    8.9Communications
    
    
    201
    
    
    
    5.4
    
    
    
    193
    
    
    
    5.3
    
    
    
    (8
    )
    
    
    10.1Consumer non-cyclical
    
    
    154
    
    
    
    4.1
    
    
    
    148
    
    
    
    4.1
    
    
    
    (6
    )
    
    
    7.6Insurance
    
    
    134
    
    
    
    3.6
    
    
    
    131
    
    
    
    3.6
    
    
    
    (3
    )
    
    
    3.8Financial companies
    
    
    125
    
    
    
    3.4
    
    
    
    123
    
    
    
    3.4
    
    
    
    (2
    )
    
    
    2.5Consumer cyclical
    
    
    127
    
    
    
    3.5
    
    
    
    123
    
    
    
    3.4
    
    
    
    (4
    )
    
    
    5.1Other*
    
    
    834
    
    
    
    22.5
    
    
    
    813
    
    
    
    22.4
    
    
    
    (21
    )
    
    
    26.6Total
    
    $
    3,705
    
    
    
    100.0
    %
    
    $
    3,626
    
    
    
    100.0
    %
    
    $
    (79
    )
    
    
    100.0
    %
 
 *
    
    Other industries each represent less than 3% of estimated fair value 74




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December 31, 2006(U.S. dollars in millions)
    
    Amortized
    
    
    
    
    
    
    Estimated
    
    
    
    
    
    
    UnrealizedMaturity
    
    Cost
    
    
    %
    
    
    Fair Value
    
    
    %
    
    
    Loss
    
    
    %Due in one year or less
    
    $
    331
    
    
    
    9.0
    %
    
    $
    330
    
    
    
    9.1
    %
    
    $
    (1
    )
    
    
    1.2
    %Due in one through five years
    
    
    1,397
    
    
    
    37.7
    
    
    
    1,373
    
    
    
    37.9
    
    
    
    (24
    )
    
    
    30.4Due in five through ten years
    
    
    1,205
    
    
    
    32.5
    
    
    
    1,178
    
    
    
    32.5
    
    
    
    (27
    )
    
    
    34.2Due after ten years
    
    
    772
    
    
    
    20.8
    
    
    
    745
    
    
    
    20.5
    
    
    
    (27
    )
    
    
    34.2Total
    
    $
    3,705
    
    
    
    100.0
    %
    
    $
    3,626
    
    
    
    100.0
    %
    
    $
    (79
    )
    
    
    100.0
    %
  Year ended December 31, 2007(U.S. dollars in thousands)
    
    Credit Concern
    
    
    Relative Value
    
    
    Other
    
    
    TotalDays
    
    Proceeds
    
    
    Loss
    
    
    Proceeds
    
    
    Loss
    
    
    Proceeds
    
    
    Loss
    
    
    Proceeds
    
    
    Loss0-90
    
    $
    21,256
    
    
    $
    (8,093
    )
    
    $
    11,040
    
    
    $
    (197
    )
    
    $
    317,813
    
    
    $
    (231
    )
    
    $
    350,109
    
    
    $
    (8,521
    )91-180
    
    
    1,681
    
    
    
    (340
    )
    
    
    1,639
    
    
    
    (72
    )
    
    
    2,970
    
    
    
    (21
    )
    
    
    6,290
    
    
    
    (433
    )181-270
    
    
    3,060
    
    
    
    (487
    )
    
    
    1,982
    
    
    
    (86
    )
    
    
    3,823
    
    
    
    (20
    )
    
    
    8,865
    
    
    
    (593
    )271-360
    
    
    13,390
    
    
    
    (1,946
    )
    
    
    
    
    
    
    
    
    
    
    6,521
    
    
    
    (365
    )
    
    
    19,911
    
    
    
    (2,311
    )Greater than 360
    
    
    11,548
    
    
    
    (443
    )
    
    
    11,183
    
    
    
    (226
    )
    
    
    11,109
    
    
    
    (262
    )
    
    
    33,840
    
    
    
    (931
    )Total
    
    $
    50,935
    
    
    $
    (11,309
    )
    
    $
    25,844
    
    
    $
    (581
    )
    
    $
    342,236
    
    
    $
    (899
    )
    
    $
    419,015
    
    
    $
    (12,789
    )
 Year ended December 31, 2006(U.S. dollars in thousands)
    
    Credit Concern
    
    
    Relative Value
    
    
    Other
    
    
    TotalDays
    
    Proceeds
    
    
    Loss
    
    
    Proceeds
    
    
    Loss
    
    
    Proceeds
    
    
    Loss
    
    
    Proceeds
    
    
    Loss0-90
    
    $
    20,503
    
    
    $
    (857
    )
    
    $
    193,855
    
    
    $
    (3,909
    )
    
    $
    457,378
    
    
    $
    (955
    )
    
    $
    671,736
    
    
    $
    (5,721
    )91-180
    
    
    4,105
    
    
    
    (81
    )
    
    
    11,597
    
    
    
    (331
    )
    
    
    70,781
    
    
    
    (931
    )
    
    
    86,483
    
    
    
    (1,343
    )181-270
    
    
    8,072
    
    
    
    (798
    )
    
    
    2,099
    
    
    
    (34
    )
    
    
    8,782
    
    
    
    (245
    )
    
    
    18,953
    
    
    
    (1,077
    )271-360
    
    
    2,397
    
    
    
    (206
    )
    
    
    8,886
    
    
    
    (284
    )
    
    
    11,544
    
    
    
    (137
    )
    
    
    22,827
    
    
    
    (627
    )Greater than 360
    
    
    9,750
    
    
    
    (983
    )
    
    
    8,507
    
    
    
    (199
    )
    
    
    26,255
    
    
    
    (560
    )
    
    
    44,512
    
    
    
    (1,742
    )Total
    
    $
    44,827
    
    
    $
    (2,925
    )
    
    $
    224,944
    
    
    $
    (4,757
    )
    
    $
    574,740
    
    
    $
    (2,828
    )
    
    $
    844,511
    
    
    $
    (10,510
    )
 Year ended December 31, 2005(U.S. dollars in thousands)
    
    Credit Concern
    
    
    Relative Value
    
    
    Other
    
    
    TotalDays
    
    Proceeds
    
    
    Loss
    
    
    Proceeds
    
    
    Loss
    
    
    Proceeds
    
    
    Loss
    
    
    Proceeds
    
    
    Loss0-90
    
    $
    43,223
    
    
    $
    (1,703
    )
    
    $
    44,230
    
    
    $
    (356
    )
    
    $
    471,886
    
    
    $
    (1,440
    )
    
    $
    559,339
    
    
    $
    (3,499
    )91-180
    
    
    355
    
    
    
    (83
    )
    
    
    12,456
    
    
    
    (59
    )
    
    
    6,499
    
    
    
    (48
    )
    
    
    19,310
    
    
    
    (190
    )181-270
    
    
    5,869
    
    
    
    (1,246
    )
    
    
    2,240
    
    
    
    (7
    )
    
    
    6,361
    
    
    
    (88
    )
    
    
    14,470
    
    
    
    (1,341
    )271-360
    
    
    2,581
    
    
    
    (255
    )
    
    
    2,045
    
    
    
    (70
    )
    
    
    4,881
    
    
    
    (29
    )
    
    
    9,507
    
    
    
    (354
    )Greater than 360
    
    
    2,670
    
    
    
    (330
    )
    
    
    7
    
    
    
    
    
    
    
    2,453
    
    
    
    (64
    )
    
    
    5,130
    
    
    
    (394
    )Total
    
    $
    54,698
    
    
    $
    (3,617
    )
    
    $
    60,978
    
    
    $
    (492
    )
    
    $
    492,080
    
    
    $
    (1,669
    )
    
    $
    607,756
    
    
    $
    (5,778
    )
 Funds Withheld at Interest Portfolio
  75




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##### Table of Contents



December 31, 2007Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Estimated(U.S. dollars in thousands)
    
    Cost or Cost
    
    
    Appreciation
    
    
    Depreciation
    
    
    Fair ValueU.S. Treasury securities and U.S.
government agency obligations
    
    $
    7,356
    
    
    $
    117
    
    
    $
    (1
    )
    
    $
    7,472Corporate securities
    
    
    1,076,369
    
    
    
    28,398
    
    
    
    (22,460
    )
    
    
    1,082,307Municipal bonds
    
    
    31,925
    
    
    
    219
    
    
    
    (392
    )
    
    
    31,752Mortgage and asset backed securities
    
    
    468,865
    
    
    
    4,495
    
    
    
    (10,778
    )
    
    
    462,582Preferred stock
    
    
    11,384
    
    
    
    228
    
    
    
    (181
    )
    
    
    11,431Equity
    
    
    
    
    
    
    96
    
    
    
    
    
    
    
    961,595,899
    
    
    
    33,553
    
    
    
    (33,812
    )
    
    
    1,595,640Commercial mortgage loans
    
    
    81,342
    
    
    
    3,752
    
    
    
    (69
    )
    
    
    85,025Total
    
    $
    1,677,241
    
    
    $
    37,305
    
    
    $
    (33,881
    )
    
    $
    1,680,665
 76




---



##### Table of Contents



December 31, 2006Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Estimated(U.S. dollars in thousands)
    
    Cost or Cost
    
    
    Appreciation
    
    
    Depreciation
    
    
    Fair ValueU.S. Treasury securities and U.S.
government agency obligations
    
    $
    59,049
    
    
    $
    48
    
    
    $
    (325
    )
    
    $
    58,772Corporate securities
    
    
    1,307,490
    
    
    
    29,130
    
    
    
    (12,879
    )
    
    
    1,323,741Municipal bonds
    
    
    30,706
    
    
    
    68
    
    
    
    (837
    )
    
    
    29,937Mortgage and asset backed securities
    
    
    464,319
    
    
    
    6,094
    
    
    
    (6,968
    )
    
    
    463,4451,861,564
    
    
    
    35,340
    
    
    
    (21,009
    )
    
    
    1,875,895Commercial mortgage loans
    
    
    95,397
    
    
    
    3,672
    
    
    
    (223
    )
    
    
    98,846Total
    
    $
    1,956,961
    
    
    $
    39,012
    
    
    $
    (21,232
    )
    
    $
    1,974,741
  December 31, 2007Amortized
    
    
    Estimated(U.S. dollars in thousands)
    
    Cost
    
    
    Fair ValueDue in one year or less
    
    $
    464,809
    
    
    $
    463,679Due in one year through five years
    
    
    322,224
    
    
    
    332,565Due in five years through ten years
    
    
    140,115
    
    
    
    137,822Due after ten years
    
    
    199,886
    
    
    
    198,9921,127,034
    
    
    
    1,133,058Mortgage and asset backed securities
    
    
    468,865
    
    
    
    462,582Commercial mortgage loans
    
    
    81,342
    
    
    
    85,025Total
    
    $
    1,677,241
    
    
    $
    1,680,665
 December 31, 2006Amortized
    
    
    Estimated(U.S. dollars in thousands)
    
    Cost
    
    
    Fair ValueDue in one year or less
    
    $
    118,040
    
    
    $
    118,040Due in one year through five years
    
    
    467,375
    
    
    
    477,200Due in five years through ten years
    
    
    581,076
    
    
    
    584,048Due after ten years
    
    
    230,754
    
    
    
    233,1621,397,245
    
    
    
    1,412,450Mortgage and asset backed securities
    
    
    464,319
    
    
    
    463,445Commercial mortgage loans
    
    
    95,397
    
    
    
    98,846Total
    
    $
    1,956,961
    
    
    $
    1,974,741
  77




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##### Table of Contents



December 31, 2007
    
    
    December 31, 2006(U.S. dollars in millions)
    
    Estimated
    
    
    
    
    
    
    EstimatedRatings
    

Fair
Value
    
    
    %
    
    

Fair
Value
    
    
    %AAA
    
    $
    410.5
    
    
    
    24.9
    %
    
    $
    427.5
    
    
    
    22.1
    %AA
    
    
    171.5
    
    
    
    10.4
    
    
    
    166.6
    
    
    
    8.6A
    
    
    417.0
    
    
    
    25.3
    
    
    
    561.1
    
    
    
    29.0BBB
    
    
    435.4
    
    
    
    26.4
    
    
    
    605.6
    
    
    
    31.3BB or below
    
    
    131.1
    
    
    
    7.9
    
    
    
    75.1
    
    
    
    3.9Sub-total
    
    
    1,565.5
    
    
    
    94.9
    
    
    
    1,835.9
    
    
    
    94.9Commercial mortgage loans
    
    
    85.0
    
    
    
    5.1
    
    
    
    98.8
    
    
    
    5.1Total
    
    $
    1,650.5
    
    
    
    100.0
    %
    
    $
    1,934.7
    
    
    
    100.0
    %
  December 31, 2007
    
    
    December 31, 2006(U.S. dollars in millions)
    
    Estimated
    
    
    
    
    
    
    EstimatedSector
    

Fair
Value
    
    
    %
    
    

Fair
Value
    
    
    %Cash
    
    $
    (30.1
    )
    
    
    (1.8
    )%
    
    $
    (40.1
    )
    
    
    (2.1
    )%Governments
and agencies
    
    
    7.5
    
    
    
    0.4
    
    
    
    58.8
    
    
    
    3.1Municipals
    
    
    31.8
    
    
    
    1.9
    
    
    
    29.9
    
    
    
    1.6Corporate obligations:Corporate bonds
    
    
    1,082.3
    
    
    
    65.6
    
    
    
    1,331.9
    
    
    
    68.9Hybrid preferreds
    
    
    11.4
    
    
    
    0.7
    
    
    
    2.6
    
    
    
    0.1Structure
and pass-through securitiesAgency MBSPass-throughs
    
    
    32.7
    
    
    
    2.0
    
    
    
    10.4
    
    
    
    0.5CMOs
    
    
    61.2
    
    
    
    3.7
    
    
    
    48.5
    
    
    
    2.5Non-agency MBSPrime
    
    
    60.5
    
    
    
    3.7
    
    
    
    60.1
    
    
    
    3.1Alt-A
    
    
    41.5
    
    
    
    2.5
    
    
    
    44.1
    
    
    
    2.3ABSHome equity
/ sub-prime
    
    
    42.8
    
    
    
    2.6
    
    
    
    49.7
    
    
    
    2.6Auto
    
    
    3.6
    
    
    
    0.2
    
    
    
    2.5
    
    
    
    0.1Credit card
    
    
    4.5
    
    
    
    0.3
    
    
    
    4.7
    
    
    
    0.2Other
    
    
    34.4
    
    
    
    2.1
    
    
    
    40.9
    
    
    
    2.1CMBS
    
    
    175.5
    
    
    
    10.6
    
    
    
    183.4
    
    
    
    9.5CDOs
    
    
    5.9
    
    
    
    0.4
    
    
    
    8.5
    
    
    
    0.4Commercial
mortgage whole loans
    
    
    85.0
    
    
    
    5.1
    
    
    
    98.8
    
    
    
    5.1Total
    
    $
    1,650.5
    
    
    
    100.0
    %
    
    $
    1,934.7
    
    
    
    100.0
    %
 Impairment Methodology and Realized Losses
   78




---



##### Table of Contents



Structured
Securities Backed by Sub-prime and Alt-A Residential Mortgage Loans
    79




---



##### Table of Contents



December 31, 2007Non-securitization
    
    
    SecuritizationStructures
Portfolio
    
    

Structures
Portfolio
    
    
    TotalSub-
    
    
    
    
    
    
    
    
    
    Sub-(U.S. dollars in millions)
    
    prime
    
    
    Alt-A
    
    
    Sub-prime
    
    
    Alt-A
    
    
    prime
    
    
    Alt-ABook
Value by RatingAAA
    
    $
    120.6
    
    
    $
    118.0
    
    
    $
    242.6
    
    
    $
    67.6
    
    
    $
    363.2
    
    
    $
    185.6AA
    
    
    117.5
    
    
    
    52.3
    
    
    
    514.1
    
    
    
    520.9
    
    
    
    631.6
    
    
    
    573.2A+
    
    
    4.3
    
    
    
    1.8
    
    
    
    108.7
    
    
    
    20.9
    
    
    
    113.0
    
    
    
    22.7A
    
    
    26.5
    
    
    
    15.6
    
    
    
    29.8
    
    
    
    19.7
    
    
    
    56.3
    
    
    
    35.3A-
    
    
    18.0
    
    
    
    1.5
    
    
    
    22.1
    
    
    
    7.4
    
    
    
    40.1
    
    
    
    8.9BBB+ or lower
    
    
    19.3
    
    
    
    7.2
    
    
    
    58.3
    
    
    
    15.8
    
    
    
    77.6
    
    
    
    23.0Total
    
    $
    306.2
    
    
    $
    196.4
    
    
    $
    975.6
    
    
    $
    652.3
    
    
    $
    1,281.8
    
    
    $
    848.7Estimated
Fair Value
by RatingAAA
    
    $
    120.6
    
    
    $
    118.0
    
    
    $
    242.6
    
    
    $
    67.6
    
    
    $
    363.2
    
    
    $
    185.6AA
    
    
    117.5
    
    
    
    52.3
    
    
    
    514.1
    
    
    
    520.9
    
    
    
    631.6
    
    
    
    573.2A+
    
    
    4.3
    
    
    
    1.8
    
    
    
    108.7
    
    
    
    20.9
    
    
    
    113.0
    
    
    
    22.7A
    
    
    26.5
    
    
    
    15.6
    
    
    
    29.8
    
    
    
    19.7
    
    
    
    56.3
    
    
    
    35.3A-
    
    
    18.0
    
    
    
    1.5
    
    
    
    22.1
    
    
    
    7.4
    
    
    
    40.1
    
    
    
    8.9BBB+ or lower
    
    
    19.3
    
    
    
    7.2
    
    
    
    58.3
    
    
    
    15.8
    
    
    
    77.6
    
    
    
    23.0Total
    
    $
    306.2
    
    
    $
    196.4
    
    
    $
    975.6
    
    
    $
    652.3
    
    
    $
    1,281.8
    
    
    $
    848.7Realized
Loss by RatingAAA
    
    $
    (6.7
    )
    
    $
    (6.6
    )
    
    $
    (43.2
    )
    
    $
    (3.6
    )
    
    $
    (49.9
    )
    
    $
    (10.2
    )AA
    
    
    (22.0
    )
    
    
    (7.4
    )
    
    
    (270.0
    )
    
    
    (100.9
    )
    
    
    (292.0
    )
    
    
    (108.3
    )A+
    
    
    (1.3
    )
    
    
    (0.5
    )
    
    
    (52.0
    )
    
    
    (12.0
    )
    
    
    (53.3
    )
    
    
    (12.5
    )A
    
    
    (6.7
    )
    
    
    (2.9
    )
    
    
    (34.9
    )
    
    
    (11.8
    )
    
    
    (41.6
    )
    
    
    (14.7
    )A-
    
    
    (3.8
    )
    
    
    (0.5
    )
    
    
    (24.6
    )
    
    
    (4.8
    )
    
    
    (28.4
    )
    
    
    (5.3
    )BBB+ or lower
    
    
    (16.0
    )
    
    
    (9.5
    )
    
    
    (77.1
    )
    
    
    (21.1
    )
    
    
    (93.1
    )
    
    
    (30.6
    )Total
    
    $
    (56.5
    )
    
    $
    (27.4
    )
    
    $
    (501.8
    )
    
    $
    (154.2
    )
    
    $
    (558.3
    )
    
    $
    (181.6
    )
 Consolidated Sub-prime and Alt-A Portfolios
  
    
    $363.2 million (5.8% of total investments at amortized cost) were rated AAA/Aaa;
    
    $994.8 million (15.8% of total investments at amortized cost) were rated AA-/Aa3 or
above;
    
    $1,204.2 million (19.2% of total investments at amortized cost) were rated A-/A3 or
above; and
 80




---



##### Table of Contents




    
    $975.6 million (15.5% of total investments at amortized cost) reside in our
collateral finance facilities.
   Consolidated Sub-prime Portfolio as at December 31, 2007VintageYearsEndedDecember
    
    
    Year
    
    
    Six Months
    
    
    Six Months31, 1997 to
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Year Ended
    
    
    
    
    
    
    % of(U.S. dollars in millions)
    
    December
    
    
    December
    
    
    June
    
    
    December
    
    
    December
    
    
    
    
    
    
    InvestmentRating
    
    31, 2004
    
    
    31, 2005
    
    
    30, 2006
    
    
    31, 2006
    
    
    31, 2007
    
    
    Total
    
    
    PortfolioAAA
    
    $
    50.6
    
    
    $
    61.7
    
    
    $
    115.8
    
    
    $
    119.5
    
    
    $
    15.6
    
    
    $
    363.2
    
    
    
    5.8
    %AA
    
    
    110.8
    
    
    
    166.7
    
    
    
    253.5
    
    
    
    99.7
    
    
    
    0.9
    
    
    
    631.6
    
    
    
    10.1A+
    
    
    2.8
    
    
    
    87.6
    
    
    
    11.1
    
    
    
    8.9
    
    
    
    2.6
    
    
    
    113.0
    
    
    
    1.8A
    
    
    23.5
    
    
    
    11.2
    
    
    
    11.4
    
    
    
    5.6
    
    
    
    4.6
    
    
    
    56.3
    
    
    
    0.9A-
    
    
    14.0
    
    
    
    8.5
    
    
    
    12.1
    
    
    
    4.9
    
    
    
    0.6
    
    
    
    40.1
    
    
    
    0.6BBB+ and lower
    
    
    13.4
    
    
    
    3.5
    
    
    
    24.7
    
    
    
    29.5
    
    
    
    6.5
    
    
    
    77.6
    
    
    
    1.2Total
    
    $
    215.1
    
    
    $
    339.2
    
    
    $
    428.6
    
    
    $
    268.1
    
    
    $
    30.8
    
    
    $
    1,281.8
    
    
    
    20.4
    %% of investment
portfolio
    
    
    3.4
    %
    
    
    5.4
    %
    
    
    6.8
    %
    
    
    4.3
    %
    
    
    0.5
    %
    
    
    20.4
    %
  
    
    $185.6 million (3.0% of total investments at amortized cost) were rated AAA/Aaa;
    
    $758.8 million (12.1% of total investments at amortized cost) were rated AA-/Aa3 or
above;
    
    $825.7 million (13.1% of total investments at amortized cost) were rated A-/A3 or
above; and
    
    $652.3 million (10.4% of total investments at amortized cost) reside in our
collateral finance facilities.
  81




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##### Table of Contents



Consolidated Alt-A Portfolio as at December 31, 2007VintageYearsEnded
    
    
    
    
    
    
    Six
    
    
    SixDecember
    
    
    Year
    
    
    Months
    
    
    Months
    
    
    Year31, 1997 to
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    
    
    
    
    % of(U.S. dollars in millions)
    
    December
    
    
    December
    
    
    June
    
    
    December
    
    
    December
    
    
    
    
    
    
    InvestmentRating
    
    31, 2004
    
    
    31, 2005
    
    
    30, 2006
    
    
    31, 2006
    
    
    31, 2007
    
    
    Total
    
    
    PortfolioAAA
    
    $
    33.7
    
    
    $
    62.2
    
    
    $
    56.2
    
    
    $
    33.5
    
    
    $
    
    
    
    $
    185.6
    
    
    
    2.9
    %AA
    
    
    48.9
    
    
    
    64.3
    
    
    
    252.8
    
    
    
    206.1
    
    
    
    1.1
    
    
    
    573.2
    
    
    
    9.1A+
    
    
    1.2
    
    
    
    0.6
    
    
    
    
    
    
    
    20.9
    
    
    
    
    
    
    
    22.7
    
    
    
    0.4A
    
    
    18.5
    
    
    
    3.1
    
    
    
    5.5
    
    
    
    8.2
    
    
    
    
    
    
    
    35.3
    
    
    
    0.6A-
    
    
    
    
    
    
    1.5
    
    
    
    0.7
    
    
    
    6.7
    
    
    
    
    
    
    
    8.9
    
    
    
    0.1BBB+ and lower
    
    
    2.2
    
    
    
    4.6
    
    
    
    7.7
    
    
    
    8.5
    
    
    
    
    
    
    
    23.0
    
    
    
    0.4Total
    
    $
    104.5
    
    
    $
    136.3
    
    
    $
    322.9
    
    
    $
    283.9
    
    
    $
    1.1
    
    
    $
    848.7
    
    
    
    13.5
    %% of investment
portfolio
    
    
    1.7
    %
    
    
    2.2
    %
    
    
    5.1
    %
    
    
    4.5
    %
    
    
    0.0
    %
    
    
    13.5
    %
 Consolidated Sub-prime and Alt-A Portfolios Excluding Those Held in Securitization Structures
  Sub-prime Portfolio Excluding Securitization Structures as at December 31, 2007VintageYearsEnded
    
    
    
    
    
    
    Six
    
    
    SixDecember
    
    
    Year
    
    
    Months
    
    
    Months
    
    
    Year31, 1997 to
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    
    
    
    
    % of(U.S. dollars in millions)
    
    December
    
    
    December
    
    
    June
    
    
    December
    
    
    December
    
    
    
    
    
    
    InvestmentRating
    
    31, 2004
    
    
    31, 2005
    
    
    30, 2006
    
    
    31, 2006
    
    
    31, 2007
    
    
    Total
    
    
    PortfolioAAA
    
    $
    40.3
    
    
    $
    35.2
    
    
    $
    41.7
    
    
    $
    1.5
    
    
    $
    1.9
    
    
    $
    120.6
    
    
    
    1.9
    %AA
    
    
    64.3
    
    
    
    27.6
    
    
    
    25.4
    
    
    
    
    
    
    
    0.2
    
    
    
    117.5
    
    
    
    1.9A+
    
    
    2.7
    
    
    
    1.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.3
    
    
    
    0.1A
    
    
    21.0
    
    
    
    5.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26.5
    
    
    
    0.4A-
    
    
    14.0
    
    
    
    4.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18.0
    
    
    
    0.3BBB+ and lower
    
    
    13.3
    
    
    
    3.5
    
    
    
    2.5
    
    
    
    
    
    
    
    
    
    
    
    19.3
    
    
    
    0.3Total
    
    $
    155.6
    
    
    $
    77.4
    
    
    $
    69.6
    
    
    $
    1.5
    
    
    $
    2.1
    
    
    $
    306.2
    
    
    
    4.9
    %% of investment
portfolio
    
    
    2.6
    %
    
    
    1.2
    %
    
    
    1.1
    %
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    4.9
    %
 82




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##### Table of Contents



Alt-A Portfolio Excluding Securitization Structures as at December 31, 2007VintageYearsEnded
    
    
    
    
    
    
    Six
    
    
    SixDecember
    
    
    Year
    
    
    Months
    
    
    Months
    
    
    Year31, 1997 to
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    
    
    
    
    % of(U.S. dollars in millions)
    
    December
    
    
    December
    
    
    June
    
    
    December
    
    
    December
    
    
    
    
    
    
    InvestmentRating
    
    31, 2004
    
    
    31, 2005
    
    
    30, 2006
    
    
    31, 2006
    
    
    31, 2007
    
    
    Total
    
    
    PortfolioAAA
    
    $
    33.8
    
    
    $
    22.0
    
    
    $
    50.4
    
    
    $
    11.8
    
    
    $
    
    
    
    $
    118.0
    
    
    
    1.9
    %AA
    
    
    29.4
    
    
    
    9.5
    
    
    
    12.3
    
    
    
    
    
    
    
    1.1
    
    
    
    52.3
    
    
    
    0.8A+
    
    
    1.2
    
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.8
    
    
    
    0.0A
    
    
    12.5
    
    
    
    3.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15.6
    
    
    
    0.3A-
    
    
    
    
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.5
    
    
    
    0.0BBB+ and lower
    
    
    2.2
    
    
    
    4.6
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    7.2
    
    
    
    0.1Total
    
    $
    79.1
    
    
    $
    41.3
    
    
    $
    63.1
    
    
    $
    11.8
    
    
    $
    1.1
    
    
    $
    196.4
    
    
    
    3.1
    %% of investment
portfolio
    
    
    1.2
    %
    
    
    0.7
    %
    
    
    1.0
    %
    
    
    0.2
    %
    
    
    0.0
    %
    
    
    3.1
    %
 Sub-Prime and Alt-A Portfolios in Securitization Structures
  Sub-prime Portfolio in Securitization Structures as at December 31, 2007VintageYearsEnded
    
    
    
    
    
    
    Six
    
    
    SixDecember
    
    
    Year
    
    
    Months
    
    
    Months
    
    
    Year31, 1997 to
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    
    
    
    
    % of(U.S. dollars in millions)
    
    December
    
    
    December
    
    
    June
    
    
    December
    
    
    December
    
    
    
    
    
    
    InvestmentRating
    
    31, 2004
    
    
    31, 2005
    
    
    30, 2006
    
    
    31, 2006
    
    
    31, 2007
    
    
    Total
    
    
    PortfolioAAA
    
    $
    10.3
    
    
    $
    26.5
    
    
    $
    74.1
    
    
    $
    118.0
    
    
    $
    13.7
    
    
    $
    242.6
    
    
    
    3.8
    %AA
    
    
    46.4
    
    
    
    139.2
    
    
    
    228.1
    
    
    
    99.7
    
    
    
    0.7
    
    
    
    514.1
    
    
    
    8.2A+
    
    
    
    
    
    
    86.1
    
    
    
    11.1
    
    
    
    8.9
    
    
    
    2.6
    
    
    
    108.7
    
    
    
    1.7A
    
    
    2.6
    
    
    
    5.6
    
    
    
    11.4
    
    
    
    5.6
    
    
    
    4.6
    
    
    
    29.8
    
    
    
    0.5A-
    
    
    
    
    
    
    4.4
    
    
    
    12.1
    
    
    
    5.0
    
    
    
    0.6
    
    
    
    22.1
    
    
    
    0.4BBB+ and lower
    
    
    
    
    
    
    
    
    
    
    22.3
    
    
    
    29.5
    
    
    
    6.5
    
    
    
    58.3
    
    
    
    0.9Total
    
    $
    59.3
    
    
    $
    261.8
    
    
    $
    359.1
    
    
    $
    266.7
    
    
    $
    28.7
    
    
    $
    975.6
    
    
    
    15.5
    %% of investment
portfolio
    
    
    0.9
    %
    
    
    4.2
    %
    
    
    5.7
    %
    
    
    4.2
    %
    
    
    0.5
    %
    
    
    15.5
    %
 83




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##### Table of Contents



Alt-A Portfolio in Securitization Structures as at December 31, 2007VintageYearsEnded
    
    
    
    
    
    
    Six
    
    
    SixDecember
    
    
    Year
    
    
    Months
    
    
    Months
    
    
    Year31, 1997 to
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    Ended
    
    
    
    
    
    
    % of(U.S. dollars in millions)
    
    December
    
    
    December
    
    
    June
    
    
    December
    
    
    December
    
    
    
    
    
    
    InvestmentRating
    
    31, 2004
    
    
    31, 2005
    
    
    30, 2006
    
    
    31, 2006
    
    
    31, 2007
    
    
    Total
    
    
    PortfolioAAA
    
    $
    
    
    
    $
    40.1
    
    
    $
    5.8
    
    
    $
    21.7
    
    
    $
    
    
    
    $
    67.6
    
    
    
    1.1
    %AA
    
    
    19.7
    
    
    
    54.7
    
    
    
    240.4
    
    
    
    206.1
    
    
    
    
    
    
    
    520.9
    
    
    
    8.3A+
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20.9
    
    
    
    
    
    
    
    20.9
    
    
    
    0.3A
    
    
    6.0
    
    
    
    
    
    
    
    5.5
    
    
    
    8.2
    
    
    
    
    
    
    
    19.7
    
    
    
    0.3A-
    
    
    
    
    
    
    
    
    
    
    0.7
    
    
    
    6.7
    
    
    
    
    
    
    
    7.4
    
    
    
    0.1BBB+ and lower
    
    
    
    
    
    
    
    
    
    
    7.3
    
    
    
    8.5
    
    
    
    
    
    
    
    15.8
    
    
    
    0.3Total
    
    $
    25.7
    
    
    $
    94.8
    
    
    $
    259.7
    
    
    $
    272.1
    
    
    $
    
    
    
    $
    652.3
    
    
    
    10.4
    %% of investment
portfolio
    
    
    0.5
    %
    
    
    1.5
    %
    
    
    4.1
    %
    
    
    4.3
    %
    
    
    0.0
    %
    
    
    10.4
    %
 Liquidity and Capital Resources
 Liquidity
 The Holding Company
     
    
    On March 11, 2008, the $50.0 million previously drawn from Stingray to provide
collateral for SRUS was no longer needed for that purpose and was returned to Stingray.
As a result, on March 11, 2008, $325.0 million of Stingray was un-utilized,
representing a $50.0 million increase to available liquidity. On
March 12, 2008, a $275.0 million funding agreement was put to the
facility. On April 14, 2008, an additional
funding agreement of $50.0 million was put to the facility thus fully utilizing this facility.
    
    On March 12, 2008, a $211.0 million capital contribution was made to SRUS due to an
increase in its statutory reserve requirements as a result of asset adequacy testing.
This is previously described in Business Overview of Part I, Item 1 above.
    
    The HSBC II collateral finance facility requires us to fund any estimated fair value
decline in the assets supporting the Regulation XXX reserves for the underlying
business. Estimated fair values
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##### Table of Contents



in the facility declined by $33.0 million between December 2007 and March 2008
resulting in a corresponding reduction to available liquidity in the first quarter
of 2008.
   
    
    Estimated fair values in the HSBC II collateral finance facility declined by a
further $57.2 million between March 2008 and April 2008 resulting in a corresponding
reduction to available liquidity in the second quarter of 2008.
    
    Our statutory capital position and our ability to continue to take reserve credit
have been further reduced as a result of declines in the fair values of sub-prime and
Alt-A securities within Orkney Re II. In order to maintain reserve credit in SRUS, we
expect approximately $15.0 million in available liquidity will be used to supplement
assets inside Orkney Re II.
    
    We utilized approximately $28.5 million in available liquidity resources to
facilitate the ING and Ballantyne Re Reinsurance Transaction effective March 31, 2008
described in Part I Business Overview.
    
    Prior to the completion of the sale of our Wealth Management business, cash
dividends totaling $14.2 million were received from the three associated regulated
entities (The Scottish Annuity Company (Cayman) Ltd, Scottish Annuity & Life Insurance
Company (Bermuda) Ltd and Scottish Annuity & Life International Insurance Company
(Bermuda) Ltd.). This resulted in a corresponding increase to available liquidity.
    
    On June 30, 2008, we agreed to post $22 million in additional collateral to each of
our Clearwater Re and HSBC II collateral finance facilities resulting in an aggregate
$44 million reduction to our available liquidity as part of the Forbearance Agreements
executed with the counterparties to these facilities which are described in more detail
in Managements Discussion and Analysis of Financial Condition and Results of
OperationsLiquidity and Capital ResourcesForbearance Agreements with Counterparties.
   
    
    As described in Part I Business Overview above, we are currently in breach of two
covenants under the Clearwater Re facility for failure to deliver our financial
statements for the period ended March 31, 2008 within the prescribed deadline. An
event of default gives the counterparty banks the ability to accelerate the transaction
and request repayment of any amounts currently being used under the facility. As of
May 31, 2008, the amount we would have to pay the Clearwater Re banks is $365.9
million.
    
    We also believe that after taking into account the impairments on our investment
portfolio, we would have been in breach of a minimum net worth covenant under HSBC II.
In the event of a breach, HSBC may either (a) accelerate the transaction and require
SALIC to purchase
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##### Table of Contents



outstanding certificates from HSBC equal to the outstanding notional amount less
collateral totaling $523.3 million, as of May 31, 2008 or (b) request additional
collateral.
   
    
    On March 12, 2009, we have an obligation to repay $100.0 million as part of an
unsecured funding agreement with the Premium Asset Trust that matures on that date.
SALIC entered into this agreement (Premium Asset Trust Series 2004-4) on March 12, 2004
and has been paying interest at a rate of three-month LIBOR plus 0.922% payable on a
quarterly basis. The amount due under this funding agreement is included under interest
sensitive contract liabilities on the consolidated balance sheet.
    
    Our three securitizations (Orkney I, Orkney Re II and Ballantyne Re  See Note 7,
Collateral Finance Facilities and Securitization Structures in the Notes to Consolidated Financial
Statements) provide reserve credit to our operating subsidiaries for reinsured
Regulation XXX business. Due to declines in the fair value of assets, particularly
those investments classified as sub-prime and Alt-A residential mortgage-backed
securities, the structures may not be able to provide full reserve credit equal to the
statutory reserves associated with each underlying block of business. If the value of
assets in the reinsurance trust falls below the statutory reserve requirements, either
due to estimated fair value decreases or unfunded reserve increases, then we may have
to provide liquidity to the operating subsidiaries or pledge additional assets to the
extent of the deficiency in order to secure full reserve credit. Statutory reserves
associated with level term life insurance (subject to Regulation XXX) tend to increase
during the initial years of the policies, until the peak reserve requirement is met,
and then decrease gradually over many years, although the specific composition of the
underlying policies and the lapse rates, among other things, will greatly impact the
future reserve requirement. The following tables illustrate for each securitization the
extent to which the fair value of assets is sufficient to meet current statutory
reserve requirements.
 As at December 31, 2007(U.S. dollars in millions)
    
    Orkney I
    
    
    Orkney Re II
    
    
    Ballantyne ReAssets  Sub-prime + Alt-A
    
    $
    399.0
    
    
    $
    258.3
    
    
    $
    970.7Assets  Other
    
    
    882.3
    
    
    
    238.5
    
    
    
    1,121.2Total fair
value of assets
    
    
    1,281.3
    
    
    
    496.8
    
    
    
    2,091.9Statutory reserves
    
    
    (980.9
    )
    
    
    (386.9
    )
    
    
    (1,849.6
    )Excess of assets over reserves
    
    $
    300.4
    
    
    $
    109.9
    
    
    $
    242.3
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##### Table of Contents



As at March 31, 2008(U.S. dollars in millions)
    
    Orkney I
    
    
    Orkney Re II
    
    
    Ballantyne ReAssets  Sub-prime + Alt-A
    
    $
    331.7
    
    
    $
    176.4
    
    
    $
    557.4Assets  Other
    
    
    887.4
    
    
    
    238.6
    
    
    
    1,127.9Total fair
value of assets
    
    
    1,219.1
    
    
    
    415.0
    
    
    
    1,685.3Statutory reserves
    
    
    (1,004.3
    )
    
    
    (405.3
    )
    
    
    (1,353.1
    )Excess of
assets over reserves
    
    $
    214.8
    
    
    $
    9.7
    
    
    $
    332.2
 As at December 31, 2006(U.S. dollars in millions)
    
    Orkney I
    
    
    Orkney Re II
    
    
    Ballantyne ReAssets  Sub-prime + Alt-A
    
    $
    494.9
    
    
    $
    376.8
    
    
    $
    1,489.1Assets  Other
    
    
    802.4
    
    
    
    206.6
    
    
    
    1,104.3Total fair
value of assets
    
    
    1,297.3
    
    
    
    583.4
    
    
    
    2,593.4Statutory reserves
    
    
    (885.3
    )
    
    
    (326.2
    )
    
    
    (1,853.5
    )Excess of
assets over reserves
    
    $
    412.0
    
    
    $
    257.2
    
    
    $
    739.9
 
    
    On May 9, 2008, we executed amendments to certain transaction documents for Orkney
Re II to provide greater flexibility in dealing with additional near and long term
estimated fair value declines in the sub-prime and Alt-A securities held by Orkney Re
II. The amendments eliminate certain priority of payment limitations and provide us
with the ability to efficiently and economically recapture business from Orkney Re II.
Without these amendments, it was expected that a default would have occurred under the
Indenture on May 12, 2008. The table above as at March 31, 2008 includes the impact of
the amendments. Notwithstanding these efforts, there continues to be significant
exposure to further declines in the fair value of asset, which may have a negative
impact on liquidity.
    
    For Ballantyne Re, on March 31, 2008, we entered into an LOI with ING which allows
us to recapture up to $375.0 million of excess statutory reserves from Ballantyne Re
and requires ING to post letters of credit to support the related statutory reserve
strain. On May 6, 2008, we completed this transaction and recaptured approximately 30%
of the business in Ballantyne Re, effective as of March 31, 2008. This business was in
turn recaptured by ING and ultimately ceded to SRD, utilizing the entire amount of the
$375.0 million of letters of credit made available by ING. The LOI also required the
parties to effect an assignment of the entire Ballantyne Re structure from SRUS to
ING. The assignment to ING of SRUSs interest in the Ballantyne Re structure would
permanently remove SRUSs exposure to the uncertainty of continued asset value
fluctuations within Ballantyne Re. Accordingly, on June 30, 2008, we executed a
binding letter of intent with ING to effect this novation and assignment transaction.
In addition, on June 30, 2008, we and ING executed a binding letter of intent whereby
we have the ability to recapture a portion of the Ballantyne Re business if, prior to
completion of the assignment agreement, we deemed it necessary to conduct another
recapture in order to allow SRUS to obtain full statutory reserve credit. We expect to
execute this recapture and complete the assignment agreement during the third quarter
of 2008. If certain conditions related to the ING Ballantyne Re Reinsurance Transaction
effective March 31, 2008 are not satisfied by December 31, 2008, the LOC Fee will be
stepped up and we will pay a $10 million commitment fee for use of the facility. These
transactions are described in more detail in Managements Discussion and Analysis of
Financial Condition and Results of OperationsLiquidity and Capital ResourcesRecapture
and Assignment Agreements with Counterparties.
    
    On December 22, 2005, we entered into the Reinsurance Facility with a third-party
Bermuda-domiciled reinsurer that provides up to $1.0 billion of collateral support for
a portion of the business acquired from ING and subject to Regulation XXX reserve
requirements. The Bermuda reinsurer provides reserve credit in the form of letters of
credit or assets in trust equal to the
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statutory reserves. As at December 31, 2007, $904.6 million (2006  $884.9 million)
of collateral support was being provided. To the extent that statutory reserve
requirements for this business exceed $1.0 billion, the excess will have to be
funded through corporate liquidity. Currently we anticipate reserve requirements
exceeding the Reinsurance Facility capacity in the fourth quarter of 2009.
  
    
    As highlighted in Part I Business Overview above, we recently entered into
definitive agreements for the sale of our Life Reinsurance International Segment and
Wealth Management business for cash, the proceeds of which will benefit our short term
liquidity position. We currently expect to complete the sale of these businesses in
the third quarter of 2008 and, subject to various closing conditions, we anticipate the
net proceeds to increase available liquidity by over $70 million in the third quarter
of 2008.
    
    As highlighted in Part 1 Business Overview, we have ceased writing new reinsurance
treaties and have notified our existing clients that we will not be accepting any new
reinsurance risks under existing treaties.
    
    As highlighted in Part 1 Business Overview, given our financial condition and the
forbearance agreements reached with the relevant counterparties to the Clearwater Re
and HSBC II collateral finance facilities, we suspended the payment of dividends on our
perpetual preferred shares effective for the April 15, July 15, and October 15, 2008
declaration dates.
    
    We are reducing our cost structure consistent with our change in strategy. In March
of 2008, we executed a reduction in force including 26 employees, covering both
Corporate and Life Reinsurance North America Segment employees.We expect this
reduction in force to lower our annual personnel expenses by approximately $5.0
million.
  Forbearance Agreements with
Counterparties
 Clearwater Re
   88




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##### Table of Contents



89




---



##### Table of Contents



HSBC II
      Recapture and Assignment Agreements with Counterparties
   June 30 LOI
  90




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##### Table of Contents



Assignment Letter of Intent
      91




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##### Table of Contents



Cash flow
    Collateral
  
    
    When SALIC, SRD or Scottish Re Limited enter into a reinsurance treaty with a U.S.
customer, they must contribute assets into a qualifying reserve credit trust and/or
provide a letter of credit to enable the U.S. ceding company to obtain a reserve credit
for the reinsurance transaction since these companies are not licensed or accredited
U.S. reinsurers.
    
    When SRUS enters into a reinsurance transaction, it typically incurs a need for
additional statutory capital to cover strain from acquisition costs and increases in
required risk-based capital. To the degree its own surplus is not sufficient to meet
this need, we can make an additional capital contribution into SRUS, or SRUS can cede a
portion of the transaction to another company within the group or an unrelated
reinsurance company. If that reinsurer is not a licensed or accredited U.S. reinsurer,
it must contribute assets to a qualifying reserve credit trust and/or provide a letter
of credit in order for SRUS to obtain reserve credit. SRUS has ceded significant
amounts of business to SRD, relieving SALIC of the need to contribute substantial
amounts of capital to SRUS. In connection with such cessions by SRUS to SRD, SRD must
contribute eligible assets to qualifying reserve credit trusts and/or provide letters
of credit in order for SRUS to obtain reserve credit.
    
    U.S. customers of SRUS and SRLC are able to receive reserve credit from SRUS and
SRLC by virtue of their licenses and authorizations to write reinsurance throughout the
United States and, as a result, they generally are not required to provide collateral
to such U.S. customers. However, SRUS may agree reserving certain circumstances to
provide a reserve credit trust, security trust, or letter of credit to mitigate the
counter-party risk from the customers perspective, thereby enabling transactions that
otherwise would be unavailable or would be available only on significantly less
attractive terms.
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##### Table of Contents



ING Collateral Arrangement
   Collateral Summary
  Long-term Debt
  Funding Agreements
 Stingray
    93




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##### Table of Contents



Premium Asset Trust Series 2004-4
  Credit Facilities
     Tartan
    Capital
  94




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As of
    
    
    As of(U.S. dollars in thousands)
    
    December 31, 2007
    
    
    December 31, 2006Shareholders equity
    
    $
    346,727
    
    
    $
    1,057,192Mezzanine equity
    
    
    555,857
    
    
    
    143,665Long-term debt
    
    
    129,500
    
    
    
    129,500Total capitalization
    
    $
    1,032,084
    
    
    $
    1,330,357
    As of
    
    
    As ofDecember 31,
    
    
    December 31,(U.S.
dollars in millions)
    
    2007
    
    
    2006Invested assets within securitization portfolios
    
    $
    3,870.0
    
    
    $
    4,474.1Statutory reserves
    
    
    (3,217.4
    )
    
    
    (3,065.0
    )Amount of invested assets that exceed statutory
reserves within securitization portfolios
    
    $
    652.6
    
    
    $
    1,409.1
   95




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Prepaid Variable Share Forward Contract
     Shareholder Dividends
    96




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##### Table of Contents



Regulatory Capital Requirements
      Contractual Obligations and Commitments
  Payments
Due by PeriodsLess Than 1
    
    
    1-3
    
    
    4-5
    
    
    More Than 5(U.S. dollars in thousands)
    
    Year
    
    
    Years
    
    
    Years
    
    
    Years
    
    
    TotalLong term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    129,500
    
    
    $
    129,500Operating leases
    
    
    4,691
    
    
    
    8,265
    
    
    
    8,323
    
    
    
    13,783
    
    
    
    35,062Funding agreements
    
    
    320
    
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    100,320Collateral
financing facility
liabilities
    
    
    3,130,379
    
    
    
    850,000
    
    
    
    
    
    
    
    
    
    
    
    3,980,379Interest sensitive
contract
liabilities
    
    
    400,407
    
    
    
    622,182
    
    
    
    569,935
    
    
    
    1,546,987
    
    
    
    3,139,511Reserve for future
policy benefits
    
    
    779,754
    
    
    
    337,684
    
    
    
    460,193
    
    
    
    2,841,443
    
    
    
    4,419,074$
    4,315,551
    
    
    $
    1,918,131
    
    
    $
    1,038,451
    
    
    $
    4,531,713
    
    
    $
    11,803,846
  97




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Off Balance Sheet Arrangements
  New Accounting Pronouncements
 FASB Statement No. 157, Fair Value Measurements
  98




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FASB Statement No. 159, Fair Value Option for Financial Assets and Financial Liabilities
  Adoption of FIN 48
  Item 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Interest Rate Risk
  99




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##### Table of Contents



(U.S. dollars in millions,
    
    Expected Maturity Dateexcept percentages)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total FairTotal
    
    2009
    
    2010
    
    2011
    
    2012
    
    2013
    
    Thereafter
    
    Total
    
    ValuePrincipal
amount
    
    $
    2,147
    
    
    $
    1,443
    
    
    $
    2,042
    
    
    $
    612
    
    
    $
    444
    
    
    $
    3,113
    
    
    $
    9,801
    
    
    $
    8,411Book value
    
    $
    1,496
    
    
    $
    1,252
    
    
    $
    1,505
    
    
    $
    571
    
    
    $
    440
    
    
    $
    3,108
    
    
    $
    8,372Weighted
average book
yield
    
    
    4.39
    %
    
    
    4.52
    %
    
    
    4.43
    %
    
    
    4.98
    %
    
    
    5.08
    %
    
    
    5.57
    %
    
    
    4.93
    %
 (U.S. dollars in millions,
    
    Expected Maturity Dateexcept percentages)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total FairFixed Rate Only
    
    2009
    
    2010
    
    2011
    
    2012
    
    2013
    
    Thereafter
    
    Total
    
    ValuePrincipal
amount
    
    $
    1,718
    
    
    $
    413
    
    
    $
    398
    
    
    $
    351
    
    
    $
    311
    
    
    $
    2,867
    
    
    $
    6,058
    
    
    $
    5,506Book value
    
    $
    1,106
    
    
    $
    419
    
    
    $
    402
    
    
    $
    360
    
    
    $
    309
    
    
    $
    2,872
    
    
    $
    5,468Weighted
average book
yield
    
    
    4.36
    %
    
    
    5.01
    %
    
    
    5.07
    %
    
    
    5.23
    %
    
    
    5.37
    %
    
    
    5.64
    %
    
    
    5.25
    %
 (U.S. dollars in millions,
    
    Expected Maturity Dateexcept percentages)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total FairFloating Rate Only
    
    2009
    
    2010
    
    2011
    
    2012
    
    2013
    
    Thereafter
    
    Total
    
    ValuePrincipal
amount
    
    $
    429
    
    
    $
    1,030
    
    
    $
    1,644
    
    
    $
    261
    
    
    $
    133
    
    
    $
    246
    
    
    $
    3,743
    
    
    $
    2,905Book value
    
    $
    390
    
    
    $
    833
    
    
    $
    1,103
    
    
    $
    211
    
    
    $
    131
    
    
    $
    236
    
    
    $
    2,904Weighted
average book
yield
    
    
    4.48
    %
    
    
    4.27
    %
    
    
    4.20
    %
    
    
    4.56
    %
    
    
    4.39
    %
    
    
    4.73
    %
    
    
    4.34
    %
 Credit Risk
  100




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
    
    actual and anticipated deterioration in the creditworthiness of an issue, as may be
reflected in downgrades in its ratings, tend to reduce its estimated fair value;
    
    our managers might react to the actual or expected deterioration and/or downgrade of
an issuer by selling some or all of our positions, realizing a loss (or a profit
smaller than would have been realized if the deterioration or downgrade had not
occurred); and
    
    the issuer may go into default, ultimately causing us to realize a loss.
    Foreign Currency Risk
   101




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Item 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  102




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Item 9A: CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
     Managements Report on Internal Control Over Financial Reporting
   Internal Control
- Integrated Framework
  103




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Internal Control  Integrated
Framework
  Remediation
of Material Weaknesses in Internal Control Over Financial Reporting
 Continuing Remediation
   1.
    
    Hired additional experienced, senior financial personnel to provide improved oversight
of the Companys accounting activities. Specifically, the Company hired a new Chief
Financial Officer, effective November 12, 2007 and a Group Controller, effective January 1,
2008;2.
    
    During the fourth quarter of 2007, improved the governance process over the Companys
investment activities, including the formation within the Company of a Group Investment
Committee separate from the Investment Committee of the Board; and3.
    
    During the fourth quarter of 2007 and continuing through the
first and second quarters of 2008, we
have been amending and enhancing our procedures, processes and related controls within our
investment accounting function. In addition, in response to our determination in the
second quarter of 2008 that we had a material weakness related to our accounting for
impairments, we are continuing to amend and enhance our process for analyzing and
concluding on other-than-temporary impairments for our investment securities.
 Completed Remediation
  104




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Changes
in Internal Control Over Financial Reporting
  Report
of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
 The
Board of Directors and Shareholders of Scottish Re Group Limited
       105




---



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NYSE CEO Certification
  Item 9B: OTHER INFORMATION
  106




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PART
III
 
 Item 10: DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  Current Board Members
 Current TermName and Director Class
    
    Age
    
    Position
    
    ExpiresClass IJonathan Bloomer(4)
    
    
    54
    
    
    Director
    
    
    2008Thomas Finke(4)
    
    
    44
    
    
    Director
    
    
    2008Robert Joyal(1)(3)(4)
    
    
    63
    
    
    Director
    
    
    2008Jeffrey Hughes(2)
    
    
    67
    
    
    Director
    
    
    2008Class IIGeorge Zippel
    
    
    49
    
    
    Director
    
    
    2008Raymond Wechsler(2)
    
    
    63
    
    
    Director
    
    
    2010James Chapman(1)(3)
    
    
    46
    
    
    Director
    
    
    2009Larry Port(2)(3)
    
    
    57
    
    
    Director
    
    
    2009Class IIISeth Gardner
    
    
    40
    
    
    Director
    
    
    2010James Butler(1)
    
    
    57
    
    
    Director
    
    
    2010Michael Rollings
    
    
    44
    
    
    Director
    
    
    2010
 
 (1)
    
    Member of the Audit Committee.(2)
    
    Member of the Compensation Committee.(3)
    
    Member of the Corporate Governance Committee.(4)
    
    Member of the Investments Committee. Jonathan
Bloomer
 Thomas Finke
 Robert Joyal
 107




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Jeffrey Hughes
 George Zippel
 Seth Gardner
 Raymond Wechsler
 James Chapman
 Larry Port
 108




---



##### Table of Contents



James Butler
 Michael Rollings
 Audit Committee
  Executive Officers
  Name
    
    Age
    
    PositionGeorge Zippel
    
    
    49
    
    
    President, Chief Executive OfficerTerry Eleftheriou
    
    
    48
    
    
    Executive Vice President, Chief Financial OfficerPaul Goldean
    
    
    42
    
    
    Executive Vice President, Chief Administrative OfficerDan Roth
    
    
    35
    
    
    Executive Vice President, Chief Restructuring OfficerJeffrey Delle Fave
    
    
    42
    
    
    Executive Vice President, Corporate TaxMichael Baumstein
    
    
    37
    
    
    Executive Vice President, Investments and Capital MarketsChris Shanahan
    
    
    37
    
    
    Executive Vice President, Interim Chief Executive Officer, Scottish Re (U.S.), Inc.David Howell
    
    
    40
    
    
    Chief Executive Officer, Scottish Re Holdings LimitedMeredith Ratajczak
    
    
    49
    
    
    Executive Vice President, Chief
Actuary, Life Reinsurance North America Segment; Interim Chief Financial Officer, North AmericaSamir Shah
    
    
    45
    
    
    Executive Vice President, Chief Risk Officer
  Terry Eleftheriou
 109




---



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Paul Goldean
 Dan Roth
 Jeffrey Delle Fave
 Michael Baumstein
 Chris Shanahan
 David Howell
 Meredith Ratajczak
 110




---



##### Table of Contents



Samir Shah
 Section 16(a) Beneficial Ownership Reporting Compliance
  Number ofNumber of Late
    
    Transactions NotName
    
    Reports
    

Timely
ReportedRobert Joyal
    
    
    1
    
    
    
    17Lehman Brothers Holdings Inc.
    
    
    2
    
    
    
    23George Zippel
    
    
    3
    
    
    
    3
 Code of Ethics
  
 Item 11: EXECUTIVE COMPENSATION
 COMPENSATION DISCUSSION AND ANALYSIS
 Overview and Objectives
   111




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
    
    Attract, retain and motivate the key people necessary to assist us through and
beyond the 2007 New Capital Transaction period;
    
    Provide a direct link between pay and performance;
    
    Allocate a larger percentage of executive compensation to pay that is conditional or
contingent in order to positively influence behavior and support accountability;
    
    Offer total compensation opportunities that are competitive with external markets in
design and pay level; and
    
    Emphasize the need to focus on shareholder value, in addition to providing
competitive value to our customers.
  
    
    Pursue dispositions of our non-core assets or lines of business, including the Life
Reinsurance International Segment and the Wealth Management business;
    
    Develop, through strategic alliances or other means, opportunities to maximize the
value of our core competitive capabilities within the Life Reinsurance North America
Segment, including mortality assessment and treaty administration; and
    
    Rationalize our cost structure to preserve capital and liquidity.
  Components
  Base Salaries and Bonuses
  112




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##### Table of Contents



Total CompanyPerformance
    
    Segment Performance
    
    Individual PerformanceSegment
    
    Weighting
    
    Weighting
    
    RatingLife Reinsurance North America
    
    
    91.4
    %
    
    
    117.5
    %
    
    1  0% through  5  140%Life Reinsurance International
    
    
    91.4
    %
    
    
    100.0
    %
    
    1  0% through  5  140%Corporate and Other
    
    
    91.4
    %
    
    
    100.0
    %
    
    1  0% through  5  140%
   113




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Long Term Incentives
   Total Company
    
    SegmentPerformance
    
    PerformanceSegment
    
    Weighting
    
    Weighting
    
    Overall WeightingLife Reinsurance North America
    
    
    25
    %
    
    
    66.6
    %
    
    
    45.7
    %Life Reinsurance International
    
    
    25
    %
    
    
    33.3
    %
    
    
    29.2
    %Corporate and Other
    
    
    25
    %
    
    
    0
    %
    
    
    12.5
    %
  114




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Retirement Benefits
  Executive Benefit Programs and Perquisites
  115




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SUMMARY COMPENSATION TABLE
 (1)
 Stock
    
    Option
    
    All OtherName and
    
    
    
    
    
    Salary
    
    Bonus
    
    Awards
    
    Awards
    
    CompensationPrincipal Position
    
    Year
    
    ($)
    
    ($)(2)
    
    ($)(3)
    
    ($)(4)
    
    ($)(5)
    
    TotalGeorge Zippel
President and
 Chief Executive Officer
    
    
    2007
    
    
    $
    363,462
    
    
    $
    781,000
    
    
    $
    
    
    
    $
    563,343
    (6)
    
    $
    161,637
    (7)
    
    $
    1,869,442Terry Eleftheriou Executive Vice
    
    
    2007
    
    
    $
    115,385
    
    
    $
    550,000
    
    
    $
    
    
    
    $
    268,851
    (6)
    
    $
    220,900
    (8)
    
    $
    1,155,136President and Chief Financial
OfficerMichael Baumstein
    
    
    2007
    
    
    $
    394,731
    
    
    $
    620,000
    
    
    $
    287,502
    
    
    $
    355,263
    (6)
    
    $
    115,594
    (9)
    
    $
    1,773,090Executive Vice President,
Investment and Capital MarketsJeffrey Delle Fave Executive
    
    
    2007
    
    
    $
    359,249
    
    
    $
    1,810,000
    
    
    $
    248,577
    
    
    $
    243,128
    (6)
    
    $
    251,464
    (10)
    
    $
    2,912,418Vice President, Corporate TaxPaul Goldean Chief
    
    
    2007
    
    
    $
    613,462
    
    
    $
    3,495,000
    
    
    $
    520,140
    
    
    $
    535,567
    (6)
    
    $
    314,759
    (11)
    
    $
    5,478,928Administrative Officer
    
    
    2006
    
    
    $
    488,077
    
    
    $
    
    
    
    $
    
    
    
    $
    103,251
    
    
    $
    111,423
    
    
    $
    702,751Duncan Hayward(12)
Chief Financial Officer Scottish
Re Holdings Limited
    
    
    2007
    
    
    $
    357,282
    
    
    $
    502,817
    
    
    $
    40,328
    
    
    $
    88,475
    (6)
    
    $
    32,580
    (13)
    
    $
    1,021,482David Howell(14)
    
    
    2007
    
    
    $
    545,848
    
    
    $
    677,210
    
    
    $
    393,692
    
    
    $
    542,739
    (6)
    
    $
    195,274
    (15)
    
    $
    2,354,763Chief Executive Officer 
Scottish
 Re Holdings Limited
    
    
    2006
    
    
    $
    432,527
    
    
    $
    
    
    
    $
    
    
    
    $
    193,240
    
    
    $
    196,436
    
    
    $
    822,203
 116




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##### Table of Contents



Stock
    
    Option
    
    All OtherName and
    
    
    
    
    
    Salary
    
    Bonus
    
    Awards
    
    Awards
    
    CompensationPrincipal Position
    
    Year
    
    ($)
    
    ($)(2)
    
    ($)(3)
    
    ($)(4)
    
    ($)(5)
    
    TotalHugh T. McCormick(16)
    
    
    2007
    
    
    $
    289,423
    
    
    $
    
    
    
    $
    540,731
    
    
    $
    329,875
    
    
    $
    2,710,214
    (17)
    
    $
    3,870,243Former Executive Vice President,

Corporate Development
    
    
    2006
    
    
    $
    500,000
    
    
    $
    300,000
    
    
    $
    
    
    
    $
    191,518
    
    
    $
    100,369
    
    
    $
    1,091,887Dean Miller (18)
    
    
    2007
    
    
    $
    250,094
    
    
    $
    
    
    
    $
    829,223
    
    
    $
    371,557
    
    
    $
    1,048,551
    (19)
    
    $
    2,499,425Former Executive Vice President
and
 Chief Financial Officer
    
    
    2006
    
    
    $
    469,615
    
    
    $
    200,000
    
    
    $
    
    
    
    $
    187,762
    
    
    $
    106,629
    
    
    $
    964,006Cliff Wagner (20)
    
    
    2007
    
    
    $
    409,645
    
    
    $
    200,000
    
    
    $
    383,336
    
    
    $
    52,757
    
    
    $
    4,351,765
    (21)
    
    $
    5,397,503Former President and Chief
Executive
 Officer  Scottish
Holdings, Inc.
    
    
    2006
    
    
    $
    440,192
    
    
    $
    
    
    
    $
    
    
    
    $
    43,617
    
    
    $
    204,302
    
    
    $
    688,111
 
 (1)
    
    For further information regarding the amounts listed for fiscal year 2006, refer to our 2007
Proxy Statement.(2)
    
    The following table shows the components of the Bonus payments for fiscal year 2007,
described further below: Employment
    
    
    
    
    
    SeniorAgreement
    
    Annual
    
    Executive
    
    TransactionName
    
    Bonus
    
    Incentive Bonus
    
    Success Plan
    
    BonusGeorge Zippel
    
    $
    
    
    
    $
    781,000
    (c)
    
    $
    
    
    
    $
    Terry Eleftheriou
    
    $
    100,000
    
    
    $
    450,000
    (c)
    
    $
    
    
    
    $
    Michael Baumstein
    
    $
    70,000
    
    
    $
    375,000
    
    
    $
    
    
    
    $
    175,000Jeffrey Delle Fave
    
    $
    1,485,000
    
    
    $
    325,000
    (c)
    
    $
    
    
    
    $
    Paul Goldean
    
    $
    2,745,000
    (e)
    
    $
    450,000
    
    
    $
    300,000
    
    
    $
    Duncan Hayward(a)
    
    $
    
    
    
    $
    329,138
    (d)
    
    $
    
    
    
    $
    173,679David Howell(b)
    
    $
    
    
    
    $
    481,046
    
    
    $
    196,164
    
    
    $
    Hugh T. McCormick
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Dean Miller
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Cliff Wagner
    
    $
    
    
    
    $
    
    
    
    $
    200,000
    
    
    $
    
 
 (a)
    
    Mr. Hayward received an annual incentive bonus in the amount of £102,845, plus a
discretionary bonus in the amount of £62,976, and a Transaction bonus in the amount of
£87,500, which have been converted into U.S. Dollars using a conversion rate of $1.9849 for
every 1£ which, according to Bloombergs, is the exchange rate as of December 31, 2007. 117




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##### Table of Contents



(b)
    
    Mr. Howell received an annual incentive bonus in the amount of £242,353 and a Senior
Executive Success Plan bonus in the amount of £98,828, which have been converted into U.S.
Dollars using a conversion rate of $1.9849 for every 1£ which, according to Bloombergs, is
the exchange rate as of December 31, 2007.(c)
    
    In lieu of the bonus amount calculated under the terms of the annual incentive program,
these Named Executive Officers received a guaranteed minimum bonus, pursuant to their
employment agreements.(d)
    
    In addition to the amount determined under the terms of the annual incentive bonus
program, this amount reflects a $125,000 discretionary bonus awarded by the Compensation
Committee in recognition of Mr. Haywards increased responsibilities and efforts during the
period that he served as our Chief Accounting Officer.(e)
    
    Mr. Goldeans signing bonus was paid in three equal installments pursuant to his
employment agreement, two-thirds was paid in 2007 and one-third was paid in March 2008. (3)
    
    Represents the compensation cost of outstanding stock awards for financial reporting purposes
for the year under SFAS 123 (R) without regard to forfeiture assumptions. For the amounts
listed in this column for fiscal year 2007, refer to Note 13 Employee Benefit Plans in the Notes to Consolidated Financial
Statements for further detail on Restricted Stock Awards. Upon the closing of the 2007 New
Capital Transaction on May 7, 2007, all restricted stock units and 50% of the performance
shares of the 2004 Equity Incentive Compensation Plan vested immediately. Under the terms of
this plan, the 2007 New Capital Transaction qualified as a change-in-control (as defined in
the plan) and, accordingly, previously unrecognized compensation expense was recognized. For
the amounts listed in this column for fiscal year 2006, refer to Note 13 Employee Benefit Plans in the Notes to Consolidated
Financial Statements included in our Annual Report on Form 10-K for the year ended December
31, 2006 for the assumptions made in the valuation of our stock awards and refer to note 1 to
the Management Compensation Table included in our 2007 Proxy Statement for an explanation of
how these values were determined.(4)
    
    Represents the compensation cost of outstanding option awards for financial reporting
purposes for the year under SFAS 123 (R) without regard to forfeiture assumptions. For the
amounts listed in this column for fiscal year 2007, refer to Note 13 Employee Benefit Plans in the Notes to Consolidated
Financial Statements for the assumptions made in the valuation of our stock options. Upon
closing the 2007 New Capital Transaction on May 7, 2007, all previously unrecognized
compensation expense associated with the pre-2007 New Capital Transaction stock-based
compensation plans was recognized immediately. For the amounts listed in this column for
fiscal year 2006, refer to Note 13 Employee Benefit Plans in the Notes to Consolidated Financial Statements included in our
Annual Report on Form 10-K for the year ended December 31, 2006 for the assumptions made in
the valuation of our stock options.(5)
    
    The aggregate incremental costs of the perquisites and personal benefits reflected in this
column for fiscal year 2007 are based on the amounts that we paid to third parties for such
items and services during the time that they were in use by the Named Executive Officers and,
where applicable, the actual reimbursement amount that we paid to the applicable Named
Executive Officer.(6)
    
    See note 4 in the Grant of Plan-Based Awards table for information regarding 2007 forfeitures
related to performance-based options.(7)
    
    Represents life, health and disability insurance expenses in the amount of $8,479, relocation
expenses in the amount of $42,132, housing expenses in the amount of $54,108, cost of purchase
of vehicles that will remain the property of the Company and related expenses in the amount of
$35,503 , utilities and telephone in the amount of $2,256, airfare expenses in the amount of
$7,967, transportation expenses in the amount of $896, club membership dues in the amount of
$296 for Mr. Zippel and attorneys fees related to the negotiation of Mr. Zippels employment
agreement in the amount of $10,000.(8)
    
    Represents 401(k) matching contributions in the amount of $8,654, life, health and disability
insurance expenses in the amount of $4,830, relocation expenses in the amount of $28,455, the
purchase of a club membership that is refundable to the Company in the amount of $95,000,
housing expenses in the amount of $53,866, transportation services in the amount of $1,616,
airfare expenses in the amount of $15,983, meals expenses in the amount of $444, miscellaneous
expenses in the amount of $297 and tax gross ups of $642 for relocation expenses for Mr.
Eleftheriou and attorneys fees related to the negotiation of Mr. Eleftherious employment
agreement in the amount of $11,113.(9)
    
    Represents 401(k) matching contributions in the amount of $15,500, contributions by us to Mr.
Baumsteins deferred compensation plan account in the amount of $62,524, life, health and
disability insurance expenses in the amount of $21,290, club membership dues in the amount of
$5,907 and attorneys fees related to the negotiation of Mr. Baumsteins employment agreement
in the amount of $10,373. 118




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##### Table of Contents



(10)
    
    Represents 401(k) matching contributions in the amount of $15,500, contributions by us to Mr.
Delle Faves deferred compensation plan account in the amount of $185,356, life, health and
disability insurance expenses in the amount of $33,193, club membership dues in the amount of
$5,820 and attorneys fees related to the negotiation of Mr. Delle Faves employment agreement
in the amount of $11,595.(11)
    
    Represents 401(k) matching contributions in the amount of $15,500, contributions by us to Mr.
Goldeans deferred compensation plan account in the amount of $258,846, life, health and
disability insurance expenses in the amount of $16,221, signature healthcare of $2,500 club
membership dues in the amount of $7,935 and attorneys fees related to the negotiation of Mr.
Goldeans employment agreement in the amount of $13,757.(12)
    
    Mr. Hayward served as Chief Accounting Officer of the Company from July 6, 2007 until
November 12, 2007. All amounts paid to Mr. Hayward were paid in British pounds. Such amounts
were converted to U.S. Dollars using a conversion rate of $1.9849 for every 1£ which,
according to Bloombergs, is the exchange rate as of December 31, 2007.(13)
    
    Represents group life insurance of $893 (£450) and contributions to Mr. Haywards U.K.
pension account (not managed by or on behalf of us) in the amount of $31,687 (£15,964).(14)
    
    All amounts paid to Mr. Howell were paid in British pounds sterling. The 2007 amounts were
converted to U.S. Dollars using a conversion rate of $1.9849 for every 1£ which, according to
Bloombergs, is the exchange rate as of December 31, 2007.(15)
    
    Represents executive medical insurance of $853 (£430), group life insurance of $893 (£450)
and contributions to Mr. Howells U.K. pension account (not managed by or on behalf of us) in
the amount of $193,528 (£97,500).(16)
    
    Mr. McCormicks employment with the Company terminated June 9, 2007.(17)
    
    Represents 401(k) matching contributions in the amount of $15,500, contributions by us to Mr.
McCormicks deferred compensation plan account in the amount of $26,587, life, health and
disability insurance expenses in the amount of $4,293, club membership dues in the amount of
$338 and a severance payment of $2,663,496.(18)
    
    Mr. Millers employment with the Company terminated May 19, 2007.(19)
    
    Represents 401(k) matching contributions in the amount of $15,500, contributions by us to Mr.
Millers deferred compensation plan account in the amount of $17,154 and life, health and
disability insurance expenses in the amount of $15,588, club membership dues in the amount of
$310 and a severance payment of $1,000,000.(20)
    
    Mr. Wagners employment with the Company terminated August 18, 2007.(21)
    
    Represents 401(k) matching contributions in the amount of $15,500, contributions by us to Mr.
Wagners deferred compensation plan account in the amount of $50,087, life, health and
disability insurance expenses in the amount of $18,926 and a severance payment of $2,915,686
and a tax gross-up on the severance payment of $1,351,566. 119




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##### Table of Contents



Grant of Plan-Based Awards for Fiscal Year 2007
  All Other
    
    All OtherStock
    
    OptionAwards:
    
    Awards:
    
    Exercise or
    
    Grant DateEstimated Future
Payouts Under
    
    Number of
    
    Number of
    
    Base Price
    
    Fair Value ofEquity Incentive Plan Awards
    
    Shares of
    
    Securities
    
    of Option
    
    Stock andGrant
    
    Approval
    
    Threshold
    
    Target
    
    Maximum
    
    Stock or
    
    Underlying
    
    Awards
    
    OptionsName
    
    Date
    
    Date
    
    (#)
    
    (#)
    
    (#)
    
    Units (#)
    
    Options (#)(2)
    
    ($/sh)(4)
    
    Awards($)(5)George Zippel
    
    
    7/18/2007
    
    
    
    7/18/2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    625,000
    
    
    $
    4.76
    
    
    $
    1,502,250George Zippel
    
    
    12/14/2007
    
    
    
    7/18/2007
    
    
    
    
    
    
    
    125,000
    (3)(i)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4.76
    
    
    $
    27,238George Zippel
    
    
    (1)
    
    
    
    7/18/2007
    
    
    
    
    
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4.76
    
    
    $
    
    (1)George Zippel
    
    
    11/12/2007
    
    
    
    11/2/2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    125,000
    
    
    $
    2.22
    
    
    $
    166,800George Zippel
    
    
    12/14/2007
    
    
    
    11/2/2007
    
    
    
    
    
    
    25,000 (3)(ii)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2.22
    
    
    $
    7,588George Zippel
    
    
    (1)
    
    
    
    11/2/2007
    
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2.22
    
    
    $
    
    (1)Terry Eleftheriou
    
    
    10/1/2007
    
    
    
    7/18/2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400,000
    
    
    $
    3.59
    
    
    $
    870,680Terry Eleftheriou
    
    
    12/14/2007
    
    
    
    7/18/2007
    
    
    
    
    
    
    80,000 (3)(iii)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3.59
    
    
    $
    19,920Terry Eleftheriou
    
    
    (1)
    
    
    
    7/18/2007
    
    
    
    
    
    
    
    320,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3.59
    
    
    $
    
    (1)Michael Baumstein
    
    
    7/18/2007
    
    
    
    7/18/2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112,500
    
    
    $
    4.76
    
    
    $
    325,148Michael Baumstein
    
    
    12/14/2007
    
    
    
    7/18/2007
    
    
    
    
    
    
    22,500 (3)(iv)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4.76
    
    
    $
    4,903Michael Baumstein
    
    
    (1)
    
    
    
    7/18/2007
    
    
    
    
    
    
    
    90,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4.76
    
    
    $
    
    (1)Jeffrey Delle Fave
    
    
    7/18/2007
    
    
    
    7/18/2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    112,500
    
    
    $
    4.76
    
    
    $
    325,148Jeffrey Delle Fave
    
    
    12/14/2007
    
    
    
    7/18/2007
    
    
    
    
    
    
    
    22,500
    (3)(v)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4.76
    
    
    $
    4,903Jeffrey Delle Fave
    
    
    (1)
    
    
    
    7/18/2007
    
    
    
    
    
    
    
    90,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4.76
    
    
    $
    
    (1)Paul Goldean
    
    
    7/18/2007
    
    
    
    7/18/2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    400,000
    
    
    $
    4.76
    
    
    $
    1,156,080Paul Goldean
    
    
    12/14/2007
    
    
    
    7/18/2007
    
    
    
    
    
    
    80,000 (3)(vi)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4.76
    
    
    $
    17,432Paul Goldean
    
    
    (1)
    
    
    
    7/18/2007
    
    
    
    
    
    
    
    320,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4.76
    
    
    $
    
    (1)Duncan Hayward
    
    
    7/18/2007
    
    
    
    7/18/2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,500
    
    
    $
    4.76
    
    
    $
    252,893Duncan Hayward
    
    
    12/14/2007
    
    
    
    7/18/2007
    
    
    
    
    
    
    17,500 (3)(vii)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4.76
    
    
    $
    3,813Duncan Hayward
    
    
    (1)
    
    
    
    7/18/2007
    
    
    
    
    
    
    
    70,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4.76
    
    
    $
    
    (1)David Howell
    
    
    7/18/2007
    
    
    
    7/18/2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    175,000
    
    
    $
    4.76
    
    
    $
    505,785David Howell
    
    
    12/14/2007
    
    
    
    7/18/2007
    
    
    
    
    
    
    35,000 (3)(viii)
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4.76
    
    
    $
    7,627David Howell
    
    
    (1)
    
    
    
    7/18/2007
    
    
    
    
    
    
    
    140,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4.76
    
    
    $
    
    (1)
 
 (1)
    
    Under SFAS 123 (R), a grant date has not yet been determined for those Performance Based
Options that vest on each of December 31, 2008, December 31, 2009, December 31, 2010 and
December 31, 2011 as until there is mutual understanding of the terms and conditions of the
options between both employer and employee a grant date and fair value cannot be determined.
Annual performance metrics will be set each year that will be applied to the performance based
options due to vest in that current year and once these metrics have been communicated to
eligible employees, a grant date and fair value will be determined.(2)
    
    These amounts represent the number of Time-Based Options awarded under the 2007 Plan. 120




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##### Table of Contents



(3)
    
    Options issued under the 2007 Plan vest, subject to full vesting and exercisability upon a
change in control of the Company, as follows: 
    
    50% of an option grant to an employee or consultant vests based on the recipients
continued employment with the Company (Time-Based Options). 20% of the Time-Based Options
vest on the grant date and an additional 20% vest in four equal installments on each of the
first, second, third and fourth anniversary of the grant date, based on continued
employment. The Time-Based Options are exercisable upon vesting.
    
    50% of an option grant to an employee or consultant vests based on the achievement of
certain performance targets as established by the Board with respect to each relevant fiscal
year (Performance-Based Options). 10% of the Performance-Based Options vest following the
close of each of the five fiscal years following the approval date, subject to the Companys
attainment of the performance targets established by the Board with respect to the relevant
fiscal year. In addition, 10% of the Performance-Based Options vest following the close of
each of the five fiscal years following the approval date, subject to the recipients
respective divisions or segments attainment of the performance targets established by the
Board with respect to the relevant fiscal year. Although the Performance-Based Options may
vest, they will not become exercisable until the end of the fifth fiscal year following May
7, 2007; provided, however, that if the Company achieves an A- rating or better from
Standard & Poors or AM Best within eighteen (18) months following the closing of the 2007
New Capital Transaction, all Performance-Based Options with regard to fiscal years 2007 and
2008 will fully vest and become exercisable.
  (i)
    
    This includes 109,375 Performance-Based Options that were forfeited at December 31,
2007 as 2007 Performance Targets were not fully attained.(ii)
    
    This includes 21,875 Performance-Based Options that were forfeited at December 31,
2007 as 2007 Performance Targets were not fully attained.(iii)
    
    This includes 70,000 Performance-Based Options that were forfeited at December 31,
2007 as 2007 Performance Targets were not fully attained.(iv)
    
    This includes 19,687 Performance-Based Options that were forfeited at December 31,
2007 as 2007 Performance Targets were not fully attained.(v)
    
    This includes 19,687 Performance-Based Options that were forfeited at December 31,
2007 as 2007 Performance Targets were not fully attained.(vi)
    
    This includes 70,000 Performance-Based Options that were forfeited at December 31,
2007 as 2007 Performance Targets were not fully attained.(vii)
    
    This includes 12,396 Performance-Based Options that were forfeited at December 31,
2007 as 2007 Performance Targets were not fully attained.(viii)
    
    This includes 24,792 Performance-Based Options that were forfeited at December 31, 2007
as 2007 Performance Targets were not fully attained.
 121




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##### Table of Contents



(4)
    
    The exercise price is 100% of the market value per share on the grant date. The market value
per share is the closing price of an ordinary share of our Company on the grant date on a
national securities exchange on which the ordinary shares are listed on the last trading day
for which a closing price was reported.(5)
    
    This amount reflects the grant date fair value in accordance with SFAS 123 (R). Refer to
Note 13 Employee Benefit Plans in the Notes to Consolidated Financial Statements for the assumptions made in the valuation of
our stock options.
 122




---



##### Table of Contents



Employment Agreement Material Terms
  George Zippel
 .
 Terry Eleftheriou
  Michael Baumstein
  123




---



##### Table of Contents



Jeffrey Delle Fave
  Paul Goldean
  Duncan Hayward
  David Howell
  124




---



##### Table of Contents



Bonus Arrangements
 Annual Incentive Bonuses
 Senior Executive Success Plan
 Transaction Bonuses
 Long Term Incentives
 The Scottish Re Group Limited 2007 Stock Option Plan
 125




---



##### Table of Contents



The 2004 Equity Incentive Compensation Plan
   126




---



##### Table of Contents



The 2001 Stock Option Plan
   1999 Stock Option Plan
   Harbourton Employee Options
 127




---



##### Table of Contents



Second Amended and Restated 1998 Stock Option Plan
    128




---



##### Table of Contents



Restricted Shares
 Total Value ofOrdinary SharesIssued on May 14,Total Restricted
    
    2007 Pursuant toShares Vesting on
    
    Restricted SharesOutstanding
    
    Change In
    
    Vesting UponRestricted Shares
    
    Control on May 7,
    
    Change in ControlName
    
    at May 7, 2007
    
    2007(1)
    
    on May 7, 2007(2)Michael Baumstein
    
    
    22,677
    
    
    
    14,173
    
    
    $
    69,589Jeffrey Delle Fave
    
    
    20,142
    
    
    
    12,588
    
    
    $
    61,807Paul Goldean
    
    
    40,348
    
    
    
    25,217
    
    
    $
    123,815Duncan Hayward
    
    
    10,000
    
    
    
    6,250
    
    
    $
    30,688David Howell
    
    
    30,212
    
    
    
    18,882
    
    
    $
    92,711Hugh McCormick
    
    
    50,679
    
    
    
    31,674
    
    
    $
    155,519Dean Miller
    
    
    73,000
    
    
    
    46,024
    
    
    $
    225,978Cliff Wagner
    
    
    30,236
    
    
    
    18,896
    
    
    $
    92,779
 
 (1)
    
    The Restricted Share grants were comprised of 25% time based restricted shares and 75%
performance based restricted shares. Upon a change in control on May 7, 2007, 100% of the
time based restricted shares vested and 50% of the performance based restricted shares vested
along with accrued dividends. This was approved by the Compensation Committee(2)
    
    Market value based on a closing per share price of $4.91 at the close of the market on May
14, 2007, the date the ordinary shares were released to the Named Executive Officers. Stock Options
 Options Exercisable forOrdinary Shares UponChange in Control at May
    
    Weighted Average
    
    Total Value of CashName
    
    7, 2007 (No. of Shares)
    
    Exercise Price
    

Options Released(1)Michael Baumstein
    
    
    38,000
    
    
    $
    23.48
    
    
    $
    Jeffrey Delle Fave
    
    
    20,000
    
    
    $
    24.21
    
    
    $
    Paul Goldean
    
    
    55,000
    
    
    $
    20.20
    
    
    $
    Duncan Hayward
    
    
    
    
    
    $
    
    
    
    $
    David Howell
    
    
    50,000
    
    
    $
    24.89
    
    
    $
    Hugh McCormick
    
    
    60,000
    
    
    $
    25.45
    
    
    $
    Dean Miller
    
    
    50,000
    
    
    $
    25.35
    
    
    $
    Cliff Wagner
    
    
    35,000
    
    
    $
    18.37
    
    
    $
    
 
 (1)
    
    Assumes a market value based on a closing per share price of $4.66 on May 7, 2007, the date
the change in control occurred and the stock option vesting accelerated. Outstanding Equity Awards at 2007 Fiscal Year-End
  129




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##### Table of Contents



Equity IncentivePlan Awards:Number of
    
    Number of
    
    Number ofSecurities
    
    Securities
    
    SecuritiesUnderlying
    
    Underlying
    
    UnderlyingUnexercised
    
    Unexercised
    
    Unexercised
    
    Option
    
    OptionApproval
    
    Options (#)
    
    Options (#)
    
    Unearned
    
    Exercise
    
    ExpirationName
    
    Date
    
    Exercisable(1)
    
    Unexercisable
    
    Options
    
    Price($)(2)
    
    DateGeorge Zippel
    
    
    7/18/2007
    
    
    
    125,000
    
    
    
    515,625
    (4)
    
    
    500,000
    (7)
    
    $
    4.76
    
    
    
    7/18/2017George Zippel
    
    
    11/12/2007
    
    
    
    25,000
    
    
    
    103,125
    (5)
    
    
    100,000
    (7)
    
    $
    2.22
    
    
    
    11/12/2017Terry Eleftheriou
    
    
    10/1/2007
    
    
    
    80,000
    
    
    
    330,000
    (6)
    
    
    320,000
    (7)
    
    $
    3.59
    
    
    
    10/1/2017Michael Baumstein
    
    
    5/5/2004
    (3)
    
    
    18,000
    
    
    
    
    
    
    
    
    
    
    $
    21.70
    
    
    
    5/5/2014Michael Baumstein
    
    
    2/17/2005
    (3)
    
    
    5,000
    
    
    
    
    
    
    
    
    
    
    $
    26.10
    
    
    
    2/16/2015Michael Baumstein
    
    
    2/16/2006
    (3)
    
    
    15,000
    
    
    
    
    
    
    
    
    
    
    $
    24.75
    
    
    
    2/15/2016Michael Baumstein
    
    
    7/18/2007
    
    
    
    22,500
    
    
    
    92,813
    (4)
    
    
    90,000
    (7)
    
    $
    4.76
    
    
    
    7/18/2017Jeffrey Delle Fave
    
    
    9/1/2005
    (3)
    
    
    20,000
    
    
    
    
    
    
    
    
    
    
    $
    24.21
    
    
    
    9/1/2015Jeffrey Delle Fave
    
    
    7/18/2007
    
    
    
    22,500
    
    
    
    92,813
    (4)
    
    
    90,000
    (7)
    
    $
    4.76
    
    
    
    7/18/2017Paul Goldean
    
    
    2/11/2002
    (3)
    
    
    35,000
    
    
    
    
    
    
    
    
    
    
    $
    17.30
    
    
    
    2/11/2012Paul Goldean
    
    
    2/18/2005
    (3)
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    $
    25.82
    
    
    
    2/18/2015Paul Goldean
    
    
    2/16/2006
    (3)
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    $
    24.75
    
    
    
    2/16/2016Paul Goldean
    
    
    7/18/2007
    
    
    
    80,000
    
    
    
    330,000
    (4)
    
    
    320,000
    (7)
    
    $
    4.76
    
    
    
    7/18/2017Duncan Hayward
    
    
    7/18/2007
    
    
    
    17,500
    
    
    
    75,104
    (4)
    
    
    70,000
    (7)
    
    $
    4.76
    
    
    
    7/18/2017David Howell
    
    
    11/1/2005
    (3)
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    $
    24.89
    
    
    
    11/1/2015David Howell
    
    
    7/18/2007
    
    
    
    35,000
    
    
    
    150,208
    (4)
    
    
    140,000
    (7)
    
    $
    4.76
    
    
    
    7/8/2017
 
 (1)
    
    This represents the 20% of the Time-Based Options that vested immediately upon grant.(2)
    
    The exercise price is 100% of the market value per share on the grant date. The market value
per share is the closing price of an ordinary share of our Company on the grant date on a
national securities exchange on which the ordinary shares are listed on the last trading day
for which a closing price was reported.(3)
    
    Upon a change in control on May 7, 2007, all stock options under the 2004 Equity Incentive
Compensation Plan, 2001 Stock Option Plan, 1999 Stock Option Plan, Harbourton Employee Options
and Second Amended and Restated 1998 Stock Option Plan vested.(4)
    
    This represents the unvested portion of the Time-Based Options (20% of which will vest on
each of July 18, 2008, July 18, 2009, July 18, 2010 and July 18, 2011) and the
Performance-Based Options that vested on December 31, 2007 but are not exercisable before
December 31, 2011. For those Performance-Based Options subject to vesting on December 31,
2007, the following percentage of those options were approved for vesting by the Compensation
Committee based on attainment of the 2007 Performance Targets:    
 (5)
    
    This represents the unvested portion of the Time-Based Options (20% of which will vest on
each of November 12, 2008, November 12, 2009, November 12, 2010 and November 12, 2011) and the
Performance-Based Options that vested on December 31, 2007 but are not exercisable before
December 31, 2011. See note 4 regarding the percentage of the vesting-eligible
Performance-Based Options that were approved for vesting on December 31, 2007.(6)
    
    This represents the unvested portion of the Time-Based Options (20% of which will vest on
each of October 1, 2008, October 1, 2009, October 1, 2010 and October 1, 2011) and the
Performance-Based Options that vested on December 31, 2007 but are not exercisable before
December 31, 2011. See note 4 regarding the percentage of the vesting-eligible
Performance-Based Options that were approved for vesting on December 31, 2007.(7)
    
    This represents the unvested portion of the Performance-Based Options (20% of which will be
eligible to vest on each of December 31, 2008, December 31, 2009, December 31, 2010 and
December 31, 2011). 
 130




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Option Exercises and Stock Vested in Fiscal Year 2007
  Option Awards
    
    Stock AwardsNumber of Shares
    
    
    
    
    
    Number of Shares
    
    Value RealizedAcquired on
    
    Value Realized on
    
    Acquired on
    
    onName
    
    Exercise
    
    Exercise
    
    Vesting(1)
    
    Vesting(2)George Zippel
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Terry Eleftheriou
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Michael Baumstein
    
    
    
    
    
    $
    
    
    
    
    14,173
    
    
    $
    66,046Jeffrey Delle Fave
    
    
    
    
    
    $
    
    
    
    
    12,588
    
    
    $
    58,660Paul Goldean
    
    
    
    
    
    $
    
    
    
    
    25,217
    
    
    $
    117,511Duncan Hayward
    
    
    
    
    
    $
    
    
    
    
    6,250
    
    
    $
    29,125David Howell
    
    
    
    
    
    $
    
    
    
    
    18,882
    
    
    $
    87,990Hugh McCormick
    
    
    
    
    
    $
    
    
    
    
    31,674
    
    
    $
    147,601Dean Miller
    
    
    
    
    
    $
    
    
    
    
    46,024
    
    
    $
    214,472Cliff Wagner
    
    
    
    
    
    $
    
    
    
    
    18,896
    
    
    $
    88,055
 
 (1)
    
    The Restricted Share grants were comprised of 25% time based restricted shares and 75%
performance based restricted shares. Upon a change in control on May 7, 2007, 100% of the
time based restricted shares vested and 50% of the performance based restricted shares vested
along with accrued dividends. This was offset by taxes. This calculation was approved by the
Compensation Committee prior to the 2007 New Capital Transaction.(2)
    
    Market value based on a closing per ordinary share price of $4.66 at the close of the market
on May 7, 2007, the date the change in control occurred and the restricted awards vested. Nonqualified Deferred Compensation for 2007
  Executive
    
    RegistrantContributions
    
    Contributions
    
    Aggregate
    
    Aggregate
    
    Aggregatein
    
    in
    
    Earnings
    
    Withdrawal/
    
    BalanceName
    
    Last FY
    
    Last FY(1)
    
    in Last FY
    
    Distributions
    
    at Last FYE(2)Michael Baumstein
    
    $
    
    
    
    $
    62,524
    
    
    $
    764
    
    
    $
    
    
    
    $
    99,027Jeffrey Delle Fave
    
    $
    
    
    
    $
    185,356
    
    
    $
    (2,996
    )
    
    $
    
    
    
    $
    219,397Paul Goldean
    
    $
    
    
    
    $
    258,846
    
    
    $
    (4,424
    )
    
    $
    
    
    
    $
    414,556Dean Miller
    
    $
    
    
    
    $
    17,154
    
    
    $
    8,908
    
    
    $
    
    
    
    $
    104,336Cliff Wagner
    
    $
    
    
    
    $
    50,087
    
    
    $
    (669
    )
    
    $
    
    
    
    $
    54,528Hugh McCormick
    
    $
    
    
    
    $
    26,587
    
    
    $
    (53,801
    )
    
    $
    
    
    
    $
    9,796
 
 (1)
    
    All amounts are reflected in the Summary Compensation Table above.(2)
    
    Portions of these amounts were reflected in the Summary Compensation Table under the
All Other Compensation column in the 2007 Proxy Statement. Retirement Benefits
 401(k) Plan
 131




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Deferred Compensation
 Years of Participation Service
    
    Percentage VestedLess than 1
    
    0%1
    
    25%2
    
    50%3 or more
    
    100%
    Potential Payments Upon Termination or Change in Control
  132




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EmploymentTerminated byCompanyWithout CauseEmployment
    
    orTerminated by
    
    by Executive forEmployment
    
    Company
    
    GoodTerminated Due
    
    Without Cause or
    
    Reason Upon ato Death or
    
    by Executive
    
    Change in
    
    Change inNamed Executive Officer
    
    Disability
    
    with Good Reason
    
    Control(1)
    
    ControlGeorge Zippel
    
    $
    302,665
    (2)
    
    $
    3,390,700
    (3)
    
    $
    4,965,700
    (4)
    
    $
    1,575,000
    (5)Terry Eleftheriou
    
    $
    171,569
    (6)
    
    $
    2,000,758
    (7)
    
    $
    2,875,758
    (8)
    
    $
    875,000
    (9)Michael Baumstein
    
    $
    39,346
    (10)
    
    $
    1,676,156
    (11)
    
    
    n/a
    
    
    
    n/aJeffrey Delle Fave
    
    $
    382,692
    (12)
    
    $
    382,692
    (13)
    
    
    n/a
    
    
    
    n/aPaul Goldean
    
    $
    2,832,413
    (14)
    
    $
    2,832,413
    (15)
    
    $
    3,495,338
    (16)
    
    
    n/aDuncan Hayward
    
    
    n/a
    
    
    $
    419,935
    (17)
    
    
    n/a
    
    
    
    n/aDave Howell
    
    
    n/a
    
    
    $
    3,699,008
    (18)
    
    
    n/a
    
    
    
    n/aDean Miller
    
    
    n/a
    
    
    $
    1,060,285
    (19)
    
    
    n/a
    
    
    
    n/aHugh McCormick
    
    
    n/a
    
    
    
    n/a
    
    
    $
    2,678,926
    (20)
    
    
    n/aCliff Wagner
    
    
    n/a
    
    
    
    n/a
    
    
    $
    4,280,181
    (21)
    
    
    n/a
 
 (1)
    
    Although a change in control would cause the option awards granted under the 2007 Plan to
fully vest and become exercisable, the value of the options realized upon exercise upon
termination is calculated as $0 as the market value at December 31, 2007 is lower than the
exercise price of the options.(2)
    
    Includes $281,096 as a prorated portion of his target bonus for 2007, $12,413 for
reimbursement of 12 months of COBRA coverage costs and $9,156 for the full tax gross-up
payment on the reimbursement for the COBRA coverage costs.(3)
    
    Includes a $3,282,250 severance payment ($900,000 base salary; $675,000 target bonus;
$281,096 as a prorated portion of his target bonus for 2007; and $1,426,154 remaining salary
payments for the term ending July 31, 2008), $12,413 for reimbursement of 12 months of COBRA
coverage costs, $9,156 for the full tax gross-up payment on the reimbursement for the COBRA
coverage costs, $50,000 for relocation expenses and $36,881 for the full tax gross-up payment
on the reimbursement of relocation expenses.(4)
    
    Includes a $3,282,250 severance payment ($900,000 base salary; $675,000 target bonus;
$281,096 as a prorated portion of his target bonus for 2007; and $1,426,154 remaining payments
for the term ending July 31, 2008), $12,413 for reimbursement of 12 months of COBRA coverage
costs, $9,156 for the full tax gross-up payment on the reimbursement for the COBRA coverage
costs, $50,000 for relocation expenses, $36,881 for the full tax gross-up payment on the
reimbursement of relocation expenses and $1,575,000 for termination prior to the first
anniversary of the change in control ($900,000 base salary; and $675,000 target bonus).(5)
    
    Includes $900,000 base salary and $675,000 target bonus.(6)
    
    Includes $150,000 as a prorated portion of his target bonus for 2007 and $12,413 for
reimbursement of 12 months of COBRA coverage costs and $9,156 for the full tax gross-up
payment on the reimbursement for the COBRA coverage costs.(7)
    
    Includes a $1,892,308 severance payment ($500,000 base salary; $375,000 target bonus;
$150,000 as a prorated portion of his target bonus for 2007; and $867,308 remaining salary
payments for the term ending September 24, 2009), $12,413 for reimbursement of 12 months of
COBRA coverage costs, $9,156 for the full tax gross-up payment on the reimbursement for the
COBRA coverage costs, $50,000 for relocation expenses and $36,881 for the full tax gross-up
payment on the reimbursement of relocation expenses.(8)
    
    Includes a $1,892,308 severance payment ($500,000 base salary; $375,000 target bonus;
$150,000 as a prorated portion of his target bonus for 2007; and $867,308 remaining salary
payments for the term ending September 24, 2009), $12,413 for reimbursement of 12 months of
COBRA coverage costs, $9,156 for the full tax gross-up payment on the reimbursement for the
COBRA coverage costs, $50,000 for relocation expenses, $36,881 for the full tax gross-up
payment on the reimbursement of relocation expenses and $875,000 for termination prior to the
first anniversary of the change in control ($500,000 base salary; and $375,000 target bonus).(9)
    
    Includes $500,000 base salary and $375,000 target bonus. 133




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(10)
    
    Reflects $39,346 of accrued and unpaid vacation days. This event would also trigger
distribution of Mr. Baumsteins account under our Deferred Compensation Plan, subject to Code
Section 409A, for the related amounts shown in the Nonqualified Deferred Compensation for
2007 table.(11)
    
    Includes $232,500 as his bonus for 2007, a $1,395,000 severance payment (2 times ($465,000
base salary plus $232,500 bonus), $9,310 for a reimbursement of 9 months of COBRA coverage
costs and $39,346 for accrued and unpaid vacation days. This event would also trigger
distribution of Mr. Baumsteins account under our Deferred Compensation Plan, subject to Code
Section 409A, for the related amounts shown in the Nonqualified Deferred Compensation for
2007 table.(12)
    
    Includes $325,000 as his bonus for 2007 and $57,692 for accrued and unused vacation days. Mr.
Delle Faves employment agreement only requires that the termination of employment be other
than for cause to receive this payment. This event would also trigger distribution of Mr.
Delle Faves account under our Deferred Compensation Plan, subject to Code Section 409A, for
the related amounts shown in the Nonqualified Deferred Compensation for 2007 table.(13)
    
    Includes $325,000 as his bonus for 2007 and $57,692 for accrued and unused vacation days. Mr.
Delle Faves employment agreement only requires that the termination of employment be other
than for cause to receive this payment. This event would also trigger distribution of Mr.
Delle Faves account under our Deferred Compensation Plan, subject to Code Section 409A, for
the related amounts shown in the Nonqualified Deferred Compensation for 2007 table.(14)
    
    Includes a $1,480,000 severance payment ($650,000 base salary; and $830,000 remaining salary
payments for the term ending August 24, 2009), $325,000 as his bonus for 2007, $12,413 for a
reimbursement of 12 months of the employer portion of COBRA coverage costs, $915,000 for
acceleration of the remaining payment of his signing bonus and $100,000 for accrued and unpaid
vacation days. This event would also trigger distribution of Mr. Goldeans account under our
Deferred Compensation Plan, subject to Code Section 409A, for the related amounts shown in the
Nonqualified Deferred Compensation for 2007 table.(15)
    
    Includes a $1,480,000 severance payment ($650,000 base salary; and $830,000 remaining salary
payments for the term ending August 24, 2009), $325,000 as his bonus for 2007, $12,413 for a
reimbursement of 12 months of the employer portion of COBRA coverage costs, $915,000 for
acceleration of the remaining payment of his signing bonus and $100,000 for accrued and unpaid
vacation days. This event would also trigger distribution of Mr. Goldeans account under our
Deferred Compensation Plan, subject to Code Section 409A, for the related amounts shown in the
Nonqualified Deferred Compensation for 2007 table.(16)
    
    Includes a $1,480,000 severance payment ($650,000 base salary; and $830,000 remaining salary
payments for the term ending August 24, 2009), $325,000 as his bonus for 2007, $12,413 for a
reimbursement of 12 months of the employer portion of COBRA coverage costs, $915,000 for
acceleration of the remaining payment of his signing bonus, $100,000 for accrued and unpaid
vacation days and $662,925 for the tax gross-up payment on excess parachute payments pursuant
to Section 4999 of the Code. This event would also trigger distribution of Mr. Goldeans
account under our Deferred Compensation Plan, subject to Code Section 409A, for the related
amounts shown in the Nonqualified Deferred Compensation for 2007 table.(17)
    
    Includes a $357,282 severance payment ($357,282 base salary) and a $62,653 tax gross-up on
that payment. This is the maximum amount that may be paid to Mr. Hayward, which would only be
paid in connection with a fundamental reduction in Mr. Haywards job requirements (as
described in the narrative below). Mr. Haywards employment agreement does not include the
concept of a termination by the employee for good reason. Amounts paid to Mr. Hayward would
be paid in British pounds sterling. Such amounts are converted to U.S. Dollars using a
conversion rate of $1.9849 for every 1£ which, according to Bloombergs, is the exchange rate
as of December 31, 2007.(18)
    
    Includes a $3,062,544 severance payment (3 times ($545,848 base salary plus $475,000 bonus),
$12,596 for accrued and unpaid vacation days, $475,000 for the annual incentive bonus paid to
him on March 14, 2008, and $148,868 for the June 1, 2008 installment of the pension
equalization payment. Amounts paid to Mr. Howell would be paid in British pounds sterling.
Such amounts are converted to U.S. Dollars using a conversion rate of $1.9849 for every 1£
which, according to Bloombergs, is the exchange rate as of December 31, 2007.(19)
    
    Details regarding this payment are provided in the description of Mr. Millers separation
agreement below.(20)
    
    Details regarding this payment are provided in the description of Mr. McCormicks separation
agreement below.(21)
    
    Details regarding this payment are provided in the description of Mr. Wagners separation
agreement below. Severance and Change in Control Benefits
  134




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George Zippel
    135




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Terry Eleftheriou
   136




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Michael Baumstein
  137




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Jeffrey Delle Fave
  138




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Paul Goldean
   139




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Duncan Hayward
  David Howell
   140




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Dean Miller
  Hugh McCormick
   Cliff Wagner
   141




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DIRECTOR COMPENSATION FOR FISCAL YEAR 2007
   Fees Earned or
    
    Option
    
    All OtherName
    
    Paid in Cash
    
    Awards(1)
    
    Compensation
    
    TotalJonathan Bloomer(2)(3)
    
    $
    77,000
    
    
    $
    650,295
    
    
    $
    
    
    
    $
    727,295Chris Brody(2)(3)(8)
    
    $
    86,500
    
    
    $
    650,295
    
    
    $
    
    
    
    $
    736,795James Butler(2)(3)
    
    $
    89,000
    
    
    $
    650,295
    
    
    $
    
    
    
    $
    739,295James Chapman(2)(3)
    
    $
    91,000
    
    
    $
    650,295
    
    
    $
    
    
    
    $
    741,295Thomas Finke(2)(3)
    
    $
    72,500
    
    
    $
    650,295
    
    
    $
    
    
    
    $
    722,795Seth Gardner(4)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Jeffrey Hughes(2)(3)
    
    $
    92,500
    
    
    $
    650,295
    
    
    $
    
    
    
    $
    742,795Robert Joyal(2)(3)
    
    $
    98,000
    
    
    $
    650,295
    
    
    $
    
    
    
    $
    748,295Larry Port(2)(3)
    
    $
    86,500
    
    
    $
    650,295
    
    
    $
    
    
    
    $
    736,795Michael Rollings(2)(3)
    
    $
    70,000
    
    
    $
    650,295
    
    
    $
    
    
    
    $
    720,295Lenard Tessler(2)(3)(6)
    
    $
    73,000
    
    
    $
    650,295
    
    
    $
    
    
    
    $
    723,295Raymond Wechsler (7)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Michael Austin(5)
    
    $
    16,500
    
    
    $
    
    
    
    $
    
    
    
    $
    16,500Bill Caulfeild-Browne(5)
    
    $
    15,500
    
    
    $
    
    
    
    $
    
    
    
    $
    15,500Robert M. Chmely(5)
    
    $
    19,500
    
    
    $
    
    
    
    $
    
    
    
    $
    19,500Jean Claude Damerval(5)
    
    $
    6,000
    
    
    $
    
    
    
    $
    
    
    
    $
    6,000Michael French(5)
    
    $
    44,000
    
    
    $
    
    
    
    $
    
    
    
    $
    44,000Lord Norman Lamont(5)
    
    $
    19,500
    
    
    $
    
    
    
    $
    
    
    
    $
    19,500Hazel OLeary(5)
    
    $
    15,000
    
    
    $
    
    
    
    $
    
    
    
    $
    15,000Glenn Schafer(5)
    
    $
    43,000
    
    
    $
    
    
    
    $
    
    
    
    $
    43,000
 
 (1)
    
    Represents the compensation cost of outstanding option awards for financial reporting
purposes for the year under SFAS 123(R) without regard to forfeiture assumptions. See Note 13
Employee Benefit Plans in the Notes to Consolidated Financial Statements for the assumptions made in the valuation of our
option awards.(2)
    
    Options were non-qualified stock options granted on July 18, 2007 under the 2007 Plan. The
grant date fair value of each option award was $650,295, calculated by multiplying the 225,000
options awarded by $2.8902.(3)
    
    Elected to the Board effective May 7, 2007.(4)
    
    Elected to the Board effective January 29, 2008.(5)
    
    Resigned from the Board effective May 7, 2007.(6)
    
    Resigned from the Board effective January 29, 2008.(7)
    
    Elected to the Board effective May 30, 2008. 142




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(8)
    
    Resigned from the Board effective May 30, 2008.  OutstandingOptions
    
    Weighted
    
    Total CashExercisable for
    
    Average
    
    ValueName
    
    Ordinary Shares
    
    Exercise Price
    
    of OptionsJonathan Bloomer
    
    
    225,000
    
    
    $
    4.76
    
    
    $
    Chris Brody
    
    
    225,000
    
    
    $
    4.76
    
    
    $
    James Butler
    
    
    225,000
    
    
    $
    4.76
    
    
    $
    James Chapman
    
    
    225,000
    
    
    $
    4.76
    
    
    $
    Thomas Finke
    
    
    225,000
    
    
    $
    4.76
    
    
    $
    Seth Gardner
    
    
    
    
    
    $
    
    
    
    $
    Jeffrey Hughes
    
    
    225,000
    
    
    $
    4.76
    
    
    $
    Robert Joyal
    
    
    225,000
    
    
    $
    4.76
    
    
    $
    Larry Port
    
    
    225,000
    
    
    $
    4.76
    
    
    $
    Michael Rollings
    
    
    225,000
    
    
    $
    4.76
    
    
    $
    Lenard Tessler
    
    
    225,000
    
    
    $
    4.76
    
    
    $
    Raymond Wechsler
    
    
    
    
    
    $
    
    
    
    $
    Michael Austin
    
    
    22,000
    
    
    $
    15.80
    
    
    $
    Bill Caulfeild-Browne
    
    
    22,000
    
    
    $
    15.80
    
    
    $
    Robert M. Chmely
    
    
    22,000
    
    
    $
    15.80
    
    
    $
    Jean Claude Damerval
    
    
    10,000
    
    
    $
    22.55
    
    
    $
    Michael French
    
    
    401,667
    
    
    $
    16.52
    
    
    $
    Lord Norman Lamont
    
    
    14,750
    
    
    $
    19.29
    
    
    $
    Hazel OLeary
    
    
    18,000
    
    
    $
    16.31
    
    
    $
    Glenn Schafer
    
    
    26,000
    
    
    $
    21.36
    
    
    $
    
 Compensation Committee Interlocks and Insider Participation
  Compensation Committee Report
  
 143




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##### Table of Contents



Item 12:
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  Amount ofOrdinary Shares
    
    PercentName and Address of Beneficial Owners(1)
    
    Beneficial Ownership
    
    of ClassInvestor Group
    
    
    150,000,000
    (2)
    
    
    68.7
    %CMBP II (Cayman) Ltd.
    
    
    9,330,510
    (3)
    
    
    13.6
    %(4)Richard M. Rieder
    
    
    8,933,747
    (5)
    
    
    13.1
    %(4)Brandes Investment Partners, L.P.
    
    
    8,457,246
    (6)
    
    
    12.4
    %(4)DirectorsJonathan Bloomer
    
    
    225,000
    (7)
    
    
    *Christopher Brody
    
    
    225,000
    (7)
    
    
    *James Butler
    
    
    233,000
    (8)
    
    
    *James Chapman
    
    
    225,000
    (7)
    
    
    *Thomas Finke
    
    
    225,000
    (7)
    
    
    *Seth Gardner
    
    
    225,000
    (7)
    
    
    *Jeffrey Hughes
    
    
    225,000
    (7)
    
    
    *Robert Joyal
    
    
    325,000
    (8)
    
    
    *Larry Port
    
    
    225,000
    (7)
    
    
    *Michael Rollings
    
    
    225,000
    (7)
    
    
    *George Zippel
    
    
    255,000
    (9)
    
    
    *Named Executive OfficersTerry Eleftheriou
    
    
    80,000
    
    
    
    *Michael Baumstein
    
    
    62,310
    
    
    
    *Jeffrey Delle Fave
    
    
    55,088
    
    
    
    *Paul Goldean
    
    
    158,640
    
    
    
    *Duncan Hayward
    
    
    23,750
    
    
    
    *David Howell
    
    
    28,640
    
    
    
    *Hugh McCormick(10)
    
    
    
    
    
    
    *Dean Miller(11)
    
    
    
    
    
    
    *Cliff Wagner(12)
    
    
    
    
    
    
    *All directors, director nominees and executiveofficers as a group (nineteen persons)
    
    
    3,052,192
    
    
    
    4.3
    %
 
 *
    
    Less than 1%(1)
    
    Except as otherwise indicated, the address for each beneficial owner is c/o Scottish Re Group
Limited, P.O. Box HM 2939, Crown House, Second Floor, 4 Par-la-Ville Road, Hamilton, HM 08,
Bermuda.(2)
    
    The Investors each purchased 500,000 shares of the Companys newly issued convertible
cumulative participating preferred stock (the Convertible Shares) pursuant to the terms of
the SPA. Such 500,000 Convertible Shares may be converted into 75,000,000 ordinary shares, or
an aggregate 150,000,000 ordinary shares between both Investors, at any time, and will
automatically convert on the ninth anniversary of the issue date if not previously converted,
subject to certain adjustments. On January 4, 2007, SRGL Acquisition, LLC assigned its rights
and obligations under the SPA to SRGL LDC, an affiliate of Cerberus. Pursuant to the
Assignment and Assumption Agreements dated as of June 5, 2007 between MassMutual Capital and
each of the Funds, MassMutual Capital assigned its Convertible Shares to the Funds. 144




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The sole general partner of each of the Funds is Benton Street Advisors, Inc., an indirect
wholly-owned subsidiary of Massachusetts Mutual Life Insurance Company. On June 5, 2007, the
Investors and the Funds entered into the Amended and Restated Investors Agreement in order to
reallocate voting and governance rights and obligations of MassMutual Capital to and among the
Funds. Pursuant to the Amended and Restated Investors Agreement, the Investors and the Funds
agreed, among other things, to: (i) certain restrictions on the transfer of Convertible
Shares, (ii) certain voting provisions with respect to the ordinary shares, (iii) the election
of a certain number of directors to the Companys Board and (iv) a third party sale process.
Because of the Amended and Restated Investors Agreement, for the purposes of Section 13(d)(3)
of the Exchange Act, Massachusetts Mutual Life Insurance Company and the Funds are deemed to
be members of a group with SRGL LDC and, therefore, the beneficial owners of the securities of
the Company beneficially owned by SRGL LDC. On June 5, 2007, SRGL LDC subscribed for and
purchased limited partnership interests in Benton Street Partners III, L.P., pursuant to a
Subscription Agreement dated as of June 5, 2007 by and between Benton Street Partners III,
L.P. and SRGL LDC. Benton Street Partners III, L.P. holds 134,667 Convertible Shares. Stephen
Feinberg, directly or through one or more intermediate entities, possesses the sole power to
vote and the sole power to direct the disposition of all securities of the Company held
directly by Cerberus. In addition, pursuant to an Amended and Restated Limited Partnership
Agreement dated as of June 5, 2007 by and among Benton Street Advisors, Inc., MassMutual
Capital and SRGL LDC, SRGL LDC shares certain rights over the voting and disposition of
securities of the Company held by Benton Street Partners III, L.P. Mr. Feinberg, directly or
through one or more intermediate entities, exercises such rights held by SRGL LDC. Because
SRGL LDC holds 500,000 Convertible Shares and exercises certain rights over the voting and
disposition of 134,667 Convertible Shares, which Convertible Shares, in the aggregate, may be
converted into 95,200,050 ordinary shares, Mr. Feinberg is deemed to beneficially own
95,200,050 ordinary shares, or 58.3% of the ordinary shares deemed issued and outstanding as
of June 5, 2007. In addition, because of the Amended and Restated Investors Agreement, Mr.
Feinberg is deemed to beneficially own the 365,333 Convertible Shares, which may be converted
into 54,799,950 ordinary shares, beneficially owned by Massachusetts Mutual Life Insurance
Company. The Investor Group beneficially owns 150,000,000 ordinary shares, or 68.7% of the
ordinary shares deemed issued and outstanding as of that date. The address for Massachusetts
Mutual Life Insurance Company is 1295 State Street, Springfield, Massachusetts 01111. The
address for Stephen Feinberg is 299 Park Avenue, 22nd Floor, New York, New York
10171.(3)
    
    Based on a Schedule 13D filed by CMBP II (Cayman) Ltd. with the Securities and Exchange
Commission on November 26, 2006, as a joint filer with Cypress Associates II (Cayman) L.P.,
Cypress Merchant B Partners II (Cayman) L.P., Cypress Merchant B II-A C.V., Cypress
Side-by-Side (Cayman) L.P. and 55th Street Partners II (Cayman) L.P. The address of the joint
filers is Cypress Associates II (Cayman) L.P., c/o The Cypress Group L.L.C., 65 East 55th
Street, 28th Floor, New York, New York 10022.(4)
    
    Equals the percentage of the issued and outstanding ordinary shares of the Company.
Beneficial ownership would be less than 5% taking into account the conversion of the
Convertible Shares.(5)
    
    Based on a Form 4 filed by Richard M. Rieder with the Securities and Exchange Commission on
June 9, 2008. R3 Capital Partners Master, L.P. (the R3 Fund), an investment fund, R3
Capital GenPar MGP, Ltd. (R3 MGP), the general partner of the R3 Master, R3 Capital
Principal Investors GenPar, LLC (R3 Principal), the sole voting shareholder of R3 MGP, and
Richard M. Rieder, the managing member of R3 Principal. The principal business address is
1271 Avenue of the Americas, New York, New York 10020.(6)
    
    Based on a Schedule 13G filed by Brandes Investment Partners, L.P. with the Securities and
Exchange Commission on February 14, 2008, as a joint filer with Brandes Investment Partners,
Inc., Brandes Worldwide Holdings, L.P., Charles H. Brandes, Glenn R. Carlson and Jeffrey A.
Busby. The address of the joint filers is 11988 El Camino Real, Suite 500, San Diego, CA
92130.(7)
    
    Represents ordinary shares of the Company subject to immediately exercisable options.(8)
    
    Includes 225,000 ordinary shares of the Company subject to immediately exercisable options.(9)
    
    Includes 150,000 ordinary shares of the Company subject to immediately exercisable options.
105,000 ordinary shares are held in the Suzanne E. Schuerman Revocable Trust of which Mr.
Zippel jointly controls and for which Mr. Zippel is the sole beneficiary.(10)
    
    Mr. McCormick is no longer an employee of the Company. Share ownership is based on the best
information available to us.(11)
    
    Mr. Miller is no longer an employee of the Company. Share ownership is based on the best
information available to us.(12)
    
    Mr. Wagner is no longer an employee of the Company. Share ownership is based on the best
information available to us. 145




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Item 13: CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
         146




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##### Table of Contents



Related Party Transaction Policies and Procedures
   
 Item 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES
       Pre-Approval Policy for Ernst & Young Services
  147




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PART IV
 
 Item 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 (a) Consolidated Financial Statements, Financial Statement Schedules and Exhibits
 1.
    
    Consolidated Financial StatementsReport of Independent Registered Public Accounting Firm
    
    
    156Consolidated Balance Sheets
    
    
    157Consolidated Statements of Income (Loss)
    
    
    158Consolidated Statements of Comprehensive Income (Loss)
    
    
    159Consolidated Statements of Shareholders Equity
    
    
    160Consolidated Statements of Cash Flows
    
    
    162Notes to Consolidated Financial Statements
    
    
    1642.
    
    Financial Statement SchedulesSchedule I  Summary of Investments
    
    
    233Schedule II  Condensed Financial Information on Registrant
    
    
    233Schedule III  Supplemental Insurance Information
    
    
    235Schedule IV  Reinsurance
    
    
    237Schedule V  Valuation and Qualifying Accounts
    
    
    238
  3.
    
    Exhibits3.1
    
    Memorandum of Association of Scottish Re Group Limited. (24)3.2
    
    Articles of Association of Scottish Re Group Limited. (24)4.1
    
    Specimen Ordinary Share Certificate (incorporated herein by reference to Exhibit 4.1 to
Scottish Re Group Limiteds Registration Statement on Form S-1). (1)4.2
    
    Form of Amended and Restated Class A Warrant (incorporated herein by reference to Exhibit 4.2
to Scottish Re Group Limiteds Registration Statement on Form S-1). (1)4.3
    
    Form of Securities Purchase Agreement for the Class A Warrants (incorporated herein by
reference to Exhibit 4.4 to Scottish Re Group Limiteds Registration Statement on Form S-1).
(1)4.4
    
    Form of Securities Purchase Agreement between Scottish Re Group Limited and the Shareholder
Investors (incorporated herein by reference to Exhibit 4.10 to Scottish Re Group Limiteds
Registration Statement on Form S-1). (1)4.5
    
    Form of Securities Purchase Agreement between Scottish Re Group Limited and the
Non-Shareholder Investors (incorporated herein by reference to Exhibit 4.12 to Scottish Re
Group Limiteds Registration Statement on Form S-1). (1)4.6
    
    Certificate of Designations of Convertible Preferred Shares of Scottish Re Group Limited
(incorporated herein by reference to Scottish Re Group Limiteds Current Report on Form 8-K).
(10)4.7
    
    Certificate of Designations of Scottish Re Group Limiteds Non-Cumulative Perpetual Preferred
Shares, dated June 28, 2005 (incorporated herein by reference to Scottish Re Group Limiteds
Current Report on Form 8-K). (16)
 148




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4.8
    
    Specimen Stock Certificate for the Companys Non-Cumulative Perpetual Preferred Shares
(incorporated herein by reference to Scottish Re Group Limiteds Current Report on Form 8-K).
(16)10.1
    
    Second Amended and Restated 1998 Stock Option Plan effective October 22, 1998 (incorporated
herein by reference to Exhibit 10.3 to Scottish Re Group Limiteds Registration Statement on
Form S-1). (1)(25)10.2
    
    Form of Stock Option Agreement in connection with 1998 Stock Option Plan (incorporated herein
by reference to Exhibit 10.4 to Scottish Re Group Limiteds Registration Statement on Form
S-1). (1)(25)10.3
    
    Investment Management Agreement, dated October 22, 1998, between Scottish Re Group Limited
and General Re-New England Asset Management, Inc. (incorporated herein by reference to Exhibit
10.14 to Scottish Re Group Limiteds Registration Statement on Form S-1). (1)10.4
    
    Form of Omnibus Registration Rights Agreement (incorporated herein by reference to Exhibit
10.17 to Scottish Re Group Limiteds Registration Statement on Form S-1). (1)10.5
    
    1999 Stock Option Plan (incorporated herein by reference to Exhibit 10.14 to Scottish Re
Group Limiteds 1999 Annual Report on Form 10-K). (2)(25)10.6
    
    Form of Stock Options Agreement in connection with 1999 Stock Option Plan (incorporated
herein by reference to Exhibit 10.15 to Scottish Re Group Limiteds 1999 Annual Report on Form
10-K). (2)(25)10.7
    
    2001 Stock Option Plan (incorporated herein by reference to Exhibit 10.17 to Scottish Re
Group Limiteds 2001 Annual Report on Form 10-K). (4)(25)10.8
    
    Form of Nonqualified Stock Option Agreement in connection with 2001 Stock Option Plan
(incorporated herein by reference to Exhibit 10.17 to Scottish Re Group Limiteds 2001 Annual
Report on Form 10-K). (4)(25)10.9
    
    Form of Indemnification Agreement between Scottish Re Group Limited and each of its directors
and officers (incorporated by reference to Scottish Re Group Limiteds Amended Quarterly
Report on Form 10-Q/A for the period ended September 30, 2002). (8)(25)10.10
    
    Employment Agreement dated June 1, 2002 between Scottish Re Group Limited and Paul Goldean
(incorporated herein by reference to Scottish Re Group Limiteds Quarterly Report on Form 10-Q
for the period ended March 31, 2004). (14)(25)10.11
    
    Indenture, dated November 22, 2002, between Scottish Re Group Limited and The Bank of New
York (incorporated herein by reference to Scottish Re Group Limiteds Registration Statement
on Form S-3). (9)10.12
    
    Registration Rights Agreement, dated November 22, 2002, by and among Scottish Re Group
Limited and Bear Stearns & Co. and Putnam Lovell Securities Inc. (incorporated herein by
reference to Scottish Re Group Limiteds Registration Statement on Form S-3). (9)10.13
    
    Stock Purchase Agreement, dated as of October 24, 2003, by and among Scottish Re Group
Limited, Scottish Holdings, Inc. and Employers Reinsurance Corporation (incorporated herein by
reference to Scottish Re Group Limiteds Current Report on Form 8-K). (11)10.14
    
    Tax Matters Agreement, dated as of January 22, 2003, by and among Scottish Re Group Limited,
Scottish Holdings, Inc. and Employers Reinsurance Corporation (incorporated herein by
reference to Scottish Re Group Limiteds Current Report on Form 8-K). (11)10.15
    
    Transition Services Agreement, dated as of January 22, 2003, by and among Scottish Holdings,
Inc. and Employers Reinsurance Corporation (incorporated herein by reference to Scottish Re
Group Limiteds Current Report on Form 8-K). (11)
 149




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10.16
    
    Asset Purchase Agreement, dated as of October 17, 2004, by and among Security Life of Denver
Insurance Company, Security Life of Denver International Limited, ING America Insurance
Holdings, Inc. (for purposes of Section 11.11), Scottish Re Group Limited, Scottish Re (U.S.),
Inc., Scottish Annuity & Life Insurance Company (Cayman) Ltd. (for purposes of Section 5.26)
and Scottish Re Life Corporation (for purposes of Section 5.24) (incorporated herein by
reference to Scottish Re Group Limiteds Current Report on Form 8-K). (15)10.17
    
    Securities Purchase Agreement, dated as of October 17, 2004, by and among Scottish Re Group
Limited and Cypress Merchant B Partners II (Cayman) L.P., Cypress Merchant Banking II-A C.V.,
55th Street Partners II (Cayman) L.P. and Cypress Side-by-Side (Cayman) L.P. (including form
of Subordinated Note, Class C Warrant, Shareholders Agreement and Amendments to Articles of
Association) (incorporated herein by reference to Scottish Re Group Limiteds Current Report
on Form 8-K). (15)10.18
    
    Form of Voting Agreement, by and among Cypress Merchant B Partners II (Cayman) L.P., Cypress
Merchant Banking II-A C.V., 55th Street Partners II (Cayman) L.P. and Cypress Side-by-Side
(Cayman) L.P., Scottish Re Group Limited and, respectively, each director and each officer of
Scottish Re Group Limited (incorporated herein by reference to Scottish Re Group Limiteds
Current Report on Form 8-K). (15)10.19
    
    Voting Agreement, dated as of October 15, 2004, by and among Scottish Re Group Limited,
Cypress Merchant B Partners II (Cayman) L.P., Cypress Merchant Banking II-A C.V., 55th Street
Partners II (Cayman) L.P. and Cypress Side-by-Side (Cayman) L.P. and Pacific Life Insurance
Company (incorporated herein by reference to Scottish Re Group Limiteds Current Report on
Form 8-K). (15)10.20
    
    Letter Agreement, dated as of October 17, 2004, by and among Scottish Re Group Limited and
Cypress Merchant B Partners II (Cayman) L.P., Cypress Merchant Banking II-A C.V., 55th Street
Partners II (Cayman) L.P. and Cypress Side-by-Side (Cayman) L.P. (incorporated herein by
reference to Scottish Re Group Limiteds Current Report on Form 8-K). (15)10.21
    
    First Supplemental Indenture, dated as of October 26, 2004, between Scottish Re Group
Limited and The Bank of New York (incorporated herein by reference to Scottish Re Group
Limiteds Current Report on Form 8-K, filed with the Securities and Exchange Commission on
October 29, 2004).10.22
    
    Administrative Services Agreement, dated as of December 31, 2004, between Security Life of
Denver Insurance Company and Security Life of Denver International Limited and Scottish Re
(U.S.), Inc. (incorporated herein by reference to Scottish Re Group Limiteds 2004 Annual
Report on Form 10-K). (20)10.23
    
    Coinsurance Agreement dated December 31, 2004 between Security Life of Denver Insurance
Company and Scottish Re (U.S.), Inc. (incorporated herein by reference to Scottish Re Group
Limiteds 2004 Annual Report on Form 10-K). (20)10.24
    
    Coinsurance/Modified Coinsurance Agreement, dated December 31, 2004, between Security Life
of Denver Insurance Company and Scottish Re (U.S.), Inc. (incorporated herein by reference to
Scottish Re Group Limiteds 2004 Annual Report on Form 10-K). (20)10.25
    
    Retrocession Agreement, dated December 31, 2004, between Scottish Re (U.S.), Inc. and
Security Life of Denver Insurance Company (incorporated herein by reference to Scottish Re
Group Limiteds 2004 Annual Report on Form 10-K). (20)10.26
    
    Retrocession Agreement, dated December 31, 2004, between Scottish Re Life (Bermuda) Limited
and Security Life of Denver Insurance Company (incorporated herein by reference to Scottish Re
Group Limiteds 2004 Annual Report on Form 10-K). (20)10.27
    
    Reserve Trust Agreement, dated as of December 31, 2004, between Scottish Re (U.S.) Inc., as
Grantor, and Security Life of Denver Insurance Company, as Beneficiary, and The Bank of New
York, as Trustee, and
 150




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##### Table of Contents



The Bank of New York, as Securities Intermediary (incorporated herein by reference to
Scottish Re Group Limiteds 2004 Annual Report on Form 10-K). (20)10.28
    
    Security Trust Agreement, dated as of December 31, 2004, by and among Scottish Re (U.S.),
Inc., as Grantor, Security Life of Denver Insurance Company, as Beneficiary, The Bank of New
York, as Trustee, and The Bank of New York, as Securities Intermediary (incorporated herein by
reference to Scottish Re Group Limiteds 2004 Annual Report on Form 10-K). (20)10.29
    
    Coinsurance Agreement, dated December 31, 2004, between Security Life of Denver
International Limited and Scottish Re Life (Bermuda) Limited (incorporated herein by reference
to Scottish Re Group Limiteds 2004 Annual Report on Form 10-K). (20)10.30
    
    Coinsurance/Modified Coinsurance Agreement, dated December 31, 2004, between Security Life
of Denver International Limited and Scottish Re Life (Bermuda) Limited (incorporated herein by
reference to Scottish Re Group Limiteds 2004 Annual Report on Form 10-K). (20)10.31
    
    Coinsurance Funds Withheld Agreement, dated December 31, 2004, between Security Life of
Denver International Limited and Scottish Re Life (Bermuda) Limited (incorporated herein by
reference to Scottish Re Group Limiteds 2004 Annual Report on Form 10-K). (20)10.32
    
    Reserve Trust Agreement, dated December 31, 2004, between Scottish Re Life (Bermuda)
Limited, as Grantor, and Security Life of Denver International Limited, as Beneficiary. The
Bank of New York, as Trustee, and The Bank of New York, as Securities Intermediary
(incorporated herein by reference to Scottish Re Group Limiteds 2004 Annual Report on Form
10-K). (20)10.33
    
    Security Trust Agreement, dated as of December 31, 2004, by and among Scottish Re Life
(Bermuda) Limited, as Grantor, Security Life of Denver International Limited, as Beneficiary,
The Bank of New York, as Trustee, and the Bank of New York, as Securities Intermediary
(incorporated herein by reference to Scottish Re Group Limiteds 2004 Annual Report on Form
10-K). (20)10.34
    
    Technology Transfer and License Agreement, dated as of December 31, 2004, between Security
Life of Denver Insurance Company, ING North America Insurance Corporation and Scottish Re
(U.S.), Inc. (incorporated herein by reference to Scottish Re Group Limiteds 2004 Annual
Report on Form 10-K). (20)10.35
    
    Transition and Integration Services Agreement, dated December 31, 2004, between Security
Life of Denver Insurance Company and Scottish Re (U.S.), Inc. (incorporated herein by
reference to Scottish Re Group Limiteds Current Report on Form 8-K). (19)10.36
    
    Form of Remarketing Agreement, between the Company and Lehman Brothers, Inc., as Remarketing
Agent (incorporated herein by reference to Scottish Re Group Limiteds Current Report on Form
8-K). (16)10.37
    
    Scottish Re Group Limited 2004 Equity Incentive Compensation Plan (incorporated herein by
reference to Scottish Re Group Limiteds Proxy Statement filed with the Securities and
Exchange Commission on April 1, 2004). (24)10.38
    
    Amendment No. 1 to Scottish Re Group Limited 2004 Equity Incentive Compensation Plan
(incorporated herein by reference to Scottish Re Group Limiteds Current Report on Form 8-K).
(18) (25)10.39
    
    Amendment No. 2 to Scottish Re Group Limited 2004 Equity Incentive Compensation Plan
(incorporated herein by reference to Scottish Re Group Limiteds Current Report on Form 8-K).
(18) (25)10.40
    
    Form of Management Stock Option Agreement under the Scottish Re Group Limited 2004 Equity
Incentive Compensation Plan (incorporated herein by reference to Scottish Re Group Limiteds
Current Report on Form 8-K). (18) (25)
 151




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##### Table of Contents



10.41
    
    Form of Management Performance Share Unit Agreement under the Scottish Re Group Limited 2004
Equity Incentive Compensation Plan (incorporated herein by reference to Scottish Re Group
Limiteds Current Report on Form 8-K). (18) (25)10.42
    
    Form of Management Restricted Share Unit Agreement under the Scottish Re Group Limited 2004
Equity Incentive Compensation Plan (incorporated herein by reference to Scottish Re Group
Limiteds Current Report on Form 8-K). (18) (25)10.43
    
    Letter of Credit Agreement, dated as of August 18, 2005, among Scottish Re (Dublin) Limited,
as Borrower, Scottish Annuity & Life Insurance Company (Cayman) Ltd., as Guarantor, Bank of
America, N.A., as Administrative Agent and L/C Issuer, and the Other Lenders Party Hereto, and
Bank of America Securities LLC, as Sole Lead Arranger and Sole Book Manager (incorporated
herein by reference to Scottish Re Group Limiteds Current Report on Form 8-K). (21)10.44
    
    Amendment to Employment Agreement, dated as of October 29, 2006, between Scottish Re Group
Limited and Paul Goldean (incorporated herein by reference to Scottish Re Group Limiteds
Current Report on Form 8-K which was filed with the Securities and Exchange Commission on
November 2, 2006). (25)10.45
    
    Securities Purchase Agreement, dated as of November 26, 2006, by and among Scottish Re Group
Limited, MassMutual Capital Partners LLC and SRGL Acquisition, LLC (incorporated herein by
reference to Scottish Re Group Limiteds Current Report on Form 8-K). (22)10.46
    
    Form of Registration Rights and Shareholders Agreement (incorporated herein by reference to
Scottish Re Group Limiteds Current Report on Form 8-K). (22)10.47
    
    Voting Agreement, dated as of November 26, 2006, by and among Scottish Re Group Limited,
MassMutual Capital Partners LLC, SRGL Acquisition, LLC, Cypress Merchant B Partners II
(Cayman) L.P., Cypress Merchant B II-A C.V., Cypress Side-By-Side (Cayman) L.P. and 55th
Street Partners II (Cayman) L.P. (incorporated herein by reference to Scottish Re Group
Limiteds Current Report on Form 8-K). (22)10.48
    
    First Amendment to Asset Purchase Agreement, dated as of November 26, 2006, by and among
Scottish Re (U.S.), Inc., Scottish Re Life (Bermuda) Limited, Security Life of Denver
Insurance Company and Security Life of Denver International Limited (incorporated herein by
reference to Scottish Re Group Limiteds Current Report on Form 8-K). (22)10.49
    
    Letter Agreement, dated as of November 30, 2006, by and among Scottish Annuity & Life
Insurance Company (Cayman) Ltd., Scottish Re Limited and Comerica Bank (incorporated herein by
reference to Scottish Re Group Limiteds Current Report on Form 8-K). (23)10.50
    
    Standby Letter of Credit Application and Agreement, dated as of November 30, 2006, by and
between Scottish Annuity & Life Insurance Company (Cayman) Ltd. and Comerica Bank
(incorporated herein by reference to Scottish Re Group Limiteds Current Report on Form 8-K).
(23)10.51
    
    Standby Letter of Credit Application and Agreement, dated as of November 30, 2006, by and
between Scottish Re Limited and Comerica Bank (incorporated herein by reference to Scottish Re
Group Limiteds Current Report on Form 8-K). (23)10.52
    
    Amendment No. 2 to Securities Purchase Agreement, dated as of February 20, 2007, by and
among Scottish Re Group Limited, MassMutual Capital Partners LLC and SRGL Acquisition, LDC
(incorporated herein by reference to Scottish Re Group Limiteds Current Report on Form 8-K
which was filed with the Securities and Exchange Commission on February 21, 2007).10.53
    
    Amendment Three to the 2004 Equity Incentive Compensation
Plan (incorporated herein by reference to Scottish Re Group
Limiteds 2006 Annual Report on Form 10-K filed with the
Securities and Exchange Commission on March 1, 2007). (25)10.54
    
    Scottish Re Group Limited 2007 Stock Option Plan (incorporated herein by reference to
Scottish Re Group Limiteds Proxy Statement filed with the Securities and Exchange Commission
on June 22, 2007). (25)
 152




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10.55
    
    Employment Agreement dated May 30, 2006 between Scottish Re Holdings Limited and Duncan
Hayward. (24)(25)10.56
    
    Employment Agreement dated June 28, 2007 between Scottish Holdings, Inc. and Jeffrey M.
Delle Fave. (24)(25)10.57
    
    Employment Agreement dated July 18, 2007 between Scottish Re Group Limited and George R.
Zippel. (24)(25)10.58
    
    Employment Agreement dated July 25, 2007 between Scottish Holdings, Inc. and Michael
Baumstein. (24)(25)10.59
    
    First Amendment to Employment Agreement dated as of July 18, 2007 between Scottish Re Group
Limited and George R. Zippel, executed on February 27, 2008. (25)10.60
    
    Employment Agreement dated July 26, 2007 between Scottish Re (U.S.), Inc. and Meredith
Ratajczak. (24)(25)10.61
    
    Employment Agreement dated September 24, 2007 between Scottish Re Group Limited and Terry
Eleftheriou
(incorporated herein by reference to Scottish Re Group Limiteds
Quarterly Report on Form 10-Q for the period ending September 30,
2007, filed with the Securities and
Exchange Commission November 9, 2007). (25)10.62
    
    First Amendment to Employment Agreement dated as of September 24, 2007 between Scottish Re
Group Limited and Terry Eleftheriou, executed on March 1, 2008. (25)10.63
    
    Employment Agreement dated as of November 16, 2007 between Scottish Re Group Limited and
Samir Shah. (25)10.64
    
    Employment Agreement dated August 24, 2007 between Scottish Re Group Limited and Paul
Goldean. (25)10.65
    
    Employment Agreement dated November 30, 2007 between
Scottish Re Holdings Limited and David
Howell. (25)10.66
    
    Employment Agreement dated as of January 8, 2008 between
Scottish Re Holdings, Inc. and Dan Roth. (25)10.67
    
    Second Amended and Restated Forbearance Agreement among HSBC Bank USA, N.A., Scottish
Annuity & Life Insurance Company (Cayman) Ltd., Scottish Re Group Limited and Scottish Re
(Dublin) Limited, dated June 30, 2008.10.68
    
    Forbearance Agreement among Clearwater Re Limited, Scottish Annuity & Life Insurance Company
(Cayman) Ltd., Scottish Re Group Limited, Citibank and Calyon New York Branch, dated June 30,
2008.10.69
    
    Letter of Intent entered into on June 30, 2008 among Security
Life of Denver Insurance Company, Security Life of Denver
International Limited, Scottish
Re (U.S.), Inc., Ballantyne Re p.l.c., Ambac Assurance UK
Limited, Assured Guaranty (UK) Ltd., and Scottish Re Group Limited.10.70
    
    Letter of Intent dated June 30, 2008 among Scottish Re Group Limited, ING North America Insurance Corporation,
ING America Insurance Holdings, Inc., Security Life of Denver
Insurance Company, Security Life of Denver International Ltd.,
Scottish Re (U.S.), Inc., Scottish Re Life
(Bermuda) Limited, Scottish Re (Dublin) Limited, and Scottish Annuity & Life Insurance Company (Cayman) Ltd.21.1
    
    Subsidiaries of the Company.24.1
    
    Power of Attorney.31.1
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 153




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##### Table of Contents



(1)
    
    Scottish Re Group Limiteds Registration Statement on Form S-1 was filed with
the Securities and Exchange Commission on June 19, 1998, as amended.(2)
    
    Scottish Re Group Limiteds 1999 Annual Report on Form 10-K was filed with the
Securities and Exchange Commission on April 3, 2000.(3)
    
    Scottish Re Group Limiteds 2000 Annual Report on Form 10-K was filed with the
Securities and Exchange Commission on March 30, 2001.(4)
    
    Scottish Re Group Limiteds 2001 Annual Report on Form 10-K was filed with the
Securities and Exchange Commission on March 5, 2002.(5)
    
    Scottish Re Group Limiteds Current Report on Form 8-K was filed with the
Securities and Exchange Commission on December 31, 2001.(6)
    
    Scottish Re Group Limiteds Current Report on Form 8-K was filed with the
Securities and Exchange Commission on June 2, 2005.(7)
    
    Scottish Re Group Limiteds Current Report on Form 8-K was filed with the
Securities and Exchange Commission on August 9, 2001.(8)
    
    Scottish Re Group Limiteds Amended Quarterly Report on Form 10-Q/A was filed
with the Securities and Exchange Commission on August 8, 2002.(9)
    
    Scottish Re Group Limiteds Registration Statement on Form S-3 was filed with
the Securities and Exchange Commission on January 31, 2003, as amended.(10)
    
    Scottish Re Group Limiteds Current Report on Form 8-K was filed with the
Securities and Exchange Commission on December 17, 2003.(11)
    
    Scottish Re Group Limiteds Current Report on Form 8-K was filed with the
Securities and Exchange Commission on January 6, 2004.(12)
    
    Scottish Re Group Limiteds 2002 Annual Report on Form 10-K was filed with the
Securities and Exchange Commission on March 31, 2003.(13)
    
    Scottish Re Group Limiteds Quarterly Report on Form 10-Q was filed with the
Securities and Exchange Commission on August 12, 2003.(14)
    
    Scottish Re Group Limiteds Quarterly Report on Form 10-Q was filed with the
Securities and Exchange Commission on May 10, 2004.(15)
    
    Scottish Re Group Limiteds Current Report on Form 8-K was filed with the
Securities and Exchange Commission on October 21, 2004.(16)
    
    Scottish Re Group Limiteds Current Report on Form 8-K was filed with the
Securities and Exchange Commission on July 1, 2005.(17)
    
    Scottish Re Group Limiteds Current Report on Form 8-K was filed with the
Securities and Exchange Commission on July 18, 2005.(18)
    
    Scottish Re Group Limiteds Current Report on Form 8-K was filed with the
Securities and Exchange Commission on August 8, 2005.(19)
    
    Scottish Re Group Limiteds Current Report on Form 8-K was filed with the
Securities and Exchange Commission on August 4, 2005.
 154




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##### Table of Contents



(20)
    
    Scottish Re Group Limiteds 2004 Annual Report on Form 10-K was filed with the
Securities and Exchange Commission on March 18, 2005.(21)
    
    Scottish Re Group Limiteds Current Report on Form 8-K was filed with the
Securities and Exchange Commission on August 22, 2005.(22)
    
    Scottish Re Group Limiteds Current Report on Form 8-K as filed with the
Securities and Exchange Commission on November 29, 2006.(23)
    
    Scottish Re Group Limiteds Current Report on Form 8-K was filed with the
Securities and Exchange Commission on December 1, 2006.(24)
    
    Scottish Re Group Limiteds Quarterly Report on Form 10-Q for the period ended
June 30, 2007 was filed with the Securities and Exchange Commission on August 11, 2007.(25)
    
    This exhibit is a management contract or compensatory plan or arrangement.
 155




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 The Board of Directors and Shareholders of Scottish Re Group Limited
       
 156




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SCOTTISH RE GROUP LIMITED
 
 CONSOLIDATED BALANCE SHEETS
(Expressed in Thousands of United States Dollars, Except Share Data)
 December 31, 2007
    
    
    December 31, 2006ASSETSFixed maturity investments (Amortized cost
$7,582,850; 2006 - $8,102,384)
    
    $
    7,621,242
    
    
    $
    8,065,524Preferred stock (Cost $88,914; 2006 - $119,667)
    
    
    88,973
    
    
    
    116,933Cash and cash equivalents
    
    
    822,851
    
    
    
    622,756Other investments
    
    
    62,664
    
    
    
    65,448Funds withheld at interest
    
    
    1,597,336
    
    
    
    1,942,079Total investments
    
    
    10,193,066
    
    
    
    10,812,740Accrued interest receivable
    
    
    57,809
    
    
    
    57,538Reinsurance balances and risk fees receivable
    
    
    479,094
    
    
    
    488,063Deferred acquisition costs
    
    
    620,765
    
    
    
    618,737Amount recoverable from reinsurers
    
    
    562,537
    
    
    
    707,842Present value of in-force business
    
    
    45,560
    
    
    
    48,779Other assets
    
    
    140,230
    
    
    
    182,670Current income tax receivable
    
    
    11,069
    
    
    
    6,251Deferred tax asset
    
    
    6,988
    
    
    
    Segregated assets
    
    
    703,945
    
    
    
    683,470Total assets
    
    $
    12,821,063
    
    
    $
    13,606,090LIABILITIESReserves for future policy benefits
    
    $
    4,071,901
    
    
    $
    3,882,901Interest sensitive contract liabilities
    
    
    2,560,785
    
    
    
    3,342,410Collateral finance facilities
    
    
    3,980,379
    
    
    
    3,757,435Accounts payable and other liabilities
    
    
    287,611
    
    
    
    168,308Reinsurance balances payable
    
    
    175,168
    
    
    
    257,023Current income tax payable
    
    
    
    
    
    
    6,299Deferred tax liability
    
    
    165
    
    
    
    169,977Long term debt
    
    
    129,500
    
    
    
    129,500Segregated liabilities
    
    
    703,945
    
    
    
    683,470Total liabilities
    
    
    11,909,454
    
    
    
    12,397,323MINORITY INTEREST
    
    
    9,025
    
    
    
    7,910MEZZANINE EQUITYConvertible cumulative participating preferred
shares, (Liquidation preference, $628.8 million)
    
    
    555,857
    
    
    
    Hybrid capital units
    
    
    
    
    
    
    143,665Total mezzanine equity
    
    
    555,857
    
    
    
    143,665Commitments and contingencies (Note 19)SHAREHOLDERS EQUITYOrdinary shares, par value $0.01:Issued 68,383,370 shares (2006 - 60,554,104)
    
    
    684
    
    
    
    606Non-cumulative perpetual preferred shares, par
value $0.01:Issued: 5,000,000 shares (2006 - 5,000,000)
    
    
    125,000
    
    
    
    125,000Additional paid-in capital
    
    
    1,214,886
    
    
    
    1,050,860Accumulated other comprehensive income
    
    
    48,556
    
    
    
    340Retained deficit
    
    
    (1,042,399
    )
    
    
    (119,614
    )Total shareholders equity
    
    
    346,727
    
    
    
    1,057,192Total liabilities, minority interest, mezzanine
equity and shareholders equity
    
    $
    12,821,063
    
    
    $
    13,606,090
  157




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SCOTTISH RE GROUP LIMITED
 
 CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Expressed in Thousands of United States Dollars, Except Share Data)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005RevenuesPremiums earned, net
    
    $
    1,889,757
    
    
    $
    1,841,985
    
    
    $
    1,933,930Investment income, net
    
    
    599,698
    
    
    
    616,624
    
    
    
    355,837Fee and other income
    
    
    18,845
    
    
    
    14,493
    
    
    
    12,316Net realized (losses) gains
    
    
    (979,343
    )
    
    
    (27,405
    )
    
    
    3,738Gain on extinguishment of third party debt
    
    
    20,043
    
    
    
    
    
    
    
    Change in value of embedded derivatives, net
    
    
    (43,627
    )
    
    
    (16,197
    )
    
    
    (8,492
    )Total revenues
    
    
    1,505,373
    
    
    
    2,429,500
    
    
    
    2,297,329Benefits and expensesClaims and other policy benefits
    
    
    1,558,249
    
    
    
    1,569,472
    
    
    
    1,442,505Interest credited to interest sensitive contract
liabilities
    
    
    135,366
    
    
    
    172,967
    
    
    
    132,968Acquisition costs and other insurance expenses, net
    
    
    388,253
    
    
    
    409,185
    
    
    
    423,775Operating expenses
    
    
    168,916
    
    
    
    152,311
    
    
    
    115,573Goodwill impairment
    
    
    
    
    
    
    34,125
    
    
    
    Collateral finance facilities expense
    
    
    289,098
    
    
    
    215,791
    
    
    
    48,146Interest expense
    
    
    18,172
    
    
    
    23,139
    
    
    
    20,738Total benefits and expenses
    
    
    2,558,054
    
    
    
    2,576,990
    
    
    
    2,183,705(Loss) income before income taxes and minority
interest
    
    
    (1,052,681
    )
    
    
    (147,490
    )
    
    
    113,624Income tax benefit (expense)
    
    
    157,600
    
    
    
    (220,592
    )
    
    
    16,434(Loss) income before minority interest
    
    
    (895,081
    )
    
    
    (368,082
    )
    
    
    130,058Minority interest
    
    
    (661
    )
    
    
    1,368
    
    
    
    139Net (loss) income
    
    
    (895,742
    )
    
    
    (366,714
    )
    
    
    130,197Dividend declared on non-cumulative perpetual
preferred shares
    
    
    (9,062
    )
    
    
    (9,062
    )
    
    
    (4,758
    )Deemed dividend on beneficial conversion feature
related to convertible cumulative participating
preferred shares
    
    
    (120,750
    )
    
    
    
    
    
    
    Imputed dividend on prepaid variable share forward
contract
    
    
    
    
    
    
    (881
    )
    
    
    Net
(loss) income (attributable) available to ordinary
shareholders
    
    $
    (1,025,554
    )
    
    $
    (376,657
    )
    
    $
    125,439(Loss) earnings per ordinary share  Basic
    
    $
    (15.24
    )
    
    $
    (6.70
    )
    
    $
    2.86(Loss) earnings per ordinary share  Diluted
    
    $
    (15.24
    )
    
    $
    (6.70
    )
    
    $
    2.64Dividends declared per ordinary share
    
    $
    
    
    
    $
    0.10
    
    
    $
    0.20Weighted average number of ordinary shares
outstandingBasic
    
    
    67,303,066
    
    
    
    56,182,222
    
    
    
    43,838,261Diluted
    
    
    67,303,066
    
    
    
    56,182,222
    
    
    
    47,531,116
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SCOTTISH RE GROUP LIMITED
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Expressed in Thousands of United States Dollars)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005Net (loss) income
    
    $
    (895,742
    )
    
    $
    (366,714
    )
    
    $
    130,197Other
comprehensive income (loss)Unrealized depreciation on investments
    
    
    (739,807
    )
    
    
    (18,055
    )
    
    
    (30,750
    )Reclassification adjustment for net
realized losses (gains) included in
net (loss) income
    
    
    785,741
    
    
    
    16,310
    
    
    
    (790
    )Net unrealized appreciation
(depreciation) on investments net of
income taxes, deferred acquisition
costs and minority interest of
$(32,111), $4,124, and $32,293
    
    
    45,934
    
    
    
    (1,745
    )
    
    
    (31,540
    )Cumulative translation adjustment
    
    
    1,764
    
    
    
    14,938
    
    
    
    (10,055
    )Benefit plans
    
    
    518
    
    
    
    
    
    
    
    Other comprehensive income (loss)
    
    
    48,216
    
    
    
    13,193
    
    
    
    (41,595
    )Comprehensive (loss) income
    
    $
    (847,526
    )
    
    $
    (353,521
    )
    
    $
    88,602
  159




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SCOTTISH RE GROUP LIMITED
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(Expressed in Thousands of United States Dollars)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005Share capitalOrdinary sharesBeginning of year
    
    $
    606
    
    
    $
    534
    
    
    $
    399Issuance to holders of HyCUs on conversion of purchase
contracts
    
    
    74
    
    
    
    
    
    
    
    Issuance to holders of restricted stock awards
    
    
    4
    
    
    
    
    
    
    
    Issuance on exercise of warrants
    
    
    
    
    
    
    
    
    
    
    54Issuance to employees on exercise of options
    
    
    
    
    
    
    6
    
    
    
    4Ordinary shares issued
    
    
    
    
    
    
    66
    
    
    
    77End of year
    
    
    684
    
    
    
    606
    
    
    
    534Non-cumulative perpetual preferred sharesBeginning of year
    
    
    125,000
    
    
    
    125,000
    
    
    
    Non-cumulative perpetual preferred shares issued
    
    
    
    
    
    
    
    
    
    
    125,000End of year
    
    
    125,000
    
    
    
    125,000
    
    
    
    125,000Additional paid-in capitalBeginning of year
    
    
    1,050,860
    
    
    
    893,767
    
    
    
    684,719Issuance to holders of HyCUs on conversion of purchase
contracts
    
    
    143,675
    
    
    
    
    
    
    
    Beneficial conversion feature related to convertible
cumulative participating preferred shares
    
    
    120,750
    
    
    
    
    
    
    
    Accretion of beneficial conversion feature related to
convertible cumulative participating preferred shares
    
    
    (120,750
    )
    
    
    
    
    
    
    Option and restricted stock unit expense
    
    
    20,067
    
    
    
    2,586
    
    
    
    5,377Conversion of 7% Convertible Junior Subordinated Notes
    
    
    
    
    
    
    
    
    
    
    42,061Cost of forward sale agreements
    
    
    
    
    
    
    
    
    
    
    (13,893
    )Costs of issue of non-cumulative perpetual preferred shares
    
    
    
    
    
    
    
    
    
    
    (4,563
    )Ordinary shares issued, net of issuance costs
    
    
    
    
    
    
    147,318
    
    
    
    174,031Issuance to employees on exercise of options
    
    
    
    
    
    
    6,795
    
    
    
    5,358Other
    
    
    284
    
    
    
    394
    
    
    
    677End of year
    
    
    1,214,886
    
    
    
    1,050,860
    
    
    
    893,767Accumulated other comprehensive lossUnrealized appreciation (depreciation) on investments net
of income taxes, deferred acquisition costs and minority
interestBeginning of year
    
    
    (19,624
    )
    
    
    (17,879
    )
    
    
    13,661Change in year
    
    
    45,934
    
    
    
    (1,745
    )
    
    
    (31,540
    )End of year
    
    
    26,310
    
    
    
    (19,624
    )
    
    
    (17,879
    )Cumulative translation adjustmentBeginning of year
    
    
    22,826
    
    
    
    7,888
    
    
    
    17,943Change in year (net of tax)
    
    
    1,764
    
    
    
    14,938
    
    
    
    (10,055
    )End of year
    
    
    24,590
    
    
    
    22,826
    
    
    
    7,888
 160




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (continued)
(Expressed in Thousands of United States Dollars)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005Benefit plansBeginning of year
    
    
    (2,862
    )
    
    
    
    
    
    
    Change in year
    
    
    518
    
    
    
    (2,862
    )
    
    
    End of year
    
    
    (2,344
    )
    
    
    (2,862
    )
    
    
    Total accumulated other comprehensive (loss) income
    
    
    48,556
    
    
    
    340
    
    
    
    (9,991
    )Retained (deficit) earningsBeginning of year
    
    
    (119,614
    )
    
    
    262,402
    
    
    
    145,952Adoption of FIN 48 on January 1, 2007
    
    
    (17,981
    )
    
    
    
    
    
    
    Net (loss) income
    
    
    (895,742
    )
    
    
    (366,714
    )
    
    
    130,197Dividends declared on ordinary shares
    
    
    
    
    
    
    (5,359
    )
    
    
    (8,989
    )Dividends declared on non-cumulative perpetual preferred
shares
    
    
    (9,062
    )
    
    
    (9,062
    )
    
    
    (4,758
    )Imputed dividend on prepaid variable share forward contract
    
    
    
    
    
    
    (881
    )
    
    
    End of year
    
    
    (1,042,399
    )
    
    
    (119,614
    )
    
    
    262,402Total shareholders equity
    
    $
    346,727
    
    
    $
    1,057,192
    
    
    $
    1,271,712
  161




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SCOTTISH RE GROUP LIMITED
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Thousands of United States Dollars)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005Operating activitiesNet (loss) income
    
    $
    (895,742
    )
    
    $
    (366,714
    )
    
    $
    130,197Adjustments to reconcile net (loss) income to
net cash provided by operating activities:Net realized losses (gains)
    
    
    979,343
    
    
    
    27,405
    
    
    
    (3,738
    )Gain on extinguishment of third party debt
    
    
    (20,043
    )
    
    
    
    
    
    
    Changes in value of embedded derivatives, net
    
    
    43,627
    
    
    
    16,197
    
    
    
    8,492Amortization of discount on fixed maturity
investments and preferred stock
    
    
    13,021
    
    
    
    15,903
    
    
    
    18,253Amortization of deferred acquisition costs
    
    
    76,493
    
    
    
    109,473
    
    
    
    68,906Amortization and write-down of present value
of in-force business
    
    
    3,219
    
    
    
    5,964
    
    
    
    7,421Amortization of deferred transaction costs
    
    
    13,309
    
    
    
    9,584
    
    
    
    4,843Depreciation of fixed assets
    
    
    11,045
    
    
    
    12,718
    
    
    
    6,291Option and restricted stock unit expense
    
    
    20,067
    
    
    
    2,586
    
    
    
    5,377Minority interest
    
    
    661
    
    
    
    (1,368
    )
    
    
    (139
    )Goodwill impairment
    
    
    
    
    
    
    34,125
    
    
    
    Changes in assets and liabilities:Accrued interest receivable
    
    
    (101
    )
    
    
    (12,129
    )
    
    
    (12,317
    )Reinsurance balances and risk fees
receivable
    
    
    (65,266
    )
    
    
    26,708
    
    
    
    102,118Deferred acquisition costs
    
    
    (87,214
    )
    
    
    (125,937
    )
    
    
    (230,053
    )Deferred tax asset and liability
    
    
    (192,697
    )
    
    
    228,024
    
    
    
    (22,164
    )Other assets
    
    
    25,941
    
    
    
    (103,806
    )
    
    
    (72,600
    )Current income tax receivable and payable
    
    
    (10,874
    )
    
    
    (9,337
    )
    
    
    17,194Reserves for future policy benefits, net
of amounts recoverable from reinsurers
    
    
    325,780
    
    
    
    199,555
    
    
    
    356,922Funds withheld at interest
    
    
    344,743
    
    
    
    655,337
    
    
    
    (541,136
    )Interest sensitive contract liabilities
    
    
    (231,791
    )
    
    
    (325,907
    )
    
    
    480,990Accounts payable and other liabilities
    
    
    57,301
    
    
    
    85,000
    
    
    
    43,124Net cash provided by operating activities
    
    
    410,822
    
    
    
    483,381
    
    
    
    367,981Investing activitiesPurchase of fixed maturity investments
    
    
    (1,331,162
    )
    
    
    (4,482,054
    )
    
    
    (3,004,780
    )Proceeds from sales of fixed maturity investments
    
    
    270,403
    
    
    
    1,159,659
    
    
    
    690,533Proceeds from maturity of fixed maturity
investments
    
    
    596,040
    
    
    
    512,719
    
    
    
    517,775Purchase of preferred stock
    
    
    
    
    
    
    (10,298
    )
    
    
    (17,028
    )Proceeds from sale and maturity of preferred stock
    
    
    19,878
    
    
    
    26,431
    
    
    
    4,174Purchase of other investments
    
    
    (344
    )
    
    
    (8,215
    )
    
    
    (37,736
    )Purchase of fixed assets
    
    
    (2,764
    )
    
    
    (18,644
    )
    
    
    (13,135
    )Net cash used in investing activities
    
    
    (447,949
    )
    
    
    (2,820,402
    )
    
    
    (1,860,197
    )
 162




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Thousands of United States Dollars)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2006
    
    
    2005Financing activitiesDeposits to interest sensitive contract
liabilities
    
    
    2,382
    
    
    
    154,569
    
    
    
    312,958Withdrawals from interest sensitive contract
liabilities
    
    
    (289,798
    )
    
    
    (676,028
    )
    
    
    (255,515
    )Proceeds from issuance of convertible cumulative
participating preferred shares
    
    
    555,857
    
    
    
    
    
    
    
    Proceeds from issuance to holders of HyCUs on
conversion of purchase contracts
    
    
    7,338
    
    
    
    
    
    
    
    Redemption of convertible preferred shares
    
    
    (7,338
    )
    
    
    
    
    
    
    Dividends paid on redemption of convertible
preferred shares
    
    
    (222
    )
    
    
    
    
    
    
    Proceeds from collateral finance facilities
    
    
    431,514
    
    
    
    1,771,754
    
    
    
    1,785,681Repayment of collateral finance facilities
    
    
    (188,527
    )
    
    
    
    
    
    
    Repayment from drawdown of Stingray facility
    
    
    (275,000
    )
    
    
    
    
    
    
    Proceeds from drawdown of Stingray facility
    
    
    10,000
    
    
    
    265,000
    
    
    
    Proceeds from issuance of ordinary shares
    
    
    78
    
    
    
    153,698
    
    
    
    179,466Dividends paid on ordinary shares
    
    
    
    
    
    
    (5,359
    )
    
    
    (8,990
    )Dividends paid on non-cumulative perpetual
preferred shares
    
    
    (9,062
    )
    
    
    (9,062
    )
    
    
    (2,492
    )Net proceeds from issuance of non-cumulative
perpetual preferred shares
    
    
    
    
    
    
    
    
    
    
    120,436Cost of variable share forward contracts
    
    
    
    
    
    
    
    
    
    
    (13,816
    )Repayment of long term debt
    
    
    
    
    
    
    (115,000
    )
    
    
    Net proceeds from exercise of Class C
warrants
    
    
    
    
    
    
    
    
    
    
    54Net cash (used in) provided by financing
activities
    
    
    237,222
    
    
    
    1,539,572
    
    
    
    2,117,782Net change in cash and cash equivalents
    
    
    200,095
    
    
    
    (797,449
    )
    
    
    625,566Cash and cash equivalents, beginning of year
    
    
    622,756
    
    
    
    1,420,205
    
    
    
    794,639Cash and cash equivalents, end of year
    
    $
    822,851
    
    
    $
    622,756
    
    
    $
    1,420,205Interest paid
    
    $
    2,998
    
    
    $
    9,908
    
    
    $
    18,232Taxes paid (refunded)
    
    $
    16,095
    
    
    $
    1,774
    
    
    $
    (1,041
    )
  163




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 December 31, 2007
 1. Organization and Business
 Organization
  Business
  Life Reinsurance North America
  Traditional Solutions:
 Financial Solutions:
  164




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 1. Organization and Business (continued)
  Life Reinsurance International
     Corporate and Other
   165




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 1. Organization and Business (continued)
   2. Summary of Significant Accounting Policies
 Basis
of Presentation
    166




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 2. Summary of Significant Accounting Policies (continued)
    
    
    investment valuation and impairments;
    
    accounting for derivative instruments;
    
    assessment of risk transfer for structured insurance and reinsurance contracts;
    
    estimates of premiums;
    
    valuation of present value of in-force business;
    
    establishment of reserves for future policy benefits;
    
    capitalization and amortization of deferred acquisition costs;
    
    retrocession arrangements and amounts recoverable from reinsurers;
    
    interest sensitive contract liabilities;
    
    deferred taxes and determination of the valuation allowance;
    
    taxation; and
    
    stock based compensation.
   Fixed Maturity Investments, Preferred Stock, Other Investments and Cash and Cash Equivalents
  167




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 2. Summary of Significant Accounting Policies (continued)
       Derivatives
  168




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 2. Summary of Significant Accounting Policies (continued)
     Assessment of Risk Transfer for Structured Insurance and Reinsurance Contracts
   169




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 2. Summary of Significant Accounting Policies (continued)
 Revenue Recognition
 (i)
    
    Reinsurance premiums from traditional life policies and annuity policies with
life contingencies are generally recognized as revenue when due from policyholders and
are reported net of amounts retroceded. 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, net of amounts retroceded, are matched with net earned
premiums 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 deferred acquisition
costs.From time to time, we acquire blocks of in-force business and account for these
transactions as purchases. Results of operations only include the revenues and
expenses from the respective dates of acquisition of these blocks of in-force
business. The initial transfer of assets and liabilities is recorded on the balance
sheet. Reinsurance assumed for interest sensitive and investment type products does
not generate premium but generates investment income on the assets we receive from
ceding companies, policy charges for the cost of insurance, policy administration,
and surrenders that have been assessed against policy account balances during the
period.(ii)
    
    Fee income is recorded on an accrual basis.(iii)
    
    Net investment income includes interest and dividend income together with
amortization of market premium and discounts and is net of investment management and
custody fees. For mortgage backed securities, and any other holdings for which there is
a prepayment risk, prepayment assumptions are evaluated and revised as necessary. Any
adjustments required due to the resultant change in effective yields and maturities are
recognized prospectively.
 Present Value of In-force Business
  Reserves for Future Policy Benefits
  170




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 2. Summary of Significant Accounting Policies (continued)
   Deferred Acquisition Costs
      Retrocession Arrangements and Amounts Recoverable from Reinsurers
    171




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 2. Summary of Significant Accounting Policies (continued)
     Interest Sensitive Contract Liabilities
   172




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 2. Summary of Significant Accounting Policies (continued)
  Income Taxes
    Stock-based Compensation
   173




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 2. Summary of Significant Accounting Policies (continued)
  Funds Withheld at Interest
  Goodwill
   Other Assets
    174




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 2. Summary of Significant Accounting Policies (continued)
  Segregated Assets and Liabilities
   Other Liabilities
  Foreign Currency Translation
  Earnings per Share
   175




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 2. Summary of Significant Accounting Policies (continued)
 Fair Value of Financial Instruments
  New Accounting Pronouncements
 FASB
Statement No. 157, Fair Value Measurements
  FASB Statement No. 159, Fair Value Option for Financial Assets and Financial Liabilities
  176




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 3. Investments
  December 31, 2007Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Estimated(U.S. dollars  in thousands)
    
    Cost or Cost
    
    
    Appreciation
    
    
    Depreciation
    
    
    Fair ValueU.S. Treasury securities and U.S.
government agency obligations
    
    $
    87,150
    
    
    $
    2,298
    
    
    $
    
    
    
    $
    89,448Corporate securities
    
    
    2,773,880
    
    
    
    24,424
    
    
    
    
    
    
    
    2,798,304Municipal bonds
    
    
    55,466
    
    
    
    732
    
    
    
    
    
    
    
    56,198Mortgage and asset backed securities
    
    
    4,666,354
    
    
    
    10,938
    
    
    
    
    
    
    
    4,677,292Preferred stock
    
    
    88,914
    
    
    
    59
    
    
    
    
    
    
    
    88,973Total
    
    $
    7,671,764
    
    
    $
    38,451
    
    
    $
    
    
    
    $
    7,710,215
 December 31, 2006Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Estimated(U.S. dollars  in thousands)
    
    Cost or Cost
    
    
    Appreciation
    
    
    Depreciation
    
    
    Fair ValueU.S. Treasury securities and U.S.
government agency obligations
    
    $
    69,205
    
    
    $
    183
    
    
    $
    (1,367
    )
    
    $
    68,021Corporate securities
    
    
    2,722,900
    
    
    
    22,884
    
    
    
    (45,279
    )
    
    
    2,700,505Municipal bonds
    
    
    52,676
    
    
    
    344
    
    
    
    (827
    )
    
    
    52,193Mortgage and asset backed securities
    
    
    5,257,603
    
    
    
    14,959
    
    
    
    (27,757
    )
    
    
    5,244,805Preferred stock
    
    
    119,667
    
    
    
    552
    
    
    
    (3,286
    )
    
    
    116,933Total
    
    $
    8,222,051
    
    
    $
    38,922
    
    
    $
    (78,516
    )
    
    $
    8,182,457
  December 31, 2007Amortized
    
    
    Estimated(U.S. dollars  in thousands)
    
    Cost or Cost
    
    
    Fair ValueDue in one year or less
    
    $
    178,085
    
    
    $
    178,225Due after one year through five years
    
    
    809,749
    
    
    
    817,897Due after five years through ten years
    
    
    939,109
    
    
    
    949,167Due after ten years
    
    
    1,078,467
    
    
    
    1,087,6343,005,410
    
    
    
    3,032,923Mortgage and asset backed securities
    
    
    4,666,354
    
    
    
    4,677,292Total
    
    $
    7,671,764
    
    
    $
    7,710,215
 177




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 3. Investments (continued)
 December 31, 2006Amortized
    
    
    Estimated(U.S. dollars in thousands)
    
    Cost or Cost
    
    
    Fair ValueDue in one year or less
    
    $
    98,600
    
    
    $
    98,281Due after one year through five years
    
    
    727,153
    
    
    
    721,570Due after five years through ten years
    
    
    1,099,979
    
    
    
    1,091,209Due after ten years
    
    
    1,038,716
    
    
    
    1,026,5922,964,448
    
    
    
    2,937,652Mortgage and asset backed securities
    
    
    5,257,603
    
    
    
    5,244,805Total
    
    $
    8,222,051
    
    
    $
    8,182,457
   Intent to Sell our Businesses and Related Investment Portfolios
 Going Concern Uncertainties
 ING Assignment
 178




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 3. Investments (continued)
      December 31, 2006Equal to or Greater ThanLess Than 12 Months
    
    
    12 Months
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized(U.S. dollars in thousands)
    
    Fair Value
    
    
    Loss
    
    
    Fair Value
    
    
    Loss
    
    
    Fair Value
    
    
    LossInvestment
grade securitiesCMO
    
    $
    369,457
    
    
    $
    (2,365
    )
    
    $
    252,252
    
    
    $
    (6,327
    )
    
    $
    621,709
    
    
    $
    (8,692
    )Corporates
    
    
    752,219
    
    
    
    (15,710
    )
    
    
    867,537
    
    
    
    (29,012
    )
    
    
    1,619,756
    
    
    
    (44,722
    )Governments
    
    
    35,805
    
    
    
    (615
    )
    
    
    21,072
    
    
    
    (752
    )
    
    
    56,877
    
    
    
    (1,367
    )MBS
    
    
    12,116
    
    
    
    (136
    )
    
    
    138,992
    
    
    
    (4,674
    )
    
    
    151,108
    
    
    
    (4,810
    )Municipal
    
    
    19,865
    
    
    
    (187
    )
    
    
    18,013
    
    
    
    (640
    )
    
    
    37,878
    
    
    
    (827
    )Other structured securities
    
    
    413,269
    
    
    
    (2,509
    )
    
    
    613,172
    
    
    
    (11,730
    )
    
    
    1,026,441
    
    
    
    (14,239
    )Preferred stocks
    
    
    6,877
    
    
    
    (203
    )
    
    
    88,907
    
    
    
    (3,064
    )
    
    
    95,784
    
    
    
    (3,267
    )Total investment grade
securities
    
    
    1,609,608
    
    
    
    (21,725
    )
    
    
    1,999,945
    
    
    
    (56,199
    )
    
    
    3,609,553
    
    
    
    (77,924
    )Below investment grade
securitiesCorporates
    
    
    3,416
    
    
    
    (58
    )
    
    
    12,752
    
    
    
    (499
    )
    
    
    16,168
    
    
    
    (557
    )Other structured securities
    
    
    46
    
    
    
    (12
    )
    
    
    5
    
    
    
    (4
    )
    
    
    51
    
    
    
    (16
    )Preferred stock
    
    
    
    
    
    
    
    
    
    
    340
    
    
    
    (19
    )
    
    
    340
    
    
    
    (19
    )Total below investment
grade securities
    
    
    3,462
    
    
    
    (70
    )
    
    
    13,097
    
    
    
    (522
    )
    
    
    16,559
    
    
    
    (592
    )Total
    
    $
    1,613,070
    
    
    $
    (21,795
    )
    
    $
    2,013,042
    
    
    $
    (56,721
    )
    
    $
    3,626,112
    
    
    $
    (78,516
    )
 179




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 3. Investments (continued)
  Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,(U.S. dollars in thousands)
    
    2007
    
    
    2006
    
    
    2005Gross realized gains (losses)Fixed maturitiesGross realized gains
    
    $
    3,200
    
    
    $
    7,828
    
    
    $
    8,867Gross realized losses
    
    
    (14,216
    )
    
    
    (21,796
    )
    
    
    (6,561
    )Other-than-temporary impairments
    
    
    (971,685
    )
    
    
    (4,125
    )
    
    
    (2,437
    )(982,701
    )
    
    
    (18,093
    )
    
    
    (131
    )Preferred stockGross realized gains
    
    
    1
    
    
    
    35
    
    
    
    23Gross realized losses
    
    
    (1,732
    )
    
    
    (1,450
    )
    
    
    (238
    )(1,731
    )
    
    
    (1,415
    )
    
    
    (215
    )OtherForeign currency gains
    
    
    1,047
    
    
    
    98
    
    
    
    402Deferred acquisition costs
    
    
    5,112
    
    
    
    3,937
    
    
    
    439Change in fair value interest rate swaps
    
    
    
    
    
    
    4,388
    
    
    
    2,228Realized (losses) gains on modco
treaties
    
    
    (2,582
    )
    
    
    (17,202
    )
    
    
    1,015Other
    
    
    1,512
    
    
    
    882
    
    
    
    Net realized (losses) gains
    
    
    (979,343
    )
    
    
    (27,405
    )
    
    
    3,738Change in net unrealized depreciation on
investmentsFixed maturities
    
    
    75,252
    
    
    
    (5,914
    )
    
    
    (60,426
    )Preferred stock
    
    
    2,793
    
    
    
    679
    
    
    
    (4,041
    )Other
    
    
    (454
    )
    
    
    (607
    )
    
    
    888Change in deferred acquisition costs
    
    
    (14,428
    )
    
    
    3,107
    
    
    
    16,046Change in deferred income taxes
    
    
    (17,229
    )
    
    
    990
    
    
    
    15,993Change in net unrealized depreciation on
investments
    
    
    45,934
    
    
    
    (1,745
    )
    
    
    (31,540
    )Total net realized losses and change in net
unrealized depreciation on investments and
other balances
    
    $
    (933,409
    )
    
    $
    (29,150
    )
    
    $
    (27,802
    )
  Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,(U.S. dollars in thousands)
    
    2007
    
    
    2006
    
    
    2005Fixed maturities
    
    $
    453,482
    
    
    $
    389,786
    
    
    $
    225,216Preferred stock
    
    
    6,564
    
    
    
    8,395
    
    
    
    8,107Funds withheld at interest
    
    
    105,794
    
    
    
    163,618
    
    
    
    110,523Other investments
    
    
    45,432
    
    
    
    69,358
    
    
    
    21,259Investment expenses
    
    
    (11,574
    )
    
    
    (14,533
    )
    
    
    (9,268
    )Net investment income
    
    $
    599,698
    
    
    $
    616,624
    
    
    $
    355,837
 180




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 3. Investments (continued)
   December 31,
    
    
    December 31,(U.S. dollars in thousands)
    
    2007
    
    
    2006Deposits with U.S. regulatory authorities
    
    $
    14,375
    
    
    $
    9,843Deposits held with Lloyds
    
    
    7,190
    
    
    
    4,960Trust funds
    
    
    7,783,566
    
    
    
    8,060,912$
    7,805,131
    
    
    $
    8,075,715
 4. Funds Withheld at Interest
  .
 181




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 5. Deferred Acquisition Costs
  December 31,
    
    
    December 31,(U.S. dollars in thousands)
    
    2007
    
    
    2006Balance beginning of year
    
    $
    618,737
    
    
    $
    594,583Expenses deferred
    
    
    86,760
    
    
    
    126,297Amortization expense
    
    
    (76,493
    )
    
    
    (109,473
    )Deferred acquisition costs on in-force
reinsurance transactions purchased
    
    
    1,077
    
    
    
    286Deferred acquisition costs on unrealized
gains and losses
    
    
    (14,428
    )
    
    
    3,107Deferred acquisition costs on realized losses
    
    
    5,112
    
    
    
    3,937Balance at end of year
    
    $
    620,765
    
    
    $
    618,737
 6. Present Value of In-force Business
  December 31,
    
    
    December 31,(U.S. dollars in thousands)
    
    2007
    
    
    2006Balance at beginning of year
    
    $
    48,779
    
    
    $
    54,743Amortization
    
    
    (3,219
    )
    
    
    (4,734
    )Other adjustments and write-offs
    
    
    
    
    
    
    (1,230
    )Balance at end of year
    
    $
    45,560
    
    
    $
    48,779
  (U.S. dollars in thousands)Year ending December 312008
    
    $
    5,5012009
    
    
    5,7852010
    
    
    3,8342011
    
    
    3,4812012
    
    
    2,899Thereafter
    
    
    24,060$
    45,560
 182




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 7. Collateral Finance Facilities and Securitization Structures
 HSBC I
  Orkney Re, Inc.
  183




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 7. Collateral Finance Facilities and Securitization Structures (continued)
    Orkney Re II plc
     184




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 7. Collateral Finance Facilities and Securitization Structures (continued)
  HSBC II
   Ballantyne Re plc
  
    
    $250.0 million of Class A-1 Floating Rate Notes,
    
    $500.0 million of Class A-2 Floating Rate Guaranteed Notes Series A,
    
    $500.0 million of Class A-2 Floating Rate Guaranteed Notes Series B,
    
    $100.0 million of Class A-3 Floating Rate Guaranteed Notes Series A,
    
    $100.0 million of Class A-3 Floating Rate Guaranteed Notes Series B,
    
    $100.0 million of Class A-3 Floating Rate Guaranteed Notes Series C,
    
    $100.0 million of Class A-3 Floating Rate Guaranteed Notes Series D,
    
    $10.0 million of Class B-1 7.51244% Subordinated Notes,
    
    $40.0 million of Class B-2 Subordinated Floating Rate Notes, and
 185




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 7. Collateral Finance Facilities and Securitization Structures (continued)
 
    
    $42.0 million of Class C-1 Subordinated Variable Interest Rate Notes.
      186




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 7. Collateral Finance Facilities and Securitization Structures (continued)
  Reinsurance Facility
  Clearwater Re
      Consolidated collateral finance facilities and securitization structures
  187




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31,
2007
 7.
    
    Collateral Finance Facilities and Securitization Structures (continued)
 As at and for the Year EndedDecember 31, 2007Clearwater
    
    
    Ballantyne
    
    
    
    
    
    
    Orkney Re(U.S. dollars in millions)
    
    Re
    
    
    Re
    
    
    Orkney I
    
    
    II
    
    
    HSBC I
    
    
    HSBC II
    
    
    TotalAssetsInvestments
    
    $
    381.4
    
    
    $
    1,940.0
    
    
    $
    1,158.9
    
    
    $
    461.7
    
    
    $
    
    
    
    $
    561.9
    
    
    $
    4,503.9Cash and cash
equivalents
    
    
    144.2
    
    
    
    151.9
    
    
    
    122.4
    
    
    
    35.1
    
    
    
    
    
    
    
    21.1
    
    
    
    474.7Other assets
    
    
    94.7
    
    
    
    68.3
    
    
    
    124.9
    
    
    
    67.2
    
    
    
    
    
    
    
    11.2
    
    
    
    366.3Total assets
    
    $
    620.3
    
    
    $
    2,160.2
    
    
    $
    1,406.2
    
    
    $
    564.0
    
    
    $
    
    
    
    $
    594.2
    
    
    $
    5,344.9LiabilitiesReserves for future
policy benefits
    
    $
    122.8
    
    
    $
    675.6
    
    
    $
    283.1
    
    
    $
    97.3
    
    
    $
    
    
    
    $
    
    
    
    $
    1,178.8Collateral finance
facilities
    
    
    365.9
    
    
    
    1,719.5
    
    
    
    850.0
    
    
    
    450.0
    
    
    
    
    
    
    
    595.0
    
    
    
    3,980.4Other liabilities
    
    
    7.7
    
    
    
    35.9
    
    
    
    12.2
    
    
    
    5.1
    
    
    
    
    
    
    
    
    
    
    
    60.9Total liabilities
    
    $
    496.4
    
    
    $
    2,431.0
    
    
    $
    1,145.3
    
    
    $
    552.4
    
    
    $
    
    
    
    $
    595.0
    
    
    $
    5,220.1RevenuesPremiums earned, net
    
    $
    40.1
    
    
    $
    274.0
    
    
    $
    106.0
    
    
    $
    56.8
    
    
    $
    
    
    
    $
    
    
    
    $
    476.9Investment income,
net
    
    
    7.8
    
    
    
    144.2
    
    
    
    69.2
    
    
    
    32.6
    
    
    
    6.5
    
    
    
    31.1
    
    
    
    291.4Net realized gains
(losses)
    
    
    (1.5
    )
    
    
    (604.6
    )
    
    
    (63.4
    )
    
    
    (115.7
    )
    
    
    
    
    
    
    (34.5
    )
    
    
    (819.7
    )Gain on
extinguishment of
third party debt
    
    
    
    
    
    
    20.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20.0Total revenues
    
    $
    46.4
    
    
    $
    (166.4
    )
    
    $
    111.8
    
    
    $
    (26.3
    )
    
    $
    6.5
    
    
    $
    (3.4
    )
    
    $
    (31.4
    )ExpensesClaims and other
policy benefits
    
    $
    31.5
    
    
    $
    209.4
    
    
    $
    92.1
    
    
    $
    40.5
    
    
    $
    
    
    
    $
    
    
    
    $
    373.5Acquisition costs
and other insurance
expenses, net
    
    
    11.1
    
    
    
    66.0
    
    
    
    26.5
    
    
    
    12.3
    
    
    
    
    
    
    
    
    
    
    
    115.9Operating expenses
    
    
    0.1
    
    
    
    0.6
    
    
    
    0.6
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    1.7Collateral finance
facilities expense
    
    
    8.8
    
    
    
    114.5
    
    
    
    57.4
    
    
    
    31.0
    
    
    
    7.1
    
    
    
    33.8
    
    
    
    252.6Total benefits and
expenses
    
    $
    51.5
    
    
    $
    390.5
    
    
    $
    176.6
    
    
    $
    84.2
    
    
    $
    7.1
    
    
    $
    33.8
    
    
    $
    743.7
 188




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31,
2007
 7.
    
    Collateral Finance Facilities and Securitization Structures (continued)
  As
at and for the Year EndedDecember 31, 2006Ballantyne
    
    
    Orkney
    
    
    Orkney(U.S. dollars in millions)
    
    Re
    
    
    I
    
    
    Re II
    
    
    HSBC I
    
    
    HSBC II
    
    
    TotalAssetsInvestments
    
    $
    2,423.0
    
    
    $
    1,191.5
    
    
    $
    556.2
    
    
    $
    178.4
    
    
    $
    509.2
    
    
    $
    4,858.3Cash and cash
equivalents
    
    
    170.4
    
    
    
    105.8
    
    
    
    27.2
    
    
    
    15.5
    
    
    
    24.0
    
    
    
    342.9Other assets
    
    
    83.3
    
    
    
    36.7
    
    
    
    75.9
    
    
    
    0.7
    
    
    
    1.0
    
    
    
    197.6Total assets
    
    $
    2,676.7
    
    
    $
    1,334.0
    
    
    $
    659.3
    
    
    $
    194.6
    
    
    $
    534.2
    
    
    $
    5,398.8LiabilitiesReserves for future
policy benefits
    
    $
    630.4
    
    
    $
    258.8
    
    
    $
    82.6
    
    
    $
    
    
    
    $
    
    
    
    $
    971.8Collateral finance
facilities
    
    
    1,739.5
    
    
    
    850.0
    
    
    
    450.0
    
    
    
    188.5
    
    
    
    529.4
    
    
    
    3,757.4Other liabilities
    
    
    23.7
    
    
    
    42.6
    
    
    
    6.4
    
    
    
    5.2
    
    
    
    
    
    
    
    77.9Total liabilities
    
    $
    2,393.6
    
    
    $
    1,151.4
    
    
    $
    539.0
    
    
    $
    193.7
    
    
    $
    529.4
    
    
    $
    4,807.1RevenuesPremiums earned, net
    
    $
    219.7
    
    
    $
    121.3
    
    
    $
    62.9
    
    
    $
    
    
    
    $
    
    
    
    $
    403.9Investment income,
net
    
    
    91.2
    
    
    
    65.1
    
    
    
    29.6
    
    
    
    10.5
    
    
    
    26.4
    
    
    
    222.8Net realized gains
(losses)
    
    
    0.4
    
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total revenues
    
    $
    311.3
    
    
    $
    186.0
    
    
    $
    92.5
    
    
    $
    10.5
    
    
    $
    26.4
    
    
    $
    626.7ExpensesClaims and other
policy benefits
    
    $
    276.8
    
    
    $
    83.9
    
    
    $
    45.1
    
    
    $
    
    
    
    $
    
    
    
    $
    405.8Acquisition costs
and other insurance
expenses, net
    
    
    53.2
    
    
    
    27.0
    
    
    
    11.4
    
    
    
    
    
    
    
    
    
    
    
    91.6Operating expenses
    
    
    0.4
    
    
    
    0.3
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    1.0Collateral finance
facilities expense
    
    
    70.0
    
    
    
    51.9
    
    
    
    28.0
    
    
    
    10.5
    
    
    
    22.9
    
    
    
    183.3Total benefits and
expenses
    
    $
    400.4
    
    
    $
    163.1
    
    
    $
    84.8
    
    
    $
    10.5
    
    
    $
    22.9
    
    
    $
    681.7
 189




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31,
2007
 8.
    
    Debt Obligations and Other Funding ArrangementsLong-term debt consists of:
 December 31,
    
    
    December 31,(U.S. dollars in thousands)
    
    2007
    
    
    2006Capital securities due 2032
    
    $
    17,500
    
    
    $
    17,500Preferred trust securities due 2033
    
    
    20,000
    
    
    
    20,000Trust preferred securities due 2033
    
    
    10,000
    
    
    
    10,000Trust preferred securities due 2034
    
    
    32,000
    
    
    
    32,000Trust preferred securities due 2034
    
    
    50,000
    
    
    
    50,000$
    129,500
    
    
    $
    129,500
 4.5% Senior Convertible Notes
    Capital
Securities Due 2032
    190




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31,
2007
 8.
    
    Debt Obligations and Other Funding Arrangements (continued)
  Preferred Trust Securities Due 2033
     Trust Preferred Securities Due 2033
    191




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31,
2007
 8.
    
    Debt Obligations and Other Funding Arrangements (continued)
  Trust Preferred Securities Due 2034
     Trust Preferred Securities Due 2034
    192




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 8.
    
    Debt Obligations and Other Funding Arrangements (continued)
   Funding Agreements
 Stingray
    Premium Asset Trust Series 2004-4
   Credit Facilities
  193




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 8.
    
    Debt Obligations and Other Funding Arrangements (continued)
  .
  9. Fair Value of Financial Instruments
       194




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 9.
    
    Fair Value of Financial Instruments (continued)
   December 31, 2007
    
    December 31, 2006Carrying
    
    Estimated Fair
    
    Carrying
    
    Estimated Fair(U.S. dollars in thousands)
    
    Value
    
    Value
    
    Value
    
    ValueAssetsFixed maturity investments
    
    $
    7,621,242
    
    
    $
    7,621,242
    
    
    $
    8,065,524
    
    
    $
    8,065,524Preferred stock
    
    
    88,973
    
    
    
    88,973
    
    
    
    116,933
    
    
    
    116,933Other investments
    
    
    62,664
    
    
    
    62,664
    
    
    
    65,448
    
    
    
    65,448Funds withheld at interest
(excluding cash)
    
    
    1,597,336
    
    
    
    1,680,665
    
    
    
    1,942,079
    
    
    
    1,974,741LiabilitiesCollateral finance facilities
    
    $
    3,980,379
    
    
    $
    3,878,682
    
    
    $
    3,757,435
    
    
    $
    3,757,435Long term debt
    
    
    129,500
    
    
    
    113,500
    
    
    
    129,500
    
    
    
    113,500Amounts payable under
funding agreements
    
    
    100,320
    
    
    
    70,320
    
    
    
    365,331
    
    
    
    256,000
 10. Mezzanine Equity
 Convertible Cumulative Participating Preferred Shares
   195




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 10.
    
    Mezzanine Equity (continued)
      196




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 10.
    
    Mezzanine Equity (continued)
   Hybrid Capital Units
      11.  Shareholders Equity
 Ordinary Shares
   197




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 11. Shareholders Equity (continued)
 (i)
    
    3,953,183 ordinary shares, par value $0.01 per share (equal to 9.9% of the
aggregate number of ordinary shares issued and outstanding on December 31, 2004,
taking into account such issuance);(ii)
    
    Class C Warrants to purchase 3,206,431 ordinary shares (equal to the difference
between (A) 19.9% of the ordinary shares issued and outstanding on December 31, 2004
(without taking into account the issuance of ordinary shares pursuant to (i) above) and
(B) the number of ordinary shares issued to the Cypress Entities as provided in (i)
above); and(iii)
    
    The 7.00% Convertible Junior Subordinated Notes discussed in Note 8 Debt Obligations and Other Funding Arrangements.
     Year Ended
    
    Year Ended
    
    Year EndedDecember 31,
    
    December 31,
    
    December 31,2007
    
    2006
    
    2005Ordinary sharesBeginning of year
    
    
    60,554,104
    
    
    
    53,391,939
    
    
    
    39,931,145Issuance to holders of HyCUs on conversion of
purchase contracts
    
    
    7,440,478
    
    
    
    
    
    
    
    Issuance to holders of restricted stock awards
    
    
    388,313
    
    
    
    
    
    
    
    Ordinary shares issued
    
    
    
    
    
    
    6,578,948
    
    
    
    7,660,000Issuance to employees on exercise of options and
awards
    
    
    475
    
    
    
    583,217
    
    
    
    423,467Issuance on exercise of warrants
    
    
    
    
    
    
    
    
    
    
    5,377,327End of year
    
    
    68,383,370
    
    
    
    60,554,104
    
    
    
    53,391,939Non-cumulative perpetual preferred sharesBeginning of year
    
    
    5,000,000
    
    
    
    5,000,000
    
    
    
    Non-cumulative perpetual preferred shares issued
    
    
    
    
    
    
    
    
    
    
    5,000,000End of year
    
    
    5,000,000
    
    
    
    5,000,000
    
    
    
    5,000,000
 198




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 11. 
Shareholders Equity (continued)
 Prepaid Variable Share Forward Contract
     Preferred Shares
    199




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 11.  Shareholders Equity (continued)
     Warrants
    General Restrictions
  200




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 11.  Shareholders Equity (continued)
 Dividends
    12. Reinsurance
  (U.S. dollars in thousands)
    
    December 31, 2007
    
    
    December 31, 2006
    
    
    December 31, 2005Premiums assumed
    
    $
    2,275,144
    
    
    $
    2,176,623
    
    
    $
    2,155,279Premiums ceded
    
    
    (385,387
    )
    
    
    (334,638
    )
    
    
    (221,349
    )Premiums earned
    
    $
    1,889,757
    
    
    $
    1,841,985
    
    
    $
    1,933,930
    13. Employee Benefit Plans
 Pension Plan
   201




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 13.  Employee Benefit Plans (continued)
 401(k) Plan
  Stock Based Incentive Compensation Plans
 2007 Stock Option Plan
  Options issued under the 2007 Plan vest as follows:
    
    50% of an option grant to an employee or consultant vests based on the recipients
continued employment with the Company (Time-Based Options). 20% of the Time-Based
Options vest on the grant date and an additional 20% vest in four equal installments on
each of the first, second, third and fourth anniversary of the grant date, based on
continued employment. The Time-Based Options are exercisable upon vesting.
    
    50% of an option grant to an employee or consultant vests based on the achievement of
certain performance targets as established by the Board with respect to each relevant
fiscal year (Performance-Based Options). 10% of the Performance-Based Options vest
following the close of each of the five fiscal years following the grant date, subject to
the Companys attainment of the performance targets established by the Board with respect
to the relevant fiscal year. In addition, 10% of the Performance-Based Options vest
following the close of each of the five fiscal years following the grant date, subject to
the recipients respective divisions or segments attainment of the performance targets
established by the Board with respect to the relevant fiscal year. Although the
Performance-Based Options may vest, they shall not become exercisable until the end of the
fifth fiscal year following May 7, 2007; provided, however, that if the Company achieves an
A- rating or better from Standard & Poors or AM Best within eighteen (18) months following
the closing of the 2007 New Capital Transaction, all Performance-Based Options with regard
to fiscal years 2007 and 2008 will fully vest and become exercisable.
    
    100% of options granted to directors vest on the grant date and are exercisable.
  Pre-Transaction Stock Options
  202




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 13.  Employee Benefit Plans (continued)
  Option activity
  Year Ended
    
    Year Ended
    
    Year EndedDecember 31,
    
    December 31,
    
    December 31,2007
    
    2006
    
    2005Outstanding, beginning of year
    
    
    1,715,019
    
    
    
    2,583,737
    
    
    
    2,488,736Granted
    
    
    8,356,000
    
    
    
    154,000
    
    
    
    631,001Exercised
    
    
    
    
    
    
    (583,217
    )
    
    
    (422,867
    )Cancelled
    
    
    (1,384,175
    )
    
    
    (439,501
    )
    
    
    (113,133
    )Outstanding, end of year
    
    
    8,686,844
    
    
    
    1,715,019
    
    
    
    2,583,737Options exercisable, end of year
    
    
    4,542,319
    
    
    
    1,118,872
    
    
    
    1,587,203
     Outstanding, beginning of year
    
    $
    19.55Granted
    
    $
    4.51Exercised
    
    
    Cancelled
    
    $
    9.15Outstanding, end of year
    
    $
    6.74Options exercisable, end of year
    
    $
    8.87
 203




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 13.  Employee Benefit Plans (continued)
  Year Ended
    
    Year Ended
    
    Year EndedDecember 31, 2007
    
    December 31, 2006
    
    December 31, 2005Nonvested, beginning of year
    
    
    481,667
    
    
    
    792,668
    
    
    
    569,334Granted
    
    
    8,356,000
    
    
    
    154,000
    
    
    
    631,001Vested
    
    
    (4,642,667
    )
    
    
    (307,667
    )
    
    
    (327,000
    )Cancelled
    
    
    (279,000
    )
    
    
    (157,334
    )
    
    
    (80,667
    )Nonvested, end of year
    
    
    3,916,000
    
    
    
    481,667
    
    
    
    792,668
  Nonvested, beginning of year
    
    $
    11.37Granted
    
    $
    2.41Vested
    
    $
    3.14Cancelled
    
    $
    3.03Nonvested, end of year
    
    $
    2.61
  Year Ended
    
    Year Ended
    
    Year EndedDecember 31, 2007
    
    December 31 2006
    
    December 31, 2005Weighted average grant date fair value of
options granted during the year
    
    $
    2.4140
    
    
    $
    11.9471
    
    
    $
    11.1375Total intrinsic value of options exercised
    
    $
    
    
    
    $
    4,151,363
    
    
    $
    4,898,372Total fair value of options vested
    
    $
    14,598,636
    
    
    $
    3,186,767
    
    
    $
    2,471,917
  Options Outstanding
    
    
    Options ExercisableWeighted
    
    
    
    
    
    
    
    
    
    
    WeightedWeighted
    
    
    Average
    
    
    
    
    
    
    Weighted
    
    
    AverageNumber of
    
    
    Average
    
    
    Remaining
    
    
    Number of
    
    
    Average
    
    
    RemainingYear of
    
    Range of Exercise
    
    
    Shares
    
    
    Exercise
    
    
    Contractual
    
    
    Shares
    
    
    Exercise
    
    
    ContractualGrant
    
    Prices
    
    
    Outstanding
    
    
    Price
    
    
    Life
    
    
    Exercisable
    
    
    Price
    
    
    Life1998
    
    $
    15.00  15.00
    
    
    
    300,002
    
    
    $
    15.00
    
    
    
    0.92
    
    
    
    300,002
    
    
    $
    15.00
    
    
    
    0.921999
    
    $
    7.94  15.00
    
    
    
    98,600
    
    
    $
    14.30
    
    
    
    1.22
    
    
    
    98,600
    
    
    $
    14.30
    
    
    
    1.222000
    
    $
    7.94    9.00
    
    
    
    68,000
    
    
    $
    8.84
    
    
    
    2.53
    
    
    
    68,000
    
    
    $
    8.84
    
    
    
    2.532001
    
    $
    13.50  18.76
    
    
    
    81,167
    
    
    $
    14.30
    
    
    
    2.56
    
    
    
    81,167
    
    
    $
    14.30
    
    
    
    2.562002
    
    $
    16.58  21.51
    
    
    
    286,050
    
    
    $
    17.94
    
    
    
    4.20
    
    
    
    286,050
    
    
    $
    17.94
    
    
    
    4.202003
    
    $
    17.47  17.70
    
    
    
    19,000
    
    
    $
    17.64
    
    
    
    5.29
    
    
    
    19,000
    
    
    $
    17.64
    
    
    
    5.292004
    
    $
    21.70  23.61
    
    
    
    51,000
    
    
    $
    22.27
    
    
    
    6.44
    
    
    
    51,000
    
    
    $
    22.27
    
    
    
    6.442005
    
    $
    24.17  26.10
    
    
    
    351,000
    
    
    $
    25.53
    
    
    
    7.72
    
    
    
    351,000
    
    
    $
    25.53
    
    
    
    7.722006
    
    $
    18.90  24.75
    
    
    
    90,000
    
    
    $
    24.41
    
    
    
    8.14
    
    
    
    90,000
    
    
    $
    24.41
    
    
    
    8.142007
    
    $
    0.82    4.76
    
    
    
    7,342,025
    
    
    $
    4.51
    
    
    
    9.58
    
    
    
    3,197,500
    
    
    $
    4.65
    
    
    
    9.56$
    0.82  26.10
    
    
    
    8,686,844
    
    
    $
    6.74
    
    
    
    8.77
    
    
    
    4,542,319
    
    
    $
    8.87
    
    
    
    8.02
 204




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 13.
 Employee Benefit Plans (continued)
  Valuation of Options in 2007 Plan
  
    
    Expected dividend yield The Company does not have a dividend policy at this time.
We have assumed no dividends and under the Forbearance Agreement with HSBC, we are
prohibited from declaring any cash dividend, exclusive of the Non-Cumulative Perpetual
Preferred Shares, during the forbearance period from November 26, 2006 until December
31, 2008 and, therefore, we have used 0% for the expected dividend yield.
    
    Expected volatility The expected volatility is a measure of the amount by which a
price has fluctuated and is expected to fluctuate during a period of time. The
expected volatility of the Companys stock is based on historical volatility.
    
    Expected term The expected term represents the anticipated amount of time between
the grant date of the option and the exercise date or cancellation date based on
historical data.
    
    Risk free interest rate The risk-free interest rate at the expected term of the
option is based on the U.S. Treasury yield curve in effect at the time of grant.
 July 18 December 31,2007Expected dividend yield
    
    0.00%Range of expected volatility
    
    63.35%  69.87 %Range of expected term
    
    5.6 years  8.2 yearsRange of risk free interest rate
    
    2.97%  4.97%
    205




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 13.  Employee Benefit Plans (continued)
 Restricted Share Awards
     Year Ended
    
    Year Ended
    
    Year EndedDecember 31,
    
    December 31,
    
    December 31,2007
    
    2006
    
    2005Outstanding, beginning of year
    
    
    634,002
    
    
    
    659,200
    
    
    
    95,700Granted
    
    
    
    
    
    
    283,000
    
    
    
    589,000Granted for dividends earned
    
    
    4,425
    
    
    
    
    
    
    
    Exercised
    
    
    (775
    )
    
    
    (18,013
    )
    
    
    Cancelled
    
    
    (249,339
    )
    
    
    (290,185
    )
    
    
    (25,500
    )Ordinary shares issued, May 14, 2007
    
    
    (388,313
    )
    
    
    
    
    
    
    Outstanding, end of year
    
    
    
    
    
    
    634,002
    
    
    
    659,200Restricted share units exercisable, end of year
    
    
    
    
    
    
    
    
    
    
    
 206




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 13.  Employee Benefit Plans (continued)
  December 31,
    
    
    December 31,2006
    
    
    2005Weighted average grant date fair value of awards
    
    $
    23.6080
    
    
    $
    24.2249
 14. Taxation
    207




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 14. Taxation (continued)
  December 31,
    
    
    December 31,(U.S. dollars in thousands)
    
    2007
    
    
    2006Deferred
tax assetNet operating losses
    
    $
    312,242
    
    
    $
    268,158Reserves for future policy benefits
    
    
    105,007
    
    
    
    113,892Unrealized depreciation on investments
    
    
    
    
    
    
    15,730Other than temporary impairments
    
    
    57,161
    
    
    
    Intangible assets
    
    
    6,137
    
    
    
    7,069Alternative minimum tax credit
    
    
    7,882
    
    
    
    2,442Collateral finance facilities costs
    
    
    6,957
    
    
    
    7,221Other
    
    
    19,517
    
    
    
    16,545Total deferred tax asset
    
    
    514,903
    
    
    
    431,057Deferred
tax liabilityUnrealized appreciation on investments
    
    
    (9,218
    )
    
    
    Undistributed earnings of U.K. subsidiaries
    
    
    (3,346
    )
    
    
    (3,345
    )Deferred acquisition costs
    
    
    (75,731
    )
    
    
    (65,599
    )Reserves for future policy benefits
    
    
    (131,431
    )
    
    
    (210,184
    )Present value of in-force
    
    
    (14,367
    )
    
    
    (15,932
    )Other
    
    
    (1,397
    )
    
    
    (1,113
    )Total deferred tax liability
    
    
    (235,490
    )
    
    
    (296,173
    )Net deferred tax asset before valuation allowance
    
    
    279,413
    
    
    
    134,884Valuation allowance
    
    
    (272,590
    )
    
    
    (304,861
    )Net deferred tax asset (liability)
    
    $
    6,823
    
    
    $
    (169,977
    )
     208




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 14. Taxation (continued)
     Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,(U.S. dollars in thousands)
    
    2007
    
    
    2006
    
    
    2005Current tax expense (benefit)
    
    $
    7,329
    
    
    $
    (1,272
    )
    
    $
    3,168Deferred tax (benefit) expense
    
    
    (164,929
    )
    
    
    221,864
    
    
    
    (19,602
    )Total tax (benefit) expense
    
    $
    (157,600
    )
    
    $
    220,592
    
    
    $
    (16,434
    )
  Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,(U.S. dollars in thousands)
    
    2007
    
    
    2006
    
    
    2005Expected tax provision at
weighted average rate
    
    $
    (216,082
    )
    
    $
    (83,209
    )
    
    $
    (20,290
    )Change in valuation allowance
    
    
    74,729
    
    
    
    293,890
    
    
    
    Intercompany note cancellation
    
    
    (29,308
    )
    
    
    
    
    
    
    Write-down of goodwill
    
    
    
    
    
    
    9,432
    
    
    
    Other and state taxes
    
    
    13,061
    
    
    
    479
    
    
    
    3,856Total tax
(benefit) expense
    
    $
    (157,600
    )
    
    $
    220,592
    
    
    $
    (16,434
    )
  209




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 14. Taxation (continued)
  Section 382 Event
  FIN 48 Adoption
   Year Ended(U.S. dollars in thousands)
    
    December 31, 2007Total unrecognized tax benefits at January 1, 2007
    
    $
    72,709Gross amount of increases for prior years tax positions
    
    
    Gross amount of increases for current years tax
position
    
    
    114,705Gross amount of decreases in unrecognized tax benefits
taken in the current period
    
    
    Amount of decreases related to settlements
    
    
    (165
    )Reductions due to lapse of statutes of limitation
    
    
    (59
    )Foreign exchange and acquisitions
    
    
    36Total unrecognized tax benefits at December 31, 2007
    
    $
    187,226Unrecognized tax benefits that, if recognized, would
favorably impact the effective tax rate
    
    $
    17,159
  Year Ended(U.S. dollars in thousands)
    
    December 31, 2007Total interest and penalties in the balance sheet at
January 1, 2007
    
    $
    9,238Total interest and penalties in the statement of
operations
    
    
    4,043Total interest and penalties in the balance sheet at
December 31, 2007
    
    $
    13,281
 210




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 14. Taxation (continued)
   Major
Tax Jurisdictions
    
    Open YearsU.S.Life Group
    
    2001 through 2007Non-Life Group
    
    2005 through 2007Ireland
    
    2003 through 2007U.K.
    
    2001 through 2007
 15. Earnings per Ordinary Share
   211




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 15. Earnings Per Ordinary share (continued)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,(U.S.
dollars in thousands, except share data)
    
    2007
    
    
    2006
    
    
    2005NumeratorNet income (loss)
    
    $
    (895,742
    )
    
    $
    (366,714
    )
    
    $
    130,197Dividend declared on non-cumulative
perpetual preferred shares
    
    
    (9,062
    )
    
    
    (9,062
    )
    
    
    (4,758
    )Deemed dividend on beneficial conversion
feature related to convertible cumulative
participating preferred shares
    
    
    (120,750
    )
    
    
    
    
    
    
    Imputed divided on prepaid variable share
forward contract
    
    
    
    
    
    
    (881
    )
    
    
    Net income (loss) available (attributable)
to ordinary shareholders
    
    $
    (1,025,554
    )
    
    $
    (376,657
    )
    
    $
    125,439DenominatorDenominator
for basic earnings (loss) per ordinary shareWeighted average number of ordinary shares
    
    
    67,303,066
    
    
    
    56,182,222
    
    
    
    43,838,261Effect of dilutive securities Convertible cumulative
participating preferred shares
(convertible to 150,000,000 ordinary
shares)*
    
    
    
    
    
    
    
    
    
    
     Stock options and restricted stock
    
    
    
    
    
    
    
    
    
    
    661,693 Warrants
    
    
    
    
    
    
    
    
    
    
    2,237,663 4.5% Convertible Notes and Hybrid
Capital Units
    
    
    
    
    
    
    
    
    
    
    793,499Denominator for dilutive earnings (loss)
per ordinary share
    
    
    67,303,066
    
    
    
    56,182,222
    
    
    
    47,531,116Basic earnings (loss) per ordinary share
    
    $
    (15.24
    )
    
    $
    (6.70
    )
    
    $
    2.86Diluted earnings (loss) per ordinary share
    
    $
    (15.24
    )
    
    $
    (6.70
    )
    
    $
    2.64
 
 *
    
    Due to the anti-dilutive effect on EPS, the following securities could potentially dilute EPS in
the future: 
    
    Convertible cumulative participating preferred shares  150,000,000 ordinary shares
    
    Stock options  8,686,844 ordinary shares
    
    Warrants  2,650,000 ordinary shares
 16. Business Segments
  212




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 16. Business Segments (continued)
 Year ended December 31, 2007Life ReinsuranceCorporate(U.S. dollars in thousands)
    
    North America
    
    
    International
    
    
    and Other
    
    
    TotalRevenuesPremiums earned, net
    
    $
    1,773,388
    
    
    $
    116,369
    
    
    $
    
    
    
    $
    1,889,757Investment income, net
    
    
    577,256
    
    
    
    12,529
    
    
    
    9,913
    
    
    
    599,698Fee and other income
    
    
    14,917
    
    
    
    818
    
    
    
    3,110
    
    
    
    18,845Net realized losses
    
    
    (969,494
    )
    
    
    (3,482
    )
    
    
    (6,367
    )
    
    
    (979,343
    )Gain on extinguishment of third
party debt
    
    
    20,043
    
    
    
    
    
    
    
    
    
    
    
    20,043Change in value of embedded
derivatives, net
    
    
    (43,627
    )
    
    
    
    
    
    
    
    
    
    
    (43,627
    )Total revenues
    
    
    1,372,483
    
    
    
    126,234
    
    
    
    6,656
    
    
    
    1,505,373Benefits and expensesClaims and other policy benefits
    
    
    1,473,563
    
    
    
    84,686
    
    
    
    
    
    
    
    1,558,249Interest credited to interest
sensitive contract liabilities
    
    
    135,366
    
    
    
    
    
    
    
    
    
    
    
    135,366Acquisition costs and other
insurance expenses, net
    
    
    354,347
    
    
    
    26,587
    
    
    
    7,319
    
    
    
    388,253Operating expenses
    
    
    53,358
    
    
    
    39,450
    
    
    
    76,108
    
    
    
    168,916Collateral finance facilities expense
    
    
    274,734
    
    
    
    
    
    
    
    14,364
    
    
    
    289,098Interest expense
    
    
    12,726
    
    
    
    11
    
    
    
    5,435
    
    
    
    18,172Total benefits and expenses
    
    
    2,304,094
    
    
    
    150,734
    
    
    
    103,226
    
    
    
    2,558,054Loss before income taxes and
minority interest
    
    $
    (931,611
    )
    
    $
    (24,500
    )
    
    $
    (96,570
    )
    
    $
    (1,052,681
    )
 Year ended December 31, 2006Life ReinsuranceCorporate(U.S. dollars in thousands)
    
    North America
    
    
    International
    
    
    and Other
    
    
    TotalRevenuesPremiums earned, net
    
    $
    1,719,239
    
    
    $
    122,746
    
    
    $
    
    
    
    $
    1,841,985Investment income, net
    
    
    584,359
    
    
    
    24,106
    
    
    
    8,159
    
    
    
    616,624Fee and other income
    
    
    11,491
    
    
    
    
    
    
    
    3,002
    
    
    
    14,493Net realized (losses) gains
    
    
    (19,043
    )
    
    
    (10,851
    )
    
    
    2,489
    
    
    
    (27,405
    )Change in value of
embedded derivatives, net
    
    
    (16,197
    )
    
    
    
    
    
    
    
    
    
    
    (16,197
    )Total revenues
    
    
    2,279,849
    
    
    
    136,001
    
    
    
    13,650
    
    
    
    2,429,500
 213




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 16. Business Segments (continued)
 Year ended December 31, 2006Life ReinsuranceCorporateNorth America
    
    
    International
    
    
    and Other
    
    
    TotalBenefits and expensesClaims and other policy benefits
    
    
    1,468,346
    
    
    
    101,126
    
    
    
    
    
    
    
    1,569,472Interest credited to interest
sensitive contract liabilities
    
    
    172,967
    
    
    
    
    
    
    
    
    
    
    
    172,967Acquisition costs and other
insurance expenses, net
    
    
    360,737
    
    
    
    37,332
    
    
    
    11,116
    
    
    
    409,185Operating expenses
    
    
    58,133
    
    
    
    31,236
    
    
    
    62,942
    
    
    
    152,311Goodwill impairment
    
    
    
    
    
    
    33,758
    
    
    
    367
    
    
    
    34,125Collateral finance facilities expense
    
    
    205,210
    
    
    
    
    
    
    
    10,581
    
    
    
    215,791Interest expense
    
    
    11,613
    
    
    
    
    
    
    
    11,526
    
    
    
    23,139Total benefits and expenses
    
    
    2,277,006
    
    
    
    203,452
    
    
    
    96,532
    
    
    
    2,576,990Income (loss) before income taxes
and minority interest
    
    $
    2,843
    
    
    $
    (67,451
    )
    
    $
    (82,882
    )
    
    $
    (147,490
    )
 Year ended December 31, 2005Life ReinsuranceCorporate(U.S. dollars in thousands)
    
    North America
    
    
    International
    
    
    and Other
    
    
    TotalRevenuesPremiums earned, net
    
    $
    1,814,875
    
    
    $
    119,055
    
    
    $
    
    
    
    $
    1,933,930Investment income, net
    
    
    341,539
    
    
    
    11,488
    
    
    
    2,810
    
    
    
    355,837Fee and other income
    
    
    9,233
    
    
    
    
    
    
    
    3,083
    
    
    
    12,316Net realized gains
    
    
    1,121
    
    
    
    624
    
    
    
    1,993
    
    
    
    3,738Change in value of embedded
derivatives, net
    
    
    (8,492
    )
    
    
    
    
    
    
    
    
    
    
    (8,492
    )Total revenues
    
    
    2,158,276
    
    
    
    131,167
    
    
    
    7,886
    
    
    
    2,297,329Benefits and expensesClaims and other policy benefits
    
    
    1,365,599
    
    
    
    76,906
    
    
    
    
    
    
    
    1,442,505Interest credited to interest
sensitive contract liabilities
    
    
    132,968
    
    
    
    
    
    
    
    
    
    
    
    132,968Acquisition costs and other
insurance expenses, net
    
    
    400,992
    
    
    
    20,722
    
    
    
    2,061
    
    
    
    423,775Operating expenses
    
    
    48,849
    
    
    
    25,276
    
    
    
    41,448
    
    
    
    115,573Collateral finance facilities expense
    
    
    43,113
    
    
    
    
    
    
    
    5,033
    
    
    
    48,146Interest expense
    
    
    10,823
    
    
    
    
    
    
    
    9,915
    
    
    
    20,738Total benefits and expenses
    
    
    2,002,344
    
    
    
    122,904
    
    
    
    58,457
    
    
    
    2,183,705Income (loss) before income taxes
and minority interest
    
    $
    155,932
    
    
    $
    8,263
    
    
    $
    (50,571
    )
    
    $
    113,624
 214




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 16. Business Segments (continued)
   December 31,
    
    
    December 31,(U.S. dollars in thousands)
    
    2007
    
    
    2006AssetsLife ReinsuranceNorth America
    
    $
    11,540,151
    
    
    $
    12,288,682International
    
    
    439,719
    
    
    
    432,897Total Life Reinsurance
    
    
    11,979,870
    
    
    
    12,721,579Corporate and Other
    
    
    841,193
    
    
    
    884,511Total
    
    $
    12,821,063
    
    
    $
    13,606,090
  Financial(U.S. dollars in millions)
    
    Traditional
    
    
    Solutions
    
    
    TotalYear Ended December 31, 2007Life Reinsurance North America
    
    $
    1,737.2
    
    
    $
    36.2
    
    
    $
    1,773.4Life Reinsurance International
    
    
    116.4
    
    
    
    
    
    
    
    116.4Total
    
    $
    1,853.6
    
    
    $
    36.2
    
    
    $
    1,889.8Year Ended December 31, 2006Life Reinsurance North America
    
    $
    1,681.7
    
    
    $
    37.5
    
    
    $
    1,719.2Life Reinsurance International
    
    
    122.8
    
    
    
    
    
    
    
    122.8Total
    
    $
    1,804.5
    
    
    $
    37.5
    
    
    $
    1,842.0Year Ended December 31, 2005Life Reinsurance North America
    
    $
    1,762.1
    
    
    $
    52.8
    
    
    $
    1,814.9Life Reinsurance International
    
    
    119.0
    
    
    
    
    
    
    
    119.0Total
    
    $
    1,881.1
    
    
    $
    52.8
    
    
    $
    1,933.9
  (U.S. dollars in millions)
    
    NorthYear Ended
    
    America
    
    Europe
    
    Asia
    
    Other
    
    TotalDecember 31, 2007
    
    $
    2,147.4
    
    
    $
    89.3
    
    
    $
    28.8
    
    
    $
    0.2
    
    
    $
    2,265.7December 31, 2006
    
    $
    2,067.6
    
    
    $
    57.1
    
    
    $
    44.3
    
    
    $
    6.8
    
    
    $
    2,175.8December 31, 2005
    
    $
    2,050.7
    
    
    $
    38.5
    
    
    $
    52.9
    
    
    $
    10.6
    
    
    $
    2,152.7
 215




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 17. Quarterly Financial Data (Unaudited)
  Quarter Ended(U.S. dollars in thousands, except share data)
    

December
31,
 2007
    
    

September
30, 
2007
    
    

June
30, 
2007
    
    

March
31, 
2007Total revenue
    
    $
    (128,904
    )
    
    $
    415,880
    
    
    $
    612,653
    
    
    $
    605,744Loss from continuing operations before income
taxes and minority interest
    
    
    (782,866
    )
    
    
    (198,079
    )
    
    
    (51,637
    )
    
    
    (20,099
    )Net (loss) income
    
    
    (775,145
    )
    
    
    (190,075
    )
    
    
    102,690
    
    
    
    (33,212
    )Dividend declared on non-cumulative perpetual
preferred shares
    
    
    (2,265
    )
    
    
    (2,266
    )
    
    
    (2,265
    )
    
    
    (2,266
    )Deemed dividend on beneficial conversion
feature related to convertible cumulative
participating preferred shares
    
    
    
    
    
    
    
    
    
    
    (120,750
    )
    
    
    Imputed dividend on prepaid variable share
forward contract
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss attributable to ordinary shareholders
    
    $
    (777,410
    )
    
    $
    (192,341
    )
    
    $
    (20,325
    )
    
    $
    (35,478
    )Basic loss per ordinary share
    
    $
    (11.37
    )
    
    $
    (2.81
    )
    
    $
    (0.30
    )
    
    $
    (0.55
    )Diluted loss per ordinary share
    
    $
    (11.37
    )
    
    $
    (2.81
    )
    
    $
    (0.30
    )
    
    $
    (0.55
    )
  Quarter Ended(U.S. dollars in thousands, except share data)
    

December
31, 2006
    
    

September
30, 
2006
    
    

June
30, 
2006
    
    

March
31, 
2006Total revenue
    
    $
    646,207
    
    
    $
    611,346
    
    
    $
    593,626
    
    
    $
    578,321(Loss) income from continuing operations
before income taxes and minority interest
    
    
    (114,825
    )
    
    
    (6,806
    )
    
    
    (32,413
    )
    
    
    6,554Net (loss) income
    
    
    (231,558
    )
    
    
    (27,415
    )
    
    
    (121,590
    )
    
    
    13,849Dividend declared on non-cumulative
perpetual preferred shares
    
    
    (2,265
    )
    
    
    (2,266
    )
    
    
    (2,265
    )
    
    
    (2,266
    )Imputed dividend on prepaid variable
share forward contract
    
    
    
    
    
    
    (809
    )
    
    
    (72
    )
    
    
    Net (loss) income (attributable)
available to ordinary shareholders
    
    $
    (233,823
    )
    
    $
    (30,490
    )
    
    $
    (123,927
    )
    
    $
    11,583Basic (loss) earnings per ordinary share
    
    $
    (3.86
    )
    
    $
    (0.54
    )
    
    $
    (2.31
    )
    
    $
    0.22Diluted (loss) earnings per ordinary share
    
    $
    (3.86
    )
    
    $
    (0.54
    )
    
    $
    (2.31
    )
    
    $
    0.20
  216




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 18. Comprehensive Income (Loss)
   19. Commitments and Contingencies
 Mediation
  Class Action Lawsuit
  217




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 19. Commitments and Contingencies (continued)
  Shareholder Derivative Lawsuit
  Indemnification
   218




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 19. Commitments and Contingencies (continued)
  Derivative Instruments
      219




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 19. Commitments and Contingencies (continued)
   Lease Commitments
   (U.S. dollars in thousands)Year
ending December 31,2008
    
    $
    4,6912009
    
    
    4,2702010
    
    
    3,9952011
    
    
    4,0872012
    
    
    4,236Thereafter
    
    
    13,783Total future lease commitments
    
    $
    35,062
 Concentrations of Credit Risk
    220




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 19. Commitments and Contingencies (continued)
  Indemnification of Our Directors, Officers, Employees and Agents
  20. Statutory Requirements and Dividend Restrictions
    221




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 20. Statutory Requirements and Dividend Restrictions (continued)
   Statutory Capital & Surplus
    
    Statutory Net Earned Income (Loss)(U.S. dollars in thousands)
    
    December 31, 
2007
    
    December 31, 
2006
    
    December 31,
 2007
    
    December 31, 
2006
    
    December 31,
2005Scottish Re (U.S.), Inc.
    
    $
    248,558
    
    
    $
    344,663
    
    
    $
    (345,575
    )
    
    $
    (187,622
    )
    
    $
    (244,965
    )Scottish Re Life Corporation
    
    $
    93,276
    
    
    $
    81,294
    
    
    $
    9,792
    
    
    $
    (3,741
    )
    
    $
    8,757Orkney Re
    
    $
    874,876
    
    
    $
    123,169
    
    
    $
    (23,834
    )
    
    $
    (67,372
    )
    
    $
    (562,783
    )
    222




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 20. Statutory Requirements and Dividend Restrictions (continued)
   December 31, 2007Statutory Net Earned
    
    
    Statutory Capital(U.S. dollars in thousands)
    
    Income (Loss)
    
    
    & SurplusFinancial statements  Delaware basis
    
    $
    (23,834
    )
    
    $
    874,876Permitted valuation basis adjustment
    
    
    (36,620
    )
    
    
    (751,054
    )Financial statements  NAIC basis
    
    $
    (60,454
    )
    
    $
    123,822
   21. Related Party Transactions
    223




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 21. Related Party Transactions (continued)
     22. Subsequent Events
 Change in Strategic Focus
  
    
    The continuing deterioration in the U.S residential housing market in general and the
market for sub-prime and Alt-A residential mortgage-backed securities specifically. These
conditions have had, and will likely continue to have, a material adverse effect on the
value of our consolidated investment portfolio and our capital and liquidity position;
    
    The negative outlooks placed on our financial strength ratings by each of the rating
agencies in November 2007, followed by the ratings action taken by Standard & Poors (S&P)
in early 2008 lowering the financial strength ratings of our operating subsidiaries from
BB+ to BB (marginal) and placing the ratings on CreditWatch with negative implications,
as well as the subsequent ratings downgrades and negative outlooks placed on our financial
strength ratings by other rating agencies (which ratings were subsequently lowered further,
as described under Competition and Ratings), with the resulting material negative impact
on our ability to achieve our previous goal of attaining an A- or better rating by the
middle of 2009; and
    
    The material negative impact of ratings declines and negative outlooks by rating
agencies on our ability to grow our life reinsurance businesses and maintain our core
competitive capabilities.
 224




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 22. Subsequent Events (continued)
  
    
    Dispose of our non-core assets or lines of business, including the Life Reinsurance
International Segment and the Wealth Management business;
    
    Develop, through strategic alliances or other means, opportunities to maximize the value
of our core competitive capabilities within the Life Reinsurance North America Segment,
including mortality assessment and treaty administration; and
    
    Rationalize our cost structure to preserve capital and liquidity.
   Sales of Businesses
  225




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 22. Subsequent Events (continued)
    Decline in Fair Values of Invested Assets
  Stingray Drawdown
  Forbearance Agreements with Counterparties
  226




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 22. Subsequent Events (continued)
       227




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 22. Subsequent Events (continued)
   Recapture and Assignment Transactions
     228




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 22. Subsequent Events (continued)
          229




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 22. Subsequent Events (continued)
   Changes to Collateral Finance Facilities
   Dividends on Perpetual Preferred Shares
  230




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 22. Subsequent Events (continued)
  NYSE Delisting and Securities and Exchange Commission Deregistration
  Deferred Acquisition Costs
  Settlement with Annuity and Life Re (Holdings) Ltd.
  231




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 December 31, 2007
 Schedule
    
    PageI
    Summary of Investments
    
    
    233II
    Condensed Financial Information
    
    
    233III
    Supplementary Insurance
Information
    
    
    235IV
    Reinsurance
    
    
    237V
    Valuation and Qualifying Accounts
    
    
    238
  232




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 
 SCHEDULE I  SUMMARY OF INVESTMENTS
 December 31, 2007
 (Expressed in Thousands of United States Dollars)
 Year Ended December 31, 2007
    
    
    Amount atEstimated Fair
    
    
    Which Shown inAmortized Cost
    
    
    Value
    
    
    Balance SheetType of
investmentFixed maturitiesU.S. Treasury securities and U.S.
government agency obligations
    
    $
    87,150
    
    
    $
    89,448
    
    
    $
    89,448Corporate Securities
    
    
    2,773,880
    
    
    
    2,798,304
    
    
    
    2,798,304Municipal bonds
    
    
    55,466
    
    
    
    56,198
    
    
    
    56,198Mortgage or asset backed securities
    
    
    4,666,354
    
    
    
    4,677,292
    
    
    
    4,677,292Total fixed maturities
    
    
    7,582,850
    
    
    
    7,621,242
    
    
    
    7,621,242Preferred stock
    
    
    88,914
    
    
    
    88,973
    
    
    
    88,973Cash and cash equivalents
    
    
    822,851
    
    
    
    822,851
    
    
    
    822,851Other investments
    
    
    62,664
    
    
    
    62,664
    
    
    
    62,664Funds withheld at interest
    
    
    1,597,336
    
    
    
    1,650,526
    
    
    
    1,597,336Total investments, cash and cash equivalents
    
    $
    10,154,615
    
    
    $
    10,246,256
    
    
    $
    10,193,066
 SCOTTISH RE GROUP LIMITED
 
 SCHEDULE II  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
 December 31, 2007
 (Expressed in Thousands of United States Dollars)
 BALANCE SHEETS (PARENT COMPANY)
 December 31, 2007
    
    
    December 31, 2006AssetsInvestment in subsidiaries on equity basis
    
    $
    818,944
    
    
    $
    1,197,570Cash and cash equivalents
    
    
    6,123
    
    
    
    14,238Other assets
    
    
    87,186
    
    
    
    26,993$
    912,253
    
    
    $
    1,238,801LiabilitiesAccount payable and other liabilities
    
    $
    9,669
    
    
    $
    37,944Mezzanine equity
    
    
    555,857
    
    
    
    143,665Total shareholders equity
    
    
    346,727
    
    
    
    1,057,192Total liabilities, minority interest,
mezzanine equity and shareholder equity
    
    $
    912,253
    
    
    $
    1,238,801
 233




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 SCHEDULE II  CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued)
 December 31, 2007
 (Expressed in Thousands of United States Dollars)
 STATEMENTS OF INCOME (LOSS) (PARENT COMPANY)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31, 2007
    
    
    December 31, 2006
    
    
    December 31, 2005Investment income, net
    
    $
    19,227
    
    
    $
    21,917
    
    
    $
    12,562Net realized losses
    
    
    (4
    )
    
    
    (82
    )
    
    
    (16
    )Other loss, net of operating expenses
    
    
    (28,087
    )
    
    
    (5,889
    )
    
    
    (1,155
    )Interest expense
    
    
    (5,301
    )
    
    
    (8,683
    )
    
    
    (9,728
    )Income tax expense
    
    
    4
    
    
    
    (69
    )
    
    
    (9
    )Income before undistributed (loss)
earnings of subsidiaries
    
    
    (14,161
    )
    
    
    7,194
    
    
    
    1,654Undistributed equity in (loss)
earnings of subsidiaries
    
    
    (881,581
    )
    
    
    (373,908
    )
    
    
    128,543Undistributed net (loss) income
    
    $
    (895,742
    )
    
    $
    (366,714
    )
    
    $
    130,197
 STATEMENTS OF CASH FLOWS (PARENT COMPANY)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31, 2007
    
    
    December 31, 2006
    
    
    December 31, 2005Operating activitiesUndistributed net (loss) income
    
    $
    (895,742
    )
    
    $
    (366,714
    )
    
    $
    130,197Undistributed equity in (loss) earnings
of subsidiaries
    
    
    881,581
    
    
    
    373,908
    
    
    
    (128,543
    )Option and restricted stock unit expense
    
    
    20,067
    
    
    
    2,586
    
    
    
    5,377Other
    
    
    (62,926
    )
    
    
    (49,631
    )
    
    
    58,610Net cash (used in) provided by operating
activities
    
    
    (57,020
    )
    
    
    (39,851
    )
    
    
    65,641Investing activitiesCapital contributions to subsidiaries
    
    
    (497,746
    )
    
    
    (23,047
    )
    
    
    (303,560
    )Net cash used in investing activities
    
    
    (497,746
    )
    
    
    (23,047
    )
    
    
    (303,560
    )Financing activitiesNet proceeds from issuance of convertible
cumulative participating preferred shares
    
    
    555,857
    
    
    
    
    
    
    
    Net proceeds from issuance of ordinary
shares and warrants
    
    
    78
    
    
    
    153,698
    
    
    
    179,466Proceeds from issuance to holders of
HyCUs on conversion of purchase contracts
    
    
    7,338
    
    
    
    
    
    
    
    Redemption of convertible preferred shares
    
    
    (7,338
    )
    
    
    
    
    
    
    Dividends paid on redemption of
convertible preferred shares
    
    
    (222
    )
    
    
    
    
    
    
    Net proceeds from issuance of preferred
shares
    
    
    
    
    
    
    
    
    
    
    120,436Net proceeds from issuance of long term
debt
    
    
    
    
    
    
    (115,000
    )
    
    
    Dividends paid on non-cumulative
perpetual preferred shares
    
    
    (9,062
    )
    
    
    (9,062
    )
    
    
    (2,492
    )Dividends paid on ordinary shares
    
    
    
    
    
    
    (5,359
    )
    
    
    (8,990
    )Net cash provided by financing activities
    
    
    546,651
    
    
    
    24,277
    
    
    
    288,420Net change in cash and cash equivalents
    
    
    (8,115
    )
    
    
    (38,621
    )
    
    
    50,501Cash and cash equivalents, beginning of
year
    
    
    14,238
    
    
    
    52,859
    
    
    
    2,358Cash and cash equivalents, end of year
    
    $
    6,123
    
    
    $
    14,238
    
    
    $
    52,859
 234




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 
 SCHEDULE III  SUPPLEMENTAL INSURANCE INFORMATION
 December 31, 2007
 (Expressed in Thousands of United States Dollars)
 Year Ended December 31, 2007FuturePolicyBenefitsand Interest
    
    
    
    
    
    
    
    
    
    
    Claims,
    
    
    AmortizationDeferred
    
    
    Sensitive
    
    
    
    
    
    
    Net
    
    
    Losses and
    
    
    of Deferred
    
    
    OtherAcquisition
    
    
    Contract
    
    
    Premium
    
    
    Investment
    
    
    Settlement
    
    
    Acquisition
    
    
    OperatingSegment
    

Costs
    
    

Liabilities*
    
    

Revenue
    
    

Income
    
    

Expenses
    
    

Costs
    
    

CostsLife Reinsurance
North America
    
    $
    581,131
    
    
    $
    6,306,254
    
    
    $
    1,773,388
    
    
    $
    577,256
    
    
    $
    1,608,929
    
    
    $
    56,982
    
    
    $
    638,184Life Reinsurance
International
    
    
    32,808
    
    
    
    226,112
    
    
    
    116,369
    
    
    
    12,529
    
    
    
    84,686
    
    
    
    18,946
    
    
    
    47,101Corporate and Other
    
    
    6,826
    
    
    
    
    
    
    
    
    
    
    
    9,913
    
    
    
    
    
    
    
    565
    
    
    
    102,661Total
    
    $
    620,765
    
    
    $
    6,532,366
    
    
    $
    1,889,757
    
    
    $
    599,698
    
    
    $
    1,693,615
    
    
    $
    76,493
    
    
    $
    787,946
 
 *
    
    Amounts due under funding agreements are reported in interest sensitive contract liabilities in
the consolidated balance sheets and have been excluded in the table above. Year Ended December 31, 2006FuturePolicyBenefitsand Interest
    
    
    
    
    
    
    
    
    
    
    Claims,
    
    
    AmortizationDeferred
    
    
    Sensitive
    
    
    
    
    
    
    Net
    
    
    Losses and
    
    
    of Deferred
    
    
    OtherAcquisition
    
    
    Contract
    
    
    Premium
    
    
    Investment
    
    
    Settlement
    
    
    Acquisition
    
    
    OperatingSegment
    

Costs
    
    

Liabilities*
    
    

Revenue
    
    

Income
    
    

Expenses
    
    

Costs
    
    

CostsLife Reinsurance North
America
    
    $
    603,729
    
    
    $
    6,614,862
    
    
    $
    1,719,239
    
    
    $
    584,359
    
    
    $
    1,641,313
    
    
    $
    75,952
    
    
    $
    559,741Life Reinsurance
International
    
    
    7,618
    
    
    
    245,108
    
    
    
    122,746
    
    
    
    24,106
    
    
    
    101,126
    
    
    
    29,598
    
    
    
    72,728Corporate and Other
    
    
    7,390
    
    
    
    
    
    
    
    
    
    
    
    8,159
    
    
    
    
    
    
    
    3,922
    
    
    
    92,610Total
    
    $
    618,737
    
    
    $
    6,859,970
    
    
    $
    1,841,985
    
    
    $
    616,624
    
    
    $
    1,742,439
    
    
    $
    109,472
    
    
    $
    725,079
 
 *
    
    Amounts due under funding agreements are reported in interest sensitive contract liabilities in
the consolidated balance sheets and have been excluded in the table above. 235




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 SCHEDULE III  SUPPLEMENTAL INSURANCE INFORMATION
 December 31, 2007
 (Expressed in Thousands of United States Dollars)
 Year Ended December 31, 2005FuturePolicyBenefits
    
    
    
    
    
    
    
    
    
    
    Benefits,and Interest
    
    
    
    
    
    
    
    
    
    
    Claims,
    
    
    AmortizationDeferred
    
    
    Sensitive
    
    
    
    
    
    
    Net
    
    
    Losses and
    
    
    of Deferred
    
    
    OtherAcquisition
    
    
    Contract
    
    
    Premium
    
    
    Investment
    
    
    Settlement
    
    
    Acquisition
    
    
    OperatingSegment
    
    Costs
    
    
    Liabilities*
    
    
    Revenue
    
    
    Income
    
    
    Expenses
    
    
    Costs
    
    
    CostsLife Reinsurance
North America
    
    $
    575,124
    
    
    $
    6,575,044
    
    
    $
    1,814,875
    
    
    $
    341,539
    
    
    $
    1,498,567
    
    
    $
    50,847
    
    
    $
    452,930Life Reinsurance
International
    
    
    8,147
    
    
    
    216,651
    
    
    
    119,055
    
    
    
    11,488
    
    
    
    76,906
    
    
    
    17,232
    
    
    
    28,766Corporate and
Other
    
    
    11,312
    
    
    
    
    
    
    
    
    
    
    
    2,810
    
    
    
    
    
    
    
    827
    
    
    
    57,630Total
    
    $
    594,583
    
    
    $
    6,791,695
    
    
    $
    1,933,930
    
    
    $
    355,837
    
    
    $
    1,575,473
    
    
    $
    68,906
    
    
    $
    539,326
 
 *
    
    Amounts due under funding agreements are reported in interest sensitive contract liabilities in
the consolidated balance sheets and have been excluded in the table above. 236




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##### Table of Contents



SCOTTISH RE GROUP LIMITED
 
 SCHEDULE IV  REINSURANCE
 December 31, 2007
 (Expressed
in Thousands of United States Dollars, Except Percentages)
 Year Ended December 31, 2007PercentageCeded to
    
    
    Assumed
    
    
    
    
    
    
    of AmountGross
    
    
    Other
    
    
    from Other
    
    
    
    
    
    
    Assumed toAmount
    
    
    Companies
    
    
    Companies
    
    
    Net Amount
    
    
    NetLife Insurance In-force Premiums
    
    $
    
    
    
    $
    (129,156,302
    )
    
    $
    970,250,941
    
    
    $
    841,094,639
    
    
    
    115
    %Life Reinsurance North America
    
    $
    
    
    
    $
    (358,196
    )
    
    $
    2,131,584
    
    
    $
    1,773,388
    
    
    
    120
    %Life Reinsurance International
    
    
    
    
    
    
    (27,191
    )
    
    
    143,560
    
    
    
    116,369
    
    
    
    123
    %Total
    
    $
    
    
    
    $
    (385,387
    )
    
    $
    2,275,144
    
    
    $
    1,889,757
    
    
    
    120
    %
 Year Ended December 31, 2006Percentage ofCeded to
    
    
    Assumed
    
    
    
    
    
    
    AmountGross
    
    
    Other
    
    
    from Other
    
    
    
    
    
    
    Assumed toAmount
    
    
    Companies
    
    
    Companies
    
    
    Net Amount
    
    
    NetLife Insurance In-force Premiums
    
    $
    
    
    
    $
    (119,914,947
    )
    
    $
    1,022,947,133
    
    
    $
    903,032,186
    
    
    
    113
    %Life Reinsurance North America
    
    $
    
    
    
    $
    (320,390
    )
    
    $
    2,039,629
    
    
    $
    1,719,239
    
    
    
    119
    %Life Reinsurance International
    
    
    
    
    
    
    (14,248
    )
    
    
    136,994
    
    
    
    122,746
    
    
    
    112
    %Total
    
    $
    
    
    
    $
    (334,638
    )
    
    $
    2,176,623
    
    
    $
    1,841,985
    
    
    
    118
    %
 Year Ended December 31, 2005PercentageCeded to
    
    
    Assumed
    
    
    
    
    
    
    of AmountGross
    
    
    Other
    
    
    from Other
    
    
    
    
    
    
    Assumed toAmount
    
    
    Companies
    
    
    Companies
    
    
    Net Amount
    
    
    NetLife Insurance In-force Premiums
    
    $
    
    
    
    $
    (139,517,423
    )
    
    $
    1,025,825,045
    
    
    $
    886,307,622
    
    
    
    116
    %Life Reinsurance North America
    
    $
    
    
    
    $
    (204,119
    )
    
    $
    2,018,994
    
    
    $
    1,814,875
    
    
    
    111
    %Life Reinsurance International
    
    
    
    
    
    
    (17,230
    )
    
    
    136,285
    
    
    
    119,055
    
    
    
    114
    %Total
    
    $
    
    
    
    $
    (221,349
    )
    
    $
    2,155,279
    
    
    $
    1,933,930
    
    
    
    111
    %
 
 *
    
    Excludes business acquired from ING. 237




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##### Table of Contents



SCOTTISH
RE GROUP LIMITED SCHEDULE V  VALUATION AND QUALIFYING ACCOUNTS
 December 31, 2007
 (Expressed in Thousands of United States Dollars)
 Year Ended December 31, 2007Balance at
    
    Charges to
    
    Charges toBeginning of
    
    Costs and
    
    Other
    
    Balance atPeriod
    
    Expenses
    
    Accounts
    
    End of PeriodDescriptionAllowance on income taxes
    
    $
    304,861
    
    
    $
    74,729
    
    
    $
    (107,000
    )
    
    $
    272,590Reserve for uncollectible reinsurance
    
    $
    12,124
    
    
    $
    (3,660
    )
    
    $
    
    
    
    $
    8,464
 Year Ended December 31, 2006Balance at
    
    Charges to
    
    Charges toBeginning of
    
    Costs and
    
    Other
    
    Balance atPeriod
    
    Expenses
    
    Accounts
    
    End of PeriodDescriptionAllowance on income taxes
    
    $
    18,451
    
    
    $
    293,890
    
    
    $
    (7,480
    )
    
    $
    304,861Reserve for uncollectible reinsurance
    
    $
    6,000
    
    
    $
    6,124
    
    
    $
    
    
    
    $
    12,124
 Year Ended December 31, 2005Balance at
    
    Charges to
    
    Charges toBeginning of
    
    Costs and
    
    Other
    
    Balance atPeriod
    
    Expenses
    
    Accounts
    
    End of PeriodDescriptionAllowance on income taxes
    
    $
    22,148
    
    
    $
    
    
    
    $
    (3,697
    )*
    
    $
    18,451Reserve for uncollectible reinsurance
    
    $
    
    
    
    $
    6,000
    
    
    $
    
    
    
    $
    6,000
 
 *
    
    This valuation arose in respect of the acquisition of the ING individual life
reinsurance business. This was established as a result of the purchase
accounting for the acquisition and therefore has not been included in the
determination of net income. 238




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##### Table of Contents



SIGNATURES
  July 11, 2008
    
    /s/ Jonathan Bloomer

Jonathan Bloomer, Chairman and DirectorJuly 11, 2008
    
    /s/ James Butler

James Butler, DirectorJuly 11, 2008
    
    /s/ James Chapman

James Chapman, DirectorJuly 11, 2008
    
    /s/ Thomas Finke

Thomas Finke, DirectorJuly 11, 2008
    
    /s/ Jeffrey Hughes

Jeffrey Hughes, DirectorJuly 11, 2008
    
    /s/ Robert Joyal

Robert Joyal, DirectorJuly 11, 2008
    
    /s/ Larry Port

Larry Port, DirectorJuly 11, 2008
    
    /s/ Michael Rollings

Michael Rollings, DirectorJuly 11, 2008
    
    /s/ Seth Gardner

Seth Gardner, DirectorJuly 11, 2008
    
    /s/ Raymond Wechsler

Raymond Wechsler, DirectorJuly 11, 2008
    
    /s/ George Zippel

George Zippel, President, CEO and Director
 239