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                                  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

/x/  Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
     Act of 1934

                   For the fiscal year ended December 31, 2004

/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
    Act of 1934

                 For the Transition period from          to

                         Commission File Number 0-29788

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                            SCOTTISH RE GROUP LIMITED
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                Cayman Islands                          98-0362785
       (State or Other Jurisdiction of      (I.R.S. Employer Identification No.)
        Incorporation or Organization)
           Crown House, Third Floor
             4 Par-la-Ville Road
            Hamilton HM12, 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:

               Title of Each Class           Name of Each Exchange on Which
           Ordinary Shares, par value                   Registered
                  $0.01 per share               New York Stock Exchange
             Hybrid Capital Units               New York Stock Exchange

           Securities Registered Pursuant to Section 12(g) of the Act:
                                      None

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

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

     Indicate by checkmark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes /x/  No / /

     The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of June 30, 2004 was $556,063,065. As of February 28, 2005,
Registrant had 39,991,745 ordinary shares outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Certain information required by Items 10, 11, 12, 13 and 14 of Form 10-K is
incorporated by reference into Part III hereof from the registrant's proxy
statement for its 2005 Annual Meeting of Shareholders, which is expected to be
filed with the Securities and Exchange Commission (the "SEC") within 120 days of
the close of the registrant's fiscal year ended December 31, 2004.
================================================================================


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                                TABLE OF CONTENTS

                                                                            Page


PART I........................................................................1

Item 1:  BUSINESS.............................................................1
Item 2:  PROPERTIES..........................................................31
Item 3:  LEGAL PROCEEDINGS...................................................31
Item 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................31

PART II. ....................................................................32

Item 5:  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER
         MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES...................32
Item 6:  SELECTED FINANCIAL DATA.............................................34
Item 7:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS...............................................35
Item 8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................70
Item 9:  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE................................................70
Item 9A: CONTROLS AND PROCEDURES.............................................70
Item 9B: OTHER INFORMATION...................................................73


PART III ....................................................................73

Item 10:  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.....................73
Item 11:  EXECUTIVE COMPENSATION.............................................74
Item 12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT
          AND RELATED STOCKHOLDER MATTERS....................................74
Item 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................74
Item 14:  PRINCIPAL ACCOUNTANT FEES AND SERVICES.............................74

PART IV......................................................................74

Item 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K....74


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                                     PART I

Item 1: BUSINESS

Overview

     Scottish Re Group Limited, which we call Scottish Re, is a holding company
organized under the laws of the Cayman Islands with its principal executive
office in Bermuda. Through our operating subsidiaries, we are engaged in the
reinsurance of life insurance, annuities and annuity-type products. These
products are written by life insurance companies and other financial
institutions located in the United States, as well as in many other countries
around the world. We refer to this business as life reinsurance.

     We have operating companies in Bermuda, the Cayman Islands, Guernsey,
Ireland, the United Kingdom and the United States. Our flagship subsidiaries are
Scottish Annuity & Life Insurance Company (Cayman) Ltd., Scottish Re (U.S.),
Inc. and Scottish Re Limited. Scottish Annuity & Life Insurance Company (Cayman)
Ltd., Scottish Re (U.S.), Inc. and Scottish Re Limited are each rated "A-
(excellent)" for financial strength by A.M. Best Company, which is fourth
highest of sixteen rating levels, "A (strong)" for financial strength by Fitch
Ratings, which is sixth highest of twenty-two rating levels, and "A- (strong)"
for financial strength by Standard & Poor's, which is seventh highest of
twenty-two rating levels. Scottish Annuity & Life Insurance Company (Cayman)
Ltd. and Scottish Re (U.S.), Inc. are also rated "A3 (good)" for financial
strength by Moody's, which is seventh highest of twenty-one rating levels. These
ratings are based upon factors of concern to policyholders, treaty holders,
retrocessionaires, agents and intermediaries and are not directed toward the
protection of investors.

     Since our formation in 1998, we have grown to be one of the 3 largest life
reinsurers serving the U.S. market (based on the amount of new ordinary life
reinsurance business assumed in 2004, together with the acquisition of the
individual in-force life reinsurance business of ING America Insurance Holdings,
Inc., which we call ING, as described in more detail below). On December 31,
2001, we expanded our business outside of North America by acquiring Scottish Re
Holdings Limited and its subsidiary, Scottish Re Limited. Scottish Re Limited,
formed in 1964, is a U.K.-based reinsurer of group life insurance, individual
life insurance and aircrew loss of license insurance in Asia, Europe, Latin
America, the Middle East and North Africa. On December 22, 2003, we completed
the acquisition of 95% of the outstanding capital stock of ERC Life Reinsurance
Corporation. On February 19, 2004 ERC Life Reinsurance Corporation's name was
changed to Scottish Re Life Corporation. Scottish Re Life Corporation's business
consists primarily of a closed block of traditional life reinsurance business.
On December 31, 2004, we acquired, through two of our subsidiaries, the in-force
individual life reinsurance business of ING. See "ING Individual Life
Reinsurance Acquisition". As of December 31, 2004, the number of lives reinsured
in North America was approximately 14.2 million and our gross face amount of
in-force business was approximately $1.0 trillion.

     As of December 31, 2004, we had consolidated assets of $9.0 billion and
consolidated shareholders' equity of $862.7 million.

ING Individual Life Reinsurance Acquisition

     On October 17, 2004, Scottish Re, Scottish Re (U.S.), Inc. and Scottish Re
Life (Bermuda) Limited signed an asset purchase agreement with Security Life of
Denver Insurance Company and Security Life of Denver International Limited,
subsidiaries of ING. The transaction closed on December 31, 2004. Unless
otherwise indicated, financial information as of December 31, 2004 contained in
this report gives effect to this transaction.

     Pursuant to the agreement and the related transaction documents, Security
Life of Denver Insurance Company and Security Life of Denver International
Limited reinsured their individual life reinsurance business to Scottish Re
(U.S.), Inc. and Scottish Re Life (Bermuda) Limited on a 100% indemnity
reinsurance basis. In addition, Security Life of Denver Insurance Company and
Security Life of Denver International Limited transferred to Scottish Re or its
affiliates certain systems and operating assets used in their individual life
reinsurance business. We employed a significant number of the existing staff of
Security Life of Denver Insurance Company to help manage the transition and the
servicing of the acquired business.


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     Security Life of Denver Insurance Company and Security Life of Denver
International Limited transferred assets of approximately $1.4 billion on the
individual life reinsurance business of Security Life of Denver Insurance
Company and Security Life of Denver International Limited to Scottish Re (U.S.),
Inc. and Scottish Re Life (Bermuda) Limited. Certain of these assets are held in
trust for the benefit of Security Life of Denver Insurance Company and Security
Life of Denver International Limited to secure Scottish Re (U.S.), Inc.'s and
Scottish Re Life (Bermuda) Limited's liabilities on the acquired business. The
ceding commission will be released from the trusts based on an agreed upon
schedule, novation of the underlying treaties, or upon release of certain ING
collateral obligations described below.

     The acquired business represents the reinsurance division of ING's U.S.
life insurance operations, and was written through Security Life of Denver
Insurance Company and Security Life of Denver International Limited. The
acquired business mainly consists of traditional mortality risk reinsurance
written on an automatic basis with more than 100 different ceding insurers. Less
than 10% of the acquired business was written on a facultative basis. Most of
the business involves guaranteed level premium term life insurance that is
subject to the statutory reserve requirements of NAIC Actuarial Regulation XXX
("Regulation XXX").

     ING is obligated to maintain collateral for the Regulation XXX and AXXX
reserve requirements of the acquired business for the duration of such
requirements (which relate to state insurance law reserve requirements applying
to reserves for level premium term life insurance policies and universal life
policies). We will pay ING a fee based on the face amount of the collateral
provided until satisfactory alternative collateral arrangements are made. In the
normal course of business and our capital planning we are always looking for
opportunities to relieve capital strain relating to Regulation XXX reserve
requirements for our previously existing business as well as the business
acquired from ING. We anticipate implementing capital markets related solutions
relating to these requirements as cost efficient opportunities arise.

     ING has agreed to assist with the transition of the acquired business to
Scottish Re (U.S.), Inc.'s and Scottish Re Life (Bermuda) Limited's systems for
a fee for up to 18 months from December 31, 2004. In addition, Scottish Re
(U.S.), Inc. and Scottish Re Life (Bermuda) Limited will provide administrative
services to Security Life of Denver Insurance Company and Security Life of
Denver International Limited for the acquired business.

     The acquisition increased our policy count in North America from
approximately 7.1 million to approximately 14.2 million and increased our gross
face amount of in-force business in North America from approximately $305.1
billion to approximately $1.0 trillion. With the closing of the acquisition, we
believe we have become the third largest US life reinsurer based on life
reinsurance in-force.

     In order to provide additional capital to support the acquired business
described above, Scottish Re signed a securities purchase agreement on October
17, 2004 with 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. (collectively, the "Cypress Entities"). Pursuant to
this agreement, Scottish Re issued to the Cypress Entities on December 31, 2004,
3,953,183 ordinary shares, Class C Warrants to purchase 3,206,431 ordinary
shares and $41,282,479 aggregate principal amount of 7.00% Convertible Junior
Subordinated Notes, as described in "Management's Discussion and Analysis
-Liquidity & Capital Resources".

Additional Information

     Our website address is www.scottishre.com. Forms 10-K, Forms 10-Q, Forms
8-K and all amendments to those reports are available free of charge on our
website. These reports are posted to the website as soon as reasonably practical
after they have been filed with the SEC. We will also provide electronic or
paper copies of these reports on request. Information contained on our website
does not constitute part of this Annual Report on Form 10-K.


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Our Business

Life Reinsurance

     Reinsurance is an arrangement under which an insurance company known as the
reinsurer agrees in a contract called a treaty to assume specified risks of
another insurance company known as the ceding company. The reinsurer may assume
all or a portion of the insurance underwritten by the ceding company. In
exchange for assuming the risks of the ceding company, the reinsurer receives
some or all of the premium and, in certain cases, investment income derived from
the assets supporting the reserves of the reinsured policies. Reinsurance
permits primary insurers to diversify their risks over larger pools of risks,
and to write insurance policies in amounts larger than they are willing or able
to retain. Also, reinsurers have the ability to structure treaties that allow
the ceding companies to achieve other business and financial objectives such as:

     o    decreasing the volatility of their earnings by reducing their maximum
          exposure to any one risk,

     o    improving their capital position by reducing the financial strain
          associated with new business production or by increasing their
          risk-based capital ratios,

     o    entering new lines of business and offering new products, and

     o    exiting discontinued lines of business.

     In addition, reinsurers may also purchase reinsurance, or "retrocession"
coverage, to limit their own risk exposure.

     We have two categories of life reinsurance lines of business, which we call
Traditional Solutions and Financial Solutions.

     o    Traditional Solutions. In our Traditional Solutions business, we
          reinsure the mortality risk on life insurance policies written by
          primary insurers. This business is often referred to as traditional
          life reinsurance. We write our Traditional Solutions business
          predominantly on an automatic basis with respect to newly written life
          insurance policies. This means that we automatically reinsure all
          policies written by a ceding company that meet the underwriting
          criteria specified in the treaty with the ceding company. In the North
          American market, our direct sales force targets the top 60 life
          insurance companies. Scottish Re Limited offers traditional life
          reinsurance products outside of North America, focusing primarily on
          the reinsurance of short-term, group life policies in niche market
          sectors.

     o    Financial Solutions. In our Financial Solutions business, we offer
          reinsurance solutions that improve the financial position of our
          clients by increasing their capital availability and statutory
          surplus. These solutions include contracts under which we assume the
          investment and persistency risks of existing, as well as newly
          written, blocks of business. The products reinsured include annuities
          and annuity-type products, cash value life insurance and, to a lesser
          extent, disability products that are in a pay-out phase. This line of
          business includes acquired solutions products in which we provide our
          clients with exit strategies for discontinued lines, closed blocks, or
          lines not providing a good fit for a client's growth strategies. With
          our assuming full responsibility and management of these contracts,
          our clients can focus and concentrate their full efforts and resources
          on their core strategies.

     The traditional life reinsurance industry has experienced significant
growth over the past several years. According to an industry survey, the face
amount of traditional life reinsurance assumed in the United States has grown
from approximately $261.0 billion in 1995 to approximately $1.1 trillion in
2003, a 19% compounded annual growth rate. During the same period, the face
amount of life insurance written in the United States has grown from
approximately $1.1 trillion in 1995 to approximately $1.6 trillion in 2003, a 5%
compounded annual growth rate. Many other of the international markets in which
we operate have also enjoyed significant growth in recent years.


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     We believe that the following trends have contributed and will continue to
contribute to the increasing demand for life reinsurance and increased business
opportunities for us:

     o    Consolidation in the life insurance industry. Consolidation in the
          life insurance industry may create opportunities for life reinsurers.
          Life reinsurers provide financial reinsurance to help acquirors
          finance the cash portion of an acquisition, and we expect that any
          additional consolidation in the life insurance business may result in
          incremental opportunities for life reinsurers. In addition, in the
          context of an acquisition, an acquiror may focus on the most promising
          lines of business and divest non-core lines of business through
          reinsurance.

     o    Consolidation in the life reinsurance industry. There have been a
          number of merger and acquisition transactions within the life
          reinsurance industry in recent years. The consolidation of the life
          reinsurance industry has reduced the amount of life reinsurance
          capacity available and caused primary insurers to be exposed to
          concentrated counter-party risk with the larger consolidating
          reinsurers.

     o    Increased capital sensitivity. We believe that insurance companies are
          now more focused on capital efficiency and return on capital. As a
          result, primary insurers are increasingly utilizing the outside
          capital provided by reinsurance to help finance growth and to free up
          capital to pursue new businesses. We believe that the demutualization
          of life insurance companies contributes to this trend as these newly
          publicly traded companies are motivated to improve their operating
          performance for their investor base.

     o    Flight to quality. Particularly in the wake of the terrorist attacks
          in the United States on September 11, 2001, we believe that ceding
          companies are increasingly focused on the financial strength ratings
          of their reinsurers, as well as the aggregate amount of capital
          maintained by their reinsurers.

     o    Expanding overseas markets. We believe that the trends described above
          in the North American market are also influencing the reinsurance
          industry throughout the world. In addition, we believe there are
          increasing opportunities in markets such as Asia, Europe, Latin
          America, the Middle East, and North Africa, where the life reinsurance
          industry is either developing or expanding.

     o    Changing demographics. We expect that the increasing number of "baby
          boomers" reaching middle and late middle age will increase the demand
          for products which address retirement planning, estate planning and
          survivorship issues. In addition, we believe that longer life
          expectancies and the reduction in government and employer sponsored
          benefit programs will increase the demand for life insurance and
          annuities. We expect this increased demand for insurance to increase
          demand for reinsurance products.

Wealth Management

     Our variable life insurance and variable annuity products offer high net
worth clients the benefits of investment-oriented insurance products for use in
tax and estate planning. We receive fee income based on the assets associated
with our products. Our products are targeted towards high net worth individuals
and families who generally have a liquid net worth of more than $10.0 million.
The wealth management business requires relatively little capital and we believe
that it generates a stable source of fee income.

Our Strategy

     Our strategy is to use our experience, and structural advantages to focus
on life reinsurance and insurance products where we can deliver specialized
advice and products to our customers. We plan to increase the value of our
franchise by focusing on the following:


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     o    Expanding the size and depth of our North American reinsurance client
          base. We will continue to expand our core North American business by
          attempting to gain a larger share of the North American life
          reinsurance market both by adding new clients and expanding the
          business relationships with existing clients. In addition, we may
          pursue selected strategic acquisitions of other life reinsurance
          businesses. Our recent acquisition of the in-force individual life
          reinsurance business of ING is an example of this strategy. See "ING
          Individual Life Reinsurance Acquisition."

     o    Growing our international business. We will continue to leverage the
          specialized knowledge and established relationships of Scottish Re
          Limited to gain a larger share of the life reinsurance markets outside
          of North America. We will explore opportunities in new markets as well
          as seeking to add new clients and expand business relationships with
          existing clients. In addition, we may pursue selected strategic
          acquisitions of other life reinsurance businesses.

     o    Enhancing our financial strength. We will continue to enhance our
          capital position and financial strength to meet the security needs of
          our customers and the capital requirements of rating agencies. By
          enhancing our financial strength and capital resources, we would
          expect to have opportunities to participate in reinsurance
          transactions in which we might not be currently eligible to
          participate. We also expect that enhancing our financial position will
          allow us to reduce our cost of, and improve our access to, capital.

     o    Capitalizing on our reinsurance experience. We will continue to focus
          our marketing efforts on products that allow us to capitalize on the
          extensive experience of our management and key employees.

     o    Leveraging efficient operating structure and organizational
          flexibility. We will continue to leverage our ability to conduct
          business in multiple jurisdictions, which provides us with a flexible
          and efficient operating platform. Moreover, as we grow our businesses
          and leverage the capabilities of our corporate infrastructure, we
          expect to improve our operating margins.

Products Offered

Life Reinsurance North America

     In our Life Reinsurance North America Segment we reinsure a broad range of
life insurance and annuity products. Life insurance products that we reinsure
include yearly renewable term, term with multi-year guarantees, ordinary life
and variable life. Retail annuity products that we reinsure include fixed
immediate annuities and fixed deferred annuities. In addition, we reinsure and
may issue directly institutional annuity-type products such as funding
agreements, guaranteed investment contracts, and pension termination and
structured settlement annuities. We do not accept mortality or longevity
guarantees associated with variable annuity products.

     For these products, we write reinsurance generally in the form of yearly
renewable term, coinsurance or modified coinsurance. Under yearly renewable
term, we share only in the mortality risk for which we receive a premium. In a
coinsurance or modified coinsurance arrangement, we generally share
proportionately in all material risks inherent in the underlying policies
including mortality, lapses and fluctuations in investments. Under such
agreements, we agree to indemnify the primary insurer for all or a portion of
the risks associated with the underlying insurance policy in exchange for a
proportionate share of premiums. Coinsurance differs from modified coinsurance
with respect to ownership of the assets supporting the reserves. Under our
coinsurance arrangements, ownership of these assets is transferred to us,
whereas, in modified coinsurance arrangements, the ceding company retains
ownership of these assets, but we share in the investment income and risk
associated with the assets.

     Our reinsurance treaties are written predominantly on an automatic basis.
An automatic treaty provides for a ceding company to cede contractually
agreed-upon risks on specific blocks of business to us. The reinsurance may be
solicited directly by us or through reinsurance intermediaries and may be
written on either:


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     o    a proportional basis under which a specified percentage of each risk
          in the reinsured class of risk is assumed by us from the ceding
          company, along with our portion of the underlying premiums in
          proportion to such assumed risk; or

     o    an excess of loss basis under which we indemnify the ceding company,
          up to a contractually specified amount, for a portion of claims
          exceeding a specified retention amount, in consideration of
          non-proportional premiums being paid.

     In order to diversify our mortality exposure, we have historically sought
to limit our consolidated enterprise wide retained exposure under life policies
to no more than $500,000 per life for life reinsurance written in our North
American operations. This limit has been increased to $1.0 million per life for
newly underwritten business effective January 1, 2005. Our retention on business
acquired in the ING individual life reinsurance acquisition, effective December
31, 2004, is $2.0 million per life.

     Our reinsurance treaties may provide for recapture rights, permitting the
ceding company to reassume all or a portion of the risk ceded to us after an
agreed-upon period of time (generally 10 years), subject to certain other
conditions. Some of our reinsurance treaties allow the ceding company to
recapture the ceded risk if we fail to maintain a specified rating or if other
financial conditions relating to us are not satisfied. Recapture of business
previously ceded does not affect premiums ceded prior to the recapture of such
business and typically involves the payment of a recapture fee to us.
Nevertheless, we may need to liquidate substantial assets in order to return the
assets supporting the reserves to the ceding company, and we may also have to
accelerate the amortization of unamortized deferred acquisition costs associated
with the recaptured business, which would reduce our earnings.

     The potential adverse effects of recapture rights are mitigated by the
following factors:

     o    By recapturing reinsurance, ceding companies increase the amount of
          risk they retain.

     o    Ceding companies generally must recapture the same amount of risk on
          each policy reinsured under a treaty once a retention increase is made
          after the treaty stated non-recapture period expires and a recapture
          program is undertaken.

     o    We price our treaties with the goal of achieving our target return
          before the recapture date.

Life Reinsurance International

     Through our subsidiary, Scottish Re Limited, we reinsure life insurance and
aircrew loss of license products. Life insurance products that we reinsure
include short-term group and individual life, and to a lesser extent, disability
and critical illness. We reinsure aircrew loss of license products on a
short-term group basis. The majority of these risks are written on a facultative
basis which allows for the ceding company to offer risks for which we may either
quote terms or, alternatively, decline. They, in turn, are not obliged to cede
any risk to us. While the majority of our international business is facultative,
we do write some automatic treaty business similar to the business written in
our Life Reinsurance North America Segment. We will continue to provide products
on a facultative basis and will expand our capability to reinsure a broad range
of life insurance and annuity products on an automatic treaty basis in our Life
Reinsurance International Segment.

     Our principal international market is the Middle East, where we have been
active since the early 1990s. For the year ended December 31, 2004,
approximately 26% of total written premiums in the international business
originated from Bahrain, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia and
the United Arab Emirates.

     In Latin America, we do business primarily in Argentina, Columbia and Peru,
and to a lesser extent in Chile and Ecuador. In Asia, our target niche market is
in Japan, which is experiencing the development of small affinity group mutual
organizations known as kyosai, as a parallel sector to large insurance
companies.

     As noted above, we reinsure aircrew loss of license coverage, which entails
the payment of lump sum benefits if aircrew cannot perform their job for medical
reasons, as well as temporary benefits for the period of time during which the
aircrew is grounded and waiting for the results of the medical examination.


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     We attempt to diversify mortality risk in our Life Reinsurance
International Segment by limiting our consolidated enterprise wide retained
exposure under life policies to no more than $250,000 per life for our
international life reinsurance business.

Wealth Management

     Our wealth management business consists of the issuance of variable life
insurance policies and variable annuities and similar products to high net worth
individuals and families. Premiums, net of expenses, paid by the policyholder
with respect to our variable products are placed in a separate account for the
benefit of the policyholder. We invest premiums in each separate account with
one or more investment managers, some of whom the policyholder may recommend and
all of whom are appointed by us in our sole discretion. The policyholder retains
the benefits of favorable investment performance, as well as the risk of adverse
investment results. Assets held in the separate accounts are generally not
subject to the claims of our general creditors. We do not provide any investment
management or advisory services directly to any individual variable life or
variable annuity policyholder. Our revenues earned from these policies consist
of insurance and administrative fees assessed against the assets in each
separate account. Our variable products do not guarantee investment returns.

     See Notes to the Consolidated Financial Statements for more information on
our Life Reinsurance North America, Life Reinsurance International and Other
Segments.

Marketing

Life Reinsurance

     In our life reinsurance business, we market to life insurance and life
reinsurance companies. We also target institutions, such as pension plans, that
have life insurance-related risks and that we believe would benefit from our
reinsurance products based on our analysis of publicly available information and
other industry data. Where permitted by law, we actively market our reinsurance
products primarily on a direct basis. We also seek to capitalize on the
relationships developed by our executive officers and marketing staff with
members of the actuarial profession and senior insurance company executives, at
both primary insurers and other reinsurers. Finally, we work with reinsurance
intermediaries, brokers and consultants who are engaged in obtaining reinsurance
on behalf of their clients.

Wealth Management

     In our wealth management business, we seek to write variable life insurance
and variable annuity products for high net worth individuals and families with
at least $10.0 million of liquid net worth. Because we offer variable products
that we believe comply with U.S. Internal Revenue Code requirements for
insurance products, we typically insure U.S. persons, individuals with U.S.
beneficiaries or non-U.S. persons with a U.S. tax presence. Our wealth
management subsidiaries are not licensed to conduct insurance business in any
jurisdiction in the United States, and therefore cannot utilize traditional life
insurance marketing channels such as agents, nor can we use mail-order or other
direct-marketing channels to conduct business with persons in the United States
or certain other jurisdictions. Accordingly, we rely primarily on referrals by
financial advisors, investment managers, private bankers, attorneys and other
intermediaries to generate wealth management business. None of these
intermediaries represents us as agent or in any other capacity, nor do they
receive any commissions or other remuneration from us for activities undertaken
on our behalf in the United States.

Risk Management

Life Reinsurance

     We bear five principal classes of risk in our life reinsurance products:

     o    mortality risk,


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     o    investment risk,

     o    persistency risk,

     o    expense risk, and

     o    counter-party risk.

     Mortality risk is the risk that death claims exceed what we expect. A
greater frequency or higher average size of death benefits than we expected can
cause us to pay greater death benefits, adversely affecting our profitability.
Even if the total death benefits paid over the life of our contracts do not
exceed the expected amount, sporadic timing of deaths can cause us to pay more
death benefits in a given time period than expected, adversely impacting our
profitability in that period. We address these risks through selection,
diversification and retrocession. We analyze each block of business based on an
evaluation of the ceding company's history, management, target market, products
and underwriting criteria relative to the industry. In North America, we target
primarily first dollar quota share pools of top producing direct writing
companies so that we participate proportionately with other reinsurers on all of
the ceded risks. In addition, we diversify our risks by participating in annuity
and disability products in the payout stage where the mortality risk is the risk
of later, rather than earlier, deaths than expected. A mix of these products
with life products can help offset general trends in population mortality. We
mitigate our risk of exposure to any one block of business or any one individual
life by limiting our share to generally 20-25% in any one pool. We further
address the risk of any one large claim by utilizing retrocession above our
retention of $1.0 million per life, effective January 1, 2005, for newly
underwritten business written in our Life Reinsurance North America Segment. Our
retention on business acquired in the ING individual life and reinsurance
acquisition, effective December 31, 2004, is $2.0 million per life. Our
retention in our Life Reinsurance International Segment is approximately
$250,000 per life. In addition, we maintain catastrophe cover on our entire
retained life reinsurance business, which effective January 1, 2005 provides
reinsurance for losses of $50.0 million in excess of $10.0 million for our North
American risks, and $57.5 million excess of $2.5 million for our International
risks. This catastrophe cover includes protection for terrorism, nuclear,
biological and chemical risks.

     Our investments, which primarily consist of fixed income securities, are
subject to market value, reinvestment and liquidity risk. Our invested assets
are funded not only by capital but also by the proceeds of reinsurance
transactions, some of which entail substantial deposits of funds or assets. The
policies that we reinsure contain provisions that tend to increase benefits to
customers depending on movements in interest rates. We analyze the potential
results of a transaction, including the cash flows of the liabilities and of the
related assets and any risk mitigation measures, and we price transactions to
cover our costs, including estimated credit losses, and earn a desirable
risk-adjusted return under various scenarios. We use interest rate swaps and may
use other hedging instruments as tools to mitigate these risks. We may also
retrocede some risks to other reinsurers.

     Persistency risk is the risk that policyholders maintain their policies for
either longer or shorter periods than expected. Persistency can be affected by
surrenders and policy lapses. Surrenders are the voluntary termination of a
policy by the policyholder and lapses are the termination of the policy due to
non-payment of the premium. Surrenders usually involve the return of the
policy's cash surrender value to the policyholder. The risk is that actual
persistency is significantly different from the persistency we assumed in
pricing. Persistency significantly higher than priced for can cause us to pay
greater than expected death benefits in future years, adversely impacting our
profitability. Persistency significantly lower than priced for can cause our
deferred acquisition costs to be unrecoverable, possibly causing loss
recognition that would adversely impact our profitability. For policies with
cash surrender benefits, surrenders significantly greater from expected will
also cause increased liquidity risk. We address these risks through
diversification and surrender charges.

     Expense risk is the risk that actual expenses will be higher than those
covered in pricing. The risk is that expenses per policy reinsured are higher as
a result of a lower number of policies than anticipated, or that our operations
are less efficient than anticipated. We address this risk through the use of
automation, bulk reporting and management of general expenses.


                                       8
<PAGE>

     Counter-party risk is the risk that retrocessionaires will be unable to pay
claims as they become due. We limit and diversify our counter-party risk by
spreading our retrocession over a pool comprised of highly rated
retrocessionaires. Our underwriting guidelines provide that any retrocessionaire
to whom we cede business must have a financial strength rating of at least "A-"
or higher from A.M. Best or an equivalent rating by another major rating agency.
However, even if a retrocessionaire does not pay a claim submitted by us, we are
still responsible for paying that claim to the ceding company.

Wealth Management

     The two principal risks associated with our wealth management business are
mortality risk and counter-party risk. Since we do not have the direct
investment risks associated with our wealth management products, the principal
risk in our variable life insurance business is mortality risk. Mortality risk
tends to be more stable when spread across large numbers of insureds. We expect
that our variable life insurance policies will have relatively large face
amounts and will be held by a relatively small number of policyholders.
Consequently, our associated mortality risk exposure will be greater in the
aggregate, and our probability of loss less predictable, than an insurer with a
broader risk pool. Therefore, pursuant to our underwriting guidelines, we
reinsure substantially all of the mortality risk associated with our variable
life insurance business with highly rated reinsurers and accordingly rely upon
our reinsurers' obligation and ability to pay death claims. The counter-party
risk is that one or more of our reinsurers may fail to pay a reinsured death
claim under a variable life insurance policy.

Investment Portfolio

General

     Our general account investment portfolio consists of investments and cash
and cash equivalents, which we control, and funds withheld at interest, which
are associated with modified coinsurance agreements. In modified coinsurance
transactions, the ceding insurance company retains the assets supporting the
ceded business and manages them for our account. Although the ceding company
must adhere to general standards agreed to by us for the management of these
assets, we do not control the selection of the specific investments or the
timing of the purchase or sale of investments made by the ceding company.

     The portfolio that we control consists primarily of investment-grade fixed
income securities and cash. We seek to generate attractive levels of investment
income while limiting exposure to risks of changing interest rates, excess
default experience and adverse changes in asset values. Third party investment
managers manage the portfolio. Although we retain control over asset-liability
management, investment policy and strategy, compliance and evaluation of
results, we may not be able to effectively manage investment results and risks
in an asset-liability context, which could adversely affect our ability to
support our businesses, our results of operations and our financial condition.

Investment Oversight

     Our Finance and Investment Committee reviews our investment portfolio and
the performance of our investment managers. In addition, our Finance and
Investment Committee approves changes in the investment policy proposed by
management and oversees compliance with the investment policy. Our Finance and
Investment Committee can approve exceptions to our investment policy and
periodically reviews our investment policy in light of prevailing market
conditions. The investment managers and our investment policy may be changed
from time to time as a result of such reviews.

Investment Policy

     Our investment policy includes limits requiring diversification by asset
class, fixed income sector and single issuers and limits exposure to lower-rated
securities. It also limits reinvestment risk and requires effective
asset-liability management processes including the maintenance of adequate
liquidity to meet potential cash outflows.


                                       9
<PAGE>

     We are exposed to three primary sources of investment risk on fixed income
investments: market value, reinvestment and liquidity risk. Market value risk is
the risk that our invested assets will decrease in value due to a change in the
yields realized on our assets, a change in the prevailing market yields for
similar assets, an unfavorable change in the liquidity of the investment or an
unfavorable change in the financial prospects or a downgrade in the credit
rating of the issuer of the investment. Reinvestment risk is the risk that
interest rates will decline and funds reinvested will earn less than expected.
Liquidity risk is the risk that liabilities are surrendered or mature sooner
than anticipated, requiring us to sell assets at an undesirable time to provide
for policyholder surrenders or withdrawals.

     We manage these risks through industry and issuer diversification, overall
limits on the amounts of credit risk taken and asset-liability management, which
we refer to as ALM. Our primary ALM practices include:

     o    modeling the cash flows necessary to service each existing and newly
          written reinsurance liability by considering various interest rate
          scenarios;

     o    targeting new investments with cash flows suitable for new and
          existing liabilities;

     o    evaluating and quantifying the risks to earnings and the economic
          value of shareholders' equity created by gaps between the projected
          cash flows from existing assets and those required by in-force
          liabilities;

     o    reducing the risks caused by mismatches by opportunistically buying
          matching new investments.

     We may use foreign denominated securities to manage currency risk if the
related reinsurance transaction has a foreign currency component. We may enter
into interest rate swaps, futures, forwards and other hedging transactions to
manage our risks. We use derivatives only to manage interest rate risk rather
than as a speculative investment.

Investment Managers

     As of December 31, 2004, we utilized 6 asset managers to manage the portion
of our investment portfolio that we control. General Re-New England Asset
Management, which we refer to as NEAM, managed 39.3%; Principal Capital
Management, managed 34.4%; Wellington Management, managed 16.7%; Asset
Allocation and Management, managed 7.9%; Stephens Capital Management, managed
0.2%; and company directed funds amounted to 1.5%. We may engage other asset
managers to manage some or all of our controlled investment portfolio in the
future. In the instances where we enter modified coinsurance transactions we do
not directly control the underlying investment portfolio. Instead, the
investments are held and managed by the ceding company for our account in
accordance with contractually agreed upon standards.

Competition and Ratings

     Competition in the life reinsurance industry is based on price, financial
strength ratings, reputation, experience, relationships and service. Because we
currently rely on a small but growing number of clients in our life reinsurance
business and expect to continue to do so for the near future, we are more
susceptible to the adverse effects of competition than life reinsurers with
larger client bases. We consider Swiss Re, Reinsurance Group of America,
Transamerica Reinsurance, Generali USA Life Re, Canada Life, and Munich American
Reassurance Company to be our primary competitors.

     Insurance ratings are used by prospective purchasers of insurance policies,
insurers and reinsurance intermediaries in assessing the financial strength and
quality of insurers and reinsurers. Rating organizations periodically review the
financial performance and condition of insurers, including our insurance
subsidiaries. Rating organizations assign ratings based upon several factors.
While most of the factors considered relate to the rated company, some of the
factors take into account general economic conditions and circumstances outside
the rated company's control. Scottish Annuity & Life Insurance Company (Cayman)
Ltd., Scottish Re (U.S.), Inc., and Scottish Re Limited are each rated "A-
(excellent)" for financial strength by A.M. Best Company, which is fourth


                                       10
<PAGE>

highest of sixteen rating levels, "A (strong)" for financial strength by Fitch
Ratings, which is sixth highest of twenty-two rating levels, and "A- (strong)"
for financial strength by Standard & Poor's, which is seventh highest of
twenty-two rating levels. Scottish Annuity & Life Insurance Company (Cayman)
Ltd. and Scottish Re (U.S.), Inc. are also rated "A3 (good)" by Moody's, which
is seventh highest of twenty-one rating levels. Scottish Re Life Corporation is
rated "A- (excellent)" for financial strength by A.M. Best Company, which is the
fourth highest of sixteen rating levels. These ratings are based upon factors of
concern to policyholders, treaty holders, retrocessionaires, agents and
intermediaries and are not directed toward the protection of investors.

     A.M. Best assigns an "A- (excellent)" rating to companies that have, in its
opinion, on balance, excellent balance sheet strength, operating performance and
business profile, as well as a strong ability to meet their ongoing obligations
to policyholders. A.M. Best maintains a letter scale rating system ranging from
"A++ (superior)" to "F (in liquidation)." "A- (excellent)" is the fourth highest
designation of A.M. Best's sixteen rating levels. Fitch assigns an "A (strong)"
or "A- (strong)" rating to companies that it characterizes as having, in its
opinion, strong capacity to meet policyholder and contract obligations and
moderate risk factors and where the impact of any adverse business and economic
factors is expected to be small. Fitch's insurer financial strength ratings
range from "AAA (exceptionally strong)" to "D (distressed)." "A (strong)" is the
sixth highest of Fitch's twenty-two rating levels. Moody's assigns an "A3
(good)" rating to companies that offer, in its opinion, good financial security,
but possess elements that suggest a susceptibility to impairment sometime in the
future. Moody's long term insurance financial strength ratings range from "Aaa
(exceptional)" to "C (lowest)." "A3 (good)" is the seventh highest designation
of Moody's twenty-one rating levels. Standard & Poor's assigns an "A- (strong)"
rating to companies that have, in its opinion, a strong capacity to meet
financial commitments, but are somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than insurers with higher
ratings. Standard & Poor's insurer financial strength ratings range from "AAA
(extremely strong)" to "R (under regulatory supervision)." "A- (strong)" is the
seventh highest designation of Standard & Poor's twenty-two rating levels.

Employees

     As of February 28, 2005, we employed approximately 271 full time employees,
of which 82 were formerly employed by ING in connection with the business we
acquired from ING, and none of whom are unionized. We believe our relations with
our employees are good.

Regulation

General U.S. State Supervision

     Various state insurance departments enforce insurance and reinsurance
regulation. The extent and nature of regulation varies from state to state.
Scottish Re (U.S.), Inc. is a Delaware-domiciled reinsurer, which is licensed,
accredited, approved or authorized to write reinsurance in 50 states and the
District of Columbia. Scottish Re Life Corporation is a Delaware-domiciled
reinsurer, which is licensed, accredited, approved or authorized to conduct
reinsurance in 50 states, the District of Columbia, Guam and the Federated
States of Micronesia. Orkney Re, Inc. is a special purpose financial captive
insurance company formed under the laws of South Carolina.

Insurance Holding Company Regulation

     Scottish Re, Scottish Re (U.S.), Inc. and Scottish Re Life Corporation are
subject to regulation under the insurance holding company laws of Delaware. The
insurance holding company laws and regulations vary from state to state, but
generally require insurers and reinsurers that are subsidiaries of insurance
holding companies to register and file with state regulatory authorities certain
reports including information concerning their capital structure, ownership,
financial condition and general business operations. Generally, all transactions
between Scottish Re (U.S.), Inc. and/or Scottish Re Life Corporation and their
affiliates must be fair and, if material, require prior notice and approval or
non-disapproval by the Delaware state insurance department. Orkney Re, Inc. is
not subject to the South Carolina insurance holding company act, but it is
required to obtain the approval of the South Carolina Director of Insurance
before it may materially amend any agreements to which it is a party, enter into
any new agreements or otherwise amend its business plan. State insurance holding
company laws typically place limitations on the amounts of dividends or other
distributions payable by insurers and reinsurers.


                                       11
<PAGE>

     State insurance holding company laws also require prior notice or state
insurance department approval of changes in control of an insurer or reinsurer
or its holding company. The insurance laws of Delaware provide that no person,
including a corporation or other legal entity, may acquire control of a domestic
insurance or reinsurance company unless it has given notice to such company and
obtained prior written approval of the state insurance commissioner. Any
purchaser of 10% or more of the outstanding voting securities of an insurance or
reinsurance company or its holding company is presumed to have acquired control,
unless this presumption is rebutted. In addition, many state insurance laws
require prior notification to the state insurance department of a change in
control of a non-domiciliary insurance company licensed to transact insurance
business in that state. While these pre-notification statutes do not authorize
the state insurance departments to disapprove the change in control, they
authorize regulatory action in the affected state if particular conditions exist
such as undue market concentration. Any future transactions that would
constitute a change in control of Scottish Re (U.S.), Inc. and Scottish Re Life
Corporation or any of their U.S. insurance subsidiaries may require prior
notification in the states that have adopted pre-acquisition notification laws.
These prior notice and prior approval laws may discourage potential acquisition
proposals and may delay, deter or prevent a change of control of Scottish Re
Group Limited, including transactions that some or all of our shareholders might
consider to be desirable.

Dividend Restrictions

     State insurance holding company laws typically place limitations on the
amounts of dividends or other distributions payable by insurers and reinsurers.
Delaware provides that, unless the prior approval of the state insurance
commissioner has been obtained, dividends may be paid only from earned surplus
and the maximum annual amount payable is limited to the greater of 10% of
policyholder surplus at the end of the prior year or 100% of statutory net gain
from operations for the prior year.

     Orkney Re, Inc. may only pay dividends in accordance with restrictions and
guidelines contained in its licensing order issued by the South Carolina
Director of Insurance. Any dividends Orkney Re, Inc. pays are subject to the
lien of the indenture relating to the long term debt of its parent entity,
Orkney Holdings LLC.

U.S. Reinsurance Regulation

     Scottish Re (U.S.), Inc. and Scottish Re Life Corporation are subject to
insurance regulation and supervision that in many respects is similar to the
regulation of licensed primary insurers. Generally, state regulatory authorities
monitor compliance with, and periodically conduct examinations regarding, state
mandated standards of solvency, licensing requirements, investment limitations,
restrictions on the size of risks which may be reinsured, deposits of securities
for the benefit of reinsureds, methods of accounting, and reserves for unearned
premiums, losses and other purposes. However, in contrast with primary insurance
policies, which are regulated as to rate, form, and content, the terms and
conditions of reinsurance agreements are generally not subject to regulation by
state insurance regulators.

     Scottish Re (U.S.), Inc. is licensed, accredited, approved or authorized to
write reinsurance in 50 states and the District of Columbia. Scottish Re Life
Corporation is licensed, accredited, approved and authorized to write
reinsurance in all 50 states, the District of Columbia, Guam, and the Federated
States of Micronesia. The ability of any primary insurer to take credit for the
reinsurance placed with reinsurers is a significant component of reinsurance
regulation. Typically, a primary insurer will only enter into a reinsurance
agreement if it can obtain credit on its statutory financial statements for the
reinsurance ceded to the reinsurer. Credit is usually granted when the reinsurer
is licensed, accredited, approved or authorized to write reinsurance in the
state where the primary insurer is domiciled. In addition, many states allow
credit for reinsurance ceded to a reinsurer if the reinsurer is licensed in
another jurisdiction and meets certain financial requirements, or if the primary
insurer is provided with collateral in the form of letters of credit, trusts,
funds withheld or modified coinsurance contracts, to secure the reinsurer's
obligations.

U.S. Reinsurance Regulation of our Non-U.S. Reinsurance Subsidiaries

     Our non-U.S. reinsurance subsidiaries also assume reinsurance from primary
U.S. insurers. In order for primary U.S. insurers to obtain financial statement
credit for the reinsurance obligations of our non-U.S. reinsurers, our non-U.S.
reinsurance subsidiaries must satisfy reinsurance requirements. Non-U.S.
reinsurers that are not


                                       12
<PAGE>

licensed in a state generally may become accredited by filing certain financial
information with the relevant state commissioner and maintaining a U.S. trust
fund for the payment of valid reinsurance claims. In addition, many states allow
credit for reinsurance ceded to unlicensed and unaccredited reinsurers if the
primary insurer is provided with collateral in the form of letters of credit,
trusts, funds withheld or modified coinsurance contracts, to secure the
reinsurer's obligations.

U.S. Insurance Regulation of our Non-U.S. Insurance Subsidiaries

     Our non-U.S. insurance subsidiaries which sell wealth management products
are not licensed to conduct insurance business in any jurisdiction in the United
States. Therefore, they cannot utilize traditional life insurance marketing
channels such as agents, nor can they use mail-order or other direct marketing
channels to conduct business with persons in the United States or certain other
jurisdictions. Accordingly, they rely primarily on referrals by financial
advisors, investment managers, private bankers, attorneys and other
intermediaries in the United States to generate wealth management business. None
of these intermediaries represents us as agent or in any other capacity, nor do
they receive any commissions or other remuneration from us for activities
undertaken in the United States. In addition, policy solicitation, issuance and
servicing must occur outside of the United States.

NAIC Ratios

     The National Association of Insurance Commissioners, which we refer to as
the NAIC, has developed a set of financial relationships or tests known as the
NAIC Insurance Regulatory Information System to assist state regulators in
monitoring the financial condition of insurance companies and identifying
companies that require special attention or action by insurance regulatory
authorities. A second set of confidential ratios, called Financial Analysis
Solvency Tracking System, "FAST," are also used for monitoring. Insurance
companies generally submit data quarterly to the NAIC, which in turn analyzes
the data using prescribed financial data ratios, each with defined "usual
ranges." If an insurance company's results vary significantly from expected
ranges, regulators may make further inquiries. Regulators have the authority to
impose remedies ranging from increased monitoring to certain business
limitations to various degrees of supervision. Our U.S. reinsurance subsidiaries
are not currently subject to increased regulatory scrutiny based on our ratios,
as computed under these systems.

Risk-Based Capital

     The Risk-Based Capital (RBC) for Insurers Model Act, or the Model Act, as
it applies to insurers and reinsurers, was adopted by the NAIC in 1993. The main
purpose of the Model Act is to provide a tool for insurance regulators to
evaluate the capital of insurers relative to the risks assumed by them and
determine whether there is a need for possible corrective action. U.S. insurers
and reinsurers are required to report the results of their risk-based capital
calculations as part of the statutory annual statements filed with state
insurance regulatory authorities.

     The Model Act provides for four different levels of regulatory actions
based on annual statements, each of which may be triggered if an insurer's Total
Adjusted Capital, as defined in the Model Act, is less than a corresponding
level of risk-based capital, which we call RBC.

     o    The Company Action Level is triggered if an insurer's Total Adjusted
          Capital is less than 200% of its Authorized Control Level RBC, as
          defined in the Model Act. At the Company Action Level, the insurer
          must submit a plan to the regulatory authority that discusses proposed
          corrective actions to improve its capital position.

     o    The Regulatory Action Level is triggered if an insurer's Total
          Adjusted Capital is less than 150% of its Authorized Control Level
          RBC. At the Regulatory Action Level, the regulatory authority will
          perform a special examination of the insurer and issue an order
          specifying corrective actions that must be followed.

     o    The Authorized Control Level is triggered if an insurer's Total
          Adjusted Capital is less than 100% of its Authorized Control Level
          RBC, and at that level the regulatory authority is authorized
          (although not mandated) to take regulatory control of the insurer.


                                       13
<PAGE>

     o    The Mandatory Control Level is triggered if an insurer's Total
          Adjusted Capital is less than 70% of its Authorized Control Level RBC,
          and at that level the regulatory authority must take regulatory
          control of the insurer. Regulatory control may lead to rehabilitation
          or liquidation of an insurer.

     As of December 31, 2004, the risk-based capital of Scottish Re (U.S.), Inc.
and Scottish Re Life Corporation exceeded the level that would require either of
them to take any corrective action.

The Gramm-Leach-Bliley Act

     In November 1999, the Gramm-Leach-Bliley Act of 1999, or the GLBA, was
enacted, implementing fundamental changes in the regulation of the financial
services industry in the United States. The GLBA permits the transformation of
the already converging banking, insurance and securities industries by
permitting mergers that combine commercial banks, insurers and securities firms
under one holding company, a "financial holding company." Bank holding companies
and other entities that qualify and elect to be treated as financial holding
companies may engage in activities, and acquire companies engaged in activities,
that are "financial" in nature or "incidental" or "complementary" to such
financial activities. Such financial activities include acting as principal,
agent or broker in the underwriting and sale of life, property, casualty and
other forms of insurance and annuities. However, although a bank cannot act as
an insurer nor can it own an insurer as a subsidiary in most circumstances, a
financial holding company can own any kind of insurer, insurance broker or
agent. Under the GLBA, national banks retain their existing ability to sell
insurance products in some circumstances.

     Under state law, the financial holding company must apply to the insurance
commissioner in the insurer's state of domicile for prior approval of the
acquisition of the insurer. Under the GLBA, no state may prevent or restrict
affiliations between banks and insurers, insurance agents or brokers. Further,
states cannot prevent or significantly interfere with bank or bank subsidiary
sales activities. Finally, both bank and bank affiliates can obtain licenses as
producers.

     Until the passage of the GLBA, the Glass-Steagall Act had limited the
ability of banks to engage in securities-related businesses, and the Bank
Holding Company Act had restricted banks from being affiliated with insurers.
With the passage of the GLBA, among other things, bank holding companies may
acquire insurers, and insurance holding companies may acquire banks. The ability
of banks to affiliate with insurers may materially affect our U.S. reinsurance
subsidiary's product lines by substantially increasing the number, size and
financial strength of potential competitors.

Possible Initiatives Relating to the September 11th Events

     The terrorist attacks in the United States on September 11, 2001 resulted
in significant losses for the insurance and reinsurance industries. In response
to the attacks and a resulting decline in the availability of terrorism
insurance, Congress enacted the Terrorism Risk Insurance Act of 2002. The Act,
commonly referred to as TRIA, provides U.S. Federal reinsurance of "commercial
property and casualty" coverage written to protect against losses which result
from a specified category of foreign terrorist acts. At present, the protections
of TRIA are available only to defined "commercial property and casualty"
insurers. In addition, TRIA expires on December 31, 2005, and it is not known
whether Congress will act to extend the term of the program or expand it to
cover life insurers that issue group life insurance.

     By its own terms, all reinsurance is specifically excluded from the
protections available through TRIA. Therefore, absent the possible extension of
TRIA protections to group life insurance, TRIA is not expected to provide any
protection for providers of life reinsurance. To the extent that TRIA
protections are extended to group life insurance, the availability of U.S.
Federal reinsurance for terrorism losses would relieve some of the economic
pressure to reinsure terrorism losses that life reinsurers may currently
experience. We have no information regarding other proposed or enacted federal
or state legislation that would restrict insurers' ability to exclude or limit
coverage for terrorism risks.


                                       14
<PAGE>

Bermuda

     Our Bermuda subsidiaries are subject to regulation under the Bermuda
Companies Act of 1981, and our Bermuda insurance subsidiaries are subject to
regulation under the Bermuda Insurance Act of 1978, as amended by the Insurance
Amendment Act 1995 (which we refer to as the Bermuda Insurance Act), and the
regulations promulgated thereunder. They are required, among other things, to
meet and maintain certain standards of solvency, to file periodic reports in
accordance with Bermuda statutory accounting rules, to produce annual audited
financial statements and to maintain a minimum level of statutory capital and
surplus. In general, the regulation of insurers in Bermuda relies heavily upon
the auditors, directors and managers of the Bermuda insurer, each of which must
certify that the insurer meets the solvency and capital requirements of the
Bermuda Insurance Act of 1978.

     Under the Bermuda Insurance Act, a Bermuda insurance company carrying on
long-term business (which includes the writing of annuity contracts and life
insurance policies with respect to human life) must hold all receipts in respect
of its long-term business and earnings thereon in a separate long-term business
fund. Payments from such long-term business fund may not be made directly or
indirectly for any purpose other than those of the insurer's long-term business,
except in so far as such payment is made out of surplus certified by the
insurer's approved actuary to be available for distribution other than to
policyholders. In addition, certain of our Bermuda subsidiaries are authorized
by private acts of the Bermuda Legislature (the Scottish Annuity & Life
International Insurance Company (Bermuda) Ltd. Consolidation and Amendment Act
2001 and the Scottish Annuity & Life Insurance Company (Bermuda) Limited
Consolidation and Amendment Act 2001, which we refer to as the private acts) to
establish separate accounts in respect of one or more life insurance policies or
annuity contracts. In the event of an inconsistency between the Bermuda
Insurance Act and our private acts, the terms of the private acts control
subject, however, to later amendments of the Bermuda Insurance Act or other
relevant laws. Under our private acts, each insurance subsidiary is permitted to
credit to relevant separate accounts such portion of the premiums and other
receipts from the related policy or contract, and any property of the insurance
subsidiary derived from or purchased with such premiums, as the related policies
or contracts stipulate. To the extent provided in the relevant policies or
contracts, income, interest or other gains earned from, and any property
acquired by, the investing or dealing in the assets of the separate account are
credited to the separate account, and all expenses, fees or losses relating to
the separate account are charged against the separate account. The assets and
property held in the separate account are to be used for the sole purpose of
paying any and all claims arising from or under the related policies or
contracts, and no other person has any right or interest in such assets. Upon
the termination of policies or contracts related to a separate account, and the
discharge of obligations under the policies or contracts, the insurance
subsidiary may terminate the separate account, and credit any remaining assets
or property to its general account. In the event of insolvency of one of our
Bermuda subsidiaries, the liquidator is bound to recognize the separate nature
of each separate account, and is not empowered to apply property identified as
the property of any one separate account to pay the claims of creditors of the
insurance company or policyholders other than the policyholder to whom the
separate account relates. The private acts also permit our Bermuda subsidiaries
to issue certain securities based on separate accounts that are subject to
similar provisions.

Cayman Islands

     Our Cayman Islands subsidiaries are subject to regulation as licensed
insurance companies under Cayman Islands law. These subsidiaries hold
unrestricted Class B insurance licenses under Cayman Islands Insurance Law and
may therefore carry on an insurance business from the Cayman Islands, but may
not engage in any Cayman Islands domestic insurance business. Unless
specifically exempted, a Cayman Islands insurance company must engage a licensed
insurance manager operating in the Cayman Islands to provide insurance expertise
and oversight. Our subsidiaries are exempt from this requirement. In addition,
under the Cayman Islands Insurance Law, a Cayman Islands insurance company
carrying on long-term business (which includes the writing of life insurance
policies) must hold all receipts in respect of its long-term business and
earnings thereon in a separate long-term business fund. Payments from such
long-term business fund may not be made directly or indirectly for any purpose
other than those of the insurer's long-term business except in so far as such
payments can be made out of any surplus disclosed on an actuarial valuation and
certified by an actuary to be distributable otherwise than to policyholders.
Every Cayman Islands insurance company carrying on long-term business may
establish any number of separate accounts in respect of premiums paid to it to
provide (i) annuities on human life and (ii) contracts of insurance on human
life, and such respective premiums shall be kept segregated one from the other
and independent of all other funds of the Cayman Islands insurer, and,
notwithstanding the provisions of any other written law to the


                                       15
<PAGE>

contrary, are not chargeable with any liability arising from any other business
of the insurer. The scope and the validity of the Cayman Islands law regarding
separate accounts has not been tested in the courts of the Cayman Islands.

Guernsey

     WorldWide Insurance PCC Limited is a protected cell company incorporated
under the laws of the Island of Guernsey that is licensed by the Guernsey
Financial Services Commission ("GFSC") to carry on international insurance
business under the Insurance Business (Bailiwick of Guernsey) Law, 2002. The
activities of World-Wide Insurance PCC Limited are supervised by the GFSC.
Insurers in Guernsey are required to maintain a minimum margin of solvency and
to ensure that they have funds available sufficient to meet a total annual
aggregate risk retention together with any forecasted annual expenses. Insurance
companies are also required to report annually to the GFSC and must also retain
a general representative. The GFSC also has powers to investigate and intervene
in the affairs of insurance companies in Guernsey.

Ireland

     Scottish Re (Dublin) Limited is a reinsurance company incorporated under
the laws of Ireland. Under Irish law, a reinsurance company such as Scottish Re
(Dublin) Limited is required to maintain a minimum level of paid up share
capital. As a general matter, Scottish Re (Dublin) Limited is not subject to the
same level of regulation in Ireland as a direct writing insurance company.
However, the Irish Financial Services Regulatory Authority has the power under
Section 22 of the Insurance Act, 1989 (as inserted by Section 5 of the Insurance
Act, 2000) to direct Irish reinsurance companies to cease writing business
indefinitely or for a specified period for, among other grounds, inadequate
capitalization, unsuitable directors and/or management or insufficient staff
based in Ireland. Section 22A of the Insurance Act, 1989 (as inserted by Section
6 of the Insurance Act, 2000) provides that the Irish Financial Services
Regulatory Authority may create regulations to provide for the application of
the general insurance laws and regulations in Ireland to reinsurance companies
such as Scottish Re (Dublin) Limited where it considers it necessary to do so,
in the public interest, in the interest of policyholders and in the interest of
the orderly and proper regulation of the insurance industry.

United Kingdom

     Scottish Re Limited is a U.K. insurance company incorporated and registered
in England and Wales and subject to regulation and supervision in the United
Kingdom under English domestic and European Community law. The Insurance
Companies Act of 1982 of the United Kingdom, as amended, imposes solvency and
liquidity standards and auditing and reporting requirements on insurance and
reinsurance companies organized under English law, and on companies that own
such insurance companies, and further grants to the U.K. Financial Services
Authority powers to supervise, investigate and intervene in the affairs of
insurance companies. Scottish Re Limited is authorized to carry on long-term
business and certain classes of general business. An insurance company carrying
on long-term business (which includes the writing of life insurance policies)
must hold all receipts in respect of its long-term business and earnings thereon
in a separate long-term business fund. Payments from such long-term business
funds may not be made directly or indirectly for any purpose other than those of
the insurer's long-term business. An exception exists wherein payments may be
made from a surplus in the long-term business fund. In such instance the insurer
must disclose the surplus on an actuarial valuation and have the valuation
certified by its appointed actuary in order to distribute the surplus.

New Jurisdictions

     If Scottish Re or any of our subsidiaries were to become subject to the
laws of a new jurisdiction where Scottish Re or that subsidiary is not presently
admitted, they may not be in compliance with the laws of the new jurisdiction.
Any failure to comply with applicable laws could result in the imposition of
significant restrictions on our ability to do business, and could also result in
fines and other sanctions, any or all of which could adversely affect our
financial results and operations.


                                       16
<PAGE>

                                  RISK FACTORS

     Investing in our securities involves a high degree of risk. Potential
investors should consider carefully the following risk factors, in addition to
the other information set forth in this Form 10-K, prior to investing in our
securities.

                          Risks Related to Our Business

A downgrade in the financial ratings of our insurance subsidiaries could make us
less competitive.

     Ratings are an important factor in attracting business in our life
reinsurance business. Rating organizations periodically review the financial
performance and condition of insurers, including our insurance subsidiaries.
Rating organizations assign ratings based upon several factors. Although most of
the factors considered relate to the rated company, some of the factors take
into account general economic conditions and circumstances outside the rated
company's control. Scottish Annuity & Life Insurance Company (Cayman) Ltd.,
Scottish Re (U.S.), Inc., and Scottish Re Limited are each rated "A-
(excellent)" for financial strength by A.M. Best, which is fourth highest of
sixteen rating levels, "A (strong)" for financial strength by Fitch Ratings,
which is sixth highest of twenty-two rating levels, and "A- (strong)" for
financial strength by Standard & Poor's, which is seventh highest of twenty-two
rating levels. Scottish Annuity & Life Insurance Company (Cayman) Ltd. and
Scottish Re (U.S.), Inc. are also rated "A3 (good)" for financial strength by
Moody's, which is seventh highest of twenty-one rating levels. Scottish Re Life
Corporation is rated "A- (excellent)" for financial strength by A.M. Best
Company, which is the fourth highest of sixteen rating levels. The objective of
ratings organizations is to provide an opinion of an insurer's financial
strength and ability to meet ongoing obligations to its policyholders. These
ratings are subject to periodic review by the relevant rating agency and may be
revised downward or withdrawn at the sole discretion of the rating agency. In
addition, these ratings are not an evaluation directed to investors in our
securities and are not recommendations to buy, sell or hold our securities.
Although since our formation in 1998 none of our operating subsidiaries has been
downgraded, a downgrade in or withdrawal of one or more ratings of any one of
our insurance subsidiaries could adversely affect its ability to sell products,
retain existing business (through recapture provisions and non-renewal) and
compete for attractive acquisition opportunities.

Inadequate risk analysis and underwriting may result in a decline in our
profits.

     Our success depends on our ability to accurately assess and manage the
risks associated with the business that we reinsure. We have developed risk
analysis and underwriting guidelines, policies, and procedures with the
objective of controlling the quality of the business as well as the pricing of
the risks we are assuming. Among other things, these processes rely heavily on
our underwriting, our analysis of mortality trends and lapse rates, and our
understanding of medical improvements and their impact on mortality. If these
processes are inadequate or are based on inadequate information, we may not
establish appropriate premium rates and our reserves may not be adequate to
cover our losses.

     In addition, we are dependent on the original underwriting decisions made
by, and information provided to us by, ceding companies. For example, we
incurred a charge to net income of $10.4 million in the third quarter of 2003
when we discovered that one of our ceding insurers had underreported death
claims to us over a three-year period. We are also subject to the risk that the
ceding clients may not have adequately evaluated the risks to be reinsured and
that the premiums ceded may not adequately compensate us for the risks we
assume. To the extent actual claims exceed our underlying assumptions, we will
be required to increase our liabilities, which will reduce our profits in the
period in which we identify the deficiency.

     Reserves are estimates based on actuarial and statistical projections, at a
given point in time, of what we ultimately expect to pay out on claims and
benefits, based on facts and circumstances then known, predictions of future
events, estimates of future trends in mortality, morbidity and other variable
factors such as persistency, inflation and interest rates. Because of the many
assumptions and estimates involved in establishing reserves, the reserving
process is inherently uncertain.


                                       17
<PAGE>

     Our estimation of reserves may be less reliable than the reserve
estimations of a reinsurer with a greater volume of business and more
established loss history. Actual losses and benefits may deviate, perhaps
substantially, from estimates of reserves contained in our financial statements
and could at times exceed our reserves. If our losses and benefits exceed our
reserves, our earnings may significantly decline.

Our life reinsurance contracts and variable life insurance policies expose us to
mortality risk.

     Adverse mortality risk is the risk that death claims may differ from the
amount we assumed in pricing our reinsurance contracts and our variable life
insurance policies. Mortality experience that is less favorable than the
mortality rates that we assumed will negatively affect our net income.

     Additionally, we are a relatively new company and many of our competitors
for reinsurance contracts and variable life insurance policies are significantly
larger, have larger operating histories and a broader risk pool. As a
consequence, our associated mortality risk exposure is likely to be greater in
the aggregate, and its probability of loss less predictable, than that of a
competitor with a broader risk pool. Furthermore, with mortality exposure, even
if the total benefits paid over the life of the contract do not exceed the
expected amount, sporadic timing of deaths can cause us to pay more benefits in
a given accounting period than expected, adversely impacting short-term
profitability in any particular quarter or year.

If our investment strategy is not successful, we could suffer unexpected losses.

     The success of our investment strategy is crucial to the success of our
business. Specifically, we are subject to:

     o    market value risk, which is the risk that our invested assets will
          decrease in value. This decrease in value may be due to a change in
          the yields realized on our assets and prevailing market yields for
          similar assets, an unfavorable change in the liquidity of the
          investment or an unfavorable change in the financial prospects or a
          downgrade in the credit rating of the issuer of the investment;

     o    reinvestment risk, which is the risk that interest rates will decline
          and funds reinvested will earn less than expected; and

     o    duration matching risk, which is the risk that liabilities are
          surrendered or mature sooner than anticipated and that we may have to
          sell assets at an undesirable time to provide for policyholder
          surrenders or withdrawals.

     We attempt to address such risks in product pricing and in establishing
policy reserves. If our assets do not properly match our anticipated liabilities
or our investments do not provide sufficient returns to enable us to satisfy our
guaranteed fixed benefit obligations then our profits and financial condition
would deteriorate. Also, declines in the value of our investments that provide
collateral for reinsurance contracts would require us to post additional
collateral.

     In addition, our investment portfolio includes mortgage-backed securities,
known as MBSs, and collateralized mortgage obligations, known as CMOs. As of
December 31, 2004, MBSs and CMOs constituted approximately 15.2% of our invested
assets. As with other fixed income investments, the fair value of these
securities fluctuates depending on market and other general economic conditions
and the interest rate environment. Changes in interest rates can expose us to
prepayment risks on these investments. In periods of declining interest rates,
mortgage prepayments generally increase and MBSs and CMOs are prepaid more
quickly, requiring us to reinvest the proceeds at the then current market rates.

     We may also enter into foreign currency, interest rate and credit
derivatives and other hedging transactions in an effort to manage risks.
Structuring these derivatives and hedges so as to effectively manage these risks
is an inherently uncertain process. If our calculations are incorrect, or if we
do not properly structure our derivatives or


                                       18
<PAGE>

hedges, we may have unexpected losses and our assets may not be adequate to meet
our needed reserves, which could adversely affect our business, earnings and
financial condition.

     General economic conditions affect the markets for interest-rate-sensitive
securities, including the level and volatility of interest rates and the extent
and timing of investor participation in such markets. Unexpected changes in
general economic conditions could create volatility or illiquidity in these
markets in which we hold positions and harm our investment return.

In certain reinsurance contracts 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.

     As part of our business we enter into reinsurance agreements on a modified
coinsurance and funds withheld coinsurance basis. In these transactions, the
ceding insurance company retains the assets supporting the ceded business and
manages them for our account. As of December 31, 2004, $2.1 billion of assets
were held by ceding companies under such agreements and were recorded under
"funds withheld at interest" on our balance sheet. Although the ceding company
must adhere to general standards agreed to by us for the management of these
assets, we do not control the selection of the specific investments or the
timing of the purchase or sale of investments made by the ceding company.
Accordingly, we may be at risk if the ceding company selects investments that
deviate from our agreed standards or if the ceding company performs poorly in
the purchase, sale and management of those assets. In addition, these assets are
not segregated from the ceding company's other assets, and we may not be able to
recover all of these assets in the event of the insolvency of the ceding
insurer. In certain other reinsurance arrangements, we may place assets in a
trust in order to provide the ceding company with credit for reinsurance on its
financial statements. Although we generally have the right to direct the
investment of assets in these trusts, in the event of the insolvency of the
ceding company, its receiver may attempt to take control of those assets.

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.

     Significant changes in interest rates expose us to the risk of not earning
income or experiencing losses based on the difference between the interest rates
earned on investments and the credited interest rates paid on outstanding
reinsurance contracts.

     Both rising and declining interest rates can negatively affect the income
we derive from these interest rate spreads. During periods of falling interest
rates, our investment earnings will be lower because new investments in fixed
maturity securities will likely bear lower interest rates. We may not be able to
fully offset the decline in investment earnings with lower crediting rates on
our contracts that reinsure life insurance policies or annuities with cash value
components. A majority of our annuity and certain other products have multi-year
guarantees and guaranteed floors on their crediting rates.

     During periods of rising interest rates, we may be contractually obligated
to increase the crediting rates on our contracts that reinsure annuities or life
insurance policies with cash value components. We may not, however, have the
ability to immediately acquire investments with interest rates sufficient to
offset the increased crediting rates under our reinsurance contracts. Although
we develop and maintain asset/liability management programs and procedures
designed to reduce the volatility of our income when interest rates are rising
or falling, significant changes in interest rates caused by factors beyond our
control such as changes in governmental monetary policy or political conditions
may negatively affect our interest rate spreads.

     Changes in interest rates may also affect our business in other ways. Lower
interest rates may result in lower sales of certain insurance and investment
products of our customers, which would reduce the demand for our reinsurance of
these products.


                                       19
<PAGE>

A prolonged economic downturn could reduce the demand for annuity and life
insurance products, which could substantially reduce our revenues.

     A prolonged general economic downturn or poor performance of the equity and
other capital markets, such as the U.S. economy has recently experienced, or
similar conditions in the future, could lower the demand for many annuity and
life insurance products. Because we obtain substantially all of our revenues
through reinsurance arrangements that cover a portfolio of life insurance
products, as well as annuities, our business would be harmed if the demand for
annuities or life insurance decreased.

Policyholder withdrawals or recaptures of reinsurance treaties could force us to
sell investments at a loss and take a larger than anticipated charge for
amortization of deferred acquisition costs.

     Some of the products offered by our insurance subsidiaries and some of the
products offered by primary insurance companies that we reinsure allow
policyholders and contract holders to withdraw their funds under defined
circumstances. In addition, our reinsurance agreements may provide for recapture
rights on the part of our insurance company customers. Recapture rights permit
these customers to reassume all or a portion of the risk formerly ceded to us
after an agreed upon time, usually 10 years, subject to various conditions or
upon a downgrade of any of our financial strength ratings or our failure to
satisfy other financial conditions. Recapture of business previously ceded does
not affect premiums ceded prior to the recapture, but may result in immediate
payments to our insurance company customers.

     In addition, when we issue a new insurance policy or annuity contract or
write a reinsurance contract, we defer a portion of the related acquisition
costs by establishing a deferred acquisition cost asset on the balance sheet.
This asset is amortized over the expected term of the acquired business based on
certain assumptions about the performance and persistency of that business and
investment experience. To the extent surrender, withdrawal or recapture activity
is greater than we assumed, or investment experience is worse than we assumed,
we may incur a non-cash charge to write down the deferred acquisition cost
asset. Any such charge may be partially offset by recapture and surrender fees.

     One of our customers exercised a right of recapture in April 2001,
requiring us to pay $185.7 million to the customer. Because we had expected the
recapture, we did not have to dispose of assets at a loss and we had already
fully amortized the deferred acquisition costs. In December 2002, another of our
customers exercised a right of recapture requiring us to pay $49.3 million to
the customer. In that case, we did not have to dispose of assets at a loss and
we recovered all of our unamortized deferred acquisition costs relating to the
transaction. However, because recapture rights can be triggered by
circumstances, which may be unforeseeable, such as rating decreases or
production shortfalls, we may not be able to anticipate future recaptures and
make adequate preparations to reduce their impact on us. If recaptures occur and
we do not make adequate preparations, our earnings and financial condition could
decline.

We take counter-party risk with respect to our retrocessionaires.

     We cede some of the business that we reinsure to other reinsurance
companies, known as retrocessionaires. We assume the risk that the
retrocessionaire will be unable to pay amounts due to us because of its own
financial difficulties. The failure of our retrocessionaires to pay amounts due
to us will not absolve us of our responsibility to pay ceding companies for
risks that we reinsure. Failure of retrocessionaires to pay us could materially
harm our business, results of operations and financial condition.

Terrorist attacks and related events may adversely affect our business and
results of operations.

     The terrorist attacks on the United States and ensuing events or any future
attacks may have a negative impact on our business and results of operations due
to the loss of lives that we insure or reinsure and the impact on the U.S. and
global economies and the demand for our products. Our reinsurance programs,
including our catastrophe coverage, limited our net losses in individual life
claims relating to the September 11, 2001 terrorist attacks to approximately
$750,000. We continue to utilize reinsurance programs, including catastrophe
coverage, to


                                       20
<PAGE>

limit any future losses relating to such events. We cannot assure you, however,
that if there are future terrorist attacks, our business, financial condition or
results of operations will not be adversely affected.

Economic and political instability in developing countries could harm our
business prospects.

     We conduct our business in various developing countries within Asia, Latin
America, the Middle East, North Africa and Southern and Eastern Europe. We plan
to continue to expand our business in these locations. Political and economic
instability as well as armed conflict in these countries could adversely impact
our ability to write new business originating in these countries. Such adverse
impact, if significant, could reduce our earned premiums and, accordingly, could
reduce our net income.

The acquisition of the individual life reinsurance business of ING, and any
future acquisition, exposes us to operational risks.

     On December 31, 2004, we acquired the in-force individual life reinsurance
business of ING, and we may make future acquisitions, either of companies or
other selected blocks of business. While we will evaluate business opportunities
on a regular basis, we may not be successful in identifying any attractive
acquisitions. We may not have, or be able to raise on acceptable terms,
sufficient financial resources to make acquisitions. In addition, the
acquisition from ING and any other acquisitions we make will be subject to all
of the risks inherent in an acquisition strategy, including

     o    integrating financial and operational reporting systems;

     o    establishing satisfactory budgetary and other financial controls;

     o    funding increased capital needs and overhead expenses;

     o    obtaining management personnel required for expanded operations;

     o    funding cash flow shortages that may occur if anticipated sales and
          revenues are not realized or are delayed, whether by general economic
          or market conditions or unforeseen internal difficulties; and

     o    the value of assets acquired may be lower than expected or may
          diminish due to credit defaults or changes in interest rates and
          liabilities assumed may be greater than expected.

     Our failure to manage successfully these operational challenges and risks
may impact our results of operations. In addition, growth by acquisition may
divert a substantial amount of management time that would otherwise be devoted
to our operations.

Pursuant to the terms of a Securities Purchase Agreement, we could be subject to
various penalties if we have not received shareholder approval prior to June 30,
2005, which could negatively impact our business and ratings.

     We are a signatory to a Securities Purchase Agreement with certain
affiliates of The Cypress Group. Pursuant to the terms of the agreement, if we
have not by June 30, 2005 obtained shareholder approval to amend our articles of
association and issue ordinary shares pursuant to the terms of certain
securities, we will be required to make additional payments under the Class C
Warrants, and to pay a penalty rate on notes, until such time as shareholder
approval is obtained. While we intend to seek shareholder approval as soon as
possible, and have scheduled an Extraordinary General Meeting of Shareholders
for April 7, 2005, for such purpose, no assurances can be given that the
requisite shareholder approval will be received prior to June 30, 2005. If we
are not able to receive such approval in a timely manner, the additional
payments and the penalty rate on the 7.00% Convertible Junior Subordinated Notes
may have a negative impact on our business, results of operations and ratings.


                                       21
<PAGE>

The loss of any of our key employees or our inability to retain them could
negatively impact our business.

     Our success substantially depends upon our ability to attract and retain
qualified employees and upon the ability of our senior management and other key
employees to implement our business strategy. We believe there are only a
limited number of available qualified executives in the business lines in which
we compete. We rely substantially upon the services of Scott E. Willkomm, our
Chief Executive Officer, Paul Goldean, our General Counsel, David Huntley, the
Chief Executive Officer of Scottish Re Limited, Thomas A. McAvity, Jr., our
Chief Investment Officer, Hugh McCormick, our Executive Vice President of
Corporate Development, Elizabeth A. Murphy, our Chief Financial Officer, Oscar
R. Scofield, the Chairman of Scottish Re (U.S.), Inc., Seth Vance, the Chief
Executive Officer of Scottish Holdings, Inc., and Clifford J. Wagner, our Chief
Actuary. Each of the foregoing members of senior management have employment
agreements and we maintain $5,000,000 key man life insurance policies for Mr.
Scofield and $2,500,000 key man life insurance policies for each of Mr.
Willkomm, Ms. Murphy, and Mr. Wagner. The loss of the services of members of our
senior management, or our inability to hire and retain other talented personnel
from the very limited pool of qualified insurance professionals, could delay or
prevent us from fully implementing our business strategy which could harm our
financial performance.

We are exposed to foreign currency risk.

     Our functional currency is the United States dollar. However, our U.K.
subsidiaries, Scottish Re Holdings Limited and Scottish Re Limited, maintain
operating expense accounts in British pounds, parts of their investment
portfolio in Euros and British pounds and receive other currencies in payment of
premiums. All of Scottish Re Limited's original U.S. business is settled in
United States dollars, all Canadian, Latin American and certain Asia and Middle
East business is converted and settled in United States dollars, and all other
currencies are converted and settled in either Euros or British pounds. The
results of the business recorded in Euros or British pounds are then translated
to United States dollars. Scottish Re Limited attempts to limit substantial
exposures to foreign currency risk, but does not actively manage currency risks.
To the extent our foreign currency exposure is not properly managed or otherwise
hedged, we may experience exchange losses, which in turn would lower our results
of operations and harm our financial condition.

Our insurance subsidiaries are highly regulated, and changes in these
regulations could harm our business.

     Our insurance and reinsurance subsidiaries are subject to government
regulation in each of the jurisdictions in which they are licensed or authorized
to do business. Governmental agencies have broad administrative power to
regulate many aspects of the insurance business, which may include trade and
claim practices, accounting methods, premium rates, marketing practices,
advertising, acceptability of collateral for purposes of taking credit for
reinsurance, policy forms, affiliate transactions, changes of control and
capital adequacy. These agencies are concerned primarily with the protection of
policyholders rather than shareholders. Moreover, insurance laws and
regulations, among other things:

     o    establish solvency requirements, including minimum reserves and
          capital and surplus requirements;

     o    limit the amount of dividends, tax distributions, intercompany loans
          and other payments our insurance subsidiaries can make without prior
          regulatory approval;

     o    impose restrictions on the amount and type of investments we may hold;
          and

     o    require assessments to pay claims of insolvent insurance companies.

     The National Association of Insurance Commissioners, which we call the
NAIC, continuously examines existing laws and regulations. We cannot predict the
effect that any NAIC recommendations or proposed or future legislation or rule
making in the United States or elsewhere may have on our financial condition or
operations.

     If Scottish Re or any of our subsidiaries were to become subject to the
laws of a new jurisdiction where Scottish Re or that subsidiary is not presently
admitted, they may not be in compliance with the laws of the new


                                       22
<PAGE>

jurisdiction. Any failure to comply with applicable laws could result in the
imposition of significant restrictions on our ability to do business, and could
also result in fines and other sanctions, any or all of which could harm our
financial results and operations.

     The European Commission is currently finalizing a draft Directive to
introduce a harmonized framework for the authorization and supervision of EU
reinsurers (the "Reinsurance Directive"). Once implemented by EU member states,
the Reinsurance Directive will introduce a single passport system for reinsurers
similar to that which currently applies to direct insurers. This will mean that
EU reinsurers will be authorized by their home state supervisor and will, on
that basis, be entitled to transact business anywhere in the European Union
either under the rules of "freedom of establishment" or under the "freedom of
services" rules.

     A draft of the Reinsurance Directive was issued on November 5, 2004 by the
EU Presidency (the "November Draft"). Some key provisions of the November Draft
for life reinsurers such as Scottish Re (Dublin) Limited include the following:

     o    EU reinsurers will be required to limit their purposes to the business
          of reinsurance and related operations.

     o    EU reinsurers will be obliged to establish adequate technical reserves
          to cover their reinsurance obligations. Additionally, reinsurers will
          be required to invest the assets covering their technical reserves and
          their equalization reserves (which are required in the case of credit
          reinsurers) in accordance with a prescribed set of rules. These rules
          require a reinsurer to match its investments to its expected claims
          payments and also require diversity across asset classes and
          counterparties. Investments in derivatives are permitted only to
          reduce investment risks or to facilitate efficient portfolio
          management. In addition, home member states are permitted to require
          reinsurers to also comply with the more quantitative rules set out in
          the November Draft provided they are prudentially justified.

     o    EU reinsurers will be obliged to maintain a solvency margin "free of
          any foreseeable liabilities". In the case of life reinsurers, the
          required solvency margin will be based on the higher of a premium
          basis or a claims basis calculation. In respect of premiums, a ratio
          of 18% will apply on the first EUR50 million, with 16% applying on the
          excess. In respect of claims, a ratio of 26% will apply on the average
          burden of claims determined by reference to a number of preceding
          financial years up to EUR35 million with 23% applying on the excess.
          (For unit linked business, home member states may require the solvency
          margin to be calculated in accordance with the rules set out in the
          Directive applicable to direct life assurance companies).

     o    One third of the required solvency margin will constitute a minimum
          guarantee fund, which must be not less than EUR 3.0 million.

     o    As regards transitional arrangements, the November Draft provides that
          member states may allow EU reinsurers which are carrying on business
          at the date of entry into force of the Reinsurance Directive, a
          further two years within which to comply with, inter alia, the
          requirements regarding establishment of technical provisions and
          reserves and relating to the solvency margin and the guarantee fund
          described above. However, it is currently unclear whether the Irish
          Financial Services Regulatory Authority will provide for such
          transitional arrangements and therefore Scottish Re (Dublin) Limited
          may be required to comply with the foregoing requirements on
          implementation of the Reinsurance Directive in Ireland.

If Scottish Re (Dublin) Limited were unable to comply with these provisions, it
would not be lawful for it to continue to carry on its business and it would
have to cease operations.


                                       23
<PAGE>

Life reinsurance is a highly competitive industry, which could limit our ability
to gain or maintain our competitive position.

     The life reinsurance industry is highly competitive, and we encounter
significant competition from other reinsurance companies, as well as competition
from other providers of financial services. Competition in the reinsurance
business is based on price, financial strength ratings, reputation, experience,
relationships and service. Many of our competitors are significantly larger,
have greater financial resources and have longer operating histories than we do.
Competition from other reinsurers could adversely affect our competitive
position. We consider our major competitors to include Swiss Re, Reinsurance
Group of America Inc., Munich American Reassurance Company, Generali USA Life
Re, Canada Life and Transamerica Reinsurance.

The outcome of current industry investigations and litigation may adversely
impact our business.

     The attorneys general and the insurance departments of New York and
numerous other states have announced investigations of insurance broker
compensation arrangements, bid-rigging and other practices within the insurance
industry, and may propose changes in the regulation of broker compensation
arrangements and disclosure. Some regulators have also announced investigations
into improper uses of finite reinsurance. We have not been contacted by any
government agency (including through receipt of a subpoena) in connection with
these investigations. It is impossible to predict the outcomes of these
investigations, whether they will expand into other industry practices not yet
contemplated, how they will affect our business, financial condition or results
of operation, or whether they will result in changes in insurance regulation or
practices.

Our ability to pay dividends is limited.

     We are a holding company, with our principal assets consisting of the stock
of our insurance company subsidiaries. Our ability to pay dividends on the
ordinary shares and HyCUs depends significantly on the ability of our insurance
company subsidiaries, our principal sources of cash flow, to declare and
distribute dividends or to advance money to us in the form of intercompany
loans. Our insurance company subsidiaries are subject to various state and
foreign government statutory and regulatory restrictions applicable to insurance
companies generally, that limit the amount of dividends, loans and advances that
those subsidiaries may pay to us. If insurance regulators at any time determine
that payment of a dividend or any other payment to an affiliate would be
detrimental to an insurance subsidiary's policyholders or creditors, because of
the financial condition of the insurance subsidiary or otherwise, the regulators
may block dividends or other payments to affiliates that would otherwise be
permitted without prior approval.

Our ordinary shares are subject to voting and transfer limitations.

     Under our articles of association, our board of directors (or its designee)
is required, except for transfers of ordinary shares executed on any recognized
securities exchange or inter-dealer quotation system, including the NYSE, to
decline to register any transfer of ordinary shares, if our directors have any
reason to believe that such transfer would result in a person (or any group of
which such person is a member) beneficially owning, directly or indirectly, 10%
or more of any class of our shares, except that Pacific Life (as defined in our
articles of association), is permitted to transfer ordinary shares to other
Pacific Life Entities, so long as the number of ordinary shares beneficially
owned directly or indirectly by the Pacific Life Entities in the aggregate does
not exceed 24.9% of a class of our shares. With respect to a transfer of
ordinary shares executed on any recognized securities exchange or inter-dealer
quotation system, including the NYSE, if our directors have any reason to
believe that such transfer would result in a person (or any group of which such
person is a member) beneficially owning, directly or indirectly, 10% or more of
any class of our shares, the directors may demand that such person surrender the
ordinary shares to an agent designated by the directors, who will sell the
ordinary shares on any recognized securities exchange or inter-dealer quotation
system, including the NYSE. After applying the proceeds of the sale toward
reimbursing the transferee for the price paid for the ordinary shares, the agent
will pay the remaining proceeds to certain charitable organizations designated
by the directors. The proceeds of such sale may be used to reimburse the agent
for its duties. Similar restrictions apply to issuances and repurchases of
ordinary shares by us. Our directors (or their designee) also may, in their
absolute discretion, decline to register the transfer of any ordinary shares,
except for transfers of ordinary shares executed on any recognized securities
exchange or inter-dealer quotation system, including the NYSE, if they have
reason to believe that such transfer may expose us, our subsidiaries or


                                       24
<PAGE>

shareholders or any person insured or reinsured or proposing to be insured or
reinsured by us to adverse tax or regulatory treatment in any jurisdiction or if
they have reason to believe that registration of such transfer under the
Securities Act, under any state "blue sky" or other U.S. securities laws or
under the laws of any other jurisdiction is required and such registration has
not been duly effected. With respect to a transfer of ordinary shares executed
on any recognized securities exchange or inter-dealer quotation system,
including the NYSE, if our directors have any reason to believe that such
transfer may expose us, our subsidiaries or shareholders or any person insured
or reinsured or proposing to be insured or reinsured by us to adverse tax or
regulatory treatment in any jurisdiction, the directors may demand that such
person surrender the ordinary shares to an agent designated by the directors,
who will sell the ordinary shares on any recognized securities exchange or
inter-dealer quotation system, including the NYSE. After applying the proceeds
of the sale toward reimbursing the transferee for the price paid for the
ordinary shares, the agent will pay the remaining proceeds to certain charitable
organizations designated by the directors. The proceeds of such sale may be used
to reimburse the agent for its duties. A transferor of ordinary shares will be
deemed to own such shares for dividend, voting and reporting purposes until a
transfer of such ordinary shares has been registered on our register of members.
We are authorized to request information from any holder or prospective acquirer
of ordinary shares as necessary to effect registration of any such transaction,
and may decline to register any such transaction if complete and accurate
information is not received as requested.

     In addition, our articles of association generally provide that any person
(or any group of which such person is a member) other than the Pacific Life
Entities, holding directly, or by attribution, or otherwise beneficially owning
our voting shares carrying 10% or more of the total voting rights attached to
all of our outstanding voting shares, will have the voting rights attached to
its voting shares reduced so that it may not exercise more than approximately
9.9% of such total voting rights. In addition, in the event the Pacific Life
Entities hold directly or by attribution or otherwise beneficially own voting
shares with more than 24.9% of the total voting rights of our voting shares, the
voting rights of the Pacific Life Entities will be reduced so that they may not
exercise in the aggregate more than approximately 24.9% of the total voting
rights of our voting shares at any given time. Because of the attribution
provisions of the Code and the rules of the SEC regarding determination of
beneficial ownership, this requirement may have the effect of reducing the
voting rights of a shareholder whether or not such shareholder directly holds of
record 10% or more of our voting shares. Further, our board of directors (or its
designee) has the authority to request from any shareholder certain information
for the purpose of determining whether such shareholder's voting rights are to
be reduced. Failure to respond to such a notice, or submitting incomplete or
inaccurate information, gives our board of directors (or its designee)
discretion to disregard all votes attached to such shareholder's ordinary
shares.

     We have scheduled an Extraordinary General Meeting of shareholders for
April 7, 2005. At this meeting, the shareholders will vote on whether to approve
(i) certain amendments to our articles of association and (ii) the issuance of
ordinary shares pursuant to certain securities issued to the Cypress Entities.
If the amendments to our articles of association are approved, the Cypress
Entities would have the position under our articles of association previously
occupied by Pacific Life, as the only shareholder permitted to own more than
9.9% of our outstanding ordinary shares and to own or control ordinary shares
constituting 10% or more of the total combined voting rights attaching to our
issued ordinary shares.

Our articles of association make it difficult to replace directors and to effect
a change of control.

     Our articles of association contain certain provisions that make it more
difficult for the shareholders to replace directors even if the shareholders
consider it beneficial to do so. In addition, these provisions may make more
difficult the acquisition of control of Scottish Re by means of a tender offer,
open market purchase, a proxy fight or otherwise, including by reason of the
limitation on transfers of ordinary shares and voting rights described above.
While these provisions are designed to encourage persons seeking to acquire
control to negotiate with our board of directors, they could have the effect of
discouraging a prospective purchaser from making a tender offer or otherwise
attempting to obtain control and may prevent a shareholder from receiving the
benefit from any premium over the market price of our ordinary shares offered by
a bidder in a potential takeover.

     Examples of provisions in our articles of association that could have such
an effect include:

     o    election of our directors is staggered, meaning that the members of
          only one of three classes of our directors are elected each year;


                                       25
<PAGE>

     o    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;

     o    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 declined certain transfers that
          they believe may have adverse tax or regulatory consequences;

     o    shareholders do not have the right to act by written consent; and

     o    our directors have the ability to change the size of the board of
          directors.

     Even in the absence of an attempt to effect a change in management or a
takeover attempt, these provisions may adversely affect the prevailing market
price of our ordinary shares if they are viewed as discouraging changes in
management and takeover attempts in the future.

     The Cypress Entities own approximately 9.9% of our outstanding ordinary
shares. If our shareholders approve certain amendments to our articles of
association and the issuance of ordinary shares, as described above, the Cypress
Entities will own approximately 20.5% of our outstanding ordinary shares. In
addition, pursuant to a shareholders' agreement, as long as the Cypress Entities
continue to hold the lesser of (i) 9.9% or more of the voting power of our
voting securities on an as-converted basis or (ii) 35% or more of the securities
purchased on an as-converted basis, the Cypress Entities have the non-assignable
right to appoint one director and one non-voting observer to our board of
directors. The Cypress Entities' share ownership and ability to nominate persons
for election to the board of directors might provide the Cypress Entities with
significant influence over potential change in control transactions.

Applicable insurance laws make it difficult to affect a change of control.

     Under applicable Delaware insurance laws and regulations, no person may
acquire control of Scottish Re, Scottish Re (U.S.), Inc. or Scottish Re Life
Corporation Limited, our Delaware insurance subsidiaries, unless that person has
filed a statement containing specified information with the Delaware Insurance
Commissioner and approval for such acquisition is obtained. Under applicable
laws and regulations, any person acquiring, directly by stock ownership or
indirectly (by revocable proxy or otherwise), 10% or more of the voting stock of
any other person is presumed to have acquired control of such person, and a
person who beneficially acquires 10% or more of our ordinary shares without
obtaining the approval of the Delaware Insurance Commissioner would be in
violation of Delaware's insurance holding company act and would be subject to
injunctive action requiring disposition or seizure of the shares and prohibiting
the voting of such shares, as well as other action determined by the Delaware
Insurance Commissioner.

     In addition, many state insurance laws require prior notification to the
state insurance department of a change in control of a non-domiciliary insurance
company licensed to transact insurance in that state. While these
pre-notification statutes do not authorize the state insurance departments to
disapprove the change in control, they authorize regulatory action in the
affected state if particular conditions exist such as undue market
concentration. Any future transactions that would constitute a change in control
of us or Scottish Re (U.S.), Inc. and Scottish Re Life Corporation Limited may
require prior notification in the states that have pre-acquisition notification
laws. These prior notice and prior approval laws may discourage potential
acquisition proposals and may delay, deter or prevent a change of control of
Scottish Re Group Limited, including transactions that some or all of our
shareholders might consider to be desirable.

     Any change in control of Scottish Re Limited would need the approval of the
U.K. Financial Services Authority, which is the body responsible for the
regulation and supervision of the U.K. insurance and reinsurance industry.


                                       26
<PAGE>

The market price of our ordinary shares could decrease due to the significant
number of shares eligible for future sale.

     As of February 28, 2005, we had 39,991,745 ordinary shares outstanding,
3,007,380 of which were held by Pacific Life, and 3,953,183 of which were held
by the Cypress Entities. In addition, we had options outstanding to purchase an
aggregate of 2,491,236 ordinary shares, Class A Warrants to purchase an
aggregate of 2,650,000 ordinary shares, 5,297,095 ordinary shares issuable upon
conversion of the Senior Convertible Notes, 6,118,063 ordinary shares (at the
current market price) issuable upon conversion of the HyCUs, Class C Warrants
issued to the Cypress Entities to purchase 3,206,431 ordinary shares and
2,130,709 ordinary shares issuable upon conversion of the 7.00% Convertible
Junior Subordinated Notes issued to the Cypress Entities. The ordinary shares
held by Pacific Life, the ordinary shares issuable upon the exercise of the
Class A Warrants and the ordinary shares issuable upon conversion of our 4.50%
Senior Convertible Notes have been registered pursuant to a registration
statement that became effective on April 4, 2003, and they may be sold at any
time and from time to time by the holders thereof in open market or privately
negotiated transactions. The ordinary shares issuable upon settlement of the
purchase contracts and the convertible preferred shares underlying the HyCUs
have been registered pursuant to a registration statement which became effective
on April 24, 2003 and may be sold at any time and from time to time by the
holders thereof in open market or privately negotiated transactions after the
date of issuance. The ordinary shares issued and the ordinary shares issuable
upon the exercise of Class C Warrants and upon conversion of the 7.00%
Convertible Junior Subordinated Notes issued to the Cypress Entities have not
been registered. The Cypress Entities have demand and piggyback registration
rights and are locked-up from selling their securities until December 31, 2005,
unless shareholder approval is not received by June 30, 2005 or certain other
events occur relating to sales by officers or directors or a change of control.
Upon termination of the lock-up, the Cypress Entities would be free to demand
registration and the securities could be sold at any time and from time to time
in the open market or in privately negotiated transactions.

     We cannot predict the effect, if any, that future sales of our ordinary
shares, or the availability of ordinary shares for future sale, will have on the
market price of our ordinary shares prevailing from time to time. Sales of
substantial amounts of ordinary shares in the public market following the
offering, or the perception that such sales could occur, could lower the market
price of our ordinary shares and may make it more difficult for us to sell our
equity securities in the future at a time and at a price which we deem
appropriate. If the persons holding Class A Warrants or Class C Warrants or
options cause a large number of the ordinary shares underlying such securities
to be sold in the market, (or if Pacific Life or the Cypress Entities were to
sell a large number of their ordinary shares) or if the convertible holders or
the Cypress Entities were able to convert to our ordinary shares and then sell
those ordinary shares, such sales could cause a decline in the market price for
the ordinary shares.

Investors may have difficulties in suing or enforcing judgments against us in
the United States.

     Scottish Re is a holding company organized under the laws of the Cayman
Islands with its principal executive office in Bermuda. Certain of our directors
and officers are residents of various jurisdictions outside the United States.
All or a substantial portion of our assets and those of such directors and
officers, at any one time, are or may be located in jurisdictions outside the
United States. Although we have irrevocably agreed that we may be served with
process in New York, New York with respect to actions arising out of or in
connection with violations of United States Federal securities laws relating to
offers and sales of ordinary shares made hereby, it could be difficult for
investors to effect service of process within the United States on our directors
and officers who reside outside the United States or to recover against us or
such directors and officers on judgments of United States courts predicated upon
the civil liability provisions of the United States federal securities laws.

                            Risks Related to Taxation

     If Scottish Re or any of its non-U.S. subsidiaries is determined to be
conducting business in the United States we could be liable for U.S. federal
income taxes.

     Scottish Re is a holding company organized under the laws of the Cayman
Islands with its principal executive office in Bermuda. Scottish Re and its
non-U.S. subsidiaries believe they have operated and intend to continue
operating in a manner such that neither Scottish Re nor any of its non-U.S.
subsidiaries should be treated as engaging in a trade or business in the United
States and thus should not be subject to U.S. federal income taxation on


                                       27
<PAGE>

net income. Because there are no definitive standards provided by the Internal
Revenue Code of 1986, as amended (the "Code"), regulations or court decisions as
to which activities constitute being engaged in the conduct of a trade or
business within the United States and as the determination is essentially
factual in nature, the United States Internal Revenue Service (which we refer to
as the IRS) could contend that Scottish Re or one or more of its non-U.S.
subsidiaries, is engaged in a trade or business in the United States for U.S.
federal income tax purposes, and thus may be subject to U.S. federal income tax
and "branch profits" tax on net income. The highest marginal federal income tax
rates currently are 35% for a corporation's income that is effectively connected
with a U.S. trade or business and 30% for the "branch profits" tax unless the
"branch profits" tax is reduced by an applicable income tax treaty.

If Scottish Re or any of its non-U.S. subsidiaries is treated as a controlled
foreign corporation or a passive foreign investment company or if any of our
non-U.S. or insurance subsidiaries generate more than a permissible amount of
related person insurance income, U.S. persons who own our convertible preferred
shares or ordinary shares may be subject to U.S. federal income taxation on our
undistributed earnings and may recognize ordinary income upon disposition of our
convertible preferred shares or ordinary shares.

     We believe that we were not a controlled foreign corporation or a passive
foreign investment company, nor have we generated an impermissible amount of
related person insurance income for the year ended December 31, 2004. Although
no assurances can be given, based upon (i) our current beliefs with respect to
the dispersion of our share ownership and (ii) our financial information for the
period ending December 31, 2004, we do not expect to be a controlled foreign
corporation or a passive foreign investment company or to generate an
impermissible amount of related person insurance income for the current year or
in the future. Our shareholders who are U.S. persons may be required to include
in gross income for U.S. federal income tax purposes our undistributed earnings
if we are treated as a controlled foreign corporation or a passive foreign
investment company or if we have generated more than a permissible amount of
related person insurance income. In addition, in certain cases gain on the
disposition of our convertible preferred shares or ordinary shares may be
treated as ordinary income.

     Controlled Foreign Corporation. Each U.S. 10% holder of a controlled
foreign corporation on the last day of the controlled foreign corporation's
taxable year generally must include in gross income for U.S. federal income tax
purposes such shareholder's pro-rata share of the controlled foreign
corporation's subpart F income, even if the subpart F income has not been
distributed. For purposes of this discussion, the term "U.S. 10% holder"
includes only persons who, directly or indirectly through non-U.S. Entities (or
through the application of certain "constructive" ownership rules, which we
refer to as constructively), own 10% or more of the total combined voting power
of all classes of stock of the foreign corporation. In general, a non-U.S.
company is treated as a controlled foreign corporation if such U.S. 10% holders
collectively own more than 50% of the total combined voting power or value of
the company's stock for an uninterrupted period of 30 days or more during any
year and a non-U.S. insurance company is treated as a controlled foreign
corporation if such U.S. 10% holders collectively own more than 25% of the total
combined voting power or value of the company's stock for an uninterrupted
period of 30 days or more during any year.

     We believe we currently have no U.S. 10% holders. In order to prevent
Scottish Re or any of its non-U.S. subsidiaries from being treated as a
controlled foreign corporation, our articles of association prohibit the
ownership by any person of shares that would equal or exceed 10% (or, in the
case of Pacific Life, Pacific Mutual Holding Company, Pacific LifeCorp and/or
any direct or indirect wholly-owned subsidiary of Pacific Mutual Holding
Company, each of which we call a Pacific Life Entity, that would exceed 24.9%)
of any class of the issued and outstanding Scottish Re shares and provide a
"voting cutback" that would, in certain circumstances, reduce the voting power
with respect to Scottish Re shares to the extent necessary to prevent the
Pacific Life Entities from owning more than 24.9% of the voting power of
Scottish Re, and any other person owning more than 9.9% of the voting power of
Scottish Re. We believe, based upon information made available to us regarding
our existing shareholder base, that the dispersion of our share ownership (other
than with respect to the Pacific Life Entities) and the provisions of our
articles of association restricting the transfer, issuance and voting power of
our shares should prevent any person (other than the Pacific Life Entities) from
becoming a U.S. 10% holder of Scottish Re; however, some of these provisions
have not been directly passed on by the IRS, or by any court, in this context.

     If, however, one or more U.S. persons owning (directly, indirectly through
non-U.S. Entities or constructively) 10% or more of our voting stock were to
acquire separately or in the aggregate 25% of the vote or


                                       28
<PAGE>

value of the stock of Scottish Re, our non-U.S. insurance subsidiaries would be
treated as controlled foreign corporations. In addition, Scottish Re and its
other (non-insurance) non-U.S. subsidiaries would be characterized as controlled
foreign corporations if such U.S. persons were to acquire more than 50% of the
vote or value of the stock of Scottish Re. In either case, any such U.S. 10%
shareholder would be required to include in gross income its allocable share of
subpart F income of Scottish Re and/or its non-U.S. subsidiaries.

     Related Person Insurance Income. If (i) any of our non-U.S. insurance
subsidiaries' related person insurance income, referred to as RPII, determined
on a gross basis were to equal or exceed 20% of its gross insurance income in
any taxable year, (ii) direct or indirect insureds and persons related to such
insureds were to own directly or indirectly 20% or more of the voting power or
value of Scottish Re's stock or any of our non-U.S. insurance subsidiaries'
stock, and (iii) U.S. persons (without regard to whether any U.S. person is a
U.S. 10% holder) directly, indirectly or constructively own collectively by
voting power or value 25% or more of our aggregate shares (taking into account
the relative vote and value of our convertible preferred shares and ordinary
shares), such U.S. persons who directly or indirectly own our convertible
preferred shares or ordinary shares on the last day of the taxable year would be
required to include the U.S. person's pro-rata share of our non-U.S. insurance
subsidiaries' related person insurance income for the taxable year in its gross
income for U.S. federal income tax purposes, determined as if such related
person insurance income were distributed proportionately to U.S. persons at that
date, taking into account any differences existing with respect to the
distribution rights applicable to the convertible preferred shares and ordinary
shares.

     Related person insurance income is generally underwriting premium and
related investment income attributable to insurance or reinsurance policies when
the direct or indirect insureds are direct or indirect U.S. shareholders or are
related to such direct or indirect U.S. holders. At present we believe that our
non-U.S. insurance subsidiaries should satisfy the 20% RPII ownership exception
described herein because the direct or indirect ownership of the shares of
Scottish Re or any of its non-U.S. insurance subsidiaries by any shareholders
that are direct or indirect insureds of any of Scottish Re's non-U.S. insurance
subsidiaries (or any person related to such insureds) should be less than 20% of
the voting power or value of Scottish Re or any of its non-U.S. insurance
subsidiaries. Even if the 20% RPII ownership exception described above is not
met, although no assurances can be given, we do not believe that the 20% gross
insurance income threshold has been met and we do not expect such threshold to
be met in the future. If this is not, or will not continue to be, the case, such
U.S. persons who directly or indirectly own our convertible preferred shares or
ordinary shares on the last day of such taxable year would be required to
include the U.S. person's pro-rata share of the relevant non-U.S. insurance
subsidiaries' related person insurance income for the taxable year in its gross
income for U.S. federal income tax purposes, determined as if such related
person insurance income were distributed proportionately to such U.S. person at
that date, taking into account any differences existing with respect to the
distribution rights applicable to the convertible preferred shares and ordinary
shares.

     Dispositions of Our Convertible Preferred Shares or Ordinary Shares. If we
are considered to be a controlled foreign corporation, any gain from the sale or
exchange by a U.S. 10% holder of our convertible preferred shares or ordinary
shares may be treated as ordinary income to the extent of our earnings and
profits during the period that such shareholder held our shares (with certain
adjustments).

     If we are considered to have related person insurance income and U.S.
persons (without regard to whether any U.S. person is a U.S. 10% holder)
collectively own directly, indirectly or constructively 25% or more of the
voting power or value of our aggregate shares (taking into account the relative
vote and value of our convertible preferred shares and ordinary shares), any
gain from the disposition by a U.S. holder of our convertible preferred shares
or ordinary shares will generally be treated as ordinary income to the extent of
such U.S. holder's portion of our undistributed earnings and profits that were
accumulated during the period that the U.S. holder owned the shares (with
certain adjustments). In addition, such U.S. holder will be required to comply
with certain reporting requirements, regardless of the amount of shares owned
directly or indirectly. However, because Scottish Re is not itself directly
engaged in the insurance business and because proposed U.S. Treasury regulations
applicable to this situation appear to apply only to sales of shares of
corporations that are directly engaged in the insurance business, we do not
believe that sale of Scottish Re shares should be subject to these rules. The
IRS, however, could interpret the proposed regulations, or the proposed
regulations could be promulgated in final form, in a manner that would cause
these rules to apply to dispositions of our convertible preferred shares or
ordinary shares.


                                       29
<PAGE>

     Passive Foreign Investment Company. In order to avoid significant potential
adverse U.S. federal income tax consequences for any U.S. person who owns our
convertible preferred shares or ordinary shares, we must not be subject to
treatment as a passive foreign investment company, referred to as a PFIC, in any
year in which such U.S. person is a shareholder. In general, a non-U.S.
corporation is a PFIC for a taxable year if 75% or more of its income
constitutes passive income or 50% or more of its assets produce passive income.
Passive income generally includes interest, dividends and other investment
income. Passive income does not, however, include income derived in the active
conduct of an insurance business by a corporation that is predominantly engaged
in an insurance business. This exception is intended to ensure that income
derived by a bona fide insurance company is not treated as passive income,
except to the extent such income is attributable to financial reserves in excess
of the reasonable needs of the insurance business. Although we believe that
Scottish Re and its non-U.S. subsidiaries, taken as a whole, are engaged
predominantly in insurance and reinsurance activities that involve significant
risk transfer and that are otherwise activities of a type normally undertaken by
insurance or reinsurance companies, and do not expect to have financial reserves
in excess of the reasonable needs of their insurance businesses, it is possible
that the IRS could take the position that we are a PFIC. Although we do not
believe that we are or will be a passive foreign investment company, the IRS or
a court could concur that we are a passive foreign investment company with
respect to any given year.

If we are a controlled foreign corporation or if any of our non-U.S. insurance
subsidiaries generate related person insurance income, U.S. tax-exempt
organizations that own our convertible preferred shares or ordinary shares may
recognize unrelated business taxable income.

     A U.S. tax-exempt organization may recognize unrelated business taxable
income if a portion of our insurance income is allocated to the organization. In
general, insurance income will be allocated to a U.S. tax-exempt organization if
either we are a controlled foreign corporation and the tax-exempt shareholder is
a U.S. 10% holder or there is related person insurance income and certain
exceptions do not apply. Although we do not believe that any U.S. persons should
be allocated subpart F insurance income, potential U.S. tax-exempt investors are
advised to consult their own tax advisors.

Changes in U.S. federal income tax law could materially adversely affect an
investment in our convertible preferred shares or ordinary shares.

     Legislation has been introduced in the U.S. Congress intended to eliminate
certain perceived tax advantages of companies (including insurance companies)
that have legal domiciles outside the United States but have certain U.S.
connections. While there are no currently pending legislative proposals which,
if enacted, would have a material adverse effect on us or our shareholders, it
is possible that broader-based legislative proposals could emerge in the future
that could have an adverse impact on us, or our shareholders.

     Additionally, the U.S. federal income tax laws and interpretations
regarding whether a company is engaged in a trade or business within the United
States, or is a passive foreign investment company, or whether U.S. persons
would be required to include in their gross income the subpart F income or the
related person insurance income of a controlled foreign corporation are subject
to change, possibly on a retroactive basis. There are currently no regulations
regarding the application of the passive foreign investment company rules to
insurance companies and the regulations regarding related person insurance
income are still in proposed form. New regulations or pronouncements
interpreting or clarifying such rules may be forthcoming. We cannot be certain
if, when or in what form such regulations or pronouncements may be provided and
whether such guidance will have a retroactive effect.

If we do not receive further undertakings from the Cayman Islands, we may become
subject to taxes in the Cayman Islands in the future.

     Scottish Re and our Cayman Islands subsidiaries, Scottish Annuity & Life
Insurance Company (Cayman) Ltd. and The Scottish Annuity Company (Cayman) Ltd.,
have received undertakings from the Governor-in-Council of the Cayman Islands
pursuant to the provisions of the Tax Concessions Law, as amended (1999
Revision), that until the year 2018 with respect to Scottish Re and Scottish
Annuity & Life Insurance Company (Cayman) Ltd., and until the year 2014 with
respect to The Scottish Annuity Company (Cayman) Ltd., (1) no subsequently
enacted Cayman Islands law imposing any tax on profits, income, gains or
appreciation shall apply to Scottish Re and its Cayman Islands subsidiaries and
(2) no such tax and no tax in the nature of an estate duty or an inheritance tax
shall


                                       30
<PAGE>

be payable on any shares, debentures or other obligations of Scottish Re and its
Cayman Islands subsidiaries. We could be subject to Cayman Islands taxes after
the applicable dates.

If Bermuda law changes, we may become subject to taxes in Bermuda in the future.

     Bermuda currently imposes no income tax on corporations. The Bermuda
Minister of Finance, under The Exempted Undertakings Tax Protection Act 1966 of
Bermuda, has assured us that if any legislation is enacted in Bermuda that would
impose tax computed on profits or income, or computed on any capital asset, gain
or appreciation, or any tax in the nature of estate duty or inheritance tax,
then the imposition of any such tax will not be applicable to Scottish Re or any
of our Bermuda subsidiaries until March 28, 2016. Scottish Re or any of our
Bermuda subsidiaries could be subject to Bermuda taxes after that date.

     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.

     The Organization for Economic Cooperation and Development, which is
commonly referred to as the OECD, has published reports and launched a global
dialogue among member and non-member countries on measures to limit harmful tax
competition. These measures are largely directed at counteracting the effects of
tax havens and preferential tax regimes in countries around the world. In the
OECD's report dated April 18, 2002, and updated as of June 2004, Bermuda and the
Cayman Islands were not listed as uncooperative tax haven jurisdictions because
each had previously committed itself to eliminate harmful tax practices and to
embrace international tax standards for transparency, exchange of information
and the elimination of any aspects of the regimes for financial and other
services that attract business with no substantial domestic activity. We are not
able to predict what changes will arise from the commitment or whether such
changes will subject us to additional taxes.

Item 2: PROPERTIES

     We currently lease office space in Hamilton, Bermuda where our executive
and principal offices are located, and in Charlotte, North Carolina, Denver,
Colorado, George Town, Grand Cayman, and Windsor, England. Our life reinsurance
business operates out of the Bermuda, Grand Cayman, Charlotte, Denver and
Windsor offices while our wealth management business operates out of the Grand
Cayman office. The Bermuda lease expires in 2005, the Grand Cayman lease expires
in 2006, the Denver lease expires in 2010, with an additional five year option,
the Charlotte lease expires in 2012, and the Windsor lease expires in 2023. Item
3: LEGAL PROCEEDINGS

     In the normal course of our business, we and our subsidiaries are
occasionally involved in litigation. The ultimate disposition of such litigation
is not expected to have a material adverse effect on our financial condition,
liquidity or results of operations.

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

     Scottish Re did not submit any matter to the vote of shareholders during
the fourth quarter of 2004.


                                       31
<PAGE>

                                    PART II

Item 5:  MARKET  FOR  REGISTRANT'S  COMMON  EQUITY,  RELATED  SHAREHOLDER
         MATTERS  AND  ISSUER PURCHASES OF EQUITY SECURITIES

Market for the Ordinary Shares

     The ordinary shares, par value $0.01 per share, of Scottish Re have been
traded on the New York Stock Exchange under the symbol "SCT" since January 23,
2002. Prior to our listing on the New York Stock Exchange our ordinary shares
were listed and traded on the Nasdaq National Market under the symbol "SCOT"
since November 24, 1998. This table shows for the indicated periods the high and
low closing sales prices per share for our ordinary shares, as reported in The
Wall Street Journal, and dividend declared per share.

                                                                       Per Share
                                                  High        Low      Dividend
                                                  ----        ---      --------
Year ended December 31, 2002
First Quarter .............................   $   19.00   $   15.89   $   0.05
Second Quarter ............................       21.63       18.53       0.05
Third Quarter .............................       19.00       13.90       0.05
Fourth Quarter ............................       19.05       16.50       0.05
Year  ended December 31, 2003
First Quarter .............................   $   18.06   $   16.55   $   0.05
Second Quarter ............................       20.52       17.18       0.05
Third Quarter .............................       24.15       20.00       0.05
Fourth Quarter ............................       24.50       19.30       0.05
Year  ended December 31, 2004
First Quarter .............................   $   24.59   $   20.21   $   0.05
Second Quarter ............................       24.40       20.50       0.05
Third Quarter .............................       23.79       19.59       0.05
Fourth Quarter ............................       26.15       20.90       0.05
Period Ended February 28, 2005
January 1, 2005 to February 28, 2005 ......   $   26.08   $   22.67   $      -

     As of February 28, 2005, Scottish Re had 31 record holders of its ordinary
shares.

     Scottish Re paid cash dividends of $0.20 per ordinary share in each of
2004, 2003, and 2002.

     Pursuant to the terms of a Securities Purchase Agreement, we issued to the
Cypress Entities on December 31, 2004 (i) 3,953,183 ordinary shares, (ii) Class
C Warrants to purchase 3,206,431 ordinary shares, and $41,282,479 aggregate
principal amount of 7.00% Convertible Junior Subordinated Notes with a maturity
date 30 years from issuance. The aggregate offering price for these securities
was $180.0 million. In connection with the sale of securities to the Cypress
Entities, we paid on January 4, 2005 an equity commitment fee to The Cypress
Advisors, Inc., an affiliate of The Cypress Group, L.L.C., in the amount of $2.0
million. These securities were not registered under the Securities Act and were
issued in reliance on the exemption from registration contained in Section 4(2)
of the Securities Act.

     The Class C Warrants will be exercisable at an exercise price equal to
$0.01 per share. The number of ordinary shares for which the Class C Warrants
are exercisable will be subject to customary anti-dilution adjustments. The
Class C Warrants are not exercisable until (i) our shareholders approve (A)
certain amendments to our articles of association to allow the Cypress Entities
to hold more than 9.9% of our issued and outstanding ordinary shares, and (B)
the issuance of more than 20% of our ordinary shares to the Cypress Entities, as
required by New York Stock Exchange rules (the "Shareholder Proposals"), and
(ii) requisite regulatory approvals have been obtained from insurance regulators
in Delaware and the United Kingdom. Notwithstanding the foregoing, the Class C
Warrants will become exercisable (i) immediately upon their transfer to an
unaffiliated third party provided that such transfer complies with the ownership
limitations contained in our articles of association or (ii) to the extent the


                                       32
<PAGE>

exercise thereof would not cause the Cypress Entities to own in the aggregate
greater than 9.9% of the ordinary shares then outstanding. Upon approval of the
Shareholder Proposals and the receipt of all requisite regulatory approvals, the
Class C Warrants will automatically be exercised for the applicable number of
ordinary shares.

     Upon the approval of our shareholders and the receipt of all requisite
regulatory approvals, the 7.00% Convertible Junior Subordinated Notes will
automatically be converted into ordinary shares at an initial conversion price
of $19.375 per ordinary share, subject to customary anti-dilution adjustments.
If upon approval of the Shareholder Proposals the requisite regulatory approvals
have not been obtained, the 7.00% Convertible Junior Subordinated Notes will
automatically be exchanged for additional Class C Warrants to purchase the
number of ordinary shares into which the 7.00% Convertible Junior Subordinated
Notes (including any accrued and unpaid interest through the date of conversion)
were convertible.


                                       33
<PAGE>

Item 6: SELECTED FINANCIAL DATA

     The following selected financial data should be read in conjunction with
the Consolidated Financial Statements, including the related Notes, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Consolidated balance sheet data as of December 31, 2001 reflects
the acquisition of Scottish Re Holdings Limited, but consolidated statements of
income data for the periods ended December 31, 2001 and 2000 and consolidated
balance sheet data as of December 31, 2000 do not reflect the results of
Scottish Re Holdings Limited, as the transaction was completed at the close of
business on December 31, 2001. Consolidated balance sheet data as of December
31, 2003 and 2004 and consolidated statements of income data for the year ended
December 31, 2004 reflect the acquisition of Scottish Re Life Corporation, but
consolidated statement of income data for the years ended December 31, 2000 to
December 31, 2002 and consolidated balance sheet data as of December 31, 2000 to
2002 do not reflect the results of Scottish Re Life Corporation as the
transaction was completed on December 22, 2003. Consolidated statement of income
data for the year ended December 31, 2003 includes net income of $1.2 million in
respect of Scottish Re Life Corporation. Consolidated balance sheet data as of
December 31, 2004 reflect the acquisition of the ING individual life reinsurance
business, but consolidated statements of income data for the periods ended
December 31, 2000 to 2004 do not reflect this data as the acquisition was
completed at close of business on December 31, 2004.


<TABLE>
<CAPTION>
                                                   Year Ended    Year Ended     Year Ended     Year Ended     Year Ended
                                                    December      December       December       December       December
                                                    31, 2004      31, 2003       31, 2002       31, 2001       31, 2000
                                                    --------      --------       --------       --------       --------
<S>                                              <C>            <C>            <C>            <C>            <C>
Consolidated statements of income
data:
   Total revenues ............................   $   811,817    $   557,367    $   306,212    $   120,962    $   83,935
   Total benefits and expenses ...............       756,366        519,621        274,871        103,729        68,074
   Income before income taxes and ............        55,451         37,746         31,341         17,233        15,861
    minority interest
   Income from continuing
    operations before cumulative
    effect of change in                               71,599         48,789         33,235         17,245        15,971
    accounting principle
   Net income ................................   $    71,391    $    27,281    $    32,524    $    16,839    $   15,971
Per share data:
   Basic earnings per share:
      Income from continuing
        operations before
        cumulative effect of
        change in accounting
        principle and
        discontinued operations ..............   $      2.00    $      1.59    $      1.32    $      1.10    $     1.01
      Cumulative effect of change
        in accounting principle ..............             -          (0.64)             -          (0.02)            -
      Discontinued operations ................         (0.01)         (0.06)         (0.03)             -             -
                                                 ------------   ------------   ------------   ------------    ----------
      Net income .............................   $      1.99    $      0.89    $      1.29    $      1.08     $    1.01
                                                 ============   ============   ============   ============    ==========


                                       34
<PAGE>

                                                   Year Ended    Year Ended     Year Ended     Year Ended     Year Ended
                                                    December      December       December       December       December
                                                    31, 2004      31, 2003       31, 2002       31, 2001       31, 2000
                                                    --------      --------       --------       --------       --------
   Diluted earnings per share:
      Income from continuing
        operations before
        cumulative effect of
        change in accounting
        principle and
        discontinued operations ..............   $      1.91    $      1.51    $      1.25    $      1.05     $    1.00
      Cumulative effect of change
        in accounting principle ..............             -          (0.60)             -          (0.03)            -
      Discontinued operations ................         (0.01)         (0.06)         (0.02)             -             -
                                                 ------------   ------------   ------------   ------------    ----------
      Net income .............................   $      1.90    $      0.85    $      1.23    $      1.02     $    1.00
                                                 ============   ============   ============   ============    ==========

   Book value per share  (1) ...                 $     21.60    $     18.73    $     18.24    $     16.44    $     15.34
   Market value per share ......                 $     25.90    $     20.78    $     17.45    $     19.35    $     11.98
   Cash dividends per share ....                 $      0.20    $      0.20    $      0.20    $      0.20    $      0.20
   Weighted average number of
    shares outstanding:
   Basic .......................                  35,732,522     30,652,719     25,190,283     15,646,106     15,849,657
   Diluted .....................                  37,508,292     32,228,001     26,505,612     16,485,338     15,960,542
Balance sheet data:
   Total fixed maturity
     investments ...............                 $ 3,392,463    $ 2,014,719    $ 1,003,946    $   583,890    $   581,020
   Total assets ................                   9,021,084      6,053,517      3,291,226      2,141,566      1,168,518
   Total liabilities ...........                   8,006,264      5,242,450      2,800,134      1,810,284        921,673
   Minority interest ...........                       9,697          9,295              -              -              -
   Mezzanine equity ............                     142,449        141,928              -              -              -
   Total shareholders' equity ..                 $   862,674    $   659,844    $   491,092    $   331,282    $   239,564
Actual number of ordinary shares
outstanding ....................                  39,931,145     35,228,411     26,927,456     20,144,956     15,614,240
</TABLE>

______________
(1) Book value per share is calculated as shareholders' equity at December 31,
2004 divided by the number of shares outstanding at December 31, 2004. Included
in shareholders' equity are proceeds from the issuance of Class C Warrants to
the Cypress Entities. The number of shares at December 31, 2004, does not
include the 3,206,431 shares to be issued on conversion of the Class C Warrants.
These will be issued once shareholder approval has been obtained. If these
shares had been included, book value per share would have amounted to $20.00.

Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Overview

     We are a holding company organized under the laws of the Cayman Islands
with our principal executive office in Bermuda. We are a reinsurer of life
insurance, annuities and annuity-type products. These products are written by
life insurance companies and other financial institutions located principally in
the United States, as well as around the world. We refer to this portion of our
business as Life Reinsurance North America. Scottish Re Holdings Limited and its
subsidiary, Scottish Re Limited, specialize in niche markets in developed
countries and broader life insurance markets in the developing world. We refer
to this portion of our business as Life Reinsurance International. Life
Reinsurance North America and Life Reinsurance International are each a
reporting operating segment. To a lesser extent, we directly issue variable life
insurance and variable annuities and similar products to high net worth
individuals and families for insurance, investment and estate planning purposes.
In prior years, we referred to this portion of our business as Wealth
Management, which was another reportable operating segment. As this business is
no longer a material contributor to our results, we have combined it with the
Other Segment for all


                                       35
<PAGE>

periods presented. Other revenues and expenses not related to Life Reinsurance
are reported in the "Other" Segment.

     On December 31, 2004, we completed the acquisition of the individual life
reinsurance business of ING. We have reinsured the liabilities of all of ING's
individual life reinsurance business through a coinsurance transaction. ING
transferred to us assets of approximately $1.9 billion. The assets transferred
are subject to certain post closing adjustments. Certain of these assets will be
held in trust to secure the reserve obligations of the business. Additionally,
ING transferred certain operating assets associated with the business.

     In addition to the assets transferred by ING, we have raised an additional
$230.0 million in new capital, which will be used to satisfy the capital
requirements for the acquired business. This new capital includes equity of
$180.0 million provided by The Cypress Group, a private equity firm, and an
additional $50.0 million in capital raised through the issuance by one of our
subsidiaries of trust preferred securities guaranteed by Scottish Annuity & Life
Insurance Company (Cayman) Ltd. in a private transaction to institutional
investors.

     On December 22, 2003, we completed the acquisition of 95% of the
outstanding capital stock of Scottish Re Life Corporation (formally ERC Life
Reinsurance Corporation), for $169.9 million in cash. On February 19, 2004 ERC
Life Corporation's name was changed to Scottish Re Life Corporation. Scottish Re
Life Corporation was a subsidiary of General Electric's Employers Reinsurance
Corporation, which we call GE ERC, and was one of the companies through which GE
ERC conducted life reinsurance business in the United States. Scottish Re Life
Corporation's business consists primarily of a closed block of traditional life
reinsurance. No GE ERC employees were transferred to Scottish Re. GE ERC agreed
to administer the business of Scottish Re Life Corporation for a fixed monthly
fee for up to nine months from the date of acquisition and to assist with the
transition of the business to Scottish Re's systems. This transition period has
now been completed.

     All amounts are reported in thousands of United States dollars, except per
share amounts.

Revenues

     We derive revenue from three principal sources:

     o    premiums from reinsurance assumed on life business;

     o    investment income from our investment portfolio; and

     o    realized gains and losses from our investment portfolio.

     Premiums from reinsurance assumed on life 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. Reinsurance assumed on annuity business does
not generate premium income but generates investment income over time on the
assets we receive from the ceding company. We also earn fees in our financial
reinsurance transactions with U.S. insurance company clients. Because some of
these transactions do not satisfy the risk transfer rules for reinsurance
accounting, the premiums and benefits are not reported in the consolidated
statements of income. A deposit received on a funding agreement also does not
generate premium income but does create income to the extent we earn an
investment return in excess of our interest payment obligations thereon.

     Our investment income includes interest earned on our fixed income
investments and income from funds withheld at interest under modified
coinsurance agreements. Under GAAP, because our fixed income investments are
held as available for sale, these securities are carried at fair value, and
unrealized appreciation and depreciation on these securities is not included in
investment income on our statements of income, but is included in comprehensive
income as a separate component of shareholders' equity. 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.


                                       36
<PAGE>

Expenses

     We have five principal types of expenses:

     o    claims and policy benefits under our reinsurance contracts;

     o    interest credited to interest sensitive contract liabilities;

     o    acquisition costs and other insurance expenses;

     o    operating expenses; and

     o    interest expense.

     When we issue a life reinsurance contract, we establish reserves for future
benefits. These reserves 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.

     In connection with reinsurance of annuity and annuity-type 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.

     A portion of the costs of acquiring new business, such as commissions,
certain internal expenses related to our policy issuance and underwriting
departments and some variable selling expenses are capitalized. The resulting
deferred acquisition costs asset is amortized over future periods based on our
expectations as to the emergence of future gross profits from the underlying
contracts. These costs are dependent on the structure, size and type of business
written. For certain products, we may retrospectively adjust our amortization
when we revise our estimate of current or future gross profits to be realized.
The effects of this adjustment are reflected in earnings in the period in which
we revise our estimate. Acquisition costs also include collateral financing and
letter of credit costs.

     Operating expenses consist of salary and salary related expenses, legal and
professional fees, rent and office expenses, travel and entertainment,
directors' expenses, insurance and other similar expenses, except to the extent
capitalized in deferred acquisition costs.

     Interest expense consists of interest charges on our borrowings.

Factors affecting profitability

     We seek to generate profits from two principal sources. First, in our Life
Reinsurance business, we seek to receive reinsurance premiums and financial
reinsurance fees that, together with income from the assets in which those
premiums are invested, exceed the amounts we ultimately pay as claims and policy
benefits, acquisition costs and ceding commissions. Second, within our
investment guidelines, we seek to maximize the return on our unallocated
capital.

     The following factors affect our profitability:

     o    the volume of business we write;

     o    our ability to assess and price adequately for the risks we assume;

     o    the mix of different types of business that we reinsure, because
          profits on some kinds of business emerge later than on other types;


                                       37
<PAGE>

     o    our ability to manage our assets and liabilities to manage investment
          and liquidity risk; and

     o    our ability to control expenses.

     In addition, our profits can be affected by a number of factors that are
not within our control. For example, movements in interest rates can affect the
volume of business that we write, the income earned from our investments, the
interest we credit on interest sensitive contracts, the level of surrender
activity on contracts that we reinsure and the rate at which we amortize
deferred acquisition costs. Other external factors that can affect profitability
include mortality experience that varies from our assumed mortality, changes in
regulation or tax laws which may affect the attractiveness of our products or
the costs of doing business and changes in foreign currency exchange rates.

Critical Accounting Policies

     Statement of Financial Accounting Standard ("SFAS") No. 60 "Accounting and
Reporting by Insurance Enterprises" applies to our traditional life policies
with continuing premiums. For these policies, future benefits are estimated
using a net level premium method on the basis of actuarial assumptions as to
mortality, persistency and interest established at policy issue. Assumptions
established at policy issue as to mortality and persistency are based on
anticipated experience, which, together with interest and expense assumptions,
provide a margin for adverse deviation. Acquisition costs are deferred and
recognized as expense in a constant percentage of the gross premiums using these
assumptions established at issue. Should the liabilities for future policy
benefits plus the present value of expected future gross premiums for a product
be insufficient to provide for expected future benefits and expenses for that
product, deferred acquisition costs will be written off and thereafter, if
required, a premium deficiency reserve will be established by a charge to
income. Changes in the assumptions for mortality, persistency and interest could
result in material changes to the financial statements.

     SFAS No. 97 "Accounting and Reporting by Insurance Enterprises for Certain
Long-Duration Contracts and for Realized Gains and Losses from the Sale of
Investments" applies to investment contracts, limited premium contracts, and
universal life-type contracts. For investment and universal life-type contracts,
future benefit liabilities are held using the retrospective deposit method,
increased for amounts representing unearned revenue or refundable policy
charges. Acquisition costs are deferred and recognized as expense as a constant
percentage of gross margins using assumptions as to mortality, persistency, and
expense established at policy issue without provision for adverse deviation and
are revised periodically to reflect emerging actual experience and any material
changes in expected future experience. Liabilities and the deferral of
acquisition costs are established for limited premium policies under the same
practices as used for traditional life policies with the exception that any
gross premium in excess of the net premium is deferred and recognized into
income as a constant percentage of insurance in force. Should the liabilities
for future policy benefits plus the present value of expected future gross
premiums for a product be insufficient to provide for expected future benefits
and expenses for that product, deferred acquisition costs will be written off
and thereafter, if required, a premium deficiency reserve will be established by
a charge to income. Changes in the assumptions for mortality, persistency,
maintenance expense and interest could result in material changes to the
financial statements.

     Our premiums earned are recorded generally in accordance with information
received from our ceding companies, or are estimated where this information is
not current with the reporting period. These premium estimates are based on
historical experience as adjusted for current treaty terms and other
information. Actual results could differ from these estimates. Management
monitors actual experience, and should circumstances warrant, will revise its
estimates of premiums earned.

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


                                       38
<PAGE>

     In the normal course of business, we acquire in-force blocks of business.
The determination of the fair value of the assets acquired and the liabilities
assumed require management to make estimates and assumptions regarding
mortality, lapse rates and expenses. These estimates are based on historical
experience, actuarial studies and information provided by the ceding companies.
Actual results could differ materially from these estimates.

     Present value of in-force business is established upon the acquisition of a
subsidiary and is amortized over the expected life of the business at the time
of acquisition. The amortization each year will be a function of the gross
profits or revenues each year in relation to the total gross profits or revenues
expected over the life of business, discounted at the assumed net credit rate.
The determination of the initial value and the subsequent amortization require
management to make estimates and assumptions regarding the future business
results that could differ materially from actual results. Estimates and
assumptions involved in the present value of in-force business and subsequent
amortization are similar to those necessary in the establishment of reserves and
amortization of deferred acquisition costs.

     Goodwill is established upon the acquisition of a subsidiary. Goodwill is
calculated as the difference between the price paid and the value of individual
assets and liabilities on the date of acquisition. We account for goodwill in
accordance with SFAS No. 142, "Goodwill and Other Intangible Assets". Goodwill
deemed to have an indefinite life is subject to an annual impairment test.
Goodwill recognized in the consolidated balance sheet relates to our acquisition
of Scottish Re Holdings Limited and has been tested for impairment. We have
determined that there is no impairment.

     Fixed maturity investments are evaluated for other than temporary
impairments in accordance with SFAS No. 115: "Accounting for Certain Investments
in Debt and Equity Securities" ("SFAS 115") and Emerging Issues Task Force
99-20: "Recognition of Interest Income and Impairment on Purchased and Retained
Beneficial Interest in Securitized Assets" ("EITF 99-20") as described in Note 2
to the consolidated financial statements. Under these pronouncements, realized
losses are recognized on securities if the securities are determined to be other
than temporarily impaired. Factors involved in the determination of potential
impairment include fair value as compared to amortized cost, length of time the
value has been below amortized cost, credit worthiness of the issuer, forecasted
financial performance of the issuer, position of the security in the issuer's
capital structure, the presence and estimated value of collateral or other
credit enhancement, length of time to maturity, interest rates and our intent
and ability to hold the security until the market value recovers.

     Our funds withheld at interest arise on modified coinsurance and funds
withheld coinsurance transactions. Derivatives Implementation Group Issue No.
B36 "Embedded Derivatives: Bifurcation of a Debt Instrument that Incorporates
Both Interest Rate and Credit Rate Risk Exposures that are Unrelated or Only
Partially Related to the Creditworthiness of the Issuer of that Instrument"
("DIG B36") indicates that these transactions contain embedded derivatives. The
embedded derivative feature in our funds withheld treaties is similar to a
fixed-rate total return swap on the assets held by the ceding companies. The
swap consists of two parts. The first is the market value of the underlying
asset portfolio and the second is a hypothetical loan to the ceding company. The
hypothetical loan is based on the expected cash flows of the underlying
reinsurance liability. We have developed models to systematically estimate the
value of the total return swap. The fair value of the embedded derivative is
affected by changes in expected cash flows, credit spreads of the assets and
changes in "risk-free" interest rates. The change in fair value is included in
our calculation of estimated gross profits and, therefore, also affects the
amortization of deferred acquisition costs. In addition to our quota share
indemnity funds withheld contracts, we have entered into various financial
reinsurance treaties that, although considered funds withheld, do not transfer
significant insurance risk and are recorded on a deposit method of accounting.
As a result of the experience refund provisions of these treaties the value of
the embedded derivative is currently considered immaterial. Changes in our
expectations of future cash flows could result in material changes to the
financial statements.

     Our accounting policies addressing premiums earned, reserves, deferred
acquisition costs, value of business acquired, goodwill, investment impairment
and embedded derivatives involve significant assumptions, judgments and
estimates. Changes in these assumptions, judgments and estimates could create
material changes in our consolidated financial statements.


                                       39
<PAGE>

Results of Operations

Consolidated results of operations

     Our results of operations for the years ended December 31, 2002 to 2004 do
not include the results of the acquisition of the ING individual life
reinsurance business, which was completed on December 31, 2004. Our results of
operations for the year ended December 31, 2002 does not include the results of
operations of Scottish Re Life Corporation, which we acquired on December 22,
2003. The results for the year ended December 31, 2003 include net income of
$1.2 million in respect of the results of Scottish Re Life Corporation for the
period from December 22, 2003 to December 31, 2003.


<TABLE>
<CAPTION>
                                                 Year Ended      Year Ended      Year Ended
                                                 December 31,    December 31,    December 31,
                                                     2004            2003            2002
                                                 ------------    ------------    ------------
<S>                                              <C>             <C>             <C>
Premiums earned..............................    $ 586,875       $ 391,976       $ 202,536
Investment income, net.......................      217,138         148,028         107,906
Fee income...................................       11,547           7,907           6,574
Realized losses..............................       (8,304)         (4,448)        (10,804)
Change in value of embedded derivatives......        4,561          13,904               -
                                                 ----------      ----------     ----------
Total revenues...............................      811,817         557,367         306,212
                                                 ----------      ----------     ----------
Claims and other policy benefits.............      425,965         275,887         142,158
Interest credited to interest sensitive
  contract liabilities.......................      106,525          89,156          48,140
Acquisition costs and other insurance
expenses, net................................      151,559         116,000          60,073
Operating expenses...........................       54,658          31,021          23,086
Due diligence costs..........................        4,643               -               -
Interest expense.............................       13,016           7,557           1,414
                                                 ----------      ----------     ----------
Total benefits and expenses..................      756,366         519,621         274,871
                                                 ----------      ----------     ----------
Income before income taxes and minority
interest.....................................       55,451          37,746          31,341
Income tax benefit  .........................       16,679          11,105           1,894
                                                 ----------      ----------     ----------
Income from continuing operations before
minority interest............................       72,130          48,851          33,235
Minority interest............................         (531)            (62)              -
                                                 ----------      ----------     ----------
Income before  cumulative effect of change in
accounting principle.........................       71,599          48,789          33,235
Cumulative  effect of  change  in  accounting
principle....................................            -         (19,537)              -
Loss from discontinued operations............         (208)         (1,971)           (711)
                                                 ----------      ----------     ----------
Net income...................................    $  71,391       $  27,281      $   32,524
                                                 ==========      ==========     ==========
</TABLE>

     Total revenues increased by 46% to $811.8 million in the year ended
December 31, 2004 from $557.4 million in 2003. Total revenues include premiums
earned in our Life Reinsurance Segments, investment income on our invested
assets, fee income, realized losses and the change in the value of embedded
derivatives. The increase in premiums earned is primarily due to the acquisition
of Scottish Re Life Corporation and growth in the traditional solutions line of
business in our Life Reinsurance North America Segment. The increase in fee
income arises principally from our acquisition of Scottish Re Life Corporation.
The increase in investment income is due to growth in our invested assets, which
arises from business growth and acquisition, our offering of ordinary shares in
July 2003 and our HyCU offering in the fourth quarter of 2003 and trust
preferred debt offerings in the fourth quarter of 2003 and the second quarter of
2004. Growth in these areas has been offset by realized losses and a decrease in
the change in value of embedded derivatives.

     Total benefits and expenses increased by 46% to $756.4 million in the year
ended December 31, 2004 from $519.6 million in 2003. The increase was due to the
acquisition of Scottish Re Life Corporation, continued growth in our Life
Reinsurance North America Segment, additional operating costs required to meet
the growth in our


                                       40
<PAGE>

business, additional operating costs necessary to meet the requirements of the
Sarbanes-Oxley Act of 2002, costs relating to due diligence activities and
additional interest expense arising from the HyCU offering and trust preferred
debt offerings in the fourth quarter of 2003 and the second quarter of 2004.

     During the year ended December 31, 2003, total revenues increased by 82% to
$557.4 million. Total revenues include premiums earned in our Life Reinsurance
operations, investment income on our invested assets, fee income, realized
losses on our investment portfolio and the change in the value of embedded
derivatives. The increase in premiums earned is primarily due to continued
growth in our Life Reinsurance North America and Life Reinsurance International
Segments. The increase in investment income is due to growth in our invested
assets, which arises from business growth, our equity offering in July 2003 and
our debt offerings in November and December 2002. The change in value of the
embedded derivatives arises from the application of DIG B36.

     During the year ended December 31, 2003, total benefits and expenses
increased by 89% to $519.6 million from 2002 to 2003. The increase was due to
continued growth in our Life Reinsurance North America and Life Reinsurance
International Segments, a $12.5 million charge to account for revised reporting
by a ceding company client in connection with two fixed annuity reinsurance
contracts, additional operating costs required to meet the growth in our
business and additional interest expense arising from the debt issuance in
November and December 2002.

     During the year ended December 31, 2003 we implemented the requirements of
DIG B36 which addresses whether SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities" requires bifurcation of a debt instrument
into a debt host contract and an embedded derivative if the debt instrument
incorporates both interest rate risk and credit risk exposures that are
unrelated or only partially related to the creditworthiness of the issuer of
that instrument. Under DIG B36 modified coinsurance and coinsurance funds
withheld reinsurance agreements where interest is determined by reference to a
pool of fixed maturity assets, are arrangements containing embedded derivatives
requiring bifurcation. In addition, reinsurance contacts with experience refunds
are also considered to be arrangements containing embedded derivatives requiring
bifurcation. DIG B36 was effective for fiscal quarters beginning October 1,
2003. We reviewed all contracts at October 1, 2003 and determined that the value
of this derivative, net of related deferred acquisition costs, after taxation
was a loss of $19.5 million. This is shown in the consolidated statements of
income as a cumulative effect of change in accounting principle for the year
ended December 31, 2003. The change in value of the derivative, net of related
deferred amortization costs, during the year ended December 31, 2004 amounted to
a gain of $4.6 million. In the quarter and year ended December 31, 2003, the
change in value of this derivative amounted to a gain of $13.9 million. The
change in value is primarily due to movements in risk free interest rates.

     During 2003, we decided to discontinue our Wealth Management operations in
Luxembourg. We have transferred our Luxembourg Wealth Management business to
third parties, closed the Luxembourg office and are in the process of
liquidating our Luxembourg subsidiary. We have reported the results of the
Luxembourg wealth management activities as discontinued operations. Losses
incurred in respect of these operations in the years ended December 31, 2004,
2003 and 2002 amounted to $0.2 million, $2.0 million and $0.7 million,
respectively.


                                       41
<PAGE>

Earnings per ordinary share

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                             ----------------------------------------------
                                                                  2004            2003           2002
                                                             --------------   -------------   --------------
                                                            (dollars in thousands, except per share data)
<S>                                                          <C>              <C>              <C>
Income from continuing operations before cumulative
effect of change in accounting principle ..............      $      71,599    $     48,789    $      33,235
Cumulative effect of change in accounting principle ...                  -         (19,537)               -
Loss from discontinued operations .....................               (208)         (1,971)            (711)
                                                             --------------   -------------   --------------
Net income ............................................      $      71,391    $     27,281    $      32,524
                                                             ==============   =============   ==============
Basic earnings per share:
    Income from continuing operations before
    cumulative effect of change in accounting
    principle and discontinued operations .............      $        2.00    $        1.59    $       1.32
    Cumulative effect of change in accounting principle                  -           (0.64)               -
    Discontinued operations ...........................              (0.01)          (0.06)           (0.03)
                                                             --------------   -------------   --------------
    Net income.........................................      $        1.99    $       0.89    $        1.29
                                                             ==============   =============   ==============
Diluted earnings per share:
    Income from continuing operations before
    cumulative effect of change in accounting principle      $        1.91    $       1.51    $        1.25
    Cumulative effect of change in accounting
    principle and discontinued operations .............                  -           (0.60)               -
    Discontinued operations ...........................              (0.01)          (0.06)           (0.02)
                                                             --------------   -------------   --------------
    Net income ........................................      $        1.90    $       0.85    $        1.23
                                                             ==============   =============   ==============
Weighted average number of ordinary shares outstanding:
  Basic ...............................................         35,732,522      30,652,719        25,190,283
  Diluted .............................................         37,508,292      32,228,001        26,505,612
</TABLE>

     Income from continuing operations for the year ended December 31, 2004
increased 47% to $71.6 million from $48.8 million in the same period in 2003.
Diluted earnings per share from continuing operations increased from $1.51 per
ordinary share in 2003 to $1.91 in 2004. In the year ended December 31, 2003 we
incurred a charge of $12.5 million to account for revised reporting by a ceding
company client in connection with two fixed annuity reinsurance contracts.
Income from continuing operations has increased primarily due to the acquisition
of Scottish Re Life Corporation, continued growth in our Life Reinsurance North
America Segment, and an increase in investment income primarily due to the
increase in average invested assets. These increases were offset in part by
increased operating costs, due diligence costs, and interest expense and
realized losses.

     Net income for the year ended December 31, 2004 increased 162% to $71.4
million from $27.3 million in the same period in 2003. In 2003 we implemented
DIG B36 and incurred a charge of $19.5 million in respect of the cumulative
effect of this change in accounting principle. In 2003 we also incurred a loss
of $2.0 million in respect of costs relating to the closure of our Luxembourg
Wealth Management Operations. Net income has also increased for the reasons
discussed above related to income from continuing operations.

     Diluted earnings per ordinary share amounted to $1.90 for the year ended
December 31, 2004 and $0.85 in the same period in 2003, an increase of 124%.
Diluted earnings per ordinary share increased as a result of the growth in net
income discussed above. The weighted average number of ordinary shares
outstanding, on a fully diluted basis, has increased from 32,228,001 for the
year ended December 31, 2003 to 37,508,292 for the year ended December 31, 2004,
principally as a result of the offering of 9,200,000 million ordinary shares in
July 2003.

     Income from continuing operations for the year ended December 31, 2003
increased by 47% to $48.8 million from $33.2 million in 2002. Diluted earnings
per ordinary share from continuing operations amounted to


                                       42
<PAGE>

$1.51 for the year ended December 31, 2003 and $1.25 per ordinary share in 2002,
an increase of 21%. The growth in both income from continuing operations and
diluted earnings per share arises from the growth in both our Life Reinsurance
North America and Life Reinsurance International Segments. The growth in diluted
earnings per share from continuing operations was offset by the increase in the
weighted average number of ordinary shares outstanding due to the public
offering of 9,200,000 ordinary shares in July 2003.

     Diluted earnings per ordinary share amounted to $0.85 and $1.23 for the
year ended December 31, 2003 and 2002, respectively. Diluted earnings per
ordinary share for 2003 decreased due to the adoption of DIG B36 and the
resultant cumulative effect of change in accounting principle. In addition, the
number of weighted average shares outstanding increased from 26,505,611 to
32,228,001 mainly due to the public offering of 9,200,000 ordinary shares in
July 2003.

Segment Operating Results

Life Reinsurance North America

<TABLE>
<CAPTION>
                                                  Year Ended      Year Ended      Year Ended
                                                  December 31,    December 31,   December 31,
                                                      2004            2003          2002
                                                  ------------    ------------   ------------
<S>                                               <C>             <C>            <C>
Revenues
Premiums earned ................................  $  464,719      $  230,708     $ 122,794
Investment income, net .........................     206,009         135,731        97,406
Fee income .....................................       7,867           4,067         3,148
Realized losses ................................      (7,974)         (6,124)       (4,833)
Change in value of embedded derivatives ........       4,561          13,904             -
                                                  -----------     ------------   -----------
  Total revenues ...............................     675,182         378,286       218,515
                                                  -----------     ------------   -----------
Benefits and expenses
Claims and other policy benefits ...............     344,319         171,711        91,774
Interest credited to interest sensitive contract
  liabilities ..................................     106,525          89,156        48,140
Acquisition costs and other insurance expenses,
  net ..........................................     132,174          83,594        48,401
Operating expenses .............................      18,408           8,646         7,323
Interest expense ...............................       4,605           1,109             -
                                                  -----------     ------------   -----------
  Total benefits and expenses ..................     606,031         354,216       195,638
                                                  -----------     ------------   -----------
Income before income taxes and minority interest  $   69,151      $   24,070     $  22,877
                                                  ===========     ============   ===========
</TABLE>

     In our Life Reinsurance North America Segment we reinsure life insurance,
annuities and annuity-type products. These products are written by life
insurance companies and other financial institutions located principally in the
United States. The results of Scottish Re Life Corporation, which we acquired on
December 22, 2003, are included in the results of this segment for the year
ended December 31, 2004 and the period from December 22, 2003 to December 31,
2003.

     Premiums earned in our Life Reinsurance North America Segment during the
year ended December 31, 2004 increased 101% to $464.7 million in comparison with
$230.7 million in 2003. A significant portion of the increase is due to the
acquisition of Scottish Re Life Corporation, which contributed $122.2 million in
earned premiums. The remaining increase is due to the increase in the number of
client ceding companies and the increase in business from these clients in our
Life Reinsurance North America Segment. As of December 31, 2004, we had
approximately $1.0 trillion of life reinsurance in force covering approximately
14.2 million lives with an average benefit per life of $71,000 in our North
American operations. Excluding the business acquired from ING, we had
approximately $305.1 billion of life reinsurance in force covering 7.1 million
lives with an average benefit per life of $43,000. As of December 31, 2003, we
had approximately $275.0 billion of life insurance in-force on 6.2 million lives
and our average benefit coverage per life was $43,000.

     Net investment income increased by 52% to $206.0 million for the year ended
December 31, 2004 from $135.7 million for the prior year. The increase is due to
the growth in our average invested assets. Yields increased


                                       43
<PAGE>

marginally during 2004. At December 31, 2004, total invested assets in this
segment, excluding those assets acquired in the purchase of ING, increased to
$4.5 billion from $3.6 billion at December 31, 2003. On the portfolio managed by
our external investment managers the yields on fixed rate assets less cash were
5.22% and 5.13% at December 31, 2004 and 2003, respectively. Yields on floating
rate assets are indexed to LIBOR. The yield on our floating rate assets less
cash increased to 3.44% as at December 31, 2004 from 3.43% as at December 31,
2003, and the yield on our cash and cash equivalents increased to 1.78% as at
December 31, 2004 from 1.01% as at December 31, 2003. In 2004, the market value
of floating-rate assets increased to $963.8 million, excluding those assets
acquired in the purchase of ING, from $301.8 million in 2003 as a result of our
increased floating rate liabilities.

     Fee income during the year ended December 31, 2004 increased to $7.9
million from $4.1 million in 2003 principally because of the acquisition of
Scottish Re Life Corporation.

     The change in value of derivatives, net of related deferred amortization
costs, arises from the application of DIG B36. During the year ended December
31, 2004 this amounted to a gain of $4.6 million. This change in value arose
principally because of an increase in risk free interest rates. DIG B36 was
implemented at October 1, 2003. The change in value of the embedded derivatives
during the period from October 1, 2003 to December 31, 2003 amounted to a gain
of $13.9 million. The gain arose from an increase in the risk free rates.

     Claims and other policy benefits increased by 101% to $344.3 million during
the year ended December 31, 2004 from $171.7 million in the same period in 2003.
The increase is a result of the acquisition of Scottish Re Life Corporation, the
increased number of clients and the increase in business from these clients in
our Life Reinsurance North America Segment as described above. Death claims are
reasonably predictable over a period of many years, but are less predictable
over shorter periods and are subject to fluctuation from period to period. Our
targeted maximum retention in our Life Reinsurance operations is $1.0 million
per life. For periods up to December 31, 2004 we ceded amounts in excess of
$500,000. However, effective January 1, 2005, we have increased our retention to
$1.0 million per life. Our retention on business acquired in the ING individual
life reinsurance acquisition, effective December 31, 2004, is $2.0 million per
life. In addition, we maintain catastrophe cover on our entire retained life
reinsurance business, which effective January 1, 2005 provides reinsurance for
losses of $50.0 million in excess of $10.0 million, and provides protection for
terrorism, nuclear, biological and chemical risks.

     For the year ended December 31, 2004, interest credited to interest
sensitive contract liabilities increased by 19% to $106.5 million from $89.2
million in 2003. During the year ended December 31, 2003 we incurred $12.5
million due to revised reporting by a ceding company client in connection with
two fixed annuity reinsurance contracts. Excluding this charge interest credited
increased by 39% in comparison with the year ended December 31, 2003. Interest
credited includes interest in respect of funding agreements. The amounts due on
funding agreements are included in interest sensitive contract liabilities on
our balance sheet and amount to $500.6 million at December 31, 2004 in
comparison with $330.7 million at December 31, 2003. Interest credited on these
agreements was $9.0 million in 2004 in comparison with $2.4 million in 2003. The
remaining increase is due to interest credited on new reinsurance treaties and
increases in interest credited on existing treaties due to increasing average
liability balances. Interest sensitive contract liabilities amounted to $3.2
billion at December 31, 2004 in comparison with $2.6 billion at December 31,
2003.

     During the year ended December 31, 2004 acquisition costs and other
insurance expenses increased by 58% to $132.2 million from $83.6 million in
2003. The increase was a result of the acquisition of Scottish Re Life
Corporation, including the amortization of the present value of in-force arising
on this business, and the increased life and annuity business in our Life
Reinsurance North America Segment as discussed above. The interest and costs of
the collateral finance facility described, in "Liquidity and Capital Resources"
are included in acquisition costs and other insurance expenses and amounted to
$2.8 million in the year ended December 31, 2004.


                                       44
<PAGE>

     The components of these expenses are as follows:

<TABLE>
<CAPTION>
                                                      Year Ended       Year Ended       Year Ended
                                                      December 31,     December 31,    December 31,
                                                         2004             2003            2002
                                                     -------------    ------------    -------------
                                                                 (dollars in thousands)
<S>                                                  <C>              <C>             <C>
Commissions, excise taxes and other insurance
expenses............................................ $    245,403     $    183,769    $    137,009
Deferral of expenses................................     (184,446)        (151,636)       (116,182)
                                                     -------------    ------------    -------------
                                                           60,957           32,133          20,827
Amortization -- Present value of in-force business...       4,353                -               -
Amortization -- Deferred acquisition costs...........      66,864           51,461          27,574
                                                     -------------    ------------    -------------
Total............................................... $    132,174     $     83,594    $     48,401
                                                     =============    ============    =============
</TABLE>

     Operating expenses increased by 110% to $18.4 million during the year ended
December 31, 2004 from $8.6 million in 2003. The increase is primarily the
result of the acquisition of Scottish Re Life Corporation, additional personnel
costs incurred as we continue to grow our business and the costs necessary to
meet the requirements of the Sarbanes Oxley Act of 2002. The costs of Scottish
Re Life Corporation include the cost of the transition services agreement with
GE ERC of $2.4 million. Total employees in this segment have grown from 64 at
December 31, 2003 to 91 at December 31, 2004.

     Interest expense in this segment arises on the trust preferred securities.
The increase in interest expense to $4.6 million for the year ended December 31,
2004 from $1.1 million in 2003 results from the issuance of an additional $62.0
million of these securities in October 2003, November 2003, and May 2004. An
additional $50.0 million were issued in December 2004.

     Premiums earned in our Life Reinsurance North America Segment during the
year ended December 31, 2003 increased 88% to $230.7 million from $122.8 million
in 2002. The increase is due to increases in the amounts of life insurance
in-force on existing traditional solutions treaties and on new business written
during the year. As of December 31, 2003, the Company had reinsurance of
approximately $275.0 billion of life insurance in-force on 6.2 million lives and
our average benefit coverage per life was $43,000. As of December 31, 2002, we
reinsured approximately $67.0 billion of life insurance in-force on 1.2 million
lives and our average benefit coverage per life was $51,000.

     Net investment income increased by $38.3 million or 39% to $135.7 million
for the year ended December 31, 2003 from $97.4 million for the prior year. The
increase was due to the growth in our average invested assets offset in part by
decreases in realized yields during 2003. Our total invested assets increased
because of growth in our Life Reinsurance North America financial solutions
business and investment of the proceeds of the HyCU offering in December 2003,
our equity offering in July 2003 and long-term debt offerings in October and
November 2003. Total invested assets, in the segment, increased from $2.1
billion at December 31, 2002 to $3.6 billion at December 31, 2003.

     During the year ended December 31, 2003, average book yields were lower
than in 2002. On the $2.4 billion portfolio managed by our external investment
managers the yields on fixed rate assets were 5.13% and 5.84% at December 31,
2003 and 2002, respectively. The reduction in yield was due primarily to the
much lower market yields at which new cash flows were invested and proceeds of
maturities and sales were reinvested. Yields on floating rate assets are indexed
to LIBOR. The yield on our floating rate assets increased to 3.43% from 3.11%,
and the yield on our cash and cash equivalents decreased to 1.01% from 1.48%.
The market value of floating rate assets increased to $301.8 million in 2003
from $159.2 million in 2002 as a result of our increased floating rate funding
agreements and our increased floating rate liabilities.

     Claims and other policy benefits in our Life Reinsurance North America
Segment increased by 87% to $171.7 million in the year ended December 31, 2003
from $91.8 million in 2002. The increase is as a result of the increased number
of clients and the increase in our traditional solutions business from these
clients as previously


                                       45
<PAGE>

described. Death claims are reasonably predictable over a period of many years,
but are less predictable over shorter periods and are subject to fluctuation
from year to year.

     For the year ended December 31, 2003 interest credited to interest
sensitive contract liabilities increased by $41.1 million or 85% to $89.2
million from $48.1 million in 2002. Included in interest credited to interest
sensitive contract liabilities during the year ended December 31, 2003 is $12.5
million due to revised reporting by a ceding company client in connection with
two fixed annuity reinsurance contracts. Interest credited includes interest in
respect of funding agreements. The amounts due on funding agreements are
included in interest sensitive contract liabilities on our balance sheet and
amount to $330.7 million at December 31, 2003 in comparison with $100.0 million
at December 31, 2002. Interest credited on these agreements was $2.4 million in
2003 in comparison with $1.2 million in 2002. The remaining increase is due to
interest credited on new reinsurance treaties and increases in interest credited
on existing treaties due to increasing average liability balances. Interest
sensitive contract liabilities amounted to $2.6 billion at December 31, 2003 in
comparison with $1.6 billion at December 31, 2002.

     Acquisition costs and other insurance expenses for our Life Reinsurance
North America Segment increased to $83.6 million in 2003 from $48.4 million in
2002. The increase was a result of the growth of our business as described
above. As discussed above, we incurred charges of $12.5 million this year due to
revised reporting by a ceding company client in connection with two fixed
annuity reinsurance contracts. In light of the impact of the revised reporting
on the estimated gross profits of the two treaties in question, we revised the
amortization of deferred acquisition costs on the two treaties, along with two
other related treaties.

     Operating expenses increased by 18% to $8.6 million during the year ended
December 31, 2003 from $7.3 million in 2002. The increase is primarily the
result of additional personnel costs incurred as we continued to grow our
business.

     Interest expense in 2003 was in respect of trust preferred securities
issued during 2003.

Life Reinsurance International

<TABLE>
<CAPTION>
                                                      Year Ended       Year Ended       Year Ended
                                                      December 31,     December 31,    December 31,
                                                         2004             2003            2002
                                                     -------------    ------------    -------------
<S>                                                  <C>              <C>             <C>
Revenues
Premiums earned................................      $    122,156     $   161,268     $     79,742
Investment income, net.........................            10,023           7,537            6,716
Realized gains (losses)........................             1,685             548           (5,942)
                                                     -------------    ------------    -------------
  Total revenues...............................           133,864         169,353           80,516
                                                     -------------    ------------    -------------
Benefits and expenses
Claims and other policy benefits...............            81,646         104,176           50,384
Acquisition costs and other insurance expenses,
  net..........................................            17,272          30,143            8,281
Operating expenses.............................            18,798          11,518            6,647
                                                     -------------    ------------    -------------
  Total benefits and expenses..................           117,716         145,837           65,312
                                                     -------------    ------------    -------------
Income before income taxes and minority interest     $     16,148     $    23,516     $     15,204
                                                     =============    ============    =============
</TABLE>

     Our Life Reinsurance International Segment specializes in niche markets in
developed countries and broader life insurance markets in the developing world
and focuses on the reinsurance of short term group life policies and aircrew
loss of license insurance.

     Premiums earned in our Life Reinsurance International Segment during the
year ended December 31, 2004 decreased 24% to $122.2 million in comparison with
$161.3 million in 2003. The majority of business in our Life Reinsurance
International Segment is in respect of short duration contracts. We experience
considerable reporting delays from some of our cedents on this business. In
2003, as part of the implementation of this segment's new administrative system,
improved data was compiled to allow us to more accurately estimate our premium
earned. As a result, premiums earned in 2003 included $23.4 million in respect
of revisions in estimates of premiums earned.


                                       46
<PAGE>

Premiums earned from a portfolio acquired in 2002 were $11.5 million lower in
2004 compared to 2003 due to the run off nature of the portfolio. During 2004 we
decided not to renew certain contracts, which did not meet our return
thresholds. Earned premium for general reinsurance business, which consists of
aircrew loss of license and related personal accident, decreased 5% from $35.8
million to $34.0 million. Premiums earned in 2004 include $4.2 million relating
to a share of two Lloyd's of London life syndicates.

     Investment income during the year ended December 31, 2004 has increased to
$10.0 million compared to $7.5 million in 2003. The agreements for the
acquisition of a portfolio of business completed late in 2002 included
conditions for recapture of certain business by the ceding company. This
recapture has been completed and resulted in additional investment income of
$1.1 million in the year ended December 31, 2004. The remainder of the increase
is due to the increased level of invested assets arising principally from growth
in business.

     Claims and other policy benefits in our Life Reinsurance International
Segment decreased by 22% to $81.6 million in the year ended December 31, 2004
from $104.2 million in 2003. Claims in comparison to the prior year have been
impacted by the introduction of the estimates process as described above. During
the current year we have recognized claims and other policy benefits of $1.8
million in respect of the recapture of business on the portfolio acquisition
described above. In addition, during the year we incurred $1.0 million in
respect of a claim from our stop loss business. We also released reserves of
$3.1 million relating to revisions of estimated claims arising from the
portfolio acquired in 2002. Claims and other policy benefits in 2004 also
include $2.1 million of claims relating to our share of two Lloyd's of London
life syndicates. Claims and other policy benefits in the prior year were
favorably impacted by a $3.4 million release of reserves on the sale of our unit
linked business in 2003. Our targeted maximum corporate retention per life in
our Life Reinsurance International Segment is $250,000. In addition, we maintain
catastrophe cover on our entire retained life reinsurance business, which
effective January 1, 2005 provides reinsurance for losses of $57.5 million in
excess of $2.5 million, and provides protection for terrorism, nuclear,
biological and chemical risks.

     During the year ended December 31, 2004 acquisition costs and other
insurance expenses decreased by $12.8 million or 43% to $17.3 million from $30.1
million in 2003. Acquisition costs for a portfolio acquired in late 2002 are
$2.3 million lower due to the run off nature of the portfolio. Acquisition costs
include the amortization of the present value of in-force business. This was
$1.8 million lower in 2004 compared to 2003 primarily due to the sale of the
unit linked business in 2003. In the current year we recognized profit
commission income of $1.8 million arising from a run off book of business.
Acquisition costs in 2004 also include $2.4 million relating to our share of two
Lloyd's of London life syndicates.

     Operating expenses have increased by 63% to $18.8 million for the year
ended December 31, 2004 from $11.5 million in the prior year. The increases are
principally due to increased personnel costs as resources have been added as we
continue to grow our business and include costs for recruitment expenses.
Operating expenses have also increased due to implementation of the requirements
of the Sarbanes Oxley Act of 2002 and United Kingdom regulatory changes. Other
expense increases compared to 2003 include office costs due to the move to
larger offices in the second quarter of 2003 and amortization of the costs of a
new administration system. Operating expenses in this segment are incurred in
pounds sterling. These expenses have increased as a result of the depreciation
of the United States dollar in comparison with pounds sterling during 2004.

     Premiums earned in our Life Reinsurance International Segment during the
year ended December 31, 2003 increased by 102% to $161.3 million in comparison
with $79.7 million in 2002. Our Life Reinsurance International Segment completed
the acquisition of an in-force reinsurance transaction effective October 1,
2002. This transaction contributed $28.0 million to premiums earned during 2003
compared to $4.8 million of premiums earned in 2002. Premiums earned on other
life business increased $48.4 million in the year ended December 31, 2003 in
comparison with the prior year. The increase is due to an increase in the number
of contracts to 2,115 in 2003 from 1,387 in 2002. Of the $48.4 million, $23.4
million resulted from revisions in estimates of premiums earned. The majority of
business in our Life Reinsurance International Segment is in respect of short
duration contracts. We have experienced considerable reporting delays from some
of our cedents on this business. As part of the implementation of this segment's
new administrative system, improved data was compiled which allowed us to more
accurately estimate our premium earned. Premiums earned on aircrew loss of
license insurance increased to $23.6 million during the current year in
comparison with $16.5 million in the prior year due principally to new business.
At December 31, 2003, there were 252 loss of license contracts in comparison
with 186 at December 31, 2002.


                                       47
<PAGE>

     Claims and other policy benefits increased by 107% to $104.2 million in
2003 compared to $50.4 million in 2002. The increase is a result of the
increased volume of business, as previously described, the revisions of
estimates of premiums earned together with the acquisition of an in-force block
of business effective October 2002. The estimate process contributed a further
$17.5 million to claims and other policy benefits. Claims on the in-force block
amounted to $18.8 million and $3.5 million for the year ended December 31, 2003
and 2002, respectively. During 2003, we entered into an agreement to novate our
unit-linked liabilities. The outstanding liabilities were settled by
transferring an agreed number of unit-linked securities to the novation
agreement counter-party. The settlement was less than the liability previously
recorded of $15.5 million and therefore resulted in a release of liabilities of
$3.4 million.

     Acquisition costs and other insurance expenses for our Life Reinsurance
International Segment increased to $30.1 million in 2003 from $8.3 million in
2002. This was a result of the growth in our business as described above, the
revision of estimates of premiums earned discussed above and the acquisition of
an in-force block of business effective October 2002. Acquisition costs on the
in-force block amounted to $5.7 million in 2003 and $0.3 million in 2002. The
revision of estimates of premiums earned contributed a further $6.0 million to
acquisition costs and other insurance expenses.

     Operating expenses increased by $4.8 million to $11.5 million in 2003 from
$6.6 million in 2002. The increase was principally in respect of increased
personnel costs. The number of employees in our Life Reinsurance International
Segment grew from 48 at December 31, 2002 to 62 at December 31, 2003. This
growth resulted in additional costs for office running expenses. In 2003, we
also experienced increased costs for our defined benefit pension plan.

Other

<TABLE>
<CAPTION>
                                                      Year Ended       Year Ended       Year Ended
                                                      December 31,     December 31,    December 31,
                                                         2004             2003            2002
                                                     -------------    ------------    -------------
<S>                                                  <C>              <C>             <C>
Revenues
Investment income, net.................              $      1,106     $     4,760     $     3,784
Fee income.............................                     3,680           3,840           3,426
Realized gains (losses)................                    (2,015)          1,128             (29)
                                                     -------------    ------------    -------------
Total revenues.........................                     2,771           9,728           7,181
                                                     -------------    ------------    -------------
Benefits and expenses
Acquisition costs and other                                 2,113           2,263           3,391
insurance expenses, net................
Operating expenses.....................                    17,452          10,857           9,116
Due diligence costs....................                     4,643               -               -
Interest expense.......................                     8,411           6,448           1,414
                                                     -------------    ------------    -------------
Total benefits and expenses............                    32,619          19,568          13,921
                                                     -------------    ------------    -------------
Loss before income taxes and
minority interest......................              $    (29,848)    $    (9,840)    $    (6,740)
                                                     =============    ============    ============
</TABLE>

     The Other Segment comprises revenues and expenses not included elsewhere
and includes corporate overhead. As previously discussed our Wealth Management
operations, which were previously designated as a separate segment, are now
included in the Other Segment.

     Investment income arises in the Other Segment on capital not specifically
allocated to the Life Reinsurance North America or Life Reinsurance
International Segments. Investment income will increase or decrease as we


                                       48
<PAGE>

raise capital and deploy it into our operating segments. Fee income and
acquisition expenses arise from our Wealth Management operations. Operating
expenses include the costs of running our principal office in Bermuda,
compensation costs for our board of directors and legal and professional fees
including those in respect of corporate governance legislation. Operating
expenses have increased by 61% to $17.5 million the year ended December 31,
2004. These increases relate primarily to increased personnel costs and the
costs of corporate governance initiatives, including implementation of the
requirements of the Sarbanes Oxley Act of 2002. Due diligence costs of $4.6
million were incurred in respect of various proposed acquisitions. For the year
December 31, 2004, interest expense has increased by 30% to $8.4 million from
$6.4 million in 2003 as a result of the HyCU issuance in December 2003.

     We incurred interest expense of $6.4 million during the year ended December
31, 2003 in comparison with $1.4 million during 2002. Interest expense in 2003
comprises principally interest on the $115.0 million of convertible debt issued
in November 2002. Interest expense in 2002 was in respect of borrowings under
our credit facility and reverse repurchase arrangements. The credit facility
borrowings were repaid in April 2002.

Realized gains (losses)

     During the year ended December 31, 2004, realized losses amounted to $8.3
million in comparison with realized losses of $4.4 million in 2003. Included in
realized losses is $2.2 million resulting from the mark to market of an interest
rate swap. We entered into this contract in relation to certain of our
investment assets not supporting reinsurance liabilities. This derivative has
not been designated as a hedge and accordingly changes in the fair value are
recorded in the determination of net income. During the year ended December 31,
2004, we recognized losses of $9.9 million in respect of impairments on the
portfolio controlled by us. These losses were offset by net realized gains on
the portfolio.

     During the year ended December 31, 2003, realized losses amounted to $4.4
million in comparison with realized losses of $10.8 million in the same period
in 2002. During the year ended December 31, 2003, we recognized $1.9 million in
losses in respect of "other than temporary impairments" on investments,
impairment losses of $4.4 million under EITF 99-20 and $2.9 million (net of
related deferred acquisition costs) of "other than temporary impairment losses"
notified by ceding companies on contracts written on a modified coinsurance
basis. These losses were offset by realized exchange gains of $1.3 million and
net gains and losses on disposals of investments amounting to $3.5 million.

     At December 31, 2002, we held unit-linked securities amounting to $16.5
million. These securities comprised investments in a unit trust denominated in
British pounds. These securities were acquired as part of the purchase of
Scottish Re Holdings Limited and were recorded at quoted market value. Changes
in market value were recorded as net realized gains or losses. During 2003, we
novated our liabilities on our unit-linked contracts as discussed in "Life
Reinsurance International". The liabilities were settled by transferring a
portion of the unit-linked securities to the original ceding company. The
remaining unit-linked securities were sold realizing a gain of $0.3 million
during the year. During the year ended December 31, 2003, changes in market
value of those securities of $0.8 million were recognized as realized losses.

     During the year ended December 31, 2002, realized losses amounted to $10.8
million. The losses in 2002 consist of realized investment losses on unit linked
securities held by Scottish Re Holdings Limited of $5.6 million, impairment
losses recognized under EITF 99-20 of $6.7 million "and other than temporary
impairments" on fixed maturity investments of $3.3 million. These losses were
partially offset by net realized gains on the sales of fixed maturity
investments of $4.8 million.

     Management reviews securities with material unrealized losses and tests for
"other than temporary impairments" on a quarterly basis. Factors involved in the
determination of impairment include fair value as compared to amortized cost,
length of time the value has been below amortized cost, credit worthiness of the
issuer, forecasted financial performance of the issuer, position of the security
in the issuer's capital structure, the presence and estimated value of
collateral or other credit enhancement, length of time to maturity, interest
rates and our intent and ability to hold the security until the market value
recovers. We review all investments with fair values less than amortized cost,
and pay particular attention to those that have traded continuously at less than
80% of amortized cost for at least six months or 90% of amortized cost for at
least 12 months and other assets with material differences between amortized
cost and fair value. Investments meeting those criteria are analyzed in detail
for "other than


                                       49
<PAGE>

temporary impairment." When a decline is considered to be "other than temporary"
a realized loss is incurred and the cost basis of the impaired asset is adjusted
to its fair value.

     Under EITF 99-20, a decline in fair value below "amortized cost" basis is
considered to be an "other than temporary impairment" whenever there is an
adverse change in the amount or timing of cash flow to be received, regardless
of the resulting yield, unless the decrease is solely a result of changes in
market interest rates.

     The following tables provide details of the sales proceeds, realized loss,
the length of time the security had been in an unrealized loss position and
reason for sale for securities sold during 2004, 2003, and 2002.

<TABLE>
<CAPTION>
                                               Year ended December 31, 2004
                --------------------------------------------------------------------------------------
                    Credit Concern        Relative Value              Other                 Total
                    --------------        --------------              -----                 -----
Days             Proceeds      Loss    Proceeds      Loss     Proceeds     Loss      Proceeds     Loss
----             --------      ----    --------      ----     --------     ----      --------     ----
                                     (dollars in thousands)
<S>             <C>        <C>         <C>        <C>         <C>        <C>         <C>        <C>
0-90 ........   $  7,528   $   (474)   $ 54,772   $ (1,284)   $ 77,107   $ (1,859)   $139,407   $ (3,617)
91-180 ......      1,909       (136)     22,884       (266)      6,543        (46)     31,336       (448)
181-270 .....     10,483       (159)      3,904        (23)        127         (1)     14,514       (183)
271-360 .....          -          -         488        (10)      1,886        (31)      2,374        (41)
Greater  than
360 .........      8,011       (710)        306        (11)        321        (33)      8,638       (754)
                --------   ---------   ---------  ----------  ---------  ---------   ---------  ---------
Total .......   $ 27,931   $ (1,479)   $ 82,354   $ (1,594)   $ 85,984   $ (1,970)   $196,269   $ (5,043)
                ========   =========   =========  ==========  =========  =========   =========  =========
</TABLE>


<TABLE>
<CAPTION>
                                               Year ended December 31, 2003
                --------------------------------------------------------------------------------------
                    Credit Concern        Relative Value              Other                 Total
                    --------------        --------------              -----                 -----
Days             Proceeds      Loss    Proceeds      Loss     Proceeds     Loss      Proceeds     Loss
----             --------      ----    --------      ----     --------     ----      --------     ----
                                     (dollars in thousands)
<S>             <C>        <C>        <C>         <C>         <C>        <C>         <C>        <C>
0-90 .......    $    924   $    (5)   $ 15,389    $   (166)   $ 20,686   $  (191)    $ 36,999   $   (362)
91-180 .....       3,529      (295)      3,693         (35)      1,720       (15)       8,942       (345)
181-270 ....       3,300      (251)        776         (29)        656        (4)       4,732       (284)
271-360 ....           -         -         545         (12)        479       (55)       1,024        (67)
Greater than
360 ........       6,008      (951)      1,380        (116)          -        -         7,388     (1,067)
                --------   ---------   ---------  ----------  ---------  ---------   ---------  ---------
Total ......    $ 13,761   $(1,502)   $ 21,783    $   (358)   $ 23,541   $  (265)    $ 59,085   $ (2,125)
                ========   =========   =========  ==========  =========  =========   =========  =========
</TABLE>


<TABLE>
<CAPTION>
                                               Year ended December 31, 2002
                --------------------------------------------------------------------------------------
                    Credit Concern        Relative Value              Other                 Total
                    --------------        --------------              -----                 -----
Days             Proceeds      Loss    Proceeds      Loss     Proceeds     Loss      Proceeds     Loss
----             --------      ----    --------      ----     --------     ----      --------     ----
                                     (dollars in thousands)
<S>              <C>       <C>         <C>        <C>         <C>        <C>         <C>        <C>
0-90........     $ 7,708   $   (520)   $  21,488  $    (130)  $  3,377   $    (41)   $ 32,573   $  (691)
91-180......       4,162       (196)       2,044        (45)         -          -       6,206      (241)
181-270.....       3,408       (213)           -          -          -          -       3,408      (213)
Greater than
360.........       5,284       (325)           -          -          -          -       5,284      (325)
                --------   ---------   ---------  ----------  ---------  ---------   ---------  ---------
Total.......    $ 20,562   $ (1,254)   $  23,532  $    (175)  $  3,377   $    (41)   $ 47,471   $ (1,470)
                ========   =========   =========  ==========  =========  =========   =========  =========
</TABLE>

Income Taxes

     The 2004 income tax benefit is in respect of certain of our U.S. taxable
entities and our U.K. and Irish entities, offset by income tax expenses arising
on our other U.S. entities. Included in the 2004 income tax benefit is $1.7
million in respect of U.S. state taxes and $10.0 million arising in our Irish
entity relating to the acquisition of


                                       50
<PAGE>

the ING individual life business. In 2004, we established reserves of $3.3
million in respect of certain tax positions. The acquisition of the ING
individual life reinsurance business is reflected under U.S. generally accepted
accounting principles in accordance with purchase accounting requirements but
for taxation is a currently taxable transaction. As a result, approximately
$84.0 million of current tax expense and a corresponding $84.0 million of
deferred tax benefit is not reflected in the income statement consistent with
purchase accounting principles. At December 31, 2004 we believe that it is more
likely than not that all gross deferred tax assets will reduce taxes payable in
future years except for a valuation allowance of $21.6 million established in
2004.

     The change in our effective tax rate is due primarily to the ratio of
earnings on taxable jurisdictions to that in non-taxable jurisdictions.

     The 2003 and 2002 income tax benefits are in respect of certain of our U.S.
taxable entities and are offset by income tax expenses arising on our U.K.,
Irish and other U.S. entities. Included in the 2003 income tax benefit is $2.1
million in respect of state taxes.

Financial Condition

Investments

     At December 31, 2004, the portfolio controlled by us consisted of $4.3
billion of fixed income securities, preferred stock and cash. The majority of
these assets are traded; however, $330.3 million represent investments in
private securities. Of the total portfolio controlled by us, $3.5 billion
represented the fixed income and preferred stock portfolios managed by external
investment managers and $752.5 million represented other cash balances. At
December 31, 2003, the portfolio controlled by us consisted of $2.4 billion of
fixed income securities, preferred stock and cash. The majority of these assets
are traded; however, $175.2 million represented investments in private
securities. Of the total portfolio, $2.1 billion represented the fixed income
and preferred stock portfolio managed by external investment managers and $262.7
million represented other cash balances.

     At December 31, 2004, the average Standard & Poor's rating of that
portfolio was "AA-", the average effective duration was 3.8 years and the
average book yield was 4.2% as compared with an average rating of "AA-", an
average effective duration 3.9 years and an average book yield of 4.5% at
December 31, 2003. At December 31, 2004, the unrealized appreciation on
investments, net of tax and deferred acquisition costs, was $13.7 million as
compared with unrealized appreciation on investments, net of tax, of $16.8
million at December 31, 2003. The unrealized appreciation on investments is
included in our consolidated balance sheet as part of shareholders' equity.

     In the table below are the total returns earned by our portfolio for the
year ended December 31, 2004, compared to the returns earned by three indices:
the Lehman Brothers Global Bond Index, the S&P 500, and a customized index that
we developed to take into account our investment guidelines. We believe that
this customized index is a more relevant benchmark for our portfolio's
performance.

                                                                  Year Ended
                                                              December 31, 2004
                                                              ------------------
Portfolio performance....................................             4.42%
Customized index.........................................             3.87%
Lehman Brothers Global Bond Index........................             9.27%
S&P 500..................................................            10.87%

     The following table presents the fixed income investment portfolio (market
value) credit exposure by category as assigned by Standard & Poor's.

<TABLE>
<CAPTION>
                                                    December 31, 2004        December 31, 2003
                                                 ------------------------  ---------------------
Ratings                                           $ in millions     %       $ in millions    %
                                                  -------------    ---      -------------   ---
<S>                                               <C>             <C>       <C>            <C>
AAA..........................................     $    1,754.2    41.1%     $      785.4   32.7%
AA...........................................            451.1    10.5             298.4   12.4
A............................................          1,284.0    30.1             762.7   31.7


                                       51
<PAGE>

BBB..........................................            750.5    17.6             540.8   22.5
BB or below..................................             30.3     0.7              16.6    0.7
                                                  ------------   -----      ------------  ------
Total........................................     $    4,270.1   100.0%     $    2,403.9  100.0%
                                                  ============   =====      ============  ======
</TABLE>


     The following table illustrates the fixed income investment portfolio
(market value) sector exposure.

<TABLE>
<CAPTION>
                                                    December 31, 2004        December 31, 2003
                                                 ------------------------  ---------------------
Sector                                            $ in millions     %       $ in millions    %
                                                  -------------    ---      -------------   ---
<S>                                               <C>             <C>       <C>            <C>
U.S. Treasury securities and U.S. government
  agency obligations.........................     $      89.5      2.1%     $      74.6      3.1%
Corporate securities.........................         1,618.3     37.9          1,119.6     46.6
Municipal bonds..............................            20.8      0.5              1.8      0.1
Mortgage and asset backed securities.........         1,663.8     39.0            818.7     34.0
Preferred stock..............................           125.2      2.9            126.5      5.3
                                                  -------------  -------    -------------  ------
                                                      3,517.6     82.4          2,141.2     89.1
Cash.........................................           752.5     17.6            262.7     10.9
                                                  -------------  -------    -------------  ------
Total........................................     $   4,270.1    100.0%     $   2,403.9    100.0%
                                                  =============  =======    =============  ======
</TABLE>

     The data in the tables above excludes the assets held by ceding insurers
under modified coinsurance and funds withheld coinsurance agreements.

     At December 31, 2004, our fixed income portfolio had 1,773 positions and
$12.0 million of gross unrealized losses. No single position had an unrealized
loss greater than $0.9 million. There were $42.1 million of unrealized gains on
the remainder of the portfolio. There were 44 private securities in an
unrealized loss position totaling $0.7 million. At December 31, 2003 our fixed
income portfolio had 1,375 positions and $14.6 million of gross unrealized
losses. No single position had an unrealized loss greater than $1.6 million.
There were $37.0 million of unrealized gains on the remainder of the portfolio.
There were 34 private securities in an unrealized loss position totaling $0.8
million.

     The composition by category of securities that have an unrealized loss at
December 31, 2004 and December 31, 2003 are presented in the tables below.

<TABLE>
<CAPTION>
                                                               December 31, 2004
                                              -------------------------------------------------
                                                Estimated                Unrealized
                                               Fair Value        %          Loss           %
                                              -------------   -------   ------------    -------
                                                               Dollars in thousands
<S>                                           <C>              <C>      <C>              <C>
Corporate securities.......................   $   292,441       28.7%   $    (2,834)      23.5%
Other structured securities................       339,441       33.3        (5,526)       45.9
Collateralized mortgage obligations........       229,168       22.5        (1,925)       16.0
Governments................................        51,123        5.0          (139)        1.2
Municipal                                          12,130        1.2          (158)        1.3
Preferred stock..............................      35,462        3.5          (641)        5.3
Mortgage backed securities...................      58,670        5.8          (825)        6.8
                                              -----------      ------   -----------      ------
Total........................................ $ 1,018,435      100.0%   $  (12,048)      100.0%
                                              ===========      ======   ===========      ======
</TABLE>


                                       52
<PAGE>

<TABLE>
<CAPTION>
                                                               December 31, 2003
                                              -------------------------------------------------
                                                Estimated                Unrealized
                                               Fair Value        %          Loss           %
                                              -------------   -------   ------------    -------
                                                               Dollars in thousands
<S>                                           <C>              <C>      <C>              <C>
Corporate securities.......................   $   223,555       41.4%   $   (3,823)       26.2%
Other structured securities................       154,065       28.5        (8,943)       61.3
Collateralized mortgage obligations........        95,455       17.7          (863)        5.9
Governments................................        25,838        4.8          (400)        2.7
Preferred stock............................        21,303        3.9          (299)        2.1
Mortgage backed securities.................        19,900        3.7          (255)        1.8
                                              -----------      ------   -----------      ------
Total........................................ $   540,116      100.0%   $  (14,583)      100.0%
                                              ===========      ======   ===========      ======
</TABLE>

     The following tables provide information on the length of time securities
have been continuously in an unrealized loss position:


<TABLE>
<CAPTION>
                                                    December 31, 2004
                         -------------------------------------------------------------------
                                                  Estimated               Unrealized
Days                     Book Value      %       Fair Value       %          Loss         %
----                     ----------     ---      ----------      ---      -----------    ---
                                                  Dollars in thousands
<S>                      <C>           <C>       <C>            <C>       <C>           <C>
0-90.................    $  471,909     45.8%    $  468,924     46.0%     $   (2,985)    24.8%
91-180...............       154,062     14.9        153,237     15.0            (825)     6.8
181-270..............       231,798     22.5        229,026     22.5          (2,772)    23.0
271-360..............        86,468      8.4         84,142      8.3          (2,326)    19.3
Greater than 360 ....        86,246      8.4         83,106      8.2          (3,140)    26.1
                         ----------    ------    ----------    ------     -----------   ------
Total                    $1,030,483    100.0%    $1,018,435    100.0%        (12,048)   100.0%
                         ==========    ======    ==========    ======     ===========   ======
</TABLE>


<TABLE>
<CAPTION>
                                                    December 31, 2003
                         -------------------------------------------------------------------
                                                  Estimated               Unrealized
Days                     Book Value      %       Fair Value       %          Loss         %
----                     ----------     ---      ----------      ---      -----------    ---
                                                  Dollars in thousands
<S>                      <C>            <C>      <C>            <C>       <C>           <C>
0-90.................    $ 308,267      55.6%    $  304,511      56.4%    $   (3,756)    25.8%
91-180...............      115,702      20.9        113,405      21.0         (2,297)    15.7
181-270..............       56,362      10.1         55,243      10.2         (1,119)     7.7
271-360..............       13,486       2.4         13,064       2.4           (422)     2.9
Greater than 360.....       60,882      11.0         53,893      10.0         (6,989)    47.9
                         ---------     ------    ----------     -----     -----------   ------
Total                    $ 554,699     100.0%    $  540,116     100.0%    $  (14,583)   100.0%
                         =========     ======    ==========     =====     ===========   ======
</TABLE>


     Unrealized losses on securities that have been in an unrealized loss
position for periods greater than 2 years amounted to $2.1 million at December
31, 2004 and $2.0 million at December 31, 2003. Unrealized losses on
non-investment grade securities amounted to $2.1 million and $3.0 million at
December 31, 2004 and December 31, 2003, respectively. Of these amounts,
non-investment grade securities with unrealized losses of $1.0 million at
December 31, 2004 and $1.8 million at December 31, 2003 had been in an
unrealized loss position for a period greater than one year, of which $1.0
million at December 31, 2004 and $0.9 million at December 31, 2003 had been in
an unrealized loss position for periods greater than 2 years.

     The following tables illustrate the industry analysis of the unrealized
losses at December 31, 2004 and 2003:


                                       53
<PAGE>

<TABLE>
<CAPTION>
                                                         December 31, 2004
                              ----------------------------------------------------------------------
                                Amortized              Estimated                Unrealized
                                  Cost         %       Fair Value      %           Loss         %
                               ----------    ------    ----------    ------     -----------   ------
       Industry                                        Dollars in thousands
<S>                            <C>            <C>      <C>             <C>      <C>            <C>
       Mortgage and asset
         backed securities.    $  635,556     61.7%    $  627,279      61.6%    $   (8,277)    68.7%
       Banking.............        89,131      8.7         88,371       8.7           (760)     6.3
       Insurance...........        30,229      2.9         29,831       2.9           (398)     3.3
       Financial Other.....        30,081      2.9         29,645       2.9           (436)     3.6
       Brokerage...........        25,071      2.4         24,893       2.4           (178)     1.5
       Financial companies.        24,293      2.4         24,080       2.4           (213)     1.8
       Communications......        16,734      1.6         16,503       1.6           (231)     1.9
       Other...............       179,388     17.4        177,833      17.5         (1,555)    12.9
                               ----------    ------    ----------    -------    -----------   ------
       Total...............    $1,030,483    100.0%    $1,018,435     100.0%    $  (12,048)   100.0%
                               ==========    ======    ==========    =======    ===========   ======
</TABLE>


<TABLE>
<CAPTION>
                                                         December 31, 2003
                               ---------------------------------------------------------------------
                                Amortized              Estimated                Unrealized
                                  Cost         %       Fair Value      %           Loss         %
                               ----------    ------    ----------    ------     -----------   ------
       Industry                                        Dollars in thousands
<S>                            <C>            <C>      <C>             <C>      <C>            <C>
       Mortgage  and  asset
         backed securities.    $  279,481     50.4%    $  269,420      49.9%    $  (10,061)    69.0%
       Banking.............        38,738      7.0         38,201       7.1           (537)     3.7
       Consumer
         non-cyclical......        23,009      4.1         22,632       4.2           (377)     2.6
       Communications......        27,401      5.0         27,055       5.0           (346)     2.4
       Financial companies.        21,900      4.0         21,539       4.0           (361)     2.5
       Insurance...........        17,467      3.1         17,289       3.2           (178)     1.2
       Transportation......         7,382      1.3          6,534       1.2           (848)     5.8
       Other...............       139,321     25.1        137,446      25.4         (1,875)    12.8
                               ----------    ------    ----------    -------    -----------   ------
       Total...............    $  554,699    100.0%    $  540,116     100.0%    $  (14,583)   100.0%
                               ==========    ======    ==========    =======    ===========   ======
</TABLE>
________________

Other industries each represent less than 2% of estimated fair value

     The expected maturity dates of our fixed maturity investments that have an
unrealized loss at December 31, 2004 and 2003 are presented in the table below.


<TABLE>
<CAPTION>
                                                         December 31, 2003
                               ---------------------------------------------------------------------
                                  Book                 Estimated                Unrealized
                                 Value         %       Fair Value      %           Loss         %
                               ----------    ------    ----------    ------     -----------   ------
Maturity                                               Dollars in thousands
<S>                            <C>            <C>      <C>             <C>      <C>            <C>
Due in one year or less...     $  162,787     15.8%    $  160,087      15.7%    $   (2,700)    22.4%
Due in one through five
years.....................        532,436     51.7        527,660      51.8         (4,776)    39.6
Due in five through ten
years.....................        256,319     24.9        252,939      24.9         (3,380)    28.1
Due after ten years.......         78,941      7.6         77,749       7.6         (1,192)     9.9
                               ----------    ------    ----------    -------    -----------   ------
Total.....................     $1,030,483    100.0%    $1,018,435     100.0%    $  (12,048)   100.0%
                               ==========    ======    ==========    =======    ===========   ======
</TABLE>


                                       54
<PAGE>

<TABLE>
<CAPTION>
                                                         December 31, 2003
                              ----------------------------------------------------------------------
                                  Book                 Estimated                Unrealized
                                 Value         %       Fair Value      %           Loss         %
                               ----------    ------    ----------    ------     -----------   ------
Maturity                                               Dollars in thousands
<S>                            <C>            <C>      <C>             <C>      <C>            <C>
Due in one year or less...     $   57,517     10.4%    $   57,129      10.6%    $    (388)      2.7%
Due in one through five           220,835     39.8        214,836      39.8        (5,999)     41.1
years.....................
Due in five through ten           232,231     41.9        225,844      41.8        (6,387)     43.8
years.....................
Due after ten years.......         44,116      7.9         42,307       7.8        (1,809)     12.4
                               ----------    ------    ----------    -------    -----------   ------
Total.....................     $  554,699    100.0%    $  540,116     100.0%    $ (14,583)    100.0%
                               ==========    ======    ==========    =======    ===========   ======
</TABLE>

     At December 31, 2004, there were 647 securities with unrealized loss
positions with no security having an unrealized loss greater than $0.9 million.
At December 31, 2003, there were 409 securities with unrealized loss positions
with 2 securities having an unrealized loss greater than $1.0 million. The
increase in the number of securities with unrealized losses is primarily
attributable to increases in interest rates.

     At December 31, 2004, there were two securities with fair values that
traded continuously at less than 80% of amortized cost for at least six months
or 90% of amortized cost for at least 12 months. The total unrealized loss on
these securities amounted to $1.1 million and the largest unrealized loss
position was $0.9 million. At December 31, 2003 there were 12 securities with
fair values that traded continuously at less than 80% of amortized cost for at
least six months or 90% of amortized cost for at least 12 months. The total
unrealized loss on these securities amounted to $7.2 million and the largest
unrealized loss position was $1.6 million.

Funds withheld at interest

     Funds withheld at interest arise on contracts written under modified
coinsurance agreements and funds withheld coinsurance agreements. In substance,
these agreements are identical to coinsurance treaties except that the ceding
company retains control of and title to the assets. The deposits paid to the
ceding company by the underlying policyholders are held in a segregated
portfolio and managed by the ceding company or by investment managers appointed
by the ceding company. These treaties transfer a quota share of the risks. The
funds withheld at interest represent our share of the ceding companies'
statutory reserves. The cash flows exchanged with each monthly settlement are
netted and include, among other items, our quota share of investment income on
our proportionate share of the portfolio, realized losses, realized gains
(amortized to reflect the statutory rules relating to interest maintenance
reserve), interest credited and expense allowances.

     At December 31, 2004, funds withheld at interest were in respect of seven
contracts with four ceding companies. At December 31, 2003, funds withheld at
interest were in respect of six contracts with three ceding companies. At
December 31, 2004, we had three contracts with Lincoln National Insurance
Company that accounted for $1.3 billion or 63% of the funds withheld balances.
Additionally we had two contracts with Security Life of Denver International
that accounted for $0.5 billion or 27% of the funds withheld balances. The
remaining contracts were with Illinois Mutual Insurance Company and American
Founders Life Insurance Company. Lincoln National Insurance Company has
financial strength ratings of "A+" from A.M. Best, "AA-" from Standard & Poor's,
"Aa3" from Moody's and "AA" from Fitch. In the event of insolvency of the ceding
companies on these arrangements we would need to exert a claim on the assets
supporting the contract liabilities. However, the risk of loss is mitigated by
our ability to offset amounts owed to the ceding company with the amounts owed
to us by the ceding company. Reserves for future policy benefits and interest
sensitive contract liabilities relating to these contracts amounted to $2.0
billion and $1.7 billion at December 31, 2004 and December 31, 2003,
respectively.

     At December 31, 2004, the funds withheld at interest totaled $2.0 billion
with an average rating of "A+", an average effective duration of 3.9 years and
an average book yield of 5.2% as compared with an average rating of "A-", an
average effective duration of 5.1 years and an average book yield of 6.3% at
December 31, 2003. These are fixed income investments and include marketable
securities, commercial mortgages, private placements and cash. The market value
of the funds withheld amounted to $2.1 billion and $1.6 billion at December 31,
2004 and December 31, 2003, respectively.


                                       55
<PAGE>

     The investment objectives for these arrangements are included in the
agreements. The primary objective is to maximize current income, consistent with
the long-term preservation of capital. The overall investment strategy is
executed within the context of prudent asset/liability management. The
investment guidelines permit investments in fixed maturity securities, and
include marketable securities, commercial mortgages, private placements and
cash. The maximum percentage of below investment grade securities is 10% and
other guidelines limit risk, ensure issuer and industry diversification as well
as maintain liquidity and overall portfolio credit quality.

     According to data provided by our ceding companies, the following table
reflects the market value of assets backing the funds withheld at interest
portfolio using the lowest rating assigned by the three major rating agencies.

<TABLE>
<CAPTION>
                                                    December 31, 2004       December 31, 2003
                                                 ----------------------   --------------------
Ratings                                             $ in                  $ in
                                                  millions         %      millions        %
                                                 -----------     -----   -----------    -----
<S>                                              <C>            <C>      <C>            <C>
AAA..........................................    $    692.6      33.3%   $    216.6      13.9%
AA...........................................          85.0       4.1          76.9       4.9
A ...........................................         527.7      25.4         528.6      34.0
BBB..........................................         579.7      27.9         537.6      34.6
BB or below..................................          63.3       3.1          66.0       4.3
                                                 -----------    ------   -----------    ------
                                                    1,948.3      93.8       1,425.7      91.7
Commercial mortgage loans....................         129.9       6.2         129.4       8.3
                                                 -----------    ------   -----------    ------
Total........................................    $  2,078.2     100.0%   $  1,555.1     100.0%
                                                 ===========    ======   ===========    ======
</TABLE>

     According to data provided by our ceding companies, the following table
reflects the market value of assets backing the funds withheld at interest
portfolio by sector.

<TABLE>
<CAPTION>
                                                    December 31, 2004       December 31, 2003
                                                 ----------------------   --------------------
Sector                                              $ in                  $ in
                                                  millions         %      millions        %
                                                 -----------     -----   -----------    -----
<S>                                              <C>            <C>      <C>            <C>
U.S. Treasury securities and U.S. government
  agency obligations.........................    $     39.7       1.9%   $     32.0       2.1%
Corporate securities.........................       1,096.3      52.8       1,041.2      67.0
Municipal bonds..............................          25.2       1.2          23.1       1.5
Mortgage and asset backed securities.........         314.7      15.1         329.4      21.1
Commercial mortgage loans....................         129.9       6.3         129.4       8.3
Cash.........................................         472.4      22.7             -         -
                                                 -----------    ------   -----------    ------
Total                                            $  2,078.2     100.0%   $  1,555.1     100.0%
                                                 ===========    ======   ===========    ======
</TABLE>

Liquidity and Capital Resources

Cash flow

     Cash provided by operating activities amounted to $38.9 million in the year
ended December 31, 2004 in comparison with $88.5 million in 2003. Operating cash
flow includes cash inflows from premiums, fees and investment income, and cash
outflows for benefits and expenses paid. In periods of growth of new business
our operating cash flow may decrease due to first year commissions paid on new
business generated. For income recognition purposes these commissions are
deferred and amortized over the life of the business. The decrease in operating
cash flow is partly attributable to settlement of a tax liability of
approximately $23.0 million. This liability resulted from actions taken by the
former owner of Scottish Re Life Corporation immediately prior to its
acquisition in December 2003. When adjusted for this payment, cash inflows from
operations in the year ended December 31, 2004 were $61.9 million compared to
inflows $88.5 million in 2003. This decrease is due to the timing of receipt of
reinsurance receivables and settlement of reinsurance payables. During the year
ended December 31, 2004 we settled reinsurance payables outstanding at December
30, 2003.


                                       56
<PAGE>

     Cash provided by operating activities amounted to $88.5 million in 2003 in
comparison with cash flow of $9.2 million used in operating activities in 2002.
The increase in operating cash flow from 2002 was $97.7 million. It related
primarily to increases in premiums, fees, and investment income being greater
than increases in benefits, reserve movements and expenses paid. Cash from
premiums and fees increased by $116.3 million due to growth in our Life
Reinsurance business. Cash from investment income increased by $68.7 million due
to the growth in our invested asset base. The increase was offset by declining
yields. Cash used to settle benefits increased by $66.9 million due to the
growth in our Life Reinsurance business. This use of cash was offset by an
increase in related reserves of $64.1 million. Cash used to pay acquisition and
other expenses, including commissions and interest, increased by $84.5 million.
This increase related principally to new business written in our Life
Reinsurance North America Segment, increased operating expenses and increased
debt. Acquisition costs include commissions on first year business that are
deferred when paid and therefore do not impact net income until later years.

     We believe cash flows from operations will be positive over time. However,
they may be positive or negative in any one period depending on the amount of
new life reinsurance business written, the level of ceding commissions paid in
connection with writing that business, the level of renewal premiums earned in
the period and the timing of receipt of reinsurance receivables and settlement
of reinsurance payables. To address the risk that operating cash flows may not
be sufficient in any given period we maintain a high quality, fixed maturity
portfolio with positive liquidity characteristics. These securities are
available for sale and can be sold to meet obligations if necessary.

Capital

     At December 31, 2004, total capitalization was $1.3 billion compared to
$964.3 million and $623.6 million at December 31, 2003 and 2002, respectively.
Total capitalization is analyzed as follows:

<TABLE>
<CAPTION>
                                                  December 31, 2004    December 31, 2003    December 31, 2002
                                                 -------------------  -------------------  -------------------
                                                                    (dollars in thousands)
<S>                                              <C>                 <C>                <C>
Shareholders' equity  .......................    $        862,674    $      659,844     $      491,092
Mezzanine equity.............................             142,449           141,928                  -
Long-term debt...............................             244,500           162,500            132,500
7.00% Convertible Junior Subordinated Notes..              41,282                 -                  -
                                                 ------------------  ----------------  ------------------
                                                 $      1,290,905    $      964,272     $      623,592
                                                 ==================  ================  ==================
</TABLE>


     The increase in capitalization is due to the net income for the year ended
December 31, 2004 of $71.4 million, the issuance of ordinary shares, warrants
and notes to the Cypress Entities, totaling $168.3 million, the issuance of
trust preferred debt of $82.0 million, the issuance of share capital to
employees on the exercise of options of $8.3 million and an increase in other
comprehensive income of $13.5 million offset by dividends paid of $7.1 million.
Other comprehensive income consists of the unrealized appreciation on
investments and the cumulative translation adjustment arising from the
translation of Scottish Re Holdings Limited's balance sheet at exchange rates as
of December 31, 2004.

     The $340.7 million increase in capitalization in 2003 is due primarily to
the net proceeds of our 2003 equity offering of $180.1 million, the net proceeds
of the offering of HyCUs which are included in mezzanine equity of $138.2
million, the trust preferred securities offerings of $30.0 million, net income
for the year of $27.3 million and increases in other comprehensive income. These
increases have been offset by dividends paid of $6.2 million. Other
comprehensive income consists of the unrealized appreciation on investments, the
cumulative translation adjustment arising from the translation of Scottish Re
Holdings Limited's balance sheet at exchange rates as of December 31, 2003 and a
minimum pension liability adjustment at December 31, 2002, only.

     On April 4, 2002 we completed a public offering of 6,750,000 ordinary
shares (which included an over-allotment option of 750,000 ordinary shares) in
which we raised aggregate net proceeds of $114.3 million. We used the net
proceeds of the offering to repay short-term borrowings of $40.0 million, which
we had borrowed under a credit facility with a U.S. bank, and for general
corporate purposes.


                                       57
<PAGE>

     On November 22, 2002 we completed the private offering of $115.0 million of
4.5% Senior Convertible Notes due 2022 (which included an over allotment option
of $15.0 million) in which we raised aggregate net proceeds of $110.9 million.
We used the net proceeds of the offering to repay short-term borrowings of $23.5
million, under reverse repurchase agreements, and for general corporate
purposes.

     On December 4, 2002 we privately placed $17.5 million of capital securities
which were issued by a trust subsidiary holding a thirty year $18.0 million
aggregate principal amount subordinated note of Scottish Holdings, Inc. which is
guaranteed by Scottish Annuity & Life Insurance Company (Cayman) Ltd. Net
proceeds were $16.9 million. Scottish Holdings, Inc. provided a $15.0 million
capital infusion to its direct subsidiary, Scottish Re (U.S.), Inc. and used the
remainder of the net proceeds for general corporate purposes.

     On July 23, 2003, we completed a public offering of 9,200,000 ordinary
shares (which included an over-allotment option of 1,200,000 ordinary shares) at
an offering price of $20.75 per share in which we raised aggregate net proceeds
of $180.1 million. The gross proceeds of this offering were $190.9 million. We
used $30.0 million of these proceeds to repurchase 1,525,000 ordinary shares
from Pacific Life at a purchase price of $19.66 per share.

     On August 20, 2003, the 200,000 Class B Warrants originally issued as part
of our initial public offering with a strike price of $15.00 were repurchased at
a price of $8.00 per warrant or $1.6 million in aggregate.

     On October 29, 2003 and November 14, 2003 we privately placed $30.0 million
of trust preferred securities which were issued by trust subsidiaries holding
thirty year $30.9 million aggregate principal amount subordinated notes of
Scottish Holdings, Inc. which is guaranteed by Scottish Annuity & Life Insurance
Company (Cayman) Ltd. Net proceeds were $29.0 million. Scottish Holdings, Inc.
provided a $21.0 million capital infusion to its direct subsidiary Scottish Re
(U.S.), Inc. and used the remainder of the net proceeds for general corporate
purposes.

     On December 17 and December 22, 2003, we completed a public offering of
5,750,000 (which included an over allotment option of 750,000) HyCUs. The net
proceeds of the offering were $138.2 million. Each HyCU consists of a purchase
contract issued by us and a convertible preferred share redeemable on May 21,
2007. The purchase contract obligates the holder to purchase from us, no later
than February 15, 2007, for a price of $25 in cash, the following number of
shares, subject to anti dilution adjustments:

     o    if the average closing price of our ordinary shares over a 20 day
          trading period ending on the fourth trading day before February 15,
          2007 exceeds $19.32, a number of ordinary shares, based on the 20 day
          average closing price, equal to $25.00; and

     o    if the average closing price during that period is less than or equal
          to $19.32, 1.294 ordinary shares.

     The proceeds of the sale of these ordinary shares will be used to redeem
the convertible preferred shares on May 21, 2007. The convertible preferred
shares will be convertible into 1.0607 ordinary shares per $25.00 liquidation
preference only on May 21, 2007. Upon conversion we will deliver an amount of
cash equal to the $25.00 liquidation preference of the convertible preferred
share and ordinary shares for the value of the excess, if any, of the conversion
value minus the liquidation preference. We will deliver ordinary shares only if
the average closing price is greater than $23.57.

     On May 12, 2004, we privately placed $32.0 million of trust preferred
securities (the "2034 Trust Preferred Securities") which were issued by a trust
subsidiary holding a thirty year $32.0 million aggregate principal amount
subordinated note of Scottish Holdings, Inc. which is guaranteed by Scottish
Annuity & Life Insurance Company (Cayman) Ltd. Net proceeds were $31.0 million.
Scottish Holdings, Inc. provided $30.0 million capital infusion to its direct
subsidiary Scottish Re (U.S.), Inc. and used the remainder of the net proceeds
for general corporate purposes.

     On December 18, 2004, Scottish Financial (Luxembourg) S.a.r.l., a
subsidiary of Scottish Annuity & Life Insurance Company (Cayman) Ltd., privately
placed $50.0 million of trust preferred securities (the "December 2034 Trust
Preferred Securities") which were issued by a subsidiary trust holding a thirty
year $51.5 million aggregate


                                       58
<PAGE>

principal amount subordinated note of Scottish Financial (Luxembourg) S.a.r.l.
which is guaranteed by Scottish Annuity & Life Insurance Company (Cayman) Ltd.
Net proceeds were $48.5 million, which was used for general corporate purposes.

     In order to provide additional capital to support the individual life
reinsurance business acquired from ING we signed a securities purchase agreement
on October 17, 2004, with the Cypress Entities. Pursuant to this agreement, we
issued to the Cypress Entities on December 31, 2004:

     (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)  $41,282,479 aggregate principal amount of 7.00% Convertible Junior
            Subordinated Notes with a maturity date 30 years from issuance.

     The proceeds from the Cypress Entities net of a commitment fee and other
expenses amounted to $168.3 million.

     The ordinary shares, the Class C Warrants and the 7.00% Convertible Junior
Subordinated Notes purchased by the Cypress Entities are collectively referred
to as the "Purchased Securities." The effective purchase price was $19.375 per
ordinary share (the "Purchase Price"). Upon exercise of the Class C Warrants and
conversion of the 7.00% Convertible Junior Subordinated Notes (which is subject
to certain conditions as described below), the Cypress Entities will become the
largest shareholder group of Scottish Re.

     The Class C Warrants are exercisable at an exercise price equal to $0.01
per share. The number of ordinary shares for which the Class C Warrants are
exercisable will be subject to customary anti-dilution adjustments. The Class C
Warrants do not have voting rights and are not exercisable until (i) our
shareholders approve (A) certain amendments to our Articles of Association to
allow the Cypress Entities to hold more than 9.9% of our issued and outstanding
ordinary shares, and (B) the issuance of more than 20% of our ordinary shares to
the Cypress Entities, as required by New York Stock Exchange rules (the
"Shareholder Proposals"), and (ii) requisite regulatory approvals have been
obtained from insurance regulators in Delaware and the United Kingdom.
Notwithstanding the foregoing, the Class C Warrants will become exercisable (i)
immediately upon their transfer to an unaffiliated third party provided that
such transfer complies with the ownership limitations contained in our articles
of association or (ii) to the extent the exercise thereof would not cause the
Cypress Entities to own in the aggregate greater than 9.9% of the ordinary
shares then outstanding. Upon approval of the Shareholder Proposals and the
receipt of all requisite regulatory approvals, the Class C Warrants will
automatically be exercised for the applicable number of ordinary shares. In the
event that a change of control of Scottish Re occurs and the Class C Warrants
cannot be exercised in full for ordinary shares by the terms of our articles of
association or by applicable law, the holders of Class C Warrants may require us
to repurchase the unexercised Class C Warrants pursuant to the terms specified
in the Class C Warrants.

     If the shareholders do not approve the Shareholder Proposals by June 30,
2005 (a "Failed Condition"), we will make additional payments on the Class C
Warrants by paying cash equal to, on a per annum basis, 5% of the product of (i)
the number of ordinary shares underlying the Class C Warrants then held by the
Cypress Entities and (ii) the Purchase Price, or, Scottish Re Group Limited's
option in lieu of cash, by issuing additional 7.00% Convertible Junior
Subordinated Notes with an equivalent aggregate principal amount, such payment
or issuance to be made on the business day immediately following the date of
occurrence of the Failed Condition, and on each six-month anniversary
thereafter, until the Shareholder Proposals have been approved. In addition,
until the Shareholder Proposals have been approved, we will make an additional
payment on the Class C Warrants equal to the dividend then currently payable on
ordinary shares, which will be assumed to be no less than $0.20 per share per
annum.


                                       59
<PAGE>

     Holders of the 7.00% Convertible Junior Subordinated Notes do not have
voting rights. The 7.00% Convertible Junior Subordinated Notes are unsecured
obligations, subordinated to all indebtedness that does not by its terms rank
pari passu or junior to the 7.00% Convertible Junior Subordinated Notes,
including any guarantees issued by us in respect of senior or senior
subordinated indebtedness. The accrued but unpaid interest on the 7.00%
Convertible Junior Subordinated Notes will be payable in kind on December 1 and
June 1 of each year, beginning June 1, 2005, by the issuance of additional 7.00%
Convertible Junior Subordinated Notes of the same series, having the same terms
and conditions as the 7.00% Convertible Junior Subordinated Notes and having a
principal amount equal to the amount of such accrued and unpaid interest.
However, (i) during the period from December 31, 2007 to December 31, 2014, we
may at our option pay any of such accrued but unpaid interest in cash in lieu of
in kind, and (ii) subsequent to December 31, 2014, the Cypress Entities may at
their option receive any of such accrued but unpaid interest in cash in lieu of
in kind.

     Upon the approval of our shareholders and the receipt of all requisite
regulatory approvals, the 7.00% Convertible Junior Subordinated Notes will
automatically be converted into our ordinary shares at an initial conversion
price of $19.375 per ordinary share, subject to customary anti-dilution
adjustments. If upon approval of the Shareholder Proposals the requisite
regulatory approvals have not been obtained, the 7.00% Convertible Junior
Subordinated Notes will automatically be exchanged for additional Class C
Warrants to purchase the number of ordinary shares into which the 7.00%
Convertible Junior Subordinated Notes (including any accrued and unpaid interest
through the date of conversion) were convertible. If we have sought approval of
the Shareholder Proposals unsuccessfully at least twice, after December 31,
2005, we may redeem all (but not less than all) of the then-outstanding 7.00%
Convertible Junior Subordinated Notes for cash at a redemption price per share
equal to the greater of (i) an amount equal to, (A) if prior to December 31,
2007, the initial Purchase Price paid by the Cypress Entities for the 7.00%
Convertible Junior Subordinated Notes, plus an amount calculated based on an
annual, compounded internal rate of return equal to the Penalty Rate (described
below) on such investment for the period from December 31, 2004 through December
31, 2007(applying the 19% Penalty Rate to such period), or (B) if after December
31, 2007, the principal amount thereof plus accrued and unpaid interest thereon
through the date of repurchase, and (ii) the market value at the time of such
redemption of the number of ordinary shares into which the 7.00% Convertible
Junior Subordinated Notes are then convertible. In the event of a change of
control of Scottish Re, we will be required to repurchase the 7.00% Convertible
Junior Subordinated Notes pursuant to the terms specified in the 7.00%
Convertible Junior Subordinated Notes.

     In the event of a Failed Condition, the 7.00% Convertible Junior
Subordinated Notes will bear interest at the Penalty Rate applied retroactively
from December 31, 2004 until the earliest to occur of a cure of such condition,
early redemption of the 7.00% Convertible Junior Subordinated Notes or the
maturity thereof. The "Penalty Rate" means a rate per annum equal to, (i) if a
Failed Condition occurs in 2005, 15% applicable through December 31, 2005, (ii)
if a Failed Condition occurs or continues in 2006, 17% through December 31, 2006
and (iii) 19% thereafter.

     Subject to certain limited exceptions, the Cypress Entities have agreed not
to divest the Purchased Securities for a period of 12 months from the Closing
Date. We have granted the Cypress Entities demand and piggyback registration
rights as well as, subject to certain exceptions, preemptive rights.

     Scottish Re, Pacific Life, and certain of Scottish Re Group Limited's
officers and directors have also entered into Voting Agreements with the Cypress
Entities. Under these agreements, each of the signatories has agreed to vote any
ordinary shares held by them in favor of the Shareholder Proposals.

     During 2004, we paid quarterly dividends totaling $7.1 million or $0.20 per
share. During 2003, we paid quarterly dividends totaling $6.2 million or $0.20
per share. During 2002, we paid quarterly dividends totaling $5.0 million or
$0.20 per share.

Collateral

     We must have sufficient assets available for use as collateral to support
borrowings, letters of credit, and certain reinsurance transactions. With these
reinsurance transactions, the need for collateral or letters of credit arises in
five ways:


                                       60
<PAGE>

     o    when Scottish Annuity & Life Insurance Company (Cayman) Ltd., Scottish
          Re (Dublin) Limited or Scottish Re Limited enters into a reinsurance
          treaty with a U.S. customer, we must contribute assets into a reserve
          credit trust with a U.S. bank or issue a letter of credit in order
          that the ceding company may obtain reserve credit for the reinsurance
          transaction;

     o    when Scottish Re (U.S.), Inc. enters into a reinsurance transaction,
          it typically incurs a need for additional statutory capital This need
          can be met by its own capital surplus, an infusion of cash or assets
          from Scottish Re or an affiliate or by ceding a portion of the
          transaction to another company within the group or an unrelated
          reinsurance company, in which case that reinsurer must provide reserve
          credit by contributing assets in a reserve credit trust or a letter of
          credit;

     o    Scottish Re (U.S.), Inc. is licensed, accredited, approved or
          authorized to write reinsurance in 50 states and the District of
          Columbia. When Scottish Re (U.S.), Inc. enters into a reinsurance
          transaction with a customer domiciled in a state in which it is not a
          licensed, accredited, authorized or approved reinsurer, it likewise
          must provide a reserve credit trust or letter of credit;

     o    Scottish Re Life Corporation is licensed, accredited, approved or
          authorized to write reinsurance in 50 states, the District of
          Columbia, Guam and the Federated States of Micronesia. When Scottish
          Re Life Corporation enters into a reinsurance transaction with a
          customer domiciled in a state in which it is not a licensed,
          accredited, authorized or approved reinsurer, it likewise must provide
          a reserve credit trust or letter of credit; and

     o    even when Scottish Re (U.S.), Inc. is licensed, accredited, approved
          or authorized to write reinsurance in a state, it may agree with a
          customer to provide a reserve credit trust or letter of credit
          voluntarily to mitigate the counter-party risk from the customer's
          perspective, thereby doing transactions that would be otherwise
          unavailable or would be available only on significantly less
          attractive terms.

     We have a number of facilities in place to provide the collateral required
for our reinsurance business.

Credit Facilities

     On June 25, 2004, we closed a collateral finance facility with HSBC Bank
USA, N.A. This facility provides $200.0 million that can be used to
collateralize reinsurance obligations under intercompany reinsurance agreements.
Simultaneously, we entered into a total return swap with HSBC Bank USA, N.A.
under which we are entitled to the total return of the investment portfolio of
the trust established in respect of this facility. As a result, the balances and
activities of the trust have been consolidated in these financial statements.

     On December 29, 2004, Scottish Annuity & Life Insurance Company (Cayman)
Ltd., Scottish Re (Dublin) Limited, Scottish Re (U.S.), Inc., and Scottish Re
Limited closed a $175.0 million, 364-day revolving credit facility with a
syndicate of banks led by Bank of America, N.A. The facility provides capacity
for borrowing and for extending letters of credit. The proceeds from the
facility will be used for working capital, capital expenditures and general
corporate purposes. The facility is a direct financial obligation of each of the
borrowers; however, Scottish Annuity & Life Insurance Company (Cayman) Ltd. has
guaranteed the payment of obligations of Scottish Re (Dublin) Limited, Scottish
Re (U.S.), Inc., and Scottish Re.

     The facility may be increased to an aggregate principal amount of $200.0
million. The interest rate on each loan made under the facility, as determined
by the nature of the loan, will be at (i) the Federal Funds Rate plus 0.50%,
(ii) the prime rate as announced by Bank of America, N.A., or (iii) the British
Bankers Association LIBOR Rate plus an applicable margin.

     The facility requires that Scottish Annuity & Life Insurance Company
(Cayman) Ltd. maintain a minimum amount of shareholders' equity, a debt to
capitalization ratio of less than 20% and uncollateralized assets of 1.2 times
borrowings. In addition, the facility requires that Scottish Re maintain a
minimum amount of shareholders' equity, and a debt to capitalization ratio of
less than 30%. The facility also requires that Scottish Re (U.S.), Inc.


                                       61
<PAGE>

maintain minimum capital and surplus equal to the greater of (i) $20 million or
(ii) the amount necessary to prevent a company action level event from occurring
under the risk based capital laws of Delaware. Our failure to comply with the
requirements of the credit facility would, subject to grace periods, result in
an event of default, and we could be required to repay any outstanding
borrowings. At December 31, 2004 we were in compliance with the requirements of
the facility. At December 31, 2004, there were no borrowings under the
facilities. Outstanding letters of credit under these facilities amounted to
$35.8 million as at December 31, 2004.

     We also have a reverse repurchase agreement with a major broker/dealer.
Under this agreement, we have the ability to sell agency mortgage backed
securities with the agreement to repurchase them at a fixed price, providing the
dealer with a spread that equates to an effective borrowing cost linked to
one-month LIBOR. This agreement is renewable monthly at the discretion of the
broker/dealer. At December 31, 2004, there were no borrowings under this
agreement.

ING Collateral Arrangement

     ING is obligated to maintain collateral for the Regulation XXX and AXXX
reserve requirements of the business we acquired from them for the duration of
such requirements (which relate to state insurance law reserve requirements
applying to reserves for level premium term life insurance policies and
universal life policies). We will pay ING a fee based on the face amount of the
collateral provided until satisfactory alternative collateral arrangements are
made. In the normal course of business and our capital planning we are always
looking for opportunities to relieve capital strain relating to XXX reserve
requirements for our existing business as well as the business acquired from
ING. We anticipate implementing capital markets related solutions relating to
these requirements as cost efficient opportunities arise.

Stingray Pass-Through Trust

     On January 12, 2005, Stingray Pass-Through Trust ("Pass-Through Trust")
issued $325.0 million in aggregate principal amount of 5.902% collateral
facility securities (the "Pass-Through Certificates") in a private transaction.
On the same date, Pass-Through Trust used the proceeds of this issuance to
purchase an aggregate principal amount of $325 million of 5.902% investor
certificates (the "Investor Certificates") from Stingray Investor Trust
("Investor Trust"). Investor Trust used the proceeds of this issuance to
purchase a portfolio of high-grade commercial paper notes. Under a Put Agreement
between Investor Trust and Scottish Annuity & Life Insurance Company (Cayman)
Ltd., the Investor Trust agrees to purchase at a pre-determined price Funding
Agreements issued by Scottish Annuity & Life Insurance Company (Cayman) Ltd., up
to any amount such that the aggregate face amount of Funding Agreements
outstanding at any time does not exceed $325.0, in exchange for a portfolio of
highly rated 30-day commercial paper. In consideration for the Investor Trust's
agreement to purchase Funding Agreements, Scottish Annuity & Life Insurance
Company (Cayman) Ltd. will pay the Investor Trust a Put Premium on a monthly
payment date. Although Scottish Annuity & Life Insurance Company (Cayman) Ltd.
participated in the transactions leading to the establishment of the
Pass-Through Trust and the Investor Trust, the trusts are independent entities
and are not owned, controlled or managed by Scottish Annuity & Life Insurance
Company (Cayman) Ltd. The Pass-Through Certificates are direct financial
obligations of the Pass-Through Trust, the Investor Certificates are direct
financial obligations of the Investor Trust, and the Funding Agreements are a
direct financial obligation of Scottish Annuity & Life Insurance Company
(Cayman) Ltd. when and if issued.

     The Pass-Through Trust expects to pay income distributions on the
Pass-Through Certificates monthly, commencing February 14, 2005, at a rate per
annum equal to 5.902%. The Pass-Through Trust expects to repay the stated amount
of the Pass-Through Certificates on January 12, 2015. The Pass-Through
Certificates are not subject to redemption prior to the scheduled maturity date
other than as a result of certain tax events. The Investor Trust expects to pay
income distributions on the Investor Certificates monthly, commencing February
14, 2005, at a rate per annum equal to 5.902%. The Investor Certificates are not
subject to redemption prior to the scheduled maturity date other than as a
result of certain tax events. The Investor Trust expects to repay the stated
amount of the Investor Certificates on January 12, 2015. Scottish Annuity & Life
Insurance Company (Cayman) Ltd. expects to pay interest on the Funding
Agreements monthly, commencing February 11, 2005 (which is one business day
immediately preceding each distribution date on the Pass-Through Certificates
and the Investor Trust Certificates), at a rate equal to the 30-Day CP Index
Rate for the related accrual period plus 1.477%. Scottish Annuity & Life
Insurance Company (Cayman) Ltd. has the right to redeem the Funding Agreements
on any payment date selected


                                       62
<PAGE>

by Scottish Annuity & Life Insurance Company (Cayman) Ltd. upon not less than 35
nor more than 65 days prior notice. The Funding Agreements are unsecured
obligations of Scottish Annuity & Life Insurance Company (Cayman) Ltd. and will
mature in 2015.

Orkney Holdings, LLC

     On February 11, 2005, Orkney Holdings, LLC, a Delaware limited liability
company, and a direct wholly-owned subsidiary of Scottish Re (U.S.), Inc.,
issued $850.0 million in aggregate principal amount of Series A Floating Rate
Insured Notes due February 11, 2035 (the "Orkney Notes") in a private placement.
The payment of scheduled interest payments under the Orkney Notes and the
ultimate repayment of principal on February 11, 2035 are insured by MBIA
Insurance Corporation, a New York stock insurance company, through a financial
guaranty insurance policy (the "Orkney Notes Policy"). MBIA Insurance
Corporation will not guarantee the payment of any redemption premium, the early
repayment of principal on the Orkney Notes, taxes or shortfalls for withholding
taxes. The Orkney Notes are direct financial obligations of Orkney Holdings,
LLC, and no affiliate of Orkney Holdings, LLC, including without limitation
neither us nor Scottish Re (U.S.), Inc., is an obligor or guarantor on the
Orkney Notes.

     Orkney Holdings, LLC will rely upon the receipt of dividend payments from
its wholly-owned subsidiary, Orkney Re, Inc., a special purpose financial
captive insurance company incorporated under the laws of the State of South
Carolina, to make payments of interest and principal on the Orkney Notes. The
ability of Orkney Re, Inc. to make dividend payments to Orkney Holdings, LLC is
contingent upon meeting certain regulatory requirements and upon the performance
of the block of business retroceded by Scottish Re (U.S.), Inc. to Orkney Re,
Inc. This block of business consists of specified term life insurance policies
with guaranteed level premiums issued by third party ceding insurers and
reinsured with Scottish Re (U.S.), Inc.

     The annual interest rate on the Orkney Notes will equal the 3-month London
Interbank Offered Rate, plus a spread. Such interest will be payable quarterly
in arrears on each February 11, May 11, August 11, and November 11 (each an
"Orkney Scheduled Payment Date"), for each period beginning on (and including)
February 11, 2005, and each succeeding Orkney Scheduled Payment Date, and ending
on (but excluding) the next succeeding Orkney Scheduled Payment Date.

     Under the terms of the Orkney Notes Policy, MBIA Insurance Corporation may
direct JPMorgan Chase Bank, N.A., as trustee, under an indenture (the "Orkney
Indenture") among Orkney Holdings, LLC, Scottish Re (U.S.), Inc., JPMorgan Chase
Bank, N.A., as trustee, and MBIA Insurance Corporation, to foreclose on certain
accounts of Orkney Re, Inc. (the "Orkney Collateral") securing the Orkney Notes
Policy if any of the following events of default occurs:

     o    payment by MBIA Insurance Corporation under the Orkney Notes Policy,
          or advancement of funds for payment to the holders of the Orkney
          Notes;

     o    nonpayment of interest when due and payable in accordance with the
          terms of the Orkney Notes;

     o    nonpayment of all, or part, of the principal of the Orkney Notes;

     o    the security interest in the Orkney Collateral ceases to be a
          perfected security interest, other than as any act or omission on the
          part of MBIA Insurance Corporation;

     o    failure to make payments to MBIA Insurance Corporation under ancillary
          agreements;

     o    Scottish Re (U.S.), Inc. fails to make a required payment under
          certain tax agreements, and such failure remains unremedied for a
          period of 30 days after receiving notice;


                                       63
<PAGE>

     o    breach or misrepresentation of any representation or warranty under
          the Indenture by either Orkney Holdings, LLC or Orkney Re, Inc., if
          unremedied for a period of 30 days after receiving notice; or

     o    bankruptcy, insolvency, reorganization, liquidation conservation,
          rehabilitation or other similar proceeding of Orkney Holdings, LLC or
          Orkney Re, Inc.


     If an event of default occurs and is continuing, the entire principal
thereof and interest accrued thereon may be declared to be due and payable
immediately.

     The Orkney Notes are not redeemable prior to February 11, 2010, unless
Scottish Re (U.S.), Inc. has recaptured all or part of the business reinsured to
Orkney Re, Inc. Such redemption would be on an Orkney Scheduled Payment Date, in
cash, at 105% of the principal amount to be redeemed. Orkney Holdings, LLC may
redeem all or part of the Orkney Notes on any Orkney Scheduled Payment Date
between February 11, 2010 and February 11, 2017 at a redemption price equal to
103%, 102% or 101% of the principal amount, as determined by the specified
Orkney Scheduled Payment Date, payable in cash. The Orkney Notes are redeemable
at a redemption price equal to 100% of the principal amount, payable in cash,
after February 11, 2017. Pursuant to an insurance and indemnity agreement with
MBIA Insurance Corporation, Orkney Holdings, LLC is obligated to pay a periodic
premium to MBIA Insurance Corporation in respect of the Orkney Notes Policy.

 Regulatory Capital Requirements

     Scottish Annuity & Life Insurance Company (Cayman) Ltd. has agreed with
Scottish Re (U.S.), Inc. that it will (1) cause Scottish Re, (U.S.), Inc. to
maintain capital and surplus equal to the greater of $20.0 million or such
amount necessary to prevent the occurrence of a Company Action Level Event under
the risk-based capital laws of the state of Delaware and (2) provide Scottish Re
(U.S.), Inc. with enough liquidity to meet its obligations in a timely manner.

     Scottish Annuity & Life Insurance Company (Cayman) Ltd. has agreed with
Scottish Re Life Corporation that it will (1) cause Scottish Re Life Corporation
to maintain capital and surplus equal to at least 175% of Company Action Level
RBC, as defined under the laws of the state of Delaware and (2) provide Scottish
Re Life Corp. with enough liquidity to meet its obligations in a timely manner.

     Scottish Annuity & Life Insurance Company (Cayman) Ltd. and Scottish Re
have agreed with Scottish Re Limited that in the event Scottish Re Limited is
unable to meet its obligations under its insurance or reinsurance agreements,
Scottish Annuity & Life Insurance Company (Cayman) Ltd. (or if Scottish Annuity
& Life Insurance Company (Cayman) Ltd. cannot fulfill such obligations, then
Scottish Re) will assume all of Scottish Re Limited's obligations under such
agreements.

     Scottish Re and Scottish Annuity & Life Insurance Company (Cayman) Ltd.
have executed similar agreements for Scottish Re (Dublin) Limited and Scottish
Re Life (Bermuda) Limited and may, from time to time, execute additional
agreements guaranteeing the performance and/or obligations of their
subsidiaries.

     Our business is capital and collateral intensive. We expect that our cash
and investments, together with cash generated from our businesses, will be
sufficient to meet our current liquidity and letter of credit needs. However, if
our business continues to grow significantly, we will need to raise additional
capital.


                                       64
<PAGE>

     Contractual Obligations and Commitments

     The following table shows our contractual obligations and commitments as of
December 31, 2004 including our payments due by period:


<TABLE>
<CAPTION>
                                       Less Than                             More Than
                                        1 Year      1-3 Years    4-5 Years    5 Years     Total
                                    ------------- ------------- ----------- ----------- ----------
                                                      (dollars in thousands)
<S>                                 <C>          <C>           <C>          <C>          <C>
Long-term debt....................  $         -  $    162,500  $    82,000  $         -  $   244,500
Mezzanine equity.................             -       143,750            -            -      143,750
Operating leases..................        2,656         5,349        5,430       20,159       33,594
ING transition services agreements        4,392         2,196            -            -        6,588
Funding agreements................            -       300,000      300,000            -      600,000
Collateral financing facility
liability.........................            -             -      200,000            -      200,000
Interest sensitive contract
liabilities.......................      222,012       451,073      440,743    1,466,815    2,580,643
Reserves for future policy
benefit...........................      123,609       321,149      385,352    2,409,872    3,239,982
                                    -----------  ------------  -----------  -----------  -----------
                                    $   352,669  $  1,386,017  $ 1,413,525  $ 3,896,846  $ 7,049,057
                                    ===========  ============  ===========  ===========  ===========
</TABLE>

     Our long-term debt is described in Note 18 to the Consolidated Financial
Statements. Long term debt includes $115.0 million 4.5% senior convertible notes
which are due December 1, 2022. The notes are subject to repurchase by us at a
holder's option at various dates, the earliest of which is December 6, 2006.
Long term debt also includes capital securities with various maturities from
2032 onwards. They are however, redeemable at earlier dates. They have been
included in the above table at the earliest redemption date. We have not
included in the table above 7.00% Convertible Junior Subordinated Notes payable
to the Cypress Entities as described in Note 17 to the Consolidated Financial
Statements as they are expected to convert into shares on shareholder approval
in 2005.

     Our mezzanine equity is described in Note 19 to the Consolidated Financial
Statements and consists of 5,750,000 HyCU. On February 15, 2007, we shall
receive proceeds from the sale of our ordinary shares of $143.8 million as
required by the purchase contract forming part of each HyCU. The proceeds from
this offering will be used by us to repay the convertible preferred shares of
$143.8 million on May 21, 2007.

     We lease office space in the countries in which we operate. These leases
expire at various dates through 2023.

     Amounts due under funding agreements are reported in interest sensitive
contract liabilities. These are agreements in which we earn a spread over LIBOR.
The contractual repayment terms are detailed in the table above.

     Amounts due under interest sensitive contract liabilities, (excluding
funding agreements) and reserves for future policy benefits are estimated using
the discounted projected net cash flow arising from premiums, fees, death
benefits, surrender benefits, contractual expenses and commissions.

     On December 31, 2004, we completed the acquisition of the individual
in-force life reinsurance business of ING. ING has agreed to provide certain
transition services to support the acquired business for up to 18 months from
the date of acquisition at a cost of $6.6 million.


Off balance sheet arrangements

     We have no obligations, assets or liabilities other than those disclosed in
the financial statements forming part of this Form 10-K; no trading activities
involving non-exchange traded contracts accounted for at fair value; and no
relationships and transactions with persons or entities that derive benefits
from their non-independent relationship with us or our related parties.


                                       65
<PAGE>

Changes in Accounting Standards

     In July 2003, the Accounting Standards Executive Committee issued Statement
of Position 03-01 ("SOP"), "Accounting and Reporting by Insurance Enterprises
for Certain Nontraditional Long-Duration Insurance Contracts and for Separate
Accounts". This SOP provides guidance on accounting and reporting by insurance
enterprises for certain nontraditional long-duration contracts and for separate
accounts and is effective for financial statements for fiscal years beginning
after December 15, 2003. In implementing the SOP we have made various
determinations, such as qualification for separate account treatment,
classification of securities in separate account arrangements, significance of
mortality and morbidity risk, adjustments to contract holder liabilities, and
adjustments to estimated gross profits as defined in SFAS No. 97, "Accounting
and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and
for Realized Gains and Losses from the Sale of Investments". Implementation of
this SOP has not had a material effect on our financial statements.

     Effective December 31, 2003, we adopted the disclosure requirements EITF
03-1. This EITF provides guidance on disclosures for other than temporary
impairments of debt and marketable equity investments that have been accounted
for under SFAS No. 115 "Accounting for Certain Investments in Debt and Equity
Securities". During the quarter ended September 30, 2004, the effective date of
the application of EITF 03-01 for debt securities that are impaired because of
interest rate and/or sector spread increases was delayed pending issuance of
further guidance.

     In January 2003, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation 46, "Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51" ("FIN 46"). FIN 46 provides a framework for
identifying variable interest entities and determining when a company should
include its assets, liabilities, non-controlling interests and results of
activities in the consolidated financial statements. A variable interest entity
is a legal structure used to conduct activities or hold assets that either (1)
has an insufficient amount of equity to carry out its principal activities
without additional subordinated financial support, (2) has a group of equity
owners that are unable to make significant decisions about its activities, or
(3) has a group of equity owners that do not have the obligation to absorb
losses or the right to receive returns generated by its operations. FIN 46
requires a variable interest entity to be consolidated if a party with an
ownership, contractual or other financial interest in the variable interest
entity is obligated to absorb a majority of the risk of loss from the variable
interest entity's activities, is entitled to receive a majority of the variable
interest entity's residual returns, or both. A variable interest holder that
consolidates the variable interest entity is called the primary beneficiary. We
are the primary beneficiary of the collateral finance facility discussed in note
16 and thus have consolidated the variable interest entity in accordance with
FIN 46.

     During the quarter ended September 30, 2004, EITF 04-8 "The Effect of
Contingently Convertible Debt on Diluted Earnings Per Share" was issued. EITF
04-8 requires that certain instruments with embedded conversion features that
are contingent upon market price triggers be included in diluted earnings per
share calculations regardless of whether the contingency has been met. Our 4.5%
senior convertible notes are convertible on the basis of a market price trigger.
On October 26, 2004 we amended the terms of these notes so that we are required
to settle the principal amount of $115.0 million in cash on conversion or
repurchase. As a result we shall continue to apply the treasury stock method in
calculating diluted earnings per share for amounts in excess of the principal of
$115.0 million.

     In December 2004, the FASB issued a revision to Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation" (SFAS
123R). This statement requires us to recognize in the determination of income ,
the grant date fair value of all stock options and other-equity based
compensation issued to employees. It is effective for the interim period
commencing after June 15, 2005. As described in note 2 to our financial
statements, we have currently adopted SFAS 148 in relation to our stock options
and are therefore expensing our equity based compensation issued after January
1, 2002. The adoption of SFAS 123R is expected to reduce net income in 2005 by
less than $400,000.

Forward-Looking Statements

     Some of the statements contained in this report are not historical facts
and are forward-looking within the meaning of the Private Securities Litigation
Reform Act of 1995. Forward looking statements include information


                                       66
<PAGE>

with respect to our known and unknown risks, uncertainties and other factors,
which may cause the actual results to differ materially from the forward-looking
statements. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates," "may," "will," "continue," "project" and
similar expressions, as well as statements in the future tense, identify
forward-looking statements.

     These forward-looking statements are not guarantees of our future
performance and are subject to risks and uncertainties that could cause actual
results to differ materially from the results contemplated by the
forward-looking statements. These risks and uncertainties include:

     o    uncertainties relating to the ratings accorded to our insurance
          subsidiaries;

     o    the risk that our risk analysis and underwriting may be inadequate;

     o    exposure to mortality experience which differs from our assumptions;

     o    risks arising from our investment strategy, including risks related to
          the market value of our investments, fluctuations in interest rates
          and our need for liquidity;

     o    uncertainties arising from control of our invested assets by third
          parties;

     o    developments in global financial markets that could affect our
          investment portfolio and fee income;

     o    changes in the rate of policyholder withdrawals or recapture of
          reinsurance treaties;

     o    the risk that our retrocessionaires may not honor their obligations to
          us;

     o    terrorist attacks on the United States and the impact of such attacks
          on the economy in general and on our business in particular;

     o    political and economic risks in developing countries;

     o    the impact of acquisitions, including the ability to successfully
          integrate acquired businesses, the competing demands for our capital
          and the risk of undisclosed liabilities;

     o    the risk that we do not receive shareholder approval for new shares to
          be issued to The Cypress Group;

     o    loss of the services of any of our key employees;

     o    losses due to foreign currency exchange rate fluctuations;

     o    uncertainties relating to government and regulatory policies (such as
          subjecting us to insurance regulation or taxation in additional
          jurisdictions);

     o    the competitive environment in which we operate and associated pricing
          pressures; and

     o    changes in accounting principles.

     The effects of these factors are difficult to predict. New factors emerge
from time to time and we cannot assess the potential impact of any such factor
on the business or the extent to which any factor, or combination of factors,
may cause results to differ materially from those contained in any
forward-looking statement. Any forward-looking statement speaks only as of the
date of this report and we do not undertake any obligation, other than as may


                                       67
<PAGE>

be required under the Federal securities laws, to update any forward-looking
statement to reflect events or circumstances after the date of such statement or
to reflect the occurrence of unanticipated events.

Item 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We measure and manage market risks and other risks as part of an
enterprise-wide risk management process. The market risks described in this
section relate to financial instruments, primarily in our investment portfolio,
that are sensitive to changes in interest rates, credit risk premiums or
spreads, foreign exchange rates and equity prices.

     Our investments, which are primarily fixed income securities, are subject
to market value, reinvestment, and liquidity risk. Our invested assets are
funded not only by capital but also by the proceeds of reinsurance transactions,
some of which entail substantial deposits of funds or assets. The cash flows
required to pay future benefits are subject to actuarial uncertainties and, in
some cases, the policies that we reinsure contain provisions that tend to
increase benefits to customers depending on movements in interest rates. We
analyze the potential results of a transaction, including the cash flows of the
liabilities and of the related assets, and any risk mitigation measures, and we
price transactions to cover our costs, including estimated credit losses, and
earn a desirable risk-adjusted return under various scenarios. We use interest
rate swaps as tools to mitigate these risks. We may also retrocede some risks to
other reinsurers.

Interest Rate Risk

     Interest rate risk consists of two components: (1) in a falling rate
scenario, we have reinvestment risk, which is the risk that interest rates will
decline and funds reinvested will earn less than is necessary to match
anticipated liabilities; and (2) in a rising rate scenario, we have the risk
that cash outflows will have to be funded by selling assets, which will then be
trading at depreciated values. With some annuity liabilities, these risks are
compounded by variability in liability cash flows arising from adverse
experience in withdrawals, surrenders, mortality, and election of early
retirement.

     We mitigate both components of risk through asset-liability management,
including the technique of simulating future results under a variety of interest
rate scenarios and modifying the investment and hedging strategy to mitigate
downside risk to earnings. Our investment portfolio is composed of
fixed-maturity bond investments, of which the majority are at fixed interest
rates. For fixed-rate investments backing reinsurance liabilities, the maturity
structure has been designed to have approximately the same exposure to changes
in interest rates as the related liabilities. Floating-rate liabilities,
including borrowings, are backed primarily by floating-rate assets. In the
capital account, however, we own investments that are also sensitive to interest
rate changes and this sensitivity is not offset by liabilities. Our overall
objective is to limit interest rate exposure.

Credit Risk

     Credit risk relates to the uncertainty associated with the continued
ability of a given obligor to make timely payments of principal and interest. We
measure and manage credit risk not only of bond issuers but also of
counter-parties in reinsurance, retrocession and hedging transactions.

     In our investment portfolio, credit risk is manifested in three ways:

     o    actual and anticipated deterioration in the creditworthiness of an
          issue, as may be reflected in downgrades in its ratings, tend to
          reduce its market value;

     o    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

     o    the issuer may go into default, ultimately causing us to realize a
          loss.


                                       68
<PAGE>

     One of our key objectives in managing credit risk is to keep actual credit
losses below both the amounts that we have assumed and allowed for in pricing
reinsurance transactions and the amounts we would have lost, given the general
level of experience for comparably rated securities of the same type in the
general market. We seek to prevent credit risk, in the aggregate, from becoming
the dominant source of risk in our overall book of retained risks as a
reinsurer.

     We mitigate credit risk by adopting an investment policy, approved by our
board of directors, which limits overall exposure to credit risk and requires
diversification by limiting exposure to any single issuer. We also use outside
professional money management firms and monitor their capabilities, performance
and compliance with our investment and risk management policies.

Foreign Currency Risk

     Our functional currency is the United States dollar. However, our U.K.
subsidiaries, Scottish Re Holdings Limited and Scottish Re Limited, maintain
operating expense accounts in British pounds, parts of their investment
portfolios in Euros and British pounds, and receive other currencies in payment
of premiums. All of Scottish Re Limited's original U.S. business is settled in
United States dollars, all Canadian, Latin American and certain Asia and Middle
East business is converted and settled in United States dollars, and all other
currencies are converted and settled in Euros or British pounds. The results of
the business recorded in Euros and in British pounds are then translated to
United States dollars. Scottish Re attempts to limit substantial exposures to
foreign currency risk, but does not actively manage currency risks. To the
extent our foreign currency exposure is not properly managed or otherwise
hedged, we may experience exchange losses, which in turn would adversely affect
our results of operations and financial condition.

     We may enter into investment, insurance and reinsurance transactions in the
future in currencies other than United States dollars. Our objective is to avoid
substantial exposures to foreign currency risk. We will manage these risks using
policy limits, asset-liability management techniques and hedging transactions.

Sensitivity Analysis--Change In Interest Rates

     We regularly conduct analyses to gauge the financial impact of changes in
interest rates on our financial condition. Techniques include, but are not
limited to, comparison of option-adjusted duration of assets and liabilities and
simulation of future asset and liability cash flows under multiple interest rate
scenarios. Financial simulations are also used to evaluate exposure to credit
spreads and will be used as we consider investments and liabilities denominated
in foreign currencies. On a monthly basis, we measure the gap between the
effective duration of the investments and the target duration. For assets
supporting liabilities, we set the target duration to minimize interest rate
risk for each liability transaction. Our investment policy limits the duration
gap to 0.75 years. For floating-rate borrowings and liabilities, we target
floating-rate assets, which have a duration near zero. For capital account
assets, we target a duration of 3.0 years.

Quantitative Disclosure Of Interest Rate Risk

     The following tables provide information as of December 31, 2004 about the
interest rate sensitivity of the portion of our investment portfolio managed by
external managers. The tables do not include other cash balances of $752.5
million, or modified coinsurance assets of $2.1 billion. The tables show the
aggregate amount, by book value and fair value, of the securities that are
expected to mature in each of the next five years and thereafter, as well as the
weighted average book yield of those securities. The expected maturity is the
weighted average life of a security and takes into consideration par
amortization (for mortgage-backed securities), call features and sinking fund
features.

     In addition to the maturity structure of our controlled asset portfolio
illustrated below, Scottish Re has entered into an interest rate swap agreement
with a notional amount of $100.0 million and a maturity of July 2009. This swap
is used to manage a portion of the interest rate exposure on the balance sheet
and has the effect of shortening the duration on our overall controlled
portfolio by 0.12 years or approximately equivalent to reducing our five-year
maturity exposure by $100.0 million.


                                       69
<PAGE>

     December 31, 2004 market interest rates were used as discounting rates in
the estimation of fair value.


<TABLE>
<CAPTION>
                                                     Expected Maturity Date
                       -------------------------------------------------------------------------------------
                                                                                                Total Fair
     Total                2005     2006      2007      2008      2009    Thereafter   Total       Value
     -----                ----     ----      ----      ----      ----    ----------   -----       -----
                                                   (dollars in thousands)
<S>                    <C>        <C>       <C>       <C>       <C>       <C>         <C>        <C>
     Principal amount. $920,672   $290,183  $320,435  $426,975  $380,186  $1,612,457  $3,950,907 $3,517,667
     Book value.......  296,174    297,365   330,843   437,068   394,803   1,731,305   3,487,558
     Weighted average
     book yield.......     4.2%      3.8%       4.2%      4.3%      4.3%      5.3%        4.7%
</TABLE>


<TABLE>
<CAPTION>
                                                     Expected Maturity Date
                       -------------------------------------------------------------------------------------
                                                                                                 Total Fair
Fixed Rate Only           2005     2006      2007      2008       2009    Thereafter   Total       Value
---------------           ----     ----      ----      ----       ----    ----------   -----      -----
                                                   (dollars in thousands)
<S>                      <C>       <C>       <C>       <C>       <C>       <C>        <C>         <C>
Principal amount.......  $784,311  $126,217  $187,473  $261,425  $220,388  $1,364,617 $2,944,431  $2,551,011

Book value.............   179,125   133,327   197,321   272,741   234,942   1,505,534  2,522,990
Weighted average book
yield..................      4.7%      4.4%      4.9%      4.9%      4.9%        5.5%      5.2%
</TABLE>

<TABLE>
<CAPTION>
                                                     Expected Maturity Date
                       -------------------------------------------------------------------------------------
                                                                                               Total Fair
Floating Rate Only        2005     2006      2007      2008      2009    Thereafter   Total      Value
------------------        ----     ----      ----      ----      ----    ----------   -----      -----
                                                   (dollars in thousands)
<S>                     <C>         <C>       <C>       <C>        <C>       <C>       <C>         <C>
Principal amount.......   $136,361  $163,966  $132,961  $165,550   $159,798  $247,840  $1,006,476  $966,656

Book value.............    117,049   164,038   133,522  $164,327    159,861   225,771     964,568
Weighted average book
yield..................       3.4%      3.3%      3.1%      3.4%       3.4%      3.8%        3.4%
</TABLE>

Item 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The information called for by this item is set forth in "Item 15: Exhibits,
Financial Statement Schedules and Reports on Form 8-K."

Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     There are no changes in or disagreements with accountants on accounting and
financial disclosure for the fiscal year ended December 31, 2004.

Item 9A:  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

     The Company's Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the Company's disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934). Based on such evaluation, such officers have concluded that the
Company's disclosure controls and procedures are effective as of the end of the
period covered by this Annual Report.


Management's Report on Internal Control over Financial Reporting


                                       70
<PAGE>

     Management is responsible for establishing and maintaining adequate
internal control over financial reporting and for the assessment of the
effectiveness of internal control over financial reporting (as defined in the
Rule 13a-15(f) of the Securities and Exchange Act of 1934, as amended). Under
the supervision and with the participation of management, including our
principal executive and financial officers, we have conducted an evaluation of
the effectiveness of our internal control over financial reporting as of
December 31, 2004. In designing and evaluating the internal control over
financial reporting, we recognize that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

     Based on their evaluation, management has concluded that a material
weakness exists regarding internal control over financial reporting in our U.K.
subsidiary as of December 31, 2004. The material weakness identified relates to
the monthly financial statement closing process. A significant control over the
financial reporting involves the analysis of results of operations and the
reconciliation of premium receivable balances. Such controls were not performed
on a timely basis and in sufficient level of detail and resulted in adjustments
to various accounts including receivables, premiums, reserves and related
accounts. A material weakness is a significant deficiency, or combination of
significant deficiencies, that results in more than a remote likelihood that a
material misstatement of the financial statements will not be prevented or
detected.

     In making its assessment of internal control over financial reporting,
management used criteria established in "Internal Control - Integrated
Framework" issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Because of the material weakness described above, management
believes that, as of December 31, 2004, we did not maintain effective internal
control over financial reporting based on those criteria.

     On December 31, 2004, we completed the acquisition of the ING individual
life reinsurance business. Management's assessment did not include internal
control over financial reporting for this business. There was no impact on the
statement of income as the business was acquired on December 31, 2004. Total
assets include $1.9 billion in respect of this business.

     Ernst & Young LLP, the independent registered public accounting firm that
audited the Company's consolidated financial statements included in this report,
have issued an attestation report on management's assessment of internal control
over financial reporting.

     Remediation Steps to Address the Material Weakness

     The material weakness identified relates to the monthly financial statement
closing process in our U.K. subsidiary. Consequently, substantial additional
procedures were undertaken and changes in internal control over financial
reporting effected in order that management could conclude that reasonable
assurance exists regarding the reliability of financial reporting and the
preparation of the financial statements contained in this filing.

     When we acquired Scottish Re Limited (formerly World-Wide Reassurance
Company Limited) on December 31, 2001, the financial reporting and
administration of that business was largely performed manually. Since the
acquisition, we have enhanced staffing resources, implemented modern
administrative and general ledger systems and converted the manual records to
these systems. These systems have resulted in improved data and we have
implemented internal controls over financial reporting in respect of these
systems. Nevertheless, in management's opinion, inadequacies remain regarding
the timing and detail of the analysis of results of operations and the
reconciliation of premium receivable balances that existed at the time of the
systems implementation. We have recently implemented a number of additional
controls that have not yet been in place long enough to evaluate their
effectiveness. In addition, we continue to take a number of other steps to
improve the internal control over financial reporting in our U.K. subsidiary,
including:

     a)     Implementing control improvements that have been recommended by our
            Internal Audit Department, as well as remediating control
            deficiencies identified by our Internal Audit Department and our
            external auditors;


                                       71
<PAGE>

     b)     Hiring a new Chief Financial Officer and Chief Actuary for the U.K.
            subsidiary as of February 1, 2005;

     c)     Hiring a new Head of Administration for the U.K. subsidiary as of
            January 1, 2005;

     d)     Completing the reconciliation of all premium receivable balances in
            2005; and

     e)     With the assistance of a major international accounting and auditing
            firm, continuing to review the U.K. subsidiary's finance function
            and implementing recommended process and control improvements by
            September 30, 2005.


             Report of Independent Registered Public Accounting Firm


The Board of Directors and Shareholders
Scottish Re Group Limited

We have audited management's assessment, included in the accompanying
Management's Report on Internal Control over Financial Reporting that Scottish
Re Group Limited did not maintain effective internal control over financial
reporting as of December 31, 2004, because of the effect of the material
weakness associated with the United Kingdom operations, based on criteria
established in Internal Control--Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (the COSO criteria).
Scottish Re Group Limited's management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on management's assessment and an opinion on the
effectiveness of the company's internal control over financial reporting based
on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, evaluating management's assessment, testing and evaluating
the design and operating effectiveness of internal control, and performing such
other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected. Management's assessment has concluded that a material weakness
exists regarding internal controls over


                                       72
<PAGE>

financial reporting in the company's United Kingdom operation. The material
weakness identified relates to the monthly financial statement closing process
in the company's United Kingdom operations. A significant control over the
financial reporting involves the analysis of results of operations and the
reconciliation of premium receivable balances. Such controls were not performed
on a timely basis and in sufficient level of detail and resulted in adjustments
to various accounts including receivables, premiums, reserves and related
accounts. This material weakness was considered in determining the nature,
timing, and extent of audit tests applied in our audit of the 2004 financial
statements, and this report does not affect our report dated March 11, 2005 on
those financial statements.

As indicated in the accompanying Management's Report on Internal Control over
Financial Reporting, management's assessment of and conclusion on the
effectiveness of internal control over financial reporting did not include the
internal controls of the ING individual life reinsurance business acquired by
the company on December 31, 2004. Included in the December 31, 2004 consolidated
financial statements of Scottish Re Group Limited are approximately $1.9 billion
of both total assets and liabilities associated with this business. Our audit of
internal control over financial reporting of Scottish Re Group Limited also did
not include an evaluation of the internal control over financial reporting of
the ING individual life reinsurance business.

In our opinion, management's assessment that Scottish Re Group Limited did not
maintain effective internal control over financial reporting as of December 31,
2004, is fairly stated, in all material respects, based on the COSO control
criteria. Also, in our opinion, because of the effect of the material weakness
described above on the achievement of the objectives of the control criteria,
Scottish Re Group Limited has not maintained effective internal control over
financial reporting as of December 31, 2004, based on the COSO control criteria.

                                                 /s/ Ernst & Young LLP

Philadelphia, Pennsylvania
March 11, 2005

Changes in internal controls. As a result of issues identified in our Forms
10-Q/A for the quarters ended June 30, 2004 and September 30, 2004 we have taken
a series of steps in our ongoing process to improve control processes, including
those involving the compilation of information used in reporting premium
accruals in our International Segment, and to avoid similar errors going
forward. We have also taken steps to improve controls around segregation of
responsibilities and review of manually prepared information and have
strengthened procedures for the reconciliation of all material general ledger
balances. We are continuing the process of designing and implementing, new
systems and procedures involving our general ledger and reporting capabilities,
which are expected to enhance internal control processes. We have also
implemented controls in order to comply with Section 404 of the Sarbanes-Oxley
Act of 2002.

NYSE CEO Certification

     We filed our 2004 annual CEO certification with the New York Stock Exchange
on March 3, 2004. We anticipate filing our 2005 annual CEO certification with
the NYSE on or about March 18, 2005. Additionally, we filed with the SEC as
exhibits to our Form 10-K for the year ended December 31, 2004 the CEO and CFO
certifications required under Section 302 of the Sarbanes-Oxley Act of 2002.


Item 9B: OTHER INFORMATION

     None


                                    PART III

Item 10: DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

     The information required by this Item 10 will be set forth in our Proxy
Statement for 2005 Annual Meeting of Shareholders (the "2005 Proxy Statement")
under the captions "Proposal for Election of Directors," "Principal


                                       73
<PAGE>

Shareholders and Management Ownership" and "Section 16(a) Beneficial Ownership
Reporting Compliance" and is incorporated herein by reference.

Item 11:  EXECUTIVE COMPENSATION

     The information required by this Item 11 will be set forth in the 2005
Proxy Statement under the captions "Management Compensation" and "Report on
Executive Compensation" and is incorporated herein by reference.

Item 12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT  AND
          RELATED STOCKHOLDER MATTERS

     The information required by this Item 12 will be set forth in the 2005
Proxy Statement under the caption "Principal Shareholders and Management
Ownership" and is incorporated herein by reference.

Item 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item 13 will be set forth in the 2005
Proxy Statement under the caption "Certain Transactions" and is incorporated
herein by reference.

Item 14:  PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The information required by this Item 14 will be set forth in the 2005
Proxy Statement under the caption "Fees Billed to the Company by Ernst & Young
LLP" and is incorporated herein by reference.

                                    PART IV

Item 15:  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

EXHIBITS

EXCEPT AS OTHERWISE INDICATED, THE FOLLOWING EXHIBITS ARE FILED HEREWITH MADE A
PART HEREOF:

3.1       Memorandum of Association of Scottish Re Group Limited, as amended as
          of December 14, 2001 (incorporated herein by reference to Scottish Re
          Group Limited's Current Report on Form 8-K/A). (6)

3.2       Articles of Association of Scottish Re Group Limited, as amended as of
          May 2, 2002 (incorporated herein by reference to Scottish Re Group
          Limited 's Current Report on Form 8-K filed with the SEC on April 14,
          2003).

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 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)

10.1      Employment Agreement dated June 18, 1998 between Scottish Re Group
          Limited and Michael C. French (incorporated herein by reference to
          Exhibit 10.1 to Scottish Re Group Limited 's Registration Statement on
          Form S-1). (1)(16)


                                       74
<PAGE>

10.2      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)(16)

10.3      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)(16)

10.4      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)

10.5      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)

10.6      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)(16)

10.7      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)(16)

10.8      Employment Agreement dated September 18, 2000 between Scottish Re
          (U.S.), Inc. and Oscar R. Scofield (incorporated herein by reference
          to Exhibit 10.16 to Scottish Re Group Limited's 2000 Annual Report on
          Form 10-K). (3)(16)

10.9      Share Purchase Agreement by and between Scottish Re Group Limited and
          Pacific Life dated August 6, 2001 (incorporated by reference to
          Scottish Re Group Limited's Current Report on Form 8-K). (7)

10.10     Amendment No. 1, dated November 8, 2001, to Share Purchase Agreement
          dated August 6, 2001 by and between Scottish Re Group Limited and
          Pacific Life (incorporated by reference to the Company's Current
          Report on Form 8-K). (5)

10.11     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)(16)

10.12     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)(16)

10.13     Tax Deed of Covenant dated December 31, 2001 between Scottish Re Group
          Limited and Pacific Life (incorporated by reference to Scottish Re
          Group Limited's Current Report on Form 8-K). (5)

10.14     Letter Agreement dated December 28, 2001 between Scottish Re Group
          Limited and Pacific Life (incorporated by reference to Scottish Re
          Group Limited's Current Report on Form 8-K). (5)

10.15     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)(16)

10.16     Employment Agreement dated July 1, 2002 between Scottish Annuity &
          Life Insurance Company (Cayman) Ltd. and Thomas A. McAvity, Jr.
          (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)(16)

10.17     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)(16)

10.18     Employment Agreement dated July 1, 2002 between Scottish Re Group
          Limited and Elizabeth Murphy (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)(16)

10.19     Employment Agreement dated June 1, 2002 between Scottish Re Group
          Limited and Clifford J. Wagner (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)(16)

10.20     Employment Agreement dated July 8, 2002 between Scottish Re Group
          Limited and Scott E. Willkomm (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)(16)

10.21     Employment Agreement dated February 10, 2003 between Scottish Re Group
          Limited and Michael C. French (incorporated herein by reference to
          Scottish Re Group Limited's 2002 Annual Report on Form 10-K). (12)(16)

10.22     Employment Agreement dated February 10, 2003 between Scottish Re
          (U.S), Inc. and Oscar R. Scofield (incorporated herein by reference to
          Scottish Re Group Limited's 2002 Annual Report on Form 10-K). (12)(16)


                                       75
<PAGE>

10.23     Amended employment Agreement dated February 10, 2003 between Scottish
          Re Group Limited and Thomas A. McAvity (incorporated herein by
          reference to Scottish Re Group Limited's 2002 Annual Report on Form
          10-K). (12)(16)

10.24     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)

10.25     Registration Rights Agreement, dated November 22, 2002, between
          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)

10.26     Employment Agreement dated May 1, 2003 between Scottish Re Holdings
          Limited and David Huntley (incorporated herein by reference to
          Scottish Re Group Limited's Quarterly Report on Form 10-Q for the
          period ended September 30, 2003). (13)(16)

10.27     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)

10.28     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)

10.29     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)

10.30     Employment Agreement dated April 21, 2004, by and among Scottish
          Holdings, Inc. and Seth W. Vance (incorporated herein by reference to
          Scottish Re Group Limited's Quarterly Report on Form 10-Q for the
          period ended March 31, 2004). (14)(16)

10.31     Amendment to Employment Agreement dated March 29, 2004, by and between
          Scottish Re (U.S.), Inc. and Oscar R. Scofield (incorporated herein by
          reference to Scottish Re Group Limited's Quarterly Report on Form 10-Q
          for the period ended June 30, 2004, filed with the SEC on August 9,
          2004). (16)

10.32     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)

10.33     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)

10.34     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)

10.35     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)

10.36     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)

10.37     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 SEC on October 29, 2004).

10.38     Amendment to Employment Agreement dated as of March 29, 2004, by and
          among the Company and Michael C. French (incorporated herein by
          reference to Scottish Re Group Limited's Quarterly Report on Form 10-Q
          for the nine month period ended September 30, 2004, filed with the SEC
          on November 8, 2004). (16)


                                       76
<PAGE>

10.39     Employment Agreement, dated as of March 29, 2004, by and among the
          Company and Deborah G. Percy (incorporated herein by reference to
          Scottish Re Group Limited's Quarterly Report on Form 10-Q for the nine
          month period ended September 30, 2004, filed with the SEC on November
          8, 2004). (16)

10.40     Employment Agreement, dated as of January 1, 2005, between Scottish
          Holdings, Inc. and Gary Dombowsky. (16)

10.41     Amendment to Employment Agreement, dated as of February 7, 2005,
          between Scottish Re Group Limited and Michael C. French. (16)

10.42     Employment Agreement, dated as of February 1, 2005, between Scottish
          Re Group Limited and Hugh T. McCormick. (16)

10.43     Employment Agreement, dated as of December 1, 2004, between Scottish
          Holdings, Inc. and Kenneth R. Stott. (16)

10.44     Credit Agreement, dated as of December 29, 2004, among Scottish
          Annuity & Life Insurance Company (Cayman) Ltd., Scottish Re (Dublin)
          Limited, Scottish Re (U.S.), Inc., and Scottish Re Limited as
          borrowers, Bear Stearns Corporate Lending, Inc. and Wachovia Bank,
          National Association as Co-Syndication Agents, Bank of America, N.A.,
          as Administrative Agent and L/C Issuer, and The Other Lenders Party
          Hereto, Banc of America Securities LLC as Sole Lead Arranger and Sole
          Book Manager.

10.45     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.

10.46     Coinsurance Agreement dated December 31, 2004 between Security Life of
          Denver Insurance Company and Scottish Re (U.S.), Inc.

10.47     Coinsurance/ Modified Coinsurance Agreement, dated December 31, 2004,
          between Security Life of Denver Insurance Company and Scottish Re
          (U.S.), Inc.

10.48     Retrocession Agreement, dated December 31, 2004, between Scottish Re
          (U.S.), Inc. and Security Life of Denver Insurance Company.

10.49     Retrocession Agreement, dated December 31, 2004, between Scottish Re
          Life (Bermuda) Limited Bermuda and Security Life of Denver Insurance
          Company.

10.50     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 The Bank of New York, as Securities Intermediary.

10.51     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.

10.52     Coinsurance Agreement, dated December 31, 2004, between Security Life
          of Denver International Limited and Scottish Re Life (Bermuda)
          Limited.

10.53     Coinsurance/ Modified Coinsurance Agreement, dated December 31, 2004,
          between Security Life of Denver International Limited and Scottish Re
          Life (Bermuda) Limited.

10.54     Coinsurance Funds Withheld Agreement, dated December 31, 2004, between
          Security Life of Denver International Limited and Scottish Re Life
          (Bermuda) Limited.

10.55     Reserve Trust Agreement, dated December 31, 2004, between Scottish Re
          Life (Bermuda) Limited, as Grantor, and Security Life of Denver
          International Limited, as Beneficiary, and The Bank of New York, as
          Trustee, and The Bank of New York, as Securities Intermediary.

10.56     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.

10.57     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.

10.58     Transition and Integration Services Agreement, dated December 31,
          2004, between Security Life of Denver Insurance Company and Scottish
          Re (U.S.), Inc.

21.1      List of Subsidiaries

23.1      Consent of Ernst & Young LLP

24.1      Power of Attorney


                                       77
<PAGE>

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.

     ____________________

         (1)      Scottish Re Group Limited's Registration Statement on Form S-1
                  was filed with the SEC on June 19, 1998, as amended.
         (2)      Scottish Re Group Limited's 1999 Annual Report on Form 10-K
                  was filed with the SEC on April 3, 2000.
         (3)      Scottish Re Group Limited's 2000 Annual Report on Form 10-K
                  was filed with the SEC on March 30, 2001.
         (4)      Scottish Re Group Limited's 2001 Annual Report on Form 10-K
                  was filed with the SEC on March 5, 2002.
         (5)      Scottish Re Group Limited's Current Report on Form 8-K was
                  filed with the SEC on December 31, 2001.
         (6)      Scottish Re Group Limited's Current Report on Form 8-K/A was
                  filed with the SEC on January 11, 2002.
         (7)      Scottish Re Group Limited's Current Report on Form 8-K was
                  filed with the SEC on August 9, 2001.
         (8)      Scottish Re Group Limited's Amended Quarterly Report on Form
                  10-Q/A was filed with the SEC on August 8, 2002.
         (9)      Scottish Re Group Limited's Registration Statement on Form S-3
                  was filed with the SEC on January 31, 2003, as amended.
         (10)     Scottish Re Group Limited's Current Report on Form 8-K was
                  filed with the SEC on December 17, 2003.
         (11)     Scottish Re Group Limited's Current Report on Form 8-K was
                  filed with the SEC on January 6, 2004.
         (12)     Scottish Re Group Limited's 2002 Annual Report on Form 10-K
                  was filed with the SEC on March 31, 2003.
         (13)     Scottish Re Group Limited's Quarterly Report on Form 10-Q was
                  filed with the SEC on August 12, 2003.
         (14)     Scottish Re Group Limited's Quarterly Report on Form 10-Q was
                  filed with the SEC on May 10, 2004.
         (15)     Scottish Re Group Limited's Current Report on Form 8-K was
                  filed with the SEC on October 21, 2004.
         (16)     This exhibit is a management contract or compensatory plan or
                  arrangement.


                                       78
<PAGE>

FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

Report of Independent Registered Public Accounting Firm.....................  80
Consolidated Balance Sheets.................................................  81
Consolidated Statements of Income...........................................  82
Consolidated Statements of Comprehensive Income.............................  83
Consolidated Statements of Shareholders' Equity.............................  84
Consolidated Statements of Cash Flows.......................................  85
Notes to Consolidated Financial Statements..................................  86

     All other schedules are omitted because they are either not applicable or
the required information is included in the Management's Discussion and Analysis
of Financial Condition and Results of Operations, Financial Statements or Notes
thereto appearing elsewhere in this Form 10-K.

REPORTS ON FORM 8-K

     The following reports on Form 8-K were filed with the SEC during the three
months ended December 31, 2004:

     Scottish Re Group Limited filed a report on Form 8-K on October 18, 2004 to
report under Items 7.01 (Regulation FD Disclosure) and 9.01 (Financial
Statements and Exhibits) that it had signed an asset purchase agreement to
acquire the individual in-force life reinsurance business of ING.

     Scottish Re Group Limited filed a report on Form 8-K on October 21, 2004 to
report under Items 1.01 (Entry into a Material Definitive Agreement), 3.02
(Unregistered Sales of Equity Securities) and 9.01 (Financial Statements and
Exhibits) that (i) it had signed an asset purchase agreement to acquire the
individual in-force life reinsurance business of ING and (ii) it had signed a
securities purchase agreement with certain affiliates of The Cypress Group,
L.L.C.

     Scottish Re Group Limited filed a report on Form 8-K on October 29, 2004 to
report under Items 1.01 (Entry into a Material Definitive Agreement) and 9.01
(Financial Statements and Exhibits) that it had entered into a first
supplemental indenture with respect to the indenture, dated as of November 22,
2002, pursuant to which Scottish Re Group Limited's 4.50% senior convertible
notes due 2022 were issued and sold.

     Scottish Re Group Limited filed a report on Form 8-K on November 9, 2004,
to report under Item 5.02 (Departure of Directors or Principal Officers;
Election of Directors; Appointment of Principal Officers) the appointment of
Jean-Claude Damerval to the Board of Directors.

     Scottish Re Group Limited filed a report on Form 8-K on November 9, 2004 to
report under Items 2.02 (Results of Operations and Financial Condition) and 9.01
(Financial Statements and Exhibits) Scottish Re Group Limited's financial
results for the nine months ended September 30, 2004.

     Scottish Re Group Limited filed a report on Form 8-K on December 8, 2004 to
report under Items 5.02 (Departure of Directors or Principal Officers; Election
of Directors; Appointment of Principal Officers) and 9.01 (Financial Statements
and Exhibits) the appointment of Scott Willkomm as Scottish Re Group Limited's
Chief Exectuive Officer.

     Scottish Re Group Limited filed a report on Form 8-K on December 20, 2004
to report under Item 2.03 (Creation of a Direct Financial Obligation or an
Obligation under an Off-Balance Sheet Arrangement of a Registrant) that a
wholly-owned subsidiary had issued $50,000,000 in aggregate principal amount of
floating rate trust preferred capital securities with a stated term of thirty
years.

     Scottish Re Group Limited filed a report on Form 8-K on December 29, 2004
to report under Item 2.03 (Creation of a Direct Financial Obligation or an
Obligation under an Off-Balance Sheet Arrangement of a Registrant) that certain
of its subsidiaries had entered into a credit facility with a syndicate of
banks.


                                       79
<PAGE>

     Scottish Re Group Limited filed a report on Form 8-K on December 30, 2004
to report under Item 4.02 (Non-Reliance on Previously Issued Financial
Statements or a Related Audit Report or Completed Interim Review) that it had
determined that its International Segment had incorrectly reported premiums
earned, claims and other policy benefits, acquisition costs and other insurance
expenses and related income tax benefits in the quarters ended June 30, 2004 and
September 30, 2004.


             Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
Scottish Re Group Limited

We have audited the accompanying consolidated balance sheets of Scottish Re
Group Limited and subsidiaries as of December 31, 2004 and 2003, and the related
consolidated statements of income, comprehensive income, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
2004. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Scottish Re Group Limited and subsidiaries at December 31, 2004 and 2003, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 2004, in conformity with
accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the financial statements, in 2003 the Company changed
its accounting related to its funds withheld at interest and stock options.

/s/ Ernst & Young LLP


Philadelphia, Pennsylvania
March 11, 2005


                                       80
<PAGE>

                            SCOTTISH RE GROUP LIMITED
                           CONSOLIDATED BALANCE SHEETS
                (Expressed in Thousands of United States Dollars)

<TABLE>
<CAPTION>
                                                                    December 31,   December 31,
ASSETS                                                                  2004           2003
                                                                   -------------  ------------
<S>                                                                <C>            <C>
Fixed maturity investments, available for sale, at fair value
  (Amortized cost $3,362,929; 2003 - $1,993,247)...............     $  3,392,463  $  2,014,719
Preferred stock (Cost $124,629; 2003 - $125,460)...............          125,204       126,449
Cash and cash equivalents......................................          794,639       298,149
Other investments..............................................           16,250        17,678
Funds withheld at interest.....................................        2,056,280     1,469,425
                                                                   -------------  ------------
  Total investments............................................        6,384,836     3,926,420
Accrued interest receivable....................................           32,092        22,789
Reinsurance balances and risk fees receivable..................          470,817       196,192
Deferred acquisition costs.....................................          417,306       308,591
Amounts recoverable from reinsurers............................          774,503       737,429
Present value of in-force business.............................           62,164        44,985
Goodwill.......................................................           34,125        35,847
Fixed assets...................................................           17,177        11,800
Other assets...................................................           21,749        13,703
Current income tax receivable..................................            7,712             -
Deferred tax benefit...........................................           15,030        12,624
Segregated assets..............................................          783,573       743,137
                                                                   -------------  ------------
  Total assets.................................................     $  9,021,084  $  6,053,517
                                                                   =============  ============
LIABILITIES
Reserves for future policy benefits............................     $  3,370,562  $  1,502,415
Interest sensitive contract liabilities........................        3,181,447     2,633,346
Collateral finance facility liability..........................          200,000             -
Accounts payable and accrued expenses..........................           23,337        31,673
Reinsurance balances payable...................................          116,589       125,756
Other liabilities..............................................           44,974        30,546
Current income tax payable.....................................                -        13,077
7.00% Convertible Junior Subordinated Notes....................           41,282             -
Long term debt.................................................          244,500       162,500
Segregated liabilities.........................................          783,573       743,137
                                                                   -------------  ------------
  Total liabilities............................................        8,006,264     5,242,450
                                                                   =============  ============
MINORITY INTEREST                                                          9,697         9,295
MEZZANINE EQUITY                                                         142,449       141,928
SHAREHOLDERS' EQUITY
Share capital, par value $0.01 per share:
  Issued and fully paid: 39,931,145 ordinary shares
    (2003-35,228,411)..........................................              399           352
Additional paid-in capital.....................................          684,719       548,750
Accumulated other comprehensive income.........................           31,604        29,034
Retained earnings..............................................          145,952        81,708
                                                                   -------------  ------------
  Total shareholders' equity...................................          862,674       659,844
                                                                   -------------  ------------
Total liabilities and shareholders' equity.....................     $  9,021,084  $  6,053,517
                                                                   =============  ============
</TABLE>

           See Accompanying Notes to Consolidated Financial Statements


                                       81
<PAGE>

                            SCOTTISH RE GROUP LIMITED
                        CONSOLIDATED STATEMENTS OF INCOME
    (Expressed in Thousands of United States Dollars, except per share data)


<TABLE>
<CAPTION>
                                                     Year Ended      Year Ended     Year Ended
                                                    December 31,    December 31,   December 31,
                                                        2004            2003           2002
                                                    ------------    ------------   ------------
<S>                                                 <C>             <C>            <C>
Revenues
Premiums earned................................     $   586,875     $   391,976    $   202,536
Investment income, net.........................         217,138         148,028        107,906
Fee income.....................................          11,547           7,907          6,574
Realized losses................................          (8,304)         (4,448)       (10,804)
Change in value of embedded derivatives, net...           4,561          13,904              -
                                                    ------------    ------------   ------------
  Total revenues...............................         811,817         557,367        306,212
                                                    ------------    ------------   ------------
Benefits and expenses
Claims and other policy benefits...............         425,965         275,887        142,158
Interest credited to interest sensitive
  contract liabilities.........................         106,525          89,156         48,140
Acquisition costs and other insurance expenses,
  net..........................................         151,559         116,000         60,073
Operating expenses.............................          54,658          31,021         23,086
Due diligence costs............................           4,643               -              -
Interest expense...............................          13,016           7,557          1,414
                                                    ------------    ------------   ------------
  Total benefits and expenses..................         756,366         519,621        274,871
                                                    ------------    ------------   ------------
Income before income taxes and minority interest         55,451          37,746         31,341
Income tax benefit.............................          16,679          11,105          1,894
                                                    ------------    ------------   ------------
Income before minority interest................          72,130          48,851         33,235
Minority interest..............................            (531)            (62)             -
                                                    ------------    ------------   ------------
Income from continuing operations before
  cumulative effect of change in accounting
  principle and discontinued operations........          71,599          48,789         33,235
Cumulative effect of change in accounting
  principle (net of taxation of $3,415) .......               -         (19,537)             -
Loss from discontinued operations..............            (208)         (1,971)          (711)
                                                    ------------    ------------   ------------
Net income.....................................     $    71,391     $    27,281    $    32,524
                                                    ============    ============   ============
Basic earnings per share:
    Income from continuing operations before
    cumulative effect of change in accounting
    principle..................................    $       2.00     $      1.59    $      1.32
    Cumulative effect of change in accounting
    principle..................................               -           (0.64)             -
    Discontinued operations....................           (0.01)          (0.06)         (0.03)
                                                    ------------    ------------   ------------
    Net income.................................     $      1.99     $      0.89    $      1.29
                                                    ============    ============   ============
Diluted earnings per share:
    Income from continuing operations before
    cumulative effect of change in accounting
    principle.................................      $      1.91     $     1.51     $      1.25
    Cumulative effect of change in accounting
    principle..................................               -          (0.60)              -
    Discontinued operations....................           (0.01)         (0.06)          (0.02)
                                                    ------------    ------------   ------------
    Net income.................................     $      1.90     $     0.85     $      1.23
                                                    ============    ============   ============
Weighted average number of ordinary shares
outstanding
    Basic......................................      35,732,522     30,652,719      25,190,283
                                                    ============    ============   ============
    Diluted....................................      37,508,292     32,228,001      26,505,612
                                                    ============    ============   ============
</TABLE>

           See Accompanying Notes to Consolidated Financial Statements


                                       82
<PAGE>

                            SCOTTISH RE GROUP LIMITED
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                (Expressed in Thousands of United States Dollars)


<TABLE>
<CAPTION>
                                                     Year Ended      Year Ended     Year Ended
                                                    December 31,    December 31,   December 31,
                                                        2004            2003           2002
                                                    ------------    ------------   ------------
<S>                                                 <C>            <C>             <C>
Net income.....................................     $   71,391     $    27,281     $    32,524
                                                    ------------    ------------   ------------
Other comprehensive income, net of tax:
Unrealized appreciation on investments.........          3,644          10,270          18,049
Add: reclassification adjustment for investment
  losses included in net income................         (6,831)         (2,352)         (5,493)
                                                    ------------    ------------   ------------
Net unrealized appreciation  on investments,
  net of income taxes and deferred acquisition
  costs of $ 1,699, $2,222 and $3,853..........         (3,187)          7,918          12,556
Cumulative translation adjustment .............          5,757           6,278           5,908
Minimum pension liability adjustment, net of
  income taxes of $(588) and $588..............              -           1,371          (1,371)
                                                    ------------    ------------   ------------
Other comprehensive income.....................          2,570          15,567          17,093
                                                    ------------    ------------   ------------
Comprehensive income...........................     $   73,961      $   42,848     $    49,617
                                                    ============    ============   ============
</TABLE>

           See Accompanying Notes to Consolidated Financial Statements


                                       83
<PAGE>

                            SCOTTISH RE GROUP LIMITED
                       CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
 (Expressed in Thousands of United States Dollars, except for number of shares)

<TABLE>
<CAPTION>
                                                     Year Ended      Year Ended     Year Ended
                                                    December 31,    December 31,   December 31,
                                                        2004            2003           2002
                                                    ------------    ------------   ------------
<S>                                                 <C>             <C>             <C>
Ordinary shares:
   Beginning of year ..........................     35,228,411      26,927,456      20,144,956
   Ordinary shares issued .....................      3,953,183       9,200,000       6,750,000
   Ordinary shares repurchased ................             --      (1,525,000)             --
   Issuance to employees on exercise of options        749,551         425,955          32,500
   Issuance on exercise of warrants ...........             --         200,000              --
                                                    ------------    ------------   ------------
   End of year ................................     39,931,145      35,228,411      26,927,456
                                                    ============    ============   ============
Share capital:
   Beginning of year ..........................   $        352    $        269    $        201
   Ordinary shares issued .....................             40              92              68
   Ordinary shares repurchased ................             --             (15)             --
   Issuance to employees on exercise of options              7               4              --
   Issuance on exercise of warrants ...........             --               2              --
                                                    ------------    ------------   ------------
   End of year ................................            399             352             269
                                                    ------------    ------------   ------------
Additional paid in capital:
   Beginning of year ..........................        548,750         416,712         301,542
   Ordinary shares issued .....................         64,824         179,995         114,252
   Ordinary shares repurchased ................             --         (29,966)             --
   Issuance to employees on exercise of options          8,339           4,575             279
   Issuance on exercise of warrants ...........             --           2,998              --
   Issuance of HyCUs ..........................             --         (24,171)             --
   Warrants issued ............................         62,125              --              --
   Warrants repurchased .......................             --          (1,600)             --
   Other ......................................            681             207             639
                                                    ------------    ------------   ------------
   End of year ................................        684,719         548,750         416,712
                                                    ------------    ------------   ------------
Accumulated other comprehensive income:
   Unrealized appreciation on investments
     Beginning of year ........................         16,848           8,930          (3,626)
     Change in period (net of tax) ............         (3,187)          7,918          12,556
                                                    ------------    ------------   ------------
   End of year ................................         13,661          16,848           8,930
                                                    ------------    ------------   ------------
   Cumulative translation adjustment
     Beginning of year ........................         12,186           5,908              --
     Change in period (net of tax) ............          5,757           6,278           5,908
                                                    ------------    ------------   ------------
     End of year ..............................         17,943          12,186           5,908
                                                    ------------    ------------   ------------
   Minimum pension liability adjustment
     Beginning of year ........................             --          (1,371)             --
     Change in period (net of tax) ............             --           1,371          (1,371)
                                                    ------------    ------------   ------------
     End of year ..............................             --              --          (1,371)
                                                    ------------    ------------   ------------
Total accumulated other comprehensive income ..         31,604          29,034          13,467
                                                    ------------    ------------   ------------
Retained earnings:
   Beginning of year ..........................         81,708          60,644          33,165
   Net income .................................         71,391          27,281          32,524
   Dividends paid .............................         (7,147)         (6,217)         (5,045)
                                                    ------------    ------------   ------------
   End of year ................................        145,952          81,708          60,644
                                                    ------------    ------------   ------------
Total shareholders' equity ....................     $  862,674      $  659,844     $   491,092
                                                    ============    ============   ============
</TABLE>

           See Accompanying Notes to Consolidated Financial Statements


                                       84
<PAGE>

                            SCOTTISH RE GROUP LIMITED
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                (Expressed in Thousands of United States Dollars)

<TABLE>
<CAPTION>
                                                     Year Ended      Year Ended     Year Ended
                                                    December 31,    December 31,   December 31,
                                                        2004            2003           2002
                                                    ------------    ------------   ------------
<S>                                                <C>             <C>            <C>
Operating activities
Income before cumulative effect of change in
    accounting principle ........................   $    71,391    $    46,818    $    32,524
Items not affecting cash:

    Realized losses .............................         8,306          4,448         10,803
    Changes in value of embedded derivatives ....        (4,561)        13,904              -
    Amortization of investments .................        11,140          5,619            667
    Amortization of deferred acquisition costs ..        80,235         74,239         28,179
    Amortization of present value of in-force
        business ................................         7,689          4,926          2,777
    Changes in assets and liabilities:
        Accrued interest ........................          (894)        (6,731)        (2,575)
        Reinsurance balances and risk fees
           receivable ...........................      (112,092)       (54,689)        29,019
        Deferred acquisition costs ..............      (180,908)      (167,281)      (127,797)
        Deferred tax liability ..................        68,807        (17,350)           863
        Other assets and liabilities ............       (24,807)       (25,561)          (804)
        Current income tax receivable and payable       (95,631)        (1,459)         1,514
        Reserves for future policy benefits .....       187,201        159,242         (1,377)
        Interest sensitive contract liabilities,
           net of funds withheld at interest ....        34,550         25,546         16,260
        Unit linked contract liabilities ........             -              -        (11,280)
        Accounts payable and accrued expenses ...        (5,443)        11,989          9,504
        Other ...................................        (6,131)        14,844          2,539
                                                    ------------    ------------   ------------
    Net cash provided by (used in) operating
        activities ..............................        38,852         88,504         (9,184)
                                                    ------------    ------------   ------------
Investing activities
Purchase of fixed maturity investments ..........    (1,832,494)    (1,254,226)      (710,791)
Proceeds from sales of fixed maturity investments       595,059        288,611        183,588
Proceeds from maturity of fixed maturity
    investments .................................       345,778        216,617        122,000

Purchase of preferred stock .....................       (26,186)       (82,717)             -

Proceeds from sale of preferred stock ...........        19,620         18,530              -

Proceeds from maturity of preferred stock .......         6,257          5,137              -
Other ...........................................        (1,898)             -          5,291
Cash received on ING acquisition ................       414,008              -              -
Acquisition of subsidiary net of cash acquired ..             -       (140,228)        (2,270)
Purchase of fixed assets ........................             -         (4,984)        (1,034)
                                                    ------------    ------------   ------------
    Net cash used in investing activities .......      (479,856)      (953,260)      (403,216)
                                                    ------------    ------------   ------------
Financing activities
Proceeds from collateral facility liability .....       200,000              -              -
Deposits to interest sensitive contract
    liabilities .................................       571,843        736,884        320,338
Withdrawals from interest sensitive contract
    liabilities .................................       (83,319)       (40,783)       (27,627)
Borrowings ......................................             -              -        (65,145)
Issuance of ordinary shares .....................        73,210        187,666        114,599
Issuance of warrants ............................        62,125              -              -
Repurchase of ordinary shares ...................             -        (29,981)             -
Repurchase of warrants ..........................             -         (1,600)             -
Issuance of long term debt ......................        79,500         29,047        127,782
Issuance of notes payable to buy Cypress Entities        41,282              -              -
Net funds received on issuance of HyCUs .........             -        138,223              -
Dividends paid ..................................        (7,147)        (6,217)        (5,045)
                                                    ------------    ------------   ------------
Net cash provided by financing activities .......       937,494      1,013,239        464,902
                                                    ------------    ------------   ------------
Net change in cash and cash equivalents .........       496,490        148,483         52,502
Cash and cash equivalents, beginning of year ....       298,149        149,666         97,164
                                                    ------------    ------------   ------------
Cash and cash equivalents, end of year ..........   $   794,639     $  298,149     $  149,666
                                                    ============    ============   ============
Supplemental cash flow information:
Interest paid ...................................   $    16,418     $    6,195     $      738
                                                    ============    ============   ============
Taxes paid (refunded) ...........................   $    28,726     $    1,156     $     (124)
                                                    ============    ============   ============
</TABLE>


                 See Accompanying Notes to Consolidated Financial Statements


                                       85
<PAGE>

                            SCOTTISH RE GROUP LIMITED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2004


1.  Organization, business and basis of presentation

Organization

     Scottish Re is a holding company organized under the laws of the Cayman
Islands with its principal executive office in Bermuda. We are a reinsurer of
life insurance, annuities and annuity-type products. These products are written
by life insurance companies and other financial institutions located principally
in the United States, as well as around the world. We refer to this portion of
our business as Life Reinsurance. To a lesser extent, we directly issue variable
life insurance and variable annuities and similar products to high net worth
individuals and families for insurance, investment and estate planning purposes.
We refer to this portion of our business as Wealth Management. We have operating
companies in Bermuda, the Cayman Islands, Guernsey, Ireland, the United Kingdom
and the United States.

Business

Life Reinsurance

     In our Life Reinsurance North America Segment, we provide solutions to
insurance companies seeking reinsurance of life insurance, annuities and
annuity-type products. We reinsure lines of business that may be subject to
significant reserve or capital requirements by regulatory and rating agencies.
We assume risks associated with primary life insurance policies and annuities,
both in force and new business. We reinsure: (i) mortality, (ii) investment,
(iii) persistency, and (iv) expense risks. Scottish Re (U.S.), Inc. originates
reinsurance business predominantly by marketing its products and services
directly to U.S. life insurance and reinsurance companies. Scottish Annuity &
Life Insurance Company (Cayman) Ltd. originates reinsurance business
predominantly through reinsurance brokers and intermediaries.

     In our Life Reinsurance International Segment, we reinsure life and aircrew
loss of license products. Life products that we reinsure include short term
group and individual life, and, to a lesser extent, disability and critical
illness. In our Life Reinsurance International Segment, we primarily target
customers in developing markets as well as selected developed markets. The
developing markets include Asia, Latin America, the Middle East, North Africa
and Southern and Eastern Europe. In the more developed markets, we target
"niche" market sectors that require a high degree of knowledge and experience.
Scottish Re Limited markets its products through international brokers and its
own marketing staff.

Wealth Management

     In our Wealth Management business, we directly issue variable life
insurance and variable annuities and similar products to high net worth
individuals and families, for insurance, investment and estate planning
purposes. For us, high net worth generally means individuals and families with a
liquid net worth in excess of $10.0 million. Variable life insurance and
variable annuities have a cash value component that is placed in a separate
account and invested by us on behalf of the policyholder with a money manager.

Basis of presentation

     Accounting Principles--Our consolidated financial statements are prepared
in accordance with accounting principles generally accepted in the United States
of America ("GAAP") and all amounts are reported in thousands


                                       86
<PAGE>

                            SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

1. Organization, business and basis of presentation (continued)

of United States dollars (except per share amounts). Certain items in the prior
year financial statements have been reclassified to conform with the current
year presentation.

     Consolidation--We consolidate the results of all our subsidiaries. All
significant intercompany transactions and balances have been eliminated on
consolidation.

     Estimates, Risks and Uncertainties--The preparation of consolidated
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported on the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates. Our most significant assumptions are for assumed reinsurance
liabilities and deferred acquisition costs. We review and revise these estimates
as appropriate. Any adjustments made to these estimates are reflected in the
period the estimates are revised.

2.  Summary of significant accounting policies

     The following are our significant accounting policies:

     A. Fixed maturity investments

     Fixed maturities are classified as available for sale, and accordingly, we
carry these investments at fair values on our consolidated balance sheets. The
fair value of fixed maturities is calculated using quoted market prices provided
by independent pricing services. The cost of fixed maturities is adjusted for
prepayments and the amortization of premiums and discounts. The unrealized
appreciation (depreciation) is the difference between fair value and amortized
cost and is recorded directly to equity with no impact to net income. The change
in unrealized appreciation (depreciation) is included in accumulated other
comprehensive income (loss) in shareholders' equity after deductions for
adjustments for deferred acquisition costs. Investment transactions are recorded
on the trade date with balances pending settlement reflected in the balance
sheet as a component of other assets or other liabilities. Interest is recorded
on the accrual basis.

     Short-term investments are carried at cost, which approximates fair value.

     Realized gains (losses) on securities are determined on a specific
identification method. We track the cost of each security purchased so that we
are able to identify and record a gain or loss when it is subsequently sold. In
addition, declines in fair value that are determined to be other than temporary
are included in realized gains (losses) in the consolidated statements of
income. Realized gains and losses are stated net of associated amortization of
deferred acquisition costs.

     EITF Issue No. 99-20, "Recognition of Interest Income and Impairment on
Purchased and Retained Beneficial Interests in Securitized Financial Assets,"
("EITF 99-20") applies to all securities, purchased or retained, which represent
beneficial interests in securitized assets, unless they meet certain exception
criteria. Such securities include many collateralized mortgage, bond, debt and
loan obligations (CMO, CBO, CDO, and CLO), mortgage-backed securities and
asset-backed securities. Under EITF 99-20, a decline in fair value below the
"amortized cost" basis is considered to be an other than temporary impairment
whenever there is an adverse change in the amount or timing of cash flows to be
received, regardless of the resulting yield, unless the decrease is solely a
result of changes in market interest rates. Interest income is based on
prospective estimates of future cash flows.

     Management reviews securities with material unrealized losses and tests for
other than temporary impairments on a quarterly basis. Factors involved in the
determination of potential impairment include fair value


                                       87
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

2. Summary of significant accounting policies (continued)

as compared to cost, length of time the value has been below cost, credit
worthiness of the issuer, forecasted financial performance of the issuer,
position of the security in the issuer's capital structure, the presence and
estimated value of collateral or other credit enhancement, length of time to
maturity, interest rates and our intent and ability to hold the security until
the market value recovers.

     When a decline is considered to be "other than temporary" a realized loss
is incurred and the cost basis of the impaired asset is adjusted to its fair
value.

     B. Cash and cash equivalents

     Cash and cash equivalents include fixed deposits with an original maturity,
when purchased, of three months or less. Cash and cash equivalents are recorded
at face value, which approximates fair value.

     C. Funds withheld at interest

     Funds withheld at interest are funds held by ceding companies under
modified coinsurance and coinsurance funds withheld agreements whereby we
receive the interest income earned on the funds. The balance of funds held
represents the statutory reserves of the ceding companies. These agreements are
considered to include embedded derivatives as further discussed in Note 2Q.

     D. Revenue recognition

     (i) Reinsurance premiums from traditional life policies and annuity
policies with life contingencies are generally recognized as revenue when due
from policyholders. Traditional life policies include those contracts with fixed
and guaranteed premiums and benefits, and consist principally of whole life and
term insurance policies. Our premiums earned are recorded in accordance with
information received from our ceding companies, or are estimated where this
information is not current with the reporting period. These premium estimates
are based on historical experience as adjusted for current treaty terms and
other information. Actual results could differ from these estimates. Management
monitors actual experience, and should circumstances warrant, will revise its
estimates of premiums earned.

     Benefits and expenses are matched with such income so as to result in the
recognition of profits over the life of the contracts. This is achieved by means
of the provision for liabilities for future policy benefits and deferral and
subsequent amortization of policy acquisition costs.

     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 on annuity business does not generate premium insurance
but generates investment income over time on the assets we receive from ceding
companies.

     (ii) Fee income is recorded on an accrual basis:

     (iii) Investment income is reported on an accrual basis after deducting the
related investment manager's fees.


                                       88
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

2. Summary of significant accounting policies (continued)

     (iv) Realized capital gains and losses include gains and losses on the sale
of investments available for sale and amounts recognized for other than
temporary impairments on fixed maturities. Realized capital gains and losses are
stated net of associated amortization of deferred acquisition costs.

     E. Deferred acquisition costs

     Costs of acquiring new business, which vary with and are primarily related
to the production of new business, have been deferred to the extent that such
costs are deemed recoverable from future premiums or gross profits. Such costs
include commissions and allowances as well as certain costs of policy issuance
and underwriting. We perform periodic tests to determine that the cost of
business acquired remains recoverable, and the cumulative amortization is
re-estimated and adjusted by a cumulative charge or credit to current
operations.

     Deferred acquisition costs related to traditional life insurance contracts,
substantially all of which relate to long-duration contracts, are amortized over
the premium-paying period of the related policies in proportion to the ratio of
individual period premium revenues to total anticipated premium revenues over
the life of the policy. Such anticipated premium revenues are estimated using
the same assumptions used for computing liabilities for future policy benefits.

     Deferred acquisition costs related to interest-sensitive life and
investment-type policies are amortized over the lives of the policies, in
relation to the present value of estimated gross profits from mortality,
investment income, and expense margins.

     The development of and amortization of deferred acquisition costs for our
products requires management to make estimates and assumptions. Actual results
could differ materially from those estimates. Management monitors actual
experience, and should circumstances warrant, will revise its assumptions and
the related estimates.

     F. Present value of in-force business

     The present value of the in-force business is established upon the
acquisition of a book of business and will be amortized over the expected life
of the business as determined at acquisition. The amortization each year will be
a function of the gross profits or revenues each year in relation to the total
gross profits or revenues expected over the life of the business, discounted at
the assumed net credit rate.

     G. Goodwill

     Goodwill is established upon the acquisition of a subsidiary. Goodwill is
calculated as the difference between the price paid and the value of individual
assets and liabilities on the date of acquisition. Goodwill and intangible
assets deemed to have indefinite lives are subject to annual impairment tests.
Goodwill was tested for impairment in 2002, 2003 and 2004. There was no
impairment.

     H. Fixed assets and leasehold improvements

     Fixed assets include leasehold improvements, furniture and fittings and
computer equipment. They are recorded at cost and are depreciated over their
estimated useful lives ranging between 1 and 5 years on a straight-line basis.
Accumulated depreciation at December 31, 2004 and 2003 amounted to $8.1 million
and $5.4 million, respectively.


                                       89
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

2. Summary of significant accounting policies (continued)

     I. Reserves for future policy benefits

     The development of policy reserves for our products requires management to
make estimates and assumptions regarding mortality, lapse, expense and
investment experience. Interest rate assumptions for individual life reinsurance
reserves range from 2.5 to 7.0%. The interest assumptions for immediate and
deferred annuities range from 4.0 to 6.5%.

     These estimates are based primarily on historical experience and
information provided by ceding companies. Actual results could differ materially
from those estimates. Management monitors actual experience, and where
circumstances warrant, revises the assumptions and the related reserve
estimates.

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

     J. Interest sensitive contract liabilities

     The liabilities for interest sensitive contract liabilities equal the
accumulated account values of the policies or contracts as of the valuation date
and include funds received plus interest credited less funds withdrawn and
interest paid. Benefit liabilities for fixed annuities during the accumulation
period equal their account values; after annuitization, they equal the
discounted present value of expected future payments.

     K. Income taxes

     Income tax liability and deferred tax assets are recorded in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 109. In accordance
with this statement we record deferred income taxes that reflect the net tax
effect of the temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. A valuation allowance is applied to deferred tax assets if it is more
likely than not that all, or some portion, of the benefits related to deferred
tax assets will not be realized.

     L. Stock-based compensation

     Effective January 1, 2003, we have prospectively adopted the fair
value-based stock option expense provisions of Statement of Financial Accounting
Standards ("SFAS") No. 148. "Accounting for Stock-Based Compensation -
Transition and Disclosure, an Amendment to FASB Statement No. 123". In prior
years, we applied the intrinsic value method as detailed in Accounting
Principles Board ("APB") Opinion No. 25 and related interpretations in
accounting for stock option plans. We did not recognize compensation cost
because our options were issued with an exercise price equal to the market price
of the stock on the date of issue. Note 21 contains a summary of the pro forma
effects to reported net income and earnings per share for 2004, 2003 and 2002
had we elected to recognize compensation cost for all options based on the fair
value of the options granted at grant date as prescribed by SFAS No. 123.


                                       90
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

2. Summary of significant accounting policies (continued)

     M. Earnings per share

     In accordance with SFAS No. 128, "Earnings per Share" basic earnings per
share is calculated based on weighted average ordinary shares outstanding and
excludes any dilutive effects of options and warrants. Diluted earnings per
share assume the exercise of all dilutive stock options, warrants, convertible
debt instruments, and the HyCUs using the treasury stock method.

     N. Segregated assets

     Separate account investments are in respect of wealth management clients
and include the net asset values of the underlying funds plus separate cash and
cash equivalent balances less separate account fees payable to us. The funds in
the separate accounts are not part of our general funds and are not available to
meet our general obligations. The assets and liabilities of these transactions
move in tandem. The client bears the investment risk on the account and we
receive an asset-based fee for providing this service that is recorded as fee
income. Included in these accounts is a total return swap transaction totaling
approximately $32.0 million on behalf of a wealth management client.

     O. Segregated liabilities

     Separate account liabilities include amounts set aside to pay the deferred
variable annuities and the cash values associated with life insurance policies.
These balances consist of the initial premiums paid after consideration of the
net investment gains/losses attributable to each separate account, less fees and
withdrawals.

     These liabilities also include an amount in respect of a total return swap
transaction totaling approximately $32.0 million.

     P. Fair value of financial instruments

     The fair value of assets and liabilities included on the consolidated
balance sheets, which qualify as financial instruments under SFAS No. 107,
"Disclosure About Fair Value of Financial Instruments," approximate the carrying
amount presented in the consolidated financial statements.

     Q. Derivatives

     All derivative instruments are recognized as either assets or liabilities
in the consolidated balance sheet at fair value as required by SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). The
accounting for changes in the fair value of derivatives that have not been
designated as a hedge are included in realized gains and losses in the
consolidated statement of income. The gain or loss on derivatives designated as
a hedge of our interest expense on floating rate securities is included in
interest expense.

     Our funds withheld at interest arise on modified coinsurance and fund
withheld coinsurance transactions. Derivatives Implementation Group Issue No.
B36 "Embedded Derivatives: Bifurcation of a Debt Instrument that Incorporates
Both Interest Rate and Credit Rate Risk Exposures that are Unrelated or Only
Partially Related to the Creditworthiness of the Issuer of that Instrument"
indicates that these transactions contain embedded derivatives. The embedded
derivative feature in our funds withheld treaties is similar to a fixed-rate
total return swap on the assets held by the ceding companies. The swap consists
of two parts. The first is the market value of the underlying asset portfolio
and the second is a hypothetical loan to the ceding company. The hypothetical
loan is based on the


                                       91
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

2. Summary of significant accounting policies (continued)

expected cash flows of the underlying reinsurance liability. We have developed
models to systematically estimate the value of the total return swap. The fair
value of the embedded derivative is affected by changes in expected cash flows,
credit spreads of the assets and changes in "risk-free" interest rates. The
change in fair value is included in our calculation of estimated gross profits
and, therefore, also affects the amortization of deferred acquisition costs. In
addition to our quota share indemnity funds withheld contracts, we have entered
into various financial reinsurance treaties that, although considered funds
withheld, do not transfer significant insurance risk and are recorded on a
deposit method of accounting. As a result of the experience refund provisions of
these treaties the value of the embedded derivative is currently considered
immaterial.

     We adopted DIG B36 on October 1, 2003. The initial adoption has resulted in
a loss, after tax and after related amortization of deferred acquisition costs
of $19.5 million. This was recorded as a cumulative effect of change in
accounting principle in our consolidated statement of income for the year ended
December 31, 2003. The change in fair value of the derivative between October 1,
2003 and December 31, 2003 was a gain of $13.9 million, net of related
amortization of deferred acquisition costs. The change in fair value of the
derivative for the year ended December 31, 2004 was a gain of $4.6 million net
of related deferred acquisition costs. The fair value of the derivative of $5.2
million and $9.3 million at December 31, 2004 and 2003, respectively, is
included in other liabilities and other assets.


3.  Business acquisitions

     On December 31, 2004, we completed the acquisition of ING's individual life
reinsurance business. The acquisition was accounted for in accordance with SFAS
No. 141 "Business Combinations". We received approximately $1.9 billion in
assets from ING. This settlement is subject to certain post closing adjustments.
The balance sheet of this business at December 31, 2004 consisted of:


                                                      December 31,
                                                          2004
                                                -----------------------
                                                 (dollars in millions)

            Total investments                   $         1,494.4
            Reinsurance balances receivable                 219.6
            Amounts recoverable from
            reinsurers                                       93.5
            Other assets                                     86.0
                                                -----------------------
            Total assets                        $         1,893.5
                                                =======================
            Reserves for future policy
            benefits                            $         1,764.7
            Other liabilities                   $           128.8
                                                -----------------------
            Total liabilities                   $         1,893.5
                                                =======================


     The following pro-forma information related to our acquisition of the ING
individual life reinsurance business for the years ended December 31, 2004 and
2003 illustrates the effects of the acquisition as if it had occurred at the
beginning of the periods presented. The pro-forma information is not intended to
be indicative of the consolidated results of operations that would have been
reported if the acquisition had occurred at January 1, 2004 and 2003 nor does it
purport to be indicative of combined results of operations which may be reported
in the future.


                                       92
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

3. Business acquisitions (continued)


<TABLE>
<CAPTION>
                                                     Year Ended              Year Ended
                                                    December 31,            December 31,
                                                         2004                   2003
                                                  ---------------------  --------------------
                                                  (dollars in millions)  (dollars in millions)
<S>                                                  <C>                     <C>
           Revenue............................       $  2,115.6              $  1,547.5
           Net income.........................       $    132.0              $     73.3
           Earnings per ordinary share - Basic       $     3.08              $     1.81
           Earnings per ordinary share - Diluted     $     2.96              $     1.75
</TABLE>


     On December 22, 2003, we completed the purchase of 95% of Scottish Re Life
Corporation for $169.9 million in cash. During the year ended December 31, 2004,
we have completed the analysis of purchase accounting for this acquisition.
There was no goodwill arising on the acquisition. The present value of the
in-force of the business acquired was $56.3 million. On February 19, 2004, ERC
Life Reinsurance Corporation's name was changed to Scottish Re Life Corporation.
The balance sheet of ERC Life Reinsurance Corporation at the date of
acquisition, as finalized in 2004, was as follows:


                                                      December 22,
                                                          2003
                                                -----------------------
                                                 (dollars in millions)

          Total investments.................... $        573.5
          Reinsurance balances receivable......           51.5
          Amounts recoverable from reinsurers..          730.0
          Other assets.........................           60.6
                                                ---------------------
          Total assets......................... $      1,415.6
                                                =====================
          Reserves for future policy benefits.. $        933.1
          Interest sensitive contract
            liabilities........................          177.5
          Reinsurance balances payable.........          109.0
          Other liabilities....................           14.6
                                                ---------------------
          Total liabilities.................... $      1,234.2
                                                =====================


     The following pro forma information related to our acquisition of Scottish
Re Life Corporation for the years ended December 31, 2003 and 2002 illustrates
the effects of the acquisition as if it had occurred at the beginning of the
periods presented.


                                       93
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

3. Business acquisitions (continued)


<TABLE>
<CAPTION>
                                                           Year Ended         Year Ended
                                                         December 31,        December 31,
                                                              2003                2002
                                                       ------------------  -----------------
                                                         (dollars in          (dollars in
                                                          thousands)           thousands)
<S>                                                       <C>               <C>

                 Revenue............................      $    768.2         $   473.0
                 Net income.........................      $     67.7         $    29.1
                 Earnings per ordinary share - Basic      $     2.21         $    1.16
                 Earnings per ordinary share - Diluted    $     2.10         $    1.10
</TABLE>

     The pro-forma information is not intended to be indicative of the
consolidated results of operations that would have been reported if the
acquisition had occurred at January 1, 2003 and 2002 nor does it purport to be
indicative of combined results of operations which may be reported in the
future.

     The acquisitions described above were accounted for by the purchase method
of accounting. In accordance with SFAS141 the accompanying consolidated
statements of income do not include any revenues or expenses related to these
acquisitions prior to the closing dates.


4. Discontinued operations

     During 2003, we decided to discontinue our Wealth Management operations in
Luxembourg. We have transferred our Luxembourg Wealth Management business to
third parties, closed the office and are in the process of liquidating our
Luxembourg subsidiary. We have reported the results of the Luxembourg Wealth
Management activities as discontinued operations. During the year ended December
31, 2004 losses from these operations amounted to $0.2 million, in comparison
with $2.0 million in 2003 and $0.7 million in 2002.


                                       94
<PAGE>

                            SCOTTISH RE GROUP LIMITED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2004

5. Business Segments

     We report segments in accordance with SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". Our main lines of business
are Life Reinsurance North America, Life Reinsurance International and Other.
The segment reporting for the lines of business is as follows:


<TABLE>
<CAPTION>
                                                Year Ended December 31, 2004
                                ----------------------------------------------------------
                                 Life Reinsurance   Life Reinsurance
                                   North America      International     Other       Total
                                   -------------      -------------     -----       -----
<S>                                <C>                <C>              <C>         <C>
Premiums earned...............     $    464,719       $    122,156            -    $ 586,875
Investment income, net........          206,009             10,023        1,106      217,138
Realized gains (losses) ......          (7,974)              1,685       (2,015)     (8,304)
Change in value of embedded
derivative....................            4,561                  -            -        4,561
Fee income....................            7,867                  -        3,680       11,547
                                   -------------      -------------    ---------   ----------
    Total revenues............          675,182            133,864        2,771      811,817
                                   -------------      -------------    ---------   ----------
Claims and other policy benefits        344,319             81,646            -      425,965
Interest credited to interest
sensitive contract liabilities          106,525                  -            -      106,525
Acquisition costs and other
insurance expenses, net.......          132,174             17,272        2,113      151,559
Operating expenses............           18,408             18,798       17,452       54,658
Due diligence costs                           -                  -        4,643        4,643
Interest expense..............            4,605                  -        8,411       13,016
                                   -------------      -------------    ---------   ----------
    Total benefits and expenses         606,031            117,716       32,619      756,366
                                   -------------      -------------    ---------   ----------
Income (loss) before income
taxes and minority interest...     $     69,151       $     16,148     $(29,848)   $  55,451
                                   =============      =============    =========   ==========
</TABLE>


<TABLE>
<CAPTION>
                                                Year Ended December 31, 2003
                                ----------------------------------------------------------
                                 Life Reinsurance   Life Reinsurance
                                   North America      International     Other       Total
                                   -------------      -------------     -----       -----
<S>                                <C>                <C>              <C>       <C>
Premiums earned...............     $    230,708       $    161,268     $     -   $   391,976
Investment income, net........          135,731              7,537       4,760       148,028
Realized gains (losses) ......          (6,124)                548       1,128        (4,448)
Change in value of embedded
derivative....................           13,904                  -           -        13,904
Fee income....................            4,067                  -       3,840         7,907
                                   -------------      -------------    ---------   ----------
    Total revenues............          378,286            169,353       9,728       557,367
                                   -------------      -------------    ---------   ----------
Claims and other policy benefits        171,711            104,176           -       275,887
Interest credited to interest
sensitive contract liabilities           89,156                  -           -        89,156
Acquisition costs and other
insurance expenses, net.......           83,594             30,143       2,263       116,000
Operating expenses............            8,646             11,518      10,857        31,021
Interest expense..............            1,109                  -       6,448         7,557
                                   -------------      -------------    ---------   ----------


                                       95
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

5.   Business segments (continued)

                                                Year Ended December 31, 2003
                                ----------------------------------------------------------
                                 Life Reinsurance   Life Reinsurance
                                   North America      International      Other       Total
                                   -------------      -------------    ---------   ----------
    Total benefits and expenses         354,216            145,837        19,568     519,621
                                   -------------      -------------    ---------   ----------
Income (loss) before income
taxes and minority interest...     $     24,070       $     23,516     $  (9,840)  $  37,746
                                   =============      =============    =========   ==========
</TABLE>


<TABLE>
<CAPTION>
                                                     Year Ended December 31, 2002
                                     ----------------------------------------------------------
                                      Life Reinsurance   Life Reinsurance
                                        North America      International     Other       Total
                                        -------------      -------------     -----       -----
<S>                                   <C>                 <C>            <C>          <C>
Premiums earned ...................   $    122,794        $     79,742   $     -      $  202,536
Investment income, net ............         97,406               6,716       3,784       107,906
Realized gains (losses) ...........         (4,833)             (5,942)        (29)      (10,804)
Fee income ........................          3,148                   -       3,426         6,574
                                      -------------       -------------  ---------    ----------
    Total revenues ................        218,515              80,516       7,181       306,212
                                      -------------       -------------  ---------    ----------
Claims and other policy benefits ..         91,774              50,384           -       142,158
Interest credited to interest
sensitive contract liabilities ....         48,140                   -           -        48,140
Acquisition costs and other
insurance expenses, net ...........         48,401               8,281       3,391        60,073
Operating expenses ................          7,323               6,647       9,116        23,086
Interest expense ..................              -                   -       1,414         1,414
                                      -------------       -------------  ---------    ----------
    Total benefits and expenses ...        195,638              65,312      13,921       274,871
                                      -------------       -------------  ---------    ----------
Income (loss) before income
taxes and minority interest .......   $     22,877        $     15,204   $ (6,740)    $   31,341
                                      =============       ============   =========    ==========
</TABLE>


<TABLE>
<CAPTION>

Assets                                     December 31, 2004    December 31, 2003
                                           ------------------   -----------------
<S>                                         <C>                   <C>
Life Reinsurance:
        North America..................     $      7,629,784      $    4,882,222
        International..................              396,219             308,459
                                            ----------------      --------------
Total Life Reinsurance.................            8,026,003           5,190,681
Other..................................              995,081             862,836
                                            ----------------      --------------
Total..................................     $      9,021,084      $    6,053,517
                                            ================      ==============
</TABLE>


                                       96
<PAGE>

                            SCOTTISH RE GROUP LIMITED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2004

6. Foreign sales and operations

     Our operations include Bermuda, the Cayman Islands, Guernsey, Ireland, the
United Kingdom and the United States.

     Revenues relating to geographic areas:


<TABLE>
<CAPTION>
                                                    Year Ended      Year Ended      Year Ended
                                                   December 31,    December 31,    December 31,
                                                       2004            2003            2002
                                                   ------------    ------------    ------------
<S>                                                <C>             <C>             <C>
Revenues
U.S. business..................................    $    695,498    $    405,198    $    218,515
Non--U.S. business.............................         116,319         152,169          87,697
                                                   ------------    ------------    ------------
Total..........................................    $    811,817    $    557,367    $    306,212
                                                   ============    ============    ============
</TABLE>


                                       97
<PAGE>

                            SCOTTISH RE GROUP LIMITED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2004

7. Earnings per ordinary share

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


<TABLE>
<CAPTION>
                                           Year Ended      Year Ended       Year Ended
                                          December 31,    December 31,     December 31,
                                               2004           2003            2002
                                         -------------   --------------   --------------
<S>                                      <C>             <C>              <C>
Numerator:
Net income.........................      $      71,391   $      27,281    $      32,524
                                         ==============  ==============   ==============
Denominator:
Denominator for basic earnings per
  ordinary share
Weighted average number of
  ordinary shares..................         35,732,522      30,652,719       25,190,283
Effect of dilutive securities
  - Stock options..................            634,562         885,552          839,387
  - Warrants.......................            885,363         689,730          475,942
  - Convertible debt and HyCUs.....            255,845               -                -
Denominator  for dilutive  earnings
                                         --------------  --------------   --------------
  per ordinary share...............         37,508,292      32,228,001       26,505,612
                                         ==============  ==============   ==============
Basic earnings per share:
    Income from continuing operations..  $        2.00   $        1.59    $        1.32
    Cumulative effect of change in                               (0.64)               -
    accounting principle                             -
    Discontinued operations............          (0.01)          (0.06)           (0.03)
                                         --------------  --------------   --------------
    Net income.........................  $        1.99   $        0.89    $        1.29
                                         ==============  ==============   ==============
Diluted earnings per share:
    Income from continuing operations..  $        1.91   $        1.51    $        1.25
    Cumulative effect of change in                               (0.60)                -
    accounting principle...............              -
    Discontinued operations............          (0.01)          (0.06)           (0.02)
                                         --------------  --------------   --------------
    Net income.........................  $        1.90   $        0.85    $        1.23
                                         ==============  ==============   ==============
</TABLE>


8.  Derivatives

     During 2004, we entered into an interest rate swap contract in the amount
of $100.0 million in relation to certain of our investment assets not supporting
reinsurance liabilities. This contract is accounted for in accordance with SFAS
133, which requires that all derivatives be recognized as either assets or
liabilities on the balance sheet and be measured at fair value. This derivative
has not been designated as a hedge. The fair value of the swap at December 31,
2004 was a negative $2.2 million. This loss of $2.2 million has been included in
realized gains (losses) in the consolidated statement of income.


                                       98
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004


     During 2004, we entered into interest rate swaps with varying notional
amounts and maturities, which have been designated as hedges of the variable
interest cash flows of four of the trust preferred debt issuances described in
Note 18. These interest rate swaps require us to pay fixed rate interest in
exchange for variable rate interest, based on a fixed notional, until the
maturity of the contract, and have been used to eliminate interest rate risk
from the hedged portions of our long term debt. The notional amounts, reset
periods, variable interest rates and maturities of the interest rate swaps match
the terms of the cash flows of the debt they have been designated to hedge and
therefore the interest rate swaps are considered to be fully effective as
required by SFAS 133. The loss on the interest rate swaps for the year of $0.2
million has been included in interest expense for 2004.

9. Investments

     The amortized cost, gross unrealized appreciation and depreciation and
estimated fair values of our fixed maturity investments and preferred stock at
December 31, 2004 and 2003 are as follows:


<TABLE>
<CAPTION>
                                                                   December 31, 2004
                                                -------------------------------------------------------
                                                                  Gross           Gross
                                                Amortized      Unrealized     Unrealized      Estimated
                                                Cost/Costs    Appreciation    Depreciation   Fair Value
                                               ------------  --------------  -------------  ------------
<S>                                              <C>           <C>            <C>            <C>
U.S. Treasury securities and U.S. government     $   89,418    $     200      $    (139)     $   89,479
    agency obligations......................
Corporate securities........................      1,719,502       27,542         (3,474)      1,743,570
Municipal bonds.............................         20,712          261           (158)         20,815
Mortgage and asset backed securities........      1,657,926       14,154         (8,277)      1,663,803
                                               ------------  --------------  -------------  ------------
Total.......................................     $3,487,558    $  42,157      $ (12,048)     $3,517,667
                                               ============= ==============  =============  ============
</TABLE>

<TABLE>
<CAPTION>
                                                                   December 31, 2003
                                                --------------------------------------------------------
                                                                  Gross           Gross
                                                Amortized      Unrealized      Unrealized     Estimated
                                                Cost/Costs    Appreciation    Depreciation   Fair Value
                                               ------------  --------------  -------------  ------------
<S>                                             <C>           <C>             <C>            <C>
U.S. Treasury securities and U.S. government
    agency obligations......................    $    74,548   $       408     $      (400)   $     74,556
Corporate securities........................      1,223,871        26,339          (4,122)      1,246,088
Municipal bonds.............................          1,800             5              --           1,805
Mortgage and asset backed securities........        818,488        10,292         (10,061)        818,719
                                                ------------  --------------  -------------  -------------
Total.......................................    $ 2,118,707   $    37,044     $   (14,583)   $  2,141,168
                                                ============  ==============  =============  =============
</TABLE>


                                       99
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

9. Investments (continued)

     The contractual maturities of the fixed maturities and preferred stock are
as follows (actual maturities may differ as a result of calls and prepayments):


<TABLE>
<CAPTION>
                                                                           December 31, 2004
                                                                    ------------------------------
                                                                      Amortized      Estimated Fair
                                                                        Cost             Value
                                                                    --------------   --------------
<S>                                                                <C>              <C>
Due in one year or less.....................................       $     101,111    $     101,335
Due in one year through five years..........................             414,156          419,921
Due in five years through ten years.........................             649,402          662,971
Due after ten years.........................................             664,963          669,637
                                                                   -------------    -------------
                                                                       1,829,632        1,853,864
Mortgage and asset backed securities........................           1,657,926        1,663,803
                                                                   -------------    -------------
Total.......................................................       $   3,487,558    $   3,517,667
                                                                   =============    =============
</TABLE>

     Gross realized gains and losses are as follows:


<TABLE>
<CAPTION>
                                                     Year Ended      Year Ended     Year Ended
                                                    December 31,    December 31,   December 31,
                                                        2004            2003           2002
                                                    ------------    ------------   ------------
<S>                                                 <C>             <C>            <C>
Proceeds from sale of investments..............     $   665,012     $   307,141    $   183,588
                                                    ============    ===========    ============
Gross realized gains on sale of investments....     $    10,251     $     7,796    $     7,968
Gross realized losses on sale of investments...         (16,161)        (13,506)       (18,595)
                                                    ------------    -----------    ------------
Net realized losses on sale of investments.....          (5,910)         (5,710)       (10,627)
Other gains and losses.........................          (2,394)          1,262           (177)
                                                    ------------    -----------    ------------
Realized losses................................     $    (8,304)    $   (4,448)    $   (10,804)
                                                    ============    ===========    ============
</TABLE>
______________________

(1) Includes $9.9 million, $6.3 million and $10.0 million in 2004, 2003 and
    2002, respectively in respect of fixed maturity investments written down to
    market values and $0.3 million, $2.9 million and $2.5 million in 2004, 2003
    and 2002 respectively in respect of modified coinsurance receivables written
    down to market values.

     At December 31, 2004 and 2003, we did not have a material concentration of
investments in fixed income securities in a single issuer, industry or
geographic location.


                                      100
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

9. Investments (continued)

     The following tables provide information on the length of time securities
have been continuously in an unrealized loss position:


<TABLE>
<CAPTION>
                                                    December 31, 2003
                        ---------------------------------------------------------------------
                                                  Estimated               Unrealized
Days                     Book Value      %       Fair Value       %          Loss         %
----                     ----------     ---      ----------      ---      -----------    ---
                                                  Dollars in thousands
<S>                      <C>           <C>       <C>             <C>         <C>        <C>
0-90.................    $  471,909     45.8%    $  468,923       46.0%       (2,986)    24.8%
91-180...............       154,062      14.9       153,237       15.0          (825)     6.9
181-270..............       231,798      22.5       229,026       22.5        (2,772)    23.0
271-360..............        86,468       8.4        84,142        8.3        (2,326)    19.3
Greater than 360 ....        86,246       8.4        83,107        8.2        (3,139)    26.0
                         ----------    ------    ----------      ------   -----------   ------
Total................    $1,030,483    100.0%    $1,018,435      100.0%      (12,048)   100.0%
                         ==========    ======    ==========      ======   ===========   ======
</TABLE>



<TABLE>
<CAPTION>
                                                    December 31, 2003
                        ---------------------------------------------------------------------
                                                  Estimated               Unrealized
Days                     Book Value      %       Fair Value       %          Loss         %
----                     ----------     ---      ----------      ---      -----------    ---
                                                  Dollars in thousands
<S>                      <C>           <C>       <C>             <C>      <C>           <C>
0-90.................    $  308,267     55.6%    $ 304,511        56.4%   $   (3,756)    25.8%
91-180...............       115,702     20.9       113,405        21.0        (2,297)    15.8
181-270..............        56,362     10.1        55,243        10.2        (1,119)     7.7
271-360..............        13,486      2.4        13,064         2.4          (422)     2.9
Greater than 360.....        60,882     11.0        53,893        10.0        (6,989)    47.8
                         ----------    ------    ----------      ------   -----------   ------
Total................    $  554,699    100.0%    $ 540,116       100.0%   $  (14,583)   100.0%
                         ==========    ======    ==========      ======   ===========   ======
</TABLE>

10. Funds withheld at interest

     At December 31, 2004, funds withheld at interest were in respect of seven
contracts with four ceding companies. At December 31, 2003, funds withheld at
interest were in respect of six contracts with three ceding companies. At both
December 31, 2004, we had three contracts with Lincoln National Insurance
Company that accounted for $1.3 billion or 63% of the funds withheld balances.
Additionally, we had two contracts with Security Life of Denver International
that accounted for $0.5 billion or 27% of the funds withheld balances. The
remaining contracts were with Illinois Mutual Insurance Company and American
Founders Life Insurance Company. Lincoln National Insurance Company, the largest
exposure, has financial strength ratings of "A+" from A.M. Best, "AA-" from
Standard & Poor's, "Aa3" from Moody's and "AA" from Fitch. In the event of
insolvency of the ceding companies on these arrangements we would need to exert
a claim on the assets supporting the contract liabilities. However, the risk of
loss is mitigated by our ability to offset amounts owed to the ceding company
with the amounts owed to us by the ceding company. Reserves for future policy
benefits and interest sensitive contract liabilities relating to these contracts
amounted to $2.0 billion and $1.7 billion at December 31, 2004 and December 31,
2003, respectively.


                                      101
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

10. Funds withheld at interest (continued)

     According to data provided by our ceding companies, the amortized cost,
gross unrealized appreciation and depreciation and estimated fair values of
invested assets, excluding cash of $472.4 million, backing our funds withheld at
interest at December 31, 2004 and 2003 are as follows:


<TABLE>
<CAPTION>
                                                    December 31, 2004
                                                    -----------------
                                                    Gross         Gross
                                      Amortized  Unrealized    Unrealized     Estimated
                                        Cost     Appreciation  Depreciation  Fair Value
                                        ----     ------------  ------------  ----------
<S>                                   <C>           <C>        <C>            <C>
U.S. Treasury securities and U.S.
  government agency obligations....   $   39,423    $   458     $   (143)     $   39,738
Corporate securities...............    1,027,809     70,336       (1,896)      1,096,249
Municipal bonds....................       24,728        738         (228)         25,238
Mortgage and asset backed
  securities.......................      303,833     11,969       (1,088)        314,714
                                      ----------    --------   ----------     ----------
                                       1,395,793      83,501      (3,355)      1,475,939
Commercial mortgage loans..........      121,468       9,212        (832)        129,848
                                      ----------    --------   ----------     ----------
Total..............................   $1,517,261    $ 92,713   $  (4,187)     $1,605,787
                                      ==========    ========   ==========     ==========


                                                    December 31, 2003
                                                    -----------------
                                                    Gross         Gross
                                      Amortized  Unrealized    Unrealized     Estimated
                                        Cost     Appreciation  Depreciation  Fair Value
                                        ----     ------------  ------------  ----------
U.S. Treasury securities and U.S.
  government agency obligations.....     $31,577    $    526   $    (144)     $   31,959
Corporate securities................     970,157      77,966      (2,074)      1,046,049
Municipal bonds.....................      22,481         835        (248)         23,068
Mortgage and asset backed
  securities........................     318,151      12,254      (1,482)        328,923
                                      ----------    --------   ----------     ----------
                                       1,342,366      91,581      (3,948)      1,429,999
Commercial mortgage loans...........     120,178       9,694        (496)        129,376
                                      ----------    --------   ----------     ----------
Total                                 $1,462,544   $ 101,275   $  (4,444)     $1,559,375
                                      ==========    ========   ==========     ==========
</TABLE>


                                      102
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

10. Funds withheld at interest (continued)

     According to data provided by our ceding companies, the contractual
maturities (excluding cash) of the assets backing our funds withheld fixed
maturities are as follows (actual maturities may differ as a result of calls and
prepayments):

<TABLE>
<CAPTION>
                                                       December 31, 2004
                                                       -----------------
                                                Amortized Cost   Estimated Fair Value
                                                --------------   --------------------
<S>                                             <C>               <C>
Due in one year or less.....................    $     47,483      $     48,341
Due in one year through five years..........         301,394           317,380
Due in five years through ten years.........         617,727           665,272
Due after ten years.........................         125,356           130,231
                                                ------------      ------------
                                                   1,091,960         1,161,224
Mortgage and asset backed securities........         303,833           314,715
Commercial mortgage loans                            121,468           129,848
                                                ------------      ------------
Total .....................................     $  1,517,261      $  1,605,787
                                                ============      ============
</TABLE>


11. Reinsurance ceded

     Premiums earned are analyzed as follows:


<TABLE>
<CAPTION>
                               Year ended          Year ended           Year ended
                           December 31, 2004    December 31, 2003    December 31, 2002
                           -----------------    -----------------    -----------------
<S>                           <C>                  <C>                  <C>
Premiums assumed .........    $ 804,420            $ 415,653            $ 210,166
Premiums ceded ...........     (217,545)             (23,677)              (7,630)
                              ----------           ----------           ----------
Premiums earned ..........    $ 586,875            $ 391,976            $ 202,536
                              ==========           ==========           ==========
</TABLE>

     Reinsurance contracts do not relieve us from our obligations to our
cedents. Failure of reinsurers to honor their obligations could result in losses
to us. We evaluate the financial condition of our reinsurers to minimize our
exposure to losses from reinsurer insolvencies. Claims and other policy benefits
are net of reinsurance recoveries of $144.5 million, $21.4 million and $8.5
million during the years ended December 31, 2004, 2003 and 2002.

     12. Goodwill

     During 2004, we received a payment of $1.7 million in respect of a
settlement of the purchase price of Scottish Re Holdings Limited (formerly
World-Wide Holdings Limited). This settlement arose on the finalization of
income taxes due for periods prior to the acquisition and has resulted in a
decrease in the goodwill arising on the acquisition.


                                      103
<PAGE>

                            SCOTTISH RE GROUP LIMITED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2004

13. Present value of in-force business

     A reconciliation of the present value of in-force business is as follows:


                                                December   December   December
                                                31, 2004   31, 2003   31, 2002
                                                --------   --------   --------
Balance at beginning of year................   $ 44,985   $ 18,181   $ 20,383
Acquisition of Scottish Re Life Corporation.     24,766     31,506         --
Amortization................................     (7,689)    (4,926)    (2,777)
Other.......................................        102        224        575
                                               ---------  ---------  ---------
Balance at end of year......................   $ 62,164   $ 44,985   $ 18,181
                                               =========  =========  =========


     Future estimated amortization of the present value of in-force business is
as follows:

                 Year ending December 31
                 -----------------------
                 2005 ................................   $ 6,284
                 2006 ................................     6,277
                 2007 ................................     5,617
                 2008 ................................     5,707
                 2009 ................................     5,916
                 Thereafter ..........................   $32,363

14. Reinsurance transactions

     The following table summarizes the acquisitions of in-force reinsurance
transactions completed by us during 2002. These transactions are accounted for
as purchases. Our results of operations include the effects of these purchases
only from the respective acquisition date.

                                                        December 31,
                                                            2002
                                                        ------------
  Fair value of assets acquired .......................   $26,032
                                                          -------
  Deferred acquisition costs ..........................     6,571
                                                          -------
  Total assets acquired ...............................   $32,603
                                                          =======
 Fair value of liabilities assumed ...................    $32,603
                                                          =======


                                      104
<PAGE>

                            SCOTTISH RE GROUP LIMITED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2004

15.     Deferred acquisition costs

        The change in deferred acquisition costs is as follows:

<TABLE>
<CAPTION>
                                                    December 31,   December 31,   December 31,
                                                        2004           2003           2002
                                                    ------------   ------------   ------------
<S>                                                 <C>            <C>            <C>
Balance beginning of period.......................  $   308,591    $   213,516    $   113,898

Expenses deferred.................................      199,768        167,185        129,306
Amortization expense..............................      (80,235)       (74,239)       (28,178)
Deferred   acquisition   costs   on   in-force
  reinsurance transactions purchased..............            -              -          6,571
Deferred   acquisition   costs  on  unrealized          (10,166)             -              -
  gains and losses................................
Deferred acquisition costs on realized losses.....         (652)         2,129         (8,081)
                                                    ------------   ------------   ------------
Balance at end of year............................  $   417,306    $   308,591    $   213,516
                                                    ============   ============   ============
</TABLE>

16. Collateral finance facility liability

     On June 25, 2004, we closed a structured finance facility with HSBC Bank
USA, N.A. This facility provides $200.0 million that can be used to
collateralize reinsurance obligations under intercompany reinsurance agreements.
Simultaneously we entered into a total return swap with HSBC Bank USA, N.A.
under which we are entitled to the total return of the investment portfolio of
the trust established for this facility. In accordance with FIN 46 we are
considered to hold a beneficial interest in the trust, which is in turn
considered to be a variable interest entity. As a result, the trust has been
consolidated in these financial statements.

     The assets of the variable interest entity have been recorded as fixed
maturity investments. Our consolidated income statements show the investment
return of the variable interest entity as investment income and the cost of the
facility in acquisition costs and other insurance expenses.

     The creditors of the variable interest entity have no recourse against our
general assets.

17. 7.00% Convertible Junior Subordinated Notes

     In order to provide additional capital to support the individual in-force
life reinsurance business acquired from ING we signed a Securities Purchase
Agreement on October 17, 2004 with the Cypress Entities. Pursuant to the
Securities Purchase Agreement, we issued to the Cypress Entities on December 31,
2004, $41,282,479 aggregate principal amount of 7.00% Convertible Junior
Subordinated Notes with a maturity date 30 years from issuance (the "7.00%
Convertible Junior Subordinated Notes").

     Holders of the 7.00% Convertible Junior Subordinated Notes do not have
voting rights. The 7.00% Convertible Junior Subordinated Notes are unsecured
obligations, subordinated to all indebtedness that does not by its terms rank
pari passu or junior to the 7.00% Convertible Junior Subordinated Notes,
including any guarantees issued by us in respect of senior or senior
subordinated indebtedness. The accrued but unpaid interest on the 7.00%
Convertible Junior Subordinated Notes is payable in kind on December 1 and June
1 of each year, beginning June 1, 2005, by the issuance of additional 7.00%
Convertible Junior Subordinated Notes of the same series, having the same terms
and conditions as the 7.00% Convertible Junior Subordinated Notes and having a
principal amount equal to the amount of such accrued and unpaid interest.
However, (i) during the period from December 31, 2007 to December 31, 2014, we
may at our option pay any of such accrued but unpaid interest in cash in lieu of
in kind, and


                                      105
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

17. 7.00% Convertible Junior Subordinated Notes (continued)

(ii) after December 31, 2014, the Cypress Entities may at their option receive
any of such accrued but unpaid interest in cash in lieu of in kind.

     Upon the approval of our shareholders and the receipt of all requisite
regulatory approvals, the 7.00% Convertible Junior Subordinated Notes will
automatically be converted into our ordinary shares at an initial conversion
price of $19.375 per ordinary share, subject to customary anti-dilution
adjustments. If upon approval, the requisite regulatory approvals have not been
obtained, the 7.00% Convertible Junior Subordinated Notes will automatically be
exchanged for additional Class C Warrants to purchase the number of ordinary
shares into which the 7.00% Convertible Junior Subordinated Notes (including any
accrued and unpaid interest through the date of conversion) were convertible. If
we have sought shareholder approval unsuccessfully at least twice, after
December 31, 2005, we may redeem all (but not less than all) of the
then-outstanding 7.00% Convertible Junior Subordinated Notes for cash at a
redemption price per share equal to the greater of (i) an amount equal to, (A)
if prior to December 31, 2007, the initial Purchase Price paid by the Cypress
Entities for the 7.00% Convertible Junior Subordinated Notes, plus an amount
calculated based on an annual, compounded internal rate of return equal to the
Penalty Rate (described below) on such investment for the period from December
31, 2004 through December 31, 2007 (applying the 19% Penalty Rate to such
period), or (B) if after December 31, 2007, the principal amount thereof plus
accrued and unpaid interest thereon through the date of repurchase, and (ii) the
market value at the time of such redemption of the number of ordinary shares
into which the 7.00% Convertible Junior Subordinated Notes are then convertible.
In the event of a change of control of Scottish Re, we will be required to
repurchase the 7.00% Convertible Junior Subordinated Notes pursuant to the terms
specified in the 7.00% Convertible Junior Subordinated Notes.

     In the event of a Failed Condition (as defined in Note 20), the 7.00%
Convertible Junior Subordinated Notes will bear interest at the Penalty Rate
applied retroactively from the Closing Date until the earliest to occur of a
cure of such condition, early redemption of the 7.00% Convertible Junior
Subordinated Notes or the maturity thereof. The "Penalty Rate" means a rate per
annum equal to, (i) if a Failed Condition occurs in 2005, 15% applicable through
December 31, 2005, (ii) if a Failed Condition occurs or continues in 2006, 17%
through December 31, 2006 and (iii) 19% thereafter.

18. Long-term debt

     Long-term debt consists of :

                                                   December 31,   December 31,
                                                      2004           2003
                                                   ------------   ------------
4.5% senior convertible notes due 2022..........   $  115,000       $ 115,000
Capital securities due 2032.....................       17,500          17,500
Preferred trust securities due 2033.............       20,000          20,000
Trust preferred securities due 2033.............       10,000          10,000
Trust preferred securities due 2034.............       32,000               -
Trust preferred securities due 2034.............       50,000               -
                                                   ----------       ---------
                                                   $  244,500       $ 162,500
                                                   ==========       =========


                                      106
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

18. Long-term debt (continued)

4.5% Senior convertible notes

     On November 22, 2002 and November 27, 2002 we issued $115.0 million (which
includes an over allotment option of $15.0 million) of 4.5% senior convertible
notes, which are due December 1, 2022, to qualified institutional buyers. The
notes are general unsecured obligations, ranking on parity in right of payment
with all our existing and future unsecured senior indebtedness, and senior in
right of payment with all our future subordinated indebtedness. Interest on the
notes is payable on June 1 and December 1 of each year. The notes are rated Baa2
by Moody's and BBB- by Standard & Poor's.

     The notes are convertible into our ordinary shares initially at a
conversion rate of 46.0617 ordinary shares per $1,000 principal amount of notes
(equivalent to an initial conversion price of $21.71 per ordinary share). On
conversion, we shall settle the principal amount of $115.0 million in cash. The
notes are redeemable at our option in whole or in part beginning on December 6,
2006, at a redemption price equal to 100% of the principal amount of the notes
plus accrued and unpaid interest. The notes are subject to repurchase by us upon
a change of control of Scottish Re or at a holder's option on December 6, 2006,
December 1, 2010, December 1, 2012 and December 1, 2017, at a repurchase price
equal to 100% of the principal amount of the notes plus accrued and unpaid
interest. The notes are due on December 1, 2022 unless earlier converted,
redeemed by us at our option or repurchased by us at a holder's option.

     A holder may surrender notes for conversion prior to the stated maturity
only under the following circumstances:

     o    during any conversion period if the sale price of our ordinary shares
          for at least 20 trading days in the period of 30 consecutive trading
          days ending on the first day of the conversion period exceeds 120% of
          the conversion price in effect on that 30th trading day;

     o    during any period in which the notes are rated by either Moody's
          Investors Service, Inc. or Standard & Poor's Rating Group and the
          credit rating assigned to the notes by either rating agency is
          downgraded by two levels or more, suspended or withdrawn;

     o    if we have called those notes for redemption; or

     o    upon the occurrence of the certain specified corporate transactions.

     Under a registration rights agreement, we filed with the Securities and
Exchange Commission, a shelf registration statement, for resale of the notes and
our ordinary shares issuable upon conversion of the notes.

Capital securities due 2032

     On December 4, 2002, Scottish Holdings Statutory Trust I, a Connecticut
statutory business trust ("Capital Trust") issued and sold in a private offering
an aggregate of $17.5 million Floating Rate Capital Securities (the "Capital
Securities"). All of the common shares of the Capital Trust are owned by
Scottish Holdings, Inc., our wholly owned subsidiary.

     The Capital Securities mature on December 4, 2032. They are redeemable in
whole or in part at any time after December 4, 2007. Interest is payable
quarterly at a rate equivalent to 3 month LIBOR plus 4%. At December 31, 2004
and December 31, 2003, the interest rates were 6.44% and 5.15%, respectively.
Prior to December 4,


                                      107
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

18. Long-term debt (continued)

2007, interest cannot exceed 12.5%. The Capital Trust may defer payment of the
interest for up to 20 consecutive quarterly periods, but no later than December
4, 2032. Any deferred payments would accrue interest quarterly on a compounded
basis if Scottish Holdings, Inc. defers interest on the Debentures due December
4, 2032 (as defined below).

     The sole assets of the Capital Trust consist of $18.0 million principal
amount of Floating Rate Debentures (the "Debentures") issued by Scottish
Holdings, Inc. The Debentures mature on December 4, 2032 and interest is payable
quarterly at a rate equivalent to 3 month LIBOR plus 4%. At December 31, 2004
and December 31, 2003, the interest rates were 6.44% and 5.15%, respectively.
Prior to December 4, 2007, interest cannot exceed 12.5%. Scottish Holdings, Inc.
may defer payment of the interest for up to 20 consecutive quarterly periods,
but no later than December 4, 2032. Any deferred payments would accrue interest
quarterly on a compounded basis. Scottish Holdings, Inc. may redeem the
Debentures at any time after December 4, 2007 in the event of certain changes in
tax or investment company law.

     Scottish Annuity & Life Insurance Company (Cayman) Ltd. has guaranteed
Scottish Holdings, Inc.'s obligations under the Debentures and distributions and
other payments due on the Capital Securities.

Trust preferred securities due 2033

     On October 29, 2003, Scottish Holdings, Inc. Statutory Trust II, a
Connecticut statutory business trust ("Capital Trust II") issued and sold in a
private offering an aggregate of $20.0 million Preferred Trust Securities (the
"Trust Preferred Securities"). All of the common shares of Capital Trust II are
owned by Scottish Holdings, Inc.

     The Trust Preferred Securities mature on October 29, 2033. They are
redeemable in whole or in part at any time after October 29, 2008. Interest is
payable quarterly at a rate equivalent to 3 month LIBOR plus 3.95%. At December
31, 2004 and December 31, 2003, the interest rates were 6.08% and 5.10%,
respectively. Prior to October 29, 2008, interest cannot exceed 12.45%. Capital
Trust II may defer payment of the interest for up to 20 consecutive quarterly
periods, but no later than October 29, 2033. Any deferred payments would accrue
interest quarterly on a compounded basis if Scottish Holdings, Inc. defers
interest on the Floating Rate Debentures due October 29, 2033 (as described
below).

     The sole assets of Capital Trust II consist of $20.6 million principal
amount of Floating Rate Debentures (the "2033 Floating Rate Debentures") issued
by Scottish Holdings, Inc. The 2033 Floating Rate Debentures mature on October
29, 2033 and interest is payable quarterly at 3 month LIBOR plus 3.95%. At
December 31, 2004 and December 31, 2003, the interest rates were 6.08% and
5.10%, respectively. Prior to October 29, 2008, interest cannot exceed 12.45%.
Scottish Holdings, Inc. may defer payment of the interest for up to 20
consecutive quarterly periods, but no later than October 29, 2033. Any deferred
payments would accrue interest quarterly on a compounded basis. Scottish
Holdings, Inc. may redeem the 2033 Floating Rate Debentures at any time after
October 29, 2008 and in the event of certain changes in tax or investment
company law.

     Scottish Annuity & Life Insurance Company (Cayman) Ltd. has guaranteed
Scottish Holdings, Inc.'s obligations under the 2033 Floating Rate Debentures
and distributions and other payments due on the Trust Preferred Securities.


                                      108
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

18. Long-term debt (continued)

Trust preferred securities due 2033

     On November 14, 2003, GPIC Holdings Inc. Statutory Trust, a Delaware
statutory business trust ("GPIC Trust") issued and sold in a private offering an
aggregate of $10.0 million Trust Preferred Securities (the "2033 Trust Preferred
Securities"). All of the common shares of GPIC Trust are owned by Scottish
Holdings, Inc.

     The 2033 Trust Preferred Securities mature on September 30, 2033. They are
redeemable in whole or in part at any time after September 30, 2008. Interest is
payable quarterly at a rate equivalent to 3 month LIBOR plus 3.90%. At December
31, 2004 and December 31, 2003, the interest rates were 6.46% and 5.05%,
respectively. GPIC Trust may defer payment of the interest for up to 20
consecutive quarterly periods, but no later than September 30, 2033. Any
deferred payments would accrue interest quarterly on a compounded basis if
Scottish Holdings, Inc. defers interest on the Junior Subordinated Notes due
September 30, 2033 (as described below).

     The sole assets of GPIC Trust consist of $10.3 million principal amount of
Junior Subordinated Notes (the "Junior Subordinated Notes") issued by Scottish
Holdings, Inc. The Junior Subordinated Notes mature on September 30, 2033 and
interest is payable quarterly at 3 month LIBOR plus 3.90%. At December 31, 2004
and December 31, 2003, the interest rates were 6.46% and 5.05%, respectively.
Scottish Holdings, Inc. may defer payment of the interest for up to 20
consecutive quarterly periods, but no later than September 30, 2033. Any
deferred payments would accrue interest quarterly on a compounded basis.
Scottish Holdings, Inc. may redeem the Junior Subordinated Notes at any time
after September 30, 2008 and in the event of certain changes in tax or
investment company law.

     Scottish Annuity & Life Insurance Company (Cayman) Ltd. has guaranteed
Scottish Holdings, Inc.'s obligations under the Junior Subordinated Notes and
distributions and other payments due on the trust preferred securities.

Trust preferred securities due 2034

     On May 12, 2004, Scottish Holdings, Inc. Statutory Trust III, a Connecticut
statutory business trust ("Capital Trust III") issued and sold in a private
offering an aggregate of $32.0 million Trust Preferred Securities (the "2034
Trust Preferred Securities"). All of the common shares of Capital Trust III are
owned by Scottish Holdings, Inc.

     The 2034 Trust Preferred Securities mature on June 17, 2034. They are
redeemable in whole or in part at any time after June 17, 2009. Interest is
payable quarterly at a rate equivalent to 3 month LIBOR plus 3.80%. At December
31, 2004, the interest rate was 6.30125%. Prior to June 17, 2009, interest
cannot exceed 12.50%. Capital Trust III may defer payment of the interest for up
to 20 consecutive quarterly periods, but no later than June 17, 2034. Any
deferred payments would accrue interest quarterly on a compounded basis if
Scottish Holdings, Inc. defers interest on the 2034 Floating Rate Debentures due
June 17, 2034 (as described below).

     The sole assets of Capital Trust III consist of $33.0 million principal
amount of Floating Rate Debentures (the "2034 Floating Rate Debentures") issued
by Scottish Holdings, Inc. The 2034 Floating Rate Debentures mature on June 17,
2034 and interest is payable quarterly at 3 month LIBOR plus 3.80%. At December
31, 2004 the interest rate was 6.30125%. Prior to June 17, 2009, interest cannot
exceed 12.50%. Scottish Holdings, Inc. may defer payment of the interest for up
to 20 consecutive quarterly periods, but no later than June 17, 2034. Any
deferred payments would accrue interest quarterly on a compounded basis.
Scottish Holdings, Inc. may redeem the


                                      109
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

18. Long-term debt (continued)

2034 Floating Rate Debentures at any time after June 17, 2009 and in the event
of certain changes in tax or investment company law.

     Scottish Annuity & Life Insurance Company (Cayman) Ltd. has guaranteed
Scottish Holdings, Inc.'s obligations under the 2034 Floating Rate Debentures
and distributions and other payments due on the 2034 Trust Preferred Securities.

Trust preferred securities due 2034

     On December 18, 2004, SFL Statutory Trust I, a Delaware statutory business
trust ("SFL Trust I") issued and sold in a private offering an aggregate of
$50.0 million Trust Preferred Securities (the "December 2034 Trust Preferred
Securities"). All of the common shares of SFL Trust I are owned by Scottish
Financial (Luxembourg) S.a.r.l.

     The December 2034 Trust Preferred Securities mature on December 15, 2034.
They are redeemable in whole or in part at any time after December 15, 2009.
Interest is payable quarterly at a rate equivalent to 3 month LIBOR plus 3.50%.
At December 31, 2004, the interest rate was 5.95%. Prior to December 15, 2009,
interest cannot exceed 12.50%. SFL Trust I may defer payment of the interest for
up to 20 consecutive quarterly periods, but no later than December 15, 2034. Any
deferred payments would accrue interest quarterly on a compounded basis.

     The sole assets of SFL Trust I consist of $51.5 million principal amount of
Floating Rate Debentures (the "December 2034 Floating Rate Debentures") issued
by Scottish Financial (Luxembourg) S.a.r.l. The December 2034 Floating Rate
Debentures mature on December 15, 2034 and interest is payable quarterly at 3
month LIBOR plus 3.50%. At December 31, 2004 the interest rate was 5.95%. Prior
to December 15, 2009, interest cannot exceed 12.50%. Scottish Financial
(Luxembourg) S.a.r.l. may defer payment of the interest for up to 20 consecutive
quarterly periods, but no later than December 15, 2034. Any deferred payments
would accrue interest quarterly on a compounded basis. Scottish Financial
(Luxemburg) S.a.r.l. may redeem the December 2034 Floating Rate Debentures at
any time after December 15, 2009 and in the event of certain changes in tax or
investment company law.

     Scottish Annuity & Life Insurance Company (Cayman) Ltd. has guaranteed
Scottish Financial (Luxembourg) S.a.r.l.'s obligations under the December 2034
Floating Rate Debentures and distributions and other payments due on the
December 2034 Trust Preferred Securities.

19. Mezzanine equity

     On December 17, and December 22, 2003, we issued in a public offering
5,750,000 HyCUs. The aggregate net proceeds were $141.9 million. Each HyCU
consists of:

     o    A purchase contract under which the holder agrees to purchase an
          agreed upon number of ordinary shares on February 15, 2007 at a
          purchase price of $25.00; and

     o    A convertible preferred share with a liquidation preference of $25.00,
          convertible into ordinary shares, which we will settle in cash and
          ordinary shares on May 21, 2007.


                                      110
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

19.   Mezzanine equity (continued)

The agreed upon number of shares that a purchase contract will be settled for is
called the "settlement rate". The settlement rate on each purchase contract is
as follows:

     o    If the average closing price per ordinary share on each of the 20
          consecutive trading days ending on the fourth trading day preceding
          February 15, 2007 (the "Applicable Market Value"), is less than or
          equal to $19.32, then each purchase contract will be settled for 1.294
          ordinary shares.

     o    If the Applicable Market Value is greater than $19.32, then each
          purchase contract will be settled for a number of ordinary shares by
          dividing $25.00 by the Applicable Market Value.

     The convertible shares will be initially convertible into 1.0607 ordinary
shares per $25.00 liquidation preference (referred to as the "conversion rate"),
subject to anti-dilution adjustments. This reflects an initial conversion price
of $23.57. Upon conversion we will deliver cash equal to the $25.00 liquidation
preference and ordinary shares for the value of the excess, if any, of the
conversion obligation minus the liquidation preference. The conversion
obligation is the conversion rate at the time of conversion multiplied by the
average trading price of our ordinary shares for a specified period following
the redemption date.

     Amounts will accumulate under the HyCUs at a rate of 5.875% per year,
payable quarterly beginning February 14, 2004. These amounts will consist of:

     o    Quarterly contract adjustment payments at a rate of 4.875% per year;
          and

     o    Dividends at a rate of 1.00% per year on the convertible preferred
          shares, payable quarterly when declared by our board of directors.

     We may defer contract adjustment payments until no later than the purchase
contract settlement date.

     Each convertible preferred share is pledged to us to secure the holder's
obligation under the purchase contract. A holder of the HyCU can obtain the
release of the pledged convertible share by substituting zero-coupon treasury
securities as security for the obligation under the purchase contract. The
resulting unit is then known as a Treasury Unit. Holders of Treasury Units can
recreate HyCUs by re-substituting the convertible preferred shares and
withdrawing the treasury securities.

     The convertible preferred shares will be mandatorily redeemed on May 21,
2007.

     We have accounted for the HyCUs in accordance with SFAS No. 150 "
Accounting for Certain Instruments with Characteristics of Debt and Equity".
Accordingly, the HyCUs have been recorded as mezzanine equity of $142.4 million,
which is net of issuance costs related to the convertible preferred shares. The
present value of the contract adjustment payments (discounted at a rate of
4.75%) is included in other liabilities and resulted in a decrease in additional
paid-in capital at the date of issuance. Issue costs on the forward contract
have also been included in additional paid-in capital. The dividends on the
convertible preferred shares are included in interest expense.


                                      111
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

20. Shareholders' equity

Ordinary shares

     We are authorized to issue 100,000,000 ordinary shares of par value $0.01
each.

     On April 4, 2002, we completed a public offering of 6,750,000 ordinary
shares (which included the over-allotment option of 750,000 ordinary shares) in
which we raised aggregate net proceeds of $114.3 million. We used the proceeds
of the equity offering to repay short-term borrowings of $40.0 million and the
remainder for general corporate purposes. During 2002, we issued 32,500 shares
to employees upon the exercise of stock options.

     On July 23, 2003, we completed a public offering of 9,200,000 ordinary
shares (which included an over-allotment option of 1,200,000 ordinary shares) in
which we raised aggregate net proceeds of $180.1 million. We used $30.0 million
of these proceeds to repurchase 1,525,000 ordinary shares from Pacific Life at a
purchase price of $19.66 per share.

     During the year ended December 31, 2004 and 2003 we issued 750,000 and
180,000 ordinary shares, respectively, to employees upon the exercise of stock
options. During the year ended December 31, 2003 we issued 200,000 ordinary
shares upon the exercise of Class A Warrants and we repurchased 200,000 Class B
Warrants for $3.0 million.

     In order to provide additional capital to support the individual life
reinsurance business acquired from ING we signed a Securities Purchase Agreement
on October 17, 2004 with the "Cypress Entities". Pursuant to the Securities
Purchase Agreement, we issued to the Cypress Entities on December 31, 2004:

        (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
               17.

     The proceeds from the Cypress Entities net of a commitment fee and other
expenses amounted to $126.9 million.

     The Class C Warrants are exercisable at an exercise price equal to $0.01
per share. The number of ordinary shares for which the Class C Warrants are
exercisable will be subject to customary anti-dilution adjustments. The Class C
Warrants do not have voting rights and are not exercisable until (i) our
shareholders approve (A) certain amendments to our articles of association to
allow the Cypress Entities to hold more than 9.9% of our issued and outstanding
ordinary shares, and (B) the issuance of more than 20% of our ordinary shares to
the Cypress Entities, as required by New York Stock Exchange rules (the
"Shareholder Proposals"), and (ii) requisite regulatory approvals have been
obtained from insurance regulators in Delaware and the United Kingdom.
Notwithstanding the foregoing, the Class C Warrants will become exercisable (i)
immediately upon their transfer to an unaffiliated third party provided that
such transfer complies with the ownership limitations contained in our articles
of association or (ii) to the extent the exercise thereof would not cause the
Cypress Entities to own in the aggregate greater than 9.9%


                                      112
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

20. Shareholders' equity (continued)

of the ordinary shares then outstanding. Upon shareholder approval and the
receipt of all requisite regulatory approvals, the Class C Warrants will
automatically be exercised for the applicable number of ordinary shares. In the
event that a change of control of Scottish Re occurs and the Class C Warrants
cannot be exercised in full for ordinary shares by the terms of the our articles
of association or by applicable law, the holders of Class C Warrants may require
us to repurchase the unexercised Class C Warrants pursuant to the terms
specified in the Class C Warrants.

     If shareholder approval is not obtained by June 30, 2005 (a "Failed
Condition"), we will make additional payments on the Class C Warrants by paying
cash equal to, on a per annum basis, 5% of the product of (i) the number of
ordinary shares underlying the Class C Warrants then held by the Cypress
Entities and (ii) the Purchase Price, or, Scottish Re's option in lieu of cash,
by issuing additional 7.00% Convertible Junior Subordinated Notes with an
equivalent aggregate principal amount, such payment or issuance to be made on
the business day immediately following the date of occurrence of the Failed
Condition, and on each six-month anniversary thereafter, until shareholder
approval has been obtained. In addition, until shareholder approval has been
obtained, we will make an additional payment on the Class C Warrants equal to
the dividend then currently payable on ordinary shares, which will be assumed to
be no less than $0.20 per share per annum.

     At December 31, 2004, there were 39,931,145 outstanding ordinary shares.

Preferred shares

     We are authorized to issue 50,000,000 preferred shares of par value $0.01
each.

     On December 17 and December 22, 2003, in connection with our HyCU offering,
we issued 5,750,000 convertible preferred shares having a per share liquidation
preference of $25 and an initial conversion rate of 1.067 ordinary shares per
$25 liquidation preference, subject to anti-dilution adjustments. The
convertible preferred shares have a 1% annual dividend rate and will be
mandatorily redeemed by us on May 21, 2007. See Note 19 for additional
description of the terms of the convertible preferred shares.

Warrants

     At December 31, 2002 there were 2,850,000 Class A Warrants and 200,000
Class B Warrants outstanding, each class with an exercise price of $15.00.
During the year ended December 31, 2003 we issued 200,000 ordinary shares upon
the exercise of Class A Warrants and we repurchased 200,000 Class B Warrants for
$3.0 million. As at December 31, 2003 there are 2,650,000 Class A Warrants
outstanding.

     In connection with our initial capitalization, we issued Class A Warrants
to related parties to purchase an aggregate of 1,550,000 ordinary shares. The
aggregate consideration of $0.1 million paid for these Warrants is reflected as
additional paid-in capital. In connection with our initial public offering, we
issued an aggregate of 1,300,000 Class A Warrants. All Class A Warrants are
exercisable at $15.00 per ordinary share, in equal amounts over a three-year
period commencing November 1999 and expire in November 2008.

     On December 31, 2004, we issued Class C Warrants to the Cypress Entities as
discussed above.


                                      113
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

21. Employee benefit plans

Pension plan

     We provide retirement benefits to the majority of employees, under defined
contribution plans. Defined contribution plan expenses totaled $1.4 million and
$1.1 million, and $0.9 million for the years ended December 31, 2004, 2003 and
2002, respectively. In 2002 pension benefits were provided to Scottish Re
Holdings Limited employees under a defined benefit pension plan. During 2003, we
established a defined contribution plan for Scottish Re Holdings Limited. New
employees in 2003 joined this plan and a number of employees transferred from
the defined benefit scheme to the defined contribution scheme. A small number of
employees remain in the defined benefit plan and, additionally, there are
preserved benefits for some transferees and some ex-employees in the defined
benefit plan.



                                      114
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

21. Employee benefit plans (continued)

     The defined benefit plan asset activity and movement on the defined benefit
plan obligation is as follows:



<TABLE>
<CAPTION>
                                                         December 31,    December 31,   December 31,
                                                             2004           2003           2002
                                                         ------------    ------------   ------------
<S>                                                      <C>            <C>            <C>
Change in plan assets
Fair value of plan assets at beginning of year.......    $   8,243      $   4,395      $   3,838
Foreign currency translation adjustment..............          726            712              -
Actual return on plan assets.........................          598            721           (515)
Contributions........................................          925          2,487          1,330
Benefits paid........................................         (147)           (72)          (258)
                                                         ----------     ----------     ----------
Fair value of plan assets at end of year                 $  10,345      $   8,243      $   4,395
                                                         ==========     ==========     ==========

                                                         December 31,    December 31,   December 31,
                                                             2004           2003           2002
                                                         ------------    ------------   ------------
Change in benefit obligation
Benefit obligation at beginning of year..............     $  8,181      $   6,120      $   4,155
Foreign currency translation adjustment..............          719            738              -
Service cost.........................................          331            508            314
Interest cost........................................          478            363            243
Actuarial loss.......................................          675            524          1,666
Benefits paid........................................         (147)           (72)          (258)
                                                         ----------     ----------     ----------
Benefits obligation at end of year                       $  10,237      $   8,181      $   6,120
                                                         ==========     ==========     ==========
Funded status........................................    $     108      $      62      $  (1,725)
Unrecognized net loss................................        3,452          2,747          2,475
                                                         ----------     ----------     ----------
Prepaid benefit cost.................................    $   3,560      $   2,809      $     750
                                                         ==========     ==========     ==========
</TABLE>

        Amounts recognized in the statement of financial position consist of:

<TABLE>
<CAPTION>
<S>                                                      <C>            <C>           <C>
Prepaid benefit cost.................................    $    3,560     $    2,809    $      750
Accumulated other comprehensive income...............             -              -        (1,959)
                                                         ----------     ----------     ----------
Net amount recognized................................    $    3,560     $    2,809    $   (1,209)
                                                         ==========     ==========     ==========

Weighted  average  assumptions  as of December 31,
2004 and 2003
  Weighted average discount rate.....................          5.50%          5.50%         5.50%
  Expected return on plan assets.....................          6.00%          6.50%         6.50%
  Rate of salary increases...........................          2.80%          4.25%         4.25%
  Rate of inflation..................................          2.80%          2.50%         2.25%
</TABLE>


                                      115
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

21. Employee benefit plans (continued)

     Plan assets are invested in third party investment funds that are managed
externally. The assets consist of equities, fixed maturities and cash.

     The components of net defined benefit pension costs are as follows:

<TABLE>
<CAPTION>
                                                          Year Ended    Year Ended    Year Ended
                                                         December 31,   December 31,  December 31,
                                                             2004          2003          2002
                                                         ------------   ------------  ------------
<S>                                                      <C>           <C>            <C>
  Service cost.......................................    $     331     $     553      $     314
  Interest cost......................................          478           395            243
  Expected return on plan assets.....................         (514)         (346)          (295)
  Loss amortization..................................          128           115              -
                                                         ----------    ----------     ----------
  Net periodic pension cost..........................    $     423     $     717      $     262
                                                         ==========    ==========     ==========
</TABLE>

     As a result of the accumulated benefit obligation being in excess of plan
assets at December 31, 2002 a minimum pension liability adjustment, net of tax,
of $1.4 million was recorded in other accumulated comprehensive income. At
December 31, 2003, plan assets were in excess of the accumulated benefit
obligation resulting in a change in other comprehensive income of $1.4 million.
At December 31, 2004, plan assets were in excess of the accumulated benefit
obligation, resulting in no change in the comprehensive income during the year.

401(k) plan

     We sponsor a 401(k) plan in the U.S. in which employee contributions on a
pre-tax basis are supplemented by matching contributions. These contributions
are invested, at the election of the employee, in one or more investment
portfolios. Expenses for the plan amounted to $697,000, $482,000, and $390,000,
respectively, in the years ended December 31, 2004, 2003 and 2002.

Stock option plans

     We have four stock option plans (the "1998 Plan", the "1999 Plan", the
"Harbourton Plan" and the "2001 Plan", collectively the "Plans") and an equity
incentive compensation plan ("the 2004 ECP"). The Plans allow us to grant
non-statutory options, subject to certain restrictions, to certain eligible
employees, non-employee directors, advisors and consultants. The minimum
exercise price of the options will be equal to the fair market value, as defined
in the Plans, of our ordinary shares at the date of grant. The term of the
options is between seven and ten years from the date of grant. Unless otherwise
provided in each option agreement, all granted options issued prior to December
31, 2001 become exercisable in three equal annual installments. All options
granted between January 1, 2002 and May 4, 2004, will become exercisable in five
equal installments commencing on the first anniversary of the grant date, except
for annual grants of 2,000 to each director, which are fully exercisable on the
date of grant. All options issued after May 5, 2004, become exercisable in three
equal annual installments commencing on the first anniversary of the grant date.
Total options authorized under the Plans are 3,750,000.

     At our Annual General Meeting held on May 5, 2004, our shareholders
approved the 2004 ECP. This plan allows us to grant non-statutory options and
restricted stock, subject to certain restrictions, to certain eligible
employees, non-employee directors, advisors and consultants. For the first year
of the 2004 ECP or the first 250,000 options issued, the minimum exercise price
of the options will be equal to 110% of fair market value. At the


                                     116
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

21. Employee benefit plans (continued)

discretion of our Compensation Committee, option grants after the first year of
the 2004 ECP or in excess of 250,000 options may have a minimum exercise price
equal to the fair market value of our ordinary shares at the date of grant. The
term of the options shall not be more than ten years from the date of grant.
Options will become exercisable in three equal installments commencing on the
first anniversary of the grant date. Total options authorized under the 2004 ECP
are 750,000. In addition, 1,000,000 restricted shares have been authorized under
the 2004 ECP of which at least 750,000 will vest based on achievement of certain
performance goals. The remaining 250,000 restricted shares may be issued without
performance goals. During the year we issued 90,000 units under the terms of the
2004 ECP. The issuance of these units resulted in a charge to income of $271,000
in 2004.

     In prior years, we adopted the provisions of APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for employee stock options. Since the exercise price of the stock
options equals or exceeds the market price of the underlying stock on the date
of grant, no compensation expense was recognized.

     In December 2002, the Financial Accounting Standards Board issued SFAS
No.148, "Accounting for Stock-Based Compensation - Transition and Disclosure, an
Amendment of FASB Statement No. 123". Effective January 1, 2003, we adopted the
modified prospective method of fair value-based stock option expense provisions
of SFAS No. 123 as amended by SFAS No. 148. Compensation expense has been
recognized for all stock options granted since January 1, 2003. This has
resulted in a charge to income of $844,000, $207,000 and $422,000 in the years
ended December 31, 2004, 2003, and 2002 respectively.

     Pro forma information regarding net income and earnings per share for all
outstanding stock options is required by SFAS No. 148 and has been determined as
if we accounted for all employee stock options under the fair value method of
that Statement.

     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period using the
Black-Scholes model. The Black-Scholes and Binomial option-pricing models were
developed for use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the expected
price volatility. Because our employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of our employee stock options.


                                      117
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

21. Employee benefit plans (continued)

     Option activity under all Plans is as follows:

<TABLE>
<CAPTION>
                                          Year Ended         Year Ended          Year Ended
                                      December 31, 2004  December 31, 2003  December 31, 2002
                                      -----------------  -----------------  -----------------

<S>                                    <C>                <C>                <C>
Outstanding, beginning of year....           3,086,651          3,398,103          2,750,601
Granted...........................             253,000            180,000            861,500
Exercised.........................            (749,551)          (425,955)           (32,500)
Cancelled.........................             (98,864)           (65,497)          (181,498)
                                             ----------         ----------         ----------
Outstanding and  exercisable,
end of year.......................           2,491,236          3,086,651          3,398,103
                                             ==========         ==========         ==========
Weighted average exercise price
per share:.......................
Granted...........................     $       23.5164    $       18.2515    $       18.0262
Exercised.........................     $       11.1209    $       10.7494    $        8.5982
Cancelled.........................     $       17.9752    $       18.2339    $       14.2490
Outstanding and  exercisable,
end of year.......................     $       14.8860    $       13.3634    $       12.8706
</TABLE>

        Summary of options outstanding at December 31, 2004:

<TABLE>
<CAPTION>
                                                               Weighted                               Weighted
                                                 Weighted      Average                  Weighted     Average
                                                 Average      Remaining     Number of    Average     Remaining
Year of      Number of         Range of          Exercise     Contractual     Shares     Exercise   Contractual
 Grant       Shares       Exercise Prices         Price         Life         Vested       Price        Life
 -----       ------       ---------------         -----         ----         ------       -----        ----
<S>         <C>           <C>                     <C>           <C>        <C>          <C>             <C>
   1998       403,336                $15.0000     $15.0000      3.92         403,336    $15.0000        3.92
   1999       222,100      $8.0625 - $15.0000     $11.2936      3.12         222,100    $11.2936        3.12
   2000       555,000      $7.7500 -  $9.0000      $8.1896      4.90         555,000     $8.1896        4.90
   2001       311,500      $7.0000 - $18.7600     $14.6627      5.32         311,500    $14.6627        5.32
   2002       572,300     $15.5000 - $21.5100     $17.9842      7.17         239,000    $18.1194        7.17
   2003       174,000     $16.6000 - $21.5100     $18.2276      8.43          46,000    $18.0991        8.41
   2004       253,000     $21.7000 - $23.8700     $23.5164      9.34          22,000    $22.0864        9.57
            ---------     -------------------     --------      ----       ---------    --------    ---------
            2,491,236      $7.0000 - $23.8700     $14.8860      6.17       1,798,936    $11.7862        5.43
            =========     ===================     ========      ====       =========    ========    =========
</TABLE>

<TABLE>
<CAPTION>
                                                                       Option Plans
                                                       Option Plans    not Approved
                                                       Approved by          by         Total Option
                                                       Shareholders    Shareholders       Plans
                                                       ------------    ------------       -----
<S>                                                     <C>             <C>             <C>
Outstanding.......................................      1,813,736         677,500       2,491,236
Weighted average exercise price...................      $ 13.8338       $ 15.2791       $ 13.3634
Available for future issuance.....................         63,225       1,639,197       1,702,422
</TABLE>

     Pro forma information regarding net income and earnings per share is
required by SFAS No. 148, and has been determined as if we accounted for all the
employee stock options under the fair value method of that Statement.

     The Black-Scholes option-pricing model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, it requires the input of highly subjective
assumptions including the expected price volatility. Because our employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of our
employee stock options.


                                      118
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

21. Employee benefit plans (continued)

     For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period using the
Black-Scholes model. Our pro forma information is as follows:

<TABLE>
<CAPTION>
                                                           Year Ended    Year Ended    Year Ended
                                                            December      December      December
                                                            31, 2004      31, 2003      31, 2002
                                                           ----------    ----------    ----------
<S>                                                          <C>          <C>          <C>
Net income -- as reported...............................     $ 71,391     $ 27,281     $ 32,524
Stock-based employee compensation cost, net of related
   tax effects, included in the determination of net
   income as reported.                                            844          207          639
Stock-based employee compensation cost, net of related
   tax effects, that would have been included in the
   determination of net income if the fair value based
   method had been applied to all awards...............        (1,448)      (2,384)      (3,432)
                                                             ---------    ---------    ---------
Net income -- pro forma.................................     $ 70,787     $ 25,104     $ 29,731
                                                             =========    =========    =========

                                                           Year Ended    Year Ended    Year Ended
                                                            December      December      December
                                                            31, 2004      31, 2003      31, 2002
                                                           ----------    ----------    ----------
Basic net income per share -- as reported...............    $    1.99    $    0.89   $    1.29
Basic net income per share -- pro forma.................    $    1.98    $    0.82   $    1.17
Diluted net income per share -- as reported.............    $    1.90    $    0.85   $    1.23
Diluted net income per share -- pro forma...............    $    1.89    $    0.78   $    1.11

     The weighted average fair value of options granted in each year is as
follows:

                                                           Year Ended    Year Ended    Year Ended
                                                            December      December      December
                                                            31, 2004      31, 2003      31, 2002
                                                           ----------    ----------    ----------
Discounted exercise price...........................              --            --            --
Market price exercise price.........................       $  7.6581     $  6.8170     $  6.5239
Premium exercise price..............................              --            --            --

     The fair value for the options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following assumptions:

                                                             2004            2003           2002
                                                             ----            ----           ----
Expected dividend yield.............................    0.77% - 0.82%   1.00% - 0.82%       1.00%
Risk free interest rate.............................    1.06% - 4.77%   1.06% - 4.44%    1.09%-4.14%
Expected life of options............................       7 years         7 years         7 years
Expected volatility.................................         0.4             0.4             0.3
</TABLE>

     As of December 31, 2004, 133,334 options were outstanding in respect of
non-employees (2003- 160,501; 2002- 89,001). In 2002 we modified the awards of
certain employees on their termination of employment. The expense recorded in
respect of this modification was $639,000. We apply the fair value method of
SFAS No. 123 in accounting for stock options granted to non-employees who
provide services to us.


                                      119
<PAGE>

                            SCOTTISH RE GROUP LIMITED

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                December 31, 2004

22. Taxation

     There is presently no taxation imposed on income or capital gains by the
Governments of Bermuda and the Cayman Islands. Our Bermuda companies have been
granted an exemption from income, withholding or capital gain taxation in
Bermuda until 2016. If any taxation on income or capital gains enacted in the
Cayman Islands, Scottish Re and Scottish Annuity & Life Insurance Company
(Cayman) Ltd. have been granted an exemption until 2018; and The Scottish
Annuity Company (Cayman) Ltd. has been granted exemptions until 2014. These
companies operate in a manner such that they will owe no U.S. tax other than
premium excise taxes and withholding taxes on certain investment income.
Additionally, we have operations in various jurisdictions around the world
including, but not limited to, the U.S., U.K., Ireland and Luxembourg that are
subject to relevant taxes in those jurisdictions.

     Undistributed earnings of our subsidiaries are considered indefinitely
reinvested and, accordingly, no provision for U.S. federal withholding taxes has
been provided thereon. Our U.S. subsidiaries are subject to federal, state and
local corporate income taxes and other taxes applicable to U.S. corporations.
Upon distribution of current or accumulated earnings and profits in the form of
dividends or otherwise from our U.S. subsidiaries to us, we would be subject to
U.S. withholding taxes at a 5% rate.

     At December 31, 2004, we had net operating loss carry-forwards of
approximately $129.2 million, (2003-$168.4 million) for income tax purposes that
expire in years 2012 through 2024. These net operating loss carry-forwards
resulted primarily from our 1999 acquisition of Scottish Re (U.S.), Inc. and
from current operations of Scottish Re (U.S.), Inc. and Scottish Re Life
Corporation.

     Significant components of our deferred tax assets and liabilities as of
December 31, 2004 and 2003 were as follows:

                                                    December 31,    December 31,
                                                       2004             2003
                                                    ------------    ------------
Deferred tax asset:
   Net operating losses........................... $    46,268     $    61,077
   Reserves for future policy benefits............      29,029          13,656
   Unrealized depreciation on investments.........         793             483
   Intangible assets..............................       8,933              --
   Negative proxy deferred acquisition costs......      14,025           1,816
   Alternative minimum tax credit.................       2,318              --
   Other..........................................       6,783           3,121
                                                   ------------    ------------
Total deferred tax asset..........................     108,149          80,153
                                                   ------------    ------------
Deferred tax liability:...........................
   Unrealized appreciation on investments.........      (7,478)         (8,387)
   Undistributed earnings of U.K. subsidiaries....      (4,959)         (6,315)
   Deferred acquisition costs.....................      (9,415)        (21,893)
   Pension liability..............................      (1,068)           (859)
   Reserves for future policy benefits............     (24,433)        (27,086)
   Present value of in-force......................     (18,153)             --
   Other..........................................      (5,465)         (2,989)
                                                   ------------    ------------
Total deferred tax liability......................     (70,971)        (67,529)
                                                   ------------    ------------
Net deferred tax asset (liability)................ $    37,178     $    12,624
                                                   ------------    ------------
Valuation allowance                                    (22,148)             --
                                                   ============    ============


                                      120
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

22. Taxation (continued)

Net deferred tax asset                             $    15,030     $    12,624
                                                   ============    ============

     At December 31, 2004, we believe that it is more likely than not that all
gross deferred tax assets will reduce taxes payable in future years except for a
valuation allowance of $22.1 million established in 2004. This valuation
allowance is in respect of negative proxy deferred acquisition costs and
deferred acquisition costs arising 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. We have also established reserves when we
believe that certain tax positions are likely to be challenged and we may not
fully prevail in overcoming these challenges.

     For the years ended December 31, 2004, 2003 and 2002 we have income tax
expense (benefit) from operations as follows:

<TABLE>
<CAPTION>
                                                     Year Ended     Year Ended     Year Ended
                                                    December 31,   December 31,   December 31,
                                                        2004           2003           2002
                                                    ------------   ------------   ------------
<S>                                                <C>             <C>            <C>
Current tax expense (benefit)..................    $    8,526      $    1,075     $    1,421
Deferred tax benefit...........................       (25,205)        (12,180)        (3,315)
                                                   -----------     -----------    -----------
Total tax benefit..............................    $  (16,679)     $  (11,105)    $   (1,894)
                                                   ===========     ===========    ===========
</TABLE>

     The acquisition of the ING individual life reinsurance business is
reflected under U.S. generally accepted accounting principles in accordance with
purchase accounting requirements but for taxation is a currently taxable
transaction. As a result, approximately $84.0 million of current tax expense and
a corresponding $84.0 million of deferred tax benefit are netted in the income
statement and are not reflected in the table above.

     Income tax expense (benefit) attributable to continuing operations differ
from the amount of income tax expense (benefit) that would result from applying
the federal statutory rates to pretax income from operating due to the
following:

<TABLE>
<CAPTION>
                                                    Year Ended     Year Ended     Year Ended
                                                   December 31,   December 31,   December 31,
                                                       2004           2003           2002
                                                   ------------   ------------   ------------
<S>                                                <C>            <C>            <C>
Pretax GAAP income at 34%......................    $    18,853    $    12,833    $    10,310
Income not subject to tax at 34%...............        (28,588)       (24,229)       (16,819)
Foreign taxes..................................         (8,578)         3,109          3,997
Negative deferred acquisition costs............           (934)        (1,427)           695
Other and state taxes..........................          2,568         (1,391)           (77)
                                                   ------------   ------------   ------------
Total tax benefit .............................    $   (16,679)   $   (11,105)   $    (1,894)
                                                   ============   ============   ============
</TABLE>

23. Statutory requirements and dividend restrictions

     Our Bermuda insurance companies are required to maintain a minimum capital
of $0.25 million. Under The Insurance Law of the Cayman Islands, Scottish
Annuity & Life Insurance Company (Cayman) Ltd. and The Scottish Annuity Company
(Cayman) Ltd. must each maintain a minimum net capital worth of $0.24 million.


                                      121
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

23. Statutory requirements and dividend restrictions (continued)

     Our ability to pay dividends depends significantly on the ability of
Scottish Annuity & Life Insurance Company (Cayman) Ltd., The Scottish Annuity
Company (Cayman) Ltd. and Scottish Re Holdings Limited to pay dividends to
Scottish Re. While we are not subject to any significant legal prohibitions on
the payment of dividends, Scottish Annuity & Life Insurance Company (Cayman)
Ltd. and The Scottish Annuity Company (Cayman) Ltd. are subject to the Cayman
Islands regulatory constraints, which affect their ability to pay dividends.
Scottish Annuity & Life Insurance Company (Cayman) Ltd. and The Scottish Annuity
Company (Cayman) Ltd. are prohibited from declaring or paying a dividend if such
payment would reduce their net capital worth below $0.24 million.

     The maximum amount of dividends that can be paid by Scottish Re (U.S.),
Inc. (a Delaware domiciled insurance company) and Scottish Re Life Corporation
(a Delaware domiciled insurance company) without prior approval of the Insurance
Commissioner is subject to restrictions relating to statutory surplus and
operating earnings. The maximum dividend payment that may be made without prior
approval is limited to the greater of the net gain from operations for the
preceding year or 10% of statutory surplus as of December 31 of the preceding
year not exceeding earned surplus. The statutory earned surplus of Scottish Re
(U.S.), Inc. and Scottish Re Life Corporation at December 31, 2004 were $(227.8)
million (2003 - $(212.5) million) and $(68.3) million (2003- $(2.1) billion),
respectively, accordingly no dividends can be paid from either company in 2005
without the prior approval of the Insurance Commissioner. Scottish Re (U.S.),
Inc.'s net assets, which are restricted by the above are $253.7 million (2003 -
$51.9 million) and Scottish Re Life Corporation's net assets, which are
restricted are $75.5 million (2003- $143.8 million).

     The NAIC prescribes risk-based capital ("RBC") requirements for U.S.
domiciled life and health insurance companies. As of December 31, 2004 and 2003,
Scottish Re (U.S.), Inc. and Scottish Re Life Corporation exceeded all minimum
RBC requirements.

     In connection with the Insurance Companies Act 1982 of the United Kingdom,
Scottish Re Limited is required to maintain statutory minimum net capital of
approximately $65.4 million at December 31, 2004 (December 31,2003 - $34.0
million). Scottish Re Limited had statutory capital of approximately $78.7
million at December 31, 2004 (December 31, 2003 - $58.0 million).

24. Commitments and contingencies

Credit facilities

     On December 29, 2004, we, Scottish Re (Dublin) Limited, Scottish Re (U.S.),
Inc., and Scottish Re Limited closed a $175.0 million, 364-day revolving credit
facility with a syndicate of banks led by Bank of America, N.A. The facility
provides capacity for borrowing and for extending letters of credit. The
proceeds from the facility will be used for working capital, capital
expenditures and general corporate purposes. The facility is a direct financial
obligation of each of the borrowers; however, we have guaranteed the payment of
obligations of Scottish Re (Dublin) Limited, Scottish Re (U.S.), Inc., and
Scottish Re Limited.

     The facility may be increased to an aggregate principal amount of $200.0
million. The interest rate on each loan made under the facility, as determined
by the nature of the loan, will be at (i) the Federal Funds Rate plus 0.50%,
(ii) the prime rate as announced by Bank of America, N.A., or (iii) the British
Bankers Association LIBOR Rate plus an applicable margin.

     The facility requires that Scottish Annuity & Life Insurance Company
(Cayman) Ltd. maintain a minimum amount of shareholder's equity, a debt to
capitalization ratio of less than 20% and uncollateralized assets of 1.2


                                      122
<PAGE>


                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

24. Commitments and contingencies (continued)

times borrowings. In addition, the facility requires that Scottish Re Group
Limited maintain a minimum amount of shareholders' equity, and a debt to
capitalization ratio of less than 30%. The facility also requires that Scottish
Re (U.S.), Inc. maintain minimum capital and surplus equal to the greater of (i)
$20 million or (ii) the amount necessary to prevent a company action level event
from occurring under the risk based capital laws of Delaware. Our failure to
comply with the requirements of the credit facility would, subject to grace
periods, result in an event of default, and we could be required to repay any
outstanding borrowings. At December 31, 2004, there were no borrowings under the
facilities. Outstanding letters of credit under these facilities amounted to
$35.8 million as at December 31, 2004.

     We also have a reverse repurchase agreement with a major broker/dealer.
Under this agreement, we have the ability to sell agency mortgage backed
securities with the agreement to repurchase them at a fixed price, providing the
dealer with a spread that equates to an effective borrowing cost linked to
one-month LIBOR. This agreement is renewable monthly at the discretion of the
broker/dealer. At December 31, 2004, there were no borrowings under this
agreement.


                                      123
<PAGE>

                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

24. Commitments and contingencies (continued)

Lease commitments

     Scottish Re and its subsidiaries lease office space in the countries in
which they conduct business under operating leases that expire at various dates
through 2023. Total rent expense with respect to these operating leases for the
years ended December 31, 2004, 2003 and 2002, were approximately $1.9 million,
$1.7 million and $0.9 million respectively.

     Future minimum lease payments under the leases are expected to be:

             Year ending December 31
             ----------------------------------------------  --------
             2005..........................................  $  2,656
             2006..........................................     2,681
             2007..........................................     2,668
             2008..........................................     2,699
             2009..........................................     2,731
             Later years...................................    20,158
                                                             --------
             Total future lease commitments................  $ 33,593
                                                             ========

Legal proceedings

     In the normal course of our business, we and our subsidiaries are
occasionally involved in litigation. The ultimate disposition of such litigation
is not expected to have a material adverse effect on our financial condition,
liquidity or results of operations.


25. Subsequent Events

     On January 12, 2005 we closed an offering of $325.0 million Collateral
Facility Securities by Stingray Pass-Through Trust issued under Rule 144A. This
facility allows Scottish Annuity & Life Insurance Company (Cayman) Ltd. to issue
funding agreements at a pre-determined price, without any condition and at any
time, in exchange for a portfolio of highly rated 30-day commercial paper. The
facility matures on January 12, 2015.

     On February 11, 2005 we closed an offering of $850.0 million 30 year
maturity securities from a newly formed , wholly owned subsidiary Orkney
Holdings, LLC. Proceeds from this offering will fund the XXX reserve
requirements for level premium term life insurance policies reinsured by
Scottish Re (U.S.), Inc. between January 1, 2000 and December 31, 2003. The
securities are guaranteed by MBIA Insurance Corporation, and are rated "AAA" by
Standard & Poor's and Aaa by Moody's.


                                      124
<PAGE>


                            SCOTTISH RE GROUP LIMITED

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                                December 31, 2004

26. Quarterly financial data (Unaudited)

     Quarterly financial data for the year ended December 31, 2004 is as
follows:

<TABLE>
<CAPTION>
                                                                                    Quarter Ended
                                                              ----------------------------------------------------
                                                              December 31    September 30     June 30     March 31
                                                              -----------    ------------     -------     --------
<S>                                                            <C>            <C>           <C>          <C>
Total revenue..........................................        $ 210,645      $ 195,085     $ 226,909    $ 179,178
Income (loss) from continuing operations before                   10,970          6,194        26,970       11,317
   income taxes and minority interest..................
Income from continuing operations......................           21,257         11,578        28,671       10,093
Net income.............................................           21,049         11,578        28,671       10,093
Basic earnings per ordinary share......................        $    0.58      $    0.32     $    0.80    $    0.29
Diluted earnings per ordinary share....................        $    0.56      $    0.31     $    0.77    $    0.27

     Quarterly financial data for the year ended December 31, 2003 is as
follows:

                                                                                    Quarter Ended
                                                              ----------------------------------------------------
                                                              December 31    September 30     June 30     March 31
                                                              -----------    ------------     -------     --------
Total revenue..........................................        $ 196,465      $ 134,550     $ 129,539    $  96,813
Income from continuing operations before income
   taxes and minority interest.........................           27,224         (6,383)        9,233        7,672
Income from continuing operations......................           30,268          1,782         9,317        7,422
Net income.............................................           10,542          1,625         7,872        7,242
Basic earnings per ordinary share......................        $    0.30      $    0.05     $    0.29    $    0.27
Diluted earnings per ordinary share....................        $    0.29      $    0.05     $    0.28    $    0.26
</TABLE>

     Computations of results per share for each quarter are made independently
of results per share for the year. Due to rounding and transactions affecting
the weighted average number of shares outstanding in each quarter, the sum of
quarterly results per share does not equal results per share for the year.


                                      125
<PAGE>

                                   SIGNATURES

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


<TABLE>
<CAPTION>
            Signature                           Title                     Date
            ---------                           -----                     ----


<S>                                    <C>                             <C>
      /s/ Michael C. French
----------------------------------
        Michael C. French              Chairman and Director           March 18, 2005


       /s/ Michael Austin
----------------------------------
         Michael Austin                Director                        March 18, 2005


 /s/ G. William Caulfeild-Browne
----------------------------------
   G. William Caulfeild-Browne         Director                        March 18, 2005


      /s/ Robert M. Chmely
----------------------------------
        Robert M. Chmely               Director                        March 18, 2005


    /s/ Jean Claude Damerval
----------------------------------
      Jean Claude Damerval             Director                        March 18, 2005


     /s/ Lord Norman Lamont
----------------------------------
       Lord Norman Lamont              Director                        March 18, 2005


        /s/ Hazel O'Leary
----------------------------------
          Hazel O'Leary                Director                        March 18, 2005


       /s/ William Spiegel
----------------------------------
         William Spiegel               Director                        March 18, 2005



      /s/ Scott E. Willkomm
----------------------------------
        Scott E. Willkomm              CEO, President and Director     March 18, 2005
</TABLE>


*   The undersigned, by signing his name hereto, does hereby sign this Annual
    Report on Form 10-K pursuant to the Powers of Attorney executed on behalf of
    the above named officers and directors of the Registrant and
    contemporaneously filed herewith with the Securities and Exchange
    Commission.



/s/ Michael C. French
---------------------
Michael C. French
Attorney-in-Fact


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