================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                               -------------------

                                    FORM 1O-Q

              [X] Quarterly Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                For the quarterly period ended September 30, 2006

              [ ] Transition Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
                  For the Transition period from _____ to _____

                        Commission File Number: 001-16855

                            SCOTTISH RE GROUP LIMITED
             (Exact Name of Registrant as Specified in Its Charter)


                Cayman Islands                                   98-0362785
       (State or Other Jurisdiction of                        (I.R.S. Employer
        Incorporation or Organization)                      Identification No.)

                                P.O. Box HM 2939
                            Crown House, Second Floor
                               4 Par-la-Ville Road
                                  Hamilton HMO8
                                     Bermuda
                    (Address of Principal Executive Offices)


                                 Not Applicable
                                   (Zip Code)


                                 (441) 295-4451
              (Registrant's telephone number, including area code)

              (Former name, former address and former fiscal year.
                         if changed since last report)

     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 checkmark whether the registrant is a large accelerated filer,
or a non-accelerated filer. See definition of "accelerated filer" and "large
accelerated filer" in Rule 12b-2 of the Exchange Act.

 Large accelerated filer [X]  Accelerated filer  [ ] Non-accelerated filer [ ]

     Indicate  by check mark  whether  the  registrant  is a shell  company  (as
defined in Rule 12b-2 of the Exchange Act).

                                   Yes No [X]

As of November 6, 2006, the Registrant had 60,554,104 ordinary shares
outstanding.

================================================================================



<PAGE>


                                Table of Contents


PART I.  FINANCIAL INFORMATION................................................2


Item 1.  Financial Statements.................................................2

         Consolidated Balance Sheets -- September 30, 2006
         (unaudited) and December 31, 2005....................................2

         Consolidated Statements of Income (Loss) -- Three and nine months
         ended September 30, 2006 and 2005 (unaudited).........................3

         Consolidated Statements of Comprehensive Income (Loss) -- Three
         and nine months ended September 30, 2006 and 2005
         (unaudited)...........................................................4

         Consolidated Statements of Shareholders' Equity -- Nine
         months ended September 30, 2006 and 2005 (unaudited)..................5

         Consolidated Statements of Cash Flows -- Nine months ended
         September 30, 2006 and 2005 (unaudited)...............................6

         Notes to Consolidated Financial Statements (unaudited). ..............7


Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations..................................22


Item 3.  Quantitative and Qualitative Disclosures about
         Market Risk..........................................................50

Item 4.  Controls and Procedures..............................................51

PART II. OTHER INFORMATION....................................................52

Item 1.  Legal Proceedings....................................................52

Item 2.   Unregistered Sales of Equity Securities
          and Use of Proceeds.................................................54

Item 3.   Defaults upon Senior Securities.....................................55

Item 4.   Submission of Matters to a Vote of Security Holders.................55

Item 5.   Other Information...................................................55

Item 6.   Exhibits............................................................55



                                       1

<PAGE>


PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

                            SCOTTISH RE GROUP LIMITED
                           CONSOLIDATED BALANCE SHEETS
      (Expressed in Thousands of United States dollars, except share data)
<TABLE>
<CAPTION>


                                                                                          September 30,
                                                                                              2006                 December
                                                                                           (unaudited)             31, 2005
                                                                                           -----------             --------
<S>                                                                                      <C>                   <C>
ASSETS
Fixed maturity investments, available for sale, at fair value
    (Amortized cost $7,567,968; 2005 -- $5,323,488)...............................       $   7,526,756         $   5,292,595
Preferred stock, available for sale, at fair value (Cost $134,037;
    2005 -- $137,271).............................................................             129,977               133,804
Cash and cash equivalents.........................................................           1,356,092             1,420,205
Other investments.................................................................              65,130                54,619
Funds withheld at interest........................................................           2,076,097             2,597,416
                                                                                          ------------           -----------
    Total investments.............................................................          11,154,052             9,498,639
Accrued interest receivable.......................................................              59,767                44,012
Reinsurance balances and risk fees receivable.....................................             423,759               325,372
Deferred acquisition costs........................................................             620,412               594,583
Amount recoverable from reinsurers................................................             570,834               551,288
Present value of in-force business................................................              51,471                54,743
Goodwill..........................................................................              34,125                34,125
Other assets......................................................................             172,072                87,198
Deferred tax assets...............................................................                   -                55,453
Segregated assets.................................................................             739,410               760,707
                                                                                         -------------         -------------
    Total assets..................................................................       $  13,825,902         $  12,006,120
                                                                                         =============         =============

LIABILITIES
Reserves for future policy benefits...............................................       $   3,663,489         $   3,477,222
Interest sensitive contract liabilities...........................................           3,582,687             3,907,573
Collateral finance facilities.....................................................           3,745,918             1,985,681
Accounts payable and other liabilities............................................             101,862                83,130
Reinsurance balances payable......................................................             260,101               114,078
Current income tax payable........................................................               4,451                 9,155
Deferred tax liabilty.............................................................              47,106                     -
Long term debt....................................................................             244,500               244,500
Segregated liabilities............................................................             739,410               760,707
                                                                                          ------------          ------------
Total liabilities.................................................................          12,389,524            10,582,046
                                                                                          ------------          ------------

MINORITY INTEREST.................................................................               9,329                 9,305
MEZZANINE EQUITY..................................................................             143,512               143,057
SHAREHOLDERS' EQUITY
Ordinary shares, par value $0.01:
    Issued: 60,554,104 shares (2005 -- 53,391,939)................................                 606                   534
Preferred shares, par value $0.01:
    Issued: 5,000,000 shares (2005 -- 5,000,000)..................................             125,000               125,000
Additional paid-in capital........................................................           1,049,790               893,767
Accumulated other comprehensive loss..............................................              (6,068)               (9,991)
Retained earnings ................................................................             114,209               262,402
                                                                                         -------------         -------------
    Total shareholders' equity....................................................           1,283,537             1,271,712
                                                                                         -------------         -------------
Total liabilities, minority interest, mezzanine equity and
    shareholders' equity..........................................................       $  13,825,902         $  12,006,120
                                                                                         =============         =============
</TABLE>
     See Accompanying Notes to Consolidated Financial Statements (unaudited)

                                       2

<PAGE>


                            SCOTTISH RE GROUP LIMITED
                    CONSOLIDATED STATEMENTS OF INCOME (LOSS)
                                   (UNAUDITED)

      (Expressed in Thousands of United States dollars, except share data)
<TABLE>
<CAPTION>

                                                                  Three months ended               Nine months ended
                                                                ----------------------        ---------------------------
                                                                September      September       September        September
                                                                 30, 2006       30, 2005        30, 2006         30, 2005
                                                                ---------      ---------      ----------        ---------
<S>                                                          <C>              <C>             <C>              <C>
Revenues

Premiums earned...........................................   $   453,521      $   470,094     $ 1,347,484      $ 1,370,667
Investment income, net....................................       162,408           92,132         439,407          256,165
Fee income................................................         2,380            2,801          10,752            9,210
Realized gains (losses), net..............................        (1,072)           1,344         (25,971)           5,573
Change in value of embedded derivatives, net..............        (5,891)          (2,631)         11,621          (19,266)
                                                             -----------      -----------      ----------       ----------
    Total revenues........................................       611,346          563,740       1,783,293        1,622,349
                                                             -----------      -----------      ----------       ----------
Benefits and expenses
Claims and other policy benefits..........................       377,713          356,127       1,124,277        1,030,893
Interest credited to interest sensitive contract
    liabilities...........................................        42,423           36,724         140,523           99,089
Acquisition costs and other insurance expenses,
    net...................................................        86,241           91,214         278,644          305,350
Operating expenses........................................        39,447           32,909         109,904           83,978
Collateral finance facilities expense.....................        67,323           13,230         145,646           32,471
Interest expense..........................................         5,005            5,690          16,964           16,097
                                                             -----------       ----------      ----------        ---------
    Total benefits and expenses...........................       618,152          535,894       1,815,928        1,567,878
                                                             -----------       ----------      ----------        ---------
Income (loss) before income taxes and minority
    interest..............................................        (6,806)         27,846          (32,665)          54,471
Income tax benefit (expense)..............................       (20,841)          6,677         (102,427)          15,232
                                                             -----------       ----------      ----------        ---------
Income (loss) before minority interest....................       (27,647)          34,523        (135,092)          69,703
Minority interest.........................................           232             (113)            (64)            (282)
                                                             -----------       ----------      ----------        ---------
Net income (loss).........................................       (27,415)          34,410        (135,156)          69,421
Dividend declared on non-cumulative perpetual preferred
    shares................................................        (2,266)          (2,492)         (6,797)          (2,492)
Imputed dividend on prepaid variable share forward
    contract..............................................          (809)               -            (881)               -
                                                             -----------       ----------      ----------        ---------
Net income (loss) available to ordinary
    shareholders..........................................    $  (30,490)     $    31,918     $  (142,834)      $   66,929
                                                              ==========      ===========     ===========       ==========
Earnings (loss) per ordinary share -- Basic ..............    $    (0.54)     $      0.70     $     (2.61)      $     1.56
                                                              ==========      ===========     ===========       ==========
Earnings (loss) per ordinary share -- Diluted.............    $    (0.54)     $      0.66     $     (2.61)      $     1.42
                                                              ==========      ===========     ===========       ==========
Dividends declared per ordinary share.....................    $        -      $      0.05     $      0.10       $     0.15
                                                              ==========      ===========     ===========       ==========
Weighted average number of ordinary shares outstanding
Basic.....................................................    56,933,566       45,517,832      54,708,914       43,004,046
                                                              ==========       ==========      ==========       ==========
Diluted...................................................    56,933,566       48,543,262      54,708,914       47,080,247
                                                              ==========       ==========      ==========       ==========
</TABLE>

     See Accompanying Notes to Consolidated Financial Statements (unaudited)

                                       3

<PAGE>


                            SCOTTISH RE GROUP LIMITED
             CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
                                   (UNAUDITED)

                (Expressed in Thousands of United States dollars)

<TABLE>
<CAPTION>

                                                             Three months ended        Nine months ended
                                                            ----------------------    ----------------------
                                                            September     September   September     September
                                                            30, 2006      30, 2005    30, 2006      30, 2005
                                                            --------      --------    --------      --------
<S>                                                         <C>          <C>          <C>          <C>
Net income (loss) .......................................   $ (27,415)   $  34,410    $(135,156)   $  69,421
Other comprehensive income (loss), net of tax:
Unrealized appreciation (depreciation) on investments ...      86,716      (44,580)     (18,998)     (18,393)
Add: reclassification adjustment for investment losses
    (gains) included in net income ......................       3,805          (21)      14,807       (1,360)
                                                            ---------     --------    ---------     --------
Net unrealized appreciation (depreciation) on investments
    net of income tax benefit (expense) and deferred
    acquisition costs of $(53,916), $34,056, $5,779, and
    $23,173 .............................................      90,521      (44,601)      (4,191)     (19,753)
Cumulative translation adjustment .......................        (790)      (1,745)       8,114       (8,147)
                                                            ---------     --------    ---------     --------
Other comprehensive income (loss) .......................      89,731      (46,346)       3,923      (27,900)
                                                            ---------     --------    ---------     --------
Comprehensive income (loss) .............................   $  62,316    $ (11,936)   $(131,233)   $  41,521
                                                            =========     ========    =========     ========
</TABLE>



     See Accompanying Notes to Consolidated Financial Statements (unaudited)

                                       4
<PAGE>


                            SCOTTISH RE GROUP LIMITED
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                   (UNAUDITED)

      (Expressed in Thousands of United States dollars, except share data)

<TABLE>
<CAPTION>
                                                                                           Nine months ended
                                                                                  -----------------------------------
                                                                                   September 30,        September 30,
                                                                                       2006                 2005
                                                                                  -------------       ---------------
<S>                                                                                   <C>                <C>
Ordinary shares:
    Beginning of period .........................................................     53,391,939         39,931,145
    Issuance to employees on exercise of options ................................        583,217            318,900
    Issuance on exercise of warrants ............................................              -          5,377,327
    Ordinary shares issued ......................................................      6,578,948                  -
                                                                                     -----------         ----------
    End of period ...............................................................     60,554,104         45,627,372
                                                                                     ===========         ==========
Preferred shares:
    Beginning of period .........................................................      5,000,000                  -
    Non-cumulative perpetual preferred shares issued ............................              -          5,000,000
                                                                                     -----------         ----------
    End of period ...............................................................      5,000,000          5,000,000
                                                                                     -----------         ----------
Share capital:
Ordinary shares:
    Beginning of period .........................................................    $       534        $       399
    Issuance to employees on exercise of options ................................              6                  3
    Issuance on conversion of warrants ..........................................              -                 54
    Ordinary shares issued ......................................................             66                  -
                                                                                     -----------        -----------
    End of period ...............................................................            606                456
                                                                                     -----------        -----------
Preferred shares:
    Beginning of period .........................................................        125,000                  -
    Non-cumulative perpetual preferred shares issued ............................              -            125,000
                                                                                     -----------        -----------
   End of period ...............................................................         125,000            125,000
                                                                                     -----------        -----------
Additional paid-in capital:
    Beginning of period .........................................................        893,767            684,719
    Ordinary shares issued ......................................................        147,318                  -
    Conversion of 7.00% Convertible Junior Subordinated Notes ...................              -             42,061
    Issuance to employees on exercise of options ................................          6,795              3,710
    Option and restricted stock unit expense ....................................          1,483              3,871
    Costs of issue of non-cumulative perpetual preferred shares .................              -             (4,588)
    Other .......................................................................            427                  -
                                                                                     -----------        -----------
   End of period ...............................................................       1,049,790            729,773
                                                                                     -----------        -----------
Accumulated other comprehensive income (loss):
Unrealized depreciation on investments
    Beginning of period .........................................................        (17,879)            13,661
    Change in period (net of tax and deferred acquisition costs) ................         (4,191)           (19,753)
                                                                                     -----------        -----------
    End of period ...............................................................        (22,070)            (6,092)
                                                                                     -----------        -----------
Cumulative translation adjustment
    Beginning of period .........................................................          7,888             17,943
    Change in period (net of tax) ...............................................          8,114             (8,147)
                                                                                     -----------        -----------
   End of period ...............................................................          16,002              9,796
                                                                                     -----------        -----------
Total accumulated other comprehensive income (loss) .............................         (6,068)             3,704
                                                                                     -----------        -----------
Retained earnings:
    Beginning of period .........................................................        262,402            145,952
    Net income (loss) ...........................................................       (135,156)            69,421
    Dividends declared on ordinary shares .......................................         (5,359)            (6,706)
    Dividends declared on non-cumulative perpetual preferred shares .............         (6,797)            (2,492)
    Imputed dividend on prepaid variable share forward contract .................           (881)                 -
                                                                                     ------------       -----------
   End of period ...............................................................         114,209            206,175
                                                                                     ------------       -----------
Total shareholders' equity ......................................................    $ 1,283,527        $ 1,065,108
                                                                                     ============       ===========

</TABLE>

     See Accompanying Notes to Consolidated Financial Statements (unaudited)

                                       5

<PAGE>


                            SCOTTISH RE GROUP LIMITED
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

               (Expressed in Thousands of United States dollars)

<TABLE>
<CAPTION>
                                                                                    Nine months ended
                                                                               ----------------------------
                                                                               September 30,  September 30,
                                                                                   2006           2005
                                                                               ------------   -------------
<S>                                                                            <C>            <C>
Operating activities
Net income (loss) ..........................................................   $  (135,156)   $    69,421
Adjustments to reconcile net income (loss) to net cash provided by operating
    activities:
    Net realized (gains) losses ............................................        25,971         (5,572)
    Change in value of embedded derivatives, net ...........................       (11,621)        19,267
    Amortization of discount on investments ................................        12,270         13,900
    Amortization of deferred acquisition costs .............................        71,798         55,417
    Amortization of present value of in-force business .....................         3,278          5,362
    Changes in assets and liabilities:
        Accrued interest receivable ........................................       (14,539)        (9,516)
        Reinsurance balances and risk fees receivable ......................        49,910        (12,731)
        Deferred acquisition costs .........................................       (94,147)      (134,515)
        Deferred tax asset and liability ...................................       106,834         (4,149)
        Other assets .......................................................       (65,490)       (32,488)
        Current income tax payable .........................................        (5,044)        (8,910)
        Reserves for future policy benefits, net of amounts recoverable from
           reinsurers ......................................................       111,264        298,279
        Interest sensitive contract liabilities, net of funds withheld at ..
           interest ........................................................       452,891         58,113
        Accounts payable and other liabilities .............................        18,728            288
        Other ..............................................................         5,845         12,045
                                                                               ------------   -------------
Net cash provided by operating activities ..................................       532,892        324,211
                                                                               ------------   -------------
Investing activities
Purchase of fixed maturity investments .....................................    (3,927,956)    (2,551,109)
Proceeds from sales of fixed maturity investments ..........................     1,311,070        587,963
Proceeds from maturity of fixed maturity investments .......................       377,652        373,996
Purchase of preferred stock investments ....................................       (10,299)       (36,736)
Proceeds from sales and maturity of preferred stock investments ............        12,901          2,612
Purchase of other investments ..............................................        (9,608)       (33,358)
Other ......................................................................        (7,244)        (4,237)
                                                                               ------------   -------------
Net cash used in investing activities ......................................    (2,253,484)    (1,660,869)
                                                                               ------------   -------------

Financing activities
Proceeds from collateral finance facilities ................................     1,760,237        850,000
Deposits to interest sensitive contract liabilities ........................       122,194        157,881
Withdrawals from interest sensitive contract liabilities ...................      (632,527)       (96,808)
Proceeds from issuance of ordinary shares ..................................       153,731          3,767
Net proceeds from drawdown of Stingray facilty .............................       265,000              -
Net proceeds from issuance of non-cumulative perpetual preferred shares ....             -        120,412
Dividends paid on ordinary shares ..........................................        (5,359)        (6,706)
Dividends paid on perpetual preferred shares ...............................        (6,797)             -
                                                                               ------------   -------------
Net cash provided by financing activities ..................................     1,656,479      1,028,546
                                                                               ------------   -------------
Net change in cash and cash equivalents ....................................       (64,113)      (308,112)
Cash and cash equivalents, beginning of period .............................     1,420,205        794,639
                                                                               ------------   -------------
Cash and cash equivalents, end of period ...................................   $ 1,356,092    $   486,527
                                                                               ============   =============

</TABLE>


     See Accompanying Notes to Consolidated Financial Statements (unaudited)


                                       6
<PAGE>


                            SCOTTISH RE GROUP LIMITED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)



1. Basis of presentation

     Accounting Principles -- The accompanying  unaudited consolidated financial
statements have been prepared in accordance with generally  accepted  accounting
principles in the United States of America ("GAAP") and the instructions to Form
10-Q and Article 10 of Regulation S-X.  Accordingly,  they do not include all of
the  information  and  footnotes   required  by  GAAP  for  complete   financial
statements. In the opinion of management,  all adjustments (consisting of normal
recurring  accruals)  considered  necessary  for a fair  presentation  have been
included.  The results for the interim period are not necessarily  indicative of
the results to be expected for the full year ending  December  31,  2006.  These
unaudited  consolidated  financial statements should be read in conjunction with
the  consolidated  financial  statements and notes thereto  included in our 2005
Annual  Report on Form 10-K for the year ended  December 31, 2005 ("2005  Annual
Report").

     Consolidation  -- We consolidate the results of all of our subsidiaries and
all variable  interest  entities for which we are the primary  beneficiary.  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
materially  from those estimates and  assumptions  used by management.  Our most
significant  assumptions  are  for  assumed  reinsurance  liabilities,  premiums
receivable,  deferred acquisition costs,  realization of deferred tax assets and
valuation of  investment  impairments.  We review and revise these  estimates as
appropriate. Any adjustments made to these estimates are reflected in the period
the estimates are revised.

     All tabular  amounts are reported in thousands  of United  States  dollars,
except share and per share data, or as otherwise noted.

     Certain  prior  period  amounts  have been  reclassified  to conform to the
current period presentation.

 2. New accounting pronouncements

FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes

     In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48 ("FIN 48"),  "Accounting for Uncertainty in Income Taxes".
FIN 48 prescribes  detailed  guidance for the financial  statement  recognition,
measurement  and  disclosure  of  uncertain  tax  positions   recognized  in  an
enterprise's  financial  statements in accordance  with FASB  Statement No. 109,
"Accounting  for Income Taxes." Tax positions must meet a "more likely than not"
recognition  threshold at the effective date to be recognized  upon the adoption
of FIN 48 and in subsequent periods.

     FIN 48 will be effective for fiscal years beginning after December 15, 2006
and the  provisions of FIN 48 will be applied to all tax positions  upon initial
adoption.  The  cumulative  effect of applying the  provisions of FIN 48 will be
reported as an adjustment to the opening  balance of retained  earnings for that
fiscal year.  We are currently  evaluating the potential impact of FIN 48 on our
financial statements.


                                       7
<PAGE>


                            SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)


2.   New accounting pronouncements (continued)

FASB  Statement  No. 156,  Accounting  for  Servicing of Financial  Assets -- an
amendment of FASB Statement No. 140

     In March  2006,  the FASB  issued  Statement  No.  156  ("SFAS  No.  156"),
"Accounting  for  Servicing of  Financing  Assets",  which  permits an entity to
choose either of the following  measurement methods for each class of separately
recognized servicing assets and servicing liabilities:

     o    Amortization   method  --  amortize   servicing  assets  or  servicing
          liabilities  in  proportion  to and over the  period of net  servicing
          income  or net  servicing  loss and  assess  the  servicing  assets or
          liabilities for impairment or increased obligation based on fair value
          at each  reporting  date.  This  method  is  consistent  with  current
          subsequent measurement guidance for servicing rights.

     o    Fair value measurement method -- measure servicing assets or servicing
          liabilities at fair value at each reporting date and report changes in
          fair value in earnings in the period in which the change occurs.

     SFAS No. 156 is effective as of the  beginning of an entity's  first fiscal
year that begins after September 15, 2006. We are currently assessing the impact
of SFAS No. 156 on our results of operations and financial position.

FASB Statement No. 157, Fair Value Measurements

     In September  2006,  the FASB issued  Statement  No.  157 ("SFAS No. 157"),
"Fair Value Measurements", which defines fair value, establishes a framework for
measuring  fair  value  under  GAAP and  expands  disclosures  about  fair value
measurements.  We are  required to adopt SFAS No. 157 on January 1, 2008 and are
evaluating  the  implications  of SFAS No. 157 on our results of operations  and
financial position.


                                       8
<PAGE>


                            SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)
3.   Business segments

     We measure  segment  performance  primarily  based on income or loss before
income taxes and  minority  interest.  Our  reportable  segments  are  strategic
business  units that are primarily  segregated by geographic  region.  We report
segments in  accordance  with SFAS No. 131,  "Disclosures  about  Segments of an
Enterprise and Related  Information".  Our segments are Life  Reinsurance  North
America,  Life  Reinsurance  International  and Corporate and Other. The segment
reporting is as follows:


<TABLE>
<CAPTION>
                                                                  Three months ended September 30, 2006
                                                          ---------------------------------------------------
                                                               Life Reinsurance
                                                          --------------------------
                                                            North                    Corporate
                                                           America    International   & Other      Total
                                                          ----------   ------------  ----------  ----------
<S>                                                       <C>          <C>          <C>          <C>
Premiums earned .......................................   $ 421,707    $  31,814    $       -    $ 453,521
Investment income, net ................................     151,872        8,528        2,008      162,408
Fee income ............................................       1,620            -          760        2,380
Realized gains (losses), net ..........................         173       (2,832)       1,587       (1,072)
Change in value of embedded derivatives, net ..........      (5,891)           -            -       (5,891)
                                                          ---------    ---------    ---------    ----------
Total revenues ........................................     569,481       37,510        4,355      611,346
                                                          ---------    ---------    ---------    ----------

Claims and other policy benefits ......................     360,968       16,745            -      377,713
Interest credited to interest sensitive contract
    liabilities .......................................      42,423            -            -       42,423
Acquisition costs and other insurance expenses, net ...      74,082        9,396        2,763       86,241
Operating expenses ....................................      14,569        7,678       17,200       39,447
Collateral finance facilities expense .................      63,866            -        3,457       67,323
Interest expense ......................................       2,986            -        2,019        5,005
                                                          ---------    ---------    ---------    ----------
Total benefits and expenses ...........................     558,894       33,819       25,439      618,152
                                                          ---------    ---------    ---------    ----------
Income (loss) before income taxes and minority interest   $  10,587    $   3,691    $ (21,084)   $  (6,806)
                                                          =========    =========    =========    =========
</TABLE>


                                       9
<PAGE>


                            SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)

3.  Business segments (continued)

<TABLE>
<CAPTION>

                                                                        Three months ended September 30, 2005
                                                                ---------------------------------------------------
                                                                     Life Reinsurance
                                                                -------------------------
                                                                  North                    Corporate
                                                                 America    International   & Other      Total
                                                                ----------  -------------  ----------  ----------
<S>                                                             <C>          <C>          <C>          <C>
Premiums earned ..............................................   $ 427,224    $  42,870    $       -    $ 470,094
Investment income, net .......................................      88,490        2,734          908       92,132
Fee income ...................................................       2,010            -          791        2,801
Realized gains (losses), net .................................        (160)         (82)       1,586        1,344
Change in value of embedded derivatives, net .................      (2,631)           -            -       (2,631)
                                                                ----------   ------------  ----------  ----------
Total revenues ...............................................     514,933       45,522        3,285      563,740
                                                                ----------   ------------  ----------  ----------

Claims and other policy benefits .............................     330,035       26,092            -      356,127
Interest credited to interest sensitive contract liabilities..      36,724            -            -       36,724
Acquisition costs and other insurance expenses, net ..........      80,762        9,933          519       91,214
Operating expenses ...........................................      12,981        6,728       13,200       32,909
Collateral finance facilities expense ........................      11,850            -        1,380       13,230
Interest expense .............................................       3,062            -        2,628        5,690
                                                                ----------   ------------  ----------  ----------
Total benefits and expenses ..................................     475,414       42,753       17,727      535,894
                                                                ----------   ------------  ----------  ----------
Income (loss) before income taxes and minority interest ......   $  39,519    $   2,769    $ (14,442)   $  27,846
                                                                ==========   ============  ==========  ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                            Nine months ended September 30, 2006
                                                                    ---------------------------------------------------
                                                                          Life Reinsurance
                                                                    -------------------------
                                                                      North                     Corporate
                                                                     America    International   & Other          Total
                                                                    ----------  -------------  -----------    -----------
<S>                                                               <C>          <C>          <C>              <C>
Premiums earned ..............................................   $ 1,258,174    $    89,310    $         -    $ 1,347,484
Investment income, net .......................................       412,576         20,488          6,343        439,407
Fee income ...................................................         8,516              -          2,236         10,752
Realized gains (losses), net .................................       (19,225)       (10,878)         4,132        (25,971)
Change in value of embedded derivatives, net .................        11,621              -              -         11,621
                                                                 -----------    -----------    -----------    ------------
Total revenues ...............................................     1,671,662         98,920         12,711      1,783,293
                                                                 -----------    -----------    -----------    ------------

Claims and other policy benefits .............................     1,046,874         77,403              -      1,124,277
Interest credited to interest sensitive contract liabilities..       140,523              -              -        140,523
Acquisition costs and other insurance expenses, net ..........       255,770         18,398          4,476        278,644
Operating expenses ...........................................        43,699         21,329         44,876        109,904
Collateral finance facilities expense ........................       140,300              -          5,346        145,646
Interest expense .............................................         8,586              -          8,378         16,964
                                                                 -----------    -----------    -----------    ------------
Total benefits and expenses ..................................     1,635,752        117,130         63,076      1,815,958
                                                                 -----------    -----------    -----------    ------------
Income (loss) before income taxes and minority interest ......   $    35,910    $   (18,210)   $   (50,365)   $   (32,665)
                                                                 ===========    ===========    ===========    ============

</TABLE>


                                       10
<PAGE>


                            SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)


3.   Business segments (continued)

<TABLE>
<CAPTION>
                                                                            Nine months ended September 30, 2005
                                                                    ---------------------------------------------------
                                                                         Life Reinsurance
                                                                    ------------------------
                                                                     North                    Corporate
                                                                    America    International   & Other          Total
                                                                   ----------  -------------  ----------    ----------
<S>                                                               <C>          <C>          <C>              <C>
Premiums earned ..............................................   $ 1,273,196    $    97,471   $         -    $ 1,370,667
Investment income, net .......................................       246,977          7,676         1,512        256,165
Fee income ...................................................         6,917              -         2,293          9,210
Realized gains, net ..........................................         3,490            503         1,580          5,573
Change in value of embedded derivatives, net .................       (19,266)             -             -        (19,266)
                                                                 -----------    -----------   -----------    -----------
Total revenues ...............................................     1,511,314        105,650         5,385      1,622,349
                                                                 -----------    -----------   -----------    -----------

Claims and other policy benefits .............................       967,822         63,071             -      1,030,893
Interest credited to interest sensitive contract liabilities..        99,089              -             -         99,089
Acquisition costs and other insurance expenses, net ..........       286,967         16,831         1,552        305,350
Operating expenses ...........................................        34,875         19,862        29,241         83,978
Collateral finance facilities expense ........................        28,483              -         3,988         32,471
Interest expense .............................................         8,427              -         7,670         16,097
Total benefits and expenses ..................................     1,425,663         99,764        42,451      1,567,878
                                                                 -----------    -----------   -----------    -----------
Income (loss) before income taxes and minority interest.......   $    85,651    $     5,886   $   (37,066)   $    54,471
                                                                 ===========    ===========   ===========    ===========
</TABLE>



<TABLE>
<CAPTION>
Assets                                                                          September 30, 2006      December 31, 2005
------                                                                          ------------------      -----------------
<S>                                                                              <C>                       <C>
Life Reinsurance
    North America .............................................................     $12,395,164            $10,472,863
    International .............................................................         481,358                460,888
                                                                                    -----------            -----------
Total Life Reinsurance.........................................................      12,875,522             10,933,751
Corporate & Other .............................................................         950,380              1,072,369
                                                                                    -----------            -----------
Total .........................................................................     $13,825,902            $12,006,120
                                                                                    ===========            ===========
</TABLE>

                                       11
<PAGE>


                            SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)


4.   Earnings per ordinary share

     The  following  table  sets  forth the  computation  of basic  and  diluted
earnings per ordinary share.
<TABLE>
<CAPTION>

                                                            Three months ended                    Nine months ended
                                                    ---------------------------------   ----------------------------------
                                                       September 30,    September 30,    September 30,       September 30,
                                                          2006             2005             2006                  2005
                                                    ----------------  ----------------  --------------     ---------------
<S>                                                 <C>                <C>               <C>                <C>
Numerator:
Net income (loss).................................  $     (27,415)     $      34,410     $    (135,156)     $      69,421
Dividend declared on non-cumulative perpetual
    preferred shares..............................         (2,266)            (2,492)           (6,797)            (2,492)
Imputed dividend on prepaid variable share
    forward contract .............................           (809)                 -              (881)                 -
                                                    -------------     --------------    --------------     ---------------
Net income (loss) available to ordinary
    shareholders..................................  $     (30,490)     $      31,918     $    (142,834)     $      66,929
                                                    =============     ==============    ==============     ===============

Denominator:
Denominator for basic earnings per ordinary
    share - weighted average number of
    ordinary shares...............................
                                                       56,933,566         45,517,832        54,708,914         43,004,046
Effect of dilutive securities ....................
     - Stock options and restricted stock units....             -          1,170,122                 -            759,262
     - Warrants....................................             -          1,024,426                 -          2,645,944
     - 4.50% senior convertible notes and
   Hybrid Capital Units...........................              -            830,882                 -            670,995
                                                    -------------     --------------    --------------     ---------------
Denominator for dilutive earnings (loss) per
    ordinary share................................     56,933,566         48,543,262        54,708,914         47,080,247
                                                    =============     ==============    ==============     ==============
Basic earnings (loss) per ordinary share..........  $       (0.54)    $         0.70    $        (2.61)    $         1.56
                                                    =============     ==============    ==============     ==============
Diluted earnings (loss) per ordinary share........  $       (0.54)    $         0.66    $        (2.61)    $         1.42
                                                    =============     ==============    ==============     ==============
</TABLE>


     In  accordance  with SFAS No. 128,  "Earnings  Per Share",  the exercise of
options and warrants or  conversion  of  convertible  securities  is not assumed
unless it would reduce earnings per share or increase loss per share.


5.       Collateral finance facilities

     On May 2,  2006,  Ballantyne  Re plc,  an orphan  special  purpose  vehicle
incorporated  under  the laws of  Ireland  issued in a  private  offering  $1.74
billion of debt to  external  investors  and $178.0  million of debt to Scottish
Annuity & Life Insurance Company (Cayman) Ltd. The total debt issued to external
investors (collectively, the "Notes") consisted of:

     o    $250.0 million of Class A-1 Floating Rate Notes,

     o    $500.0 million of Class A-2 Floating Rate Guaranteed Notes Series A,

     o    $500.0 million of Class A-2 Floating Rate Guaranteed Notes Series B,

     o    $100.0 million of Class A-3 Floating Rate Guaranteed Notes Series A,

                                       12

<PAGE>


                            SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)

5.      Collateral finance facilities (continued)

     o    $100.0 million of Class A-3 Floating Rate Guaranteed Notes Series B,

     o    $100.0 million of Class A-3 Floating Rate Guaranteed Notes Series C,

     o    $100.0 million of Class A-3 Floating Rate Guaranteed Notes Series D,

     o    $10.0 million of Class B-1 7.51244% Subordinated Notes,

     o    $40.0 million of Class B-2 Subordinated Floating Rate Notes, and

     o    $42.0 million of Class C-1 Subordinated Variable Interest Rate Notes.

     The debt issued to Scottish Annuity & Life Insurance  Company (Cayman) Ltd.
consisted of $8.0 million of Class C-1 Subordinated Variable Interest Rate Notes
and $170.0 million Class C-2 Subordinated  Variable  Interest Rate Notes,  which
Scottish  Annuity  & Life  Insurance  Company  (Cayman)  Ltd.  intends  to  hold
(collectively,  the "SALIC Notes";  and together with the Notes, the "Ballantyne
Notes").  Concurrently with its offering of the Ballantyne Notes,  Ballantyne Re
issued (i)  $500,000  of Class D  Convertible  Notes,  which were  purchased  by
Scottish Re Group Limited,  (ii) 163.0 million  Redeemable  Preference Shares of
U.S. $1.00 par value per share which were  purchased by Scottish  Annuity & Life
Insurance   Company  (Cayman)  Ltd.,  and  (iii)  18.2  million   Non-Redeemable
Preference Shares of U.S. $1.00 par value per share which were also purchased by
Scottish Annuity & Life Insurance Company (Cayman) Ltd.

     Interest  on the  principal  amount of the  Ballantyne  Notes is payable in
intervals  ranging from every 28 days to monthly to  annually,  depending on the
note, initially at a rate equivalent to one-month LIBOR plus 0.61% for the Class
A-1  Floating  Rate Notes (and after May 2, 2022,  one-month  LIBOR plus 1.22%),
one-month  LIBOR plus 0.31% for the Class A-2  Floating  Rate  Guaranteed  Notes
Series A (and after May 2, 2027,  one-month  LIBOR plus 0.62%),  one-month LIBOR
plus 0.36% for the Class A-2 Floating Rate Guaranteed  Notes Series B (and after
May 2, 2027,  one-month  LIBOR plus 0.72%),  4.99%,  4.99%,  5.00% and 5.01% for
Series A, Series B, Series C, and Series D of the Class A-3 Notes,  respectively
(with the rate on the Class  A-3  Notes to reset  every 28 days),  7.51% for the
Class B-1  Subordinated  Notes,  one-month  LIBOR  plus  2.00% for the Class B-2
Subordinated  Floating Rate Notes,  and a variable rate based on  performance of
the  underlying  block of  business  for the  Class  C-1  Subordinated  Variable
Interest Rate Notes and the Class C-2 Subordinated Variable Interest Rate Notes.

     Proceeds from this offering  were used to fund the  Regulation  XXX reserve
requirements for the business acquired from ING America Insurance Holdings, Inc.
$1.65 billion of the proceeds from the Ballantyne Notes have been deposited into
a series of accounts that  collateralize the reserve  obligations of Scottish Re
(U.S.), Inc.

     The holders of the Ballantyne Notes cannot require repayment from us or any
of our subsidiaries. The timely payment of the scheduled interest payments and
the principal on the maturity date of Series A of the Class A-2 Notes and Series
A, Series B, Series C, Series D and, if issued, Series E of the Class A-3 Notes
has been guaranteed by Ambac Assurance UK Limited. The timely payment of the
scheduled interest payments and the principal on the maturity date of Series B
of the Class A-2 Notes and, if issued, Series F of the Class A-3 Notes has been
guaranteed by Assured Guaranty (UK) Ltd.


                                       13

<PAGE>


                            SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)

5.      Collateral finance facilities (continued)

     In accordance with FASB Interpretation No. 46 (revised December 2003) ("FIN
46R"),   "Consolidation  of  Variable  Interest  Entities",   Ballantyne  Re  is
considered to be a variable  interest  entity and we are  considered to hold the
primary beneficial interest.  As a result,  Ballantyne Re is consolidated in our
financial  statements  beginning  in the second  quarter of 2006.  The assets of
Ballantyne  Re are  recorded  as fixed  maturity  investments  and cash and cash
equivalents. Our consolidated statements of income include the investment return
of Ballantyne Re as investment  income and the cost of the facility is reflected
in collateral finance facilities expense.


6.       Commitments

Credit facilities

     On July 14, 2005,  Scottish Annuity & Life Insurance Company (Cayman) Ltd.,
Scottish Re (Dublin) Limited,  Scottish Re (U.S.),  Inc. and Scottish Re Limited
entered into a $200.0  million,  three-year  revolving  unsecured  senior credit
facility with a syndicate of banks (the "$200 Million  Credit  Agreement").  The
facility provides  capacity for borrowing and extending  letters of credit.  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 Limited.  There were no outstanding  borrowings at September 30,
2006.  Outstanding  letters of credit  under  this  facility  amounted  to $42.8
million at September 30, 2006. On September  21, 2006,  Scottish  Annuity & Life
Insurance Company (Cayman) Ltd. gave notice that it will permanently  reduce the
aggregate  commitments  under  the  $200  Million  Credit  Agreement,  effective
September 22, 2006, to $42.8 million.  The aggregate  commitments under the $200
Million Credit Agreement will be further  permanently  reduced dollar for dollar
by the  amount of each  letter of credit  returned  undrawn  or, if drawn,  upon
payment of the  obligation  by the  applicable  borrower.  Also on September 21,
2006,  Scottish Annuity & Life Insurance  Company (Cayman) Ltd. sent a notice to
the  syndicate of banks that it did not wish to have the expiry  dates  extended
pursuant to the evergreen feature contained in the outstanding letters of credit
that were issued.  The majority of such letters of credit have a current  expiry
date of December 31, 2006,  and the  remainder  have current  expiry dates on or
prior to September  15, 2007.  Outstanding  letters of credit under the facility
amounted to $25.3 million at November 8, 2006.

     On August 18,  2005,  Scottish Re  (Dublin)  Limited  entered  into a $30.0
million  three-year  revolving,  unsecured  letter  of  credit  facility  with a
syndicate  of banks (the "$30  Million  Credit  Agreement").  The  facility is a
direct financial obligation of Scottish Re (Dublin) Limited,  however,  Scottish
Annuity & Life  Insurance  Company  (Cayman)  Ltd.  has  guaranteed  the payment
obligations  of Scottish Re (Dublin)  Limited.  Effective  September  22,  2006,
Scottish Annuity & Life Insurance Company (Cayman) Ltd. and Scottish Re (Dublin)
Limited  terminated  the $30  Million  Credit  Agreement.  All letters of credit
outstanding  under  the  agreement,  in an  aggregate  of  $10.0  million,  were
cancelled.

     The  financial  covenants  set forth in the $200 Million  Credit  Agreement
require that Scottish Annuity & Life Insurance  Company (Cayman) Ltd. maintain a
minimum  amount of  consolidated  shareholders'  equity (during any four quarter
period,  $750.0 million plus 50% of consolidated  net income for the period plus
50% of any increases to  shareholders'  equity during the period) and maintain a
ratio of unencumbered  assets to aggregate  borrowings under the facility of 1.2
times borrowings.  In addition, this facility requires Scottish Re Group Limited
to maintain a minimum amount of  consolidated  shareholders'  equity (during any
four quarter period,  $760.0 million plus 50% of consolidated net income for the
period plus 50% of any increases to shareholders'  equity during the period) and
a debt to  capitalization  ratio of less than 30%. For the purposes of computing
the financial  covenants,  the collateral  facilities and their associated costs
are excluded. The facility also contains certain covenants on borrowing entities
in respect  of,  among other  things,  dividends  or loans to the  parent,  debt
incurrence and affiliate transactions.

     Failure  to comply  with the  requirements  of the credit  facility  would,
subject to grace periods, result in an event of default and we would be required
to repay any outstanding  borrowings.  At September 30, 2006, Scottish Annuity



                                       14

<PAGE>


                            SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)

6.      Commitments (continued)

& Life  Insurance  Company  (Cayman)  Ltd. and Scottish Re Group Limited were in
compliance with the financial covenants noted in the preceding paragraph.

7.       Derivatives

Interest Rate Swap

     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
No. 133 ("SFAS No. 133"),  "Accounting  for Derivative  Instruments  and Hedging
Activities",  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 change in fair value of the
swap during the three and nine months  ended  September  30, 2006  amounted to a
gain of $1.8 million and $4.3 million, respectively. The change in fair value of
the swap  during the three  months and nine  months  ended  September  30,  2005
amounted to a gain of $1.7 million and $1.6 million,  respectively.  These gains
and  losses  are  included  in  realized  gains  (losses)  in  the  consolidated
statements of income. On August 2, 2006, we terminated the swap contract for net
proceeds of $3.5 million.

Tartan Capital Limited

     On May 4, 2006,  we entered  into an  agreement  that  provides two classes
totaling  $155.0 million of  collateralized  catastrophe  protection with Tartan
Capital Limited  ("Tartan"),  a special purpose Cayman Islands company which was
funded through a catastrophe bond  transaction.  This coverage is for the period
January  1, 2006 to  December  31,  2008 and  provides  Scottish  Annuity & Life
Insurance  Company (Cayman) Ltd. with protection from losses arising from higher
than normal mortality  levels within the United States,  as reported by the U.S.
Centers for Disease Control and Prevention or other designated reporting agency.
This  coverage is based on a mortality  index,  which is based on age and gender
weighted  mortality  rates  for the  United  States  constructed  from  publicly
available  data  sources,  as  defined  at  inception,  and which  compares  the
mortality rates over consecutive 2 year periods to a reference index value. Upon
the  occurrence of a loss event,  where the indexed  losses  exceeds the trigger
level for a given  tranche,  the  percentage of the original  principal for each
tranche  paid  to  Scottish  Annuity  & Life  Insurance  Company  (Cayman)  Ltd.
increases  linearly  between the trigger level and exhaustion  level.  Since the
amount  of any  recovery  is based on the  mortality  index,  the  amount of the
recovery may be different than the ultimate claims paid by Scottish  Annuity and
Life Insurance Company (Cayman) Ltd.'s and any of its affiliates  resulting from
the loss event.

     In  accordance  with SFAS No.  133,  this  contract is  considered  to be a
derivative.  We record  this  contract at fair value which is included in "Other
assets" and "Other  liabilities"  in the  Consolidated  Balance  Sheets with any
changes  in the value  reflected  in  "Acquisition  costs  and  other  insurance
expenses" in the  Consolidated  Statements of Income.  There is no quoted market
value  available  for this  derivative.  The fair value is  estimated  utilizing
published  mortality data.  Expenses related to this transaction are included in
"Acquisition  costs and other  insurance  expenses" in the  Corporate  and Other
Segment.

     Tartan is a variable interest entity under the provisions of FIN 46R. We
are not the primary beneficiary of this entity and are, therefore, not required
to consolidate it in our consolidated financial statements.

8.     Shareholders' equity

Prepaid variable share forward contract

     In  connection  with the  December 23, 2005  ordinary  share  offering,  we
entered into forward sales  agreements  with  affiliates of Bear,  Stearns & Co.
Inc.  and Lehman  Brothers,  Inc.  (the  "forward  purchasers")  and the forward


                                       15

<PAGE>


                            SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)

8.      Shareholders' equity (continued)

purchasers  borrowed and sold an aggregate of approximately  3,150,000  ordinary
shares as their  initial hedge of the forward sale  agreements.  Pursuant to the
forward sale agreements, the forward purchasers agreed to pay us an aggregate of
approximately   $75.0  million  on  September  29,  2006  and  an  aggregate  of
approximately  $75.0  million  on  December  29,  2006,  subject to our right to
receive a portion of such payment prior to the settlement dates. In exchange, on
each of such dates we would deliver to the forward  purchasers a variable number
of ordinary  shares based on the average  market  price of the ordinary  shares,
subject to a floor  price of $22.80 and a cap price of $28.80.  We also have the
right to net share settle or cash settle the forward sale  agreements.  The fair
value  of  the  forward   sales   agreements   at  inception  was  reflected  in
shareholders' equity (as a reduction in additional paid-in capital) and the fair
value is not adjusted until the settlement date of the forward. In addition, the
underwriting   costs  of  the  forward  sales   agreements   were  reflected  in
shareholders' equity (as a reduction in additional paid-in capital).

     On June 26, 2006, we exercised  our right of  prepayment  under the forward
sale agreements and received 75% of the $150.0 million proceeds  totaling $110.0
million,  net of  prepayment  discounts of $2.5  million.  This  prepayment  was
recorded as a separate component of consolidated shareholders' equity. The total
amount of the discount related to the prepayment  transaction was recorded as an
imputed  dividend charge over the applicable  contract  settlement  period.  The
prepayment  option on the forward  sale  agreements  provides  the  counterparty
liquidation preferences that are similar to other ordinary shareholders.

     On August 9, 2006, the forward purchasers  notified us of the occurrence of
"Increased  Cost of Stock Borrow" under the forward sale agreements and proposed
price  adjustments  thereto.  Pursuant to the  forward  sales  agreements,  upon
receipt of such  notification,  we were  entitled to elect to (a) agree to amend
the transactions to take into account the price adjustments; (b) pay the forward
purchasers an amount  corresponding to the price  adjustments;  or (c) terminate
the  transactions.  On August 11,  2006,  the  forward  purchasers  proposed  an
amendment  to the forward  sales  agreements  which  provided  us an  additional
alternative,  the acceleration of the scheduled maturity date to August 14, 2006
under each of the  forward  sales  agreements.  We agreed to this  amendment  on
August 14, 2006.  On August 17, 2006, we received cash proceeds of $36.5 million
and issued 6.6 million ordinary  shares,  which satisfied in full our obligation
to deliver  shares  pursuant to the  forward  sales  agreements  and the forward
purchasers' obligations to pay us under such agreements. An imputed dividend was
charged to earnings based on the pro-rated  amount of time that elapsed from the
original  prepayment  date until  settlement  date.  The balance of the discount
reduced the net proceeds on issuance of the shares.

     Upon the  settlement  of the forward  sales  agreements,  we have  received
$147.3 million in the aggregate and issued an aggregate of 6.6 million  ordinary
shares.

9.       Stock based compensation

     Prior to January 1, 2006,  we accounted  for  stock-based  compensation  in
accordance  with SFAS No. 123  ("SFAS No.  123"),  "Accounting  for  Stock-Based
Compensation",   as  amended  by  SFAS  No.  148,  "Accounting  for  Stock-Based
Compensation  - Transition and  Disclosure".  Under the  fair value  recognition
provisions of SFAS No. 123, stock-based compensation expense for all stock-based
awards  issued from  January 1, 2003 was measured at the grant date based on the
value of the award and was  recognized  as expense  over the service  period for
awards that were expected to vest.

     In December  2004,  the FASB revised  SFAS No. 123 by issuing  "Share-Based
Payment" ("SFAS No. 123(R)").  SFAS No. 123(R) 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.


     Effective January 1, 2006, we adopted SFAS No.123(R) "Share Based Payment",
using the modified-prospective transition method. Under the modified-prospective
transition method,  compensation cost recognized


                                       16

<PAGE>


                            SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)

9.       Stock based compensation (continued)

includes  compensation costs for all share-based  payments granted prior to, but
not yet  vested,  as of  January  1,  2006,  based on the grant  date fair value
estimated  in  accordance  with the  original  provisions  of SFAS No. 123,  and
compensation costs for all share-based payments granted subsequent to January 1,
2006,  based on the grant  date fair  value  estimated  in  accordance  with the
provisions of SFAS No. 123(R). Results for prior periods have not been restated.

     As a result of adopting SFAS No. 123(R) "Share Based Payment",  loss before
income  taxes for the three and nine months  ended  September  30, 2006 are $0.1
million and $0.4 million  higher,  respectively,  and net loss for the three and
nine months ended  September 30, 2006 are $0.1 million and $0.4 million  higher,
respectively,  than if we had continued to account for stock-based  compensation
awarded before January 1, 2003 under Accounting Principles Board Opinion No. 25.
Diluted  loss per share for the three and nine months ended  September  30, 2006
would be $0.53 and $2.60 per share,  respectively,  without the adoption of SFAS
No. 123(R).

     Pro forma  information  regarding  net  income  and  earnings  per share is
required  by SFAS No.  123(R)  for  periods  prior to the  adoption  of SFAS No.
123(R), and has been determined as if we accounted for all employee equity based
compensation under the fair value method of SFAS No 123(R).

     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  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,  option  valuation models require the
input of highly subjective  assumptions including the expected price volatility,
dividend  yield,  risk free  interest  rate and  expected  life (in  years).  In
management's  opinion,  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,  the
Black-Scholes  model does not  necessarily  provide a reliable single measure of
the fair value of our employee stock options.

     Our pro forma information for the three and nine months ended September 30,
2005 is as follows:

<TABLE>
<CAPTION>
                                                                                    Three months          Nine months
                                                                                        ended                 ended
                                                                                     September 30,        September 30,
                                                                                         2005                 2005
                                                                                    --------------       ----------------

<S>                                                                                         <C>                  <C>
   Net income as reported........................................................          $34,410               $69,421
   Dividend declared on non-cumulative perpetual preferred shares................           (2,492)               (2,492)
                                                                                   ---------------        ---------------
   Net income available to ordinary shareholders.................................           31,918                66,929
   Stock-based employee compensation cost, net of related tax effects,
        included in the determination of net income as reported..................            1,397                 3,871
   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..............................           (1,549)               (4,427)
                                                                                   ---------------        ---------------
   Net income pro forma..........................................................          $31,766               $66,373
                                                                                   ===============        ==============

   Per share data:
   Basic earnings per ordinary share as reported.................................            $0.70                $1.56
   Basic earnings per ordinary share pro forma...................................            $0.70                $1.54
   Diluted earnings per ordinary share as reported...............................            $0.66                $1.42
   Diluted earnings per ordinary share pro forma.................................            $0.65                $1.41
</TABLE>



                                       17

<PAGE>


                            SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)


9.      Stock based compensation (continued)

     We have four stock  option plans (the "1998  Plan",  the "1999  Plan",  the
"Harbourton  Plan" and the "2001 Plan",  collectively the "Option  Plans").  The
Option  Plans  allow us to  grant  non-statutory  options,  subject  to  certain
restrictions,  to  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 Option 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 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 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,
except  for  grants to  directors,  which are fully  exercisable  on the date of
grant. Total options authorized under the Option Plans are 3,750,000.

     The equity  incentive  compensation  plan ("2004  ECP")  allows us to grant
non-statutory   options  and   restricted   share  units,   subject  to  certain
restrictions,  to  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 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,  except for grants to
directors,  which are fully  exercisable  on the date of  grant.  Total  options
authorized  under the 2004 ECP are 750,000.  In addition,  1,000,000  restricted
share units have been  authorized  under the 2004 ECP of which at least  750,000
will vest based on achievement of certain  performance  goals.  The  performance
measures that must be met for vesting to occur are  established at the beginning
of each three year performance period. Depending on the performance,  the actual
amount of  restricted  share units could  range from 0% to 100%.  The  remaining
250,000 restricted share units may be issued without performance goals.

Stock Options

     Option activity under all Option Plans and the 2004 ECP is as follows:

<TABLE>
<CAPTION>
                                          Three months ended             Nine months ended
                                     ---------------------------   ---------------------------
                                     September 30   September 30   September 30   September 30
                                         2006          2005            2006            2005
                                     ------------   ------------   ------------   ------------
<S>                                    <C>            <C>            <C>            <C>
Outstanding, beginning of period .     2,346,821      2,727,370      2,586,237      2,491,236
Granted ..........................             -        125,001        154,000        566,001
Exercised ........................      (230,000)      (163,500)      (583,217)      (318,300)
Cancelled ........................      (224,302)       (24,734)      (264,501)       (74,800)
                                     ------------   ------------   ------------   ------------
Outstanding end of period ........     1,892,519      2,664,137      1,892,519      2,664,137
                                     ------------   ------------   ------------   ------------
Options exercisable, end of period     1,221,039      1,687,270      1,221,039      1,687,270
                                     ============   ============   ============   ============
Outstanding, beginning of period .   $   18.4278    $   16.6756    $   17.5411    $   14.8860
                                     ============   ============   ============   ============
Granted ..........................   $         -    $   24.6720    $   24.5487    $   25.5967
                                     ============   ============   ============   ============
Exercised ........................   $    7.7500    $   10.4489    $   11.6619    $   11.6653
                                     ============   ============   ============   ============
Cancelled ........................   $   19.7564    $   21.1140    $   20.0815    $   20.3950
                                     ============   ============   ============   ============
Outstanding, end of period .......   $   19.5680    $   17.3917    $   19.5680    $   17.3917
                                     ============   ============   ============   ============
</TABLE>

     Weighted average exerciseable price per share at September 30, 2006 and
2005 was $17.3178 and $14.0945, respectively.


                                       18

<PAGE>


                            SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)


9.      Stock based compensation (continued)

     During the three and nine months  ended  September  30, 2006 and 2005,  the
following activity occurred under our plans:

<TABLE>
<CAPTION>
                                                                Three months ended                     Nine months ended
                                                          ------------------------------      ---------------------------------
                                                          September 30,     September 30,       September 30,     September 30,
                                                              2006              2005                2006               2005
                                                          -------------     ------------      ---------------  -----------------
<S>                                                    <C>                 <C>                <C>               <C>
Weighted average grant date fair value of              $             -     $     11.7955      $       11.9471   $       11.0535
   options..........................................
                                                          -------------     ------------      ---------------  -----------------
Total intrinsic value of options exercised..........   $       590,000     $   2,326,907      $     4,151,363   $     3,959,294
                                                          -------------     ------------      ---------------  -----------------
Total fair value of options vested..................   $     1,554,733     $     310,221      $     5,723,297   $     3,075,426
                                                          -------------     ------------      ---------------  -----------------
</TABLE>


Summary of options outstanding at September 30, 2006:

<TABLE>
<CAPTION>
                                             Options Outstanding                                Options Exercisable
                                 --------------------------------------------     ------------------------------------------------
                                                                   Weighted                                             Weighted
                                                                    Average                                              Average
                                Number of        Weighted          Remaining        Number of         Weighted         Remaining
Year of         Range of         Shares           Average         Contractual        Shares            Average         Contractual
 Grant      Exercise Prices    Outstanding    Exercise Price         Life          Exercisable      Exercise Price        Life
--------    -----------------  -----------    --------------      -----------     -------------     --------------     -----------
<C>         <C>                    <C>            <C>               <C>              <C>                <C>              <C>
1998....    $         15.0000      300,002        $15.0000          2.17             300,002            $15.0000         2.17
1999....    $  8.0625-15.0000      146,100        $12.3883          1.79             146,100            $12.3883         1.79
2000....    $  7.9375- 9.0000       76,000        $ 8.8158          3.52              76,000            $ 8.8158         3.52
2001....    $ 13.5000-18.7600      126,167        $15.0890          4.10             126,167            $15.0890         4.10
2002....    $ 15.5000-21.5100      326,250        $17.9455          5.44             241,550            $17.9992         5.42
2003....    $ 17.4700-17.7500       79,000        $17.7234          6.57              37,000            $17.7084         6.57
2004....    $ 21.7000-23.8700      198,000        $23.4199          7.60             125,534            $23.3989         7.62
2005....    $ 23.6000-26.1030      521,000        $25.5626          8.56             158,686            $25.6746         8.47
2006....    $ 18.9000-24.7500      120,000        $24.4917          9.39              10,000            $24.7500         9.38
            -----------------  -----------    --------------      -----------     -------------     --------------     -----------
            $  7.9375-26.1030    1,892,519        $19.5680          5.85           1,221,039            $17.3178         5.85
            =================  ===========    ==============      ===========     =============     ==============     ===========
</TABLE>

     The  aggregate  intrinsic  value of  options  outstanding  and  exercisable
amounted to $310,533 at September 30, 2006.

     The fair value of each option award is estimated on the date of grant using
the Black-Scholes  option-pricing model, which uses the assumptions noted in the
following  table.  Expected  dividend yield is based on the historical  dividend
patterns as a percentage of the market value of the stock.  Expected  volatility
is based on implied volatilities from options traded on our ordinary shares. The
expected  term of options  granted is derived using the  "simplified"  method as
allowed under the provisions of the Securities and Exchange  Commission's  Staff
Accounting  Bulletin  No. 107 and  represents  the  period of time that  options
granted are expected to be outstanding.  The risk-free interest rate for periods
within the  contractual  life of the option is based on the U.S.  Treasury yield
curve in effect at the time of grant.


<TABLE>
<CAPTION>
                                                                 September 30, 2006            December 31, 2005
                                                                 -----------------             -----------------
<S>                                                                      <C>                         <C>
Expected dividend yield................................                  0.00%                       0.77%
Risk free interest rate................................              4.56%-4.92%                  3.53%-4.01%
Expected life of options...............................                7 years                      7 years
Expected volatility....................................                  0.64                        0.35
</TABLE>

     Compensation  expense for stock options for the three and nine months ended
September 30, 2006 was $0.6 million and $3.0 million, respectively. Compensation
expense for stock options for the three and nine months ended September 30, 2005
was $0.7 million and $2.0 million, respectively. We recognize compensation costs
for stock  options  with  pro-rata  vesting  evenly over the  requisite  service
period.  There was no tax benefit  during the nine months  ended  September  30,
2006.


                                       19

<PAGE>


                            SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)


9.      Stock based compensation (continued)

     As of  September  30, 2006,  there was $5.9  million of total  unrecognized
compensation  costs  related to stock  options.  These costs are  expected to be
recognized over a period of up to three years.

     During the three and nine months ended  September  30, 2006,  the amount of
cash  received  from the  exercise of share  options  was $2.0  million and $7.8
million, respectively, and there was no tax benefit realized from stock options.

Restricted Share Awards

     Restricted share award activity under the 2004 ECP is as follows:

<TABLE>
<CAPTION>
                                                                  Three months ended                     Nine months ended
                                                            -------------------------------     -------------------------------
                                                            September 30,      September 30,     September 30,    September 30,
                                                                2006              2005               2006              2005
                                                            ------------       ------------     -------------     -------------
<S>                                                            <C>               <C>             <C>               <C>
Outstanding, beginning of period....................        890,700             464,700          659,200           95,700
Granted.............................................         15,000             175,000          280,500          544,000
Cancelled...........................................       (234,500)             (3,000)        (268,500)          (3,000)
                                                           ---------            --------        --------         ---------
Outstanding end of period .......................           671,200             636,700          671,200          636,700
                                                           =========            =======         ========        =========
Restricted share units exercisable, end of period...               -                  -                -                -
                                                           =========            =======         ========        =========
</TABLE>


     Weighted average exercise price for restricted share units is $0.

     During the three and nine months  ended  September  30, 2006 and 2005,  the
following activity occurred under our plans:

<TABLE>
<CAPTION>
                                                                 Three months ended                     Nine months ended
                                                             ------------------------------        ----------------------------
                                                             September 30,     September 30,        September 30,  September 30,
                                                                2006               2005                 2006            2005
                                                            --------------     ------------        -------------   ------------
<S>                                                         <C>                <C>                 <C>             <C>
Weighted average grant date fair value of
   awards...........................................        $      10.0367     $    24.4866        $    23.6080    $   24.1920
                                                            --------------     ------------        -------------   ------------
</TABLE>


     We have three  restricted  share award traunches based on the year of grant
and  service  and  performance  period  related  to  them:  "2004-2006  Grants",
"2005-2007  Grants" and "2006-2008  Grants".  "2005-2007  Grants" and "2006-2008
Grants" are comprised of two components - restricted stock units and performance
shares. The third traunche "2004-2006 Grants" is comprised of performance shares
only.  During the quarter  ended  September  30,  2006,  we  concluded  that the
performance  targets of the  performance  shares in all three  traunches were no
longer  probable of being  achieved and as a result we reversed  $4.1 million of
compensation expense relating to these performance shares.

     Compensation  expense for  restricted  share  awards for the three and nine
months  ended  September  30,  2006  was  $(3.6)  million  and  $(1.4)  million,
respectively. Compensation expense for restricted share awards for the three and
nine  months  ended  September  30,  2005 was  $0.7  million  and $1.9  million,
respectively.  We recognize  compensation costs for restricted share awards with
cliff vesting evenly over the requisite service period. There was no tax benefit
during the nine months ended September 30, 2006.

     As of September 30, 2006, there was $1.9 million of total unrecognized
compensation costs related to restricted stock units. These costs are expected
to be recognized over a period of up to three years.


                                       20

]<PAGE>


                            SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2006
                                   (UNAUDITED)


10.  Income taxes

     Income tax expense in the third quarter ended  September 30, 2006 was $20.8
million  compared to an income tax benefit of $6.7 million in the same period in
2005. The change in our effective tax rate in the third quarter ended  September
30, 2006  compared to the same  period in 2005 is  primarily  related to a $30.1
million valuation allowance established on deferred tax assets.

     The valuation  allowance  principally relates to current period tax benefit
not  being  recognized  (as  previously  indicated,  the  Company  can no longer
recognize tax benefits for certain legal  entities) and an additional  valuation
allowance established on prior period deferred tax assets resulting from revised
statutory and tax projections  related to certain legal entities.  At the end of
the third  quarter,  the remaining  gross deferred tax asset is supported by the
reversal of deferred tax  liabilities  within the carry  forward  period and tax
planning  strategies for which  management  believes that it is more likely than
not that the  deferred  tax  assets  will be  utilized  in  subsequent  periods,
although  there is a risk that we will need to  establish  additional  valuation
allowances in future quarters.

11.  Mediation

     On June  16,  2005,  we  requested  mediation  from  Employers  Reinsurance
Corporation ("ERC") pursuant to the stock purchase agreement  transferring a 95%
interest in Scottish Re Life  Corporation  (formerly  ERC Life  Corporation)  to
Scottish Holdings,  Inc. We assert that ERC breached certain representations and
warranties  under the agreement.  Any negative  outcome from this mediation will
not have a  material  adverse  impact  on our  financial  position  because  the
asserted breaches have already been fully reflected in our financial position at
September 30, 2006. The parties have held two mediation sessions,  but have been
unable to resolve the dispute. No date has been scheduled for a future mediation
session.



                                       21

<PAGE>


Item 2. Management's  Discussion and Analysis of Financial Condition and Results
        of Operations

General

Forward-Looking Statements

     Some of the statements  contained in this report are not  historical  facts
and are forward-looking  statements within the meaning of the Private Securities
Litigation  Reform Act.  Forward-looking  statements  involve  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 to our ratings;

     o    uncertainties  about our  ability  to raise  equity  capital  or other
          sources  of  liquidity  to  support  ongoing  capital,  liquidity  and
          collateral needs;

     o    uncertainties  about our  ability to  maintain a flow of new  business
          given our current ratings;

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

     o    changes in expectations regarding future realization of gross deferred
          tax assets;

     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    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    risk that an  ownership  change  will  result in a  limitation  on the
          ability to fully utilize tax net operating losses;

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

                                       22

<PAGE>


     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    risks relating to recent class action litigations;

     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  financial  impact of any such factor
on our 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 be
required  under the  Federal  securities  laws,  to update any  forward  looking
statements to reflect events or  circumstances  after the date of such statement
or to reflect the occurrence of unanticipated events.

     This   discussion  and  analysis   should  be  read  in  conjunction   with
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" and the audited Consolidated Financial Statements and Notes thereto,
presented under Item 7 and Item 8, respectively, of our 2005 Annual Report.

Overview

     See "Overview" in Item 7 of our 2005 Annual Report.

Status of Credit and Financial Strength Rating

     Following the announcement of our second quarter results, the various
rating agencies downgraded our insurer financial strength ratings. Our current
insurer financial strength ratings are as follows:
<TABLE>
<CAPTION>

                                                                                      Moody's
                                           A.M. Best                                 Investors             Standard
                                            Company           Fitch Ratings           Service              & Poor's
                                        ---------------     ------------------    ---------------     ----------------
                                        As at     As at     As at      As at      As at     As at      As at     As at
                                        June     November    June     November    June    November     June    November
                                         30,        8,        30,        8,         30,        8,        30,        8,
                                        2006      2006       2006      2006       2006       2006      2006       2006
                                        -----   ---------   -----    ----------  -----    --------    ------   --------
Insurer Financial Strength Ratings:
<S>                                     <C>        <C>       <C>       <C>          <C>     <C>        <C>       <C>
Scottish Annuity and Life Insurance      A-        B+*        A        BBB**        A3*    Baa3***      A-       BBB-**
Company (Cayman) Ltd
Scottish Re (U.S.), Inc                  A-        B+*        A        BBB**        A3*    Baa3***      A-       BBB-**
Scottish Re Ltd                          A-        B+*        A        BBB**          -          -      A-       BBB-**
Scottish Re Life Corporation             A-        B+*        -            -          -          -      A-       BBB-**
</TABLE>

--------------------------------------------------------------------------------

*   Under review with negative implications
**  Negative watch
*** Ratings under review, direction uncertain

     Some  of  our  ratings  are  on  negative  outlook,  which  highlights  the
respective rating agencies' diminished confidence that there will not be further
adverse  developments  over the near to medium  term.  In  addition,  the rating
agencies have noted that our financial flexibility and competitive position have
deteriorated  and they have concerns about our ability to raise equity financing
to support our ongoing capital and liquidity needs. Finally, the rating agencies
have expressed concern over our ability to maintain a flow of new business which
may reduce our future earnings growth.


                                       23
<PAGE>


     Moody's  Investor  Services  have  changed the  direction  of review of our
ratings to uncertain from possible downgrade as a result of the possibility that
our ratings could be downgraded,  upgraded or confirmed  depending on the future
developments of the Company.

     The  ability  to  write  reinsurance  partially  depends  on  an  insurer's
financial condition and its financial strength ratings.  These ratings are based
on an insurance  company's  ability to pay policyholder  obligations and are not
directed  toward the  protection of investors.  Our ability to raise capital for
our business and the cost of this capital is influenced by our credit ratings. A
security rating is not a recommendation  to buy, sell or hold securities.  It is
subject  to  revision  or  withdrawal  at  any  time  by  the  assigning  rating
organization,  and each rating  should be evaluated  independently  of any other
rating.

Critical Accounting Policies

     See the  discussion  of our Critical  Accounting  Policies in Item 7 of our
Form 10-K for the year ended December 31, 2005.

Results of Operations

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

Consolidated results of operations

<TABLE>
<CAPTION>
                                                         Three months ended               Nine months ended
                                                    -----------------------------   ------------------------------
                                                    September 30,    September 30,   September 30,    September 30,
                                                       2006             2005            2006              2005
                                                    ------------    ------------    -----------      -------------
<S>                                                <C>              <C>             <C>              <C>
Premiums earned..............................       $    453,521    $    470,094    $  1,347,484     $  1,370,667
Investment income, net.......................            162,408          92,132         439,407          256,165
Fee income...................................              2,380           2,801          10,752            9,210
Realized gains (losses), net.................             (1,072)          1,344         (25,971)           5,573
Change in value of embedded derivatives, net.             (5,891)         (2,631)         11,621          (19,266)
                                                    ------------    ------------    -----------      -------------
Total revenues...............................            611,346         563,740       1,783,293        1,622,349
                                                    ------------    ------------    -----------      -------------

Claims and other policy benefits.............            377,713         356,127       1,124,277        1,030,893
Interest credited to interest sensitive contract
   liabilities...............................             42,423          36,724         140,523           99,089
Acquisition costs and other insurance expenses,
   net.......................................             86,241          91,214         278,644          305,350
Operating expenses...........................             39,447          32,909         109,904           83,978
Collateral finance facilities expense........             67,323          13,230         145,646           32,471
Interest expense.............................              5,005           5,690          16,964           16,097
                                                    ------------    ------------    ------------     -------------
Total benefits and expenses..................            618,152         535,894       1,815,958        1,567,878
                                                    ------------    ------------    ------------     -------------
Income (loss) before income taxes and minority
   interest..................................             (6,806)         27,846         (32,665)          54,471
Income tax benefit(expense)..................            (20,841)          6,677        (102,427)          15,232
                                                    ------------    ------------    ------------     -------------
Income (loss) before minority interest.......            (27,647)         34,523        (135,092)          69,703
Minority interest............................                232            (113)            (64)            (282)
                                                    ------------    ------------    ------------     -------------
Net income (loss)............................            (27,415)         34,410        (135,156)          69,421
Dividend declared on non-cumulative perpetual
   preferred shares..........................             (2,266)         (2,492)         (6,797)          (2,492)
Imputed dividend on prepaid variable share
   forward contract..........................               (809)              -            (881)               -
                                                    ------------    ------------    ------------     -------------
Net income (loss) available to ordinary
   shareholders..............................       $    (30,490)   $     31,918    $   (142,834)    $     66,929
                                                    ============    ============    ============     =============
</TABLE>


                                       24

<PAGE>


     Total  revenues in the third quarter ended  September 30, 2006 increased 8%
to $611.3  million  compared to $563.7  million in the same period in 2005.  Net
premiums  earned in the third quarter ended  September 30, 2006  decreased 4% to
$453.5  compared to $470.1  million in the same period in 2005. Net premiums for
the  quarter  were  adversely  impacted by a $16.5  million one time  adjustment
relating  to experience refunds  in our Life  Reinsurance North America Segment.
Net investment income  in the  third quarter ended  September 30, 2006 increased
76% to $162.4 million compared to $92.1 million in the same period in 2005.  The
increase in  investment  income is  primarily  due to the income on higher total
investments  from the new  securitization  structures  including  Ballantyne Re,
Orkney II and HSBC II (each of which is  described  below  under  "Collateral"),
combined with higher interest rates.

     Total  benefits and expenses in the third quarter ended  September 30, 2006
increased 15% to $618.2  million from $535.9 million in the same period in 2005.
The increase was  principally  due to $54.1 million  higher  collateral  finance
facilities  expenses and $21.6 million  higher claims and other policy  benefits
due to  adjustments  arising from updated  cedant  reporting  and other  reserve
increases.

     The loss before  income  taxes and minority  interest in the third  quarter
ended September 30, 2006 was $6.8 million compared to income before income taxes
and minority interest of $27.8 million in the same period in 2005.

     Income tax expense in the third quarter ended  September 30, 2006 was $20.8
million  compared to an income tax benefit of $6.7 million in the same period in
2005. The change in our effective tax rate in the third quarter ended  September
30, 2006  compared to the same  period in 2005 is  primarily  related to a $30.1
million valuation  allowance  established on deferred tax assets.  The valuation
allowance principally relates to current period tax benefit not being recognized
(as previously  indicated,  the Company can no longer recognize tax benefits for
certain legal  entities) and an additional  valuation  allowance  established on
prior  period  deferred tax assets  resulting  from  revised  statutory  and tax
projections related to certain legal entities.  At the end of the third quarter,
the remaining  gross deferred tax asset is supported by the reversal of deferred
tax liabilities within the carry forward period and tax planning  strategies for
which management  believes that it is more likely than not that the deferred tax
assets will be utilized in subsequent periods,  although there is a risk that we
will need to establish additional  valuation allowances in future quarters.  See
"Income Taxes" below for a more detailed discussion of the deferred tax asset.

     Total  revenues  during the nine months ended  September 30, 2006 increased
10% to $1,783.3 million compared to $1,622.3 million in the same period in 2005.
Net premiums earned during the nine months ended September 30, 2006 decreased 2%
to $1,347.5 million compared to $1,370.7 million in the same period in 2005. Net
premiums for the period were  affected by increased  retrocession  costs and the
adverse effect of several one time negative estimation adjustments. The one time
negative estimation  adjustments related to prior period client reported premium
estimates,  changes to our assumptions and estimates for external  retrocession,
experience refunds and cedant balance true-ups.

     Net  investment  income  during the nine months  ended  September  30, 2006
increased 72% to $439.4 million compared to $256.2 million in the same period in
2005. The increase in investment income is primarily due to the income on higher
total investments from the new securitization  structures,  including Ballantyne
Re, Orkney Re II and HSBC II, combined with higher interest rates.

     Total benefits and expenses during the nine months ended September 30, 2006
increased  16% to $1,816.0  million  compared  to  $1,567.9  million in the same
period in 2005.  The  increase  was  principally  due to $113.2  million  higher
collateral  finance  facilities  expenses  as a  result  of our  Regulation  XXX
transactions  effected in December  2005 and May 2006 and $93.4  million  higher
claims and other  policy  benefits  due to  external  retrocession  and  reserve
adjustments resulting from improved data and administrative systems.

     The loss before  income taxes and minority  interest was $32.7  million for
the nine months ended  September 30, 2006 compared to income before income taxes
and minority interest of $54.5 million in the same period in 2005.

     Income tax expense  during the nine  months  ended  September  30, 2006 was
$102.4  million  compared to an income tax benefit of $15.2 million for the same
period in 2005.  The change in our  effective tax rate for the nine months ended
September 30, 2006  compared to the same period in 2005 is primarily  related to
the valuation



                                       25
<PAGE>


allowance established on deferred tax assets during the second and
third  quarters of the year. The valuation  allowance  resulted from our revised
statutory  and tax  projections  combined  with a  reassessment  of certain  tax
planning strategies.  See "Income Taxes" below for a more detailed discussion of
the deferred tax asset.

Segment Operating Results

Life Reinsurance North America

<TABLE>
<CAPTION>
                                                         Three months ended                Nine months ended
                                                   --------------------------------    ----------------------------
                                                      September 30,   September 30,    September 30,   September 30,
                                                          2006             2005             2006              2005
                                                   -----------------   ------------    ------------    ------------
<S>                                                <C>                 <C>              <C>            <C>
Premiums earned.................................   $      421,707      $  427,224       $1,258,174     $ 1,273,196
Investment income, net..........................          151,872          88,490          412,576         246,977
Fee income......................................            1,620           2,010            8,516           6,917
Realized gains (losses), net....................              173            (160)         (19,225)          3,490
Change in value of embedded derivatives, net....           (5,891)         (2,631)          11,621         (19,266)
                                                   -----------------   ------------    ------------    ------------
Total revenues..................................          569,481         514,933        1,671,662       1,511,314
                                                   -----------------   ------------    ------------    ------------

Claims and other policy benefits................          360,968         330,035        1,046,874         967,822
Interest credited to interest sensitive contract
   liabilities..................................           42,423          36,724          140,523          99,089
Acquisition costs and other insurance expenses,
   net..........................................           74,082          80,762          255,770         286,967
Operating expenses..............................           14,569          12,981           43,699          34,875
Collateral finance facilities expense...........           63,866          11,850          140,300          28,483
Interest expense................................            2,986           3,062            8,586           8,427
                                                   -----------------   ------------    ------------    ------------
Total benefits and expenses.....................          558,894         475,414        1,635,752       1,425,663
                                                   -----------------   ------------    ------------    ------------
Income before income taxes and minority interest   $       10,587      $   39,519       $   35,910     $    85,651
                                                   =================   ============    ============    ============
</TABLE>

     In our Life Reinsurance North America Segment,  we reinsure life insurance,
annuities and  annuity-type  products  through yearly renewable term agreements,
coinsurance and modified coinsurance agreements.  These reinsurance arrangements
are predominantly on an automatic basis and written by life insurance  companies
and other financial institutions located principally in the United States.

     Premiums  earned for the quarter ended  September 30, 2006  decreased 1% to
$421.7 million  compared to $427.2 million in the same period in 2005.  Although
we are reporting a generally  consistent  quarterly  premium  level,  during the
third  quarter of 2006,  we recorded an  experience  refund  adjustment  for our
assumed business of $16.5 million that reduced our premiums in the third quarter
of 2006.

     In  connection  with  our  periodic   internal  review  of  the  underlying
performance  of our  treaties,  we recorded a $16.5  million  experience  refund
adjustment  that  reduced our third  quarter  2006  premiums.  These  experience
refunds relate to the underlying  profitability  of specific  assumed  treaties,
most notably within our ING block.  Treaty provisions for these contracts permit
our  clients  to  participate  in the  overall  profitability  of the  business,
assuming  certain  financial  measurement  thresholds  are met.  Excluding  this
adjustment,  premiums earned for the three months ended September 30, 2006 would
have been $438.2 million,  a 3% increase over the comparable  2005 period.  This
increase is primarily due to an increase in renewal premiums of $21.7 million in
our organic block of business, partially offset by increased retrocession costs.
While the rating  agency  downgrades  have  impacted our ability to generate new
business,  they did not have a  material  impact  on our  premiums  in the third
quarter of 2006.

     Net  investment  income for the quarter ended  September 30, 2006 increased
72% to $151.9 million  compared to $88.5 million in the same period in 2005. The
increase is principally due to the growth in our average invested assets but was
also  favorably  impacted by an increase in interest  rates.  Our total invested
assets have  increased  significantly  due to the proceeds of our Regulation XXX
transactions  that closed in December  2005 and May 2006.  Ballantyne  Re, which
closed  in May  2006,  contributed  approximately  $1.7  billion  of  additional
invested assets. In addition,  a large portion of the proceeds from the December
2005 equity  issuance was  contributed  to the Life


                                       26
<PAGE>


Reinsurance North America Segment to support continued growth. Additionally, the
Life  Reinsurance  North  America  Segment  received a capital  contribution  of
approximately $120.0 million in May 2006.

     Yields  on the  portfolio  managed  by  our  external  investment  managers
relating to fixed rate assets were 5.4% and 5.1% at September 30, 2006 and 2005,
respectively.  Yields on floating rate assets are indexed to LIBOR and increased
to 5.7% at  September  30, 2006 from 4.4% at September  30, 2005.  Yields on our
cash and cash  equivalents  increased to 5.1% at September 30, 2006 from 3.4% at
September 30, 2005.

     Claims and other policy  benefits for the quarter ended  September 30, 2006
increased 9% to $361.0 million  compared to $330.0 million in the same period in
2005.  Claims and other policy  benefits as a percentage of net earned  premiums
were 86% and 77% for the  three  months  ended  September  30,  2006  and  2005,
respectively.  As part of our quarterly reserve review process, reserving models
are updated to reflect most recent policy level inforce information  provided by
our clients and for other normal modeling refinements.  During the third quarter
of  2006,  we  increased  our  net  policy  reserves  by $7.0  million,  to more
accurately  reflect  emerging  differences  between  actual and  expected  lapse
pattern  distributions  and net  amounts  at  risk  relating  to the  underlying
treaties. Additionally, during the third quarter of 2006, and in connection with
ongoing  initiatives  to  improve  the  quality of our  cedant  information,  we
received  updated  claims  totaling  $9.2 million  relating to the 2004 and 2005
years.  Although  the  increased  claims  from  cedant  reporting  were  largely
mitigated  by  offsetting  premium   adjustments,   these  have  the  impact  of
artificially increasing the claims and benefits ratio for the quarter. Excluding
these claim and reserve  adjustments  and  adjusting  our third quarter 2006 net
earned  premiums  for  the  experience  refund  adjustment  noted  above  ($16.5
million),  the adjusted  claims and benefits ratio for the third quarter of both
2006 and 2005 was 78%. These ratios, combined with our adjusted claims and other
policy  benefit  ratios of 81% and 77%, in the first and second quarter of 2006,
respectively,  confirms that our overall  mortality  (net of  retrocessions  and
related experience refunds) continues to be consistent with our expectations.

     Interest credited to interest sensitive contract liabilities in the quarter
ended  September  30,  2006  increased  16% to $42.4  million  compared to $36.7
million in the same period in 2005. The increase is  principally  due to a large
interest  sensitive  contract  written in late 2005,  along  with  increases  in
interest  credited on existing  treaties  due to  increasing  average  liability
balances.  Also,  during the third quarter of 2006,  we terminated  four funding
agreements,   resulting  in  a  decrease  to  our  interest  sensitive  contract
liabilities  of  approximately  $650.0  million.   Interest  sensitive  contract
liabilities  amounted to $3.3 billion ($4.0 billion prior to the  termination of
the funding agreements) at September 30, 2006 and 2005.

     Acquisition  costs  and  other  insurance  expenses  in the  quarter  ended
September 30, 2006  decreased 8% to $74.1 million  compared to $80.8 million in
the same quarter in 2005.  As a percentage of net premiums  earned,  acquisition
and other  insurance  expenses were 18% and 19% for the 2006 and 2005  quarterly
periods, respectively. During the third quarter of 2006, we recorded a favorable
adjustment  of  $8.9  million  relating  to  marketing  development  allowances
incurred on certain interest sensitive contract business in prior years in which
it was determined that a refund of such allowances was due us. Treaty provisions
allow us to recover these  marketing  development  allowances at  pre-determined
intervals over the life of the underlying  treaties if certain minimum financial
thresholds are not met. Excluding this marketing  development allowance recovery
and adjusting the 2006 premiums earned amount for the premium  adjustments noted
above,  the adjusted 2006  acquisition  ratio would be 19%,  consistent with the
prior year period.

     Operating  expenses for the quarter ended  September 30, 2006 increased 12%
to $14.6 million compared to $13.0 million in the same period in 2005. Operating
expenses  as a  percentage  of  operating  revenues  (total  revenues  excluding
realized gains and losses and changes in the value of embedded derivatives) were
3% in both the 2006 (after  excluding the premium  adjustments  noted above) and
the 2005 period.  However,  the overall  increase in operating  expenses relates
primarily  to  executive  severance  costs  of $2.0  million  and  increases  in
compensation costs, legal fees and depreciation  expenses.  Partially offsetting
these amounts was the reversal of previously recognized restricted share expense
of $0.9 million.

     Collateral  finance  facilities  expense in the quarter ended September 30,
2006  increased  437% to $63.9  million  compared  to $11.9  million in the same
period  of  2005.  The  increase  is due to the  impact  of the  Regulation  XXX
transactions  that closed in December 2005 and May 2006. In addition,  beginning
in the second half of 2005, a portion of the cost of the  Stingray  facility was
charged to the Life Reinsurance North America Segment.  Due to our



                                       27
<PAGE>


downgrades by the rating agencies, our collateral finance facilities expenses in
the third  quarter of 2006  increased  by $2.0  million as a result of increased
fees to be paid to the financial guarantors of our securitization transactions.

     Premiums earned during the nine  months ended  September 30, 2006 decreased
1% to $1,258.2  million compared to $1,273.2 million in the same period in 2005.
Notwithstanding the relatively consistent premium amounts year over year, during
2006, we recorded a number of significant  premium  adjustments that reduced our
net earned premium amounts.

     As noted in our Form 10-Q for the period ended June 30,  2006,  we recorded
adjustments  relating to differences  in actual amounts  reported by our clients
that differed from the amounts  previously  estimated ($8.0 million) and changes
to assumptions and estimates relating to external  retrocession  premium amounts
($13.0  million),  resulting in a reduction to our net premiums  earned of $21.0
million.  Additionally,  as noted above, we recorded a $16.5 million  experience
refund adjustment that reduced our third quarter 2006 premiums. As a result, our
year to date September 30, 2006 premiums has been  negatively  impacted by $37.5
million.  Excluding  these  adjustments  2006 net earned  premiums were $1,295.7
million,  an increase of 2% over the 2005 period. This increase is primarily due
to an increase in renewal premiums,  offset by increased  retrocession costs and
reduced first year premiums. The reduction in first year premiums is due in part
to recent rating agency downgrades.

     Investment  income for the nine months ended  September 30, 2006  increased
67% to $412.6  million  compared  to $247.0  million  for the 2005  period.  The
increase is principally due to the growth in our average invested assets and was
also  favorably  impacted by an increase in interest  rates.  Our total invested
assets have increased  significantly  because the proceeds of our Regulation XXX
transactions  that  closed in  December  2005 and May 2006 and the  closing of a
large interest sensitive contract at the end of 2005. The Life Reinsurance North
America Segment also benefited from a capital infusion of  approximately  $120.0
million in May 2006.

     The  change in value of  embedded  derivatives  for the nine  months  ended
September 30, 2006 resulted in an $11.6 million gain compared to a loss of $19.3
million in the same period in 2005.  The  primary  reason for the  increase  was
related to the realization of losses on certain securities held under a modified
coinsurance  arrangement that were sold in the first quarter of 2006 in order to
provide collateral for the Ballantyne Re securitization.

     Claims and other policy  benefits for the nine months ended  September  30,
2006  increased 8% to $1,046.9  million  compared to $967.8 million for the 2005
period.  Claims and other policy benefits as a percentage of net earned premiums
were  83% and 76% for the  nine  months  ended  September  30,  2006  and  2005,
respectively.  As noted in our Form 10-Q for the period ended June 30, 2006, due
to improved retrocession data and related  administration  changes, we increased
net claims and policy benefits by $8.0 million.  Additionally,  during the third
quarter  of  2006,  we  increased  our net  policy  reserves  by  $7.0  million,
principally due to emerging differences in our lapse distribution assumptions in
connection with our quarterly reserve review process.  Additionally,  during the
third quarter of 2006, and in connection with ongoing initiatives to improve the
quality of our client  information,  we received  updated  claims  totaling $9.2
million relating to the 2004 and 2005 years. The 2005 results include a purchase
accounting  adjustment  to the ING  block  which  decreased  reserves  by  $17.7
million. Excluding these claim items and the aforementioned premium adjustments,
the adjusted  claims and other policy  benefits  ratio for the nine months ended
September 30, 2006 and 2005 was 78% and 77%, respectively.

     Interest credited to interest sensitive contract liabilities  increased 42%
to $140.5 million in the nine months ended  September 30, 2006 compared to $99.1
million in the same period in 2005. The increase is  principally  due to a large
interest  sensitive  contract  written in late 2005,  along  with  increases  in
interest  credited on existing  treaties  due to  increasing  average  liability
balances.  During  the  third  quarter  of  2006,  we  terminated  four  funding
agreements,   resulting  in  a  decrease  to  our  interest  sensitive  contract
liabilities of approximately $650.0 million.

     Acquisition  costs and other  insurance  expenses  decreased  11% to $255.8
million in the nine months ended  September 30, 2006 compared to $287.0  million
for the 2005  period.  Acquisition  costs  and  other  insurance  expenses  as a
percentage  of net earned  premiums  for the 2006 and 2005  periods were 20% and
23%,  respectively.  During 2006, we recorded  adjustments  of $13.6 million (of
which $13.0  million was  recorded in the second  quarter) to increase  deferred
acquisition  cost  amortization  relating  to  several  deferred  fixed  annuity
treaties  in which  emerging  lapse  experience  was  significantly  higher than
expected. This adjustment was partially offset by a $6.2 million rebate from ING
as a result of the Ballantyne Re securitization.  In addition, acquisition costs
have  declined



                                       28
<PAGE>


by  approximately  $8.2 million due to a reduction in letter of credit fees as a
result of the  Regulation  XXX  transactions  completed in December 2005 and May
2006.  During the third quarter of 2006,  we recorded a favorable  adjustment of
$8.9 million relating to marketing  development  allowances  incurred on certain
interest  sensitive  contract business in prior years in which it was determined
that a refund  of such  allowances  was due us.  Treaty  provisions  allow us to
recover these marketing development allowances at pre-determined  intervals over
the life of the underlying treaties if certain minimum financial  thresholds are
not  met.  The  2005  acquisition  costs  were  impacted  by the  $17.7  million
adjustment which increased  acquisition  costs with a corresponding  decrease to
the change in reserves  related to the purchase  accounting  adjustments for the
ING block. Adjusting for these unusual items and after consideration of the 2006
premiums  adjustments  noted above, the acquisition cost ratio the 2006 and 2005
nine month periods were 20% and 21%, respectively.

     Operating  expenses for the nine months ended  September 30, 2006 increased
25% to $43.7  million  compared  to $34.9  million  in the same  period in 2005.
Operating  expenses  as a  percentage  of  operating  revenues  (total  revenues
excluding  realized  gains and  losses  and  changes  in the  value of  embedded
derivatives)   were  3%  for  both  the  2006   (after   consideration   of  the
aforementioned  premium  adjustments) and the 2005 periods. The overall increase
in operating  expenses  relates  primarily to executive  severance costs of $3.1
million  and  increases  in  compensation  costs,  legal  fees and  depreciation
expenses.  Partially  offsetting  these  amounts was the reversal of  previously
recognized restricted share expense of $0.9 million.

     Collateral  finance  facilities expense for the nine months ended September
30, 2006 increased 393% to $140.3 million  compared to $28.5 million in the same
period in 2005.  This  increase  is due to the  interest  costs  relating to the
Regulation XXX transactions.  In addition, beginning in the second half of 2005,
a  portion  of the  cost  of the  Stingray  facility  was  charged  to the  Life
Reinsurance  North America Segment.  Due to rating agency  downgrades,  our 2006
collateral finance facilities  expenses increased by $2.0 million as a result of
increased  fees to be paid to the  financial  guarantors  of our  securitization
transactions.

     Life Reinsurance International

<TABLE>
<CAPTION>
                                                       Three months ended               Nine months ended
                                                 ------------------------------    -----------------------------
                                                    September 30,  September 30,   September 30,    September 30,
                                                        2006           2005             2006           2005
                                                 ---------------  ------------    -------------   --------------
<S>                                              <C>              <C>             <C>             <C>
Premiums earned..............................    $      31,814    $     42,870    $      89,310   $      97,471
Investment income, net.......................            8,528           2,734           20,488           7,676
Realized gains (losses), net.................           (2,832)            (82)         (10,878)            503
                                                 ---------------  ------------    -------------   --------------
Total revenues...............................           37,510          45,522           98,920         105,650
                                                 ---------------  ------------    -------------   --------------

Claims and other policy benefits.............           16,745          26,092           77,403          63,071

Acquisition costs and other insurance
  expenses, net..............................            9,396           9,933           18,398          16,831
Operating expenses...........................            7,678           6,728           21,329          19,862
                                                 ---------------  ------------    -------------   --------------
Total benefits and expenses..................           33,819          42,753          117,130          99,764
                                                 ---------------  ------------    -------------   --------------
Income (loss) before income taxes and minority
  interest...................................    $       3,691    $      2,769    $     (18,210)  $       5,886
                                                 ===============  ============    =============   ==============
</TABLE>

     Prior to 2005, our Life Reinsurance  International  Segment  specialized in
niche markets in developed  countries and broader life insurance  markets in the
developing  world and  focused  on the  reinsurance  of short  term  group  life
policies and aircrew "loss of license" insurance.  In 2005, our Life Reinsurance
International  Segment became  actively  engaged in marketing the reinsurance of
U.K. and Irish  protection  business  and has been seeking to reinsure  U.K. and
Irish annuity  products.  The life insurance and annuity products are similar to
those  offered  in the Life  Reinsurance  North  America  Segment.  A number  of
significant  treaties have been won in 2006 which are beginning to contribute to
earnings. In addition,  the International Business entered its first significant
annuity  transaction in the second quarter of 2006, although the transaction was
recaptured in the third quarter of 2006.  The recapture  resulted in a number of
one-off items which amounted to a pre-tax profit of $3.7 million.


                                       29
<PAGE>


     Net premiums  earned during the quarter ended  September 30, 2006 decreased
26% to $31.8 million  compared to $42.9 million in the same period in 2005.  The
quarter ended  September 30, 2005 included a premium  adjustment of $9.0 million
as a result of revised  information  received  in  relation  to our share of two
Lloyd's of London's syndicates. New protection treaties in 2006 contributed $4.0
million of earned  premium in the  quarter  but were  offset as expected by $5.0
million of reduced premium due to expected  lapsation,  cancellations  and other
portfolio effects.

     Investment income in the quarter ended September 30, 2006 increased 212% to
$8.5 million  compared to $2.7 million for the same period in 2005. The increase
is mainly due to the  significant  annuity deal  described  above which provided
$5.1 million of  investment  income during the quarter.  The remaining  increase
relates to funds withheld interest of $0.6 million.

     Realized  losses were $2.8 million in the quarter ended  September 30, 2006
compared to a $0.1  million  loss for the same period in 2005.  The net realized
loss in the quarter  related  almost  entirely to the  realization of previously
unrealized  investment  losses of $3.5  million on the  recapture of the annuity
agreement described above.

     Claims and other policy  benefits  decreased by 36% to $16.7 million in the
quarter ended  September 30, 2006 from $26.1 million in the same period in 2005.
Claims  decreased $6.7 million due to the recapture of the annuity  transaction.
This was partially offset by two large claims of $1.2 million in relation to our
U.S.  business.  In the quarter ended  September 30, 2005,  the amount of claims
included the  negative  effect of the  revision of claims  information  from our
share of two Lloyds of London life syndicates, which accounted for approximately
$5.3 million and was not repeated in 2006.

     Acquisition costs and other insurance expenses decreased 5% to $9.4 million
in the quarter ended  September 30, 2006 from $9.9 million in the same period in
2005. The expense for the quarter  included $3.5 million in respect of the costs
related to our honoring of  secondary  collateral  obligations  to the cedent in
respect of the recaptured annuity agreement.  In the quarter ended September 30,
2005,  the revised  information  in respect of our Lloyd's of London  syndicates
accounted for $4.0 million of one-off acquisition expenses.

     Operating  expenses  increased  14% to $7.7  million in the  quarter  ended
September  30,  2006  from $6.7  million  in the same  period in 2005.  The main
drivers of expenses are  additional  senior level staff hired to support our our
new  business  initiatives  in  our  U.K.  and  other  international  operations
partially offset by the release of the provision for restricted share expense of
$0.4 million.

     Net  premiums  earned  during the nine  months  ended  September  30,  2006
decreased by 8% to $89.3 million compared to $97.5 million in the same period in
2005. In 2005,  premiums earned included an amount of $9.0 million in respect of
revised  information  received  regarding  our  share of two  Lloyd's  of London
syndicates.  The $6.6 million  increase in premiums  earned from a number of new
protection treaties written were offset by expected lapsation and cancellations.

     Investment  income in the nine months ended  September  30, 2006  increased
167% to $20.5 million  compared to $7.7 million for the same period in 2005. The
increase is mainly due to the recaptured  annuity agreement which provided $11.3
million of additional investment income during the period.

     Realized  losses for the nine months  ended  September  30, 2006 were $10.9
million  compared to a $0.5  million  gain for the same period in 2005.  The net
realized  loss for the year to date  includes a $7.2 million loss related to the
restructuring of the investment  portfolio in respect of the recaptured  annuity
agreement  in the  quarter  ended June 30, 2006 and an  additional  loss of $3.3
million arising from a previously  unrealized loss position becoming realized at
the recapture of the treaty.

     Claims and other policy  benefits  increased by 23% to $77.4 million in the
nine months ended  September  30, 2006 from $63.1  million in the same period in
2005. Previous year claims were higher than normal due to $5.3 million of claims
in relation to  information  received  from two of our  syndicates in Lloyd's of
London.  The impact of the recapture of the annuity  transaction was to decrease
claims cost by $1.2  million.  Included in the current  year was $1.2 million in
relation to two large claims in the U.S. book. The most significant  increase in
policy  benefit




                                       30
<PAGE>


costs,  however,  related to the first quarter of 2006, where adverse  mortality
and  morbidity  experience  of $4.0 million,  updated  cedent  reporting of $7.0
million and a reduction of estimated  retrocession  recoveries  on certain large
claims of $3.8  million  contributed  to the increase in claims and other policy
benefits. Other  changes in the first, second and third quarter of 2006 amounted
to $2.0 million of increased claims costs.

     Acquisition  costs  and  other  insurance  expenses  increased  9% to $18.4
million in the nine months ended  September  30, 2006 from $16.8  million in the
same period in 2005. In general,  acquisition costs and other insurance expenses
have  increased  due to a shift in  business  mix towards  long term  protection
business which carries a higher average  commission rate. As highlighted  above,
the  secondary  collateral  costs  of $3.5  million  increased  other  insurance
expenses in the period, but were offset by $4.0 million of reduced costs against
2005 due to one-off costs in respect of our Lloyd's of London syndicates.

     Operating  expenses for the nine months ended  September 30, 2006 increased
7% to $21.3  million  compared to $19.9  million for the same period in 2005. An
increase in personnel  costs in response to the  anticipated  growth in the Life
Reinsurance  International  Segment in addition to  severance  costs,  including
those related to the International  Business head office relocation from Windsor
to London, were offset by reductions primarily in various professional  services
costs and adjustments related to non-commission deferred acquisition costs.

Corporate & Other

<TABLE>
<CAPTION>
                                                   Three months ended                Nine months ended
                                               -----------------------------    ------------------------------
                                               September 30,   September 30,    September 30,    September 30,
                                                  2006             2005             2006              2005
                                               -------------  -------------   -------------    ---------------
<S>                                          <C>              <C>             <C>              <C>
Investment income, net....................     $     2,008    $         908   $       6,343    $       1,512
Fee income................................             760              791           2,236            2,293
Realized gains, net ......................           1,587            1,586           4,132            1,580
                                               -------------  -------------   -------------    ---------------
Total revenues............................           4,355            3,285          12,711            5,385
                                               -------------  -------------   -------------    ---------------
Acquisition costs and other insurance
  expenses, net...........................           2,763              519           4,476            1,552
Operating expenses........................          17,200           13,200          44,876           29,241
Collateral finance facilities expense.....           3,457            1,380           5,346            3,988
Interest expense..........................           2,019            2,628           8,378            7,670
                                               -------------  -------------   -------------    ---------------
Total benefits and expenses...............          25,439           17,727          63,076           42,451
                                               -------------  -------------   -------------    ---------------
Loss before income taxes..................     $   (21,084)   $     (14,442)  $     (50,365)   $     (37,066)
                                               =============  =============   =============    ===============
</TABLE>

     The  Corporate and Other Segment is comprised of revenues and expenses that
are not  included  in the  Life  Reinsurance  Segments  and  includes  corporate
overhead.

     Investment  income  increased  121% to $2.0  million for the quarter  ended
September  30,  2006  compared  to $0.9  million  in the  same  period  in 2005.
Investment  income  arises in the Corporate and Other Segment due to capital not
specifically allocated to the Life Reinsurance North America or Life Reinsurance
International  segments.  Investment income will increase or decrease as capital
is raised and deployed to the  operating  segments.  The increase in  investment
income  is  principally  due to an  increase  in  Corporate  and  Other  Segment
investment assets arising from the borrowing on the Stingray facility and due to
the proceeds received on the forward share sale agreement.

     Acquisition  costs  and other  insurance  expenses  increased  432% to $2.8
million in the quarter ended  September 30, 2006 compared to $0.5 million in the
same quarter in 2005.  During the third  quarter of 2006,  costs  related to the
Tartan Capital  Limited  catastrophe  bond issued in May 2006 were $1.2 million.
The segment also incurred $1.0 million of federal excise tax related to payments
made to offshore companies.

     Operating  expenses  include the costs of running our  principal  office in
Bermuda,  our senior executive officers,  legal and capital markets departments,
compensation  and  other  costs  for  our  Board  of  Directors  and  legal  and
professional fees including those in respect of corporate governance legislation
and  regulations.  Operating



                                       31

<PAGE>


expenses increased 30% to $17.2 million for the quarter ended September 30, 2006
compared to $13.2 million in the same period in 2005. The  significant  increase
in costs  relate to  severance  costs of $3.5  million  and higher  professional
expenses  of $2.8  million  related to higher  than  anticipated  Sarbanes-Oxley
compliance  costs,  higher legal fees related to the government  investigations,
and assistance  with our Form 10Q filings.  Fees related to director  activities
were higher by $1.7 million compared to the same period in the prior year. These
costs were slightly offset by lower  compensation  benefit costs of $4.1 million
compared  to the same  quarter in the prior year  mainly due to the  reversal of
previously   recognized   costs   related  to   restricted   share  awards  with
performance-based  vesting.  It was determined that the  performance  thresholds
related to these awards are unlikely to be met and, in accordance  with SFAS No.
123(R), "Share Based Payment", costs are reversed in the current period.

     Collateral  finance  facilities  expense increased 151% to $3.5 million for
the quarter ended September 30, 2006 compared to $1.4 million in the same period
in 2005.  The  increase is  primarily  due to the  borrowing  under the Stingray
facility.

     Interest  expense  decreased  23% to $2.0  million  for the  quarter  ended
September  30,  2006  compared to $2.6  million in the same period in 2005.  The
decrease  relates  to the use of the  Stingray  facility,  which is  charged  to
collateral facilities expense.

     Investment  income increased 320% to $6.3 million for the nine months ended
September  30,  2006  compared to $1.5  million in the same period in 2005.  The
increase is  principally  due to an increase  in  investment  assets held by the
Corporate  and Other  Segment  arising  from the  borrowing  under the  Stingray
facility and proceeds received on the forward share sale agreement.

     Acquisition  costs  and other  insurance  expenses  increased  188% to $4.5
million for the nine months ended September 20, 2006 compared to $1.6 million in
the same period in 2005.  During the nine months ended September 30, 2006, other
insurance  expenses increased $2.0 million related to the Tartan Capital Limited
catastrophe  bond issued in May 2006.  The current year also  included  costs of
$1.0 million related to federal excise taxes.

     Operating expenses increased 53% to $44.9 million for the nine months ended
September  30,  2006  compared  to $29.2  million  in the same  period  in 2005.
Compensation  expense  was $7.4  million  higher  than the  prior  year  period.
Salaries were $9.3 million higher due to $6.6 million of severance costs paid to
Scott  Willkomm and Michael  French and the balance of the  increase  related to
more employees allocated to the Corporate and Other Segment.  These higher costs
were partially offset by $1.4 million of lower benefit costs, mainly relating to
the reversal of previously  recognized  expense for restricted share awards with
performance-based  vesting.  It was determined that the  performance  thresholds
related to these awards are unlikely to be met and in  accordance  with SFAS No.
123(R), "Share Based Payments", costs are reversed in the current period.

     Other  operating  expense  increases  compared  to the  prior  year  period
includes  $4.5  million  of  increased  professional  fees and $2.1  million  of
increased  director  expenses.  In professional fees, the main cost drivers were
$2.0 million of  increased  audit fees,  $2.9  million of  increased  legal fees
related to the ongoing strategic  alternatives,  government  investigations  and
assistance  with our Form 10Q filings,  offset by $0.5 million lower  consulting
costs.  The higher  director costs are primarily due to $1.0 million  related to
the Office of the  Chairman  and $0.6  million  related to higher D&O  insurance
costs.

     Collateral finance facilities expense increased 34% to $5.3 million for the
nine months ended September 30, 2006 compared to $4.0 million in the same period
in 2005. The collateral  finance  facilities expense consists of the put premium
and  interest  costs under the Stingray  facility.  Costs  increased  during the
current period due to the borrowing under the Stingray facility.

     Interest  expense  increased  9% to $8.4  million for the nine months ended
September  30, 2006  compared to $7.7  million in the same period in 2005.  This
increase is as a result of our  utilization of our credit facilities and reverse
repurchase  agreements  during the  current year  period. Other interest expense
includes  interest on  the 4.5% senior  convertible  notes and the 1.0% dividend
payable on the convertible preferred shares of our Hybrid Capital Units.


                                       32

<PAGE>


Realized gains (losses)

     During  the third  quarter  ended  September  30,  2006,  consolidated  net
realized  losses  amounted to $1.1 million in comparison with net realized gains
of $1.3  million in the same  period in 2005.  Included  in  realized  gains and
losses is a gain of $1.8  million and $1.7 million for the third  quarter  ended
September 30, 2006 and 2005, respectively,  resulting from the mark to market of
an interest rate swap.  During the third quarter ended September 30, 2006, there
were  losses of $0.3  million in respect  of other than  temporary  impairments.
There were no other than  temporary  impairments  during the third quarter ended
September 30, 2005.

     During the nine months ended September 30, 2006,  consolidated net realized
losses amounted to $26.0 million  compared to net realized gains of $5.6 million
in the same period in 2005.  The major  component of the realized  losses in the
nine months ended September 30, 2006 relates to the second quarter loss of $11.3
million plus a loss of $13.6  million in the first quarter of 2006 mainly due to
the  realization  of  losses  on  certain   securities  held  under  a  modified
coinsurance  arrangement  that were sold in  preparation  of the  Ballantyne  Re
transaction.  During the nine months quarter ended  September 30, 2006 and 2005,
there were losses of $0.9 million and $2.2 million,  respectively, in respect of
other than temporary impairments.

Income Taxes

     We  determine  our income tax  provision  in  accordance  with SFAS No. 109
("SFAS  No.109")  "Accounting  for Income Taxes".  The  consolidated  income tax
expense  or  benefit  is  determined  by  applying  the income tax rate for each
subsidiary  to its pre-tax  income or loss.  The tax rates for our  subsidiaries
vary from jurisdiction to jurisdiction and range from zero to approximately 39%.
Income tax expense  arises in periods where taxes on  subsidiaries  with pre-tax
income exceed the tax benefit on subsidiaries with pre-tax losses. An income tax
benefit  arises in periods  where the tax benefit on  subsidiaries  with pre-tax
losses exceeds the taxes on subsidiaries with pre-tax income.

     Our effective tax rate in each  reporting  period is determined by dividing
the net tax benefit  (expense) by our pre-tax  income or loss. The change in our
effective  tax rate is due  primarily to the amount in any  reporting  period of
pre-tax earnings attributable to different subsidiaries (which changes from time
to time), each of which is subject to different  statutory tax rates, as well as
to the valuation  allowance  recorded in the second and third  quarter.  Pre-tax
earnings of certain  subsidiaries in any period may be impacted by the amount of
various  inter-company   charges,   including  but  not  limited  to  net  worth
maintenance  fees and  other  management  fees paid to  Scottish  Annuity & Life
Insurance  Company (Cayman) Ltd. and to the parent holding  company.  These fees
are charged in  accordance  with our  inter-company  charging  policy and may be
adjusted  periodically  within limits prescribed by applicable  transfer pricing
regulations.

     We generate  deferred tax assets  principally due to net operating  losses,
reserves and  unrealized  losses on investment  securities.  In accordance  with
GAAP, we must conclude whether the future  realization of our deferred tax asset
is "more likely than not". The evaluation  regarding  realizability  of deferred
tax assets is made on a gross as opposed to a net basis.  Sources of support for
the gross deferred tax asset are the reversal of deferred tax liabilities within
the carry forward  period  (which in the United  States is 15 years),  projected
future  taxable  income and tax  planning  strategies.  Pursuant to the guidance
under SFAS No. 109, we are  currently  unable to rely on  projections  of future
taxable income.  Therefore,  we must rely heavily on tax planning strategies for
support of the gross deferred tax asset.

     Prior to the second quarter of 2006, these tax planning strategies provided
justification  to  support  our  deferred  tax  asset.  The  combination  of the
increased pressure on our existing tax planning  strategies,  the operating loss
for the second  quarter,  and the  prospects of a ratings  downgrade  during the
second  quarter led  management  to conclude  that it was no longer "more likely
than  not"  that the full  amount  of the  gross  deferred  tax  asset  could be
realized.  Accordingly,  we established a valuation  allowance of $112.0 million
during the second  quarter.  During the third  quarter an  additional  valuation
allowance of $30.1 million was recorded.  The  valuation  allowance  principally
relates to current  period  tax  benefit  not being  recognized  (as  previously
indicated,  the Company can no longer  recognize  tax benefits for certain legal
entities)  and an additional  valuation  allowance  established  on prior period
deferred tax assets resulting from revised statutory and tax projections related
to certain legal entities.  At the end of the third quarter, the remaining gross
deferred tax asset is  supported  by the  reversal of deferred  tax  liabilities
within the carry forward period and tax planning strategies for which management
believes  that it is more likely than not


                                       33

<PAGE>


that the deferred tax assets will be utilized in  subsequent  periods,  although
there is a risk that we will need to establish  additional  valuation allowances
in  future  quarters.  At the end of the  third  quarter,  the  remaining  gross
deferred tax asset is  supported  by the  reversal of deferred  tax  liabilities
within the carry forward period and tax planning strategies for which management
believes  that it is more likely than not that the  deferred  tax assets will be
utilized in subsequent  periods,  although  there is a risk that we will need to
establish additional valuation allowances in future quarters.

     Future  quarterly  tax  amounts  will be  dependent  upon the  relationship
between pre-tax GAAP profits and statutory  profits and will also be impacted by
the size and timing of  certain  statutory  related  deferred  tax  liabilities.
Moreover, management will continue to assess and determine the need for, and the
amount of the valuation  allowance in subsequent  periods in accordance with the
requirements of SFAS No. 109.

Financial Condition

Investments

     At September  30, 2006,  the  portfolio  controlled by us consisted of $8.8
billion of fixed income  securities,  preferred  stock and cash.  The  portfolio
controlled  by us excludes  the assets held by ceding  insurers  under  modified
coinsurance and funds withheld coinsurance  arrangements.  The majority of these
assets are publicly traded;  however,  $550.0 million of this amount  represents
investments in private securities. Of the total portfolio controlled by us, $7.6
billion  represents the fixed income and preferred stock  portfolios  managed by
external investment managers and $1.2 billion represents other cash balances. At
December 31, 2005,  the portfolio  controlled by us consisted of $6.7 billion of
fixed income securities,  preferred stock and cash. The majority of these assets
were publicly traded; however, $452.9 million represented investments in private
securities.  Of the total portfolio,  $5.4 billion  represented the fixed income
and preferred stock portfolio managed by external  investment  managers and $1.3
million  represented  other cash  balances.  At September 30, 2006,  the average
Standard  & Poor's  rating of the  portfolio  was "AA",  the  average  effective
duration was 2.9 years and the average book yield was 5.5%,  as compared with an
average  rating  of "AA",  an  average  effective  duration  of 2.9 years and an
average  book yield of 4.9% at December 31, 2005.  At  September  30, 2006,  the
unrealized  depreciation  on  investments,  net of tax and deferred  acquisition
costs,   was  $22.1  million  as  compared  with   unrealized   depreciation  on
investments,  net of tax and deferred  acquisition  costs,  of $17.9  million at
December 31, 2005. The unrealized depreciation on investments is included in our
Consolidated Balance Sheet as part of shareholders' equity.

     The table below sets forth the total  returns  earned by our  portfolio for
the quarter ended  September 30, 2006,  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.

                                                        Quarter ended
                                                        September 30,
                                                             2006
                                                        --------------
Portfolio performance..............................          2.89%
Customized index...................................          2.95%
Lehman Brothers Global Bond Index..................          3.43%
S&P 500............................................          5.66%

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

<TABLE>
<CAPTION>
                                            September 30, 2006            December 31, 2005
                                        ---------------------------  ---------------------------
Ratings                                 $ in millions        %       $ in millions        %
-------                                 -------------     ---------  -------------      --------
<S>                                     <C>                  <C>     <C>                  <C>
AAA................................     $    3,833.3         43.4%   $    3,017.4         44.8%
AA.................................          2,002.3         22.7         1,069.1         15.9
A..................................          2,027.2         23.0         1,646.9         24.4
BBB................................            939.3         10.6           977.7         14.5
BB or below........................             24.0          0.3            28.0          0.4
                                        ------------       -------   ------------        ------
Total..............................     $    8,826.1        100.0%   $    6,739.1        100.0%
                                        ============       =======   ============        ======
</TABLE>

                                       34

<PAGE>


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

<TABLE>
<CAPTION>
                                                September 30, 2006          December 31, 2005
                                              --------------------       ----------------------
Sector                                           $ in millions   %          $ in millions  %
------                                        --------------------       ----------------------
<S>                                          <C>              <C>        <C>               <C>
U.S. Treasury securities and U.S.
  government agency obligations..........    $      65.6      0.7%       $      47.9       0.7%
Corporate securities.....................        2,603.4     29.5            2,057.0      30.5
Municipal bonds..........................           53.0      0.6               37.6       0.6
Mortgage and asset backed securities.....        4,786.7     54.2            3,150.1      46.7
Preferred stock..........................          148.0      1.7              133.8       2.0
                                             -----------    ------       -----------     ------
                                                 7,656.7     86.7            5,426.4      80.5
Cash.....................................        1,169.4     13.3            1,312.7      19.5
                                             -----------    ------       -----------     ------
Total....................................    $   8,826.1    100.0%       $   6,739.1     100.0%
                                             ===========    ======       ===========     ======
</TABLE>

     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 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",  the  cost  basis of the
impaired  asset is  adjusted  to its fair  value  and a  corresponding  realized
investment  loss is recognized  in the  consolidated  statements of income.  The
actual  value at which such  financial  instruments  could  actually  be sold or
settled with a willing buyer may differ from such estimated fair values.

     The following tables present the estimated fair values and gross unrealized
losses  for the  fixed  maturity  investments  and  preferred  stock  that  have
estimated fair values below  amortized cost or cost as of September 30, 2006 and
December  31,  2005.  These  investments  are  presented  by class  and grade of
security,  as well as the length of time the related  market  value has remained
below amortized cost or cost.

<TABLE>
<CAPTION>
                                                                  September 30, 2006
                                  -----------------------------------------------------------------------------------
                                                                  Equal to or greater
                                      Less than 12 months            than 12 months                  Total
                                  ---------------------------   -------------------------   -------------------------
                                    Estimated     Unrealized    Estimated     Unrealized    Estimated     Unrealized
                                   fair value        loss       fair value       loss       fair value       loss
                                  -------------  -----------   ----------    ------------  -----------  -------------
Investment Grade Securities:
----------------------------
<S>                               <C>            <C>           <C>           <C>           <C>           <C>
CMO.............................  $   426,350    $    (2,825)  $   231,671   $    (5,379)  $   658,021   $    (8,204)
Corporates......................      826,712        (17,787)      779,422       (28,964)    1,606,134       (46,751)
Governments.....................       31,266           (470)       21,145          (689)       52,411        (1,159)
MBS.............................        8,152            (89)      141,835        (5,184)      149,987        (5,273)
Municipals......................       19,828           (153)       16,902          (596)       36,730          (749)
Other structured securities.....      562,584         (2,407)      641,195       (12,433)    1,203,779       (14,840)
Preferred stocks................       15,674           (457)      108,176        (4,063)      123,850        (4,520)
                                   ----------     -----------   -----------   -----------   -----------   -----------
Total Investment grade
  securities....................    1,890,566        (24,188)    1,940,346       (57,308)    3,830,912       (81,496)
                                   ----------     -----------   -----------   -----------   -----------   -----------
Below Investment Grade
----------------------
  Securities Corporates
  ---------------------
Corporates......................        3,184            (97)       11,288          (643)       14,472          (740)
Other structured securities.....          915           (363)        3,269        (1,029)        4,184        (1,392)
Preferred stock.................            -              -           672           (32)          672           (32)
                                  -----------    -----------   -----------   -----------   -----------   ------------
Total below investment grade
  securities....................        4,099           (460)       15,229        (1,704)       19,328        (2,164)
                                  -----------    -----------   -----------   -----------   -----------   ------------
Total...........................  $ 1,894,665    $   (24,648)  $ 1,955,575   $   (59,012)  $ 3,850,240   $   (83,660)
                                  ===========    ===========   ===========   ===========   ===========   ============
</TABLE>


                                       35
<PAGE>


<TABLE>
<CAPTION>

                                                                   December 31, 2005
                                 ------------------------------------------------------------------------------------
                                                                  Equal to or greater
                                      Less than 12 months            than 12 months                  Total
                                 ---------------------------    ------------------------    -------------------------
                                    Estimated     Unrealized    Estimated     Unrealized    Estimated     Unrealized
                                   fair value        loss       fair value       loss       fair value       loss
                                 -------------   ------------  -----------   -----------   -----------  -------------
Investment Grade Securities:
---------------------------
<S>                               <C>            <C>           <C>           <C>           <C>           <C>
CMO.............................  $   467,314    $    (4,865)  $    85,305   $    (1,688)  $   552,619   $    (6,553)
Corporates......................    1,132,840        (23,950)       94,218        (2,545)    1,227,058       (26,495)
Governments.....................       36,297           (774)        1,999           (71)       38,296          (845)
MBS.............................      143,956         (3,383)       42,682        (1,611)      186,638        (4,994)
Municipals......................       17,738           (330)        1,621           (68)       19,359          (398)
Other structured securities.....    1,028,657        (11,882)      135,341        (3,113)    1,163,998       (14,995)
Preferred stocks................       98,263         (2,287)       24,106        (1,295)      122,369        (3,582)
                                  ----------     -----------   -----------   ------------  -----------   ------------
Total Investment grade
  securities....................    2,925,065        (47,471)      385,272       (10,391)    3,310,337       (57,862)
                                   ----------     -----------   -----------   ------------  -----------   ------------
Below Investment Grade
----------------------
  Securities Corporates                10,676           (655)        1,841           (59)       12,517          (714)
  ---------------------
Other structured securities.....        3,552           (555)        7,260           (29)       10,812          (584)
Preferred stock.................          392            (12)          340           (19)          732           (31)
                                   ----------    -----------   -----------   ------------  -----------   ------------
Total below investment grade
  securities....................       14,620         (1,222)        9,441          (107)       24,061        (1,329)
                                   ----------    -----------   -----------   ------------  -----------   ------------
Total...........................  $ 2,939,685    $   (48,693)  $   394,713   $   (10,498)  $ 3,334,398   $   (59,191)
                                  ===========    ===========   ===========   ============  ===========   ===========
</TABLE>

     At September 30, 2006, our fixed income  portfolio had 2,904  positions and
$83.7 million of gross unrealized  losses.  No single position had an unrealized
loss greater than $1.5 million.  There were $39.9 million of unrealized gains on
the  remainder  of the  portfolio.  There  were  134  private  securities  in an
unrealized loss position totaling $6.7 million in our fixed income portfolio. At
December 31, 2005,  our fixed income  portfolio  had 2,493  positions  and $59.2
million of gross  unrealized  losses.  No single position had an unrealized loss
greater than $0.5 million.  There were $25.5 million of unrealized  gains on the
remainder of the portfolio.  There were 127 private  securities in an unrealized
loss position totaling $4.3 million in our fixed income portfolio.

     Based on our  analysis of each  security  whose price has been below market
for  greater  than  twelve  months,  we  believe  that the  financial  strength,
liquidity,  leverage,  future  outlook,  and our  ability and intent to hold the
security   until   recovery   support  the  view  that  the   security  was  not
"other-than-temporarily"  impaired as of  September  30,  2006.  The  unrealized
losses on fixed maturity  securities  are primarily a result of rising  interest
rates,  changes  in  credit  spreads  and  the  long-dated   maturities  of  the
securities.  Additionally,  as of September 30, 2006,  approximately  97% of the
gross unrealized losses are associated with investment grade securities.

     Unrealized  losses  on  securities  that have  been in an  unrealized  loss
position  for  periods  greater  than two  years  amounted  to $7.2  million  at
September 30, 2006 and $1.1 million at December 31, 2005.  Unrealized  losses on
non-investment  grade  securities  amounted to $2.2  million and $1.3 million at
September  30, 2006 and  December  31,  2005,  respectively.  Of these  amounts,
non-investment  grade  securities  with  unrealized  losses of $1.7  million  at
September  30,  2006  and  $0.1  million  at  December  31,  2005 had been in an
unrealized loss position for a period greater than one year.

     The following  tables  illustrate  the industry  analysis of the unrealized
losses at September 30, 2006 and December 31, 2005.



                                       36

<PAGE>


<TABLE>
<CAPTION>
                                                                  September 30, 2006
                                   --------------------------------------------------------------------------------
                                                               Estimated Fair                Unrealized
                                   Amortized Cost      %           Value            %           Loss            %
                                   --------------   ------    ---------------    -----    ---------------    ------
Industry
--------
<S>                               <C>                 <C>     <C>                 <C>      <C>                <C>
Mortgage and asset backed
  securities....................   $   2,045,677      52.0%   $    2,015,969      52.4%    $      (29,708)    35.5%
Banking.........................         306,528       7.8           299,287       7.8             (7,241)     8.7
Communications..................         209,688       5.3           200,305       5.2             (9,383)    11.2
Consumer noncyclical............         148,121       3.8           143,142       3.7             (4,979)     6.0
Insurance.......................         145,941       3.7           142,295       3.7             (3,646)     4.4
Financial other.................         128,037       3.3           124,492       3.2             (3,545)     4.2
Finance companies...............         127,111       3.2           124,331       3.2             (2,780)     3.3
Consumer cyclical...............         124,672       3.2           120,432       3.1             (4,240)     5.1
Electric........................         114,361       2.9           110,959       2.9             (3,402)     4.1
Other...........................         583,764      14.8           569,028      14.8            (14,736)    17.5
                                   --------------   ------    ---------------    -----    ---------------    ------
Total...........................   $   3,933,900     100.0%   $    3,850,240     100.0%    $      (83,660)   100.0%
                                   ==============   ======    ===============    =====    ===============    ======
</TABLE>


<TABLE>
<CAPTION>
                                                                   December 31, 2005
                                   --------------------------------------------------------------------------------
                                     Amortized                   Estimated                   Unrealized
                                        Cost           %         Fair Value         %           Loss            %
                                   --------------   ------    ---------------    -----    ---------------    ------
Industry
--------
<S>                               <C>                 <C>     <C>                 <C>      <C>                <C>
Mortgage and asset backed
  securities....................   $  1,941,193       57.2%   $   1,914,068       57.4%     $    (27,125)     45.8%
Banking.........................        210,360        6.2          206,189        6.2            (4,171)      7.1
Insurance.......................        192,282        5.7          186,480        5.6            (5,802)      9.8
Financial other.................        114,199        3.4          111,488        3.3            (2,711)      4.6
Brokerage.......................        124,998        3.7          122,134        3.7            (2,864)      4.8
Finance companies...............        103,455        3.0          101,663        3.0            (1,792)      3.0
Communications..................        117,803        3.5          115,767        3.5            (2,036)      3.4
Other...........................        589,299       17.3          576,609       17.3           (12,690)     21.5
                                   --------------   ------    ---------------    -----    ---------------    ------
Total...........................   $  3,393,589      100.0%   $   3,334,398      100.0%    $     (59,191)    100.0%
                                   ==============   ======    ===============    =====    ===============    ======
</TABLE>


     The expected maturity dates of securities that have unrealized losses at
September 30, 2006 and December 31, 2005 are presented in the tables below.

<TABLE>
<CAPTION>
                                                                  September 30, 2006
                                   --------------------------------------------------------------------------------
                                     Amortized                   Estimated                   Unrealized
                                        Cost           %         Fair Value         %           Loss            %
                                   --------------   ------    ---------------    -----    ---------------    ------
Maturity
--------
<S>                               <C>                 <C>     <C>                 <C>      <C>                <C>
Due in one year or less.........   $    320,908         8.1%  $     318,046         8.3%  $      (2,862)       3.4%
Due in one through five years...      1,587,879        40.4       1,563,769        40.6         (24,110)      28.8
Due in five through ten years...      1,200,028        30.5       1,171,854        30.4         (28,174)      33.7
Due after ten years.............        825,085        21.0         796,571        20.7         (28,514)      34.1
                                   --------------    ------   ---------------     -----   ---------------    ------
Total...........................   $  3,933,900       100.0%  $   3,850,240       100.0%  $     (83,660)     100.0%
                                   ==============    ======   ===============     =====   ===============    ======
</TABLE>




<TABLE>
<CAPTION>
                                                                   December 31, 2005
                                   --------------------------------------------------------------------------------
                                                                 Estimated                   Unrealized
                                     Book Value        %         Fair Value         %           Loss            %
                                   --------------   ------    ---------------    -----    ---------------    ------
Maturity
--------
<S>                               <C>                 <C>     <C>                 <C>      <C>                <C>
Due in one year or less.........   $    269,410         7.9%  $     267,712         8.0%   $      (1,698)       2.9%
Due in one through five years...      1,659,946        48.9       1,636,102        49.1          (23,844)      40.3
Due in five through ten years...        925,650        27.3         905,973        27.2          (19,677)      33.2
Due after ten years.............        538,583        15.9         524,611        15.7          (13,972)      23.6
                                   --------------    ------   ---------------     -----   ---------------    ------
Total...........................   $  3,393,589       100.0%  $   3,334,398       100.0%   $     (59,191)     100.0%
                                   ==============    ======   ===============     =====   ===============    ======
</TABLE>


                                       37


<PAGE>


     At September 30, 2006,  there were 1,847  securities  with  unrealized loss
positions and at December 31, 2005,  there were 1,698 securities with unrealized
loss positions.

     At September 30, 2006,  there were three  securities with a fair value 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 $0.8 million.  At December 31, 2005, there was one
security  with a fair  value  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 this security amounted to $0.5 million.

     The following tables provide details of the sales proceeds,  realized loss,
length of time the security has been in an  unrealized  loss position and reason
for sale for those  securities sold at a loss during the periods ended September
30,  2006  and  2005.  These  tables  exclude  gains  or  losses  from  modified
coinsurance portfolios, foreign exchange and swaps or other derivatives.

<TABLE>
<CAPTION>
                                                        Three months ended September 30, 2006
                               --------------------------------------------------------------------------------------
                                   Credit Concern        Relative Value          Tactical               Total
                               -------------------    --------------------  ------------------   --------------------
                                Proceeds     Loss     Proceeds     Loss     Proceeds    Loss     Proceeds     Loss
                               ---------   -------    ---------  ---------  --------  --------   ---------  ---------
Days
----
<S>                             <C>        <C>        <C>        <C>        <C>       <C>        <C>        <C>
0-90.......................     $ 11,555   $     -    $      81  $     (2)  $190,764  $   (467)  $ 202,400  $   (469)
91-180.....................            -         -          906       (14)    37,405      (203)     38,311      (217)
181-270....................            -         -            -         -      3,223       (13)      3,223       (13)
Greater than 270...........            -         -        1,851      (121)    17,069      (160)     18,920      (281)
                               ---------   -------    ---------  ---------  --------  --------   ---------  ---------
Total......................     $ 11,555   $     -    $   2,838  $   (137)  $248,461  $   (843)  $ 262,854  $   (980)
                               =========   =======    =========  =========  ========  ========   =========  =========
</TABLE>


<TABLE>
<CAPTION>
                                                        Three months ended September 30, 2005
                               --------------------------------------------------------------------------------------
                                   Credit Concern        Relative Value          Tactical               Total
                               -------------------    --------------------  ------------------   --------------------
                                Proceeds     Loss     Proceeds     Loss     Proceeds    Loss     Proceeds     Loss
                               ---------   -------    ---------  ---------  --------  --------   ---------  ---------
Days
----
<S>                             <C>        <C>        <C>        <C>        <C>       <C>        <C>        <C>
0-90.......................     $ 18,020   $  (318)   $ 13,014   $   (100)  $ 60,662  $   (67)   $ 91,696   $   (485)
91-180.....................            -         -       2,606        (15)     1,330      (46)      3,936        (61)
181-270....................        2,881      (740)        200          -          -        -       3,081       (740)
Greater than 270...........            -         -          13          -        460      (11)        473        (11)
                               ---------   -------    ---------  ---------  --------  --------   ---------  ---------
Total......................     $ 20,901   $(1,058)   $ 15,833   $   (115)  $ 62,452  $  (124)   $ 99,186   $ (1,297)
                               =========   =======    =========  =========  ========  ========   =========  =========
</TABLE>


<TABLE>
<CAPTION>
                                                        Nine months ended September 30, 2006
                               --------------------------------------------------------------------------------------
                                   Credit Concern        Relative Value          Tactical               Total
                               -------------------    --------------------  ------------------   --------------------
                                Proceeds     Loss     Proceeds     Loss     Proceeds    Loss     Proceeds     Loss
                               ---------   -------    ---------  ---------  --------  --------   ---------  ---------
Days
----
<S>                             <C>        <C>        <C>        <C>        <C>       <C>        <C>        <C>
0-90.......................     $ 19,452   $  (822)   $ 193,855  $ (3,909)  $260,546  $   (845)  $ 473,853  $  (5,576)
91-180.....................        4,105       (81)      11,597      (331)    61,052      (822)     76,754     (1,234)
181-270....................        8,072      (798)       2,099       (34)     7,978      (186)     18,149     (1,018)
Greater than 270...........        3,540      (351)      16,864      (480)    30,655      (551)     51,059     (1,382)
                               ---------   -------    ---------  ---------  --------  --------   ---------  ---------
Total......................     $ 35,169   $(2,052)   $ 224,415  $ (4,754)  $360,231  $ (2,404)  $ 619,815  $  (9,210)
                               =========   =======    =========  =========  ========  ========   =========  =========
</TABLE>


<TABLE>
<CAPTION>
                                                        Nine months ended September 30, 2005
                               --------------------------------------------------------------------------------------
                                   Credit Concern        Relative Value          Tactical               Total
                               -------------------    --------------------  ------------------   --------------------
                                Proceeds     Loss     Proceeds     Loss     Proceeds    Loss     Proceeds     Loss
                               ---------   -------    ---------  ---------  --------  --------   ---------  ---------
Days
----
<C>                             <C>        <C>        <C>        <C>        <C>       <C>        <C>        <C>
0-90.......................     $ 37,641   $(1,318)   $  31,823   $   (260) $ 186,391  $(1,030)  $ 255,855   $  (2,608)
91-180.....................          355       (83)      12,021        (42)     1,330      (46)     13,706        (171)
181-270....................        3,862      (792)         397         (3)        81       (1)      4,340        (796)
Greater than 270...........           54       (11)         378         (1)       459      (11)        891         (23)
                               ---------   --------    ---------  ---------  --------  --------   ---------  ---------
Total......................     $ 41,912   $(2,204)    $ 44,619   $    (306) $188,261  $ (1,088)  $ 274,792  $  (3,598)
                               =========   ========    =========  =========  ========  ========   =========  ==========
</TABLE>


                                       38


<PAGE>


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 September 30, 2006, the funds withheld at interest  totaled $2.1 billion
with an average rating of "A", an average effective duration of 4.9 years and an
average book yield of 6.0%,  as compared to $2.6 billion with an average  rating
of "A+", an average effective duration of 5.1 years and an average book yield of
5.6% at  December  31,  2005.  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 $2.6 billion at
September 30, 2006 and December 31, 2005, respectively.

     At September  30, 2006 and December  31, 2005,  funds  withheld at interest
were in respect of nine contracts with six ceding  companies,  respectively.  At
September  30, 2006, we had one contract  with Lincoln  National Life  Insurance
Company that accounted for $1.1 billion or 53% of the funds  withheld  balances.
Additionally,  we had one contract with  Security  Life of Denver  International
Limited that accounted for $305.0 million or 15% of the funds withheld  balances
and one contract with Fidelity & Guaranty Life that accounted for $599.0 million
or 29% of the  funds  withheld  balances.  The  remaining  contracts  were  with
Illinois Mutual Insurance  Company,  American  Founders Life Insurance  Company,
Unity Financial Life Insurance Company and Unity Mutual Life Insurance  Company.
Lincoln National Life Insurance  Company has financial  strength ratings of "A+"
from AM.  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 $1.8  billion  and $2.4
billion at September 30, 2006 and December 31, 2005, respectively.

     The  investment  objectives  for these  arrangements  are  included  in the
modified  coinsurance  and funds withheld  coinsurance  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,  and maintain liquidity and overall
portfolio credit quality.



                                       39

<PAGE>


     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>
                                                          September 30, 2006          December 31, 2005
                                                      -----------------------     -------------------------
        Ratings                                        $ in  millions     %       $ in  millions        %
        -------                                       ----------------  -----     ----------------   ------
<S>                                                   <C>                <C>      <C>                 <C>
        AAA.......................................    $     413.4        20.0%    $    705.9          27.4%
        AA........................................          166.5         8.1          146.0           5.7
        A.........................................          627.9        30.4          741.6          28.9
        BBB.......................................          674.6        32.7          785.8          30.6
        BB or below...............................           77.3         3.8           78.0           3.0
                                                      ----------------  -----     ----------------   ------
                                                          1,959.7        95.0        2,457.3          95.6
        Commercial mortgage loans.................          103.5         5.0          112.6           4.4
                                                      ----------------  -----     ----------------   ------
        Total.....................................    $   2,063.2       100.0%    $  2,569.9         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>

                                                          September 30, 2006          December 31, 2005
                                                      -----------------------     -------------------------
        Sector                                         $ in  millions     %       $ in  millions        %
        -------                                       ----------------  -----     ----------------   ------
<S>                                                   <C>                 <C>     <C>                 <C>
        U.S. Treasury securities and U.S.
        government agency obligations............     $       45.9        2.2%    $       62.3         2.4%
        Corporate securities......................         1,430.9       69.4          1,634.4        63.6
        Municipal bonds...........................            29.2        1.4             33.0         1.3
        Mortgage and asset backed securities......           489.1       23.7            595.1        23.1
        Commercial mortgage loans.................           103.5        5.0            112.6         4.4
        Cash......................................           (35.4)      (1.7)           132.5         5.2
                                                      ----------------  -----     ----------------   ------
        Total.....................................    $    2,063.2      100.0%    $    2,569.9       100.0%
                                                      ================  =====     ================   ======
</TABLE>

Liquidity and Capital Resources

Liquidity

Cash flow

     Cash  provided by operating  activities  amounted to $532.9  million in the
first nine months of 2006 compared to cash  provided by operating  activities of
$324.2  million in the same period of 2005.  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.  During the first nine months of 2006,
$442.3  million of funds withheld were released as a result of the Ballantyne Re
transaction.

     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.

     Net cash used in investing  activities  was  $2,253.5  million and $1,660.9
million in the nine months ended September 30, 2006 and the comparable period in
2005,   respectively.   The  increase  in  cash  used  in  investing  activities
principally  relates  to the  purchases  of fixed  maturity  securities.  In the
current year, these were primarily  related to the investment of the proceeds of
the  Regulation  XXX  transactions  closed in December 2005 and May


                                       40

<PAGE>


2006 and the excess cash generated by operating and financing activities. In the
same  period in 2005,  these were  primarily  related to the  investment  of the
proceeds of the collateral  finance  facilities and the excess cash generated by
operating and financing  activities  and investment of funds received on the ING
acquisition.

     Net cash provided by financing  activities was $1,656.5 million in the nine
months ended September 30, 2006 and $1,028.5 million in the same period of 2005.
The current period  financings  included  $1,760.2  million raised in collateral
finance  facilities,  $265.0 million from the drawdown of the Stingray  facility
$147.3  milion from the prepaid  variable  share  forward  contract  and reduced
slightly by  approximately  $500.0 million related to withdrawals  from interest
sensitive  contracts.  Prior year financings mainly relate to collateral finance
facilities proceeds.

Credit facilities

     On July 14, 2005,  Scottish Annuity & Life Insurance Company (Cayman) Ltd.,
Scottish Re (Dublin) Limited,  Scottish Re (U.S.),  Inc. and Scottish Re Limited
entered into a $200.0  million,  three-year  revolving  unsecured  senior credit
facility with a syndicate of banks (the "$200 Million  Credit  Agreement").  The
facility provides  capacity for borrowing and extending  letters of credit.  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 Limited.  There were no outstanding  borrowings at September 30,
2006.  Outstanding  letters of credit  under  this  facility  amounted  to $42.8
million at September 30, 2006. On September  21, 2006,  Scottish  Annuity & Life
Insurance Company (Cayman) Ltd. gave notice that it will permanently  reduce the
aggregate  commitments  under  the  $200  Million  Credit  Agreement,  effective
September 22, 2006, to $42.8 million.  The aggregate  commitments under the $200
Million Credit Agreement will be further  permanently  reduced dollar for dollar
by the  amount of each  letter of credit  returned  undrawn  or, if drawn,  upon
payment of the  obligation  by the  applicable  borrower.  Also on September 21,
2006,  Scottish Annuity & Life Insurance  Company (Cayman) Ltd. sent a notice to
the  syndicate of banks that it did not wish to have the expiry  dates  extended
pursuant to the evergreen feature contained in the outstanding letters of credit
that were issued.  The majority of such letters of credit have a current  expiry
date of December 31, 2006,  and the  remainder  have current  expiry dates on or
prior to September  15, 2007.  Outstanding  letters of credit under the facility
amounted to $25.3 million at November 8, 2006.

     On August 18,  2005,  Scottish Re  (Dublin)  Limited  entered  into a $30.0
million  three-year  revolving,  unsecured  letter  of  credit  facility  with a
syndicate  of banks (the "$30  Million  Credit  Agreement").  The  facility is a
direct financial obligation of Scottish Re (Dublin) Limited,  however,  Scottish
Annuity & Life  Insurance  Company  (Cayman)  Ltd.  has  guaranteed  the payment
obligations  of Scottish Re (Dublin)  Limited.  Effective  September  22,  2006,
Scottish Annuity & Life Insurance Company (Cayman) Ltd. and Scottish Re (Dublin)
Limited  terminated  the $30  Million  Credit  Agreement.  All letters of credit
outstanding  under  the  agreement,  in an  aggregate  of  $10.0  million,  were
cancelled.

     The  financial  covenants  set forth in the $200 Million  Credit  Agreement
require that Scottish Annuity & Life Insurance  Company (Cayman) Ltd. maintain a
minimum  amount of  consolidated  shareholders'  equity (during any four quarter
period,  $750.0 million plus 50% of consolidated  net income for the period plus
50% of any increases to  shareholders'  equity during the period) and maintain a
ratio of unencumbered  assets to aggregate  borrowings under the facility of 1.2
times borrowings.  In addition, this facility requires Scottish Re Group Limited
to maintain a minimum amount of  consolidated  shareholders'  equity (during any
four quarter period,  $760.0 million plus 50% of consolidated net income for the
period plus 50% of any increases to shareholders'  equity during the period) and
a debt to  capitalization  ratio of less than 30%. For the purposes of computing
the financial  covenants,  the collateral  facilities and their associated costs
are excluded. The facility also contains certain covenants on borrowing entities
in respect  of,  among other  things,  dividends  or loans to the  parent,  debt
incurrence and affiliate transactions.

     Failure  to comply  with the  requirements  of the credit  facility  would,
subject to grace periods, result in an event of default and we would be required
to repay any outstanding  borrowings.  At September 30, 2006, Scottish Annuity &
Life  Insurance  Company  (Cayman)  Ltd. and  Scottish Re Group  Limited were in
compliance with the financial covenants noted in the preceding paragraph.



                                       41

<PAGE>


The Holding Company

     We are a holding company whose primary uses of liquidity  include,  but are
not limited to, operating expenses, the immediate capital needs of our operating
companies,  dividends  paid to our  shareholders  and  interest  payments on our
indebtedness.  See Note 10, "Debt  Obligations" in the Notes to the Consolidated
Financial Statements to our 2005 Annual Report on Form 10-K. The primary sources
of our liquidity  include  proceeds from our capital raising  efforts,  interest
income on corporate investments and dividends from operating  subsidiaries.  The
holding company also receives  funding from its  subsidiaries  through  transfer
pricing  reflecting  services  performed by the holding company on behalf of its
subsidiaries. We will continue to be dependent upon these sources of liquidity.

Other Sources and Uses of Liquidity

     Based on our known sources and uses of liquidity, our liquidity position is
very tight over the near term. Our most significant liquidity use relates to the
4.5% Senior Convertible Notes,  pursuant to which the noteholders have the right
to put the notes to us for cash on December 6, 2006. If our  outstanding  credit
facility is terminated  as a result of replacing the remaining  $25.3 million of
letters of credit with either replacement  letters of credit or assets in trust,
the  restrictions  on dividends or loans from Scottish  Annuity & Life Insurance
Company  (Cayman) Ltd. to the holding  company will be removed.  This will allow
cash  from  Scottish  Annuity  & Life  Insurance  Company  (Cayman)  Ltd.  to be
available  to repay the 4.5% Senior  Convertible  Notes.  No  assurances  can be
given, however, that we will be successful in replacing these letters of credit.

     During the third quarter of 2006, we  successfully  completed a reinsurance
transaction  that  provided  approximately  $120.0  million of  liquidity to the
Company. To further enhance our liquidity position,  we are pursuing discussions
with various lending institutions for alternative credit facilities and actively
negotiating  reinsurance  transactions  to provide  both  liquidity  and capital
relief.  No assurances can be given that we will be successful in completing any
of these  additional  transactions to provide us with needed  liquidity.  To the
extent that we are not able to obtain these sources of additional liquidity,  we
face the  possibility  of running  out of  liquidity  as early as the end of the
second quarter of 2007 unless affirmative steps are taken to restructure or sell
our  business.  Over the longer term,  we will need  significant  amounts of new
capital to support  existing  business and any new business.  This need over the
long and short  term may impact  our  ability  to affect  one or more  strategic
alternatives  currently  being studied by the Company and the economic  terms of
any such strategic alternatives.



Capital and Long-Term Debt

     Total capitalization at September 30, 2006 and December 31, 2005 is as
follows:
<TABLE>
<CAPTION>

                                                                       September 30,      December 31,
                                                                            2006              2005
                                                                      ---------------   ---------------
<S>                                                                   <C>               <C>
        Shareholders' equity.....................................     $    1,283,537    $     1,271,712
        Mezzanine equity.........................................            143,512            143,057
        Long-term debt...........................................            244,500            244,500
                                                                      ---------------   ---------------
        Total....................................................     $    1,671,549    $     1,659,269
                                                                      ===============   ===============
</TABLE>

     The  increase  in  shareholders'  equity  is due to the  settlement  of the
prepaid  variable share forward contract where we received $147.3 million in the
aggregate and issued an aggregate of 6.6 million ordinary shares,  offset by our
net loss of $135.2 million plus other  comprehensive loss of $6.1 million in the
nine months ended  September  30, 2006.  Other  comprehensive  loss includes the
increase in unrealized  depreciation  on investments  (net of taxes and deferred
acquisition costs) of $22.1 million.

Prepaid variable share forward contract

     In  connection  with the  December 23, 2005  ordinary  share  offering,  we
entered into forward sales  agreements  with  affiliates of Bear,  Stearns & Co.
Inc.  and Lehman  Brothers,  Inc.  (the  "forward  purchasers")  and the forward
purchasers  borrowed and sold an aggregate of approximately  3,150,000  ordinary
shares as their  initial hedge of the


                                       42

<PAGE>


forward sale agreements.  Pursuant to the forward sale  agreements,  the forward
purchasers  agreed to pay us an  aggregate  of  approximately  $75.0  million on
September 29, 2006 and an aggregate of  approximately  $75.0 million on December
29, 2006, subject to our right to receive a portion of such payment prior to the
settlement  dates.  In exchange,  on each of such dates we would  deliver to the
forward  purchasers  a variable  number of ordinary  shares based on the average
market  price of the ordinary  shares,  subject to a floor price of $22.80 and a
cap price of $28.80.  We also have the right to net share  settle or cash settle
the forward sale  agreements.  The fair value of the forward sales agreements at
inception  was reflected in  shareholders'  equity (as a reduction in additional
paid-in capital) and the fair value is not adjusted until the settlement date of
the forward. In addition, the underwriting costs of the forward sales agreements
were  reflected in  shareholders'  equity (as a reduction in additional  paid-in
capital).

     On June 26, 2006, we exercised  our right of  prepayment  under the forward
sale agreements and received 75% of the $150.0 million proceeds  totaling $110.0
million,  net of  prepayment  discounts of $2.5  million.  This  prepayment  was
recorded as a separate component of consolidated shareholders' equity. The total
amount of the discount related to the prepayment  transaction was recorded as an
imputed  dividend charge over the applicable  contract  settlement  period.  The
prepayment  option on the forward  sale  agreements  provides  the  counterparty
liquidation preferences that are similar to other ordinary shareholders.

     On August 9, 2006, the forward purchasers  notified us of the occurrence of
"Increased  Cost of Stock Borrow" under the forward sale agreements and proposed
price  adjustments  thereto.  Pursuant to the  forward  sales  agreements,  upon
receipt of such  notification,  we were  entitled to elect to (a) agree to amend
the transactions to take into account the price adjustments; (b) pay the forward
purchasers an amount  corresponding to the price  adjustments;  or (c) terminate
the  transactions.  On August 11,  2006,  the  forward  purchasers  proposed  an
amendment  to the forward  sales  agreements  which  provided  us an  additional
alternative,  the acceleration of the scheduled maturity date to August 14, 2006
under each of the  forward  sales  agreements.  We agreed to this  amendment  on
August 14, 2006.  On August 17, 2006, we received cash proceeds of $36.5 million
and issued 6.6 million ordinary  shares,  which satisfied in full our obligation
to deliver  shares  pursuant to the  forward  sales  agreements  and the forward
purchasers' obligations to pay us under such agreements. An imputed dividend was
charged to earnings based on the pro-rated  amount of time that elapsed from the
original  prepayment  date until  settlement  date.  The balance of the discount
reduced the net proceeds on issuance of shares.

     Upon the  settlement  of the forward  sales  agreements,  we have  received
$147.3 million in the aggregate and issued an aggregate of 6.6 million  ordinary
shares.

Long-term debt

     Included in  long-term  debt is $115.0  million of 4.5% Senior  Convertible
Notes due December 1, 2022. The notes are general unsecured obligations, ranking
on a parity in right of  payment  with all our  existing  and  future  unsecured
senior  indebtedness,  and  senior  in  right  of  payment  to  all  our  future
subordinated indebtedness.  We may redeem the notes at our option in whole or in
part  beginning  on  December  6, 2006 at 100% of their  principal  amount  plus
accrued and unpaid interest and additional  amounts, if any, payable in cash. If
a change of control of  Scottish  Re Group  Limited  occurs,  note  holders  may
require us to repurchase all or part of the notes at a repurchase  price of 100%
of their  principal  amount plus  accrued  and unpaid  interest  and  additional
amounts, if any, payable in cash. Note holders may also require us to repurchase
all or part of the notes on December 6, 2006, December 1, 2010, December 1, 2012
and December 1, 2017 at a  repurchase  price of 100% of their  principal  amount
plus accrued and unpaid  interest and  additional  amounts,  if any,  payable in
cash.  In  addition,  as a result of the recent  ratings  downgrade  of the 4.5%
Senior  Convertible Notes by Moody's,  the notes are currently  convertible at a
rate of 46.0617 ordinary shares per $1,000 principal amount.  On conversion,  we
would pay the notes in cash,  based on the  average  sale price of our  ordinary
shares for a period of 20 consecutive trading days prior to conversion.

Shareholder dividends

     On July 28,  2006,  the Board of  Directors  suspended  the dividend on the
ordinary  shares.  All future payments of dividends are at the discretion of our
Board  of  Directors  and  will  depend  on our  income,  capital  requirements,
insurance regulatory conditions,  operating conditions and such other factors as
the Board of Directors may deem relevant.

Collateral

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

     o    Scottish Annuity & Life Insurance  Company (Cayman) Ltd.,  Scottish Re
          (Dublin)  Limited  or  Scottish  Re Limited  enter into a  reinsurance
          treaty with a U.S. customer which require us to contribute assets into
          a reserve credit trust with a U.S. bank or issue a letter of credit to
          enable the ceding company to obtain reserve credit for the reinsurance
          transaction;

     o    Scottish Re (U.S.),  Inc. enters into a reinsurance  transaction which
          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 us 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    Scottish  Re  (U.S.),  Inc.  is  licensed,  accredited,   approved  or
          authorized to write  reinsurance in a state, it may still 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  enabling  transactions  that would otherwise be
          unavailable  or  would  be  available  only  on   significantly   less
          attractive terms.

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 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 completed three financing  solutions  relating to these  requirements in
December  2005 and one in May 2006.  The vast  majority  of the  Regulation  XXX
business  has  been  permanently  financed  with  alternative  sources  and  the
principal obligation left for ING is related to the Regulation AXXX business.

HSBC I

     In 2004, we entered into a collateral  finance facility with HSBC Bank USA,
N.A.  ("HSBC I"). This  facility  provides up to $200.0 million that can be used
to collateralize   reinsurance  obligations  under   inter-company   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 FASB
Interpretation  No. 46 (revised  December 2003) ("FIN 46R"),  "Consolidation  of
Variable Interest  Entities",  the trust is considered to be a variable interest
entity and we are deemed to hold the primary  beneficial  interest in the trust.
As a result,  the trust has been consolidated in our financial  statements.  The
assets of the trust  have  been  recorded  as fixed  maturity  investments.  Our
consolidated  statements  of income show the  investment  return of the


                                       43

<PAGE>


trust  as  investment  income  and the  cost of the  facility  is  reflected  in
collateral  finance  facilities  expense.  The  creditors  of the trust  have no
recourse against our general assets. As at September 30, 2006, $188.5 million of
this facility was being utilized.

     Due to the  recent  rating  agency  downgrades  after our  announcement  of
earnings for the second quarter,  HSBC requested additional collateral under the
total return swap agreements  related to both HSBC I and HSBC II (see below). In
exchange for us agreeing to provide  HSBC with  additional  collateral  of up to
$65.0  million,  HSBC agreed to forbear from demanding any amounts of additional
collateral  through  December 6, 2006.  To date,  we have provided HSBC with $57
million of additional collateral,  which would be increased by $8.0 million upon
the  occurrence  of either 1) a further  rating  agency  downgrade  of  Scottish
Annuity & Life  Insurance  Company  (Cayman) Ltd. or 2) Scottish  Annuity & Life
Insurance Company (Cayman) Ltd. entering into any new liquidity source.

Stingray

     On January 12, 2005, we entered into a put agreement with Stingray Investor
Trust ("Stingray") for an aggregate value of $325.0 million.  Under the terms of
the put  agreement,  we  acquired  an  irrevocable  put option to issue  funding
agreements  to  Stingray  in  return  for the  assets in a  portfolio  of 30-day
commercial paper. This put option may be exercised at any time. In addition,  we
may  be  required  to  issue  funding   agreements  to  Stingray  under  certain
circumstances,  including, but not limited to, the non-payment of the put option
premium and a non-payment of interest under any outstanding  funding  agreements
under the put  agreement.  The  facility  matures  on  January  12,  2015.  This
transaction  may also  provide  collateral  for  Scottish  Re (U.S.),  Inc.  for
reinsurance obligations under inter-company reinsurance agreements. At September
30, 2006,  $58.0 million was in use for this  purpose.  We drew down most of the
remaining funds, in the amount of $265.0 million,  under this facility on August
14, 2006. The put premium and interest costs incurred  during the three and nine
months ended  September  30, 2006  amounted to $3.0  million and $5.4.  million,
respectively,  and is included in collateral  finance  facilities expense in the
consolidated statements of income. The put premium incurred during the three and
nine months ended  September 30, 2005 amounted to $1.2 million and $3.5 million,
respectively.  In  accordance  with FIN  46R,  we are not  considered  to be the
primary  beneficiary  of  Stingray  and as a  result  we  are  not  required  to
consolidate  Stingray.  The $265.0  million of funds drawn on the  facility  are
included in interest sensitive contract liabilities on our balance sheet.

Orkney Re, Inc.

     On February 11, 2005,  Orkney Holdings,  LLC, a Delaware limited  liability
company  ("Orkney  I"),  issued and sold in a private  offering an  aggregate of
$850.0  million  Series A Floating Rate Insured Notes due February 11, 2035 (the
"Orkney  Notes").  Orkney I was organized for the limited purpose of holding the
stock of Orkney Re, Inc., a South Carolina  special  purpose  captive  insurance
company, and issuing the Orkney Notes. Scottish Re (U.S.), Inc. holds all of the
limited liability company interest in Orkney I. Proceeds from this offering were
used to fund the  Regulation  XXX reserve  requirements  for a defined  block of
level premium term life insurance  policies  issued between  January 1, 2000 and
December  31, 2003  reinsured  by  Scottish  Re (U.S.),  Inc. to Orkney Re, Inc.
Proceeds from the Orkney Notes have been  deposited into a series of trusts that
collateralize the notes.

     The holders of the Orkney Notes cannot require  repayment from us or any of
our  subsidiaries,  other than  Orkney I. The timely  payment  of  interest  and
ultimate  payment of  principal  for the  Orkney  Notes are  guaranteed  by MBIA
Insurance Corporation.

     Interest on the principal  amount of the Orkney Notes is payable  quarterly
at a rate equivalent to three month LIBOR plus 0.53%. At September 30, 2006, the
interest rate was 5.93%. Any payment of principal,  including by redemption,  or
interest on the Orkney Notes is sourced from  dividends from Orkney Re, Inc. and
the balances available in a series of trust accounts. Dividends may only be made
with the prior  approval  of the  Director  of  Insurance  of the State of South
Carolina in accordance with the terms of its licensing  orders and in accordance
with  applicable  law. The Orkney Notes also contain a customary  limitation  on
lien provisions and customary events of default provisions,  which, if breached,
could result in the accelerated  maturity of the Orkney Notes.  Orkney I has the
option to redeem all or a portion of the Orkney  Notes  prior to and on or after
February 11, 2010, subject to certain call premiums.



                                       44
<PAGE>


     In  accordance  with  FIN  46R,  Orkney I is  considered  to be a  variable
interest entity and we are considered to hold the primary  beneficial  interest.
As a result,  Orkney I has been  consolidated in our financial  statements.  The
assets of Orkney I have been recorded as fixed maturity investments and cash and
cash  equivalents.  Our  consolidated  statements of income show the  investment
return  of  Orkney  I as  investment  income  and the  cost of the  facility  is
reflected in collateral finance facilities expense.

Orkney Re II plc

     On December 21, 2005,  Orkney Re II plc, an orphan special  purpose vehicle
incorporated  under the laws of Ireland  ("Orkney  II"),  whose issued  ordinary
shares are held by a share  trustee  and its  nominees  in trust for  charitable
purposes,  issued in a  private  offering  $450.0  million  of debt to  external
investors.  The debt  consisted  of $382.5  million  Series  A-1  Floating  Rate
Guaranteed Notes (the "Series A-1 Notes"),  $42.5 million in aggregate principal
amount of Series A-2 Floating  Rate Notes (the  "Series A-2  Notes"),  and $25.0
million  Series B Floating  Rate Notes (the "Series B Notes"),  all due December
31, 2035 (collectively,  the "Orkney II Notes").  The Orkney II Notes are listed
on the Irish Stock  Exchange.  Proceeds from this offering were used to fund the
Regulation  XXX reserve  requirements  for a defined block of level premium term
life insurance  policies  issued  between  January 1, 2004 and December 31, 2004
reinsured by Scottish Re (U.S.),  Inc. to Orkney II. Proceeds from the Orkney II
Notes have been deposited into a series of trusts that collateralize the notes.

     The holders of the Orkney II Notes cannot require  repayment from us or any
of our  subsidiaries,  only from  Orkney  II.  Assured  Guaranty  (UK) Ltd.  has
guaranteed  the  timely  payment  of the  scheduled  interest  payments  and the
principal on the maturity date, December 21, 2035, of the Series A-1 Notes.

     Interest  on the  principal  amount  of the  Orkney  II  Notes  is  payable
quarterly at a rate  equivalent to three-month  LIBOR plus 0.425% for the Series
A-1  Notes,  three-month  LIBOR  plus  0.73%  for  the  Series  A-2  Notes,  and
three-month  LIBOR plus 3.0% for the Series B Notes.  At September 30, 2006, the
interest rate on the Series A-1 Notes was 5.83%, Series A-2 Notes was 6.13%, and
Series  B Notes  was  8.40%.  The  Orkney  II Notes  also  contain  a  customary
limitation on lien provisions and customary events of default provisions, which,
if breached,  could result in the  accelerated  maturity of the Orkney II Notes.
Orkney II has the option to redeem all or a portion of the Orkney II Notes prior
to and on or after February 11, 2007, subject to certain call premiums.

     In  accordance  with FIN 46R,  Orkney  II is  considered  to be a  variable
interest entity and we are considered to hold the primary  beneficial  interest.
As a result,  Orkney II has been consolidated in our financial  statements.  The
assets of Orkney II have been recorded as fixed  maturity  investments  and cash
and cash equivalents.  Our consolidated statements of income show the investment
return  of  Orkney  II as  investment  income  and the cost of the  facility  is
reflected in collateral finance facilities expense.

HSBC II

     On December 22, 2005, we entered into a second collateral  finance facility
with HSBC Bank USA,  N.A.  ("HSBC II").  This  facility is a 20 year  collateral
finance  facility that provides up to $1.0 billion of Regulation  XXX collateral
support  for the  business  acquired  from ING and can be used to  collateralize
reinsurance    obligations   under   inter-company    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 46R the trust is
considered  to be a  variable  interest  entity  and we are  deemed  to hold the
primary  beneficial  interest  in the  trust.  As a  result,  the trust has been
consolidated  in our  financial  statements.  The  assets of the trust have been
recorded  as  fixed  maturity  investments,   cash  and  cash  equivalents.  Our
consolidated  statements  of income show the  investment  return of the trust as
investment  income  and the cost of the  facility  is  reflected  in  collateral
finance facilities expense.  The creditors of the trust have no recourse against
our general  assets.  As at September 30, 2006,  $517.9 million of this facility
was being utilized.

     See HSBC I above for a discussion of the additional collateral paid to HSBC
under this facility.



                                       45

<PAGE>


Ballantyne Re plc

     On May 2,  2006,  Ballantyne  Re plc,  an orphan  special  purpose  vehicle
incorporated  under  the laws of  Ireland  issued in a  private  offering  $1.74
billion of debt to  external  investors  and $178.0  million of debt to Scottish
Annuity & Life Insurance Company (Cayman) Ltd. The total debt issued to external
investors (collectively, the "Notes") consisted of:

     o    $250.0 million of Class A-1 Floating Rate Notes,

     o    $500.0 million of Class A-2 Floating Rate Guaranteed Notes Series A,

     o    $500.0 million of Class A-2 Floating Rate Guaranteed Notes Series B,

     o    $100.0 million of Class A-3 Floating Rate Guaranteed Notes Series A,

     o    $100.0 million of Class A-3 Floating Rate Guaranteed Notes Series B,

     o    $100.0 million of Class A-3 Floating Rate Guaranteed Notes Series C,

     o    $100.0 million of Class A-3 Floating Rate Guaranteed Notes Series D,

     o    $10.0 million of Class B-1 7.51244% Subordinated Notes,

     o    $40.0 million of Class B-2 Subordinated Floating Rate Notes, and

     o    $42.0 million of Class C-1 Subordinated Variable Interest Rate Notes.

     The debt issued to Scottish Annuity & Life Insurance  Company (Cayman) Ltd.
consisted of $8.0 million of Class C-1 Subordinated Variable Interest Rate Notes
and $170.0 million Class C-2 Subordinated  Variable  Interest Rate Notes,  which
Scottish  Annuity  & Life  Insurance  Company  (Cayman)  Ltd.  intends  to  hold
(collectively,  the "SALIC Notes";  and together with the Notes, the "Ballantyne
Notes").  Concurrently with its offering of the Ballantyne Notes,  Ballantyne Re
issued (i)  $500,000  of Class D  Convertible  Notes,  which were  purchased  by
Scottish Re Group Limited,  (ii) 163.0 million  Redeemable  Preference Shares of
U.S. $1.00 par value per share which were  purchased by Scottish  Annuity & Life
Insurance   Company  (Cayman)  Ltd.,  and  (iii)  18.2  million   Non-Redeemable
Preference Shares of U.S. $1.00 par value per share which were also purchased by
Scottish Annuity & Life Insurance Company (Cayman) Ltd.

     Interest  on the  principal  amount of the  Ballantyne  Notes is payable in
intervals  ranging from every 28 days to monthly to  annually,  depending on the
note, initially at a rate equivalent to one-month LIBOR plus 0.61% for the Class
A-1  Floating  Rate Notes (and after May 2, 2022,  one-month  LIBOR plus 1.22%),
one-month  LIBOR plus 0.31% for the Class A-2  Floating  Rate  Guaranteed  Notes
Series A (and after May 2, 2027,  one-month  LIBOR plus 0.62%),  one-month LIBOR
plus 0.36% for the Class A-2 Floating Rate Guaranteed  Notes Series B (and after
May 2, 2027,  one-month  LIBOR plus 0.72%),  4.99%,  4.99%,  5.00% and 5.01% for
Series A, Series B, Series C, and Series D of the Class A-3 Notes,  respectively
(with the rate on the Class  A-3  Notes to reset  every 28 days),  7.51% for the
Class B-1  Subordinated  Notes,  one-month  LIBOR  plus  2.00% for the Class B-2
Subordinated  Floating Rate Notes,  and a variable rate based on  performance of
the  underlying  block of  business  for the  Class  C-1  Subordinated  Variable
Interest Rate Notes and the Class C-2 Subordinated Variable Interest Rate Notes.

     Proceeds from this offering  were used to fund the  Regulation  XXX reserve
requirements for the business acquired from ING America Insurance Holdings, Inc.
$1.65 billion of the proceeds from the Ballantyne Notes have been deposited into
a series of accounts that  collateralize the reserve  obligations of Scottish Re
(U.S.), Inc.

     The holders of the Ballantyne Notes cannot require repayment from us or any
of our subsidiaries.  The timely payment of the scheduled  interest payments and
the principal on the maturity date of Series A of the Class A-2 Notes and Series
A, Series B, Series C, Series D and, if issued,  Series E of the Class A-3 Notes
has been  guaranteed


                                       46

<PAGE>


by Ambac  Assurance UK Limited.  The timely  payment of the  scheduled  interest
payments and the  principal  on the  maturity  date of Series B of the Class A-2
Notes and,  if issued,  Series F of the Class A-3 Notes has been  guaranteed  by
Assured Guaranty (UK) Ltd.

     In accordance with FASB Interpretation No. 46 (revised December 2003) ("FIN
46R"),   "Consolidation  of  Variable  Interest  Entities",   Ballantyne  Re  is
considered to be a variable  interest  entity and we are  considered to hold the
primary beneficial interest.  As a result,  Ballantyne Re is consolidated in our
financial  statements  beginning  in the second  quarter of 2006.  The assets of
Ballantyne  Re are  recorded  as fixed  maturity  investments  and cash and cash
equivalents. Our consolidated statements of income include the investment return
of Ballantyne Re as investment  income and the cost of the facility is reflected
in collateral finance facilities expense.

Reinsurance Facility

     On December 22,  2005,  we entered  into a long term  reinsurance  facility
("Reinsurance Facility"),  with a third-party  Bermuda-domiciled  reinsurer that
provides  up to $1.0  billion  of  Regulation  XXX  collateral  support  for the
business acquired from ING. The Bermuda reinsurer  provides security in the form
of letters of credit in trust  equal to the  statutory  reserves.  All risks and
returns arising out of the underlying book of business are retained by us.

Collateral Summary

     At September 30, 2006, we had $3.7 billion of collateral  finance  facility
obligations  relating to the HSBC I, HSBC II, Orkney I, Orkney II and Ballantyne
Re transactions.  In connection with these transactions, we have assets in trust
of  approximately  $5.3 billion that  represent  assets  supporting the economic
reserves,  excess  reserves,  additional  funding  amounts  and  surplus  in the
transactions.  The assets in trust are  managed in  accordance  with  predefined
investment   guidelines  as  to  permitted   investments,   portfolio   quality,
diversification and duration.

     As  described  above,  we have a number of  facilities  in place to provide
collateral for our reinsurance business, including our credit facilities, HSBC I
and Stingray.  However,  the aggregate  commitment under the credit facility was
reduced to $42.8 million,  which is the outstanding letters of credit balance at
September  30, 2006. No additional  borrowing  capacity is available  under this
facility.  In addition,  our HSBC I facility  has been fully  utilized and it is
uncertain if a similar facility can be completed or if the current facility will
remain available for future use following a permanent Regulation XXX transaction
which  would  reduce the  current  usage of the HSBC I  facility.  Finally,  the
Stingray facility has been fully utilized.  Other existing sources of collateral
include cash and other assets which are available.

     Based  on our  sources  and uses of  collateral,  our  collateral  position
remains  very  tight over the near term.  During the third  quarter of 2006,  we
successfully  completed a reinsurance  transaction  that provided  approximately
$120 million of liquidity and collateral to the Company.  To further enhance our
liquidity and  collateral  position,  we are pursuing  discussions  with various
lending  institutions for alternative credit facilities and actively negotiating
reinsurance  transactions  to provide  both  liquidity  and capital  relief.  No
assurances  can be given that we will be successful  in completing  any of these
additional  transactions to provide us with needed liquidity. To the extent that
we are not able to obtain these  sources of  additional  liquidity,  we face the
possibility  of  running  out of  liquidity  as early  as the end of the  second
quarter of 2007 unless  affirmative  steps are taken to  restructure or sell our
business.  Over the longer term, we will need significant amounts of new capital
to support existing  business and any new business.  This need over the long and
short term may impact our ability to affect one or more  strategic  alternatives
currently  being  studied  by the  Company  and the  economic  terms of any such
strategic alternatives.

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


                                       47

<PAGE>


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  Corporation  with enough  liquidity to meet its obligations in a timely
manner.

     Scottish  Annuity & Life  Insurance  Company  (Cayman) Ltd. and Scottish Re
Group Limited 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 Group  Limited  will  assume all of Scottish Re
Limited's obligations under such agreements.

     Scottish Re Group  Limited 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.

     All of our  regulated  insurance  entities  are in excess of their  minimum
regulatory  capital  requirements as of September 30, 2006 and we expect them to
remain as such through the near term.

Tartan Capital Limited

     On May 4, 2006,  we entered  into an  agreement  that  provides two classes
totaling  $155.0 million of  collateralized  catastrophe  protection with Tartan
Capital Limited  ("Tartan"),  a special purpose Cayman Islands company which was
funded through a catastrophe bond  transaction.  This coverage is for the period
January  1, 2006 to  December  31,  2008 and  provides  Scottish  Annuity & Life
Insurance  Company (Cayman) Ltd. with protection from losses arising from higher
than normal mortality  levels within the United States,  as reported by the U.S.
Centers for Disease Control and Prevention or other designated reporting agency.
This  coverage is based on a mortality  index,  which is based on age and gender
weighted  mortality  rates  for the  United  States  constructed  from  publicly
available  data  sources,  as  defined  at  inception,  and which  compares  the
mortality rates over consecutive 2 year periods to a reference index value. Upon
the  occurrence of a loss event,  where the indexed  losses  exceeds the trigger
level for a given  tranche,  the  percentage of the original  principal for each
tranche  paid  to  Scottish  Annuity  & Life  Insurance  Company  (Cayman)  Ltd.
increases  linearly  between the trigger level and exhaustion  level.  Since the
amount  of any  recovery  is based on the  mortality  index,  the  amount of the
recovery may be different than the ultimate claims paid by Scottish  Annuity and
Life Insurance Company (Cayman) Ltd.'s and any of its affiliates  resulting from
the loss event.

     In  accordance  with SFAS No.  133,  this  contract is  considered  to be a
derivative.  We record  this  contract at fair value which is included in "Other
assets" and "Other  liabilities"  in the  Consolidated  Balance  Sheets with any
changes  in the value  reflected  in  "Acquisition  costs  and  other  insurance
expenses" in the  Consolidated  Statements of Income.  There is no quoted market
value  available  for this  derivative.  The fair value is  estimated  utilizing
published  mortality data.  Expenses related to this transaction are included in
"Acquisition  costs and other  insurance  expenses" in the  Corporate  and Other
Segment.

     Tartan is a variable  interest  entity under the  provisions of FIN 46R. We
are not the primary beneficiary of this entity and are, therefore,  not required
to consolidate it in our consolidated financial statements.

Off Balance Sheet Arrangements

     We have no obligations, assets or liabilities other than those disclosed in
the financial  statements;  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.



                                       48

<PAGE>


New Accounting Standards

FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes

     In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48 ("FIN 48"),  "Accounting for Uncertainty in Income Taxes".
FIN 48 prescribes  detailed  guidance for the financial  statement  recognition,
measurement  and  disclosure  of  uncertain  tax  positions   recognized  in  an
enterprise's  financial  statements in accordance  with FASB  Statement No. 109,
"Accounting  for Income Taxes." Tax positions must meet a "more likely than not"
recognition  threshold at the effective date to be recognized  upon the adoption
of FIN 48 and in subsequent periods.

     FIN 48 will be effective for fiscal years beginning after December 15, 2006
and the  provisions of FIN 48 will be applied to all tax positions  upon initial
adoption.  The  cumulative  effect of applying the  provisions of FIN 48 will be
reported as an adjustment to the opening  balance of retained  earnings for that
fiscal year. We are currently  evaluating the potential  impact of FIN 48 on our
financial statements.

FASB Statement No. 123(R), Share-Based Payment

     In December  2004, the FASB revised SFAS No. 123 by issuing SFAS No. 123(R)
which requires us to recognize,  in the determination of income,  the grant date
fair value of all stuck  options and other equity based  compensation  issued to
employees. We adopted SFAS No. 123(R) on January 1, 2006.

FASB  Statement  No. 156,  Accounting  for  Servicing of Financial  Assets -- an
amendment of FASB Statement No. 140

     In March  2006,  the FASB  issued  Statement  No.  156  ("SFAS  No.  156"),
"Accounting  for  Servicing of  Financing  Assets",  which  permits an entity to
choose either of the following  measurement methods for each class of separately
recognized servicing assets and servicing liabilities:

     o    Amortization   method  -  amortize   servicing  assets   or  servicing
          liabilities  in  proportion  to and over the  period of net  servicing
          income  or net  servicing  loss and  assess  the  servicing  assets or
          liabilities for impairment or increased obligation based on fair value
          at each  reporting  date.  This  method  is  consistent  with  current
          subsequent measurement guidance for servicing rights.

     o    Fair value measurement  method - measure servicing assets or servicing
          liabilities at fair value at each reporting date and report changes in
          fair value in earnings in the period in which the change occurs.

     SFAS No. 156 is effective as of the  beginning of an entity's  first fiscal
year that begins after September 15, 2006. We are currently assessing the impact
of SFAS No. 156 on our results of operations and financial position.

FASB Statement No. 157, Fair Value Measurements

     In September  2006,  the FASB issued  Statement  No. 157 ("SFAS No.  157"),
"Fair Value Measurements," which defines fair value, establishes a framework for
measuring  fair  value  under  GAAP and  expands  disclosures  about  fair value
measurements.  We are  required to adopt SFAS No. 157 on January 1, 2008 and are
evaluating  the  implications  of SFAS No. 157 on our results of operations  and
financial position.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

     Please refer to Part II "Item 1a: Risk Factors" and "Item 7A:  Quantitative
and Qualitative Disclosures about Market Risk" in our 2005 Annual Report.



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<PAGE>


Item 4.  Controls and Procedures

Evaluation of disclosure controls and procedures

     Our Chief Executive Officer and Chief Financial Officer have  evaluated the
effectiveness  of our  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 our disclosure  controls and
procedures  were  effective as of September 30, 2006 to ensure that  information
required to be  disclosed by us in the reports  filed and  submitted by us under
the Exchange Act were recorded,  processed,  summarized and reported  within the
time periods specified in the SEC's rules and forms.

Changes in internal controls
----------------------------

     There have not been any  changes in our  internal  control  over  financial
reporting (as defined in Rules  13a-15(f) and 15d-15(f)  promulgated  by the SEC
under the  Securities  Exchange Act of 1934) during our most recently  completed
fiscal  quarter  that have  materially  affected,  or are  reasonably  likely to
materially affect, our internal control over financial reporting.


                                       50
<PAGE>


                           PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

     On August 2, 2006, a putative  class action  lawsuit was filed  against us;
Glenn Schafer, the Chairman of our Board of Directors; Dean E. Miller, our Chief
Financial Officer;  Scott E. Willkomm,  our former Chief Executive Officer;  and
Seth Vance,  our former Chief  Executive  Officer - North  America,  in the U.S.
District Court for the Southern District of New York ("S.D.N.Y.") on behalf of a
putative  class  consisting  of investors  who  purchased  our  publicly  traded
securities  between December 16, 2005 and July 28, 2006.  Between August 7, 2006
and October 2, 2006, seven  additional  related class action lawsuits were filed
against us,  certain of our  current  and former  officers  and  directors,  and
certain  third  parties.  Each of the eight  complaints  filed  alleges that the
defendants  made materially  false and misleading  statements  and/or  omissions
concerning our business and operations,  thereby  causing  investors to purchase
our securities at artificially  inflated prices,  in violation of Sections 10(b)
and 20(a) of the  Securities  Exchange Act of 1934,  as amended  (the  "Exchange
Act"), and Rule l0b-5 promulgated thereunder.  Two of the complaints also allege
violations  of Sections 11 and 15 of the  Securities  Act of 1933,  related to a
2005  preferred  stock  offering.  Each  of the  class  actions  filed  seek  an
unspecified amount of damages,  as well as other forms of relief. On October 12,
2006,  all of the class actions were  consolidated.  We contest the  allegations
that have been  asserted  and plan to  vigorously  defend our  interests  in the
actions.

     In addition, on or about October 20, 2006, a shareholder derivative lawsuit
was filed  against our  directors  in the U.S.  District  Court for the Southern
District of New York. The derivative lawsuit alleges,  among other things,  that
defendants  improperly  permitted us to make false and misleading  statements to
investors  concerning  our  business  and  operations,  thereby  exposing  us to
liability  from class action suits  alleging  violations of the U.S.  securities
laws. The  derivative  lawsuit  asserts claims against  defendants for breach of
fiduciary duty, abuse of control,  gross mismanagement,  constructive fraud, and
unjust enrichment.

Item 1a.   Risk Factors

The  recent  downgrades,  and  any  further  downgrades,   could  make  us  less
competitive and will increase our cost of capital.

     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.  The  objective  of rating  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.  See "Management's  Discussion and Analysis
of Financial  Condition  and Results of Operations - Overview - Status of Credit
and Financial Strength Ratings" for a description of our subsidiaries'  ratings.
The rating  agencies  have  warned  that  further  adverse  developments  in the
business,  including  with  respect  to  additional  one-time  charges,  loss of
in-force business and liquidity, could cause them to downgrade our ratings.

     Although there are few in-force treaties with recapture provisions that are
triggered by a ratings  downgrade,  the recent downgrades have and will continue
to adversely  affect our ability to sell  products,  write new treaties,  retain
existing  business  (through the termination of open treaties for new business),
and compete for attractive acquisition  opportunities.  In addition, as a result
of  the   downgrades,   the  interest  rates  for  our  credit   facilities  and
securitization transactions have increased. Our ability to raise capital for our
business and the cost of such capital will be adversely  affected by  downgrades
in our credit ratings.

Our  inability to attract and retain  qualified  employees or the loss of any of
our key employees 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 Glenn  Schafer,  the
non-executive  Chairman  of  our  Board  of  Directors;  Bill  Caulfeild-Browne,
Vice-Chairman of our Board of Directors;  Paul Goldean,  our President and Chief
Executive  Officer;  David  Howell,  the  Chief  Executive  Officer  of our Life
Reinsurance  International Segment; Hugh McCormick, our Executive Vice President
of Corporate Development; Dean Miller, our Chief Financial Officer; and Clifford
Wagner,  the Chief  Executive  Officer  of our Life  Reinsurance  North  America
Segment.  Each of the  foregoing  members of senior  management  has  employment
agreements and we maintain a $2,500,000  key man life  insurance  policy for Mr.



                                       51

<PAGE>


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.

Our ability to pay dividends depends on our subsidiaries'  ability to distribute
funds to us.

     We are a holding company, with our principal assets consisting of the stock
of our  insurance  company  subsidiaries.  Our ability to pay  dividends  on our
ordinary shares,  HyCUs, our non-cumulative  perpetual  preferred shares, and to
pay  debt  service  on any of our  indebtedness,  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 or service fees. 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 and other payments to affiliates. Our existing
credit facility also contains  restrictions on the ability of Scottish Annuity &
Life Insurance  Company (Cayman) Ltd. and certain of our operating  subsidiaries
to pay  dividends  or make  loans 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.

The market price for our ordinary shares has been and may continue to be highly
volatile.

     The market  price for our  ordinary  shares has  fluctuated  significantly,
ranging  between  $24.84 per share on March 31, 2006 and $2.95 per share on July
31, 2006. The overall  market and the price of our ordinary  shares may continue
to be volatile.  There may be a  significant  effect on the market price for our
ordinary shares due to, among other things:

     o    changes  in  investors'  and  analysts'  perceptions  of the risks and
          conditions of our business,

     o    changes in investors'  and analysts'  perception of the  likelihood of
          our completing any strategic alternatives,

     o    the size of the public float of our ordinary shares,

     o    the announcement of acquisitions by us or our competitors,

     o    variations  in our  anticipated  or actual  operating  results  or the
          results of our competitors,

     o    regulatory developments,

     o    market conditions, and

     o    general economic conditions.

Future transactions or changes in our financial condition may limit our ability
to use our net operating loss carry forwards.

     As of December 31, 2005, we had actual net operating  loss carry  forwards,
or  NOLs,  of   approximately   $615.5  million  of  which  $603.1  million  was
attributable  to the U.S.  operations and $12.4 million was  attributable to the
U.K.  operations.  The U.K. NOL has an unlimited carry forward period.  The U.S.
NOLs may be used to offset  future  taxable  income and thereby  reduce our U.S.
federal income taxes otherwise payable. Section 382 of the Internal Revenue Code
imposes  an annual  limit on the  ability of a  corporation  that  undergoes  an
"ownership  change" to use its NOLs to reduce its tax liability.  It is possible
that future  transactions  (including  issuances  of new shares and sales of our
shares) would cause us to undergo an ownership  change.  In that event, we would
not be able to use our  pre-ownership-change  NOLs in excess  of the  limitation
imposed by Section 382. This would also result in a write-off of our  associated
transferred tax asset for GAAP purposes.


                                       52

<PAGE>


     We generate  deferred  tax assets  principally  due to NOLs,  reserves  and
unrealized losses on investment securities.  In accordance with SFAS No. 109, we
must conclude whether the future  realization of our deferred tax asset is "more
likely than not". The evaluation regarding  realizability of deferred tax assets
is made on a gross as opposed to a net basis.  Sources of support  for the gross
deferred tax asset are the reversal of deferred tax liabilities within the carry
forward  period  (which in the  United  States is 15  years),  projected  future
taxable income and tax planning strategies.  Pursuant to the guidance under SFAS
No.  109,  we are  currently  unable to rely on  projections  of future  taxable
income.  Therefore,  we must rely heavily on tax planning strategies for support
of the gross deferred tax asset. Prior to the quarter ended June 30, 2006, these
tax  planning  strategies  provided  justification  to support our  deferred tax
asset.  The  combination of the increased  pressure on our existing tax planning
strategies,  the operating loss for the quarter,  and the prospects of a ratings
downgrade  during the second  quarter led  management to conclude that it was no
longer  "more  likely than not" that the full amount of the gross  deferred  tax
asset could be realized.  Accordingly,  we established a valuation  allowance of
$112.4 million  and $30.1 million  during the second and  third quarter of 2006,
respectively. The valuation allowance principally relates to current period  tax
benefit not being recognized (as previously indicated, the Company can no longer
recognize tax benefits for certain legal entities)  and an additional  valuation
allowance established on prior period deferred tax assets resulting from revised
statutory and  tax projections related to certain legal entities.  At the end of
the third  quarter, the remaining gross deferred tax asset is  supported  by the
reversal of deferred  tax  liabilities  within the carry  forward period and tax
planning strategies for which  management believes  that it  is more likely than
not  that  the  deferred tax  assets  will  be utilized  in subsequent  periods,
although  there  is  a risk that  we will need to establish additional valuation
allowances in future quarters.  Management will continue to assess and determine
the need for,  and the amount of,  the valuation allowance in subsequent periods
in accordance with the requirements of SFAS No. 109, and there is a risk that we
may need to establish additional valuation allowances in future quarters,  which
could adversely impact our reported earnings and financial condition.

Several class action securities  lawsuits have been filed against us and certain
of our current and former  officers  and  directors,  and we cannot  predict the
outcome of these lawsuits.

     We and certain of our current and former  officers and directors  have been
named defendants in federal securities class action lawsuits.  The plaintiffs in
these lawsuits may make additional claims,  expand existing claims and/or expand
the time  periods  covered by the  complaints,  and other  plaintiffs  may bring
additional  actions with other claims.  We expect to incur  significant  defense
costs  regardless of the outcome of these lawsuits.  If we do not prevail in any
such  actions,  we could be required to pay  substantial  damages or  settlement
costs, part or all of which may not be covered by insurance.  These lawsuits may
result in a diversion of our management's  time and attention and the incurrence
of increased costs.

Our  existing  sources  of  liquidity  and  collateral  may be  insufficient  or
unavailable to fund our expected  future  liquidity needs and we are required to
raise new sources of equity  capital,  liquidity and collateral , which sources,
if available, will be on less advantageous terms than our historical sources.

     Based on our known sources and uses of liquidity, our liquidity position is
very tight over the near term. Our most significant liquidity use relates to the
4.5% Senior Convertible Notes,  pursuant to which the noteholders have the right
to put the notes to us for cash on December  6, 2006.  As a result of the losses
in the  second  quarter  of  2006,  we  have  either  completely  drawn  down or
terminated certain of our liquidity  facilities,  including for example our bank
credit facility and the Stingray facility.  During the third quarter of 2006, we
successfully  completed a reinsurance  transaction  that provided  approximately
$120.0 million of liquidity to the Company, and to further enhance our liquidity
position,  we are pursuing  discussions  with various lending  institutions  for
alternative   credit   facilities  and  capital  and   negotiating   reinsurance
transactions.  Without new sources of capital we face the risk of running out of
liquidity as early as the end of the second  quarter of 2007. No assurances  can
be given that we will be successful in completing any of these alternatives, and
if not  successful  and we are  not  otherwise  able to  consummate  one or more
strategic  alternatives  of selling the Company or raising equity capital by the
end of the second quarter of 2007, we will face a default on our  obligations to
fund our collateral and to meet our capital needs.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

     Not applicable.



                                       53

<PAGE>


Item 3.  Defaults upon Senior Securities

     Not applicable.

Item 4.  Submission of Matters to a Vote of Security Holders

     Not applicable

Item 5.  Other Information

     Not applicable.

Item 6.  Exhibits

     Except as otherwise indicated, the following Exhibits are filed herewith
and made a part hereof:

      3.1   Memorandum of Association  of Scottish Re Group Limited,  as amended
            as of April 7, 2005 (incorporated herein by reference to Scottish Re
            Group Limited's Current Report on Form 8-K). (6)

      3.2   Articles of Association of Scottish Re Group Limited,  as amended as
            of April 7, 2005  (incorporated  herein by  reference to Scottish Re
            Group Limited's Current Report on Form 8-K). (6)

      4.1   Specimen   Ordinary  Share  Certificate   (incorporated   herein  by
            reference to Exhibit 4.1 to Scottish Re Group Limited's Registration
            Statement on Form S-1). (1)

      4.2   Form of Amended and Restated Class A Warrant (incorporated herein by
            reference to Exhibit 4.2 to Scottish Re Group Limited's Registration
            Statement on Form S-1). (1)

      4.3   Form of  Securities  Purchase  Agreement  for the  Class A  Warrants
            (incorporated  herein by  reference  to Exhibit  4.4 to  Scottish Re
            Group Limited's Registration Statement on Form S-1). (1)

      4.4   Form of  Securities  Purchase  Agreement  between  Scottish Re Group
            Limited  and  the  Shareholder  Investors  (incorporated  herein  by
            reference   to  Exhibit   4.10  to  Scottish   Re  Group   Limited's
            Registration Statement on Form S-1). (1)

      4.5   Form of  Securities  Purchase  Agreement  between  Scottish Re Group
            Limited and the Non-Shareholder  Investors  (incorporated  herein by
            reference   to  Exhibit   4.12  to  Scottish   Re  Group   Limited's
            Registration Statement on Form S-1). (1)

      4.6   Certificate  of  Designations  of  Convertible  Preferred  Shares of
            Scottish  Re Group  Limited  (incorporated  herein by  reference  to
            Scottish Re Group Limited's Current Report on Form 8-K). (10)

      4.7   Certificate  of   Designations   of  Scottish  Re  Group   Limited's
            Non-Cumulative  Perpetual  Preferred  Shares,  dated  June 28,  2005
            (incorporated  herein by  reference  to Scottish Re Group  Limited's
            Current Report on Form 8-K). (16)

      4.8   Specimen  Stock   Certificate   for  the  Company's   Non-Cumulative
            Perpetual  Preferred  Shares  (incorporated  herein by  reference to
            Scottish Re Group Limited's Current Report on Form 8-K). (16)

      10.1  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)(22)



                                       54

<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)(22)

      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)(22)

      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)(22)

      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)(22)

      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)(22)

      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  Scottish  Re  Group
            Limited'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)(22)

      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)(22)

      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)(22)

      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)(22)

      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)(22)


                                       55

<PAGE>


      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)(22)

      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)(22)

      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)(22)

      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)(22)

      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)(22)

      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)(22)

      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, by and among
            Scottish Re Group  Limited and Bear Stearns & Co. and Putnam  Lovell
            Securities  Inc.  (incorporated  herein by  reference to Scottish Re
            Group Limited's Registration Statement on Form S-3). (9)

      10.26 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)(22)

      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)(22)

      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). (22)


                                       56

<PAGE>


      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 Il-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). (22)

      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). (22)

      10.40 Employment Agreement,  dated as of January 1, 2005, between Scottish
            Holdings,  Inc. and Gary Dombowsky (incorporated herein by reference
            to Scottish  Re Group  Limited's  2004 Annual  Report on Form 10-K).
            (20)(22)

      10.41 Amendment  to  Employment  Agreement,  dated as of February 7, 2005,
            between   Scottish   Re  Group   Limited   and   Michael  C.  French
            (incorporated  herein by  reference  to Scottish Re Group  Limited's
            2004 Annual Report on Form 10-K). (20)(22)

      10.42 Employment Agreement, dated as of February 1, 2005, between Scottish
            Re Group  Limited  and Hugh T.  McCormick  (incorporated  herein  by
            reference to Scottish Re Group  Limited's 2004 Annual Report on Form
            10-K). (20)(22)



                                       57

<PAGE>


      10.43 Employment Agreement, dated as of December 1, 2004, between Scottish
            Holdings,   Inc.  and  Kenneth  R.  Stott  (incorporated  herein  by
            reference to Scottish Re Group  Limited's 2004 Annual Report on Form
            10-K). (20)(22)

      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  (incorporated herein by reference to Scottish
            Re Group Limited's 2004 Annual Report on Form 10-K). (20)

      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.
            (incorporated  herein by  reference  to Scottish Re Group  Limited's
            2004 Annual Report on Form 10-K). (20)

      10.46 Coinsurance  Agreement dated December 31, 2004 between Security Life
            of  Denver   Insurance   Company  and   Scottish  Re  (U.S.),   Inc.
            (incorporated  herein by  reference  to Scottish Re Group  Limited's
            2004 Annual Report on Form 10-K). (20)

      10.47 Coinsurance/Modified Coinsurance Agreement, dated December 31, 2004,
            between  Security Life of Denver  Insurance  Company and Scottish Re
            (U.S.), Inc.  (incorporated herein by reference to Scottish Re Group
            Limited's 2004 Annual Report on Form 10-K). (20)

      10.48 Retrocession Agreement, dated December 31, 2004, between Scottish Re
            (U.S.),   Inc.  and  Security  Life  of  Denver  Insurance   Company
            (incorporated  herein by  reference  to Scottish Re Group  Limited's
            2004 Annual Report on Form 10-K). (20)

      10.49 Retrocession Agreement, dated December 31, 2004, between Scottish Re
            Life (Bermuda) Limited Bermuda and Security Life of Denver Insurance
            Company  (incorporated  herein by  reference  to  Scottish  Re Group
            Limited's 2004 Annual Report on Form 10-K). (20)

      10.50 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
            (incorporated  herein by  reference  to Scottish Re Group  Limited's
            2004 Annual Report on Form 10-K). (20)

      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  (incorporated
            herein by  reference  to  Scottish  Re Group  Limited's  2004 Annual
            Report on Form 10-K). (20)

      10.52 Coinsurance  Agreement,  dated December 31, 2004,  between  Security
            Life of Denver International  Limited and Scottish Re Life (Bermuda)
            Limited  (incorporated  herein by  reference  to  Scottish  Re Group
            Limited's 2004 Annual Report on Form 10-K). (20)

      10.53 Coinsurance/Modified Coinsurance Agreement, dated December 31, 2004,
            between Security Life of Denver  International  Limited and Scottish
            Re Life  (Bermuda)  Limited  (incorporated  herein by  reference  to
            Scottish Re Group Limited's 2004 Annual Report on Form 10-K). (20)

      10.54 Coinsurance  Funds  Withheld  Agreement,  dated  December  31, 2004,
            between Security Life of Denver  International  Limited and Scottish
            Re Life  (Bermuda)  Limited  (incorporated  herein by  reference  to
            Scottish Re Group Limited's 2004 Annual Report on Form 10-K). (20)



                                       58

<PAGE>


      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
            (incorporated  herein by  reference  to Scottish Re Group  Limited's
            2004 Annual Report on Form 10-K). (20)

      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  (incorporated herein by reference to Scottish Re Group
            Limited's 2004 Annual Report on Form 10-K). (20)

      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.
            (incorporated  herein by  reference  to Scottish Re Group  Limited's
            2004 Annual Report on Form 10-K). (20)

      10.58 Transition and Integration  Services  Agreement,  dated December 31,
            2004, between Security Life of Denver Insurance Company and Scottish
            Re (U.S.),  Inc.  (incorporated  herein by  reference to Scottish Re
            Group Limited's Current Report on Form 8-K). (19)

      10.59 Form of  Remarketing  Agreement,  between  the  Company  and  Lehman
            Brothers,   Inc.,  as  Remarketing  Agent  (incorporated  herein  by
            reference  to Scottish  Re Group  Limited's  Current  Report on Form
            8-K). (16)

      10.60 Amended and Restated  Credit  Agreement,  dated as of July 14, 2005,
            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., HSBC
            Bank  USA,  National   Association,   and  Wachovia  Bank,  National
            Association  as  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  (incorporated  herein by reference to Scottish Re
            Group Limited's Current Report on Form 8-K). (17)

      10.61 Scottish Re Group Limited 2004 Equity  Incentive  Compensation  Plan
            (incorporated  herein by  reference  to Scottish Re Group  Limited's
            Proxy Statement filed with the SEC on April 1, 2004).

      10.62 Amendment No. 1 to Scottish Re Group  Limited 2004 Equity  Incentive
            Compensation Plan  (incorporated  herein by reference to Scottish Re
            Group Limited's Current Report on Form 8-K). (18) (22)

      10.63 Amendment No. 2 to Scottish Re Group  Limited 2004 Equity  Incentive
            Compensation Plan  (incorporated  herein by reference to Scottish Re
            Group Limited's Current Report on Form 8-K). (18) (22)

      10.64 Form of  Management  Stock  Option  Agreement  under the Scottish Re
            Group Limited 2004 Equity Incentive  Compensation Plan (incorporated
            herein by reference to Scottish Re Group Limited's Current Report on
            Form 8-K). (18) (22)

      10.65 Form of  Management  Performance  Share  Unit  Agreement  under  the
            Scottish Re Group Limited 2004 Equity  Incentive  Compensation  Plan
            (incorporated  herein by  reference  to Scottish Re Group  Limited's
            Current Report on Form 8-K). (18) (22)

      10.66 Form  of  Management  Restricted  Share  Unit  Agreement  under  the
            Scottish Re Group Limited 2004 Equity  Incentive  Compensation  Plan
            (incorporated  herein by  reference  to Scottish Re Group  Limited's
            Current Report on Form 8-K). (18) (22)



                                       59

<PAGE>


      10.67 Employment Agreement, dated as of July 18, 2005, between Scottish Re
            Group Limited and Dean Miller  (incorporated  herein by reference to
            Scottish Re Group Limited's Current Report on Form 8-K). (19) (22)

      10.68 Letter  of Credit  Agreement,  dated as of August  18,  2005,  among
            Scottish Re (Dublin) Limited,  as Borrower,  Scottish Annuity & Life
            Insurance  Company  (Cayman)  Ltd., as  Guarantor,  Bank of America,
            N.A., as Administrative  Agent and L/C Issuer, and the Other Lenders
            Party  Hereto,  and Bank of  America  Securities  LLC,  as Sole Lead
            Arranger and Sole Book Manager  (incorporated herein by reference to
            Scottish Re Group Limited's Current Report on Form 8-K). (21)

      10.69 Amendment  to  Employment  Agreement,  dated as of October 29, 2006,
            between  Scottish Re Group  Limited and Paul  Goldean  (incorporated
            herein by reference to Scottish Re Group Limited's Current Report on
            Form 8-K which was filed with the SEC on November 2, 2006).

      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 was
                  filed with the SEC on June 2, 2005.

            (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.



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<PAGE>


            (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)  Scottish  Re Group  Limiteds  Current  Report  on Form 8-K was
                  tiled with the SEC on July 1, 2005.

            (17)  Scottish  Re Group  Limited's  Current  Report on Form 8-K was
                  filed with the SEC on July 18, 2005.

            (18)  Scottish  Re Group  Limited's  Current  Report on Form 8-K was
                  filed with the SEC on August 8, 2005.

            (19)  Scottish  Re Group  Limited's  Current  Report on Form 8-K was
                  filed with the SEC on August 4, 2005.

            (20)  Scottish Re Group  Limited's  2004 Annual  Report on Form 10-K
                  was filed with the SEC on March 18, 2005.

            (21)  Scottish  Re Group  Limited's  Current  Report on Form 8-K was
                  filed with the SEC on August 22, 2005.

            (22)  This exhibit is a management  contract or compensatory plan or
                  arrangement.


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<PAGE>


SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned, thereunto duly authorized.

                                    SCOTTISH RE GROUP LIMITED

Date: November 9, 2006              By: /s/ Paul Goldean
                                    --------------------
                                      Paul Goldean
                                      President and Chief Executive Officer

Date: November 9, 2006              By: /s/ Dean E. Miller
                                    ----------------------
                                      Dean E. Miller
                                      Chief Financial Officer




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