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UNITEDSTATESSECURITIES AND EXCHANGECOMMISSION

Washington, D.C.20549

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FORM10-Q

[X] Quarterly Report Pursuant to Section13 or 15(d)of the Securities Exchange Act of 1934For thequarterly period ended June  30,2006

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

Commission File Number: 001-16855

SCOTTISH RE GROUPLIMITED

(Exact Name of Registrant asSpecified in ItsCharter)

|                                                               |  |  |                                    |
|---------------------------------------------------------------|--|--|------------------------------------|
| CaymanIslands                                                 |  |  | 98-0362785                         |
| (State or Other Jurisdiction ofIncorporation or Organization) |  |  | (I.R.S.EmployerIdentification No.) |
|                                                               |

P.O. Box HM2939Crown House, Third Floor4 Par-la-Ville RoadHamiltonHM08Bermuda

(Address of PrincipalExecutive Offices)

NotApplicable

(Zip Code)

(441)295-4451

(Registrant’s telephonenumber, including area code)

(Former name, formeraddress and former fiscal year, if changed since lastreport)

Indicate by check mark whether the Registrant: (1)has filed all reports required to be filed by Section 13 or 15(d) ofthe Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the Registrant was required to file suchreports), and (2) has been subject to such filing requirements for thepast 90 days.

Yes     No

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

|                                                                                                |  |  |                                                                                          |  |  |                                              |
|------------------------------------------------------------------------------------------------|--|--|------------------------------------------------------------------------------------------|--|--|----------------------------------------------|
|         Largeaccelerated filer     |  |  |         Acceleratedfiler     |  |  | Non-acceleratedfiler     |
|                                                                                                |

Indicate by check mark whetherthe registrant is a shell company (as defined in Rule 12b-2 of theExchangeAct).

Yes        No    

Asof August  11,  2006, the Registrant had 53,745,156ordinary sharesoutstanding.

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Table of Contents

Table ofContents

|          |  |  |                                                                                                                           |  |  |  |  |    |  |
|----------|--|--|---------------------------------------------------------------------------------------------------------------------------|--|--|--|--|----|--|
| PART I.  |  |  | FINANCIALINFORMATION                                                                                                      |  |  |  |  | 2  |  |
| Item 1.  |  |  | FinancialStatements                                                                                                       |  |  |  |  | 2  |  |
|     |  |  | Consolidated BalanceSheets — June 30, 2006 (unaudited) and December 31,2005                                         |  |  |  |  | 2  |  |
|     |  |  | Consolidated Statements ofIncome (Loss) — Three and six months ended June 30, 2006 and 2005(unaudited)              |  |  |  |  | 3  |  |
|     |  |  | ConsolidatedStatements of Comprehensive Income (Loss) — Three and six monthsended June 30, 2006 and 2005(unaudited) |  |  |  |  | 4  |  |
|     |  |  | ConsolidatedStatements of Shareholders’ Equity — Six months ended June30, 2006 and 2005(unaudited)            |  |  |  |  | 5  |  |
|     |  |  | ConsolidatedStatements of Cash Flows — Six months ended June 30, 20006 and2005 (unaudited)                          |  |  |  |  | 6  |  |
|     |  |  | Notes toConsolidated Financial Statements(unaudited)                                                                      |  |  |  |  | 7  |  |
| Item2.   |  |  | Management’s Discussion and Analysis of FinancialCondition and Results of Operations                                |  |  |  |  | 21 |  |
| Item3.   |  |  | Quantitative and Qualitative Disclosures about MarketRisk                                                                 |  |  |  |  | 48 |  |
| Item 4.  |  |  | Controls andProcedures                                                                                                    |  |  |  |  | 48 |  |
| PART II. |  |  | OTHERINFORMATION                                                                                                          |  |  |  |  | 50 |  |
| Item 1.  |  |  | LegalProceedings                                                                                                          |  |  |  |  | 50 |  |
| Item 1a. |  |  | RiskFactors                                                                                                               |  |  |  |  | 50 |  |
| Item 2.  |  |  | UnregisteredSales of Equity Securities and Use ofProceeds                                                                 |  |  |  |  | 53 |  |
| Item 3.  |  |  | Defaults uponSenior Securities                                                                                            |  |  |  |  | 53 |  |
| Item4.   |  |  | Submission of Matters to a Vote of SecurityHolders                                                                        |  |  |  |  | 53 |  |
| Item 5.  |  |  | OtherInformation                                                                                                          |  |  |  |  | 53 |  |
| Item6.   |  |  | Exhibits                                                                                                                  |  |  |  |  | 54 |  |
|          |

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PART I. FINANCIAL INFORMATION 

Item1.    Financial Statements

SCOTTISH RE GROUPLIMITED CONSOLIDATED BALANCESHEETS 

(Expressed in Thousands ofUnited States dollars, except sharedata)

|                                                                                                                 |  |  |                         |   |            |                  |  |  |  |   |            |   |
|-----------------------------------------------------------------------------------------------------------------|--|--|-------------------------|---|------------|------------------|--|--|--|---|------------|---|
|                                                                                                            |  |  | June30, 2006(unaudited) |   |            | December 31,2005 |
| ASSETS                                                                                                          |  |  |                         |   |       |                  |  |  |  |   |       |   |
| Fixedmaturity investments, available for sale, at fair value (Amortized cost$8,308,186; 2005 –$5,323,488) |  |  |                         | $ | 8,126,980  |                  |  |  |  | $ | 5,292,595  |   |
| Preferredstock, available for sale, at fair value (Cost $135,660; 2005–$137,271)                          |  |  |                         |   | 128,137    |                  |  |  |  |   | 133,804    |   |
| Cash andcashequivalents                                                                                         |  |  |                         |   | 1,563,341  |                  |  |  |  |   | 1,420,205  |   |
| Otherinvestments                                                                                                |  |  |                         |   | 64,701     |                  |  |  |  |   | 54,619     |   |
| Fundswithheld atinterest                                                                                        |  |  |                         |   | 2,175,141  |                  |  |  |  |   | 2,597,416  |   |
| Totalinvestments                                                                                                |  |  |                         |   | 12,058,300 |                  |  |  |  |   | 9,498,639  |   |
| Accruedinterestreceivable                                                                                       |  |  |                         |   | 71,411     |                  |  |  |  |   | 44,012     |   |
| Reinsurancebalances and risk feesreceivable                                                                     |  |  |                         |   | 306,454    |                  |  |  |  |   | 325,372    |   |
| Deferredacquisitioncosts                                                                                        |  |  |                         |   | 643,211    |                  |  |  |  |   | 594,583    |   |
| Amountrecoverable fromreinsurers                                                                                |  |  |                         |   | 532,000    |                  |  |  |  |   | 551,288    |   |
| Presentvalue of in-forcebusiness                                                                                |  |  |                         |   | 52,924     |                  |  |  |  |   | 54,743     |   |
| Goodwill                                                                                                        |  |  |                         |   | 34,125     |                  |  |  |  |   | 34,125     |   |
| Otherassets                                                                                                     |  |  |                         |   | 124,349    |                  |  |  |  |   | 87,198     |   |
| Deferred taxassets                                                                                              |  |  |                         |   | 5,901      |                  |  |  |  |   | 55,453     |   |
| Segregatedassets                                                                                                |  |  |                         |   | 776,048    |                  |  |  |  |   | 760,707    |   |
| Totalassets                                                                                                     |  |  |                         | $ | 14,604,723 |                  |  |  |  | $ | 12,006,120 |   |
| LIABILITIES                                                                                                     |  |  |                         |   |       |                  |  |  |  |   |       |   |
| Reservesfor future policybenefits                                                                               |  |  |                         | $ | 4,101,799  |                  |  |  |  | $ | 3,477,222  |   |
| Interestsensitive contractliabilities                                                                           |  |  |                         |   | 4,089,373  |                  |  |  |  |   | 3,907,573  |   |
| Collateralfinancefacilities                                                                                     |  |  |                         |   | 3,725,161  |                  |  |  |  |   | 1,985,681  |   |
| Payableunder reverse repurchaseagreement                                                                        |  |  |                         |   | 64,856     |                  |  |  |  |   | —    |   |
| Accountspayable and otherliabilities                                                                            |  |  |                         |   | 71,528     |                  |  |  |  |   | 83,130     |   |
| Reinsurancebalancespayable                                                                                      |  |  |                         |   | 187,438    |                  |  |  |  |   | 114,078    |   |
| Currentincome tax payable                                                                                       |  |  |                         |   | 3,487      |                  |  |  |  |   | 9,155      |   |
| Longterm debt                                                                                                   |  |  |                         |   | 244,500    |                  |  |  |  |   | 244,500    |   |
| Segregatedliabilities                                                                                           |  |  |                         |   | 776,048    |                  |  |  |  |   | 760,707    |   |
| Totalliabilities                                                                                                |  |  |                         |   | 13,264,190 |                  |  |  |  |   | 10,582,046 |   |
| MINORITYINTEREST                                                                                                |  |  |                         |   | 9,284      |                  |  |  |  |   | 9,305      |   |
| MEZZANINEEQUITY                                                                                                 |  |  |                         |   | 143,359    |                  |  |  |  |   | 143,057    |   |
| SHAREHOLDERS’EQUITY                                                                                       |  |  |                         |   |       |                  |  |  |  |   |       |   |
| Ordinaryshares, par value$0.01:                                                                                 |  |  |                         |   |       |                  |  |  |  |   |       |   |
| Issued: 53,745,156shares (2005 –53,391,939)                                                               |  |  |                         |   | 537        |                  |  |  |  |   | 534        |   |
| Preferredshares, par value$0.01:                                                                                |  |  |                         |   |       |                  |  |  |  |   |       |   |
| Issued: 5,000,000shares (2005 –5,000,000)                                                                 |  |  |                         |   | 125,000    |                  |  |  |  |   | 125,000    |   |
| Additionalpaid-incapital                                                                                        |  |  |                         |   | 903,422    |                  |  |  |  |   | 893,767    |   |
| Prepaidvariable share forwardcontract                                                                           |  |  |                         |   | 110,031    |                  |  |  |  |   | —    |   |
| Accumulatedother comprehensiveloss                                                                              |  |  |                         |   | (95,799    | )                |  |  |  |   | (9,991     | ) |
| Retainedearnings                                                                                                |  |  |                         |   | 144,699    |                  |  |  |  |   | 262,402    |   |
| Totalshareholders’equity                                                                                  |  |  |                         |   | 1,187,890  |                  |  |  |  |   | 1,271,712  |   |
| Totalliabilities, minority interest, mezzanine equity andshareholders’equity                              |  |  |                         | $ | 14,604,723 |                  |  |  |  | $ | 12,006,120 |   |
|                                                                                                                 |

SeeAccompanying Notes to Consolidated Financial Statements(unaudited)

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SCOTTISH RE GROUPLIMITEDCONSOLIDATED STATEMENTS OF INCOME(LOSS)(UNAUDITED)

(Expressed in Thousandsof United States dollars, except sharedata)

|                                                              |  |  |                   |   |            |                 |  |  |               |   |            |             |  |  |  |   |            |   |  |  |  |   |            |   |
|--------------------------------------------------------------|--|--|-------------------|---|------------|-----------------|--|--|---------------|---|------------|-------------|--|--|--|---|------------|---|--|--|--|---|------------|---|
|                                                         |  |  | Threemonths ended |   |            | Six monthsended |
|                                                         |  |  | June 30,2006      |   |            | June 30, 2005   |  |  | June 30, 2006 |   |            | June30,2005 |
| Revenues                                                     |  |  |                   |   |       |                 |  |  |               |   |       |             |  |  |  |   |       |   |  |  |  |   |       |   |
| Premiumsearned                                               |  |  |                   | $ | 444,942    |                 |  |  |               | $ | 436,893    |             |  |  |  | $ | 893,963    |   |  |  |  | $ | 900,573    |   |
| Investmentincome,net                                         |  |  |                   |   | 147,977    |                 |  |  |               |   | 83,554     |             |  |  |  |   | 276,999    |   |  |  |  |   | 164,033    |   |
| Feeincome                                                    |  |  |                   |   | 4,639      |                 |  |  |               |   | 2,785      |             |  |  |  |   | 8,372      |   |  |  |  |   | 6,409      |   |
| Realizedgains (losses),net                                   |  |  |                   |   | (11,298    | )               |  |  |               |   | 934        |             |  |  |  |   | (24,899    | ) |  |  |  |   | 4,229      |   |
| Changein value of embedded derivatives,net                   |  |  |                   |   | 7,366      |                 |  |  |               |   | (22,120    | )           |  |  |  |   | 17,512     |   |  |  |  |   | (16,635    | ) |
| Totalrevenues                                                |  |  |                   |   | 593,626    |                 |  |  |               |   | 502,046    |             |  |  |  |   | 1,171,947  |   |  |  |  |   | 1,058,609  |   |
| Benefitsandexpenses                                          |  |  |                   |   |       |                 |  |  |               |   |       |             |  |  |  |   |       |   |  |  |  |   |       |   |
| Claimsand other policybenefits                               |  |  |                   |   | 372,101    |                 |  |  |               |   | 311,493    |             |  |  |  |   | 746,564    |   |  |  |  |   | 674,766    |   |
| Interestcredited to interest sensitive contractliabilities   |  |  |                   |   | 55,399     |                 |  |  |               |   | 31,723     |             |  |  |  |   | 98,100     |   |  |  |  |   | 62,365     |   |
| Acquisitioncosts and other insurance expenses,net            |  |  |                   |   | 104,872    |                 |  |  |               |   | 122,494    |             |  |  |  |   | 192,403    |   |  |  |  |   | 214,136    |   |
| Operatingexpenses                                            |  |  |                   |   | 39,365     |                 |  |  |               |   | 26,500     |             |  |  |  |   | 70,457     |   |  |  |  |   | 51,069     |   |
| Collateralfinance facilitiesexpense                          |  |  |                   |   | 47,236     |                 |  |  |               |   | 11,821     |             |  |  |  |   | 78,323     |   |  |  |  |   | 19,241     |   |
| Interestexpense                                              |  |  |                   |   | 7,066      |                 |  |  |               |   | 4,813      |             |  |  |  |   | 11,959     |   |  |  |  |   | 10,407     |   |
| Totalbenefits andexpenses                                    |  |  |                   |   | 626,039    |                 |  |  |               |   | 508,844    |             |  |  |  |   | 1,197,806  |   |  |  |  |   | 1,031,984  |   |
| Income(loss) before income taxes and minorityinterest        |  |  |                   |   | (32,413    | )               |  |  |               |   | (6,798     | )           |  |  |  |   | (25,859    | ) |  |  |  |   | 26,625     |   |
| Incometax benefit(expense)                                   |  |  |                   |   | (89,043    | )               |  |  |               |   | 8,187      |             |  |  |  |   | (81,586    | ) |  |  |  |   | 8,555      |   |
| Income(loss) before minorityinterest                         |  |  |                   |   | (121,456   | )               |  |  |               |   | 1,389      |             |  |  |  |   | (107,445   | ) |  |  |  |   | 35,180     |   |
| Minorityinterest                                             |  |  |                   |   | (134       | )               |  |  |               |   | 202        |             |  |  |  |   | (296       | ) |  |  |  |   | (169       | ) |
| Netincome(loss)                                              |  |  |                   |   | (121,590   | )               |  |  |               |   | 1,591      |             |  |  |  |   | (107,741   | ) |  |  |  |   | 35,011     |   |
| Dividenddeclared on non-cumulative perpetual preferredshares |  |  |                   |   | (2,265     | )               |  |  |               |   | —    |             |  |  |  |   | (4,531     | ) |  |  |  |   | —    |   |
| Imputeddividend on prepaid variable share forwardcontract    |  |  |                   |   | (72        | )               |  |  |               |   | —    |             |  |  |  |   | (72        | ) |  |  |  |   | —    |   |
| Netincome (loss) available to ordinaryshareholders           |  |  |                   | $ | (123,927   | )               |  |  |               | $ | 1,591      |             |  |  |  | $ | (112,344   | ) |  |  |  | $ | 35,011     |   |
| Earnings(loss) per ordinary share –Basic               |  |  |                   | $ | (2.31      | )               |  |  |               | $ | 0.04       |             |  |  |  | $ | (2.10      | ) |  |  |  | $ | 0.84       |   |
| Earnings(loss) per ordinary share –Diluted             |  |  |                   | $ | (2.31      | )               |  |  |               | $ | 0.03       |             |  |  |  | $ | (2.10      | ) |  |  |  | $ | 0.76       |   |
| Dividendsdeclared per ordinaryshare                          |  |  |                   | $ | 0.05       |                 |  |  |               | $ | 0.05       |             |  |  |  | $ | 0.10       |   |  |  |  | $ | 0.10       |   |
| Weightedaverage number of ordinary sharesoutstanding         |  |  |                   |   |       |                 |  |  |               |   |       |             |  |  |  |   |       |   |  |  |  |   |       |   |
| Basic                                                        |  |  |                   |   | 53,720,242 |                 |  |  |               |   | 43,462,385 |             |  |  |  |   | 53,578,152 |   |  |  |  |   | 41,726,320 |   |
| Diluted                                                      |  |  |                   |   | 53,720,242 |                 |  |  |               |   | 47,136,889 |             |  |  |  |   | 53,578,152 |   |  |  |  |   | 46,179,275 |   |
|                                                              |

SeeAccompanying Notes to Consolidated Financial Statements(unaudited)

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SCOTTISH RE GROUPLIMITEDCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(LOSS)(UNAUDITED)

(Expressed in Thousandsof United Statesdollars)

|                                                                                                                                                                                                                                                |  |  |                   |   |          |                 |  |  |             |   |        |              |  |  |  |   |          |   |  |  |  |   |        |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|-------------------|---|----------|-----------------|--|--|-------------|---|--------|--------------|--|--|--|---|----------|---|--|--|--|---|--------|---|
|                                                                                                                                                                                                                                           |  |  | Threemonths ended |   |          | Six monthsended |
|                                                                                                                                                                                                                                           |  |  | June30,2006       |   |          | June 30,2005    |  |  | June30,2006 |   |        | June 30,2005 |
| Net income(loss)                                                                                                                                                                                                                               |  |  |                   | $ | (121,590 | )               |  |  |             | $ | 1,591  |              |  |  |  | $ | (107,741 | ) |  |  |  | $ | 35,011 |   |
| Othercomprehensive income (loss), net oftax:                                                                                                                                                                                                   |  |  |                   |   |     |                 |  |  |             |   |   |              |  |  |  |   |     |   |  |  |  |   |   |   |
| Unrealizedappreciation (depreciation)on investments                                                                                                                                                                                       |  |  |                   |   | (56,635  | )               |  |  |             |   | 48,879 |              |  |  |  |   | (105,714 | ) |  |  |  |   | 26,187 |   |
| Add:reclassification adjustment for investment losses (gains) included innetincome                                                                                                                                                             |  |  |                   |   | 7,050    |                 |  |  |             |   | (319   | )            |  |  |  |   | 11,002   |   |  |  |  |   | (1,339 | ) |
| Netunrealized appreciation (depreciation) on     investments net ofincome tax benefit (expense) and     deferred acquisition costsof $25,888, $(36,364),     $59,696, and$(10,883) |  |  |                   |   | (49,585  | )               |  |  |             |   | 48,560 |              |  |  |  |   | (94,712  | ) |  |  |  |   | 24,848 |   |
| Cumulativetranslationadjustment                                                                                                                                                                                                                |  |  |                   |   | 9,172    |                 |  |  |             |   | (4,212 | )            |  |  |  |   | 8,904    |   |  |  |  |   | (6,401 | ) |
| Othercomprehensive income(loss)                                                                                                                                                                                                                |  |  |                   |   | (40,413  | )               |  |  |             |   | 44,348 |              |  |  |  |   | (85,808  | ) |  |  |  |   | 18,447 |   |
| Comprehensiveincome(loss)                                                                                                                                                                                                                      |  |  |                   | $ | (162,003 | )               |  |  |             | $ | 45,939 |              |  |  |  | $ | (193,549 | ) |  |  |  | $ | 53,458 |   |
|                                                                                                                                                                                                                                                |

SeeAccompanying Notes to Consolidated Financial Statements(unaudited)

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SCOTTISH RE GROUPLIMITEDCONSOLIDATED STATEMENTS OF SHAREHOLDERS’EQUITY(UNAUDITED)

(Expressed in Thousandsof United States dollars, except share data)

|                                                               |  |  |                |   |            |               |  |  |  |   |            |   |
|---------------------------------------------------------------|--|--|----------------|---|------------|---------------|--|--|--|---|------------|---|
|                                                          |  |  | Sixmonthsended |
|                                                          |  |  | June30, 2006   |   |            | June 30, 2005 |
| Ordinaryshares:                                               |  |  |                |   |       |               |  |  |  |   |       |   |
| Beginning ofperiod                                            |  |  |                |   | 53,391,939 |               |  |  |  |   | 39,931,145 |   |
| Issuanceto employees on exercise ofoptions                    |  |  |                |   | 353,217    |               |  |  |  |   | 145,000    |   |
| Issuanceon exercise ofwarrants                                |  |  |                |   | —    |               |  |  |  |   | 5,377,327  |   |
| Endofperiod                                                   |  |  |                |   | 53,745,156 |               |  |  |  |   | 45,453,472 |   |
| Preferredshares:                                              |  |  |                |   |       |               |  |  |  |   |       |   |
| Beginning ofperiod                                            |  |  |                |   | 5,000,000  |               |  |  |  |   | —    |   |
| Noncumulative perpetual preferred sharesissued                |  |  |                |   | —    |               |  |  |  |   | 5,000,000  |   |
| Endofperiod                                                   |  |  |                |   | 5,000,000  |               |  |  |  |   | 5,000,000  |   |
| Sharecapital:                                                 |  |  |                |   |       |               |  |  |  |   |       |   |
| Ordinaryshares:                                               |  |  |                |   |       |               |  |  |  |   |       |   |
| Beginning ofperiod                                            |  |  |                | $ | 534        |               |  |  |  | $ | 399        |   |
| Issuance toemployees on exercise ofoptions                    |  |  |                |   | 3          |               |  |  |  |   | 1          |   |
| Issuance onconversion ofwarrants                              |  |  |                |   | —    |               |  |  |  |   | 54         |   |
| Endofperiod                                                   |  |  |                |   | 537        |               |  |  |  |   | 454        |   |
| Preferredshares:                                              |  |  |                |   |       |               |  |  |  |   |       |   |
| Beginning ofperiod                                            |  |  |                |   | 125,000    |               |  |  |  |   | —    |   |
| Noncumulative perpetual preferred sharesissued                |  |  |                |   | —    |               |  |  |  |   | 125,000    |   |
| Endofperiod                                                   |  |  |                |   | 125,000    |               |  |  |  |   | 125,000    |   |
| Additionalpaid-in capital:                                    |  |  |                |   |       |               |  |  |  |   |       |   |
| Beginningofperiod                                             |  |  |                |   | 893,767    |               |  |  |  |   | 684,719    |   |
| Conversionof 7.00% Convertible Junior Subordinated Notes      |  |  |                |   | —    |               |  |  |  |   | 42,061     |   |
| Issuance toemployees on exercise ofoptions                    |  |  |                |   | 5,010      |               |  |  |  |   | 1,810      |   |
| Costs ofissue of perpetual preferredshares                    |  |  |                |   | —    |               |  |  |  |   | (4,214     | ) |
| Optionand restricted stock unitexpense                        |  |  |                |   | 4,645      |               |  |  |  |   | 2,474      |   |
| Endofperiod                                                   |  |  |                |   | 903,422    |               |  |  |  |   | 726,850    |   |
| Prepaidvariable share forwardcontract:                        |  |  |                |   |       |               |  |  |  |   |       |   |
| Beginning ofperiod                                            |  |  |                |   | —    |               |  |  |  |   | —    |   |
| Prepaymenton variable share forwardcontract                   |  |  |                |   | 110,031    |               |  |  |  |   | —    |   |
| Endofperiod                                                   |  |  |                |   | 110,031    |               |  |  |  |   | —    |   |
| Accumulatedother comprehensive income(loss):                  |  |  |                |   |       |               |  |  |  |   |       |   |
| Unrealizedappreciation (depreciation) oninvestments           |  |  |                |   |       |               |  |  |  |   |       |   |
| Beginning ofperiod                                            |  |  |                |   | (17,879    | )             |  |  |  |   | 13,661     |   |
| Changein period (net of tax and deferred acquisitioncosts)    |  |  |                |   | (94,712    | )             |  |  |  |   | 24,848     |   |
| Endofperiod                                                   |  |  |                |   | (112,591   | )             |  |  |  |   | 38,509     |   |
| Cumulativetranslationadjustment                               |  |  |                |   |       |               |  |  |  |   |       |   |
| Beginning ofperiod                                            |  |  |                |   | 7,888      |               |  |  |  |   | 17,943     |   |
| Change inperiod (net oftax)                                   |  |  |                |   | 8,904      |               |  |  |  |   | (6,401     | ) |
| Endofperiod                                                   |  |  |                |   | 16,792     |               |  |  |  |   | 11,542     |   |
| Totalaccumulated other comprehensive income(loss)             |  |  |                |   | (95,799    | )             |  |  |  |   | 50,051     |   |
| Retainedearnings:                                             |  |  |                |   |       |               |  |  |  |   |       |   |
| Beginning ofperiod                                            |  |  |                |   | 262,402    |               |  |  |  |   | 145,952    |   |
| Netincome(loss)                                               |  |  |                |   | (107,741   | )             |  |  |  |   | 35,011     |   |
| Dividendsdeclared on ordinaryshares                           |  |  |                |   | (5,359     | )             |  |  |  |   | (4,431     | ) |
| Dividendsdeclared on non-cumulative perpetual preferredshares |  |  |                |   | (4,531     | )             |  |  |  |   | —    |   |
| Imputeddividend on prepaid variable share forwardcontract     |  |  |                |   | (72        | )             |  |  |  |   | —    |   |
| Endofperiod                                                   |  |  |                |   | 144,699    |               |  |  |  |   | 176,532    |   |
| Totalshareholders’equity                                |  |  |                | $ | 1,187,890  |               |  |  |  | $ | 1,078,887  |   |
|                                                               |

SeeAccompanying Notes to Consolidated Financial Statements(unaudited)

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SCOTTISH RE GROUPLIMITEDCONSOLIDATED STATEMENTS OF CASHFLOWS(UNAUDITED)

(Expressed in Thousandsof United Statesdollars)

|                                                                                        |  |  |                 |   |            |               |  |  |  |   |            |   |
|----------------------------------------------------------------------------------------|--|--|-----------------|---|------------|---------------|--|--|--|---|------------|---|
|                                                                                   |  |  | Sixmonths ended |
|                                                                                   |  |  | June 30,2006    |   |            | June 30, 2005 |
| Operatingactivities                                                                    |  |  |                 |   |       |               |  |  |  |   |       |   |
| Net income(loss)                                                                       |  |  |                 | $ | (107,741   | )             |  |  |  | $ | 35,011     |   |
| Adjustmentsto reconcile net income (loss) to net cash provided by operatingactivities: |  |  |                 |   |       |               |  |  |  |   |       |   |
| Net realized(gains)losses                                                              |  |  |                 |   | 24,899     |               |  |  |  |   | (4,229     | ) |
| Changein value of embedded derivatives,net                                             |  |  |                 |   | (17,512    | )             |  |  |  |   | 16,635     |   |
| Amortizationof discount oninvestments                                                  |  |  |                 |   | 8,169      |               |  |  |  |   | 9,347      |   |
| Amortizationof deferred acquisitioncosts                                               |  |  |                 |   | 48,149     |               |  |  |  |   | 33,685     |   |
| Amortizationof present value of in-forcebusiness                                       |  |  |                 |   | 1,819      |               |  |  |  |   | 3,380      |   |
| Changesin assets andliabilities:                                                       |  |  |                 |   |       |               |  |  |  |   |       |   |
| Accruedinterestreceivable                                                              |  |  |                 |   | (26,759    | )             |  |  |  |   | (7,754     | ) |
| Reinsurancebalances and risk feesreceivable                                            |  |  |                 |   | 95,687     |               |  |  |  |   | (3,538     | ) |
| Deferredacquisitioncosts                                                               |  |  |                 |   | (78,642    | )             |  |  |  |   | (93,264    | ) |
| Deferredtaxasset                                                                       |  |  |                 |   | 92,454     |               |  |  |  |   | —    |   |
| Otherassets                                                                            |  |  |                 |   | (13,571    | )             |  |  |  |   | (73,694    | ) |
| Currentincome taxpayable                                                               |  |  |                 |   | (6,043     | )             |  |  |  |   | —    |   |
| Reservesfor future policy benefits, net of amounts recoverable fromreinsurers          |  |  |                 |   | 591,927    |               |  |  |  |   | 175,598    |   |
| Interestsensitive contract liabilities, net of funds withheld atinterest               |  |  |                 |   | 484,732    |               |  |  |  |   | 38,476     |   |
| Accountspayable and otherliabilities                                                   |  |  |                 |   | (11,535    | )             |  |  |  |   | 47,471     |   |
| Other                                                                                  |  |  |                 |   | 6,763      |               |  |  |  |   | 5,890      |   |
| Netcash provided by operatingactivities                                                |  |  |                 |   | 1,092,796  |               |  |  |  |   | 183,014    |   |
| Investingactivities                                                                    |  |  |                 |   |       |               |  |  |  |   |       |   |
| Purchase of fixedmaturityinvestments                                                   |  |  |                 |   | (3,724,315 | )             |  |  |  |   | (2,326,016 | ) |
| Proceedsfrom sales of fixed maturityinvestments                                        |  |  |                 |   | 510,211    |               |  |  |  |   | 506,872    |   |
| Proceedsfrom maturity of fixed maturityinvestments                                     |  |  |                 |   | 222,620    |               |  |  |  |   | 259,688    |   |
| Purchaseof preferred stockinvestments                                                  |  |  |                 |   | (7,368     | )             |  |  |  |   | (8,348     | ) |
| Proceedsfrom sales of preferred stockinvestments                                       |  |  |                 |   | 8,470      |               |  |  |  |   | 2,076      |   |
| Proceedsfrom maturity of preferred stockinvestments                                    |  |  |                 |   | 28         |               |  |  |  |   | —    |   |
| Purchase/saleof otherinvestments                                                       |  |  |                 |   | (10,436    | )             |  |  |  |   | —    |   |
| Other                                                                                  |  |  |                 |   | (5,391     | )             |  |  |  |   | (12,386    | ) |
| Netcash used in investingactivities                                                    |  |  |                 |   | (3,006,181 | )             |  |  |  |   | (1,578,114 | ) |
| Financingactivities                                                                    |  |  |                 |   |       |               |  |  |  |   |       |   |
| Proceeds fromcollateral financefacilities                                              |  |  |                 |   | 1,739,480  |               |  |  |  |   | 850,000    |   |
| Depositsto interest sensitive contractliabilities                                      |  |  |                 |   | 278,298    |               |  |  |  |   | 131,059    |   |
| Withdrawalsfrom interest sensitive contractliabilities                                 |  |  |                 |   | (131,195   | )             |  |  |  |   | (57,985    | ) |
| Proceedsfrom issuance of ordinaryshares                                                |  |  |                 |   | 5,013      |               |  |  |  |   | 1,811      |   |
| Proceeds fromexercise of Class Cwarrants                                               |  |  |                 |   | —    |               |  |  |  |   | 538        |   |
| Proceeds fromprepaid variable share forwardcontract                                    |  |  |                 |   | 109,959    |               |  |  |  |   | —    |   |
| Proceedsfrom reverse repurchaseagreement                                               |  |  |                 |   | 64,856     |               |  |  |  |   | —    |   |
| Dividendspaid                                                                          |  |  |                 |   | (9,890     | )             |  |  |  |   | (4,431     | ) |
| Netcash provided by financingactivities                                                |  |  |                 |   | 2,056,521  |               |  |  |  |   | 920,992    |   |
| Netchange in cash and cashequivalents                                                  |  |  |                 |   | 143,136    |               |  |  |  |   | (474,108   | ) |
| Cashand cash equivalents, beginning ofperiod                                           |  |  |                 |   | 1,420,205  |               |  |  |  |   | 794,639    |   |
| Cashand cash equivalents, end ofperiod                                                 |  |  |                 | $ | 1,563,341  |               |  |  |  | $ | 320,531    |   |
|                                                                                        |

SeeAccompanying Notes to Consolidated Financial Statements(unaudited)

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SCOTTISHRE GROUP LIMITED NOTES TO CONSOLIDATED FINANCIALSTATEMENTSJUNE 30, 2006(UNAUDITED)

1.    Basis ofpresentation

AccountingPrinciples — The accompanying unauditedconsolidated financial statements have been prepared in accordance withgenerally accepted accounting principles in the United States ofAmerica (‘‘GAAP’’) and the instructions toForm 10-Q and Article 10 of Regulation S-X. Accordingly, they do notinclude all of the information and footnotes required by GAAP forcomplete financial statements. In the opinion of management, alladjustments (consisting of normal recurring accruals) considerednecessary for a fair presentation have been included. The results forthe interim period are not necessarily indicative of the results to beexpected for the full year ending December  31,  2006.These unaudited consolidated financial statements should be read inconjunction with the consolidated financial statements and notesthereto included in our 2005 Annual Report on Form 10-K for the yearended December  31,  2005 (‘‘2005 AnnualReport’’).

Consolidation — Weconsolidate the results of all of our subsidiaries and all variableinterest entities for which we are the primary beneficiary. Allsignificant intercompany transactions and balances have been eliminatedon consolidation.

Estimates, Risks andUncertainties — The preparation ofconsolidated financial statements in conformity with GAAP requiresmanagement to make estimates and assumptions that affect the amountsreported on the consolidated financial statements and accompanyingnotes. Actual results could differ materially from those estimates andassumptions used by management. Our most significant assumptions arefor assumed reinsurance liabilities, premiums receivable, deferredacquisition costs, realization of deferred tax assets and valuation ofinvestment impairments. We review and revise these estimates asappropriate. Any adjustments made to these estimates are reflected inthe period the estimates are revised.

All tabular amounts arereported in thousands of United States dollars, except share and pershare data, or as otherwise noted.

Certain prior period amountshave been reclassified to conform to the current periodpresentation.

2.    Newaccounting pronouncements

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

In July2006, the Financial Accounting Standards Board(‘‘FASB’’) issued FASB Interpretation No.48 (‘‘FIN 48’’), ‘‘Accountingfor Uncertainty in Income Taxes’’. FIN 48 prescribesdetailed guidance for the financial statement recognition, measurementand disclosure of uncertain tax positions recognized in anenterprise’s financial statements in accordance with FASBStatement No. 109, ‘‘Accounting for IncomeTaxes.’’ Tax positions must meet a‘‘more likely than not’’ recognition thresholdat the effective date to be recognized upon the adoption of FIN 48 andin subsequent periods.

FIN 48 will be effective for fiscal yearsbeginning after December  15,  2006 and the provisions ofFIN 48 will be applied to all tax positions upon initialadoption. The cumulative effect of applying the provisions ofFIN 48 will be reported as an adjustment to the opening balance ofretained earnings for that fiscal year. We are currentlyevaluating the potential impact of FIN 48 on our financialstatements.

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SCOTTISHRE GROUP LIMITED NOTES TO CONSOLIDATED FINANCIALSTATEMENTS  (CONTINUED)JUNE 30, 2006(UNAUDITED)

2.    Newaccounting pronouncements   (continued)

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

In March  2006, the FASB issuedStatement No. 156 (‘‘SFAS No. 156’’),‘‘Accounting for Servicing of FinancingAssets’’, which permits an entity to choose either of thefollowing measurement methods for each class of separately recognizedservicing assets and servicing liabilities:

|  |              |                                                                                                                                                                                                                                                                                                                                                                                             |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Amortization method — amortizeservicing assets or servicing liabilities in proportion to and over theperiod of net servicing income or net servicing loss and assess theservicing assets or liabilities for impairment or increased obligationbased on fair value at each reporting date. This method is consistentwith current subsequent measurement guidance for servicing rights. |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Fair value measurement method —measure servicing assets or servicing liabilities at fair value at eachreporting date and report changes in fair value in earnings in theperiod in which the change occurs. SFAS No. 156 is effective as of thebeginning of an entity’s first fiscal year that begins afterSeptember  15,  2006. We are currently assessing the impactof SFAS No. 156 on our results of operations and financialposition. |

3.    Businesssegments

We measure segment performance primarily based onincome or loss before income taxes and minority interest. Ourreportable segments are strategic business units that are primarilysegregated by geographic region. We report segments in accordance withSFAS No. 131, ‘‘Disclosures about Segments of anEnterprise and Related Information’’. Our segments areLife Reinsurance North America, Life Reinsurance International andCorporate and Other. The segment reporting is asfollows:

|                                                            |  |  |                                 |   |         |               |  |  |                     |   |         |       |  |  |  |   |         |   |  |  |  |   |         |   |
|------------------------------------------------------------|--|--|---------------------------------|---|---------|---------------|--|--|---------------------|---|---------|-------|--|--|--|---|---------|---|--|--|--|---|---------|---|
|                                                       |  |  | Threemonths ended June  30,2006 |
|                                                       |  |  | LifeReinsurance                 |   |         |          |  |  |                |
|                                                       |  |  | NorthAmerica                    |   |         | International |  |  | Corporate&Other |   |         | Total |
| Premiumsearned                                             |  |  |                                 | $ | 407,549 |               |  |  |                     | $ | 37,393  |       |  |  |  | $ | — |   |  |  |  | $ | 444,942 |   |
| Investmentincome,net                                       |  |  |                                 |   | 136,763 |               |  |  |                     |   | 8,971   |       |  |  |  |   | 2,243   |   |  |  |  |   | 147,977 |   |
| Feeincome                                                  |  |  |                                 |   | 3,879   |               |  |  |                     |   | — |       |  |  |  |   | 760     |   |  |  |  |   | 4,639   |   |
| Realizedgains (losses),net                                 |  |  |                                 |   | (5,479  | )             |  |  |                     |   | (6,908  | )     |  |  |  |   | 1,089   |   |  |  |  |   | (11,298 | ) |
| Changein value of embedded derivatives,net                 |  |  |                                 |   | 7,366   |               |  |  |                     |   | — |       |  |  |  |   | — |   |  |  |  |   | 7,366   |   |
| Totalrevenues                                              |  |  |                                 |   | 550,078 |               |  |  |                     |   | 39,456  |       |  |  |  |   | 4,092   |   |  |  |  |   | 593,626 |   |
| Claimsand other policybenefits                             |  |  |                                 |   | 338,626 |               |  |  |                     |   | 33,475  |       |  |  |  |   | — |   |  |  |  |   | 372,101 |   |
| Interestcredited to interest sensitive contractliabilities |  |  |                                 |   | 55,399  |               |  |  |                     |   | — |       |  |  |  |   | — |   |  |  |  |   | 55,399  |   |
| Acquisitioncosts and other insurance expenses,net          |  |  |                                 |   | 97,280  |               |  |  |                     |   | 6,185   |       |  |  |  |   | 1,407   |   |  |  |  |   | 104,872 |   |
| Operatingexpenses                                          |  |  |                                 |   | 14,538  |               |  |  |                     |   | 7,874   |       |  |  |  |   | 16,953  |   |  |  |  |   | 39,365  |   |
| Collateralfinance facilitiesexpense                        |  |  |                                 |   | 45,891  |               |  |  |                     |   | — |       |  |  |  |   | 1,345   |   |  |  |  |   | 47,236  |   |
| Interestexpense                                            |  |  |                                 |   | 3,038   |               |  |  |                     |   | — |       |  |  |  |   | 4,028   |   |  |  |  |   | 7,066   |   |
| Totalbenefits andexpenses                                  |  |  |                                 |   | 554,772 |               |  |  |                     |   | 47,534  |       |  |  |  |   | 23,733  |   |  |  |  |   | 626,039 |   |
| (Loss)before income taxes and minorityinterest             |  |  |                                 | $ | (4,694  | )             |  |  |                     | $ | (8,078  | )     |  |  |  | $ | (19,641 | ) |  |  |  | $ | (32,413 | ) |
|                                                            |

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SCOTTISHRE GROUP LIMITED NOTES TO CONSOLIDATED FINANCIALSTATEMENTS  (CONTINUED)JUNE 30, 2006(UNAUDITED)

3.    Businesssegments   (continued)

|                                                            |  |  |                                 |   |         |               |  |  |                     |   |         |       |  |  |  |   |         |   |  |  |  |   |         |   |
|------------------------------------------------------------|--|--|---------------------------------|---|---------|---------------|--|--|---------------------|---|---------|-------|--|--|--|---|---------|---|--|--|--|---|---------|---|
|                                                       |  |  | Threemonths ended June  30,2005 |
|                                                       |  |  | LifeReinsurance                 |   |         |          |  |  |                |
|                                                       |  |  | NorthAmerica                    |   |         | International |  |  | Corporate&Other |   |         | Total |
| Premiumsearned                                             |  |  |                                 | $ | 408,877 |               |  |  |                     | $ | 28,016  |       |  |  |  | $ | — |   |  |  |  | $ | 436,893 |   |
| Investmentincome,net                                       |  |  |                                 |   | 80,956  |               |  |  |                     |   | 2,352   |       |  |  |  |   | 246     |   |  |  |  |   | 83,554  |   |
| Feeincome                                                  |  |  |                                 |   | 2,007   |               |  |  |                     |   | — |       |  |  |  |   | 778     |   |  |  |  |   | 2,785   |   |
| Realizedgains (losses),net                                 |  |  |                                 |   | 2,208   |               |  |  |                     |   | 88      |       |  |  |  |   | (1,362  | ) |  |  |  |   | 934     |   |
| Changein value of embedded derivatives,net                 |  |  |                                 |   | (22,120 | )             |  |  |                     |   | — |       |  |  |  |   | — |   |  |  |  |   | (22,120 | ) |
| Totalrevenues                                              |  |  |                                 |   | 471,928 |               |  |  |                     |   | 30,456  |       |  |  |  |   | (338    | ) |  |  |  |   | 502,046 |   |
| Claimsand other policybenefits                             |  |  |                                 |   | 293,599 |               |  |  |                     |   | 17,894  |       |  |  |  |   | — |   |  |  |  |   | 311,493 |   |
| Interestcredited to interest sensitive contractliabilities |  |  |                                 |   | 31,723  |               |  |  |                     |   | — |       |  |  |  |   | — |   |  |  |  |   | 31,723  |   |
| Acquisitioncosts and other insurance expenses,net          |  |  |                                 |   | 117,927 |               |  |  |                     |   | 4,053   |       |  |  |  |   | 514     |   |  |  |  |   | 122,494 |   |
| Operatingexpenses                                          |  |  |                                 |   | 10,221  |               |  |  |                     |   | 7,285   |       |  |  |  |   | 8,994   |   |  |  |  |   | 26,500  |   |
| Collateralfinance facilitiesexpense                        |  |  |                                 |   | 10,448  |               |  |  |                     |   | — |       |  |  |  |   | 1,373   |   |  |  |  |   | 11,821  |   |
| Interestexpense                                            |  |  |                                 |   | 2,657   |               |  |  |                     |   | — |       |  |  |  |   | 2,156   |   |  |  |  |   | 4,813   |   |
| Totalbenefits andexpenses                                  |  |  |                                 |   | 466,575 |               |  |  |                     |   | 29,232  |       |  |  |  |   | 13,037  |   |  |  |  |   | 508,844 |   |
| Income(loss) before income taxes and minorityinterest      |  |  |                                 | $ | 5,353   |               |  |  |                     | $ | 1,224   |       |  |  |  | $ | (13,375 | ) |  |  |  | $ | (6,798  | ) |
|                                                            |

|                                                            |  |  |                                 |   |           |               |  |  |                      |   |         |       |  |  |  |   |         |   |  |  |  |   |           |   |
|------------------------------------------------------------|--|--|---------------------------------|---|-----------|---------------|--|--|----------------------|---|---------|-------|--|--|--|---|---------|---|--|--|--|---|-----------|---|
|                                                       |  |  | Six months endedJune  30,  2006 |
|                                                       |  |  | LifeReinsurance                 |   |           |          |  |  |                 |
|                                                       |  |  | NorthAmerica                    |   |           | International |  |  | Corporate& Other |   |         | Total |
| Premiumsearned                                             |  |  |                                 | $ | 836,467   |               |  |  |                      | $ | 57,496  |       |  |  |  | $ | — |   |  |  |  | $ | 893,963   |   |
| Investmentincome,net                                       |  |  |                                 |   | 260,704   |               |  |  |                      |   | 11,960  |       |  |  |  |   | 4,335   |   |  |  |  |   | 276,999   |   |
| Feeincome                                                  |  |  |                                 |   | 6,896     |               |  |  |                      |   | — |       |  |  |  |   | 1,476   |   |  |  |  |   | 8,372     |   |
| Realizedgains (losses),net                                 |  |  |                                 |   | (19,398   | )             |  |  |                      |   | (8,046  | )     |  |  |  |   | 2,545   |   |  |  |  |   | (24,899   | ) |
| Changein value of embedded derivatives,net                 |  |  |                                 |   | 17,512    |               |  |  |                      |   | — |       |  |  |  |   | — |   |  |  |  |   | 17,512    |   |
| Totalrevenues                                              |  |  |                                 |   | 1,102,181 |               |  |  |                      |   | 61,410  |       |  |  |  |   | 8,356   |   |  |  |  |   | 1,171,947 |   |
| Claimsand other policybenefits                             |  |  |                                 |   | 685,906   |               |  |  |                      |   | 60,658  |       |  |  |  |   | — |   |  |  |  |   | 746,564   |   |
| Interestcredited to interest sensitive contractliabilities |  |  |                                 |   | 98,100    |               |  |  |                      |   | — |       |  |  |  |   | — |   |  |  |  |   | 98,100    |   |
| Acquisitioncosts and other insurance expenses,net          |  |  |                                 |   | 181,688   |               |  |  |                      |   | 9,002   |       |  |  |  |   | 1,713   |   |  |  |  |   | 192,403   |   |
| Operatingexpenses                                          |  |  |                                 |   | 29,130    |               |  |  |                      |   | 13,651  |       |  |  |  |   | 27,676  |   |  |  |  |   | 70,457    |   |
| Collateralfinance facilitiesexpense                        |  |  |                                 |   | 76,434    |               |  |  |                      |   | — |       |  |  |  |   | 1,889   |   |  |  |  |   | 78,323    |   |
| Interestexpense                                            |  |  |                                 |   | 5,600     |               |  |  |                      |   | — |       |  |  |  |   | 6,359   |   |  |  |  |   | 11,959    |   |
| Totalbenefits andexpenses                                  |  |  |                                 |   | 1,076,858 |               |  |  |                      |   | 83,311  |       |  |  |  |   | 37,637  |   |  |  |  |   | 1,197,806 |   |
| Income(loss) before income taxes and minorityinterest      |  |  |                                 | $ | 25,323    |               |  |  |                      | $ | (21,901 | )     |  |  |  | $ | (29,281 | ) |  |  |  | $ | (25,859   | ) |
|                                                            |

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SCOTTISHRE GROUP LIMITED NOTES TO CONSOLIDATED FINANCIALSTATEMENTS  (CONTINUED)JUNE 30, 2006(UNAUDITED)

3.    Businesssegments   (continued)

|                                                            |  |  |                                 |   |         |               |  |  |                     |   |         |       |  |  |  |   |         |   |  |  |  |   |           |   |
|------------------------------------------------------------|--|--|---------------------------------|---|---------|---------------|--|--|---------------------|---|---------|-------|--|--|--|---|---------|---|--|--|--|---|-----------|---|
|                                                       |  |  | Sixmonths ended June  30,  2005 |
|                                                       |  |  | LifeReinsurance                 |   |         |          |  |  |                |
|                                                       |  |  | NorthAmerica                    |   |         | International |  |  | Corporate&Other |   |         | Total |
| Premiumsearned                                             |  |  |                                 | $ | 845,972 |               |  |  |                     | $ | 54,601  |       |  |  |  | $ | — |   |  |  |  | $ | 900,573   |   |
| Investmentincome,net                                       |  |  |                                 |   | 158,487 |               |  |  |                     |   | 4,942   |       |  |  |  |   | 604     |   |  |  |  |   | 164,033   |   |
| Feeincome                                                  |  |  |                                 |   | 4,907   |               |  |  |                     |   | — |       |  |  |  |   | 1,502   |   |  |  |  |   | 6,409     |   |
| Realizedgains (losses),net                                 |  |  |                                 |   | 3,650   |               |  |  |                     |   | 585     |       |  |  |  |   | (6      | ) |  |  |  |   | 4,229     |   |
| Changein value of embedded derivatives,net                 |  |  |                                 |   | (16,635 | )             |  |  |                     |   | — |       |  |  |  |   | — |   |  |  |  |   | (16,635   | ) |
| Totalrevenues                                              |  |  |                                 |   | 996,381 |               |  |  |                     |   | 60,128  |       |  |  |  |   | 2,100   |   |  |  |  |   | 1,058,609 |   |
| Claimsand other policybenefits                             |  |  |                                 |   | 637,787 |               |  |  |                     |   | 36,979  |       |  |  |  |   | — |   |  |  |  |   | 674,766   |   |
| Interestcredited to interest sensitive contractliabilities |  |  |                                 |   | 62,365  |               |  |  |                     |   | — |       |  |  |  |   | — |   |  |  |  |   | 62,365    |   |
| Acquisitioncosts and other insurance expenses,net          |  |  |                                 |   | 206,205 |               |  |  |                     |   | 6,898   |       |  |  |  |   | 1,033   |   |  |  |  |   | 214,136   |   |
| Operatingexpenses.                                         |  |  |                                 |   | 21,894  |               |  |  |                     |   | 13,134  |       |  |  |  |   | 16,041  |   |  |  |  |   | 51,069    |   |
| Collateralfinance facilitiesexpense                        |  |  |                                 |   | 16,633  |               |  |  |                     |   | — |       |  |  |  |   | 2,608   |   |  |  |  |   | 19,241    |   |
| Interestexpense                                            |  |  |                                 |   | 5,365   |               |  |  |                     |   | — |       |  |  |  |   | 5,042   |   |  |  |  |   | 10,407    |   |
| Totalbenefits andexpenses                                  |  |  |                                 |   | 950,249 |               |  |  |                     |   | 57,011  |       |  |  |  |   | 24,724  |   |  |  |  |   | 1,031,984 |   |
| Income(loss) before income taxes and minorityinterest      |  |  |                                 | $ | 46,132  |               |  |  |                     | $ | 3,117   |       |  |  |  | $ | (22,624 | ) |  |  |  | $ | 26,625    |   |
|                                                            |

|                      |  |  |              |   |            |                   |  |  |  |   |            |  |
|----------------------|--|--|--------------|---|------------|-------------------|--|--|--|---|------------|--|
| Assets               |  |  | June30, 2006 |   |            | December 31, 2005 |
| LifeReinsurance      |  |  |              |   |       |                   |  |  |  |   |       |  |
| NorthAmerica         |  |  |              | $ | 12,346,058 |                   |  |  |  | $ | 10,472,863 |  |
| International        |  |  |              |   | 1,062,526  |                   |  |  |  |   | 460,888    |  |
| TotalLifeReinsurance |  |  |              |   | 13,408,584 |                   |  |  |  |   | 10,933,751 |  |
| Corporate&Other  |  |  |              |   | 1,196,139  |                   |  |  |  |   | 1,072,369  |  |
| Total                |  |  |              | $ | 14,604,723 |                   |  |  |  | $ | 12,006,120 |  |
|                      |

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SCOTTISHRE GROUP LIMITED NOTES TO CONSOLIDATED FINANCIALSTATEMENTS  (CONTINUED)JUNE 30, 2006(UNAUDITED)

4.    Earnings per ordinaryshare

The following table sets forth the computation of basicand diluted earnings per ordinary share.

|                                                                                                   |  |  |                   |   |            |                 |  |  |               |   |            |              |  |  |  |   |            |   |  |  |  |   |            |  |
|---------------------------------------------------------------------------------------------------|--|--|-------------------|---|------------|-----------------|--|--|---------------|---|------------|--------------|--|--|--|---|------------|---|--|--|--|---|------------|--|
|                                                                                              |  |  | Threemonths ended |   |            | Six monthsended |
|                                                                                              |  |  | June 30,2006      |   |            | June 30, 2005   |  |  | June 30, 2006 |   |            | June 30,2005 |
| Numerator:                                                                                        |  |  |                   |   |       |                 |  |  |               |   |       |              |  |  |  |   |       |   |  |  |  |   |       |  |
| Netincome(loss)                                                                                   |  |  |                   | $ | (121,590   | )               |  |  |               | $ | 1,591      |              |  |  |  | $ | (107,741   | ) |  |  |  | $ | 35,011     |  |
| Dividenddeclared on non-cumulative perpetual preferredshares                                      |  |  |                   |   | (2,265     | )               |  |  |               |   | —    |              |  |  |  |   | (4,531     | ) |  |  |  |   | —    |  |
| Imputeddividend on prepaid variable share forwardcontract                                         |  |  |                   |   | (72        | )               |  |  |               |   | —    |              |  |  |  |   | (72        | ) |  |  |  |   | —    |  |
| Netincome (loss) available to ordinaryshareholders                                                |  |  |                   | $ | (123,927   | )               |  |  |               | $ | 1,591      |              |  |  |  | $ | (112,344   | ) |  |  |  | $ | 35,011     |  |
| Denominator:                                                                                      |  |  |                   |   |       |                 |  |  |               |   |       |              |  |  |  |   |       |   |  |  |  |   |       |  |
| Denominatorfor basic earnings per ordinary share — weighted average numberof ordinaryshares |  |  |                   |   | 53,720,242 |                 |  |  |               |   | 43,462,385 |              |  |  |  |   | 53,578,152 |   |  |  |  |   | 41,726,320 |  |
| Effectof dilutivesecurities                                                                       |  |  |                   |   |       |                 |  |  |               |   |       |              |  |  |  |   |       |   |  |  |  |   |       |  |
| —Stock options and restricted stockunits                                                    |  |  |                   |   | —    |                 |  |  |               |   | 625,438    |              |  |  |  |   | —    |   |  |  |  |   | 633,360    |  |
| —Warrants                                                                                   |  |  |                   |   | —    |                 |  |  |               |   | 2,776,786  |              |  |  |  |   | —    |   |  |  |  |   | 3,470,053  |  |
| —4.50% senior convertible notes and Hybrid  CapitalUnits                             |  |  |                   |   | —    |                 |  |  |               |   | 272,280    |              |  |  |  |   | —    |   |  |  |  |   | 349,542    |  |
| Denominatorfor dilutive earnings (loss) per ordinaryshare                                         |  |  |                   |   | 53,720,242 |                 |  |  |               |   | 47,136,889 |              |  |  |  |   | 53,578,152 |   |  |  |  |   | 46,179,275 |  |
| Basicearnings (loss) per ordinaryshare                                                            |  |  |                   | $ | (2.31      | )               |  |  |               | $ | 0.04       |              |  |  |  | $ | (2.10      | ) |  |  |  | $ | 0.84       |  |
| Dilutedearnings (loss) per ordinaryshare                                                          |  |  |                   | $ | (2.31      | )               |  |  |               | $ | 0.03       |              |  |  |  | $ | (2.10      | ) |  |  |  | $ | 0.76       |  |
|                                                                                                   |

Inaccordance with SFAS No. 128, ‘‘Earnings PerShare’’, the exercise of options and warrants orconversion of convertible securities is not assumed unless it wouldreduce earnings per share or increase loss pershare.

5.    Collateralfinance facilities

On May  2,  2006, Ballantyne Replc, an orphan special purpose vehicle incorporated under the laws ofIreland issued in a private offering $1.71  billion of debt toexternal investors and $210.0  million of debt to ScottishAnnuity & Life Insurance Company (Cayman) Ltd. The debt issued toexternal investors (collectively, the‘‘Notes’’) consistedof:

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

|  |              |                                                                    |
|--|--------------|--------------------------------------------------------------------|
|  | •  | $500.0million of Class A-2 Floating Rate Guaranteed Notes SeriesA, |

|  |              |                                                                     |
|--|--------------|---------------------------------------------------------------------|
|  | •  | $500.0  million of Class A-2Floating Rate Guaranteed Notes SeriesB, |

|  |              |                                                                     |
|--|--------------|---------------------------------------------------------------------|
|  | •  | $100.0  million of Class A-3Floating Rate Guaranteed Notes SeriesA, |

|  |              |                                                                     |
|--|--------------|---------------------------------------------------------------------|
|  | •  | $100.0  million of Class A-3Floating Rate Guaranteed Notes SeriesB, |

|  |              |                                                                     |
|--|--------------|---------------------------------------------------------------------|
|  | •  | $100.0  million of Class A-3Floating Rate Guaranteed Notes SeriesC, |

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

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SCOTTISHRE GROUP LIMITED NOTES TO CONSOLIDATED FINANCIALSTATEMENTS  (CONTINUED)JUNE 30, 2006(UNAUDITED)

5.    Collateralfinance facilities   (continued)

|  |              |                                                       |
|--|--------------|-------------------------------------------------------|
|  | •  | $10.0million of Class B-1 7.51244% SubordinatedNotes, |

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

|  |              |                                                                       |
|--|--------------|-----------------------------------------------------------------------|
|  | •  | $10.0  million of Class C-1Subordinated Variable Interest Rate Notes. |

The debt issued toScottish Annuity & Life Insurance Company (Cayman) Ltd. consistedof $40.0  million of Class C-1 Subordinated Variable InterestRate Notes and $170.0  million Class C-2 Subordinated VariableInterest Rate Notes, which Scottish Annuity & Life InsuranceCompany (Cayman) Ltd. intends to hold (collectively, the‘‘SALIC Notes’’; and together with theNotes, the ‘‘Ballantyne Notes’’).Subsequent to the issuance of the Ballantyne Notes, Scottish Annuity& Life Insurance Company (Cayman) Ltd. sold $32.0  million ofClass C-1 Subordinated Variable Interest Rate Notes to externalinvestors. Scottish Annuity & Life Insurance Company (Cayman) Ltd.continues to hold $8.0  million Class C-1 Subordinated VariableInterest Rate Notes, which it intends to sell to external investors.Concurrently with its offering of the Ballantyne Notes, Ballantyne Reissued (i) $500,000 of Class D Convertible Notes, which were purchasedby Scottish Re Group Limited, (ii) 163.0  million RedeemablePreference Shares of U.S. $1.00 par value per share which werepurchased by Scottish Annuity & Life Insurance Company (Cayman)Ltd., and (iii) 18.2  million Non-Redeemable Preference Shares ofU.S. $1.00 par value per share which were also purchased by ScottishAnnuity & Life Insurance Company (Cayman) Ltd.

Interest onthe principal amount of the Ballantyne Notes is payable in intervalsranging from every 28 days to monthly to annually, depending on thenote, initially at a rate equivalent to one-month LIBOR plus0.61% for the Class A-1 Floating Rate Notes (and afterMay  2,  2022, one-month LIBOR plus 1.22%),one-month LIBOR plus 0.31% for the Class A-2 Floating RateGuaranteed 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 afterMay  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 plus2.00% for the Class B-2 Subordinated Floating Rate Notes, and avariable rate based on performance of the underlying block of businessfor the Class C-1 Subordinated Variable Interest Rate Notes and theClass C-2 Subordinated Variable Interest Rate Notes.

Proceedsfrom this offering were used to fund the Regulation XXX reserverequirements for the business acquired from ING America InsuranceHoldings, Inc. $1.65  billion of the proceeds from the BallantyneNotes have been deposited into a series of accounts that collateralizethe reserve obligations of Scottish Re (U.S.), Inc.

The holdersof the Ballantyne Notes cannot require repayment from us or any of oursubsidiaries. The timely payment of the scheduled interest payments andthe principal on the maturity date of Series A of the Class A-2 Notesand Series A, Series B, Series C, Series D and, if issued, Series E ofthe Class A-3 Notes has been guaranteed by Ambac Assurance UK Limited.The timely payment of the scheduled interest payments and the principalon 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 (revisedDecember  2003) (‘‘FIN 46R’’),‘‘Consolidation of Variable InterestEntities’’, Ballantyne Re is considered to be a variableinterest entity and we are considered to hold the primary beneficialinterest. As a result, Ballantyne Re is consolidated in our financialstatements beginning in the second quarter of 2006. The assets ofBallantyne Re are recorded as fixed maturity investments and cash andcash equivalents. Our 

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SCOTTISHRE GROUP LIMITED NOTES TO CONSOLIDATED FINANCIALSTATEMENTS  (CONTINUED)JUNE 30, 2006(UNAUDITED)

5.    Collateralfinance facilities   (continued)

consolidated statements of income include theinvestment return of Ballantyne Re as investment income and the cost ofthe facility is reflected in collateral finance facilitiesexpense.

6.    Commitments

Creditfacilities

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 intoa $200.0  million, three-year revolving unsecured senior creditfacility with a syndicate of banks. This facility replaced a 364-dayfacility, which was due to mature in October  2005. The facilitymay be increased to an aggregate principal amount of $300.0million with the consent of the participating banks. The facilityprovides capacity for borrowing and extending letters of credit. Thefacility 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 wereno outstanding borrowings at June  30,  2006. Outstandingletters of credit under this facility amounted to $51.4  millionat June  30,  2006 . As of June  30,  2006,there was $148.6  million of unused commitment under thefacility. In light of our second quarter results and recent ratingsdowngrades, we are not certain at this time whether the lenders underthis facility, and the facility referred to below, will honor theircommitment to fund any borrowing requests and if so whether they willinsist upon collateral for any such funding. We are currently indiscussions with representatives of the bank syndicate regarding thiscredit facility.

On August  18,  2005, Scottish Re(Dublin) Limited entered into a $30.0  million three-yearrevolving, unsecured letter of credit facility with a syndicate ofbanks. The credit facility may be increased to an aggregate principalamount of $50.0  million with the consent of the participatingbanks. The facility is a direct financial obligation of Scottish Re(Dublin) Limited, however, Scottish Annuity & Life InsuranceCompany (Cayman) Ltd. has guaranteed the payment obligations ofScottish Re (Dublin) Limited. Outstanding letters of credit under thisfacility amounted to $10.0  million at June  30,2006. As of June  30,  2006, there was $20.0  millionof unused commitment under the facility. We are currently indiscussions with representatives of the bank syndicate regarding thiscredit facility.

The financial covenants of these facilitiesrequire 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 anyincreases to shareholders' equity during the period) and maintainthe ratio of unencumbered assets to aggregate borrowings under thefacilities of 1.2 times borrowings. In addition, these facilities alsorequire Scottish Re Group Limited to maintain a minimum amount ofconsolidated shareholders’ equity (during any four quarterperiod, $760.0 million plus 50% of consolidated net income forthe period plus 50% of any increases to shareholders'equity during the period) and a debt to capitalization ratio of lessthan 30%. For the purposes of computing the financial covenants,the collateral facilities and their associated costs are excluded. Thefacilities also contain certain covenants on borrowing entities inrespect of, among other things, dividends or loans to the parent, debtincurrence and affiliate transactions.

Failure to comply with therequirements of the credit facilities would, subject to grace periods,result in an event of default and we would be required to repay anyoutstanding borrowings. At June  30,  2006, ScottishAnnuity & Life Insurance Company (Cayman) Ltd. and Scottish ReGroup Limited were in compliance with the financial covenants noted inthe preceding paragraph.

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SCOTTISHRE GROUP LIMITED NOTES TO CONSOLIDATED FINANCIALSTATEMENTS  (CONTINUED)JUNE 30, 2006(UNAUDITED)

6.    Commitments   (continued)

Reverse RepurchaseAgreement

We have a reverse repurchase agreement with amajor broker/dealer. Under this agreement, we have the ability to sellsecurities with the agreement to repurchase them at a fixed price,providing the dealer with a spread that equates to an effectiveborrowing cost linked to three-month LIBOR. This agreement is renewableat the discretion of the broker/dealer. At June  30,  2006,there was $64.9  million outstanding under this agreementrecorded as a payable under reverse repurchase agreement. AtJune  30,  2006, the interest rate was 5.19% and themarket value of collateral pledged under this reverse repurchaseagreement was $65.7  million. The reverse repurchase agreementswere repaid on August 14, 2006, and accordingly, there remains nocurrent payable outstanding.

7.    Derivatives

InterestRate Swap

During 2004, we entered into an interest rate swapcontract in the amount of $100.0  million in relation to certainof our investment assets not supporting reinsurance liabilities. Thiscontract is accounted for in accordance with SFAS No. 133(‘‘SFAS No. 133’’),‘‘Accounting for Derivative Instruments and HedgingActivities’’, which requires that all derivatives berecognized as either assets or liabilities on the balance sheet and bemeasured at fair value. This derivative has not been designated as ahedge. The change in fair value of the swap during the three and sixmonths ended June  30, 2006 amounted to a gain of $1.2million and $2.4  million, respectively. The change in fair valueof the swap during the three months ended June  30,  2005amounted to a loss of $2.1  million. There was no change for thesix months ended June  30,  2005. These gains and lossesare included in realized gains (losses) in the consolidated statementsof income. On August  2,  2006, we terminated the swapcontract for net proceeds of $3.5  million.

TartanCapital Limited

On May  4,  2006, we entered intoan agreement that provides $155.0  million of collateralizedcatastrophe protection with Tartan Capital Limited(‘‘Tartan’’), a special purpose CaymanIslands company which was funded through a catastrophe bondtransaction. This coverage is for the period January  1,2006 to December 31, 2008 and provides Scottish Annuity & LifeInsurance Company (Cayman) Ltd. with coverage arising from higher thannormal mortality levels within the United States, as determined by theU.S. Centers for Disease Control and Prevention or other designatedReporting Agency. The coverage is based on a modeled loss trigger. Uponthe occurrence of a loss event, if the modeled loss exceeds theattachment point for the peril, the coverage is activated. The recoveryis based on modeled losses and is not limited to Scottish Annuity &Life Insurance Company (Cayman) Ltd.’s, or any of itssubsidiaries', ultimate net loss from the loss event.

Inaccordance with SFAS No. 133, this contract is considered to be aderivative. We record this contract at fair value which is included in‘‘Other assets’’ and ‘‘Otherliabilities’’ in the Consolidated Balance Sheets with anychanges in the value reflected in ‘‘Acquisition costs andother insurance expenses’’ in the Consolidated Statementsof Income. There is no quoted market value available for thisderivative. The fair value is estimated utilizing published mortalitydata. Expenses related to this transaction are included in‘‘Acquisition costs and other insuranceexpenses’’ in the Corporate and Other Segment.

Tartanis a variable interest entity under the provisions of FIN 46R. We arenot the primary beneficiary of this entity and are therefore notrequired to consolidate it in our consolidated financialstatements.

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SCOTTISHRE GROUP LIMITED NOTES TO CONSOLIDATED FINANCIALSTATEMENTS  (CONTINUED)JUNE 30, 2006(UNAUDITED)

8.    Shareholders’equity

Prepaid variable share forward contract

Inconnection with the December  23,  2005 ordinary shareoffering, we entered into forward sales agreements with affiliates ofBear, Stearns & Co. Inc. and Lehman Brothers, Inc. (the‘‘forward purchasers’’) and the forwardpurchasers borrowed and sold an aggregate of approximately 3,150,000ordinary shares as their initial hedge of the forward sale agreements.Pursuant to the forward sale agreements, the forward purchasers agreedto pay us an aggregate of approximately $75.0  million onSeptember  29,  2006 and an aggregate of approximately$75.0  million on December  29,  2006, subject to ourright to receive a portion of such payment prior to the settlementdates. In exchange, on each of such dates we will deliver to theforward purchasers a variable number of ordinary shares based on theaverage market price of the ordinary shares, subject to a floor priceof $22.80 and a cap price of $28.80. We also have the right to netshare settle or cash settle the forward sale agreements. The fair valueof the forward sales agreements at inception is reflected inshareholders’ equity (as a reduction in additional paid-incapital) and the fair value is not adjusted until the settlement dateof the forward. In addition, the underwriting costs of the forwardsales agreements have been reflected in shareholders’ equity (asa reduction in additional paid-in capital).

On June26,  2006, we exercised our right of prepayment under the forwardsale agreements and received 75% of the $150.0  millionproceeds totaling $110.0  million, net of prepayment discounts of$2.5  million. This prepayment has been recorded as a separatecomponent of consolidated shareholders’ equity. The total amountof the discount related to the prepayment transaction is being recordedas an imputed dividend charge over the applicable contract settlementperiod. The prepayment option on the forward sale agreements providesthe counterparty liquidation preferences that are similar to otherordinary shareholders.

On August 9, 2006, the forward purchasersnotified us of the occurrence of ‘‘Increased Cost of StockBorrow’’ under the forward sale agreements and proposedprice 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 priceadjustments; (b) pay the forward purchasers an amount corresponding tothe price adjustments; or (c) terminate the transactions. On August 11,2006, the forward purchasers proposed an amendment to the forward salesagreements which provided us an additional alternative, theacceleration of the scheduled maturity date to August 14, 2006 undereach of the forward sales agreements. We agreed to this amendment onAugust 14, 2006. We expect to receive cash proceeds of $36.5 millionand will issue 6.6 million ordinary shares on or about August 17, 2006,which will satisfy in full our obligation to deliver shares pursuant tothe forward sales agreements and the forward purchasers obligations topay us under such agreement. Upon the settlement of the forward salesagreements, giving effect to the terms of the proposed amendment, wewill have received $146.5 million in the aggregate under the forwardsales agreements, in payments made on June 26, 2006 and on or aboutAugust 17, 2006, and we will have issued an aggregate of 6.6 millionshares.

9.    Stockbased compensation

Prior to January  1,  2006, weaccounted for stock-based compensation in accordance with SFASNo. 123 (‘‘SFAS No. 123’’),‘‘Accounting for Stock-BasedCompensation’’, as amended by SFAS No. 148,‘‘Accounting for Stock-Based Compensation —Transition and Disclosure’’. Under the fair valuerecognition provisions of SFAS No. 123, stock-based compensationexpense for all stock-based awards issued from January  1,2003 were measured at the grant date based on the value of the awardand was recognized as expense over the service period for awards thatwere expected to vest.

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SCOTTISHRE GROUP LIMITED NOTES TO CONSOLIDATED FINANCIALSTATEMENTS  (CONTINUED)JUNE 30, 2006(UNAUDITED)

9.    Stockbased compensation   (continued)

In December  2004, the FASB revisedSFAS No. 123 by issuing ‘‘Share-BasedPayment’’ (‘‘SFAS No.123(R)’’). SFAS No. 123(R) requires us to recognize, inthe determination of income, the grant date fair value of all stockoptions and other equity based compensation issued toemployees.

Effective January  1,  2006, we adoptedSFAS No.123(R) using the modified-prospective transition method. Underthe modified-prospective transition method, compensation costrecognized includes compensation costs for all share-based paymentsgranted prior to, but not yet vested, as of January  1,2006, based on the grant date fair value estimated in accordance withthe original provisions of SFAS No. 123, and compensation costs for allshare-based payments granted subsequent to January  1,2006, based on the grant date fair value estimated in accordance withthe provisions of SFAS No. 123(R). Results for prior periods have notbeen restated.

As a result of adopting SFAS No. 123(R), lossbefore income taxes for the three and six months ended June30,  2006 are $0.15  million and $0.3  millionhigher, respectively, and net loss for the three and six months endedJune  30,  2006 are $0.15  million and $0.3million higher, respectively, than if we had continued to account forstock-based compensation awarded before January  1,  2003under Accounting Principles Board Opinion No. 25. Diluted loss pershare for the three and six months ended June  30,  2006would be $2.30 and $2.09 per share, respectively, without the adoptionof SFAS No. 123(R).

Pro forma information regarding net incomeand earnings per share is required by SFAS No. 123(R) for periods priorto the adoption of SFAS No. 123(R), and has been determined as if weaccounted for all employee equity based compensation under the fairvalue method of SFAS 123(R).

For purposes of pro formadisclosures, the estimated fair value of the options is amortized toexpense over the options’ vesting period using the Black-Scholesmodel. The Black-Scholes pricing model was developed for use inestimating the fair value of traded options that have no vestingrestrictions and are fully transferable. In addition, option valuationmodels require the input of highly subjective assumptions including theexpected price volatility, dividend yield, risk free interest rate andexpected life (in years). In management’s opinion, because ouremployee stock options have characteristics significantly differentfrom those of traded options, and because changes in the subjectiveinput assumptions can materially affect the fair value estimate, theBlack-Scholes model does not necessarily provide a reliable singlemeasure of the fair value of our employee stockoptions.

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SCOTTISHRE GROUP LIMITED NOTES TO CONSOLIDATED FINANCIALSTATEMENTS  (CONTINUED)JUNE 30, 2006(UNAUDITED)

9.    Stockbased compensation   (continued)

Our pro forma information for the threeand six months ended June  30,  2005 is asfollows:

|                                                                                                                                                                                                |  |  |                               |   |        |                             |  |  |  |   |        |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--|--|-------------------------------|---|--------|-----------------------------|--|--|--|---|--------|---|
|                                                                                                                                                                                           |  |  | ThreemonthsendedJune 30, 2005 |   |        | SixmonthsendedJune 30, 2005 |
| Net income— asreported                                                                                                                                                                   |  |  |                               | $ | 1,591  |                             |  |  |  | $ | 35,011 |   |
| Stock-basedemployee compensation cost, net of related tax effects, included in thedetermination of net income asreported                                                                       |  |  |                               |   | 1,426  |                             |  |  |  |   | 2,474  |   |
| Stock-basedemployee compensation cost, net of related tax effects, that would havebeen included in the determination of net income if the fair valuebased method had been applied to allawards |  |  |                               |   | (1,889 | )                           |  |  |  |   | (2,922 | ) |
| Netincome — proforma                                                                                                                                                                     |  |  |                               | $ | 1,128  |                             |  |  |  | $ | 34,563 |   |
| Pershare data:                                                                                                                                                                                 |  |  |                               |   |   |                             |  |  |  |   |   |   |
| Basic earnings perordinary share — asreported                                                                                                                                            |  |  |                               | $ | 0.04   |                             |  |  |  | $ | 0.84   |   |
| Basic earningsper ordinary share — proforma                                                                                                                                              |  |  |                               | $ | 0.03   |                             |  |  |  | $ | 0.83   |   |
| Diluted earningsper ordinary share — asreported                                                                                                                                          |  |  |                               | $ | 0.03   |                             |  |  |  | $ | 0.76   |   |
| Dilutedearnings per ordinary share — proforma                                                                                                                                            |  |  |                               | $ | 0.02   |                             |  |  |  | $ | 0.75   |   |
|                                                                                                                                                                                                |

We have fourstock option plans (the ‘‘1998 Plan’’, the‘‘1999 Plan’’, the‘‘Harbourton Plan’’ and the‘‘2001 Plan’’, collectively the‘‘Option Plans’’). The Option Plans allowus to grant non-statutory options, subject to certain restrictions, toeligible employees, non-employee directors, advisors and consultants.The minimum exercise price of the options will be equal to the fairmarket value, as defined in the Option Plans, of our ordinary shares atthe date of grant. The term of the options is between seven and tenyears from the date of grant. Unless otherwise provided in each optionagreement, all options granted between January  1,  2002and May  4,  2004, will become exercisable in five equalinstallments commencing on the first anniversary of the grant date,except for annual grants to each director, which are fully exercisableon the date of grant. All options issued after May  5,2004, become exercisable in three equal annual installments commencingon the first anniversary of the grant date, except for grants todirectors, which are fully exercisable on the date of grant. Totaloptions authorized under the Option Plans are 3,750,000.

Theequity incentive compensation plan (‘‘2004ECP’’) allows us to grant non-statutory options andrestricted share units, subject to certain restrictions, to eligibleemployees, non-employee directors, advisors and consultants. For thefirst year of the 2004 ECP or the first 250,000 options issued, theminimum exercise price of the options will be equal to 110% offair market value. At the discretion of our Compensation Committee,option grants after the first year of the 2004 ECP or in excess of250,000 options may have a minimum exercise price equal to the fairmarket value of our ordinary shares at the date of grant. The term ofthe options shall not be more than ten years from the date of grant.Options will become exercisable in three equal installments commencingon the first anniversary of the grant date, except for grants todirectors, which are fully exercisable on the date of grant. Totaloptions authorized under the 2004 ECP are 750,000. In addition,1,000,000 restricted share units have been authorized under the 2004ECP of which at least 750,000 will vest based on achievement of certainperformance goals. The performance measures that must be met forvesting to occur are established at the beginning of each three yearperformance period. Depending on the performance, the actual amount ofrestricted share units could range from 0% to 100%. Theremaining 250,000 restricted share units may be issued withoutperformance goals.

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SCOTTISHRE GROUP LIMITED NOTES TO CONSOLIDATED FINANCIALSTATEMENTS  (CONTINUED)JUNE 30, 2006(UNAUDITED)

9.    Stockbased compensation   (continued)

Option activity under all Option Plansand the 2004 ECP is asfollows:

|                                  |  |  |                   |   |           |                 |  |  |               |   |           |              |  |  |  |    |           |   |  |  |  |   |           |   |
|----------------------------------|--|--|-------------------|---|-----------|-----------------|--|--|---------------|---|-----------|--------------|--|--|--|----|-----------|---|--|--|--|---|-----------|---|
|                             |  |  | Threemonths ended |   |           | Six monthsended |
|                             |  |  | June 30,2006      |   |           | June 30, 2005   |  |  | June 30, 2006 |   |           | June 30,2005 |
| Outstanding, beginning ofperiod  |  |  |                   |   | 2,446,320 |                 |  |  |               |   | 2,827,336 |              |  |  |  |    | 2,586,237 |   |  |  |  |   | 2,491,236 |   |
| Granted                          |  |  |                   |   | 5,000     |                 |  |  |               |   | 12,500    |              |  |  |  |    | 154,000   |   |  |  |  |   | 441,000   |   |
| Exercised                        |  |  |                   |   | (64,300   | )               |  |  |               |   | (63,600   | )            |  |  |  |    | (353,217  | ) |  |  |  |   | (154,800  | ) |
| Cancelled                        |  |  |                   |   | (40,199   | )               |  |  |               |   | (48,866   | )            |  |  |  |    | (40,199   | ) |  |  |  |   | (50,066   | ) |
| Outstanding,end ofperiod         |  |  |                   |   | 2,346,821 |                 |  |  |               |   | 2,727,370 |              |  |  |  |    | 2,346,821 |   |  |  |  |   | 2,727,370 |   |
| Optionsexercisable, end ofperiod |  |  |                   |   | 1,545,206 |                 |  |  |               |   | 1,849,204 |              |  |  |  |    | 1,545,206 |   |  |  |  |   | 1,849,204 |   |
| Outstanding,beginning ofperiod   |  |  |                   | $ | 18.4246   |                 |  |  |               | $ | 16.5953   |              |  |  |  | $  | 17.5411   |   |  |  |  | $ | 14.8860   |   |
| Granted                          |  |  |                   | $ | 18.9000   |                 |  |  |               | $ | 22.9560   |              |  |  |  | $  | 24.5487   |   |  |  |  | $ | 25.8588   |   |
| Exercised                        |  |  |                   | $ | 16.1739   |                 |  |  |               | $ | 11.7317   |              |  |  |  | $  | 14.2091   |   |  |  |  | $ | 12.9500   |   |
| Cancelled                        |  |  |                   | $ | 21.8955   |                 |  |  |               | $ | 20.0716   |              |  |  |  | $$ | 21.8955   |   |  |  |  | $ | 20.0398   |   |
| Outstanding,end ofperiod         |  |  |                   | $ | 18.4278   |                 |  |  |               | $ | 16.6756   |              |  |  |  | $  | 18.4278   |   |  |  |  | $ | 16.6756   |   |
|                                  |

Weightedaverage exercise price per share at June  30,  2006 and2005 was $15.6625 and $13.7705, respectively.

Restricted shareunit activity under the 2004 ECP is asfollows:

|                                                 |  |  |                   |  |         |                 |  |  |               |  |         |              |  |  |  |  |         |   |  |  |  |  |         |  |
|-------------------------------------------------|--|--|-------------------|--|---------|-----------------|--|--|---------------|--|---------|--------------|--|--|--|--|---------|---|--|--|--|--|---------|--|
|                                            |  |  | Threemonths ended |  |         | Six monthsended |
|                                            |  |  | June 30,2006      |  |         | June 30, 2005   |  |  | June 30, 2006 |  |         | June 30,2005 |
| Outstanding, beginning ofperiod                 |  |  |                   |  | 873,700 |                 |  |  |               |  | 457,200 |              |  |  |  |  | 659,200 |   |  |  |  |  | 95,700  |  |
| Granted                                         |  |  |                   |  | 15,000  |                 |  |  |               |  | 7,500   |              |  |  |  |  | 233,000 |   |  |  |  |  | 369,000 |  |
| Cancelled                                       |  |  |                   |  | (34,000 | )               |  |  |               |  | — |              |  |  |  |  | (37,500 | ) |  |  |  |  | — |  |
| Outstanding,end ofperiod                        |  |  |                   |  | 854,700 |                 |  |  |               |  | 464,700 |              |  |  |  |  | 854,700 |   |  |  |  |  | 464,700 |  |
| Restrictedshare units exercisable, end ofperiod |  |  |                   |  | — |                 |  |  |               |  | — |              |  |  |  |  | — |   |  |  |  |  | — |  |
|                                                 |

Weightedaverage exercise price for restricted share units is $0.

Duringthe three and six months ended June  30,  2006 and 2005,the following activity occurred under ourplans:

|                                                  |  |  |                   |   |           |                 |  |  |               |   |           |              |  |  |  |   |           |  |  |  |  |   |           |  |
|--------------------------------------------------|--|--|-------------------|---|-----------|-----------------|--|--|---------------|---|-----------|--------------|--|--|--|---|-----------|--|--|--|--|---|-----------|--|
|                                             |  |  | Threemonths ended |   |           | Six monthsended |
|                                             |  |  | June 30,2006      |   |           | June 30, 2005   |  |  | June 30, 2006 |   |           | June 30,2005 |
| Weighted average grant date fair value ofoptions |  |  |                   | $ | 9.3216    |                 |  |  |               | $ | 10.9888   |              |  |  |  | $ | 11.9471   |  |  |  |  | $ | 10.8431   |  |
| Weightedaverage grant date fair value ofawards   |  |  |                   | $ | 19.1333   |                 |  |  |               | $ | 22.9000   |              |  |  |  | $ | 24.3771   |  |  |  |  | $ | 24.0524   |  |
| Totalintrinsic value of optionsexercised         |  |  |                   | $ | 414,732   |                 |  |  |               | $ | 731,059   |              |  |  |  | $ | 703,649   |  |  |  |  | $ | 1,632,387 |  |
| Totalfair value of options vested                |  |  |                   | $ | 1,183,843 |                 |  |  |               | $ | 1,647,218 |              |  |  |  | $ | 1,630,586 |  |  |  |  | $ | 5,035,193 |  |
|                                                  |

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SCOTTISHRE GROUP LIMITED NOTES TO CONSOLIDATED FINANCIALSTATEMENTS  (CONTINUED)JUNE 30, 2006(UNAUDITED)

9.    Stockbased compensation   (continued)

Summary of options outstanding atJune  30,2006:

|              |  |  |                              |   |                           |                           |  |  |                              |  |           |                                         |  |  |                           |   |         |                              |  |  |                                         |  |      |  |  |  |  |  |           |  |  |  |  |   |         |  |  |  |  |  |      |  |
|--------------|--|--|------------------------------|---|---------------------------|---------------------------|--|--|------------------------------|--|-----------|-----------------------------------------|--|--|---------------------------|---|---------|------------------------------|--|--|-----------------------------------------|--|------|--|--|--|--|--|-----------|--|--|--|--|---|---------|--|--|--|--|--|------|--|
|         |  |  |                         |   |                           | OptionsOutstanding        |  |  | OptionsExercisable           |
| Year ofGrant |  |  | Range ofExercise Prices |   |                           | NumberofSharesOutstanding |  |  | WeightedAverageExercisePrice |  |           | WeightedAverageRemainingContractualLife |  |  | NumberofSharesExercisable |   |         | WeightedAverageExercisePrice |  |  | WeightedAverageRemainingContractualLife |
| 1998         |  |  |                              | $ | 15.0000                   |                           |  |  |                              |  | 300,002   |                                         |  |  |                           | $ | 15.0000 |                              |  |  |                                         |  | 2.42 |  |  |  |  |  | 300,002   |  |  |  |  | $ | 15.0000 |  |  |  |  |  | 2.42 |  |
| 1999         |  |  |                              | $ | 8.0625-15.0000            |                           |  |  |                              |  | 149,100   |                                         |  |  |                           | $ | 12.3038 |                              |  |  |                                         |  | 2.01 |  |  |  |  |  | 149,100   |  |  |  |  | $ | 12.3038 |  |  |  |  |  | 2.01 |  |
| 2000         |  |  |                              | $ | 7.7500-  9.0000 |                           |  |  |                              |  | 306,000   |                                         |  |  |                           | $ | 8.0147  |                              |  |  |                                         |  | 3.71 |  |  |  |  |  | 306,000   |  |  |  |  | $ | 8.0147  |  |  |  |  |  | 3.71 |  |
| 2001         |  |  |                              | $ | 13.5000-18.7600           |                           |  |  |                              |  | 202,167   |                                         |  |  |                           | $ | 14.7266 |                              |  |  |                                         |  | 4.45 |  |  |  |  |  | 202,167   |  |  |  |  | $ | 14.7266 |  |  |  |  |  | 4.45 |  |
| 2002         |  |  |                              | $ | 15.5000-21.5100           |                           |  |  |                              |  | 353,550   |                                         |  |  |                           | $ | 17.8934 |                              |  |  |                                         |  | 5.69 |  |  |  |  |  | 261,050   |  |  |  |  | $ | 17.9505 |  |  |  |  |  | 5.67 |  |
| 2003         |  |  |                              | $ | 17.4700-17.7500           |                           |  |  |                              |  | 88,000    |                                         |  |  |                           | $ | 17.6975 |                              |  |  |                                         |  | 6.50 |  |  |  |  |  | 46,000    |  |  |  |  | $ | 17.6617 |  |  |  |  |  | 6.20 |  |
| 2004         |  |  |                              | $ | 21.7000-23.8700           |                           |  |  |                              |  | 198,000   |                                         |  |  |                           | $ | 23.4199 |                              |  |  |                                         |  | 7.85 |  |  |  |  |  | 125,534   |  |  |  |  | $ | 23.3989 |  |  |  |  |  | 7.87 |  |
| 2005         |  |  |                              | $ | 22.5000-26.1030           |                           |  |  |                              |  | 596,002   |                                         |  |  |                           | $ | 25.4718 |                              |  |  |                                         |  | 8.81 |  |  |  |  |  | 145,353   |  |  |  |  | $ | 25.8284 |  |  |  |  |  | 8.63 |  |
| 2006         |  |  |                              | $ | 18.9000-24.7500           |                           |  |  |                              |  | 154,000   |                                         |  |  |                           | $ | 24.5487 |                              |  |  |                                         |  | 9.64 |  |  |  |  |  | 10,000    |  |  |  |  | $ | 24.7500 |  |  |  |  |  | 9.63 |  |
|         |  |  |                              | $ | 7.7500-26.1030            |                           |  |  |                              |  | 2,346,821 |                                         |  |  |                           | $ | 18.4278 |                              |  |  |                                         |  | 5.94 |  |  |  |  |  | 1,545,206 |  |  |  |  | $ | 15.6625 |  |  |  |  |  | 5.94 |  |
|              |

Theaggregate intrinsic value of options outstanding and exercisableamounted to $4.2  million at June 30, 2006.

The fair valueof each option award is estimated on the date of grant using theBlack-Scholes option-pricing model, which uses the assumptions noted inthe following table. Expected dividend yield is based on the historicaldividend patterns as a percentage of the market value of the stock.Expected volatility is based on implied volatilities from optionstraded on our ordinary shares. The expected term of options granted isderived using the ‘‘simplified’’ method asallowed under the provisions of the Securities and ExchangeCommission’s Staff Accounting Bulletin No. 107 and representsthe period of time that options granted are expected to be outstanding.The risk-free interest rate for periods within the contractual life ofthe option is based on the U.S. Treasury yield curve in effect at thetime ofgrant.

|                         |  |  |              |  |  |               |
|-------------------------|--|--|--------------|--|--|---------------|
|                    |  |  | June30, 2006 |  |  | June 30, 2005 |
| Expected dividendyield  |  |  | 0.77%        |  |  | 0.77%         |
| Riskfree interest rate  |  |  | 5.06% -5.27% |  |  | 3.53% -4.01%  |
| Expected life ofoptions |  |  | 7years       |  |  | 7years        |
| Expectedvolatility      |  |  | 0.33         |  |  | 0.35          |
|                         |

We recognizecompensation costs for awards with pro-rata vesting evenly over therequisite service period.

As of June  30,  2006,there was $7.0  million and $7.7  million of totalunrecognized compensation costs related to stock options and restrictedshare units, respectively. These costs are expected to be recognizedover a period of up to three years.

During the three and sixmonths ended June  30,  2006, the amount of cash receivedfrom the exercise of share options was $1.1  million and$5.8  million, respectively, and there was no tax benefitrealized from stock options.

Compensation expense for options andrestricted share units for the three and six months ended June30,  2006 was $2.6  million and $4.6  million,respectively. Compensation expense for options and restricted shareunits for the three and six months ended June  30,  2005was $1.4  million and $2.5  million, respectively. Therewas no tax benefit during the six months ended June  30,2006.

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SCOTTISHRE GROUP LIMITED NOTES TO CONSOLIDATED FINANCIALSTATEMENTS  (CONTINUED)JUNE 30, 2006(UNAUDITED)

10.    Income taxes

Income taxexpense in the second quarter ended June  30,  2006 was$89.0  million compared to an income tax benefit of $8.2million in the same period in 2005. The change in our effective taxrate in the second quarter ended June  30,  2006 comparedto the same period in 2005 is primarily related to a $112.4million valuation allowance established on deferred tax assets. Thevaluation allowance resulted from revised statutory and tax projectionsof the Company combined with a reassessment of certain tax planningstrategies.

11.    Mediation

On June  16,2005, we requested mediation from Employers Reinsurance Corporation(‘‘ERC’’) pursuant to the stock purchaseagreement transferring a 95% interest in Scottish Re LifeCorporation (formerly ERC Life Corporation) to Scottish Holdings, Inc.We assert that ERC breached certain representations and warrantiesunder the agreement. Any negative outcome from this mediation will nothave a material adverse impact on our financial position because theasserted breaches have already been fully reflected in our financialposition at June  30,  2006. The parties held their firstmediation session on March  30,  2006. The second mediationsession was postponed, and is currently rescheduled forSeptember  13, 2006.

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Item2.    Management’s Discussion and Analysis of FinancialCondition and Results ofOperations

General

Forward-LookingStatements

Some of the statements contained in this reportare not historical facts and are forward-looking statements within themeaning 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 todiffer materially from the forward-looking statements. Words such as‘‘anticipates’’,‘‘expects’’,‘‘intends’’,‘‘plans’’,‘‘believes’’,‘‘seeks’’,‘‘estimates’’,‘‘may’’,‘‘will’’,‘‘continue’’,‘‘project’’, and similar expressions, aswell as statements in the future tense, identify forward-lookingstatements.

These forward-looking statements are not guaranteesof our future performance and are subject to risks and uncertaintiesthat could cause actual results to differ materially from the resultscontemplated by the forward-looking statements. These risks anduncertainties include:

|  |              |                                                                             |
|--|--------------|-----------------------------------------------------------------------------|
|  | •  | uncertaintiesrelating to the ratings accorded to our insurancesubsidiaries; |

|  |              |                                                                                                                                             |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | uncertainties in the abilityto raise equity capital or other sources of liquidity to supportongoing capital, liquidity and collateralneeds; |

|  |              |                                                                                                       |
|--|--------------|-------------------------------------------------------------------------------------------------------|
|  | •  | uncertainties about our ability tomaintain a flow of new business given the recent ratingsdowngrades; |

|  |              |                                                                   |
|--|--------------|-------------------------------------------------------------------|
|  | •  | the risk that our riskanalysis and underwriting may beinadequate; |

|  |              |                                                                                  |
|--|--------------|----------------------------------------------------------------------------------|
|  | •  | changes in expectationsregarding future realization of gross deferred taxassets; |

|  |              |                                                                    |
|--|--------------|--------------------------------------------------------------------|
|  | •  | exposure to mortality experiencewhich differs from ourassumptions; |

|  |              |                                                                                                                                                                     |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | risks arising from ourinvestment strategy, including risks related to the market value of ourinvestments, fluctuations in interest rates and our need forliquidity; |

|  |              |                                                                           |
|--|--------------|---------------------------------------------------------------------------|
|  | •  | uncertainties arising fromcontrol of our invested assets by thirdparties; |

|  |              |                                                                                                   |
|--|--------------|---------------------------------------------------------------------------------------------------|
|  | •  | developments in globalfinancial markets that could affect our investment portfolio and feeincome; |

|  |              |                                                                                     |
|--|--------------|-------------------------------------------------------------------------------------|
|  | •  | changes in the rate ofpolicyholder withdrawals or recapture of reinsurancetreaties; |

|  |              |                                                                          |
|--|--------------|--------------------------------------------------------------------------|
|  | •  | the risk that ourretrocessionaires may not honor their obligations tous; |

|  |              |                                                                                                                                  |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------|
|  | •  | terrorist attacks on the UnitedStates and the impact of such attacks on the economy in general and onour business in particular; |

|  |              |                                                     |
|--|--------------|-----------------------------------------------------|
|  | •  | politicaland economic risks in developingcountries; |

|  |              |                                                                                                                                                                              |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | the impact of acquisitions,including the ability to successfully integrate acquired businesses,the competing demands for our capital and the risk of undisclosedliabilities; |

|  |              |                                                                                                                   |
|--|--------------|-------------------------------------------------------------------------------------------------------------------|
|  | •  | risk that an ownershipchange will result in a limitation on the ability to fully utilize taxnet operating losses; |

|  |              |                                                 |
|--|--------------|-------------------------------------------------|
|  | •  | loss of theservices of any of our keyemployees; |

|  |              |                                                          |
|--|--------------|----------------------------------------------------------|
|  | •  | losses due to foreigncurrency exchange ratefluctuations; |

|  |              |                                                                                                                                                    |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | uncertainties relating togovernment and regulatory policies (such as subjecting us to insuranceregulation or taxation in additionaljurisdictions); |

|  |              |                                                   |
|--|--------------|---------------------------------------------------|
|  | •  | risks relating to recentclass action litigations; |

|  |              |                                                                                     |
|--|--------------|-------------------------------------------------------------------------------------|
|  | •  | thecompetitive environment in which we operate and associated pricingpressures; and |

|  |              |                                  |
|--|--------------|----------------------------------|
|  | •  | changes in accountingprinciples. |

The effects of these factors are difficult topredict. New factors emerge from time to time and we cannot assess thefinancial impact of any such factor on our business or the extent towhich any factor, 

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or combination of factors, may cause resultsto differ materially from those contained in any forward-lookingstatement. Any forward-looking statement speaks only as of the date ofthis report and we do not undertake any obligation, other than as maybe required under the Federal securities laws, to update any forwardlooking statements to reflect events or circumstances after the date ofsuch statement or to reflect the occurrence of unanticipatedevents.

This discussion and analysis should be read inconjunction with ‘‘Management’s Discussion andAnalysis of Financial Condition and Results ofOperations’’ and the audited Consolidated FinancialStatements 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 AnnualReport.

Status of Credit and Financial StrengthRatings

Following the announcement of our second quarterresults, the various rating agencies downgraded our insurer financialstrength ratings asfollows:

|                                                         |  |  |                    |  |  |                    |  |  |                               |  |         |                            |  |  |                    |  |         |                     |  |  |                    |  |         |                    |  |  |          |  |         |       |  |  |          |  |  |        |
|---------------------------------------------------------|--|--|--------------------|--|--|--------------------|--|--|-------------------------------|--|---------|----------------------------|--|--|--------------------|--|---------|---------------------|--|--|--------------------|--|---------|--------------------|--|--|----------|--|---------|-------|--|--|----------|--|--|--------|
|                                                    |  |  | A.M.Best Company   |  |  | FitchRatings       |  |  | Moody’sInvestorsService |  |         | Standard &Poor’s |
|                                                    |  |  | Asat June 30, 2006 |  |  | As atAugust11,2006 |  |  | As at June 30, 2006           |  |         | AsatAugust 11,2006         |  |  | As at June 30,2006 |  |         | As atAugust 11,2006 |  |  | As at June30, 2006 |  |         | As atAugust11,2006 |
| Insurer FinancialStrengthRatings:                       |  |  |               |  |  |               |  |  |                               |  |    |                            |  |  |                    |  |    |                     |  |  |                    |  |    |                    |  |  |          |  |    |       |  |  |     |  |  |   |
| ScottishAnnuity and Life Insurance Company (Cayman)Ltd. |  |  | A−           |  |  | B++*               |  |  | A                             |  |         | BBB+*                      |  |  | A3*                |  |         | Baa2*               |  |  | A−           |  |         | BBB+*              |
| ScottishRe (U.S.),Inc.                                  |  |  | A−           |  |  | B++*               |  |  | A                             |  |         | BBB+*                      |  |  | A3*                |  |         | Baa2*               |  |  | A−           |  |         | BBB+*              |
| ScottishReLtd.                                          |  |  | A−           |  |  | B++*               |  |  | A                             |  |         | BBB+*                      |  |  |                    |  | — |                     |  |  |                    |  | — |                    |  |  | A− |  |         | BBB+* |
| ScottishRe LifeCorporation                              |  |  | A−           |  |  | B++*               |  |  |                               |  | — |                            |  |  |                    |  | — |                     |  |  |                    |  | — |                    |  |  |          |  | — |       |  |  | A− |  |  | BBB+*  |
|                                                         |

|  |
|--|
|  |  |
|  |

|   |                 |
|---|-----------------|
| * | Negativeoutlook |

All of our ratings are on negative outlook whichhighlights the respective rating agencies' diminished confidencethat there will not be further adverse developments over the near tomedium term. In addition, the rating agencies have noted that ourfinancial flexibility and competitive position have deteriorated andthey have concerns about our ability to raise equity financing tosupport our ongoing capital and liquidity needs. Finally, the ratingagencies have expressed concern over our ability to maintain a flow ofnew business which may reduce our future earnings growth.

Theability to write reinsurance partially depends on an insurer’sfinancial condition and its financial strength ratings. These ratingsare based on an insurance company’s ability to pay policyholderobligations and are not directed toward the protection of investors.Our ability to raise capital for our business and the cost of thiscapital is influenced by our credit ratings. A security rating is not arecommendation to buy, sell or hold securities. It is subject torevision or withdrawal at any time by the assigning ratingorganization, and each rating should be evaluated independently of anyother rating.

Critical Accounting Policies

See thediscussion of our Critical Accounting Policies in Item 7 of our Form10-K for the year ended December  31,  2005.

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Results of Operations

Allamounts are reported in thousands of United States dollars, exceptshare amounts.

Consolidated results ofoperations

|                                                              |  |  |                   |   |          |                 |  |  |               |   |         |              |  |  |  |   |           |   |  |  |  |   |           |   |
|--------------------------------------------------------------|--|--|-------------------|---|----------|-----------------|--|--|---------------|---|---------|--------------|--|--|--|---|-----------|---|--|--|--|---|-----------|---|
|                                                         |  |  | Threemonths ended |   |          | Six monthsended |
|                                                         |  |  | June 30,2006      |   |          | June 30, 2005   |  |  | June 30, 2006 |   |         | June 30,2005 |
| Premiumsearned                                               |  |  |                   | $ | 444,942  |                 |  |  |               | $ | 436,893 |              |  |  |  | $ | 893,963   |   |  |  |  | $ | 900,573   |   |
| Investmentincome,net                                         |  |  |                   |   | 147,977  |                 |  |  |               |   | 83,554  |              |  |  |  |   | 276,999   |   |  |  |  |   | 164,033   |   |
| Feeincome                                                    |  |  |                   |   | 4,639    |                 |  |  |               |   | 2,785   |              |  |  |  |   | 8,372     |   |  |  |  |   | 6,409     |   |
| Realizedgains (losses),net                                   |  |  |                   |   | (11,298  | )               |  |  |               |   | 934     |              |  |  |  |   | (24,899   | ) |  |  |  |   | 4,229     |   |
| Changein value of embedded derivatives,net                   |  |  |                   |   | 7,366    |                 |  |  |               |   | (22,120 | )            |  |  |  |   | 17,512    |   |  |  |  |   | (16,635   | ) |
| Totalrevenues                                                |  |  |                   |   | 593,626  |                 |  |  |               |   | 502,046 |              |  |  |  |   | 1,171,947 |   |  |  |  |   | 1,058,609 |   |
| Claimsand other policybenefits                               |  |  |                   |   | 372,101  |                 |  |  |               |   | 311,493 |              |  |  |  |   | 746,564   |   |  |  |  |   | 674,766   |   |
| Interestcredited to interest sensitive contractliabilities   |  |  |                   |   | 55,399   |                 |  |  |               |   | 31,723  |              |  |  |  |   | 98,100    |   |  |  |  |   | 62,365    |   |
| Acquisitioncosts and other insurance expenses,net            |  |  |                   |   | 104,872  |                 |  |  |               |   | 122,494 |              |  |  |  |   | 192,403   |   |  |  |  |   | 214,136   |   |
| Operatingexpenses                                            |  |  |                   |   | 39,365   |                 |  |  |               |   | 26,500  |              |  |  |  |   | 70,457    |   |  |  |  |   | 51,069    |   |
| Collateralfinance facilitiesexpense                          |  |  |                   |   | 47,236   |                 |  |  |               |   | 11,821  |              |  |  |  |   | 78,323    |   |  |  |  |   | 19,241    |   |
| Interestexpense                                              |  |  |                   |   | 7,066    |                 |  |  |               |   | 4,813   |              |  |  |  |   | 11,959    |   |  |  |  |   | 10,407    |   |
| Totalbenefits andexpenses                                    |  |  |                   |   | 626,039  |                 |  |  |               |   | 508,844 |              |  |  |  |   | 1,197,806 |   |  |  |  |   | 1,031,984 |   |
| Income(loss) before income taxes and minorityinterest        |  |  |                   |   | (32,413  | )               |  |  |               |   | (6,798  | )            |  |  |  |   | (25,859   | ) |  |  |  |   | 26,625    |   |
| Incometax (expense)benefit                                   |  |  |                   |   | (89,043  | )               |  |  |               |   | 8,187   |              |  |  |  |   | (81,586   | ) |  |  |  |   | 8,555     |   |
| Income(loss) before minorityinterest                         |  |  |                   |   | (121,456 | )               |  |  |               |   | 1,389   |              |  |  |  |   | (107,445  | ) |  |  |  |   | 35,180    |   |
| Minorityinterest                                             |  |  |                   |   | (134     | )               |  |  |               |   | 202     |              |  |  |  |   | (296      | ) |  |  |  |   | (169      | ) |
| Net(loss)income                                              |  |  |                   |   | (121,590 | )               |  |  |               |   | 1,591   |              |  |  |  |   | (107,741  | ) |  |  |  |   | 35,011    |   |
| Dividenddeclared on non-cumulative perpetual preferredshares |  |  |                   |   | (2,265   | )               |  |  |               |   | — |              |  |  |  |   | (4,531    | ) |  |  |  |   | —   |   |
| Imputeddividend on prepaid variable share forwardcontract    |  |  |                   |   | (72      | )               |  |  |               |   | — |              |  |  |  |   | (72       | ) |  |  |  |   |      |   |
| Net(loss) income available to ordinaryshareholders           |  |  |                   | $ | (123,927 | )               |  |  |               | $ | 1,591   |              |  |  |  | $ | (112,344  | ) |  |  |  | $ | 35,011    |   |
|                                                              |

Totalrevenues in the second quarter ended June  30,  2006increased 18% to $593.6  million compared to $502.0million in the same period in 2005. Net premiums earned in the secondquarter ended June  30,  2006 increased 2% to $444.9compared to $436.9  million in the same period in 2005. Netpremiums for the quarter were adversely affected by a reduction inestimated premium accruals in the Life Reinsurance North AmericaSegment and negative adjustments related to revisions in retrocessionpremiums. Partially offsetting these adjustments was an increase inpremiums in the Life Reinsurance International Segment resulting fromincreased new business and the clearance of a processing backlog. Netinvestment income in the second quarter ended June  30,2006 increased 77% to $148.0  million compared to$83.6  million in the same period in 2005. The increase ininvestment income is primarily due to the income on higher totalinvestments from the new securitization structures including BallantyneRe, Orkney II and HSBC II (each of which is described below under‘‘Collateral’’), combined with higherinterest rates.

Total benefits and expenses in the secondquarter ended June  30,  2006 increased 23% to$626.0  million from $508.8  million in the same period in2005. The increase was principally due to external retrocession andreserve adjustments due to revisions in estimates resulting fromimproved data and systems which administer retrocession accounts,higher interest credited expenses arising on 

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a large interest sensitive contract closed inthe fourth quarter of 2005, higher operating expenses due to severanceand other non-recurring costs, higher than expected lapse rates oncertain fixed annuity treaties and higher collateral finance facilitiesexpense related to our Regulation XXX securitization transactions. Whenanalyzing the impact of collateral finance facilities on theconsolidated results, it is important to understand that this expenseis partially offset by the investment income earned on the fixedmaturity investments from the Regulation XXX transactions.

Theloss before income taxes and minority interest in the second quarterended June  30,  2006 was $32.4  million compared to$6.8  million in the same period in 2005.

Income taxexpense in the second quarter ended June  30,  2006 was$89.0  million compared to an income tax benefit of $8.2million in the same period in 2005. The change in our effective taxrate in the second quarter ended June  30,  2006 comparedto the same period in 2005 is primarily related to a $112.4million valuation allowance established on deferred tax assets. Thevaluation allowance resulted from revised statutory and tax projectionsof the Company combined with a reassessment of certain tax planningstrategies. See ‘‘Income Taxes’’ below fora more detailed discussion of the deferred tax asset.

Totalrevenues during the six months ended June  30,  2006increased 11% to $1.2  billion compared to $1.1billion in the same period in 2005. Net premiums earned during the sixmonths ended June  30,  2006 decreased 1% to$894.0  million compared to $900.6  million in the sameperiod in 2005. Net premiums for the period were adversely affected bythe termination for new business under a number of North Americantreaties immediately following the ING acquisition, cedant balancetrue-ups in the Life Reinsurance International Segment and a reductionin estimated premium accruals, as well as negative adjustments relatedto revisions in estimates in retrocession premiums. These decreaseswere partially offset by increases in our renewal premiums. Netinvestment income during the six months ended June  30,2006 increased 69% to $277.0  million compared to$164.0  million in the same period in 2005. The increase ininvestment income is primarily due to the income on higher totalinvestments from the new securitization structures including BallantyneRe, Orkney Re II and HSBC II, combined with higher interest rates.

Total benefits and expenses during the six months ended June30,  2006 increased 16% to $1.2  billion compared to$1.0  billion in the same period in 2005. The increase wasprincipally due to external retrocession and reserve adjustments due torevisions in estimates resulting from improved data and systems whichadminister retrocession accounts, higher interest credited expensesarising on a large interest sensitive contract closed in the fourthquarter of 2005, higher operating expenses due to severance and othernon-recurring costs, higher than expected lapse rates on certain fixedannuity treaties and higher collateral finance facilities expenserelated to our Regulation XXX securitization transactions. Higheroperating costs also related to higher compensation costs related toincreased head count.

The loss before income taxes and minorityinterest was $25.9  million for the six months ended June30,  2006 compared to income before income taxes and minorityinterest of $26.6  million in the same period in2005.

Income tax expense during the six months ended June30,  2006 was $81.6  million compared to an income taxbenefit of $8.6  million for the same period in 2005. The changein our effective tax rate for the six months ended June30,  2006 compared to the same period in 2005 is primarilyrelated to the valuation allowance established on deferred tax assetsduring the second quarter of the year. The valuation allowance resultedfrom our revised statutory and tax projections combined with areassessment of certain tax planning strategies. See‘‘Income Taxes’’ below for a more detaileddiscussion of the deferred tax asset.

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Segment Operating Results

LifeReinsurance NorthAmerica

|                                                            |  |  |                   |   |         |                 |  |  |               |   |         |              |  |  |  |   |           |   |  |  |  |   |         |   |
|------------------------------------------------------------|--|--|-------------------|---|---------|-----------------|--|--|---------------|---|---------|--------------|--|--|--|---|-----------|---|--|--|--|---|---------|---|
|                                                       |  |  | Threemonths ended |   |         | Six monthsended |
|                                                       |  |  | June 30,2006      |   |         | June 30, 2005   |  |  | June 30, 2006 |   |         | June 30,2005 |
| Premiumsearned                                             |  |  |                   | $ | 407,549 |                 |  |  |               | $ | 408,877 |              |  |  |  | $ | 836,467   |   |  |  |  | $ | 845,972 |   |
| Investmentincome,net                                       |  |  |                   |   | 136,763 |                 |  |  |               |   | 80,956  |              |  |  |  |   | 260,704   |   |  |  |  |   | 158,487 |   |
| Feeincome                                                  |  |  |                   |   | 3,879   |                 |  |  |               |   | 2,007   |              |  |  |  |   | 6,896     |   |  |  |  |   | 4,907   |   |
| Realizedgains (losses),net                                 |  |  |                   |   | (5,479  | )               |  |  |               |   | 2,208   |              |  |  |  |   | (19,398   | ) |  |  |  |   | 3,650   |   |
| Changein value of embedded derivatives,net                 |  |  |                   |   | 7,366   |                 |  |  |               |   | (22,120 | )            |  |  |  |   | 17,512    |   |  |  |  |   | (16,635 | ) |
| Totalrevenues                                              |  |  |                   |   | 550,078 |                 |  |  |               |   | 471,928 |              |  |  |  |   | 1,102,181 |   |  |  |  |   | 996,381 |   |
| Claimsand other policybenefits                             |  |  |                   |   | 338,626 |                 |  |  |               |   | 293,599 |              |  |  |  |   | 685,906   |   |  |  |  |   | 637,787 |   |
| Interestcredited to interest sensitive contractliabilities |  |  |                   |   | 55,399  |                 |  |  |               |   | 31,723  |              |  |  |  |   | 98,100    |   |  |  |  |   | 62,365  |   |
| Acquisitioncosts and other insurance expenses,net          |  |  |                   |   | 97,280  |                 |  |  |               |   | 117,927 |              |  |  |  |   | 181,688   |   |  |  |  |   | 206,205 |   |
| Operatingexpenses                                          |  |  |                   |   | 14,538  |                 |  |  |               |   | 10,221  |              |  |  |  |   | 29,130    |   |  |  |  |   | 21,894  |   |
| Collateralfinance facilitiesexpense                        |  |  |                   |   | 45,891  |                 |  |  |               |   | 10,448  |              |  |  |  |   | 76,434    |   |  |  |  |   | 16,633  |   |
| Interestexpense                                            |  |  |                   |   | 3,038   |                 |  |  |               |   | 2,657   |              |  |  |  |   | 5,600     |   |  |  |  |   | 5,365   |   |
| Totalbenefits andexpenses                                  |  |  |                   |   | 554,772 |                 |  |  |               |   | 466,575 |              |  |  |  |   | 1,076,858 |   |  |  |  |   | 950,249 |   |
| Income(loss) before income taxes and minorityinterest      |  |  |                   | $ | (4,694  | )               |  |  |               | $ | 5,353   |              |  |  |  | $ | 25,323    |   |  |  |  | $ | 46,132  |   |
|                                                            |

Inour Life Reinsurance North America Segment, we reinsure life insurance,annuities and annuity-type products through yearly renewable termagreements, coinsurance and modified coinsurance agreements. Thesereinsurance arrangements are predominantly on an automatic basis andwritten by life insurance companies and other financial institutionslocated principally in the United States.

Premiums earned in thesecond quarter ended June  30,  2006 decreased 0.3%to $407.5  million compared to $408.9  million in the sameperiod in 2005. Generally, we receive cedant information on a lag of upto three months and therefore must estimate premiums based onhistorical premium trends. These premium estimates are subsequentlytrued-up as actual premiums are received from our cedants. During thesecond quarter of 2006, we recorded an adjustment to reduce premiums byapproximately $8.0  million as a result of a revision ofestimates relating to prior periods. This adjustment relatedprincipally to the ING block and resulted from the unusual activity inpremium levels post acquisition. This unusual activity made the use ofhistorical trends less effective in estimating current period accruals.In addition, as a result of an initiative to improve the quality of ourexternal retrocession data and related administration systems, we madea number of changes to the estimates and underlying assumptions used incalculating our retrocession premiums. As a result, during the secondquarter of 2006, we recorded an additional retrocession adjustment ofapproximately $13.0  million. These negative adjustments werepartially offset by increases in renewal premiums from the growth inour business.

Net investment income for the quarter endedJune  30,  2006 increased 69% to $136.8million compared to $81.0  million in the same period in 2005.The increase is principally due to the growth in our average investedassets but was also favorably impacted by an increase in interestrates. Our total invested assets have increased significantly due tothe proceeds of our Regulation XXX transactions that closed inDecember  2005 and May  2006. Ballantyne Re, which closedin May  2006, contributed approximately $1.74  billion ofadditional invested assets during the second quarter of 2006. Inaddition, a large portion of the proceeds from the December  2005equity issuance was contributed to 

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the Life Reinsurance North America Segment tosupport continued growth. The Life Reinsurance North America Segmentalso received a capital contribution of approximately $120.0million in May  2006.

Yields on the portfolio managed byour external investment managers relating to fixed rate assets were5.3% and 5.1% at June  30,  2006 and 2005,respectively. Yields on floating rate assets are indexed to LIBOR andincreased to 5.8% at June  30,  2006 from4.0% at June  30,  2005. Yields on our cash and cashequivalents increased to 5.0% at June  30,  2006from 2.2% at June  30,  2005.

The change invalue of embedded derivatives in the second quarter ended June30,  2006 resulted in a $7.4  million gain compared to a$22.1  million loss in the same period in 2005. Net realizedgains and losses on the investment portfolio were a loss of $5.5million in the second quarter of 2006 compared to a gain of $2.2million in the same period of 2005.

Claims and other policybenefits in the second quarter ended June  30,  2006increased 15% to $338.6  million compared to $293.6million in the same period in 2005. Related to the improvement inretrocession data and related administration systems noted above, werevised our estimates based on refinements of certain of ourcalculations and processes for the net cost of reinsurance. The impactof these changes resulted in an adjustment which increased our claimsand other policy benefits by approximately $8.0  million in thesecond quarter of 2006. Other increases in the second quarter of 2006reflect the effects of the normal growth in premiums. The secondquarter of 2005 included higher than expected mortality ofapproximately $14.0  million. Additionally, the second quarter of2005 reflects the effects of a purchase accounting adjustment relatedto the ING block which decreased benefit reserves by approximately$17.7  million. Further, during the prior year quarter certainreserve adjustments resulted in a decrease in claims and other policybenefits of $6.7  million. Claims and policy benefits, as apercentage of net premiums earned, were 83% and 72% inthe second quarter ended June  30,  2006 and 2005,respectively. Adjusting for the premium accrual and externalretrocession adjustments in 2006 noted above and the ING purchaseaccounting adjustment in 2005, the claim ratios were 77% and76% for 2006 and 2005, respectively.

Interest credited tointerest sensitive contract liabilities in the second quarter endedJune  30,  2006 increased 75% to $55.4million compared to $31.7  million in the same period in 2005.The increase is principally due to a large interest sensitive contractwritten in late 2005, along with increases in interest credited onexisting treaties due to increasing average liability balances.Interest sensitive contract liabilities amounted to $4.1  billionat June  30,  2006 compared to $3.3  billion atJune  30,  2005.

Acquisition costs and otherinsurance expenses in the second quarter ended June  30,2006 decreased 18% to $97.3  million compared to$117.9  million in the same quarter in 2005. During the secondquarter of 2006, we made an adjustment of $13.0  million toincrease deferred acquisition cost amortization related to severaldeferred fixed annuity treaties in which emerging lapse experience wassignificantly higher than expected. This adjustment was partiallyoffset as we received a $6.2  million rebate from ING as a resultof the Ballantyne Re securitization. In addition, acquisition costshave declined due to a reduction in letter of credit fees due to theRegulation XXX transactions completed in December  2005 and May2006. Acquisition costs for the prior year period were impacted by a$17.7  million adjustment which increased acquisition costs witha corresponding decrease to the change in reserves related to thepurchase accounting adjustments for the ING block. The prior yearperiod also included additional acquisition costs of $2.2million in respect of revised reporting from a ceding company on afixed annuity contract.

Operating expenses in the second quarterended June  30,  2006 increased 42% to $14.5million compared to $10.2  million in the same period in 2005.Operating expenses as a percentage of operating revenues increased to2.7% in the second quarter of 2006 from 2.1% in thesecond quarter of 2005. This increase is primarily related to anincrease in compensation costs of approximately $1.1  million dueto increases in headcount, a severance accrual of $1.1  million,higher depreciation expenses of approximately $0.9  million andother professional fees. Operating expenses exclude any severance to bepaid in the third quarter of 2006 related to the resignation of SethVance.

Collateral finance facilities expense in the secondquarter ended June  30,  2006 increased 339% to$45.9  million compared to $10.5  million in the sameperiod of 2005. The increase is due to the impact 

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of the Regulation XXX transactions includingBallantyne Re, which closed in May  2006. In addition, beginningin the second half of 2005, a portion of the cost of the Stingrayfacility was charged to the Life Reinsurance North America Segment. Dueto our ratings downgrade, collateral finance facilities expense willincrease due to additional fees to be paid to the financial guarantorsin our securitization transactions.

Premiums earned during thesix months ended June  30,  2006 decreased 1% to$836.5  million compared to $846.0  million in the sameperiod in 2005. This decrease reflects the effects of adjustmentsrelating to differences in actual amounts reported by our cedants thatdiffered from amounts previously estimated and changes to assumptionsand estimates relating to external retrocession amounts as noted above,partially offset by the increase in our business.

Investmentincome for the six months ended June  30,  2006 increased65% to $260.7  million compared to $158.5  millionin the same period in 2005. The increase is principally due to thegrowth in our average invested assets but was also favorably impactedby an increase in interest rates. Our total invested assets haveincreased significantly because of growth in our Life Reinsurance NorthAmerica Segment, including the closing of a large interest sensitivecontract at the end of 2005 and investment of the proceeds of ourRegulation XXX transactions that closed in December  2005 andMay  2006. The Life Reinsurance North America Segment alsobenefited from a capital infusion of approximately $120.0million in May  2006.

The change in value of embeddedderivatives for the six months ended June  30,  2006resulted in a $17.5  million gain compared to a loss of$16.6  million in the same period in 2005. The primary reason forthe increase was related to the realization of losses on certainsecurities held under a modified coinsurance arrangement that were soldfrom the modified coinsurance arrangement in the first quarter of 2006in order to provide collateral for the Ballantyne Resecuritization.

Claims and other policy benefits for the sixmonths ended June  30,  2006 increased 8% to$685.9  million compared to $637.8  million in the sameperiod in 2005. This increase is a result of the external retrocessionadjustment in the second quarter of 2006 as noted above. In addition,the 2006 period reflects lower than expected retrocession recovery onthe business assumed from the ING block of business. The second quarterof 2005 included higher than expected mortality of approximately$14.0  million and a purchase accounting adjustment related tothe ING block which decreased benefit reserves by approximately$17.7  million.

Interest credited to interest sensitivecontract liabilities increased 57% to $98.1  million inthe six months ended June  30,  2006 compared to$62.4  million in the same period in 2005. This increase wasprincipally due to a large interest sensitive contract written in late2005 along with an increase to interest credited on existing treatiesfrom higher average liability balances.

Acquisition costs andother insurance expenses decreased 12% to $181.7  millionin the six months ended June  30,  2006 compared to$206.2  million in the same period in 2005. During the secondquarter of 2006, we made an adjustment of $13.0  million toincrease deferred acquisition cost amortization related to severaldeferred fixed annuity treaties in which emerging lapse experience wassignificantly higher than expected. This adjustment was partiallyoffset as we received a $6.2  million rebate from ING as a resultof the Ballantyne Re securitization. In addition, acquisition costshave declined due to a reduction in letter of credit fees due to theRegulation XXX transactions completed in December  2005 and May2006. Acquisition costs for the prior year period were impacted by the$17.7  million adjustment which increased acquisition costs witha corresponding decrease to the change in reserves related to thepurchase accounting adjustments for the ING block. The prior yearperiod also included additional acquisition costs of $2.2million in respect of revised reporting from a ceding company on afixed annuity contract.

Operating expenses for the six monthsended June  30,  2006 increased 33% to $29.1million compared to $21.9  million in the same period in 2005.Operating expenses as a percentage of operating revenues increased to2.6% for the six months ended June  30,  2006 from2.2% for the six months ended June  30,  2005. Theincrease is principally related to an increase in compensation costsdue to increases in headcount, a severance accrual of $1.1million, higher depreciation expenses of 

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approximately $0.9  million and otherprofessional fees. Operating expenses exclude any severance to be paidin the third quarter of 2006 related to the resignation of SethVance.

Collateral finance facilities expenses for the six monthsended June  30,  2006 increased 360% to $76.4million compared to $16.6  million in the same period in 2005.This increase is due to the interest costs relating to the RegulationXXX transactions. In addition, beginning in the second half of 2005, aportion of the cost of the Stingray facility was charged to the LifeReinsurance North America Segment. Due to our ratings downgrade,collateral finance facilities expense will increase due to additionalfees to be paid to the financial guarantors in our securitizationtransactions.

Life ReinsuranceInternational

|                                                       |  |  |                   |   |        |                 |  |  |               |   |        |              |  |  |  |   |         |   |  |  |  |   |        |  |
|-------------------------------------------------------|--|--|-------------------|---|--------|-----------------|--|--|---------------|---|--------|--------------|--|--|--|---|---------|---|--|--|--|---|--------|--|
|                                                  |  |  | Threemonths ended |   |        | Six monthsended |
|                                                  |  |  | June 30,2006      |   |        | June 30, 2005   |  |  | June 30, 2006 |   |        | June 30,2005 |
| Premiumsearned                                        |  |  |                   | $ | 37,393 |                 |  |  |               | $ | 28,016 |              |  |  |  | $ | 57,496  |   |  |  |  | $ | 54,601 |  |
| Investmentincome,net                                  |  |  |                   |   | 8,971  |                 |  |  |               |   | 2,352  |              |  |  |  |   | 11,960  |   |  |  |  |   | 4,942  |  |
| Realizedgains (losses),net                            |  |  |                   |   | (6,908 | )               |  |  |               |   | 88     |              |  |  |  |   | (8,046  | ) |  |  |  |   | 585    |  |
| Totalrevenues                                         |  |  |                   |   | 39,456 |                 |  |  |               |   | 30,456 |              |  |  |  |   | 61,410  |   |  |  |  |   | 60,128 |  |
| Claimsand other policybenefits                        |  |  |                   |   | 33,475 |                 |  |  |               |   | 17,894 |              |  |  |  |   | 60,658  |   |  |  |  |   | 36,979 |  |
| Acquisitioncosts and other insurance expenses,net     |  |  |                   |   | 6,185  |                 |  |  |               |   | 4,053  |              |  |  |  |   | 9,002   |   |  |  |  |   | 6,898  |  |
| Operatingexpenses                                     |  |  |                   |   | 7,874  |                 |  |  |               |   | 7,285  |              |  |  |  |   | 13,651  |   |  |  |  |   | 13,134 |  |
| Totalbenefits andexpenses                             |  |  |                   |   | 47,534 |                 |  |  |               |   | 29,232 |              |  |  |  |   | 83,311  |   |  |  |  |   | 57,011 |  |
| Income(loss) before income taxes and minorityinterest |  |  |                   | $ | (8,078 | )               |  |  |               | $ | 1,224  |              |  |  |  | $ | (21,901 | ) |  |  |  | $ | 3,117  |  |
|                                                       |

Priorto 2005, our Life Reinsurance International Segment specialized inniche markets in developed countries, broader life insurance markets inthe developing world and focused on the reinsurance of short term grouplife policies and aircrew ‘‘loss oflicense’’ insurance. Since 2005, our Life ReinsuranceInternational Segment became actively engaged in the reinsurance ofU.K. and Irish protection business and has been actively seeking toreinsure U.K. and Irish annuity products. The life insurance andannuity products are similar to those offered in the Life ReinsuranceNorth America Segment.

Premiums earned in the second quarterended June  30,  2006 increased 34% to $37.4million compared to $28.0  million in the same period in 2005.Included this quarter were three new U.K. long term protection treatieswhich contributed $1.7  million of premiums. In addition, aclearing of a processing backlog resulted in an additional $3.8million of premiums this quarter. Finally, the recapture of a portionof business resulted in an increase in premiums of $1.3  millionduring the second quarter of 2006.

Investment income in thesecond quarter ended June  30,  2006 increased 281%to $9.0  million compared to $2.4  million for the sameperiod in 2005. The increase is mainly due to investment income on anew annuity treaty which provided $6.2  million of investmentincome during the quarter.

Claims and other policy benefitsincreased 87% to $33.5  million in the second quarterended June  30,  2006 from $17.9  million in the sameperiod in 2005. Of this increase, $6.0  million is attributableto the increased premium volume relative to second quarter 2005. Claimsand other policy benefits also increased this quarter by $3.8million related to the backlog clearance noted above. Finally, currentquarter claims and other policy benefits include $5.5  millionrelated to benefits paid on a new annuity treaty.

Acquisitioncosts and other insurance expenses increased 53% to $6.2million in the second quarter ended June  30,  2006 from$4.1  million in the same period in 2005. Acquisition costs andother insurance expenses in the current quarter have increased due to ahigher level of earned premium in the quarter combined with a shift intreaty mix towards long term protection business, which carries ahigher average commission rate.

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Operating expenses increased 8% to$7.9  million in the second quarter ended June  30,2006 from $7.3  million in the same period in 2005. This increasewas primarily due to higher personnel costs related to severance paidto a former executive and due to additional senior level staff beinghired into our U.K. and other international operations. Additionaloffice costs were also incurred during the quarter related to therelocation of our office from Windsor to London, in addition to theestablishment of the Singapore and Dubai offices. These costs werepartially offset by a reduction in consulting costs related to ourfinancial close process.

Net premiums earned during the sixmonths ended June  30,  2006 increased 5% to$57.5  million compared to $54.6  million in the sameperiod in 2005. Growth came from treaties written in the U.K. andIreland ($2.6  million) and the backlog clearance and treatyrecapture noted above, partially offset by global aviation premiumsthat decreased $5.1  million compared to the same period in theprior year due to non renewal of certain policies.

Investmentincome for the six months ended June  30,  2006 increased142% to $12.0  million compared to $4.9  million inthe same period in 2005. This increase is due to a new annuity treaty,which provided $6.2  million of additional investment income andfrom earnings on additional capital contributions received by the LifeReinsurance International Segment during 2005 and 2006.

Claimsand other policy benefits increased by 64% to $60.7million in the six months ended June  30,  2006 from$37.0  million in the same period in 2005. The increase in thecurrent year is due to an additional $5.5  million of claims costrelated to a new annuity treaty and the $3.8  million clearanceof the administration backlog noted above. The balance of the increasedpolicy benefit costs related to first quarter of 2006 items includingadverse mortality and morbidity experience of $4.0  million,updated cedant reporting of $7.0  million and a reduction inestimated retrocessional recoveries on certain large claims of$3.8  million.

Acquisition costs and other insuranceexpenses increased 31% to $9.0  million in the six monthsended June  30,  2006 from $6.9  million in the sameperiod in 2005. Acquisition costs and other insurance expenses haveincreased due to a shift in treaty mix towards long term protectionbusiness which carries a higher average commissionrate.

Operating expenses for the six months ended June30,  2006 increased 4% to $13.7  million compared to$13.1  million for the same period in 2005. This increase wasprimarily due to higher personnel costs related to severance paid to aformer executive and due to additional senior level staff being hiredinto our U.K. and other international operations. Additional officecosts were also incurred during the quarter related to the relocationof our office from Windsor to London, in addition to the establishmentof the Singapore and Dubai offices. These costs were partially offsetby a reduction in consulting costs related to our financial closeprocess.

Corporate &Other

|                                                   |  |  |                   |   |         |                 |  |  |               |   |         |              |  |  |  |   |         |   |  |  |  |   |         |   |
|---------------------------------------------------|--|--|-------------------|---|---------|-----------------|--|--|---------------|---|---------|--------------|--|--|--|---|---------|---|--|--|--|---|---------|---|
|                                              |  |  | Threemonths ended |   |         | Six monthsended |
|                                              |  |  | June 30,2006      |   |         | June 30, 2005   |  |  | June 30, 2006 |   |         | June 30,2005 |
| Investment income,net                             |  |  |                   | $ | 2,243   |                 |  |  |               | $ | 246     |              |  |  |  | $ | 4,335   |   |  |  |  | $ | 604     |   |
| Feeincome                                         |  |  |                   |   | 760     |                 |  |  |               |   | 778     |              |  |  |  |   | 1,476   |   |  |  |  |   | 1,502   |   |
| Realizedgains (losses),net                        |  |  |                   |   | 1,089   |                 |  |  |               |   | (1,362  | )            |  |  |  |   | 2,545   |   |  |  |  |   | (6      | ) |
| Totalrevenues                                     |  |  |                   |   | 4,092   |                 |  |  |               |   | (338    | )            |  |  |  |   | 8,356   |   |  |  |  |   | 2,100   |   |
| Acquisitioncosts and other insurance expenses,net |  |  |                   |   | 1,407   |                 |  |  |               |   | 514     |              |  |  |  |   | 1,713   |   |  |  |  |   | 1,033   |   |
| Operatingexpenses                                 |  |  |                   |   | 16,953  |                 |  |  |               |   | 8,994   |              |  |  |  |   | 27,676  |   |  |  |  |   | 16,041  |   |
| Collateralfinance facilitiesexpense               |  |  |                   |   | 1,345   |                 |  |  |               |   | 1,373   |              |  |  |  |   | 1,889   |   |  |  |  |   | 2,608   |   |
| Interestexpense                                   |  |  |                   |   | 4,028   |                 |  |  |               |   | 2,156   |              |  |  |  |   | 6,359   |   |  |  |  |   | 5,042   |   |
| Totalbenefits andexpenses                         |  |  |                   |   | 23,733  |                 |  |  |               |   | 13,037  |              |  |  |  |   | 37,637  |   |  |  |  |   | 24,724  |   |
| Lossbefore incometaxes                            |  |  |                   | $ | (19,641 | )               |  |  |               | $ | (13,375 | )            |  |  |  | $ | (29,281 | ) |  |  |  | $ | (22,624 | ) |
|                                                   |

TheCorporate and Other Segment is comprised of revenues and expenses thatare not included in the Life Reinsurance Segments and includescorporate overhead.

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Investment income increased 812%to $2.2  million in the second quarter ended June30,  2006 compared to $0.2  million in the same period in2005. Investment income arises in the Corporate and Other Segment dueto capital not specifically allocated to the Life Reinsurance NorthAmerica or Life Reinsurance International Segments and will increase ordecrease as capital is raised and deployed to the operating segments.The increase in investment income is principally due to an increase inCorporate and Other Segment investment assets arising from thePerpetual Preferred Share offering in July  2005 and morerecently the increased cash received from repayment of intercompanyadvances.

Acquisition costs and other insurance expensesincreased 174% to $1.4  million in the second quarterended June  30,  2006 compared to $0.5  million inthe same quarter in 2005. Acquisition costs and other insuranceexpenses arise primarily from the wealth management operations but alsoinclude costs associated with the purchase of catastrophe bondcoverage. During the second quarter ended June  30,  2006,acquisition costs and other insurance expenses increased approximately$0.9  million as a result of costs related to the Tartan CapitalLimited catastrophe bond issued in May  2006.

Operatingexpenses include costs of running our principal office in Bermuda,compensation and other costs for our Board of Directors and legal andprofessional fees including those in respect of corporate governancelegislation. Operating expenses increased 89% to $17.0million in the second quarter ended June  30,  2006compared to $9.0  million in the same period in 2005. The secondquarter of 2006 includes severance costs of $3.1  million relatedto Michael French. Excluding these costs, compensation expense was$1.5  million higher than the prior year period principally dueto increases in option and restricted stock costs. Also, professionalfees increased $1.8  million compared to the prior year quarterdue to external actuarial valuation review costs, recruitment costs,costs related to a potential acquisition and legal costs. Operatingexpenses exclude any severance to be paid in the third quarter of 2006related to the resignation of Scott Willkomm.

Interest expenseincreased 87% to $4.0  million in the second quarter endedJune  30,  2006 compared to $2.2  million in the sameperiod in 2005. The increase is due to expenses related to theutilization of credit facilities and reverse repurchase agreementsduring the current year period. During the second quarter of 2006,$120.0  million of the credit facility and $64.9  millionof the reverse repurchase agreement were used. Other interest expenseincludes interest on the 4.5% Senior Convertible Notes and the1.0% dividend payable on the convertible preferred shares of ourHybrid Capital Units.

Investment income increased 618% to$4.3  million in the six months ended June  30,  2006compared to $0.6  million in the same period in 2005. Theincrease is principally due to an increase in investment assets held bythe Corporate and Other Segment.

Acquisition costs and otherinsurance expenses increased 66% to $1.7  million in thesix months ended June  30,  2006 compared to $1.0million in the same period in 2005. Acquisition costs and otherinsurance expenses arise primarily from the wealth managementoperations but also include costs associated with the purchase ofcatastrophe bond coverage. During the six months ended June30,  2006, other insurance expenses increased approximately$0.9  million related to the Tartan Capital Limited catastrophebond issued in May  2006.

Operating expenses increased73% to $27.7  million in the six months ended June30,  2006 compared to $16.0  million in the same period in2005. Compensation expense was $7.9  million higher than theprior year period principally due to higher severance costs, highercosts related to option and restricted share units and salary andbenefit costs related to an increase in headcount. The balance of theincrease compared to the prior year period included higher professionalfees, including legal, audit, due diligence and travel costs. Operatingexpenses exclude any severance to be paid in the third quarter of 2006related to the resignation of Scott Willkomm.

Collateral financefacilities expense decreased 28% to $1.9  million in thesix months ended June  30,  2006 compared to $2.6million in the same period in 2005. The collateral finance facilitiesexpense consists of a portion of the Stingray facility that is notbeing utilized by the Life Reinsurance North America Segment. Costsdecreased during the current period due to an increased allocation ofcosts to the Life Reinsurance North America Segment based on theirutilization of the facility.

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Interest expense increased 26% to$6.4  million in the six months ended June  30,  2006compared to $5.0  million in the same period in 2005. Theincrease is due to expenses related to the utilization of creditfacilities and reverse repurchase agreements during the current yearperiod. During the second quarter of 2006, $120.0  million of thecredit facility and $64.9  million of the reverse repurchaseagreements were used. Other interest expense includes interest on the4.5% senior convertible notes and the 1.0% dividendpayable on the convertible preferred shares of our Hybrid CapitalUnits.

Realized gains (losses)

During the secondquarter ended June  30,  2006, consolidated net realizedlosses amounted to $11.3  million in comparison with net realizedgains of $0.9  million in the same period in 2005. Lossesrealized in 2006 relate to fixed income securities sold for the purposeof reinvesting at higher rates or increasing the quality of theportfolio. Included in realized gains and losses is a gain of$1.2  million for the second quarter ended June  30,2006 and a loss of $2.1  million for the same period in 2005,resulting from the mark to market of an interest rate swap. During thesecond quarter ended June  30,  2006, there were no lossesin respect of other than temporary impairments. During the secondquarter ended June  30,  2005, we recognized other thantemporary impairments of $1.1  million.

During the sixmonths ended June  30,  2006, net realized losses amountedto $24.9  million in comparison with net realized gains of$4.2  million in the same period in 2005. The major component ofthe realized losses in the six months ended June  30,  2006relates to the second quarter loss of $11.3 million noted above plus aloss of $12.2  million in the first quarter of 2006 due to therealization of losses on certain securities held under a modifiedcoinsurance arrangement that were sold from the modified coinsurancearrangement in the Ballantyne Re transaction. During the six monthsended June  30,  2006 and 2005, we recognized losses of$1.1  million and $2.3 million, respectively, in respect ofimpairments.

Income Taxes

We determine our income taxprovision in accordance with SFAS No. 109 (‘‘SFASNo.109’’) ‘‘Accounting for IncomeTaxes’’. The consolidated income tax expense or benefitis determined by applying the income tax rate for each subsidiary toits pre-tax income or loss. The tax rates for our subsidiaries varyfrom jurisdiction to jurisdiction and range from zero to approximately39%. Income tax expense arises in periods where taxes onsubsidiaries with pre-tax income exceed the tax benefit on subsidiarieswith pre-tax losses. An income tax benefit arises in periods where thetax benefit on subsidiaries with pre-tax losses exceeds the taxes onsubsidiaries with pre-tax income.

Our effective tax rate in eachreporting period is determined by dividing the net tax benefit(expense) by our pre-tax income or loss. The change in our effectivetax rate is due primarily to the amount in any reporting period ofpre-tax earnings attributable to different subsidiaries (which changesfrom time to time), each of which is subject to different statutory taxrates, as well as to the valuation allowance recorded this quarter.Pre-tax earnings of certain subsidiaries in any period may be impactedby the amount of various inter-company charges, including but notlimited to net worth maintenance fees and other management fees paid toScottish Annuity & Life Insurance Company (Cayman) Ltd. and to theparent holding company. These fees are charged in accordancewith our inter-company charging policy and may be adjusted periodicallywithin limits prescribed by applicable transfer pricingregulations.

We generate deferred tax assets principally due tonet operating losses, reserves and unrealized losses on investmentsecurities. In accordance with GAAP, we must conclude whether thefuture realization of our deferred tax asset is ‘‘morelikely than not’’. The evaluation regarding realizabilityof 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 ofdeferred tax liabilities within the carry forward period (which in theUnited States is 15 years), projected future taxable income and taxplanning strategies. Pursuant to the guidance under SFAS No. 109, weare currently unable to rely on projections of future taxable income.Therefore, we must rely heavily on tax planning strategies for supportof the gross deferred tax asset.

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Prior to this quarter, these tax planningstrategies have provided justification to support our deferred taxasset. The combination of the increased pressure on our existing taxplanning strategies, the operating loss for the quarter, and theprospects of a ratings downgrade during the second quarter ledmanagement to conclude that it was no longer ‘‘morelikely than not’’ that the full amount of the grossdeferred tax asset could be realized. Accordingly, we established avaluation allowance of $112.4  million during the quarter. At theend of the second quarter, approximately $270.0 million of theremaining gross deferred tax asset is supported by reversal of deferredtax liabilities within the carry forward period and tax planningstrategies for which management believes that it is more likely thannot that the deferred tax assets will be utilized in subsequentperiods, although there is a risk that we will need to establishadditional valuation allowances in future quarters.

Futurequarterly tax amounts will be dependent upon the relationship betweenpre-tax GAAP profits and statutory profits and will also be impacted bythe size and timing of certain statutory related deferred taxliabilities. Moreover, management will continue to assess and determinethe need for, and the amount of the valuation allowance in subsequentperiods in accordance with the requirements of SFAS No. 109.

Financial Condition

Investments

AtJune  30,  2006, the portfolio controlled by us consistedof $9.7  billion of fixed income securities, preferred stock andcash. The portfolio controlled by us excludes the assets held by cedinginsurers under modified coinsurance and funds withheld coinsurancearrangements. The majority of these assets are publicly traded;however, $599.1  million of this amount represents investments inprivate securities. Of the total portfolio controlled by us,$8.3  billion represents the fixed income and preferred stockportfolios managed by external investment managers and $1.4billion represents other cash balances. At December  31,2005, the portfolio controlled by us consisted of $6.7  billionof fixed income securities, preferred stock and cash. The majority ofthese assets were publicly traded; however, $452.9  millionrepresented investments in private securities. Of the total portfolio,$5.4  billion represented the fixed income and preferred stockportfolio managed by external investment managers and $1.3million represented other cash balances. At June  30,2006, the average Standard & Poor’s rating of the portfoliowas ‘‘AA’’, the average effective durationwas 3.2 years and the average book yield was 5.5%, as comparedwith an average rating of ‘‘AA’’, anaverage effective duration of 2.9 years and an average book yield of4.9% at December  31,  2005. At June30,  2006, the unrealized depreciation on investments, net of taxand deferred acquisition costs, was $112.6  million as comparedwith unrealized depreciation on investments, net of tax and deferredacquisition costs, of $17.9  million at December31,  2005. The unrealized appreciation (depreciation) oninvestments is included in our Consolidated Balance Sheet as part ofshareholders’ equity.

The table below sets forth the totalreturns earned by our portfolio for the quarter ended June30,  2006, compared to the returns earned by three indices: theLehman Brothers Global Bond Index, the S&P 500, and a customizedindex that we developed to take into account our investment guidelines.We believe that this customized index is a more relevant benchmark forour portfolio’sperformance.

|                                  |  |  |                           |
|----------------------------------|--|--|---------------------------|
|                             |  |  | QuarterendedJune 30, 2006 |
| Portfolioperformance             |  |  | 0.44%                     |
| Customizedindex                  |  |  | 0.38%                     |
| Lehman Brothers GlobalBond Index |  |  | -0.05%                    |
| S&P500                       |  |  | -1.44%                    |
|                                  |

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The following table presents theinvestment portfolio (market value) credit exposure by category asassigned by Standard &Poor’s.

|           |  |  |              |   |         |                  |  |  |              |  |       |   |  |  |  |   |         |  |  |  |  |  |       |   |
|-----------|--|--|--------------|---|---------|------------------|--|--|--------------|--|-------|---|--|--|--|---|---------|--|--|--|--|--|-------|---|
|      |  |  | June30, 2006 |   |         | December 31,2005 |
| Ratings   |  |  | $in millions |   |         | %                |  |  | $ inmillions |  |       | % |
| AAA       |  |  |              | $ | 4,087.4 |                  |  |  |              |  | 42.3  | % |  |  |  | $ | 3,017.4 |  |  |  |  |  | 44.8  | % |
| AA        |  |  |              |   | 1,955.1 |                  |  |  |              |  | 20.2  |   |  |  |  |   | 1,069.1 |  |  |  |  |  | 15.9  |   |
| A         |  |  |              |   | 2,486.9 |                  |  |  |              |  | 25.8  |   |  |  |  |   | 1,646.9 |  |  |  |  |  | 24.4  |   |
| BBB       |  |  |              |   | 1,099.2 |                  |  |  |              |  | 11.4  |   |  |  |  |   | 977.7   |  |  |  |  |  | 14.5  |   |
| BBorbelow |  |  |              |   | 24.4    |                  |  |  |              |  | 0.3   |   |  |  |  |   | 28.0    |  |  |  |  |  | 0.4   |   |
| Total     |  |  |              | $ | 9,653.0 |                  |  |  |              |  | 100.0 | % |  |  |  | $ | 6,739.1 |  |  |  |  |  | 100.0 | % |
|           |

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

|                                                               |  |  |              |   |         |                  |  |  |              |  |       |   |  |  |  |   |         |  |  |  |  |  |       |   |
|---------------------------------------------------------------|--|--|--------------|---|---------|------------------|--|--|--------------|--|-------|---|--|--|--|---|---------|--|--|--|--|--|-------|---|
|                                                          |  |  | June30, 2006 |   |         | December 31,2005 |
| Sector                                                        |  |  | $in millions |   |         | %                |  |  | $ inmillions |  |       | % |
| U.S. Treasury securitiesand U.S. government agencyobligations |  |  |              | $ | 132.8   |                  |  |  |              |  | 1.4   | % |  |  |  | $ | 47.9    |  |  |  |  |  | 0.7   | % |
| Corporatesecurities                                           |  |  |              |   | 2,996.7 |                  |  |  |              |  | 31.0  |   |  |  |  |   | 2,057.0 |  |  |  |  |  | 30.5  |   |
| Municipalbonds                                                |  |  |              |   | 51.9    |                  |  |  |              |  | 0.6   |   |  |  |  |   | 37.6    |  |  |  |  |  | 0.6   |   |
| Mortgageand asset backedsecurities                            |  |  |              |   | 4,945.6 |                  |  |  |              |  | 51.2  |   |  |  |  |   | 3,150.1 |  |  |  |  |  | 46.7  |   |
| Preferredstock                                                |  |  |              |   | 128.1   |                  |  |  |              |  | 1.3   |   |  |  |  |   | 133.8   |  |  |  |  |  | 2.0   |   |
|                                                          |  |  |              |   | 8,255.1 |                  |  |  |              |  | 85.5  |   |  |  |  |   | 5,426.4 |  |  |  |  |  | 80.5  |   |
| Cash                                                          |  |  |              |   | 1,397.9 |                  |  |  |              |  | 14.5  |   |  |  |  |   | 1,312.7 |  |  |  |  |  | 19.5  |   |
| Total                                                         |  |  |              | $ | 9,653.0 |                  |  |  |              |  | 100.0 | % |  |  |  | $ | 6,739.1 |  |  |  |  |  | 100.0 | % |
|                                                               |

Managementreviews securities with material unrealized losses and tests for‘‘other-than-temporary’’ impairments on aquarterly basis. Factors involved in the determination of potentialimpairment include fair value as compared to cost, length of time thevalue has been below cost, credit worthiness of the issuer, forecastedfinancial performance of the issuer, position of the security in theissuer’s capital structure, the presence and estimated value ofcollateral or other credit enhancement, length of time to maturity,interest rates and our intent and ability to hold the security untilthe market value recovers. When a decline is considered to be‘‘other-than-temporary’’, the cost basis ofthe impaired asset is adjusted to its fair value and a correspondingrealized investment loss is recognized in the consolidated statementsof income. The actual value at which such financial instruments couldactually be sold or settled with a willing buyer may differ from suchestimated fair values.

The following tables present the estimatedfair values and gross unrealized losses for the fixed maturityinvestments and preferred stock that have estimated fair values belowamortized cost or cost as of June  30,  2006 andDecember  31,  2005. These investments are presented byclass and grade of security, as well as the length of time the relatedmarket value has remained below amortized cost orcost.

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|                                        |  |  |                    |   |           |                                   |  |  |                     |   |          |                |  |  |                    |   |         |                |  |  |  |   |         |   |  |  |  |   |           |  |  |  |  |   |          |   |
|----------------------------------------|--|--|--------------------|---|-----------|-----------------------------------|--|--|---------------------|---|----------|----------------|--|--|--------------------|---|---------|----------------|--|--|--|---|---------|---|--|--|--|---|-----------|--|--|--|--|---|----------|---|
|                                   |  |  | June30, 2006       |
|                                   |  |  | Lessthan 12 months |   |           | Equal to or greater than 12months |  |  | Total               |
|                                   |  |  | Estimatedfairvalue |   |           | Unrealizedloss                    |  |  | Estimated fairvalue |   |          | Unrealizedloss |  |  | Estimatedfairvalue |   |         | Unrealizedloss |
| InvestmentGradeSecurities:             |  |  |                    |   |      |                                   |  |  |                     |   |     |                |  |  |                    |   |    |                |  |  |  |   |    |   |  |  |  |   |      |  |  |  |  |   |     |   |
| CMO                                    |  |  |                    | $ | 660,079   |                                   |  |  |                     | $ | (16,182  | )              |  |  |                    | $ | 114,413 |                |  |  |  | $ | (2,823  | ) |  |  |  | $ | 774,492   |  |  |  |  | $ | (19,005  | ) |
| Corporates                             |  |  |                    |   | 2,309,961 |                                   |  |  |                     |   | (109,065 | )              |  |  |                    |   | 233,365 |                |  |  |  |   | (11,416 | ) |  |  |  |   | 2,543,326 |  |  |  |  |   | (120,481 | ) |
| Governments                            |  |  |                    |   | 126,372   |                                   |  |  |                     |   | (5,069   | )              |  |  |                    |   | 5,025   |                |  |  |  |   | (222    | ) |  |  |  |   | 131,397   |  |  |  |  |   | (5,291   | ) |
| MBS                                    |  |  |                    |   | 118,547   |                                   |  |  |                     |   | (6,610   | )              |  |  |                    |   | 70,383  |                |  |  |  |   | (3,928  | ) |  |  |  |   | 188,930   |  |  |  |  |   | (10,538  | ) |
| Municipal                              |  |  |                    |   | 44,846    |                                   |  |  |                     |   | (1,701   | )              |  |  |                    |   | 4,976   |                |  |  |  |   | (252    | ) |  |  |  |   | 49,822    |  |  |  |  |   | (1,953   | ) |
| Otherstructuredsecurities              |  |  |                    |   | 1,234,732 |                                   |  |  |                     |   | (25,037  | )              |  |  |                    |   | 351,085 |                |  |  |  |   | (7,928  | ) |  |  |  |   | 1,585,817 |  |  |  |  |   | (32,965  | ) |
| Preferredstocks                        |  |  |                    |   | 94,319    |                                   |  |  |                     |   | (5,446   | )              |  |  |                    |   | 45,906  |                |  |  |  |   | (2,860  | ) |  |  |  |   | 140,225   |  |  |  |  |   | (8,306   | ) |
| Totalinvestment gradesecurities        |  |  |                    |   | 4,588,856 |                                   |  |  |                     |   | (169,110 | )              |  |  |                    |   | 825,153 |                |  |  |  |   | (29,429 | ) |  |  |  |   | 5,414,009 |  |  |  |  |   | (198,539 | ) |
| BelowInvestment GradeSecurities        |  |  |                    |   |      |                                   |  |  |                     |   |     |                |  |  |                    |   |    |                |  |  |  |   |    |   |  |  |  |   |      |  |  |  |  |   |     |   |
| Corporates                             |  |  |                    |   | 13,513    |                                   |  |  |                     |   | (1,262   | )              |  |  |                    |   | 3,177   |                |  |  |  |   | (343    | ) |  |  |  |   | 16,690    |  |  |  |  |   | (1,605   | ) |
| Otherstructuredsecurities              |  |  |                    |   | 1,442     |                                   |  |  |                     |   | (20      | )              |  |  |                    |   | 3,857   |                |  |  |  |   | (31     | ) |  |  |  |   | 5,299     |  |  |  |  |   | (51      | ) |
| Preferredstock     |  |  |                    |   | —   |                                   |  |  |                     |   | —  |                |  |  |                    |   | 667     |                |  |  |  |   | (38     | ) |  |  |  |   | 667       |  |  |  |  |   | (38      | ) |
| Totalbelow investment gradesecurities  |  |  |                    |   | 14,955    |                                   |  |  |                     |   | (1,282   | )              |  |  |                    |   | 7,701   |                |  |  |  |   | (412    | ) |  |  |  |   | 22,656    |  |  |  |  |   | (1,694   | ) |
| Total                                  |  |  |                    | $ | 4,603,811 |                                   |  |  |                     | $ | (170,392 | )              |  |  |                    | $ | 832,854 |                |  |  |  | $ | (29,841 | ) |  |  |  | $ | 5,436,665 |  |  |  |  | $ | (200,233 | ) |
|                                        |

|                                       |  |  |                    |   |           |                                   |  |  |                    |   |         |                |  |  |                    |   |         |                |  |  |  |   |         |   |  |  |  |   |           |  |  |  |  |   |         |   |
|---------------------------------------|--|--|--------------------|---|-----------|-----------------------------------|--|--|--------------------|---|---------|----------------|--|--|--------------------|---|---------|----------------|--|--|--|---|---------|---|--|--|--|---|-----------|--|--|--|--|---|---------|---|
|                                  |  |  | December31, 2005   |
|                                  |  |  | Lessthan 12 months |   |           | Equal to or greater than 12months |  |  | Total              |
|                                  |  |  | Estimatedfairvalue |   |           | Unrealizedloss                    |  |  | Estimatedfairvalue |   |         | Unrealizedloss |  |  | Estimatedfairvalue |   |         | Unrealizedloss |
| InvestmentGradeSecurities:            |  |  |                    |   |      |                                   |  |  |                    |   |    |                |  |  |                    |   |    |                |  |  |  |   |    |   |  |  |  |   |      |  |  |  |  |   |    |   |
| 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  | ) |
| Municipal                             |  |  |                    |   | 17,738    |                                   |  |  |                    |   | (330    | )              |  |  |                    |   | 1,621   |                |  |  |  |   | (68     | ) |  |  |  |   | 19,359    |  |  |  |  |   | (398    | ) |
| Otherstructuredsecurities             |  |  |                    |   | 1,028,657 |                                   |  |  |                    |   | (11,882 | )              |  |  |                    |   | 135,341 |                |  |  |  |   | (3,113  | ) |  |  |  |   | 1,163,998 |  |  |  |  |   | (14,995 | ) |
| Preferredstocks                       |  |  |                    |   | 98,263    |                                   |  |  |                    |   | (2,287  | )              |  |  |                    |   | 24,106  |                |  |  |  |   | (1,295  | ) |  |  |  |   | 122,369   |  |  |  |  |   | (3,582  | ) |
| Totalinvestment gradesecurities       |  |  |                    |   | 2,925,065 |                                   |  |  |                    |   | (47,471 | )              |  |  |                    |   | 385,272 |                |  |  |  |   | (10,391 | ) |  |  |  |   | 3,310,337 |  |  |  |  |   | (57,862 | ) |
| BelowInvestment GradeSecurities:      |  |  |                    |   |      |                                   |  |  |                    |   |    |                |  |  |                    |   |    |                |  |  |  |   |    |   |  |  |  |   |      |  |  |  |  |   |    |   |
| Corporates                            |  |  |                    |   | 10,676    |                                   |  |  |                    |   | (655    | )              |  |  |                    |   | 1,841   |                |  |  |  |   | (59     | ) |  |  |  |   | 12,517    |  |  |  |  |   | (714    | ) |
| Otherstructuredsecurities             |  |  |                    |   | 3,552     |                                   |  |  |                    |   | (555    | )              |  |  |                    |   | 7,260   |                |  |  |  |   | (29     | ) |  |  |  |   | 10,812    |  |  |  |  |   | (584    | ) |
| Preferredstock                        |  |  |                    |   | 392       |                                   |  |  |                    |   | (12     | )              |  |  |                    |   | 340     |                |  |  |  |   | (19     | ) |  |  |  |   | 732       |  |  |  |  |   | (31     | ) |
| Totalbelow investment gradesecurities |  |  |                    |   | 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 | ) |
|                                       |

AtJune  30,  2006, our fixed income portfolio had 3,107positions and $200.2  million of gross unrealized losses. Nosingle position had an unrealized loss greater than $2.6million. There were $11.8  million of unrealized gains on theremainder of the portfolio. There were 169 private securities in anunrealized loss position totaling $13.2  million in our fixedincome portfolio. At December  31, 2005, our fixed incomeportfolio had 2,493 positions and $59.2  million of grossunrealized losses. No single position had an unrealized loss greaterthan $0.5  million. There were $25.5  million of unrealizedgains on the remainder of the portfolio. There were 127 privatesecurities in an unrealized loss position totaling $4.3  millionin our fixed income portfolio.

34

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Based on our analysis of each securitywhose price has been below market for greater than twelve months, webelieve that the financial strength, liquidity, leverage, futureoutlook, and our ability and intent to hold the security until recoverysupport the view that the security was not‘‘other-than-temporarily’’ impaired as ofJune  30,  2006. The unrealized losses on fixed maturitysecurities are primarily a result of rising interest rates, changes incredit spreads and the long-dated maturities of the securities.Additionally, as of June  30,  2006, approximately99% of the gross unrealized losses are associated withinvestment grade securities.

Unrealized losses on securitiesthat have been in an unrealized loss position for periods greater thantwo years amounted to $8.4  million at June  30,2006 and $1.1  million at December  31,  2005.Unrealized losses on non-investment grade securities amounted to$1.7  million and $1.3  million at June  30,2006 and December  31,  2005, respectively. Of theseamounts, non-investment grade securities with unrealized losses of$0.4  million at June  30,  2006 and $0.1million at December  31,  2005 had been in an unrealizedloss position for a period greater than one year.

The followingtables illustrate the industry analysis of the unrealized losses atJune  30,  2006 and December  31,  2005.

|                                    |  |  |               |   |           |   |  |  |                    |  |        |   |  |  |                |   |           |   |  |  |  |  |        |   |  |  |  |  |          |   |  |  |  |  |        |   |
|------------------------------------|--|--|---------------|---|-----------|---|--|--|--------------------|--|--------|---|--|--|----------------|---|-----------|---|--|--|--|--|--------|---|--|--|--|--|----------|---|--|--|--|--|--------|---|
|                               |  |  | June30, 2006  |
|                               |  |  | AmortizedCost |   |           | % |  |  | EstimatedFairValue |  |        | % |  |  | UnrealizedLoss |   |           | % |
| Industry                           |  |  |               |   |      |   |  |  |                    |  |   |   |  |  |                |   |      |   |  |  |  |  |   |   |  |  |  |  |     |   |  |  |  |  |   |   |
| Mortgageand asset backedsecurities |  |  |               | $ | 2,617,097 |   |  |  |                    |  | 46.4   | % |  |  |                | $ | 2,554,538 |   |  |  |  |  | 47.0   | % |  |  |  |  | (62,559  | ) |  |  |  |  | 31.3   | % |
| Banking                            |  |  |               |   | 480,766   |   |  |  |                    |  | 8.5    |   |  |  |                |   | 460,665   |   |  |  |  |  | 8.5    |   |  |  |  |  | (20,101  | ) |  |  |  |  | 10.0   |   |
| Insurance                          |  |  |               |   | 291,246   |   |  |  |                    |  | 5.2    |   |  |  |                |   | 278,746   |   |  |  |  |  | 5.1    |   |  |  |  |  | (12,500  | ) |  |  |  |  | 6.2    |   |
| Communications                     |  |  |               |   | 289,510   |   |  |  |                    |  | 5.1    |   |  |  |                |   | 271,812   |   |  |  |  |  | 5.0    |   |  |  |  |  | (17,698  | ) |  |  |  |  | 8.8    |   |
| Consumernoncyclical                |  |  |               |   | 252,161   |   |  |  |                    |  | 4.5    |   |  |  |                |   | 239,008   |   |  |  |  |  | 4.4    |   |  |  |  |  | (13,153  | ) |  |  |  |  | 6.6    |   |
| Financialother                     |  |  |               |   | 222,824   |   |  |  |                    |  | 4.0    |   |  |  |                |   | 213,740   |   |  |  |  |  | 3.9    |   |  |  |  |  | (9,084   | ) |  |  |  |  | 4.5    |   |
| Financecompanies                   |  |  |               |   | 209,101   |   |  |  |                    |  | 3.7    |   |  |  |                |   | 200,204   |   |  |  |  |  | 3.7    |   |  |  |  |  | (8,897   | ) |  |  |  |  | 4.5    |   |
| Electric                           |  |  |               |   | 196,773   |   |  |  |                    |  | 3.5    |   |  |  |                |   | 187,369   |   |  |  |  |  | 3.4    |   |  |  |  |  | (9,404   | ) |  |  |  |  | 4.7    |   |
| Consumercyclical                   |  |  |               |   | 196,212   |   |  |  |                    |  | 3.5    |   |  |  |                |   | 187,325   |   |  |  |  |  | 3.4    |   |  |  |  |  | (8,887   | ) |  |  |  |  | 4.4    |   |
| Other                              |  |  |               |   | 881,208   |   |  |  |                    |  | 15.6   |   |  |  |                |   | 843,258   |   |  |  |  |  | 15.6   |   |  |  |  |  | (37,950  | ) |  |  |  |  | 19.0   |   |
| Total                              |  |  |               | $ | 5,636,898 |   |  |  |                    |  | 100.0  | % |  |  |                | $ | 5,436,665 |   |  |  |  |  | 100.0  | % |  |  |  |  | (200,233 | ) |  |  |  |  | 100.0  | % |
|                                    |

|                                    |  |  |                 |   |           |   |  |  |                     |  |        |   |  |  |                |   |           |   |  |  |  |  |        |   |  |  |  |   |         |   |  |  |  |  |        |   |
|------------------------------------|--|--|-----------------|---|-----------|---|--|--|---------------------|--|--------|---|--|--|----------------|---|-----------|---|--|--|--|--|--------|---|--|--|--|---|---------|---|--|--|--|--|--------|---|
|                               |  |  | December31,2005 |
|                               |  |  | AmortizedCost   |   |           | % |  |  | Estimated FairValue |  |        | % |  |  | UnrealizedLoss |   |           | % |
| Industry                           |  |  |                 |   |      |   |  |  |                     |  |   |   |  |  |                |   |      |   |  |  |  |  |   |   |  |  |  |   |    |   |  |  |  |  |   |   |
| Mortgageand asset backedsecurities |  |  |                 | $ | 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    |   |
| Financialother                     |  |  |                 |   | 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    |   |
| Financialcompanies                 |  |  |                 |   | 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  | % |
|                                    |

Theexpected maturity dates of securities that have unrealized losses atJune  30,  2006 and December  31,  2005 arepresented in the tablesbelow.

|                             |  |  |               |   |           |   |  |  |                     |  |        |   |  |  |                |   |           |   |  |  |  |  |        |   |  |  |  |   |          |   |  |  |  |  |        |   |
|-----------------------------|--|--|---------------|---|-----------|---|--|--|---------------------|--|--------|---|--|--|----------------|---|-----------|---|--|--|--|--|--------|---|--|--|--|---|----------|---|--|--|--|--|--------|---|
|                        |  |  | June30,2006   |
|                        |  |  | AmortizedCost |   |           | % |  |  | Estimated FairValue |  |        | % |  |  | UnrealizedLoss |   |           | % |
| Maturity                    |  |  |               |   |      |   |  |  |                     |  |   |   |  |  |                |   |      |   |  |  |  |  |   |   |  |  |  |   |     |   |  |  |  |  |   |   |
| Duein one year orless       |  |  |               | $ | 334,411   |   |  |  |                     |  | 5.9    | % |  |  |                | $ | 332,462   |   |  |  |  |  | 6.0    | % |  |  |  | $ | (1,949   | ) |  |  |  |  | 1.0    | % |
| Duein one through fiveyears |  |  |               |   | 2,091,153 |   |  |  |                     |  | 37.1   |   |  |  |                |   | 2,048,501 |   |  |  |  |  | 37.7   |   |  |  |  |   | (42,652  | ) |  |  |  |  | 21.2   |   |
| Duein five through tenyears |  |  |               |   | 1,715,030 |   |  |  |                     |  | 30.5   |   |  |  |                |   | 1,645,206 |   |  |  |  |  | 30.3   |   |  |  |  |   | (69,824  | ) |  |  |  |  | 34.9   |   |
| Dueafter tenyears           |  |  |               |   | 1,496,304 |   |  |  |                     |  | 26.5   |   |  |  |                |   | 1,410,496 |   |  |  |  |  | 26.0   |   |  |  |  |   | (85,808  | ) |  |  |  |  | 42.9   |   |
| Total                       |  |  |               | $ | 5,636,898 |   |  |  |                     |  | 100.0  | % |  |  |                | $ | 5,436,665 |   |  |  |  |  | 100.0  | % |  |  |  | $ | (200,233 | ) |  |  |  |  | 100.0  | % |
|                             |

35

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|                             |  |  |                  |   |           |   |  |  |                     |  |        |   |  |  |                |   |           |   |  |  |  |  |        |   |  |  |  |   |         |   |  |  |  |  |        |   |
|-----------------------------|--|--|------------------|---|-----------|---|--|--|---------------------|--|--------|---|--|--|----------------|---|-----------|---|--|--|--|--|--------|---|--|--|--|---|---------|---|--|--|--|--|--------|---|
|                        |  |  | December31, 2005 |
|                        |  |  | BookValue        |   |           | % |  |  | Estimated FairValue |  |        | % |  |  | UnrealizedLoss |   |           | % |
| Maturity                    |  |  |                  |   |      |   |  |  |                     |  |   |   |  |  |                |   |      |   |  |  |  |  |   |   |  |  |  |   |    |   |  |  |  |  |   |   |
| Duein one year orless       |  |  |                  | $ | 269,410   |   |  |  |                     |  | 7.9    | % |  |  |                | $ | 267,712   |   |  |  |  |  | 8.0    | % |  |  |  | $ | (1,698  | ) |  |  |  |  | 2.9    | % |
| Duein one through fiveyears |  |  |                  |   | 1,659,946 |   |  |  |                     |  | 48.9   |   |  |  |                |   | 1,636,102 |   |  |  |  |  | 49.1   |   |  |  |  |   | (23,844 | ) |  |  |  |  | 40.3   |   |
| Duein five through tenyears |  |  |                  |   | 925,650   |   |  |  |                     |  | 27.3   |   |  |  |                |   | 905,973   |   |  |  |  |  | 27.2   |   |  |  |  |   | (19,677 | ) |  |  |  |  | 33.2   |   |
| Dueafter tenyears           |  |  |                  |   | 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  | % |
|                             |

AtJune  30,  2006, there were 2,325 securities withunrealized loss positions and at December  31, 2005, there were1,698 securities with unrealized loss positions.

At June30,  2006, there was no security with a fair value that tradedcontinuously at less than 80% of amortized cost for at least sixmonths or 90% of amortized cost for at least 12 months. AtDecember  31,  2005, there was one security with a fairvalue that traded continuously at less than 80% of amortizedcost for at least six months or 90% of amortized cost for atleast 12 months. The total unrealized loss on this security amounted to$0.5  million.

The following tables provide details of thesales proceeds, realized loss, length of time the security has been inan unrealized loss position and reason for sale for those securitiessold at a loss during the periods ended June  30,  2006 and2005. These tables exclude gains or losses from modified coinsuranceportfolios, foreign exchange and swaps or other derivatives.

|                 |  |  |                                |   |        |               |  |  |          |   |        |       |  |  |          |   |         |      |  |  |          |   |        |      |  |  |  |   |        |  |  |  |  |   |        |   |  |  |  |   |         |  |  |  |  |   |        |   |
|-----------------|--|--|--------------------------------|---|--------|---------------|--|--|----------|---|--------|-------|--|--|----------|---|---------|------|--|--|----------|---|--------|------|--|--|--|---|--------|--|--|--|--|---|--------|---|--|--|--|---|---------|--|--|--|--|---|--------|---|
|            |  |  | Threemonths ended June 30,2006 |
|            |  |  | CreditConcern                  |   |        | RelativeValue |  |  | Tactical |   |        | Total |
|            |  |  | Proceeds                       |   |        | Loss          |  |  | Proceeds |   |        | Loss  |  |  | Proceeds |   |         | Loss |  |  | Proceeds |   |        | Loss |
| Days            |  |  |                                |   |   |               |  |  |          |   |   |       |  |  |          |   |    |      |  |  |          |   |   |      |  |  |  |   |   |  |  |  |  |   |   |   |  |  |  |   |    |  |  |  |  |   |   |   |
| 0-90            |  |  |                                | $ | 5,077  |               |  |  |          | $ | (803   | )     |  |  |          | $ | 141,095 |      |  |  |          | $ | (3,886 | )    |  |  |  | $ | 28,259 |  |  |  |  | $ | (207   | ) |  |  |  | $ | 174,431 |  |  |  |  | $ | (4,896 | ) |
| 91-180          |  |  |                                |   | 1,375  |               |  |  |          |   | (22    | )     |  |  |          |   | 1,056   |      |  |  |          |   | (50    | )    |  |  |  |   | 10,016 |  |  |  |  |   | (244   | ) |  |  |  |   | 12,447  |  |  |  |  |   | (316   | ) |
| 181-270         |  |  |                                |   | 1,948  |               |  |  |          |   | (120   | )     |  |  |          |   | 844     |      |  |  |          |   | (15    | )    |  |  |  |   | 3,899  |  |  |  |  |   | (126   | ) |  |  |  |   | 6,691   |  |  |  |  |   | (261   | ) |
| Greaterthan 270 |  |  |                                |   | 1,239  |               |  |  |          |   | (38    | )     |  |  |          |   | 960     |      |  |  |          |   | (56    | )    |  |  |  |   | 3,834  |  |  |  |  |   | (215   | ) |  |  |  |   | 6,033   |  |  |  |  |   | (309   | ) |
| Total           |  |  |                                | $ | 9,639  |               |  |  |          | $ | (983   | )     |  |  |          | $ | 143,955 |      |  |  |          | $ | (4,007 | )    |  |  |  | $ | 46,008 |  |  |  |  | $ | (792   | ) |  |  |  | $ | 199,602 |  |  |  |  | $ | (5,782 | ) |
|                 |

|                |  |  |                                |   |         |               |  |  |          |   |         |       |  |  |          |   |        |      |  |  |          |   |        |      |  |  |  |   |         |  |  |  |  |   |         |   |  |  |  |   |        |  |  |  |  |   |        |   |
|----------------|--|--|--------------------------------|---|---------|---------------|--|--|----------|---|---------|-------|--|--|----------|---|--------|------|--|--|----------|---|--------|------|--|--|--|---|---------|--|--|--|--|---|---------|---|--|--|--|---|--------|--|--|--|--|---|--------|---|
|           |  |  | Threemonths ended June 30,2005 |
|           |  |  | CreditConcern                  |   |         | RelativeValue |  |  | Tactical |   |         | Total |
|           |  |  | Proceeds                       |   |         | Loss          |  |  | Proceeds |   |         | Loss  |  |  | Proceeds |   |        | Loss |  |  | Proceeds |   |        | Loss |
| Days           |  |  |                                |   |    |               |  |  |          |   |    |       |  |  |          |   |   |      |  |  |          |   |   |      |  |  |  |   |    |  |  |  |  |   |    |   |  |  |  |   |   |  |  |  |  |   |   |   |
| 0-90           |  |  |                                | $ | 17,469  |               |  |  |          | $ | (698    | )     |  |  |          | $ | 7,185  |      |  |  |          | $ | (71    | )    |  |  |  | $ | 31,192  |  |  |  |  | $ | (355    | ) |  |  |  | $ | 55,846 |  |  |  |  | $ | (1,124 | ) |
| 91-180         |  |  |                                |   | 65      |               |  |  |          |   | (57     | )     |  |  |          |   | 5,432  |      |  |  |          |   | (16    | )    |  |  |  |   | — |  |  |  |  |   | — |   |  |  |  |   | 5,497  |  |  |  |  |   | (73    | ) |
| 181-270        |  |  |                                |   | — |               |  |  |          |   | — |       |  |  |          |   | 197    |      |  |  |          |   | (3     | )    |  |  |  |   | — |  |  |  |  |   | — |   |  |  |  |   | 197    |  |  |  |  |   | (3     | ) |
| Greaterthan270 |  |  |                                |   | — |               |  |  |          |   | — |       |  |  |          |   | 365    |      |  |  |          |   | (1     | )    |  |  |  |   | — |  |  |  |  |   | — |   |  |  |  |   | 365    |  |  |  |  |   | (1     | ) |
| Total          |  |  |                                | $ | 17,534  |               |  |  |          | $ | (755    | )     |  |  |          | $ | 13,179 |      |  |  |          | $ | (91    | )    |  |  |  | $ | 31,192  |  |  |  |  | $ | (355    | ) |  |  |  | $ | 61,905 |  |  |  |  | $ | (1,201 | ) |
|                |

|                 |  |  |                              |   |        |               |  |  |          |   |        |       |  |  |          |   |         |      |  |  |          |   |        |      |  |  |  |   |         |  |  |  |  |   |        |   |  |  |  |   |         |  |  |  |  |   |        |   |
|-----------------|--|--|------------------------------|---|--------|---------------|--|--|----------|---|--------|-------|--|--|----------|---|---------|------|--|--|----------|---|--------|------|--|--|--|---|---------|--|--|--|--|---|--------|---|--|--|--|---|---------|--|--|--|--|---|--------|---|
|            |  |  | Sixmonths ended June 30,2006 |
|            |  |  | CreditConcern                |   |        | RelativeValue |  |  | Tactical |   |        | Total |
|            |  |  | Proceeds                     |   |        | Loss          |  |  | Proceeds |   |        | Loss  |  |  | Proceeds |   |         | Loss |  |  | Proceeds |   |        | Loss |
| Days            |  |  |                              |   |   |               |  |  |          |   |   |       |  |  |          |   |    |      |  |  |          |   |   |      |  |  |  |   |    |  |  |  |  |   |   |   |  |  |  |   |    |  |  |  |  |   |   |   |
| 0-90            |  |  |                              | $ | 7,897  |               |  |  |          | $ | (822   | )     |  |  |          | $ | 193,774 |      |  |  |          | $ | (3,907 | )    |  |  |  | $ | 69,781  |  |  |  |  | $ | (378   | ) |  |  |  | $ | 271,452 |  |  |  |  | $ | (5,107 | ) |
| 91-180          |  |  |                              |   | 4,105  |               |  |  |          |   | (81    | )     |  |  |          |   | 10,692  |      |  |  |          |   | (316   | )    |  |  |  |   | 23,648  |  |  |  |  |   | (619   | ) |  |  |  |   | 38,445  |  |  |  |  |   | (1,016 | ) |
| 181-270         |  |  |                              |   | 8,072  |               |  |  |          |   | (798   | )     |  |  |          |   | 2,099   |      |  |  |          |   | (34    | )    |  |  |  |   | 4,755   |  |  |  |  |   | (173   | ) |  |  |  |   | 14,926  |  |  |  |  |   | (1,005 | ) |
| Greaterthan 270 |  |  |                              |   | 3,539  |               |  |  |          |   | (352   | )     |  |  |          |   | 15,012  |      |  |  |          |   | (360   | )    |  |  |  |   | 13,586  |  |  |  |  |   | (391   | ) |  |  |  |   | 32,137  |  |  |  |  |   | (1,103 | ) |
| Total           |  |  |                              | $ | 23,613 |               |  |  |          | $ | (2,053 | )     |  |  |          | $ | 221,577 |      |  |  |          | $ | (4,617 | )    |  |  |  | $ | 111,770 |  |  |  |  | $ | (1,561 | ) |  |  |  | $ | 356,960 |  |  |  |  | $ | (8,231 | ) |
|                 |

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|                                 |  |  |                              |   |        |               |  |  |          |   |        |       |  |  |          |   |        |      |  |  |          |   |        |      |  |  |  |   |         |  |  |  |  |   |         |   |  |  |  |   |         |  |  |  |  |   |        |   |
|---------------------------------|--|--|------------------------------|---|--------|---------------|--|--|----------|---|--------|-------|--|--|----------|---|--------|------|--|--|----------|---|--------|------|--|--|--|---|---------|--|--|--|--|---|---------|---|--|--|--|---|---------|--|--|--|--|---|--------|---|
|                            |  |  | Sixmonths ended June 30,2005 |
|                            |  |  | CreditConcern                |   |        | RelativeValue |  |  | Tactical |   |        | Total |
|                            |  |  | Proceeds                     |   |        | Loss          |  |  | Proceeds |   |        | Loss  |  |  | Proceeds |   |        | Loss |  |  | Proceeds |   |        | Loss |
| Days                            |  |  |                              |   |   |               |  |  |          |   |   |       |  |  |          |   |   |      |  |  |          |   |   |      |  |  |  |   |    |  |  |  |  |   |    |   |  |  |  |   |    |  |  |  |  |   |   |   |
| 0-90                            |  |  |                              | $ | 19,621 |               |  |  |          | $ | (1,000 | )     |  |  |          | $ | 18,809 |      |  |  |          | $ | (160   | )    |  |  |  | $ | 125,729 |  |  |  |  | $ | (963    | ) |  |  |  | $ | 164,159 |  |  |  |  | $ | (2,123 | ) |
| 91-180                          |  |  |                              |   | 355    |               |  |  |          |   | (83    | )     |  |  |          |   | 9,415  |      |  |  |          |   | (27    | )    |  |  |  |   | — |  |  |  |  |   | — |   |  |  |  |   | 9,770   |  |  |  |  |   | (110   | ) |
| 181-270     |  |  |                              |   | 981    |               |  |  |          |   | (51    | )     |  |  |          |   | 197    |      |  |  |          |   | (3     | )    |  |  |  |   | 81      |  |  |  |  |   | (1      | ) |  |  |  |   | 1,259   |  |  |  |  |   | (55    | ) |
| Greaterthan 270                 |  |  |                              |   | 54     |               |  |  |          |   | (11    | )     |  |  |          |   | 365    |      |  |  |          |   | (1     | )    |  |  |  |   | — |  |  |  |  |   | — |   |  |  |  |   | 419     |  |  |  |  |   | (12    | ) |
| Total                           |  |  |                              | $ | 21,011 |               |  |  |          | $ | (1,145 | )     |  |  |          | $ | 28,786 |      |  |  |          | $ | (191   | )    |  |  |  | $ | 125,810 |  |  |  |  | $ | (964    | ) |  |  |  | $ | 175,607 |  |  |  |  | $ | (2,300 | ) |
|                                 |

Fundswithheld at interest

Funds withheld at interest arise oncontracts written under modified coinsurance agreements and fundswithheld coinsurance agreements. In substance, these agreements areidentical to coinsurance treaties except that the ceding companyretains control of and title to, the assets. The deposits paid to theceding company by the underlying policyholders are held in a segregatedportfolio and managed by the ceding company or by investment managersappointed by the ceding company. These treaties transfer a quota shareof the risks. The funds withheld at interest represent our share of theceding companies’ statutory reserves. The cash flows exchangedwith each monthly settlement are netted and include, among other items,our quota share of investment income on our proportionate share of theportfolio, realized losses, realized gains (amortized to reflect thestatutory rules relating to interest maintenance reserve), interestcredited and expense allowances.

At June  30,  2006,the funds withheld at interest totaled $2.1  billion with anaverage rating of ‘‘A’’, an averageeffective duration of 4.5 years and an average book yield of5.8%, as compared to $2.6  billion with an average ratingof ‘‘A+’’, an average effective duration of5.1 years and an average book yield of 5.6% at December31,  2005. These are fixed income investments and includemarketable securities, commercial mortgages, private placements andcash. The market value of the funds withheld amounted to $2.1billion and $2.6  billion at June  30,  2006 andDecember  31,  2005, respectively.

At June30,  2006 and December  31,  2005, funds withheld atinterest were in respect of seven contracts with five ceding companies,respectively. At June  30,  2006, we had three contractswith Lincoln National Life Insurance Company that accounted for$1.2  billion or 59% of the funds withheld balances.Additionally, we had one contract with Security Life of DenverInternational Limited that accounted for $0.2  billion or11% of the funds withheld balances and one contract withFidelity & Guaranty Life that accounted for $0.6  billion or27% of the funds withheld balances. The remaining contracts werewith Illinois Mutual Insurance Company and American Founders LifeInsurance Company. Lincoln National Life Insurance Company hasfinancial strength ratings of ‘‘A+’’ fromA.M. Best, ‘‘AA’’ from Standard &Poor’s, ‘‘Aa3’’ from Moody’sand ‘‘AA’’ from Fitch. In the event ofinsolvency of the ceding companies on these arrangements, we would needto exert a claim on the assets supporting the contract liabilities.However, the risk of loss is mitigated by our ability to offset amountsowed to the ceding company with the amounts owed to us by the cedingcompany. Reserves for future policy benefits and interest sensitivecontract liabilities relating to these contracts amounted to$1.9  billion and $2.4  billion at June  30,2006 and December  31,  2005, respectively.

Theinvestment objectives for these arrangements are included in themodified coinsurance and funds withheld coinsurance agreements. Theprimary objective is to maximize current income, consistent with thelong-term preservation of capital. The overall investment strategy isexecuted within the context of prudent asset/liability management. Theinvestment guidelines permit investments in fixed maturity securities,and include marketable securities, commercial mortgages, privateplacements and cash. The maximum percentage of below investment gradesecurities is 10%, and other guidelines limit risk, ensureissuer and industry diversification, and maintain liquidity and overallportfolio credit quality.

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According to data provided by our cedingcompanies, the following table reflects the market value of assetsbacking the funds withheld at interest portfolio using the lowestrating assigned by the three major ratingagencies.

|                         |  |  |              |   |         |                  |  |  |              |  |       |   |  |  |  |   |         |  |  |  |  |  |       |   |
|-------------------------|--|--|--------------|---|---------|------------------|--|--|--------------|--|-------|---|--|--|--|---|---------|--|--|--|--|--|-------|---|
|                    |  |  | June30, 2006 |   |         | December 31,2005 |
| Ratings                 |  |  | $in millions |   |         | %                |  |  | $ inmillions |  |       | % |
| AAA                     |  |  |              | $ | 504.0   |                  |  |  |              |  | 24.0  | % |  |  |  | $ | 705.9   |  |  |  |  |  | 27.4  | % |
| AA                      |  |  |              |   | 144.5   |                  |  |  |              |  | 6.9   |   |  |  |  |   | 146.0   |  |  |  |  |  | 5.7   |   |
| A                       |  |  |              |   | 615.6   |                  |  |  |              |  | 29.2  |   |  |  |  |   | 741.6   |  |  |  |  |  | 28.9  |   |
| BBB                     |  |  |              |   | 661.8   |                  |  |  |              |  | 31.4  |   |  |  |  |   | 785.8   |  |  |  |  |  | 30.6  |   |
| BBorbelow               |  |  |              |   | 74.2    |                  |  |  |              |  | 3.5   |   |  |  |  |   | 78.0    |  |  |  |  |  | 3.0   |   |
|                    |  |  |              |   | 2,000.1 |                  |  |  |              |  | 95.0  |   |  |  |  |   | 2,457.3 |  |  |  |  |  | 95.6  |   |
| Commercialmortgageloans |  |  |              |   | 105.5   |                  |  |  |              |  | 5.0   |   |  |  |  |   | 112.6   |  |  |  |  |  | 4.4   |   |
| Total                   |  |  |              | $ | 2,105.6 |                  |  |  |              |  | 100.0 | % |  |  |  | $ | 2,569.9 |  |  |  |  |  | 100.0 | % |
|                         |

Accordingto data provided by our ceding companies, the following table reflectsthe market value of assets backing the funds withheld at interestportfolio bysector.

|                                                               |  |  |              |   |         |                  |  |  |              |  |       |   |  |  |  |   |         |  |  |  |  |  |       |   |
|---------------------------------------------------------------|--|--|--------------|---|---------|------------------|--|--|--------------|--|-------|---|--|--|--|---|---------|--|--|--|--|--|-------|---|
|                                                          |  |  | June30, 2006 |   |         | December 31,2005 |
| Sector                                                        |  |  | $in millions |   |         | %                |  |  | $ inmillions |  |       | % |
| U.S. Treasury securitiesand U.S. government agencyobligations |  |  |              | $ | 47.4    |                  |  |  |              |  | 2.3   | % |  |  |  | $ | 62.3    |  |  |  |  |  | 2.4   | % |
| Corporatesecurities                                           |  |  |              |   | 1,384.4 |                  |  |  |              |  | 65.7  |   |  |  |  |   | 1,634.4 |  |  |  |  |  | 63.6  |   |
| Municipalbonds                                                |  |  |              |   | 28.4    |                  |  |  |              |  | 1.3   |   |  |  |  |   | 33.0    |  |  |  |  |  | 1.3   |   |
| Mortgageand asset backedsecurities                            |  |  |              |   | 462.4   |                  |  |  |              |  | 22.0  |   |  |  |  |   | 595.1   |  |  |  |  |  | 23.1  |   |
| Commercialmortgageloans                                       |  |  |              |   | 105.5   |                  |  |  |              |  | 5.0   |   |  |  |  |   | 112.6   |  |  |  |  |  | 4.4   |   |
| Cash                                                          |  |  |              |   | 77.5    |                  |  |  |              |  | 3.7   |   |  |  |  |   | 132.5   |  |  |  |  |  | 5.2   |   |
| Total                                                         |  |  |              | $ | 2,105.6 |                  |  |  |              |  | 100.0 | % |  |  |  | $ | 2,569.9 |  |  |  |  |  | 100.0 | % |
|                                                               |

Liquidityand Capital Resources

Liquidity

Cash flow

Cash provided by operating activities amounted to $1,092.8million in the first six months of 2006 compared to cash provided byoperating activities of $183.0  million in the same period of2005. Operating cash flow includes cash inflows from premiums, fees andinvestment income, and cash outflows for benefits and expenses paid. Inperiods of growth of new business our operating cash flow may decreasedue to first year commissions paid on new business generated. Forincome recognition purposes these commissions are deferred andamortized over the life of the business. During the first six months of2006, $442.3  million of funds withheld were released as a resultof the Ballantyne Re transaction. The remaining cash provided byoperating activities was mainly due to the increase in reserves forfuture policy benefits related to a new annuity contract written by theLife Reinsurance International Segment.

We believe cash flowsfrom operations will be positive over time. However, they may bepositive or negative in any one period depending on the amount of newlife reinsurance business written, the level of ceding commissions paidin connection with writing that business, the level of renewal premiumsearned in the period and the timing of receipt of reinsurancereceivables and settlement of reinsurance payables.

Net cashused in investing activities was $3,006.2 million and $1,578.1 millionin the six months ended June  30,  2006 and the comparableperiod in 2005, respectively. The increase in cash used in investingactivities principally relates to the purchases of fixed maturitysecurities. In the current year, 

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these were primarily related to theinvestment of the proceeds of the Regulation XXX transactions closed inDecember  2005 and May  2006 and the excess cash generatedby operating and financing activities. In the same period in 2005,these were primarily related to the investment of the proceeds of thecollateral finance facilities and the excess cash generated byoperating and financing activities and investment of funds received onthe ING acquisition.

Net cash provided by financing activitieswas $2,056.5 million   in the six months ended June30,  2006 and $921.0 million in the same period of 2005. Thecurrent period financings included $1,739.5 million raised incollateral finance facilities, $278.3 million related to deposits tointerest sensitive contracts and $110.0 million from proceeds from theprepaid variable share forward contract. Also during the quarter wereceived proceeds of $64.9  million from the reverse repurchaseagreement which is fully collateralized. Prior year financings mainlyrelate to collateral finance facilities proceeds.

Creditfacilities

On July 14, 2005, Scottish Annuity & LifeInsurance Company (Cayman) Ltd., Scottish Re (Dublin) Limited, ScottishRe (U.S.), Inc. and Scottish Re Limited entered into a $200.0 million,three-year revolving unsecured senior credit facility with a syndicateof banks. This facility replaced a 364-day facility, which was due tomature in October 2005. The facility may be increased to an aggregateprincipal amount of $300.0 million with the consent of theparticipating banks. The facility provides capacity for borrowing andextending letters of credit. The facility is a direct financialobligation of each of the borrowers; however, Scottish Annuity &Life Insurance Company (Cayman) Ltd. has guaranteed the payment ofobligations of Scottish Re (Dublin) Limited, Scottish Re (U.S.), Inc.and Scottish Re Limited. There were no outstanding borrowings at June30, 2006. Outstanding letters of credit under this facility amounted to$51.4 million at June 30, 2006. As of June 30, 2006, there was $148.6million of unused commitment under the facility. In light of our secondquarter results and recent ratings downgrades, we are not certain atthis time whether the lenders under this facility, and the facilityreferred to below, will honor their commitment to fund any borrowingrequests and if so whether they will insist upon collateral for anysuch funding. We are currently in discussions with representatives ofthe bank syndicate regarding this credit facility.

On August 18,2005, Scottish Re (Dublin) Limited entered into a $30.0 millionthree-year revolving, unsecured letter of credit facility with asyndicate of banks. The credit facility may be increased to anaggregate principal amount of $50.0 million with the consent of theparticipating banks. The facility is a direct financial obligation ofScottish Re (Dublin) Limited, however, Scottish Annuity & LifeInsurance Company (Cayman) Ltd. has guaranteed the payment obligationsof Scottish Re (Dublin) Limited. Outstanding letters of credit underthis facility amounted to $10.0 million at June 30, 2006. As of June30, 2006, there was $20.0 million of unused commitment under thefacility. We are currently in discussions with representatives of thebank syndicate regarding this credit facility.

The financialcovenants of these facilities require that Scottish Annuity & LifeInsurance Company (Cayman) Ltd. maintain a minimum amount ofconsolidated shareholders' equity (during any four quarterperiod, $750.0 million plus 50% of consolidated net income forthe period plus 50% of any increases to shareholders'equity during the period) and maintain the ratio of unencumbered assetsto aggregate borrowings under the facilities of 1.2 times borrowings.In addition, these facilities also require Scottish Re Group Limited tomaintain a minimum amount of consolidated shareholders' equity(during any four quarter period, $760.0 million plus 50% ofconsolidated net income for the period plus 50% of any increasesto shareholders' equity during the period) and a debt tocapitalization ratio of less than 30%. For the purposes ofcomputing the financial covenants, the collateral facilities and theirassociated costs are excluded. The facilities also contain certaincovenants on borrowing entities in respect of, among other things,dividends or loans to the parent, debt incurrence and affiliatetransactions.

Failure to comply with the requirements of thecredit facilities would, subject to grace periods, result in an eventof default and we would be required to repay any outstandingborrowings. At June 30, 2006, Scottish Annuity & Life InsuranceCompany (Cayman) Ltd. and Scottish Re Group Limited were in compliancewith the financial covenants noted in the preceding paragraph.

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Reverse Repurchase Agreement

We have a reverse repurchase agreement with a major broker/dealer.Under this agreement, we have the ability to sell securities with theagreement to repurchase them at a fixed price, providing the dealerwith a spread that equates to an effective borrowing cost linked tothree-month LIBOR. This agreement is renewable at the discretion of thebroker/dealer. At June 30, 2006, there was $64.9 million outstandingunder this agreement recorded as a payable under reverse repurchaseagreement. At June 30, 2006, the interest rate was 5.19% and themarket value of collateral pledged under this reverse repurchaseagreement was $65.7 million. The reverse repurchase agreements wererepaid on August 14, 2006, and accordingly, there remains no currentpayable outstanding.

The Holding Company

We are aholding company whose primary uses of liquidity include, but are notlimited to, operating expenses, the immediate capital needs of ouroperating companies, dividends paid to our shareholders and interestpayments on our indebtedness. See Note 10, ‘‘DebtObligations’’ in the Notes to the Consolidated FinancialStatements to our 2005 Annual Report on Form 10-K. The primary sourcesof our liquidity include proceeds from our capital raising efforts,interest income on corporate investments and dividends from operatingsubsidiaries. The holding company also receives funding from itssubsidiaries through transfer pricing reflecting services performed bythe holding company on behalf of its subsidiaries. We will continue tobe dependent upon these sources of liquidity.

OtherSources and Uses of Liquidity

In addition to our operating cashflows and credit facilities, we have other sources of liquidityincluding the additional proceeds from the remaining variable forwardshare contract and the Stingray facility. Our most significantliquidity use relates to the 4.5% Senior Convertible Notes,pursuant to which the noteholders have the right to put the notes to usfor cash on December 6, 2006.

Based on our known sources anduses of liquidity, our liquidity position is very tight over the nearterm. To enhance our liquidity position, we are working on thepreviously announced strategic alternatives of a capital raise andpossible sale of the company, we are in discussions with a largeinstitutional investor regarding a funding proposal and we are pursuingdiscussions with other lending institutions for alternative creditfacilities. We are actively negotiating reinsurance transactions toprovide both liquidity and capital relief and we are exploring ways torestructure our operations to minimize any liquidity strains such asdecreasing the rate of growth of new business. While no assurances canbe given that we will be successful in completing any of thesealternatives, we believe that any one of them has the potential toprovide us with the liquidity we need for the next year ormore.

Capital and Long-Term Debt

Total capitalization atJune  30,  2006 and December  31,  2005 is asfollows:

|                           |  |  |              |   |           |                  |  |  |  |   |           |  |
|---------------------------|--|--|--------------|---|-----------|------------------|--|--|--|---|-----------|--|
|                      |  |  | June30, 2006 |   |           | December 31,2005 |
| Shareholders’equity |  |  |              | $ | 1,187,890 |                  |  |  |  | $ | 1,271,712 |  |
| Mezzanineequity           |  |  |              |   | 143,359   |                  |  |  |  |   | 143,057   |  |
| Long-termdebt             |  |  |              |   | 244,500   |                  |  |  |  |   | 244,500   |  |
| Total                     |  |  |              | $ | 1,575,749 |                  |  |  |  | $ | 1,659,269 |  |
|                           |

Thedecrease in shareholders’ equity is principally due to our netloss of $107.7  million plus other comprehensive loss of$94.7  million partially offset by additional capital fromprepaid variable share forward contracts. Other comprehensive lossincludes the increase in unrealized depreciation on investments (net oftaxes and deferred acquisition costs) of $112.6million.

Prepaid variable share forward contract

In connection with the December  23,  2005 ordinaryshare offering, we entered into forward sales agreements withaffiliates of Bear, Stearns & Co. Inc. and Lehman Brothers, Inc.(the ‘‘forward 

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purchasers’’) and the forwardpurchasers borrowed and sold an aggregate of approximately 3,150,000ordinary shares as their initial hedge of the forward sale agreements.Pursuant to the forward sale agreements, the forward purchasers agreedto pay us an aggregate of approximately $75.0  million onSeptember  29,  2006 and an aggregate of approximately$75.0  million on December  29,  2006, subject to ourright to receive a portion of such payment prior to the settlementdates. In exchange, on each of such dates we will deliver to theforward purchasers a variable number of ordinary shares based on theaverage market price of the ordinary shares, subject to a floor priceof $22.80 and a cap price of $28.80. We also have the right to netshare settle or cash settle the forward sale agreements. The fair valueof the forward sales agreements at inception is reflected inshareholders’ equity (as a reduction in additional paid-incapital) and the fair value is not adjusted until the settlement dateof the forward. In addition, the underwriting costs of the forwardsales agreements have been reflected in shareholders’ equity (asa reduction in additional paid-in capital).

OnJune  26,  2006, we exercised our right of prepayment underthe forward sale agreements and received 75% of the$150.0  million proceeds totaling $110.0  million, net ofprepayment discounts of $2.5  million. This prepayment has beenrecorded as a separate component of consolidated shareholders’equity. The total amount of the discount related to the prepaymenttransaction is being recorded as an imputed dividend charge over theapplicable contract settlement period. The prepayment option on theforward sale agreements provides the counterparty liquidationpreferences that are similar to other ordinary shareholders.

OnAugust 9, 2006, the forward purchasers notified us of the occurrence of‘‘Increased Cost of Stock Borrow’’ under theforward sale agreements and proposed price adjustments thereto.Pursuant to the forward sales agreements, upon receipt of suchnotification, we were entitled to elect to (a)  agree to amendthe transactions to take into account the price adjustments; (b) paythe forward purchasers an amount corresponding to the priceadjustments; or (c) terminate the transactions. On August 11, 2006, theforward purchasers proposed an amendment to the forward salesagreements which provided us an additional alternative, theacceleration of the scheduled maturity date to August 14, 2006 undereach of the forward sales agreements. We agreed to this amendment onAugust 14, 2006. We expect to receive cash proceeds of $36.5 millionand will issue 6.6 million ordinary shares on or about August 17, 2006,which will satisfy in full our obligation to deliver shares pursuant tothe forward sales agreements and the forward purchasers obligations topay us under such agreement. Upon the settlement of the forward salesagreements, giving effect to the terms of the proposed amendment, wewill have received $146.5 million in the aggregate under the forwardsales agreements, in payments made on June 26, 2006 and on or aboutAugust 17, 2006, and we will have issued an aggregate of 6.6 millionshares.

Long-term debt

Included inlong-term debt is $115.0  million of 4.5% SeniorConvertible Notes due December  1,  2022. The notes aregeneral unsecured obligations, ranking on a parity in right of paymentwith all our existing and future unsecured senior indebtedness, andsenior in right of payment to all our future subordinated indebtedness.We may redeem the notes at our option in whole or in part beginning onDecember  6,  2006 at 100% of their principal amountplus accrued and unpaid interest and additional amounts, if any,payable in cash. If a change of control of Scottish Re Group Limitedoccurs, note holders may require us to repurchase all or part of thenotes at a repurchase price of 100% of their principal amountplus accrued and unpaid interest and additional amounts, if any,payable in cash. Note holders may also require us to repurchase all orpart of the notes on December  6,  2006, December1,  2010, December  1,  2012 and December1,  2017 at a repurchase price of 100% of their principalamount plus accrued and unpaid interest and additional amounts, if any,payable in cash. In addition, as a result of the recent ratingsdowngrade of the 4.5% Senior Convertible Notes by Moody's,the notes are currently convertible at a rate of 46.0617 ordinaryshares per $1,000 principal amount. On conversion, we would pay thenotes in cash, based on the average sale price of our ordinary sharesfor a period of 20 consecutive trading days prior to conversion.

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Shareholder dividends

OnJuly  28,  2006, the Board of Directors suspended thedividend on the ordinary shares. Historically, we have paid quarterlydividends of $0.05 per ordinary share and have paid quarterly dividendson our non-cumulative perpetual preferred shares commencing in thethird quarter of 2005. Because we account for dividends declared inarrears, the suspension of the ordinary share dividend will be firstreflected in the third quarter of 2006. All future payments ofdividends are at the discretion of our Board of Directors and willdepend on our income, capital requirements, insurance regulatoryconditions, operating conditions and such other factors as the Board ofDirectors may deem relevant. The amount of dividends that we can paywill depend in part on the operations of our reinsurancesubsidiaries.

Collateral

We must have sufficient assetsavailable for use as collateral to support borrowings, letters ofcredit and certain reinsurance transactions. With reinsurancetransactions, the need for collateral or letters of credit arises infive ways:

|  |              |                                                                                                                                                                                                                                                                                                                                                             |
|--|--------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Scottish Annuity & LifeInsurance Company (Cayman) Ltd., Scottish Re (Dublin) Limited orScottish Re Limited enters into a reinsurance treaty with a U.S.customer, we must contribute assets into a reserve credit trust with aU.S. bank or issue a letter of credit to enable the ceding company toobtain reserve credit for the reinsurancetransaction; |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Scottish Re (U.S.), Inc.enters into a reinsurance transaction, it typically incurs a need foradditional statutory capital. This need can be met by its own capitalsurplus, an infusion of cash or assets from us or an affiliate or byceding a portion of the transaction to another company within the groupor an unrelated reinsurance company, in which case that reinsurer mustprovide reserve credit by contributing assets in a reserve credit trustor a letter of credit; |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                               |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Scottish Re(U.S.), Inc. is licensed, accredited, approved or authorized to writereinsurance in 50 states and the District of Columbia. When Scottish Re(U.S.), Inc. enters into a reinsurance transaction with a customerdomiciled in a state in which it is not a licensed, accredited,authorized or approved reinsurer, it likewise must provide a reservecredit trust or letter of credit; |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | 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 transactionwith a customer domiciled in a state in which it is not a licensed,accredited, authorized or approved reinsurer, it likewise must providea reserve credit trust or letter of credit;and |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Scottish Re (U.S.), Inc. islicensed, accredited, approved or authorized to write reinsurance in astate, it may still agree with a customer to provide a reserve credittrust or letter of credit voluntarily to mitigate the counter-partyrisk from the customer’s perspective, thereby doing transactionsthat would otherwise be unavailable or would be available only onsignificantly less attractive terms. |

ING CollateralArrangement

ING is obligated to maintain collateral for theRegulation XXX and AXXX reserve requirements of the business weacquired from them for the duration of such requirements (which relateto state insurance law reserve requirements applying to reserves forlevel premium term life insurance policies and universal lifepolicies). We pay ING a fee based on the face amount of the collateralprovided until satisfactory alternative collateral arrangements aremade. In the normal course of business and our capital planning we arealways looking for opportunities to relieve capital strain relating toXXX reserve requirements for our existing business, as well as, thebusiness acquired from ING. We completed three financing solutionsrelating to these requirements in December  2005 and one inMay  2006. The vast majority of the Regulation XXX business hasbeen permanently financed with alternative sources and the principalobligation left for ING is related to the Regulation AXXXbusiness.

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HSBC I

In 2004, we enteredinto a collateral finance facility with HSBC Bank USA, N.A.(‘‘HSBC I’’). This facility provides$200.0  million that can be used to collateralize reinsuranceobligations under inter-company reinsurance agreements. Simultaneously,we entered into a total return swap with HSBC Bank USA, N.A. underwhich we are entitled to the total return of the investment portfolioof the trust established for this facility. In accordance with FASBInterpretation No. 46 (revised December 2003) (‘‘FIN46R’’), ‘‘Consolidation of Variable InterestEntities’’, the trust is considered to be a variableinterest entity and we are deemed to hold the primary beneficialinterest in the trust. As a result, the trust has been consolidated inour financial statements. The assets of the trust have been recorded asfixed maturity investments. Our consolidated statements of income showthe investment return of the trust as investment income and the cost ofthe facility is reflected in collateral finance facilities expense. Thecreditors of the trust have no recourse against our general assets. Asat June 30, 2006, this facility was fullyutilized.

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, weacquired an irrevocable put option to issue funding agreements toStingray in return for the assets in a portfolio of 30-day commercialpaper. This put option may be exercised at any time. In addition, wemay be required to issue funding agreements to Stingray under certaincircumstances, including, but not limited to, the non-payment of theput option premium and a non-payment of interest under any outstandingfunding agreements under the put agreement. The facility matures onJanuary  12,  2015. This transaction may also providecollateral for Scottish Re (U.S.), Inc. for reinsurance obligationsunder inter-company reinsurance agreements. At June  30,2006, $57.5  million was in use for this purpose. We drew downthe remaining funds, in the amount of $265.0 million, under thisfacility on August 14, 2006. The put premium incurred during the threeand six months ended June  30,  2006 amounted to$1.2  million and $2.4  million, respectively, and isincluded in collateral finance facilities expense in the consolidatedstatements of income. The put premium incurred during the three and sixmonths ended June  30,  2005 amounted to $1.2million and $2.3  million, respectively. In accordance with FIN46R, we are not considered to be the primary beneficiary of Stingrayand as a result we are not required to consolidateStingray.

Orkney Re, Inc.

On February11,  2005, Orkney Holdings, LLC, a Delaware limited liabilitycompany (‘‘Orkney I’’), issued and sold ina private offering an aggregate of $850.0  million Series AFloating Rate Insured Notes due February  11,  2035 (the‘‘Orkney Notes’’). Orkney I was organizedfor the limited purpose of holding the stock of Orkney Re, Inc., aSouth Carolina special purpose captive insurance company, and issuingthe Orkney Notes. Scottish Re (U.S.), Inc. holds all of the limitedliability company interest in Orkney I. Proceeds from this offeringwere used to fund the Regulation XXX reserve requirements for a definedblock of level premium term life insurance policies issued betweenJanuary  1,  2000 and December  31,  2003reinsured by Scottish Re (U.S.), Inc. to Orkney Re, Inc. Proceeds fromthe Orkney Notes have been deposited into a series of trusts thatcollateralize the notes.

The holders of the Orkney Notes cannotrequire repayment from us or any of our subsidiaries, other than OrkneyI. The timely payment of interest and ultimate payment of principal forthe Orkney Notes are guaranteed by MBIA InsuranceCorporation.

Interest on the principal amount of the Orkney Notesis payable quarterly at a rate equivalent to three month LIBOR plus0.53%. At June  30,  2006, the interest rate was5.69%. Any payment of principal, including by redemption, orinterest 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 ofInsurance of the State of South Carolina in accordance with the termsof its licensing orders and in accordance with applicable law. TheOrkney Notes also contain 

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a customary limitation on lien provisionsand customary events of default provisions, which, if breached, couldresult in the accelerated maturity of the Orkney Notes. Orkney I hasthe option to redeem all or a portion of the Orkney Notes prior to andon or after February  11,  2010, subject to certain callpremiums.

In accordance with FIN 46R, Orkney I is considered tobe a variable interest entity and we are considered to hold the primarybeneficial interest. As a result, Orkney I has been consolidated in ourfinancial statements. The assets of Orkney I have been recorded asfixed maturity investments and cash and cash equivalents. Ourconsolidated statements of income show the investment return of OrkneyI as investment income and the cost of the facility is reflected incollateral finance facilities expense.

Orkney Re IIplc

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

The holdersof the Orkney II Notes cannot require repayment from us or any of oursubsidiaries, only from Orkney II. Assured Guaranty (UK) Ltd. hasguaranteed the timely payment of the scheduled interest payments andthe principal on the maturity date, December  21,  2035, ofthe Series A-1 Notes.

Interest on the principal amount of theOrkney II Notes is payable quarterly at a rate equivalent to threemonth LIBOR plus 0.425% for the Series A-1 Notes, three-monthLIBOR plus 0.73% for the Series A-2 Notes, and three month LIBORplus 3.0% for the Series B Notes. At June  30,2006, the interest rate on the Series A-1 Notes was 5.17%,Series A-2 Notes was 5.47%, and Series B Notes was 7.74%.The Orkney II Notes also contain a customary limitation on lienprovisions and customary events of default provisions, which, ifbreached, could result in the accelerated maturity of the Orkney IINotes. Orkney II has the option to redeem all or a portion of theOrkney II Notes prior to and on or after February  11,2007, subject to certain call premiums.

In accordance with FIN46R, Orkney II is considered to be a variable interest entity and weare considered to hold the primary beneficial interest. As a result,Orkney II has been consolidated in our financial statements. The assetsof Orkney II have been recorded as fixed maturity investments and cashand cash equivalents. Our consolidated statements of income show theinvestment return of Orkney II as investment income and the cost of thefacility is reflected in collateral finance facilitiesexpense.

HSBC II

On December  22,2005, we entered into a second collateral finance facility with HSBCBank USA, N.A (‘‘HSBC II’’). This facilityis a 20 year collateral finance facility that provides up to$1.0  billion of Regulation XXX collateral support for thebusiness acquired from ING and can be used to collateralize reinsuranceobligations under inter-company reinsurance agreements. Simultaneously,we entered into a total return swap with HSBC Bank USA, N.A. underwhich we are entitled to the total return of the investment portfolioof the trust established for this facility. In accordance with FIN 46Rthe trust is considered to be a variable interest entity and we aredeemed to 

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hold the primary beneficial interest in thetrust. As a result, the trust has been consolidated in our financialstatements. The assets of the trust have been recorded as fixedmaturity investments, cash and cash equivalents. Our consolidatedstatements of income show the investment return of the trust asinvestment income and the cost of the facility is reflected incollateral finance facilities expense. The creditors of the trust haveno recourse against our general assets.

Ballantyne Replc

On May  2,  2006, Ballantyne Re plc, anorphan special purpose vehicle incorporated under the laws of Irelandissued in a private offering $1.71  billion of debt to externalinvestors and $210.0  million of debt to Scottish Annuity &Life Insurance Company (Cayman) Ltd. The debt issued to externalinvestors (collectively, the ‘‘Notes’’)consisted of:

|  |              |                                                 |
|--|--------------|-------------------------------------------------|
|  | •  | $250.0  million ofClass A-1 Floating RateNotes, |

|  |              |                                                                     |
|--|--------------|---------------------------------------------------------------------|
|  | •  | $500.0  million of ClassA-2 Floating Rate Guaranteed Notes SeriesA, |

|  |              |                                                                     |
|--|--------------|---------------------------------------------------------------------|
|  | •  | $500.0  million of Class A-2Floating Rate Guaranteed Notes SeriesB, |

|  |              |                                                                     |
|--|--------------|---------------------------------------------------------------------|
|  | •  | $100.0  million of Class A-3Floating Rate Guaranteed Notes SeriesA, |

|  |              |                                                                     |
|--|--------------|---------------------------------------------------------------------|
|  | •  | $100.0  million of Class A-3Floating Rate Guaranteed Notes SeriesB, |

|  |              |                                                                     |
|--|--------------|---------------------------------------------------------------------|
|  | •  | $100.0  million of Class A-3Floating Rate Guaranteed Notes SeriesC, |

|  |              |                                                                     |
|--|--------------|---------------------------------------------------------------------|
|  | •  | $100.0  million of Class A-3Floating Rate Guaranteed Notes SeriesD, |

|  |              |                                                        |
|--|--------------|--------------------------------------------------------|
|  | •  | $10.0  million of Class B-17.51244% SubordinatedNotes, |

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

|  |              |                                                                       |
|--|--------------|-----------------------------------------------------------------------|
|  | •  | $10.0  million of Class C-1Subordinated Variable Interest Rate Notes. |

The debt issued toScottish Annuity & Life Insurance Company (Cayman) Ltd. consistedof $40.0  million of Class C-1 Subordinated Variable InterestRate Notes and $170.0  million Class C-2 Subordinated VariableInterest Rate Notes, which Scottish Annuity & Life InsuranceCompany (Cayman) Ltd. intends to hold (collectively, the‘‘SALIC Notes’’; and together with theNotes, the ‘‘Ballantyne Notes’’).Subsequent to the issuance of the Ballantyne Notes, Scottish Annuity& Life Insurance Company (Cayman) Ltd. sold $32.0  million ofClass C-1 Subordinated Variable Interest Rate Notes to externalinvestors. Scottish Annuity & Life Insurance Company (Cayman) Ltd.continues to hold $8.0  million Class C-1 Subordinated VariableInterest Rate Notes, which it intends to sell to external investors.Concurrently with its offering of the Ballantyne Notes, Ballantyne Reissued (i) $500,000 of Class D Convertible Notes, which were purchasedby Scottish Re Group Limited, (ii) 163.0  million RedeemablePreference Shares of U.S. $1.00 par value per share which werepurchased by Scottish Annuity & Life Insurance Company (Cayman)Ltd., and (iii) 18.2  million Non-Redeemable Preference Shares ofU.S. $1.00 par value per share which were also purchased by ScottishAnnuity & Life Insurance Company (Cayman) Ltd.

Interest onthe principal amount of the Ballantyne Notes is payable in intervalsranging from every 28 days to monthly to annually, depending on thenote, initially at a rate equivalent to one-month LIBOR plus0.61% for the Class A-1 Floating Rate Notes (and afterMay  2,  2022, one-month LIBOR plus 1.22%),one-month LIBOR plus 0.31% for the Class A-2 Floating RateGuaranteed 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 afterMay  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 plus2.00% for the Class B-2 Subordinated Floating Rate Notes, and avariable rate based on performance of the underlying block of businessfor the Class C-1 Subordinated Variable Interest Rate Notes and theClass C-2 Subordinated Variable Interest Rate Notes.

Proceedsfrom this offering were used to fund the Regulation XXX reserverequirements for the business acquired from ING America InsuranceHoldings, Inc. $1.65  billion of the proceeds from the

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Ballantyne Notes have been deposited into aseries of accounts that collateralize the reserve obligations ofScottish Re (U.S.), Inc.

The holders of the Ballantyne Notescannot require repayment from us or any of our subsidiaries. The timelypayment of the scheduled interest payments and the principal on thematurity date of Series A of the Class A-2 Notes and Series A, SeriesB, Series C, Series D and, if issued, Series E of the Class A-3 Noteshas been guaranteed by Ambac Assurance UK Limited. The timely paymentof the scheduled interest payments and the principal on the maturitydate of Series B of the Class A-2 Notes and, if issued, Series F of theClass A-3 Notes has been guaranteed by Assured Guaranty (UK)Ltd.

In accordance with FIN 46R, Ballantyne Re is considered tobe a variable interest entity and we are considered to hold the primarybeneficial interest. As a result, Ballantyne Re is consolidated in ourfinancial statements beginning in the second quarter of 2006. Theassets of Ballantyne Re are recorded as fixed maturity investments andcash and cash equivalents. Our consolidated statements of incomeinclude the investment return of Ballantyne Re as investment income andthe cost of the facility is reflected in collateral finance facilitiesexpense.

Reinsurance Facility

OnDecember  22,  2005, we entered into a long termreinsurance facility (‘‘ReinsuranceFacility’’), with a third-party Bermuda-domiciledreinsurer that provides up to $1.0  billion of Regulation XXXcollateral support for the business acquired from ING. The Bermudareinsurer provides security in the form of letters of credit in trustequal to the statutory reserves. All risks and returns arising out ofthe underlying book of business are retained byus.

Collateral Summary

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

As described above, we have anumber of facilities in place to provide collateral requested for ourreinsurance business, including our credit facilities, HSBC I andStingray. However, the availability of certain of these facilities forfuture collateral support is uncertain. In particular, it is uncertainwhether the lenders under the credit facility will honor theircommitment to fund any future borrowing requests and, if so, whetherthey will insist upon collateral for any such funding. In addition, ourHSBC I facility has been fully utilized and it is uncertain if asimilar facility can be completed or if the current facility willremain available for future use following a permanent Regulation XXXtransaction which would reduce the current usage of the HSBC Ifacility. Other existing sources of collateral include the Stingrayfacility and cash and other assets which are available. Based on oursources and uses of collateral, our collateral position is very tightover the near term. To enhance our collateral position, we are workingon the previously announced strategic alternatives of a capital raiseand possible sale of the company, we are in discussions with a largeinstitutional investor regarding a funding proposal and we are pursuingdiscussions with other lending institutions for alternative creditfacilities. We are actively negotiating reinsurance transactions toprovide both collateral and capital relief and we are exploring ways torestructure our operations to minimize any collateral strains such asdecreasing the rate of growth of new business. While no assurances canbe given that we will be successful in completing any of thesealternatives, we believe that any one of them has the potential toprovide us with the collateral we need for the next year ormore.

Regulatory Capital Requirements

ScottishAnnuity & Life Insurance Company (Cayman) Ltd. has agreed withScottish Re (U.S.), Inc. that it will (1) cause Scottish Re (U.S.),Inc. to maintain capital and surplus equal to the greater 

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of $20.0  million or such amountnecessary to prevent the occurrence of a Company Action Level Eventunder the risk-based capital laws of the State of Delaware and (2)provide Scottish Re (U.S.), Inc. with enough liquidity to meet itsobligations in a timely manner.

Scottish Annuity & LifeInsurance Company (Cayman) Ltd. has agreed with Scottish Re LifeCorporation that it will (1) cause Scottish Re Life Corporation tomaintain capital and surplus equal to at least 175% of CompanyAction Level RBC, as defined under the laws of the State of Delawareand (2) provide Scottish Re Life Corporation with enough liquidity tomeet its obligations in a timely manner.

Scottish Annuity &Life Insurance Company (Cayman) Ltd. and Scottish Re Group Limited haveagreed with Scottish Re Limited that in the event Scottish Re Limitedis unable to meet its obligations under its insurance or reinsuranceagreements, 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 willassume all of Scottish Re Limited’s obligations under suchagreements.

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

All ofour regulated insurance entities are in excess of their minimumregulatory capital requirements as of June 30, 2006 and we expect themto remain as such through the near to medium term.

TartanCapital Limited

On May 4, 2006, we entered into an agreementthat provides $155.0 million of collateralized catastrophe protectionwith Tartan Capital Limited (‘‘Tartan’’), aspecial purpose Cayman Islands company which was funded through acatastrophe bond transaction. This coverage is for the period January1, 2006 to December 31, 2008 and provides the Scottish Annuity &Life Insurance Company (Cayman) Ltd. with coverage arising from higherthan normal mortality levels within the United States, as determined bythe U.S. Centers for Disease Control and Prevention or other designatedReporting Agency. The coverage is based on a modeled loss trigger. Uponthe occurrence of a loss event, if the modeled loss exceeds theattachment point for the peril, the coverage is activated. The recoveryis based on modeled losses and is not limited to Scottish Annuity &Life Insurance Company (Cayman) Ltd.'s, or any of itssubsidiaries', ultimate net loss from the loss event.

Inaccordance with SFAS No. 133, this contract is considered to be aderivative. We record this contract at fair value which is included in‘‘Other assets’’ and ‘‘Otherliabilities’’ in the Consolidated Balance Sheets with anychanges in the value reflected in ‘‘Acquisition costs andother insurance expenses’’ in the Consolidated Statementsof Income. There is no quoted market value available for thisderivative. The fair value is estimated utilizing published mortalitydata. Expenses related to this transaction are included in‘‘Acquisition costs and other insuranceexpenses’’ in the Corporate and Other Segment.

Tartan is a variable interest entity under the provisions of FASBInterpretation No. 46 (revised December 2003),‘‘Consolidation of Variable Interest Entities’’(‘‘FIN 46R’’). We are not the primarybeneficiary of this entity and are therefore not required toconsolidate it in our consolidated financialstatements.

Off Balance Sheet Arrangements

Wehave no obligations, assets or liabilities other than those disclosedin the financial statements; no trading activities involvingnon-exchange traded contracts accounted for at fair value; and norelationships and transactions with persons or entities that derivebenefits from their non-independent relationship with us or our relatedparties.

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New AccountingStandards

FASB Statement No. 123(R), Share-BasedPayment

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

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

In March  2006, theFASB issued SFAS No. 156, which permits an entity to choose either ofthe following subsequent measurement methods for each class ofseparately recognized servicing assets and servicing liabilities.

|  |              |                                                                                                                                                                                                                                                                                                                                                                                             |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Amortization Method — amortizeservicing assets or servicing liabilities in proportion to and over theperiod of net servicing income or net servicing loss and assess theservicing assets or liabilities for impairment or increased obligationbased on fair value at each reporting date. This method is consistentwith current subsequent measurement guidance for servicing rights. |

|  |              |                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--|--------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Fair Value Measurement Method — measureservicing assets or servicing liabilities at fair value at eachreporting date and report changes in fair value in earnings in theperiod in which the change occurs. SFAS No. 156 is effective as of thebeginning of an entity’s first fiscal year that begins afterSeptember  15,  2006. We are currently assessing the impactof SFAS No. 156 on our results of operations and financialposition. |

FASB Interpretation No. 48, Accounting forUncertainty in Income Taxes

In July  2006, the FASB issuedFIN 48. FIN 48 prescribes detailed guidance for the financial statementrecognition, measurement and disclosure of uncertain tax positionsrecognized in an enterprise’s financial statements in accordancewith SFAS No. 109. Tax positions must meet a more likely than notrecognition threshold at the effective date to be recognized upon theadoption of FIN 48 and in subsequent periods.

FIN 48 will beeffective for fiscal years beginning after December  15,2006 and the provisions of FIN 48 will be applied to all tax positionsupon initial adoption. The cumulative effect of applying theprovisions of FIN 48 will be reported as an adjustment to the openingbalance of retained earnings for that fiscal year. We arecurrently evaluating the potential impact of FIN 48 on our financialstatements.

Item 3.    Quantitative and QualitativeDisclosures about Market Risk

Please refer to Part II‘‘Item 1a: Risk Factors’’ and‘‘Item 7A: Quantitative and Qualitative Disclosures aboutMarket Risk’’ in our 2005 Annual Report.

Item4.    Controls and Procedures

Evaluation ofdisclosure controls and procedures

Our Chief ExecutiveOfficer and Chief Financial Officer have evaluated the effectiveness ofour disclosure controls and procedures (as defined in Rules 13a-15(e)and 15d-15(e) under the Securities Exchange Act of 1934). Based on suchevaluation, such officers have concluded that our disclosure controlsand procedures were effective as of June  30,  2006 toensure that information required to be disclosed by us in the reportsfiled and submitted by us under the Exchange Act were recorded,processed, summarized and reported within the time periods specified inthe SEC’s rules and forms.

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Changes in internalcontrols

There have not been any changes in our internalcontrol over financial reporting (as defined in Rules 13a-15(f) and15d-15(f) promulgated by the SEC under the Securities Exchange Act of1934) during our most recently completed fiscal quarter that havematerially affected, or are reasonably likely to materially affect, ourinternal control over financial reporting, except we addressed andimproved the quality and level of detail of our underlying externalretrocession data and automated the administration of our externalretrocession programs.

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PART II. OTHERINFORMATION

Item 1. Legal Proceedings

On August 2, 2006and August 7, 2006, putative class action lawsuits were filed againstus, Glenn Schafer, the Chairman of our Board of Directors, Dean E.Miller, our Chief Financial Officer, Scott E. Willkomm, our formerChief Executive Officer, and Seth Vance, our former Chief ExecutiveOfficer - North America, in the U.S. District Court for the SouthernDistrict of New York (‘‘S.D.N.Y.’’) on behalfof a putative class consisting of investors who purchased our publiclytraded securities between December 16, 2005 and July 28, 2006. On orabout August 7, 2006, a related class action lawsuit was filed againstus, Mr. Miller, Mr. Willkomm, and Elizabeth A. Murphy, our former ChiefFinancial Officer, in the S.D.N.Y., on behalf of a putative classconsisting of investors who purchased our publicly traded securitiesbetween February 17, 2005 and July 28, 2006. Each of the complaintsallege that the defendants made materially false and misleadingstatements and/or omissions concerning our business and operations,thereby causing investors to purchase our securities at artificiallyinflated prices, in violation of Sections 10(b) and 20(a) of theSecurities Exchange Act of 1934, as amended (the ‘‘ExchangeAct’’), and Rule 10b-5 promulgated under the 1934 Act. Twoof the complaints allege, among other things, that the defendants madefalse and misleading statements that we were poised for futureprofitable growth, even though the defendants allegedly knew that wehad failed to control expenses and manage our investment and liquidityrisk. The third complaint alleges, among other things, that thedefendants made positive statements about us and our financial strengththat were lacking in any reasonable basis at the time they were made,and that the defendants failed to disclose, among other things, thatthe defendants had improperly valued allowances on deferred tax assetsand that we lacked adequate internal controls. Each of the classactions filed seek an unspecified amount of damages, as well as otherforms of relief. We contest the allegations that have been asserted andplan to vigorously defend our interests in both actions. Similar classactions may be filed and served on us.

Item 1a. RiskFactors    

The recent downgrades in the financialratings of our insurance subsidiaries, and any further downgrades,could make us less competitive and will increase our cost ofcapital.

Ratings are an important factor in attractingbusiness in our life reinsurance business. Rating organizationsperiodically review the financial performance and condition ofinsurers, including our insurance subsidiaries. Rating organizationsassign ratings based upon several factors. Although most of the factorsconsidered relate to the rated company, some of the factors take intoaccount general economic conditions and circumstances outside the ratedcompany’s control. The objective of rating organizations is toprovide an opinion of an insurer’s financial strength andability to meet ongoing obligations to its policyholders. These ratingsare subject to periodic review by the relevant rating agency and may berevised downward or withdrawn at the sole discretion of the ratingagency. In addition, these ratings are not an evaluation directed toinvestors in our securities and are not recommendations to buy, sell orhold our securities. See ‘‘Management's Discussionand Analysis of Financial Condition and Results of Operations —Overview — Status of Credit and Financial StrengthRatings’’ for a description of our subsidiaries’ratings. The rating agencies have warned that further adversedevelopments in the business, including with respect to additionalone-time charges, loss of in-force business and liquidity, could causethem to downgrade our ratings.

Although there are few in-forcetreaties with recapture provisions that are triggered by a ratingsdowngrade, the recent downgrades of our insurance subsidiaries couldadversely affect our ability to sell products, write new treaties,retain existing business (through the termination of open treaties fornew business), and compete for attractive acquisition opportunities. Inaddition, as a result of the downgrades, the interest rates for ourcredit facilities and securitization transactions have increased. Ourability to raise capital for our business and the cost of such capitalmay be adversely affected by downgrades in our credit ratings.

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Our inability to attract and retainqualified employees or the loss of any of our key employees couldnegatively impact our business.

Our success substantiallydepends upon our ability to attract and retain qualified employees andupon the ability of our senior management and other key employees toimplement our business strategy. We believe there are only a limitednumber of available qualified executives in the business lines in whichwe compete. We rely substantially upon the services of Glenn Schafer,the non-executive Chairman of our Board of Directors, BillCaulfeild-Browne, Vice-Chairman of our Board of Directors, PaulGoldean, our Chief Executive Officer, David Howell, the Chief ExecutiveOfficer of our Life Reinsurance International Segment, Hugh McCormick,our Executive Vice President of Corporate Development, Dean Miller, ourChief Financial Officer, and Clifford Wagner, our Chief ExecutiveOfficer of our Life Reinsurance North America Segment. Each of theforegoing members of senior management has employment agreements and wemaintain a $2,500,000 key man life insurance policy for Mr. Wagner. Theloss of the services of members of our senior management, or ourinability to hire and retain other talented personnel from the verylimited pool of qualified insurance professionals, could delay orprevent us from fully implementing our business strategy which couldharm our financial performance.

Our ability to pay dividendsdepends on our subsidiaries’ ability to distribute funds tous.

We are a holding company, with our principal assetsconsisting of the stock of our insurance company subsidiaries. Ourability to pay dividends on our ordinary shares, HyCUs, ournon-cumulative perpetual preferred shares, and to pay debt service onany of our indebtedness, depends significantly on the ability of ourinsurance company subsidiaries, our principal sources of cash flow, todeclare and distribute dividends or to advance money to us in the formof intercompany loans or service fees. Our insurance companysubsidiaries are subject to various state and foreign governmentstatutory and regulatory restrictions applicable to insurance companiesgenerally that limit the amount of dividends, loans and advances andother payments to affiliates. Our existing credit facility alsocontains restrictions on the ability of Scottish Annuity & LifeInsurance Company (Cayman) Ltd. and certain of our operatingsubsidiaries to pay dividends or make loans to us. If insuranceregulators at any time determine that payment of a dividend or anyother payment to an affiliate would be detrimental to an insurancesubsidiary’s policyholders or creditors, because of thefinancial condition of the insurance subsidiary or otherwise, theregulators may block dividends or other payments to affiliates thatwould otherwise be permitted without prior approval.

The marketprice for our ordinary shares has been and may continue to be highlyvolatile.

The market price for our ordinary shares hasfluctuated significantly, ranging between $24.84 per share onMarch  31,  2006 and $2.95 per share on July31,  2006. The overall market and the price of our ordinaryshares may continue to be volatile. There may be a significant effecton the market price for our ordinary shares due to, among otherthings:

|  |              |                                                                                                        |
|--|--------------|--------------------------------------------------------------------------------------------------------|
|  | •  | changes in investors’ andanalysts’ perceptions of the risks and conditions of ourbusiness, |

|  |              |                                                    |
|--|--------------|----------------------------------------------------|
|  | •  | the size of thepublic float of our ordinaryshares; |

|  |              |                                                          |
|--|--------------|----------------------------------------------------------|
|  | •  | the announcement ofacquisitions by us or ourcompetitors; |

|  |              |                                                                                            |
|--|--------------|--------------------------------------------------------------------------------------------|
|  | •  | variations in ouranticipated or actual operating results or the results of ourcompetitors; |

|  |              |                         |
|--|--------------|-------------------------|
|  | •  | regulatorydevelopments; |

|  |              |                       |
|--|--------------|-----------------------|
|  | •  | marketconditions; and |

|  |              |                             |
|--|--------------|-----------------------------|
|  | •  | generaleconomic conditions. |

Future transactions or changes in ourfinancial condition may limit our ability to use our net operating losscarry forwards.

As of December 31,  2005, we had actualnet operating loss carry forwards, or NOLs, of approximately $615.5million. $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 hasan unlimited carry forward period. The 

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U.S. NOLs may be used to offset futuretaxable income and thereby reduce our U.S. federal income taxesotherwise payable. Section 382 of the Internal Revenue Code, imposes anannual limit on the ability of a corporation that undergoes an‘‘ownership change’’ to use its NOLs toreduce its tax liability. It is possible that future transactions(including issuances of new shares and sales of our shares), wouldcause us to undergo an ownership change. In that event, we would not beable to use our pre-ownership-change NOLs in excess of the limitationimposed by Section 382. This would also result in a write-off of ourassociated transferred tax asset for GAAP purposes.

We generatedeferred tax assets principally due to NOLs, reserves and unrealizedlosses on investment securities. In accordance with SFAS No. 109, wemust conclude whether the future realization of our deferred tax assetis ‘‘more likely than not’’. The evaluationregarding realizability of deferred tax assets is made on a gross asopposed to a net basis. Sources of support for the gross deferred taxasset are the reversal of deferred tax liabilities within the carryforward period (which in the United States is 15 years), projectedfuture taxable income and tax planning strategies. Pursuant to theguidance under SFAS No. 109, we are currently unable to rely onprojections of future taxable income. Therefore, we must rely heavilyon tax planning strategies for support of the gross deferred tax asset.Prior to the quarter ended June 30, 2006, these tax planning strategieshave provided justification to support our deferred tax asset. Thecombination of the increased pressure on our existing tax planningstrategies, the operating loss for the quarter, and the prospects of aratings downgrade during the second quarter led management to concludethat 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 millionduring the quarter. Management will continue to assess and determinethe need for, and the amount of, the valuation allowance in subsequentperiods in accordance with the requirements of SFAS No. 109, and thereis a risk that we may need to establish additional valuation allowancesin future quarters, which could adversely impact our reported earningsand financial condition.

Several class action securitieslawsuits have been filed against us and certain of our current andformer officers and directors, and we cannot predict the outcome ofthese lawsuits.

We and certain of our current and formerofficers and directors have been named defendants in federal securitiesclass action lawsuits. The plaintiffs in these lawsuits may makeadditional claims, expand existing claims and/or expand the timeperiods covered by the complaints, and other plaintiffs may bringadditional actions with other claims. We expect to incur significantdefense costs regardless of the outcome of these lawsuits. If we do notprevail in any such actions, we could be required to pay substantialdamages or settlement costs, part or all of which may not be covered byinsurance. These lawsuits may result in a diversion of ourmanagement's time and attention and the incurrence of increasedcosts.

Our existing sources of liquidity and collateral may beinsufficient or unavailable to fund our expected future liquidity needsand we may be required to raise new sources of equity capital,liquidity and collateral on less advantageous terms than our historicalsources.

In addition to our operating cash flows and creditfacilities, we have other sources of liquidity and collateral includingthe additional proceeds from the remaining variable forward sharecontract and the Stingray facility. Our most significant liquidity userelates to the 4.5% Senior Convertible Notes, pursuant to whichthe noteholders have the right to put the notes to us for cash onDecember 6, 2006.

Based on the uncertainty in futureavailability on our credit facilities, combined with known uses ofliquidity and collateral, our liquidity position is very tight over thenear term. See ‘‘Management's Discussion and Analysisof Financial Condition and Results of Operations — Liquidity andCapital Resources’’ and ‘‘Management'sDiscussion and Analysis of Financial Condition and Results ofOperations — Collateral-Collateral Summary.’’ Toenhance our liquidity position, we are currently working on thepreviously announced strategic alternatives of a capital raise andpossible sale of the company, we are in discussions with a largeinstitutional investor regarding a funding proposal and we are pursuingdiscussions with other lending institutions for alternative creditfacilities. We are actively 

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negotiating reinsurance transactions toprovide both liquidity and capital relief and exploring ways torestructure our operations to minimize any liquidity and collateralstrains such as decreasing the rate of growth of new business. Noassurances can be given that we will be successful in completing any ofthese alternatives in order to meet our short-term liquidity andcollateral needs.

Item 2. Unregistered Sales of EquitySecurities and Use of Proceeds

Not applicable.

Item 3.Defaults upon Senior Securities

Not applicable.

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

The 2006Annual Meeting of Shareholders of the Company was held on May3,  2006. The following items of business were presented to ourshareholders (the‘‘Shareholders’’):

Election ofDirectors

The results of the vote of the Shareholders withrespect to the four Class II Directors were elected as proposed in theProxy Statement dated April  3,  2006 under the captiontitled ‘‘Proposal for Election ofDirectors’’ were asfollows:

|                   |  |  |                            |  |            |                                       |  |  |  |  |        |  |
|-------------------|--|--|----------------------------|--|------------|---------------------------------------|--|--|--|--|--------|--|
| Name              |  |  | TotalVote For EachDirector |  |            | Total Vote Withheld From EachDirector |
| MichaelAustin     |  |  |                            |  | 49,970,503 |                                       |  |  |  |  | 38,123 |  |
| Lord NormanLamont |  |  |                            |  | 49,966,028 |                                       |  |  |  |  | 42,603 |  |
| GlennSchafer      |  |  |                            |  | 49,971,008 |                                       |  |  |  |  | 37,623 |  |
| ScottWillkomm     |  |  |                            |  | 49,970,658 |                                       |  |  |  |  | 37,623 |  |
|                   |

Ratificationof Independent Auditors

The Board of Directors has selected,based upon the recommendation of the Audit Committee, Ernst &Young, as the independent auditors for the Company for the fiscal yearending December  31,  2006. The results of the vote of theShareholders with respect to this selection were asfollows:

|          |  |  |            |
|----------|--|--|------------|
| For:     |  |  | 49,945,965 |
| Against: |  |  | 61,791     |
| Abstain: |  |  | 875        |
|          |

Item 5.Other Information

Notapplicable.

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Item 6.Exhibits

Except as otherwise indicated, the following Exhibitsare filed herewith and made a parthereof:

|  |    |    |  |  |  |                                                                                                                                                                                                                                                                           |
|--|----|----|--|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 3  | .1 |  |  |  | Memorandumof Association of Scottish Re Group Limited, as amended as ofApril  7,  2005 (incorporated herein by reference toScottish Re Group Limited’s Current Report on Form 8-K).(6)                                                                              |
|  | 3  | .2 |  |  |  | Articles of Association of ScottishRe Group Limited, as amended as of April  7,  2005(incorporated herein by reference to Scottish Re Group Limited’sCurrent Report on Form 8-K). (6)                                                                               |
|  | 4  | .1 |  |  |  | Specimen Ordinary Share Certificate (incorporatedherein by reference to Exhibit 4.1 to Scottish Re GroupLimited’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 GroupLimited’s Registration Statement on Form S-1).(1)                                                                                                  |
|  | 4  | .3 |  |  |  | Form of Securities PurchaseAgreement for the Class A Warrants (incorporated herein by reference toExhibit 4.4 to Scottish Re Group Limited’s RegistrationStatement on Form S-1). (1)                                                                                |
|  | 4  | .4 |  |  |  | Form ofSecurities Purchase Agreement between Scottish Re Group Limited and theShareholder Investors (incorporated herein by reference to Exhibit 4.10to Scottish Re Group Limited’s Registration Statement on FormS-1). (1)                                         |
|  | 4  | .5 |  |  |  | Form of Securities PurchaseAgreement between Scottish Re Group Limited and the Non-ShareholderInvestors (incorporated herein by reference to Exhibit 4.12 to ScottishRe Group Limited’s Registration Statement on Form S-1).(1)                                     |
|  | 4  | .6 |  |  |  | Certificate of Designations ofConvertible Preferred Shares of Scottish Re Group Limited (incorporatedherein by reference to Scottish Re Group Limited’s CurrentReport on Form 8-K). (10)                                                                            |
|  | 4  | .7 |  |  |  | Certificateof Designations of Scottish Re Group Limited’s Non-CumulativePerpetual Preferred Shares, dated June  28,  2005(incorporated herein by reference to Scottish Re Group Limited’sCurrent Report on Form 8-K). (16)                                    |
|  | 4  | .8 |  |  |  | Specimen Stock Certificate for theCompany’s Non-Cumulative Perpetual Preferred Shares(incorporated herein by reference to Scottish Re Group Limited’sCurrent 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 GroupLimited’s Registration Statement on Form S-1).(1)(22)                                         |
|  | 10 | .2 |  |  |  | Second Amended and Restated1998 Stock Option Plan effective October  22,  1998(incorporated herein by reference to Exhibit 10.3 to Scottish Re GroupLimited’s Registration Statement on Form S-1).(1)(22)                                                           |
|  | 10 | .3 |  |  |  | Form of Stock Option Agreementin connection with 1998 Stock Option Plan (incorporated herein byreference to Exhibit 10.4 to Scottish Re Group Limited’sRegistration Statement on Form S-1).(1)(22)                                                                  |
|  | 10 | .4 |  |  |  | Investment Management Agreementdated October  22,  1998 between Scottish Re Group Limitedand General Re-New England Asset Management, Inc. (incorporated hereinby reference to Exhibit 10.14 to Scottish Re Group Limited’sRegistration 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 GroupLimited’s Registration Statement on Form S-1). (1)                                                                                              |
|  |

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|  |    |     |  |  |  |                                                                                                                                                                                                                                                                                                 |
|--|----|-----|--|--|--|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 10 | .6  |  |  |  | 1999 Stock Option Plan(incorporated herein by reference to Exhibit 10.14 to Scottish Re GroupLimited’s 1999 Annual Report on Form 10-K). (2)(22)                                                                                                                                          |
|  | 10 | .7  |  |  |  | Form of Stock Options Agreement in connectionwith 1999 Stock Option Plan (incorporated herein by reference toExhibit 10.15 to Scottish Re Group Limited’s 1999 Annual Reporton Form 10-K). (2)(22)                                                                                        |
|  | 10 | .8  |  |  |  | EmploymentAgreement dated September  18,  2000 between Scottish Re(U.S.), Inc. and Oscar R. Scofield (incorporated herein by reference toExhibit 10.16 to Scottish Re Group Limited’s 2000 Annual Reporton Form 10-K). (3)(22)                                                            |
|  | 10 | .9  |  |  |  | Share PurchaseAgreement by and between Scottish Re Group Limited and Pacific Lifedated August  6,  2001 (incorporated by reference toScottish Re Group Limited’s Current Report on Form 8-K).(7)                                                                                          |
|  | 10 | .10 |  |  |  | Amendment No. 1, datedNovember  8,  2001, to Share Purchase Agreement datedAugust  6,  2001 by and between Scottish Re Group Limitedand Pacific Life (incorporated by reference to Scottish Re GroupLimited’s Current Report on Form 8-K). (5)                                            |
|  | 10 | .11 |  |  |  | 2001 Stock Option Plan (incorporated herein byreference to Exhibit 10.17 to Scottish Re Group Limited’s 2001Annual Report on Form 10-K). (4)(22)                                                                                                                                          |
|  | 10 | .12 |  |  |  | Form of Nonqualified Stock Option Agreement inconnection with 2001 Stock Option Plan (incorporated herein byreference to Exhibit 10.17 to Scottish Re Group Limited’s 2001Annual Report on Form 10-K). (4)(22)                                                                            |
|  | 10 | .13 |  |  |  | Tax Deed of Covenant dated December31,  2001 between Scottish Re Group Limited and Pacific Life(incorporated by reference to Scottish Re Group Limited’sCurrent Report on Form 8-K). (5)                                                                                                  |
|  | 10 | .14 |  |  |  | Letter Agreement dated December28,  2001 between Scottish Re Group Limited and Pacific Life(incorporated by reference to Scottish Re Group Limited’sCurrent Report on Form 8-K). (5)                                                                                                      |
|  | 10 | .15 |  |  |  | Formof Indemnification Agreement between Scottish Re Group Limited and eachof its directors and officers (incorporated by reference to Scottish ReGroup Limited’s Amended Quarterly Report on Form 10-Q/A for theperiod 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 ScottishRe Group Limited’s Amended Quarterly Report on Form 10-Q/A forthe period ended September  30,  2002). (8)(22) |
|  | 10 | .17 |  |  |  | Employment Agreement dated June  1,2002 between Scottish Re Group Limited and Paul Goldean (incorporatedherein by reference to Scottish Re Group Limited’s QuarterlyReport on Form 10-Q for the period ended March  31,  2004).(14)(22)                                                   |
|  | 10 | .18 |  |  |  | Employment Agreement datedJuly  1,  2002 between Scottish Re Group Limited andElizabeth Murphy (incorporated by reference to Scottish Re GroupLimited’s Amended Quarterly Report on Form 10-Q/A for the periodended 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’sAmended Quarterly Report on Form 10-Q/A for the period endedSeptember  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’sAmended Quarterly Report on Form 10-Q/A for the period endedSeptember  30,  2002). (8)(22)                                        |
|  |

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|  |    |     |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|--|----|-----|--|--|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 10 | .21 |  |  |  | Employment Agreementdated February  10,  2003 between Scottish Re Group Limitedand Michael C. French (incorporated herein by reference to Scottish ReGroup Limited’s 2002 Annual Report on Form 10-K).(12)(22)                                                                                                                                                                                                                                                                                                                                   |
|  | 10 | .22 |  |  |  | Employment Agreement datedFebruary  10,  2003 between Scottish Re (U.S.), Inc. andOscar R. Scofield (incorporated herein by reference to Scottish ReGroup Limited’s 2002 Annual Report on Form 10-K).(12)(22)                                                                                                                                                                                                                                                                                                                                    |
|  | 10 | .23 |  |  |  | Amended Employment Agreementdated February  10,  2003 between Scottish Re Group Limitedand Thomas A. McAvity (incorporated herein by reference to Scottish ReGroup Limited’s 2002 Annual Report on Form 10-K).(12)(22)                                                                                                                                                                                                                                                                                                                           |
|  | 10 | .24 |  |  |  | Indenture, datedNovember  22,  2002, between Scottish Re Group Limited andThe Bank of New York (incorporated herein by reference to Scottish ReGroup Limited’s Registration Statement on Form S-3).(9)                                                                                                                                                                                                                                                                                                                                           |
|  | 10 | .25 |  |  |  | Registration Rights Agreement,dated November  22,  2002, by and among Scottish Re GroupLimited and Bear Stearns & Co. and Putnam Lovell Securities Inc.(incorporated herein by reference to Scottish Re Group Limited’sRegistration 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’sQuarterly Report on Form 10-Q for the period ended September30,  2003). (13)(22)                                                                                                                                                                                                                                                                                                    |
|  | 10 | .27 |  |  |  | StockPurchase Agreement, dated as of October  24,  2003, by andamong Scottish Re Group Limited, Scottish Holdings, Inc. and EmployersReinsurance Corporation (incorporated herein by reference to ScottishRe Group Limited’s Current Report on Form 8-K). (11)                                                                                                                                                                                                                                                                                   |
|  | 10 | .28 |  |  |  | Tax Matters Agreement, dated as ofJanuary  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’sCurrent Report on Form 8-K). (11)                                                                                                                                                                                                                                                                                      |
|  | 10 | .29 |  |  |  | Transition Services Agreement, dated as ofJanuary  22,  2003, by and among Scottish Holdings, Inc.and Employers Reinsurance Corporation (incorporated herein by referenceto Scottish Re Group Limited’s Current Report on Form 8-K).(11)                                                                                                                                                                                                                                                                                                         |
|  | 10 | .30 |  |  |  | Employment Agreement datedApril  21,  2004, by and among Scottish Holdings, Inc. andSeth W. Vance (incorporated herein by reference to Scottish Re GroupLimited’s Quarterly Report on Form 10-Q for the period endedMarch  31,  2004). (14)(22)                                                                                                                                                                                                                                                                                                  |
|  | 10 | .31 |  |  |  | Amendment to Employment Agreement datedMarch  29,  2004, by and between Scottish Re (U.S.), Inc.and Oscar R. Scofield (incorporated herein by reference to Scottish ReGroup Limited’s Quarterly Report on Form 10-Q for the periodended June  30,  2004, filed with the SEC on August9,  2004). (22)                                                                                                                                                                                                                                             |
|  | 10 | .32 |  |  |  | Asset PurchaseAgreement, dated as of October  17,  2004, by and amongSecurity Life of Denver Insurance Company, Security Life of DenverInternational Limited, ING America Insurance Holdings, Inc. (forpurposes 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 toScottish Re Group Limited’s Current Report on Form 8-K).(15) |
|  |

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|  |    |     |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--|----|-----|--|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 10 | .33 |  |  |  | Securities PurchaseAgreement, dated as of October  17,  2004, by and amongScottish 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 ofSubordinated Note, Class C Warrant, Shareholders’ Agreement andAmendments to Articles of Association) (incorporated herein byreference to Scottish Re Group Limited’s Current Report on Form8-K). (15) |
|  | 10 | .34 |  |  |  | Form of Voting Agreement,by and among Cypress Merchant B Partners II (Cayman) L.P., CypressMerchant Banking II-A C.V., 55th Street Partners II (Cayman) L.P. andCypress Side-by-Side (Cayman) L.P., Scottish Re Group Limited and,respectively, each director and each officer of Scottish Re GroupLimited (incorporated herein by reference to Scottish Re GroupLimited’s Current Report on Form 8-K). (15)                                                                                        |
|  | 10 | .35 |  |  |  | Voting Agreement, dated as of October15,  2004, by and among Scottish Re Group Limited, CypressMerchant B Partners II (Cayman) L.P., Cypress Merchant Banking II-AC.V., 55th Street Partners II (Cayman) L.P. and Cypress Side-by-Side(Cayman) L.P. and Pacific Life Insurance Company (incorporated hereinby reference to Scottish Re Group Limited’s Current Report onForm 8-K). (15)                                                                                                             |
|  | 10 | .36 |  |  |  | Letter Agreement,dated as of October  17,  2004, by and among Scottish ReGroup Limited and Cypress Merchant B Partners II (Cayman) L.P., CypressMerchant Banking II-A C.V., 55th Street Partners II (Cayman) L.P. andCypress Side-by-Side (Cayman) L.P. (incorporated herein by reference toScottish 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 GroupLimited and The Bank of New York (incorporated herein by reference toScottish Re Group Limited’s Current Report on Form 8-K, filedwith the SEC on October  29,  2004).                                                                                                                                                                                                                                        |
|  | 10 | .38 |  |  |  | Amendment to Employment Agreement dated as ofMarch  29,  2004, by and among the Company and Michael C.French (incorporated herein by reference to Scottish Re GroupLimited’s Quarterly Report on Form 10-Q for the nine monthperiod ended September  30,  2004, filed with the SEC onNovember  8,  2004). (22)                                                                                                                                                                                      |
|  | 10 | .39 |  |  |  | Employment Agreement, dated as of March29,  2004, by and among the Company and Deborah G. Percy(incorporated herein by reference to Scottish Re Group Limited’sQuarterly Report on Form 10-Q for the nine month period endedSeptember  30,  2004, filed with the SEC on November8,  2004). (22)                                                                                                                                                                                                     |
|  | 10 | .40 |  |  |  | EmploymentAgreement, dated as of January  1,  2005, between ScottishHoldings, Inc. and Gary Dombowsky (incorporated herein by reference toScottish Re Group Limited’s 2004 Annual Report on Form 10-K).(20)(22)                                                                                                                                                                                                                                                                                     |
|  | 10 | .41 |  |  |  | Amendment to EmploymentAgreement, dated as of February  7,  2005, between ScottishRe Group Limited and Michael C. French (incorporated herein byreference to Scottish Re Group Limited’s 2004 Annual Report onForm 10-K). (20)(22)                                                                                                                                                                                                                                                                  |
|  | 10 | .42 |  |  |  | EmploymentAgreement, dated as of February  1,  2005, between ScottishRe Group Limited and Hugh T. McCormick (incorporated herein byreference to Scottish Re Group Limited’s 2004 Annual Report onForm 10-K). (20)(22)                                                                                                                                                                                                                                                                               |
|  | 10 | .43 |  |  |  | EmploymentAgreement, dated as of December  1,  2004, between ScottishHoldings, Inc. and Kenneth R. Stott (incorporated herein by referenceto Scottish Re Group Limited’s 2004 Annual Report on Form 10-K).(20)(22)                                                                                                                                                                                                                                                                                  |
|  |

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|  |    |     |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|--|----|-----|--|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 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, asborrowers, 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 PartyHereto, Banc of America Securities LLC, as Sole Lead Arranger and SoleBook Manager (incorporated herein by reference to Scottish Re GroupLimited’s 2004 Annual Report on Form 10-K). (20) |
|  | 10 | .45 |  |  |  | Administrative Services Agreement, dated as ofDecember  31,  2004, between Security Life of DenverInsurance Company and Security Life of Denver International Limited andScottish Re (U.S.), Inc. (incorporated herein by reference to ScottishRe Group Limited’s 2004 Annual Report on Form 10-K).(20)                                                                                                                                                                                                                                                                                                   |
|  | 10 | .46 |  |  |  | Coinsurance Agreement datedDecember  31,  2004 between Security Life of DenverInsurance Company and Scottish Re (U.S.), Inc. (incorporated herein byreference to Scottish Re Group Limited’s 2004 Annual Report onForm 10-K). (20)                                                                                                                                                                                                                                                                                                                                                                        |
|  | 10 | .47 |  |  |  | Coinsurance/ModifiedCoinsurance Agreement, dated December  31,  2004, betweenSecurity Life of Denver Insurance Company and Scottish Re (U.S.), Inc.(incorporated herein by reference to Scottish Re Group Limited’s2004 Annual Report on Form 10-K). (20)                                                                                                                                                                                                                                                                                                                                                 |
|  | 10 | .48 |  |  |  | Retrocession Agreement, dated December31,  2004, between Scottish Re (U.S.), Inc. and Security Life ofDenver Insurance Company (incorporated herein by reference to ScottishRe Group Limited’s 2004 Annual Report on Form 10-K).(20)                                                                                                                                                                                                                                                                                                                                                                      |
|  | 10 | .49 |  |  |  | Retrocession Agreement, datedDecember  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’s2004 Annual Report on Form 10-K). (20)                                                                                                                                                                                                                                                                                                                                                   |
|  | 10 | .50 |  |  |  | Reserve Trust Agreement, dated as ofDecember  31,  2004, between Scottish Re (U.S.) Inc., asGrantor, and Security Life of Denver Insurance Company, as Beneficiary,and The Bank of New York, as Trustee, and The Bank of New York, asSecurities Intermediary (incorporated herein by reference to ScottishRe Group Limited’s 2004 Annual Report on Form 10-K).(20)                                                                                                                                                                                                                                        |
|  | 10 | .51 |  |  |  | Security Trust Agreement, datedas of December  31,  2004, by and among Scottish Re (U.S.),Inc., as Grantor, Security Life of Denver Insurance Company, asBeneficiary, The Bank of New York, as Trustee, and The Bank of NewYork, as Securities Intermediary (incorporated herein by reference toScottish Re Group Limited’s 2004 Annual Report on Form 10-K).(20)                                                                                                                                                                                                                                         |
|  | 10 | .52 |  |  |  | Coinsurance Agreement, datedDecember  31,  2004, between Security Life of DenverInternational Limited and Scottish Re Life (Bermuda) Limited(incorporated herein by reference to Scottish Re Group Limited’s2004 Annual Report on Form 10-K). (20)                                                                                                                                                                                                                                                                                                                                                        |
|  | 10 | .53 |  |  |  | Coinsurance/Modified Coinsurance Agreement,dated December  31,  2004, between Security Life of DenverInternational Limited and Scottish Re Life (Bermuda) Limited(incorporated herein by reference to Scottish Re Group Limited’s2004 Annual Report on Form 10-K). (20)                                                                                                                                                                                                                                                                                                                                   |
|  | 10 | .54 |  |  |  | Coinsurance Funds Withheld Agreement, datedDecember  31,  2004, between Security Life of DenverInternational Limited and Scottish Re Life (Bermuda) Limited(incorporated herein by reference to Scottish Re Group Limited’s2004 Annual Report on Form 10-K). (20)                                                                                                                                                                                                                                                                                                                                         |
|  |

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|  |    |     |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--|----|-----|--|--|--|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 10 | .55 |  |  |  | Reserve TrustAgreement, dated December  31,  2004, between Scottish ReLife (Bermuda) Limited, as Grantor, and Security Life of DenverInternational Limited, as Beneficiary, and The Bank of New York, asTrustee, and The Bank of New York, as Securities Intermediary(incorporated herein by reference to Scottish Re Group Limited’s2004 Annual Report on Form 10-K). (20)                                                                                                                                                                                                                                                                             |
|  | 10 | .56 |  |  |  | Security Trust Agreement, dated as ofDecember  31,  2004, by and among Scottish Re Life(Bermuda) Limited, as Grantor, Security Life of Denver InternationalLimited, as Beneficiary, The Bank of New York, as Trustee, and the Bankof New York, as Securities Intermediary (incorporated herein byreference to Scottish Re Group Limited’s 2004 Annual Report onForm 10-K). (20)                                                                                                                                                                                                                                                                         |
|  | 10 | .57 |  |  |  | Technology Transferand License Agreement, dated as of December  31,  2004,between Security Life of Denver Insurance Company, ING North AmericaInsurance Corporation and Scottish Re (U.S.), Inc. (incorporated hereinby reference to Scottish Re Group Limited’s 2004 Annual Reporton Form 10-K). (20)                                                                                                                                                                                                                                                                                                                                                  |
|  | 10 | .58 |  |  |  | Transition andIntegration 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 GroupLimited’s Current Report on Form 8-K). (19)                                                                                                                                                                                                                                                                                                                                                                                                 |
|  | 10 | .59 |  |  |  | Form of Remarketing Agreement, between theCompany and Lehman Brothers, Inc., as Remarketing Agent (incorporatedherein by reference to Scottish Re Group Limited’s CurrentReport on Form 8-K). (16)                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|  | 10 | .60 |  |  |  | Amended andRestated 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 ReLimited, as Borrowers, Bear Stearns Corporate Lending, Inc., HSBC BankUSA, National Association, and Wachovia Bank, National Association asSyndication Agents, Bank of America, N.A., as Administrative Agent andL/C Issuer, and the Other Lenders Party Hereto, Banc of AmericaSecurities LLC, as Sole Lead Arranger and Sole Book Manager(incorporated herein by reference to Scottish Re Group Limited’sCurrent Report on Form 8-K). (17) |
|  | 10 | .61 |  |  |  | Scottish Re Group Limited 2004 Equity IncentiveCompensation Plan (incorporated herein by reference to Scottish ReGroup Limited’s Proxy Statement filed with the SEC onApril  1,  2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|  | 10 | .62 |  |  |  | Amendment No. 1 to Scottish Re Group Limited2004 Equity Incentive Compensation Plan (incorporated herein byreference to Scottish Re Group Limited’s Current Report on Form8-K). (18) (22)                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|  | 10 | .63 |  |  |  | Amendment No. 2 toScottish Re Group Limited 2004 Equity Incentive Compensation Plan(incorporated herein by reference to Scottish Re Group Limited’sCurrent Report on Form 8-K). (18) (22)                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|  | 10 | .64 |  |  |  | Form of Management Stock Option Agreement underthe Scottish Re Group Limited 2004 Equity Incentive Compensation Plan(incorporated herein by reference to Scottish Re Group Limited’sCurrent Report on Form 8-K). (18) (22)                                                                                                                                                                                                                                                                                                                                                                                                                              |
|  | 10 | .65 |  |  |  | Form of Management Performance Share UnitAgreement under the Scottish Re Group Limited 2004 Equity IncentiveCompensation Plan (incorporated herein by reference to Scottish ReGroup Limited’s Current Report on Form 8-K). (18)(22)                                                                                                                                                                                                                                                                                                                                                                                                                     |
|  | 10 | .66 |  |  |  | Form of Management RestrictedShare Unit Agreement under the Scottish Re Group Limited 2004 EquityIncentive Compensation Plan (incorporated herein by reference toScottish Re Group Limited’s Current Report on Form 8-K). (18)(22)                                                                                                                                                                                                                                                                                                                                                                                                                      |
|  |

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|  |    |     |  |  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--|----|-----|--|--|--|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | 10 | .67 |  |  |  | Employment Agreement,dated as of July  18,  2005, between Scottish Re GroupLimited and Dean Miller (incorporated herein by reference to ScottishRe 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 AdministrativeAgent and L/C Issuer, and the Other Lenders Party Hereto, and Bank ofAmerica Securities LLC, as Sole Lead Arranger and Sole Book Manager(incorporated herein by reference to Scottish Re Group Limited’sCurrent Report on Form 8-K). (21) |
|  | 31 | .1  |  |  |  | Certification Pursuant to Section 302 of theSarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                     |
|  | 31 | .2  |  |  |  | Certification Pursuant to Section 302 of theSarbanes-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 of2002.                                                                                                                                                                                                                                                                                                                                                       |
|  | 32 | .2  |  |  |  | Certification Pursuant to 18U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of2002.                                                                                                                                                                                                                                                                                                                                                        |
|  |

|  |
|--|
|  |  |
|  |

|  |           |                                                                                                                          |
|--|-----------|--------------------------------------------------------------------------------------------------------------------------|
|  | (1)  | ScottishRe Group Limited’s Registration Statement on Form S-1 was filedwith the SEC on June  19,  1998, asamended. |

|  |           |                                                                                                          |
|--|-----------|----------------------------------------------------------------------------------------------------------|
|  | (2)  | Scottish Re GroupLimited’s 1999 Annual Report on Form 10-K was filed with the SECon April  3,2000. |

|  |           |                                                                                                           |
|--|-----------|-----------------------------------------------------------------------------------------------------------|
|  | (3)  | Scottish Re GroupLimited’s 2000 Annual Report on Form 10-K was filed with the SECon March  30,2001. |

|  |           |                                                                                                          |
|--|-----------|----------------------------------------------------------------------------------------------------------|
|  | (4)  | Scottish Re GroupLimited’s 2001 Annual Report on Form 10-K was filed with the SECon March  5,2002. |

|  |           |                                                                                                         |
|--|-----------|---------------------------------------------------------------------------------------------------------|
|  | (5)  | Scottish Re GroupLimited’s Current Report on Form 8-K was filed with the SEC onDecember  31,2001. |

|  |           |                                                                                                    |
|--|-----------|----------------------------------------------------------------------------------------------------|
|  | (6)  | Scottish Re GroupLimited’s Current Report on Form 8-K was filed with the SEC onJune  2,2005. |

|  |           |                                                                                                      |
|--|-----------|------------------------------------------------------------------------------------------------------|
|  | (7)  | Scottish Re GroupLimited’s Current Report on Form 8-K was filed with the SEC onAugust  9,2001. |

|  |           |                                                                                                                   |
|--|-----------|-------------------------------------------------------------------------------------------------------------------|
|  | (8)  | Scottish Re GroupLimited’s Amended Quarterly Report on Form 10-Q/A was filed withthe SEC on August  8,2002. |

|  |           |                                                                                                                             |
|--|-----------|-----------------------------------------------------------------------------------------------------------------------------|
|  | (9)  | Scottish Re GroupLimited’s Registration Statement on Form S-3 was filed with theSEC on January  31,  2003, asamended. |

|  |            |                                                                                                         |
|--|------------|---------------------------------------------------------------------------------------------------------|
|  | (10)  | Scottish Re GroupLimited’s Current Report on Form 8-K was filed with the SEC onDecember  17,2003. |

|  |            |                                                                                                       |
|--|------------|-------------------------------------------------------------------------------------------------------|
|  | (11)  | Scottish Re GroupLimited’s Current Report on Form 8-K was filed with the SEC onJanuary  6,2004. |

|  |            |                                                                                                             |
|--|------------|-------------------------------------------------------------------------------------------------------------|
|  | (12)  | Scottish Re GroupLimited’s 2002 Annual Report on Form 10-K was filed with the SECon March  31,  2003. |

|  |            |                                                                                                           |
|--|------------|-----------------------------------------------------------------------------------------------------------|
|  | (13)  | Scottish Re Group Limited’sQuarterly Report on Form 10-Q was filed with the SEC on August12,  2003. |

|  |            |                                                                                                       |
|--|------------|-------------------------------------------------------------------------------------------------------|
|  | (14)  | Scottish ReGroup Limited’s Quarterly Report on Form 10-Q was filed with theSEC on May  10,2004. |

|  |            |                                                                                                          |
|--|------------|----------------------------------------------------------------------------------------------------------|
|  | (15)  | Scottish Re GroupLimited’s Current Report on Form 8-K was filed with the SEC onOctober  21,  2004. |

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|  |            |                                                                                                    |
|--|------------|----------------------------------------------------------------------------------------------------|
|  | (16)  | ScottishRe Group Limited’s Current Report on Form 8-K was filed with theSEC on July  1,2005. |

|  |            |                                                                                                     |
|--|------------|-----------------------------------------------------------------------------------------------------|
|  | (17)  | Scottish Re GroupLimited’s Current Report on Form 8-K was filed with the SEC onJuly  18,2005. |

|  |            |                                                                                                      |
|--|------------|------------------------------------------------------------------------------------------------------|
|  | (18)  | Scottish Re GroupLimited’s Current Report on Form 8-K was filed with the SEC onAugust  8,2005. |

|  |            |                                                                                                      |
|--|------------|------------------------------------------------------------------------------------------------------|
|  | (19)  | Scottish Re GroupLimited’s Current Report on Form 8-K was filed with the SEC onAugust  4,2005. |

|  |            |                                                                                                           |
|--|------------|-----------------------------------------------------------------------------------------------------------|
|  | (20)  | Scottish Re GroupLimited’s 2004 Annual Report on Form 10-K was filed with the SECon March  18,2005. |

|  |            |                                                                                                       |
|--|------------|-------------------------------------------------------------------------------------------------------|
|  | (21)  | Scottish Re GroupLimited’s Current Report on Form 8-K was filed with the SEC onAugust  22,2005. |

|  |            |                                                                          |
|--|------------|--------------------------------------------------------------------------|
|  | (22)  | This exhibit is amanagement contract or compensatory plan orarrangement. |

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SIGNATURES

Pursuantto the requirements of the Securities Exchange Act of 1934, theRegistrant has duly caused this report to be signed on its behalf bythe undersigned, thereunto duly authorized.

|  | SCOTTISH REGROUPLIMITED |
|--|-------------------------|

|                        |  |  |                        |
|------------------------|--|--|------------------------|
| Date:August  14,  2006 |  |  | By: /s/ PaulGoldean    |
|                   |  |  | PaulGoldean            |
|                   |  |  | Chief ExecutiveOfficer |
|                   |  |  |                   |
| Date:August  14,  2006 |  |  | By: /s/ Dean E.Miller  |
|                   |  |  | Dean E.Miller          |
|                   |  |  | Chief FinancialOfficer |
|                        |

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