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

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

                                    FORM 1O-Q

             [X] Quarterly Report Pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934
                For the quarterly period ended September 30, 2007

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

                        Commission File Number: 001-16855

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


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

                                P.O. Box HM 2939
                            Crown House, Second Floor
                               4 Par-la-Ville Road
                                  Hamilton HM08
                                     Bermuda
                    (Address of Principal Executive Offices)


                                 Not Applicable
                                   (Zip Code)


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

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

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

                                Yes /X/  No / /

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

 Large accelerated filer /X/   Accelerated filer / /   Non-accelerated filer / /

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

                                Yes / /  No /X/

As of November 5, 2007, the Registrant had 68,383,370 ordinary shares
outstanding.

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


<PAGE>


                                Table of Contents


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

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

         Consolidated Balance Sheets - September 30, 2007 (Unaudited) and
            December 31, 2006 (Audited)........................................2

         Consolidated Statements Of Loss - Three and nine months
            ended September 30, 2007 and 2006 (Unaudited)......................3

         Consolidated Statements Of Comprehensive Income (Loss) - Three and
            nine months ended September 30, 2007 and 2006 (Unaudited)..........4

         Consolidated Statements Of Shareholders' Equity - Nine months
            ended September 30, 2007 and 2006 (Unaudited)......................5

         Consolidated Statements Of Cash Flows - Nine months ended
            September 30, 2007 and 2006 (Unaudited)............................7

         Notes to Consolidated Financial Statements (Unaudited)................8

Item 2   Management's Discussion and Analysis of Financial Condition
            and Results of Operations.........................................23

Item 3   Quantitative and Qualitative Disclosures about Market Risk...........58

Item 4   Controls and Procedures..............................................58

PART II. OTHER INFORMATION....................................................59

Item 1   Legal Proceedings....................................................59

Item 1A. Risk Factors.........................................................59

Item 2   Unregistered Sales of Equity Securities and Use of Proceeds..........60

Item 3   Defaults upon Senior Securities......................................60

Item 4   Submission of Matters to a Vote of Security Holders..................60

Item 7   Other Information....................................................61

Item 8   Exhibits.............................................................61


                                        1
<PAGE>


                          PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

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

<TABLE>
<CAPTION>
                                                                                 September 30,   December 31,
                                                                                    2007             2006
                                                                                  (Unaudited)     (Audited)
                                                                                --------------   ------------
<S>                                                                              <C>             <C>
ASSETS
Fixed maturity investments, available for sale, at fair value
  (Amortized cost $8,053,906; 2006 - $8,103,743) .............................   $  7,635,704    $  8,065,524
Preferred stock, available for sale, at fair value
  (Cost $103,091; 2006 - $119,721) ...........................................         99,340         116,933
Cash and cash equivalents ....................................................      1,253,071         622,756
Other investments ............................................................         66,250          65,448
Funds withheld at interest ...................................................      1,636,229       1,942,079
                                                                                 ------------    ------------
  Total investments ..........................................................     10,690,594      10,812,740
Accrued interest receivable ..................................................         57,579          57,538
Reinsurance balances and risk fees receivable ................................        421,772         372,512
Deferred acquisition costs ...................................................        630,732         618,737
Amount recoverable from reinsurers ...........................................        574,517         663,985
Present value of in-force business ...........................................         46,310          48,779
Other assets .................................................................        125,642         178,311
Current income tax receivable ................................................          7,787               -
Deferred tax asset ...........................................................        101,087               -
Segregated assets ............................................................        715,923         683,470
                                                                                 ------------    ------------
  Total assets ...............................................................   $ 13,371,943    $ 13,436,072
                                                                                 ============    ============
LIABILITIES
Reserves for future policy benefits ..........................................   $  4,036,410    $  3,919,901
Interest sensitive contract liabilities ......................................      2,744,340       3,399,410
Collateral finance facilities ................................................      4,000,422       3,757,435
Accounts payable and other liabilities .......................................        158,418          69,949
Reinsurance balances payable .................................................        154,416          97,615
Current income tax payable ...................................................              -              48
Deferred tax liability .......................................................              -         169,977
Long term debt ...............................................................        129,500         129,500
Segregated liabilities .......................................................        715,923         683,470
                                                                                 ------------    ------------
  Total liabilities ..........................................................     11,939,429      12,227,305
                                                                                 ------------    ------------
MINORITY INTEREST ............................................................          7,367           7,910
MEZZANINE EQUITY
 Convertible cumulative participating preferred shares, (liquidation
  preference, $617.6 million) ................................................        555,857               -
Hybrid capital units .........................................................              -         143,665
                                                                                 ------------    ------------
  Total mezzanine equity .....................................................        555,857         143,665
                                                                                 ------------    ------------
SHAREHOLDERS' EQUITY Ordinary shares, par value $0.01:
  Issued  68,383,370 shares (2006 - 60,554,104) ..............................            684             606
Non-cumulative perpetual preferred shares, par value $0.01:
  Issued:  5,000,000 shares (2006 - 5,000,000) ...............................        125,000         125,000
Additional paid-in capital ...................................................      1,213,688       1,050,860
Accumulated other comprehensive income (loss) ................................       (273,394)            340
Retained deficit .............................................................       (196,688)       (119,614)
                                                                                 ------------    ------------
  Total shareholders' equity .................................................        869,290       1,057,192
                                                                                 ------------    ------------
  Total liabilities, minority interest, mezzanine equity and shareholders'
   equity ....................................................................   $ 13,371,943    $ 13,436,072
                                                                                 ============    ============

</TABLE>

     See Accompanying Notes to Consolidated Financial Statements (unaudited)


                                        2
<PAGE>


                            SCOTTISH RE GROUP LIMITED
                         CONSOLIDATED STATEMENTS OF LOSS
                                   (UNAUDITED)

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

<TABLE>
<CAPTION>
                                                              Three months ended                Nine months ended
                                                        ------------------------------    ------------------------------
                                                        September 30,    September 30,    September 30,    September 30,
                                                             2007             2006             2007             2006
                                                        -------------    -------------    -------------    -------------
<S>                                                     <C>              <C>              <C>              <C>
Revenues
Premiums earned, net ...............................    $    456,340     $    453,521     $  1,360,850     $  1,347,484
Investment income, net .............................         154,450          162,408          456,926          439,407
Fee and other income ...............................           6,017            2,380           14,881           10,752
Net realized losses ................................        (101,986)          (1,072)        (108,330)         (25,971)
Change in value of embedded derivatives, net .......         (14,777)          (5,891)          (5,886)          11,621
                                                        -------------    -------------    -------------    -------------
  Total revenues ...................................         500,044          611,346        1,718,441        1,783,293
                                                        -------------    -------------    -------------    -------------
Benefits and expenses
Claims and other policy benefits ...................         368,731          377,713        1,140,562        1,124,277
Interest credited to interest sensitive
  contract liabilities .............................          34,793           42,423          106,515          140,523
Acquisition costs and other insurance
  expenses, net ....................................          97,755           86,241          289,363          278,644
Operating expenses .................................          36,982           39,447          131,364          109,904
Collateral finance facilities expense ..............          73,667           67,323          222,647          145,646
Interest expense ...................................           3,304            5,005           14,914           16,964
                                                        -------------    -------------    -------------    -------------
  Total benefits and expenses ......................         615,232          618,152        1,905,365        1,815,958
                                                        -------------    -------------    -------------    -------------
Loss before income taxes and minority interest .....        (115,188)          (6,806)        (186,924)         (32,665)
Income tax benefit (expense) .......................           7,777          (20,841)         148,717         (102,427)
                                                        -------------    -------------    -------------    -------------
Loss before minority interest ......................        (107,411)         (27,647)         (38,207)        (135,092)
Minority interest ..................................             227              232              501              (64)
                                                        -------------    -------------    -------------    -------------
Net loss ...........................................        (107,184)         (27,415)         (37,706)        (135,156)
Dividend declared on non-cumulative perpetual
  preferred shares .................................          (2,266)          (2,266)          (6,797)          (6,797)
Deemed dividend on beneficial conversion
  feature ..........................................               -                -         (120,750)               -
Imputed dividend on prepaid variable share
  forward contract .................................               -             (809)               -             (881)
                                                        -------------    -------------    -------------    -------------

Net loss attributable to ordinary shareholders .....    $   (109,450)    $    (30,490)    $   (165,253)    $   (142,834)
                                                        =============    =============    =============    =============
Loss  per ordinary share - Basic ...................    $      (1.60)    $      (0.54)    $      (2.47)    $      (2.61)
                                                        =============    =============    =============    =============
Loss  per ordinary share - Diluted .................    $      (1.60)    $      (0.54)    $      (2.47)    $      (2.61)
                                                        =============    =============    =============    =============
Dividends declared per ordinary share ..............    $          -     $          -     $          -     $       0.10
                                                        =============    =============    =============    =============
Weighted average number of ordinary shares
  outstanding
  Basic ............................................      68,383,370       56,933,566       66,939,007       54,708,914
                                                        =============    =============    =============    =============
  Diluted ..........................................      68,383,370       56,933,566       66,939,007       54,708,914
                                                        =============    =============    =============    =============

</TABLE>

     See Accompanying Notes to Consolidated Financial Statements (unaudited)


                                        3
<PAGE>


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

                (Expressed in Thousands of United States dollars)


<TABLE>
<CAPTION>
                                                                   Three months ended              Nine months ended
                                                              -----------------------------   -----------------------------
                                                              September 30,   September 30,   September 30,   September 30,
                                                                  2007            2006            2007            2006
                                                              -------------   -------------   -------------   -------------
<S>                                                              <C>             <C>             <C>             <C>
Net loss ...............................................         $(107,184)      $ (27,415)      $ (37,706)      $(135,156)
                                                                 ----------      ----------      ----------      ----------
Other comprehensive loss, net of tax:
Unrealized appreciation (depreciation) on investments...          (273,808)         86,716        (361,492)        (18,998)
Reclassification adjustment for net realized
  losses  included in net loss .........................            76,250           3,805          81,932          14,807
                                                                 ----------      ----------      ----------      ----------
Net unrealized appreciation (depreciation) on investments
  net of income tax benefit (expense) and
  deferred acquisition costs of $82,715,
  $(53,916), $102,768 and $5,779 .......................          (197,558)         90,521        (279,560)         (4,191)
Cumulative translation adjustment ......................             2,436            (790)          5,826           8,114
                                                                 ----------      ----------      ----------      ----------
Other comprehensive income (loss) ......................          (195,122)         89,731        (273,734)          3,923
                                                                 ----------      ----------      ----------      ----------
Comprehensive income (loss) ............................         $(302,306)      $  62,316       $(311,440)      $(131,233)
                                                                 ==========      ==========      ==========      ==========

</TABLE>

     See Accompanying Notes to Consolidated Financial Statements (unaudited)


                                        4
<PAGE>


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

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

<TABLE>
<CAPTION>
                                                                                               Nine months ended
                                                                                       ---------------------------------
                                                                                       September 30,       September 30,
                                                                                            2007                2006
                                                                                       -------------       -------------
<S>                                                                                    <C>                 <C>
Ordinary shares:
  Beginning of period ..........................................................         60,554,104          53,391,939
  Issuance to holders of HyCUs on conversion of purchase contracts ............           7,440,478                   -
  Issuance to holders of restricted stock awards ...............................            388,313                   -
  Issuance to employees on exercise of options and awards ......................                475             583,217
  Ordinary shares issued .......................................................                  -           6,578,948
                                                                                       ------------        ------------
  End of period ................................................................         68,383,370          60,554,104
                                                                                       ============        ============
Non-cumulative perpetual preferred shares:
  Beginning and end of period ..................................................          5,000,000           5,000,000
                                                                                       ------------        ------------
Share capital:
Ordinary shares:
  Beginning of period ..........................................................        $        606        $        534
  Issuance to holders of HyCUs on conversion of purchase contracts ............                  74                   -
  Issuance to holders of restricted stock awards ...............................                  4                   -
  Issuance to employees on exercise of options .................................                  -                   6
  Ordinary shares issued .......................................................                  -                  66
                                                                                       -------------       -------------
  End of period ................................................................                684                 606
                                                                                       -------------       --------------
Non cumulative perpetual preferred shares:
  Beginning and end of period ..................................................            125,000             125,000
                                                                                       -------------       -------------
Additional paid-in capital:
  Beginning of period ..........................................................          1,050,860             893,767
  Issuance to holders of HyCUs on conversion of purchase contracts ............             143,675                   -
  Beneficial conversion feature related to convertible cumulative
   participating preferred shares ..............................................            120,750                   -
  Accretion of beneficial conversion feature related to convertible
   cumulative participating preferred shares ...................................           (120,750)                  -
  Option and restricted stock unit expense .....................................             19,122               1,483
  Ordinary shares issued .......................................................                  -             147,318
  Issuance to employees on exercise of options .................................                  -               6,795
  Other ........................................................................                 31                 427
                                                                                       -------------       -------------
  End of period ................................................................          1,213,688           1,049,790
                                                                                       -------------       -------------
Accumulated other comprehensive loss:
Unrealized depreciation on investments
  Beginning of period ..........................................................            (19,624)            (17,879)
  Change in period (net of tax and deferred acquisition costs) .................           (279,560)             (4,191)
                                                                                       -------------       -------------
  End of period ................................................................           (299,184)            (22,070)
                                                                                       -------------       -------------
Cumulative translation adjustment
  Beginning of period ..........................................................             22,826               7,888
  Change in period (net of tax) ................................................              5,826               8,114
                                                                                       -------------       -------------
  End of period ................................................................             28,652              16,002
                                                                                       -------------       -------------
Benefit plans
  Beginning and end of  period .................................................             (2,862)                  -
                                                                                       -------------       --------------
Total accumulated other comprehensive loss .....................................        $  (273,394)        $    (6,068)
                                                                                       -------------       -------------

</TABLE>


                                        5
<PAGE>


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

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

<TABLE>
<CAPTION>
                                                                                               Nine months ended
                                                                                        ---------------------------------
                                                                                        September 30,       September 30,
                                                                                            2007                2006
                                                                                        -------------       -------------
<S>                                                                                     <C>                 <C>
Retained earnings (deficit):
  Beginning of period ..........................................................        $  (119,614)        $   262,402
  Adoption of FIN 48 on January 1, 2007 ........................................            (32,571)                  -
  Net  loss ....................................................................            (37,706)           (135,156)
  Dividends declared on ordinary shares ........................................                  -              (5,359)
  Dividends declared on non-cumulative perpetual preferred shares ..............             (6,797)             (6,797)
  Imputed dividend on prepaid variable share forward contract ..................                  -                (881)
                                                                                        ------------        ------------
  End of period ................................................................           (196,688)            114,209
                                                                                        ------------        ------------
Total shareholders' equity .....................................................        $   869,290         $ 1,283,537
                                                                                        ============        ============

</TABLE>

     See Accompanying Notes to Consolidated Financial Statements (unaudited)


                                        6
<PAGE>


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

                (Expressed in Thousands of United States dollars)

<TABLE>
<CAPTION>
                                                                                              Nine months ended
                                                                                        ---------------------------------
                                                                                        September 30,       September 30,
                                                                                            2007                2006
                                                                                        -------------       -------------
Operating activities
<S>                                                                                     <C>                 <C>
Net loss .......................................................................        $   (37,706)        $  (135,156)
Adjustments to reconcile net loss to net cash provided by operating
  activities:
  Net realized losses ..........................................................            108,330              25,971
  Change in value of embedded derivatives, net .................................              5,886             (11,621)
  Amortization of discount on investments ......................................              9,146              12,270
  Amortization of deferred acquisition costs ...................................             69,929              71,798
  Amortization of present value of in-force business ...........................              2,469               3,278
  Changes in assets and liabilities:
   Accrued interest receivable .................................................                 35             (14,539)
   Reinsurance balances and risk fees receivable ...............................              4,464             106,684
   Deferred acquisition costs ..................................................            (72,490)            (94,147)
   Deferred tax asset and liability ............................................           (174,824)            106,934
   Other assets ................................................................             41,949             (65,490)
   Current income tax receivable and payable ...................................             (7,717)             (5,044)
   Reserves for future policy benefits, net of amounts recoverable from
     reinsurers ................................................................            198,588              70,983
   Interest sensitive contract liabilities, net of funds withheld at interest ..             47,326             452,891
   Accounts payable and other liabilities ......................................             55,729               2,235
   Other .......................................................................             20,833               5,845
                                                                                        ------------        ------------
  Net cash provided by operating activities ....................................            271,947             532,892
                                                                                        ------------        ------------
Investing activities
Purchase of fixed maturity investments .........................................           (703,682)         (3,927,956)
Proceeds from sales of fixed maturity investments ..............................            164,187           1,311,070
Proceeds from maturity of fixed maturity investments ...........................            476,523             377,652
Purchase of preferred stock investments ........................................             (1,899)            (10,299)
Proceeds from sales and maturity of preferred stock investments ................             15,052              12,901
Purchase of and proceeds from other investments ................................                963              (9,608)
Other ..........................................................................              5,475              (7,244)
                                                                                        ------------        ------------
  Net cash used in investing activities ........................................            (43,381)         (2,253,484)
                                                                                        ------------        ------------
Financing activities
Deposits to interest sensitive contract liabilities ............................              7,541             122,194
Withdrawals from interest sensitive contract liabilities .......................           (122,621)           (632,527)
Net proceeds from issuance of convertible cumulative participating preferred
  shares .......................................................................            555,857                   -
Proceeds from issuance to holders of HyCUs on conversion of purchase contracts .              7,338                   -
Redemption of convertible preferred shares .....................................             (7,338)                  -
Dividends paid on redemption of convertible preferred shares ...................               (222)                  -
Proceeds from collateral finance facility liabilities ..........................            431,514           1,760,237
Repayment of funds drawdown on collateral finance facility liabilities .........           (188,527)                  -
Net proceeds from drawdown of Stingray facility ................................                  -             265,000
Repayment of funds drawn down on Stingray ......................................           (275,000)                  -
Proceeds from issuance of ordinary shares ......................................                  4             153,731
Dividends paid on non-cumulative perpetual preferred shares ....................             (6,797)             (6,797)
Dividends paid on ordinary shares ..............................................                  -              (5,359)
                                                                                        ------------        ------------
  Net cash provided by financing activities ....................................            401,749           1,656,479
                                                                                        ------------        ------------
Net change in cash and cash equivalents ........................................            630,315             (64,113)
Cash and cash equivalents, beginning of period .................................            622,756           1,420,205
                                                                                        ------------        ------------
Cash and cash equivalents, end of period .......................................        $ 1,253,071         $ 1,356,092
                                                                                        ============        ============

</TABLE>

     See Accompanying Notes to Consolidated Financial Statements (unaudited)


                                        7
<PAGE>


                           SCOTTISH RE GROUP LIMITED
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 30, 2007
                                  (UNAUDITED)


1.        Organization

     On May 7, 2007, we completed the $600.0 million equity investment
transaction by MassMutual Capital Partners LLC ("MassMutual Capital"), a member
of the MassMutual Financial Group, and SRGL Acquisition, LDC ("SRGL LDC"), an
affiliate of Cerberus Capital Management, L.P. ("Cerberus"), announced by us on
November 27, 2006 (the "Transaction"). We incurred $44.1 million in closing
costs, which resulted in aggregate net proceeds of $555.9 million. Pursuant to
the Transaction, MassMutual Capital and Cerberus each invested $300.0 million in
us in exchange for 500,000 (1,000,000 in the aggregate) newly issued Convertible
Cumulative Participating Preferred Shares (see Note 8), which are convertible
into 150,000,000 ordinary shares in the aggregate at any time. On the ninth
anniversary of issue, the Convertible Cumulative Participating Preferred Shares
will automatically convert into an aggregate of 150,000,000 ordinary shares if
not previously converted.

     Pursuant to Assignment and Assumption Agreements dated as of June 5, 2007
between MassMutual Capital and each of Benton Street Partners I, L.P., Benton
Street Partners II, L.P. and Benton Street Partners III, L.P (collectively, the
"Funds"), MassMutual Capital assigned its Convertible Cumulative Participating
Preferred Shares to the Funds. The sole general partner of each of the Funds is
Benton Street Advisors, Inc., an indirect wholly-owned subsidiary of
Massachusetts Mutual Life Insurance Company.

     Also on June 5, 2007, MassMutual Capital, SRGL LDC and Benton Street
Advisors, Inc. entered into an Amended and Restated Investors Agreement (the
"Amended and Restated Investors Agreement"), in order to reallocate voting and
governance rights and obligations of MassMutual Capital to and among the Funds.
Pursuant to the Amended and Restated Investors Agreement, MassMutual Capital,
SRGL LDC and the Funds agreed, among other things, to: (i) certain restrictions
on the transfer of the Convertible Cumulative Participating Preferred Shares,
(ii) certain voting provisions with respect to the Company's ordinary shares,
(iii) the election of a certain number of directors to the Company's Board and
(iv) a third-party sale process. Because of the Amended and Restated Investors
Agreement, for the purposes of Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended, Massachusetts Mutual Life Insurance Company and the Funds
are deemed to be members of a group with SRGL LDC and, therefore, the beneficial
owners of the securities of the Company beneficially owned by SRGL LDC. On June
5, 2007, SRGL LDC subscribed for and purchased limited partnership interests in
Benton Street Partners III, L.P., pursuant to a Subscription Agreement dated as
of June 5, 2007 by and between Benton Street Partners III, L.P. and SRGL LDC.
Benton Street Partners III, L.P. holds 134,667 Convertible Cumulative
Participating Preferred Shares.

     Pursuant to an Amended and Restated Limited Partnership Agreement dated as
of June 5, 2007 by and among Benton Street Advisors, Inc., MassMutual Capital
and SRGL LDC, SRGL LDC shares certain rights over the voting and disposition of
securities of the Company held by Benton Street Partners III, L.P. Because SRGL
LDC directly holds 500,000 Convertible Cumulative Participating Preferred Shares
and exercises certain rights over the voting and disposition of the 134,667
Convertible Cumulative Participating Preferred Shares held by Benton Street
Partners III, L.P., which Convertible Cumulative Participating Preferred Shares,
in the aggregate, may be converted into 95,200,050 ordinary shares, Cerberus is
deemed to beneficially own 95,200,050 ordinary shares, or 43.6% of the ordinary
shares deemed issued and outstanding as of June 30, 2007. In addition, because
of the Amended and Restated Investors Agreement, Cerberus is deemed to
beneficially own the 365,333 Convertible Cumulative Participating Preferred
Shares, which may be converted into 54,799,950 ordinary shares, beneficially
owned by Massachusetts Mutual Life Insurance Company.

     As of September 30, 2007, MassMutual Capital and Cerberus hold in the
aggregate approximately 68.7% of our equity voting power, along with the right
to designate two-thirds of the members of the Board of Directors.


2.        Basis of presentation

     Accounting Principles -- The accompanying unaudited consolidated financial
statements have been prepared in accordance with U.S. generally accepted
accounting principles ("GAAP") and the instructions to Form 10-Q and


                                        8
<PAGE>


                           SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2007
                                  (UNAUDITED)

2.        Basis of presentation (continued)

Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included. The
results for the interim period are not necessarily indicative of the results to
be expected for the full year ending December 31, 2007. These unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in our 2006 Annual
Report on Form 10-K for the year ended December 31, 2006 ("2006 Annual Report").

     Consolidation -- We consolidate the results of all of our subsidiaries and
all variable interest entities for which we are the primary beneficiary. All
significant intercompany transactions and balances have been eliminated on
consolidation.

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

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

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


3.        New accounting pronouncements

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

     In July 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48 ("FIN 48"), "Accounting for Uncertainty in Income Taxes".
FIN 48 prescribes detailed guidance for the financial statement recognition,
measurement and disclosure of uncertain tax positions recognized in an
enterprise's financial statements in accordance with FASB Statement No. 109,
"Accounting for Income Taxes". Tax positions must meet a "more likely than not"
recognition threshold at the effective date to be recognized upon the adoption
of FIN 48 and in subsequent periods. On January 1, 2007, we adopted FIN 48. See
Note 7.

FASB Statement No. 157, Fair Value Measurements

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


                                        9
<PAGE>


                           SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2007
                                  (UNAUDITED)


3.        New accounting pronouncements (continued)

FASB Statement No. 159, Fair Value Option for Financial Assets and Financial
Liabilities

     In February 2007, the FASB issued Statement No. 159 ("SFAS No. 159"), "Fair
Value Option for Financial Assets and Financial Liabilities", which permits
entities to choose to measure many financial instruments and certain other items
at fair value. A company must report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each subsequent
reporting date. The fair value option may be applied on an instrument by
instrument basis, with a few exceptions. The fair value option is irrevocable
(unless a new election date occurs) and the fair value option may be applied
only to entire instruments and not to portions of instruments. SFAS 159 will be
effective for interim and annual financial statements issued after January 1,
2008. We are currently evaluating the implications of SFAS No. 159 on our
results of operations and financial position.


4.        Business segments

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


<TABLE>
<CAPTION>
                                                                          Three months ended September 30, 2007
                                                               ------------------------------------------------------------
                                                                      Life Reinsurance
                                                               -----------------------------
                                                                                                 Corporate
                                                               North America   International      & Other          Total
                                                               -------------   -------------     ----------      ----------
<S>                                                               <C>            <C>             <C>             <C>
Premiums earned, net ...................................          $ 428,806       $  27,534       $       -       $ 456,340
Investment income, net .................................            147,754           3,440           3,256         154,450
Fee and other income ...................................              5,661            (353)            709           6,017
Net realized gains (losses) ............................           (103,182)            245             951        (101,986)
Change in value of embedded derivatives, net ...........            (14,777)              -               -         (14,777)
                                                                  ----------     ----------      ----------      ----------
  Total revenues .......................................            464,262          30,866           4,916         500,044
                                                                  ----------     ----------      ----------      ----------

Claims and other policy benefits .......................            349,811          18,920               -         368,731
Interest credited to interest sensitive
  contract liabilities .................................             34,793               -               -          34,793
Acquisition costs and other insurance
  expenses, net ........................................             89,613           6,167           1,975          97,755
Operating expenses .....................................             12,841           7,923          16,218          36,982
Collateral finance facilities expense ..................             72,525               -           1,142          73,667
Interest expense .......................................              3,180              11             113           3,304
                                                                  ----------     ----------      ----------      ----------
  Total benefits and expenses ..........................            562,763          33,021          19,448         615,232
                                                                  ----------     ----------      ----------      ----------
Loss before income taxes and minority interest .........          $ (98,501)      $  (2,155)      $ (14,532)      $(115,188)
                                                                  ==========     ==========      ==========      ==========
</TABLE>


                                       10
<PAGE>


                           SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2007
                                  (UNAUDITED)


4.        Business segments (continued)


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

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


<TABLE>
<CAPTION>
                                                                          Nine months ended September 30, 2007
                                                              -----------------------------------------------------------------
                                                                      Life Reinsurance
                                                              ------------------------------
                                                                                                   Corporate
                                                              North America     International        & Other           Total
                                                              -------------     -------------     ------------     ------------
<S>                                                            <C>               <C>              <C>              <C>
Premiums earned, net ...................................       $ 1,282,459       $    78,391      $         -      $ 1,360,850
Investment income, net .................................           439,122             9,520            8,284          456,926
Fee and other income ...................................            12,288               400            2,193           14,881
Net realized gains (losses) ............................          (108,180)             (390)             240         (108,330)
Change in value of embedded derivatives, net ...........            (5,886)                -                -           (5,886)
                                                               ------------      ------------     ------------     ------------
  Total revenues .......................................         1,619,803            87,921           10,717        1,718,441
                                                               ------------      ------------     ------------     ------------

Claims and other policy benefits .......................         1,083,379            57,183                -        1,140,562
Interest credited to interest sensitive
  contract liabilities .................................           106,515                 -                -          106,515
Acquisition costs and other insurance
  expenses, net ........................................           266,493            17,325            5,545          289,363
Operating expenses .....................................            38,260            29,190           63,914          131,364
Collateral finance facilities expense ..................           210,466                 -           12,181          222,647
Interest expense .......................................             9,468                11            5,435           14,914
                                                               ------------      ------------     ------------     ------------
  Total benefits and expenses ..........................         1,714,581           103,709           87,075        1,905,365
                                                               ------------      ------------     ------------     ------------
Loss before income taxes and minority interest .........       $   (94,778)      $   (15,788)     $   (76,358)     $  (186,924)
                                                               ============      ============     ============     ============

</TABLE>


                                       11
<PAGE>


                           SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2007
                                  (UNAUDITED)


4.        Business segments (continued)

<TABLE>
<CAPTION>
                                                                          Nine months ended September 30, 2006
                                                               ---------------------------------------------------------------
                                                                      Life Reinsurance
                                                               -----------------------------
                                                                                                 Corporate
                                                               North America   International      & Other             Total
                                                               -------------   -------------    -----------        -----------
<S>                                                             <C>             <C>               <C>             <C>
Premiums earned, net ...................................        $ 1,258,174     $    89,310       $       -       $ 1,347,484
Investment income, net .................................            412,576          20,488           6,343           439,407
Fee and other income ...................................              8,516               -           2,236            10,752
Net realized gains (losses) ............................            (19,225)        (10,878)          4,132           (25,971)
Change in value of embedded derivatives, net ...........             11,621               -               -            11,621
                                                                ------------    ------------      ----------      ------------
  Total revenues .......................................          1,671,662          98,920          12,711         1,783,293
                                                                ------------    ------------      ----------      ------------
Claims and other policy benefits .......................          1,046,874          77,403               -         1,124,277
Interest credited to interest sensitive
  contract liabilities .................................            140,523               -               -           140,523
Acquisition costs and other insurance
  expenses, net ........................................            255,770          18,398           4,476           278,644
Operating expenses .....................................             43,699          21,329          44,876           109,904
Collateral finance facilities expense ..................            140,300               -           5,346           145,646
Interest expense .......................................              8,586               -           8,378            16,964
                                                                ------------    ------------      ----------      ------------
  Total benefits and expenses ..........................          1,635,752         117,130          63,076         1,815,958
                                                                ------------    ------------      ----------      ------------
Income (loss) before income taxes and
  minority interest ....................................        $    35,910     $   (18,210)      $ (50,365)      $   (32,665)
                                                                ============    ============      ==========      ============

</TABLE>


<TABLE>
<CAPTION>
                                                                                 September 30,   December 31,
                                                                                     2007            2006
                                                                                 -------------   ------------
<S>                                                                               <C>            <C>
Assets
Life Reinsurance
  North America............................................................      $12,019,394    $12,194,291
  International............................................................          456,142        431,222
                                                                                 -----------    -----------
Total Life Reinsurance.....................................................       12,475,536     12,625,513
Corporate & Other..........................................................          896,407        810,559
                                                                                 -----------    -----------
Total......................................................................      $13,371,943    $13,436,072
                                                                                 ===========    ===========

</TABLE>


                                       12
<PAGE>


                           SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2007
                                  (UNAUDITED)




5.        Earnings per ordinary share


     The following table sets forth the computation of basic and diluted
earnings per ordinary share under the two-class method and the if converted
method, respectively, as required under SFAS Statement No. 128 ("SFAS No. 128"),
"Earnings Per Share" and EITF No. 03-06, "Participating Securities and the
Two-Class Method under FASB Statement No. 128". Basic earnings per share is
computed based on the weighted average number of ordinary shares outstanding and
assumes an allocation of net income to Convertible Cumulative Participating
Preferred Shares for the period or portion of the period that this security is
outstanding. We determined that in accordance with EITF 98-5, the non-cash
beneficial conversion feature recorded on issue of the Convertible Cumulative
Participating Preferred Shares amounting to $120.8 million is to be treated as a
deemed dividend and deducted from the net loss attributable to ordinary
shareholders for the purposes of calculating earnings per share. Under the
provisions of SFAS No. 128, basic earnings per share are computed by dividing
the net loss attributable to ordinary shareholders by the weighted average
number of shares of our ordinary shares outstanding for the period. Diluted
earnings per share is calculated based on the weighted average number of shares
of ordinary shares outstanding plus the diluted effect of potential ordinary
shares in accordance with the if converted method.

     Basic earnings per share is computed based on the weighted average number
of ordinary shares outstanding and assumes an allocation of net income to
Convertible Cumulative Participating Preferred Shares for the period or portion
of the period that this security is outstanding. Losses are not allocated to
Convertible Cumulative Participating Preferred Shares. Under the provisions of
SFAS No. 128, basic earnings per share are computed by dividing the net loss
attributable to ordinary shareholders by the weighted average number of shares
of our ordinary shares outstanding for the period. Diluted earnings per share is
calculated based on the weighted average number of shares of ordinary shares
outstanding plus the diluted effect of potential ordinary shares in accordance
with the if converted method. In accordance with SFAS No. 128, the exercise of
options and warrants or conversion of convertible securities is not assumed
unless it would reduce earnings per share or increase loss per share.


<TABLE>
<CAPTION>

                                                               Three months ended              Nine months ended
                                                      --------------------------------    ------------------------------
                                                        September 30,    September 30,    September 30,    September 30,
                                                            2007             2006             2007             2006
                                                      ---------------    -------------    -------------    -------------
Numerator:
<S>                                                     <C>              <C>              <C>              <C>
Net loss ...........................................    $   (107,184)    $    (27,415)    $    (37,706)    $   (135,156)
Dividend declared on non-cumulative
  perpetual preferred shares .......................          (2,266)          (2,266)          (6,797)          (6,797)
Deemed dividend on beneficial conversion
  feature ..........................................               -                -         (120,750)               -
Imputed dividend on prepaid variable share
  forward contract .................................               -             (809)               -             (881)
                                                        -------------    -------------    -------------    -------------
Net loss attributable to ordinary
  shareholders .....................................    $   (109,450)    $    (30,490)    $   (165,253)    $   (142,834)
                                                        =============    =============    =============    =============

Denominator:
Denominator for basic and diluted loss per
  ordinary
  share - weighted average number of
  ordinary shares ..................................      68,383,370       56,933,566       66,939,007       54,708,914
                                                        -------------    -------------    -------------    -------------
Basic loss per ordinary share ......................    $      (1.60)    $      (0.54)    $      (2.47)    $      (2.61)
                                                        =============    =============    =============    =============
Diluted loss per ordinary share ....................    $      (1.60)    $      (0.54)    $      (2.47)    $      (2.61)
                                                        =============    =============    =============    =============

</TABLE>


                                       13
<PAGE>


                           SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2007
                                  (UNAUDITED)




6.        Collateral finance facility


          Clearwater Re


     On June 25, 2007, Clearwater Re Limited ("Clearwater") was incorporated
under the laws of Bermuda and issued in a private offering $365.9 million of
Floating Rate Variable Funding Notes due August 11, 2037 to external investors
(the "Clearwater Notes"). Proceeds from this offering were used to fund the
Regulation XXX reserve requirements for a defined block of level premium term
life insurance policies issued between January 1, 2004 and December 31, 2006
reinsured by Scottish Re (U.S.), Inc. Clearwater replaces the 2004 collateral
finance facility with HSBC ("HSBC I"), which has been terminated. Prior to its
termination, the HSBC I facility had provided $188.5 million of Regulation XXX
reserve funding. Upon termination, this amount was repaid to HSBC in accordance
with the termination provisions of the agreement. In addition, HSBC was paid an
early termination fee of $2.2 million. Proceeds from the Clearwater Notes have
been deposited into a reinsurance credit trust to collateralize the statutory
reserve obligations of the defined block of policies noted above. External
investors have committed to funding up to $555.0 million in order to fund the
ongoing Regulation XXX collateral requirements on this block.

     Payment of interest and principal under the Clearwater Notes on the
maturity date and following an event of default by Clearwater and related
acceleration of the Clearwater Notes are guaranteed by Scottish Annuity & Life
Insurance Company (Cayman) Ltd. ("SALIC") and by Scottish Re Group Limited
("SRGL).

     Interest on the principal amount of the Clearwater Notes is payable
quarterly at a rate equivalent to three month LIBOR plus a spread determined by
SALIC's insurance financial strength rating and SRGL's senior unsecured credit
rating.

     The Clearwater Notes also contain customary events of default provisions,
which if breached, could result in the accelerated maturity of the Clearwater
Notes.

     In accordance with FIN 46R, Clearwater Re is considered to be a variable
interest entity and we are considered to hold the primary beneficial interest.
As a result, Clearwater Re is consolidated in our financial statements beginning
in the third quarter of 2007. The assets of Clearwater Re are recorded as fixed
maturity investments and cash and cash equivalents. Our consolidated statements
of income (loss) include the investment return of Clearwater Re as investment
income and the cost of the facility is reflected in collateral finance
facilities expense.


7.        Income taxes

     Income tax benefit for the three months ended September 30, 2007 was $7.8
million compared to income tax expense of $20.8 million in the same period in
2006. Income tax benefit for the nine months ended September 30, 2007 was $148.7
million compared to income tax expense of $102.4 million in the same period in
2006. The change in our effective tax rate in the third quarter ended September
30, 2007 compared to the same period in 2006 is primarily related to a release
of our valuation allowance which was established in previous periods on deferred
tax assets for certain operating entities, as well as an increase in the
valuation allowance related to other operating entities for which no current
period benefit is being recognized.

     As discussed in Note 12 to the consolidated financial statements in the
2006 Annual Report, at December 31, 2006 we had a valuation allowance of $304.9
million established against our deferred tax assets. We currently provide a
valuation allowance against deferred tax assets when it is more likely than not
that some portion, or all, of our deferred tax assets, will not be realized. Our
valuation allowance decreased by approximately $27.3 million during the three
months ended March 31, 2007 to $277.6 million, including the impact of first
quarter activity, the impact from applying FIN 48 and other adjustments.


                                       14
<PAGE>


                           SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2007
                                  (UNAUDITED)


7.        Income taxes (continued)

     In the second quarter, our valuation allowance decreased by approximately
$203.6 million to $74.0 million. A majority of the valuation release is
attributable to the expected utilization of net operating loss carryforwards at
the U.S. consolidated tax life group to offset significant current year taxable
income generated from the redomestication of Orkney Re, Inc. from South Carolina
to Delaware, which occurred in May 2007. We redomesticated Orkney Re, Inc. to
Delaware to, among other considerations, take advantage of the synergies created
by having both Orkney Re, Inc. and our principle U.S. operating subsidiary,
Scottish Re (U.S.), Inc., subject to a single regulator with a more
comprehensive understanding of the overall combined business and statutory
considerations. The net operating loss carryforwards which were previously
written off via a valuation allowance, can now be used as an offsetting
valuation allowance release. Other significant activity which offset the
valuation allowance release included; the write down of a portion of the U.S.
non-life tax group's deferred tax asset in conjunction with the provision of
Section 382, as discussed below; and a valuation allowance recorded on the U.K.
and Singapore deferred taxes. As of the end of the second quarter of 2007, the
majority of our deferred tax assets of the U.S. consolidated tax life group are
no longer net operating losses, which in previous periods were subject to a
restricted carryforward period.

     In the third quarter, our valuation allowance increased by approximately
$25.3 million to $99.3 million. The movement in the valuation allowance
primarily relates to an increase in the valuation allowance recorded on Irish
deferred taxes of $25.0 million related to additional losses accrued during the
period; a decrease in the valuation allowance attributable to the U.S. non-life
group's deferred tax asset; an increase in the valuation allowance attributable
to the U.S. life group's deferred tax asset; and finally a reduction to the
valuation allowance recorded during previous quarters to date on U.K. deferred
taxes.

     With the exception of unrealized losses, the Company's gross deferred tax
asset is principally supported by the reversal of deferred tax liabilities.
Additionally, the Company has recognized a deferred tax asset on its unrealized
losses. This asset is supported by a tax planning strategy for which management
believes that it is more likely than not that the deferred tax asset will be
utilized in subsequent periods, although there is a risk that we will need to
establish additional valuation allowances in future quarters. Finally, we have
maintained a full valuation allowance against any remaining deferred tax asset
in the U.S., U.K., Ireland and Singapore, given our inability to rely on future
taxable income tax projections.

     Section 382 event

     The investments made by MassMutual Capital and Cerberus on May 7, 2007
qualify as a change in ownership under Section 382 of the Internal Revenue Code.
Section 382 operates to limit the future deduction of net operating losses that
were in existence as of the change in ownership. As a result of this limitation,
the Company has written off $134.7 million of net operating losses that it will
be unable to utilize prior to expiration with respect to its U.S. entities.
Because the Company had previously established a valuation allowance against
these net operating losses, there is not a significant tax expense associated
with Section 382 limitations.

     FIN 48 adoption

     On January 1, 2007, we adopted FIN 48. As a result of the implementation of
FIN 48, we recorded a net decrease to our beginning retained earnings of $32.6
million representing a total FIN 48 liability of $78.0 million (excluding
previously recognized liabilities of $6.5 million and including interest and
penalties of $11.1 million) reduced by a $45.4 million reduction of our existing
valuation allowance. We had total unrecognized tax benefits (excluding interest
and penalties) of $73.4 million at January 1, 2007, the recognition of which
would result in a $28.0 million benefit to the effective tax rate. At September
30, 2007 we had total unrecognized tax benefits (excluding interest and
penalties) of $171.9 million, the recognition of which would result in a $63.4
million benefit to the effective tax rate.

     Our policy for recording interest and penalties associated with uncertain
tax positions is to record such items as a component of income tax expense (on a
going forward basis excluding the initial amount noted above). We do not
reasonably estimate that the unrecognized tax benefit will change significantly
within the next twelve months.


                                       15
<PAGE>


                           SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2007
                                  (UNAUDITED)


7.        Income taxes (continued)

     We file our tax returns as prescribed by the tax laws of the jurisdictions
in which we operate. As of September 30, 2007, we remained subject to
examination in the following major tax jurisdictions for the years indicated
below:


            Major Tax Jurisdictions                        Open Years
            -----------------------                        ----------
            U.S.
              Life Group..............................     2001 through 2006
              Non-Life Group..........................     2005 through 2006
            Ireland...................................     2002 through 2006
            U.K.......................................     2001 through 2006



 8.       Mezzanine equity

          Convertible cumulative participating preferred shares

     On May 7, 2007, in connection with the Transaction with MassMutual Capital
and Cerberus, we issued in a private offering 1,000,000 Convertible Cumulative
Participating Preferred Shares. The gross proceeds were $600.0 million less
$44.1 million in closing costs, which resulted in aggregate net proceeds of
$555.9 million. Each Convertible Cumulative Participating Preferred Share has a
par value of $0.01 per share with a liquidation preference of $600 per share, as
adjusted for dividends or distributions as described further below.

     The Convertible Cumulative Participating Preferred Shares are convertible
at the option of the holder, at any time, into an aggregate of 150,000,000
ordinary shares of SRGL. On the ninth anniversary of issue, the Convertible
Cumulative Participating Preferred Shares will automatically convert into an
aggregate of 150,000,000 ordinary shares if not previously converted. We are not
required at any time to redeem the Convertible Cumulative Participating
Preferred Shares for cash, except in the event of a liquidation or a
change-in-control event.

     We have accounted for the Convertible Cumulative Participating Preferred
Shares in accordance with EITF D-98: "Classification and Measurement of
Redeemable Securities". Dividends on the Convertible Cumulative Participating
Preferred Shares are cumulative and accrete daily on a non-compounding basis at
a rate of 7.25% per annum on the stated value of $600.0 million, and shall be
accrued but not paid at such time. Dividends will only be paid in a liquidation
preference scenario upon liquidation or change-in-control of the Company prior
to the ninth anniversary. There have been no dividends accrued in the period as
this scenario is not deemed probable at this time. As of September 30, 2007, the
amount of dividends not accrued pursuant to the terms of the Convertible
Cumulative Participating Preferred Shares is $17.6 million.

     To the extent that the Convertible Cumulative Participating Preferred
Shares participate on an as-converted basis in dividends paid on ordinary
shares, a corresponding reduction will be made to the liquidation preference for
the Convertible Cumulative Participating Preferred Shares. The Convertible
Cumulative Participating Preferred Shares have a liquidation preference equal to
their stated value, as adjusted for (x) the accretion of dividends and (y) any
cash payment or payment in property of dividends or distributions. The holders
of Convertible Cumulative Participating Preferred Shares may, among other
things, require us to redeem the Convertible Cumulative Participating Preferred
Shares upon a change-in-control. Upon a change-in-control, the redemption price
is an amount equal to the greater of (i) the stated value of the outstanding
Convertible Cumulative Participating Preferred Shares, plus an amount equal to
the sum of all accrued dividends through the earlier of (A) the date of payment
of the consideration payable upon a change-in-control, or (B) the fifth
anniversary of the issue date of the Convertible Cumulative Participating
Preferred Shares, or (ii) the amount that the holder of the Convertible
Cumulative


                                       16
<PAGE>


                           SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2007
                                  (UNAUDITED)


8.        Mezzanine equity (continued)

Participating Preferred Shares would have been entitled to receive with respect
to such change-in-control if it had exercised its right to convert all or such
portion of its Convertible Cumulative Participating Preferred Shares for
ordinary shares immediately prior to the date of such change-in-control.

     The liquidation preference of the Convertible Cumulative Participating
Preferred Shares is not applicable once the Convertible Cumulative Participating
Preferred Shares have been converted into ordinary shares, as described above.

     The Convertible Cumulative Participating Preferred Shares conversion price
($4.00 per ordinary share) was lower than the trading value of $4.66 of our
ordinary shares on the date of issue. This discount has been accounted for as an
embedded beneficial conversion feature in accordance with EITF 98-5, "Accounting
for Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios", and EITF 00-27, "Application of Issue No. 98-5 to
Certain Convertible Instruments". Accordingly the Company recognized a $120.8
million embedded beneficial conversion feature, which reduced the Convertible
Cumulative Participating Preferred Share issue amount shown in Mezzanine Equity
and increased the amount of additional paid in capital. Under the accounting
guidance above, we had the choice to accrete the full intrinsic value of the
embedded beneficial conversion feature out of retained earnings over the nine
year term of the shares or immediately due to the ability of the holders to
convert at their option at any time. Given the ability of the holders to convert
at any time, we have elected to accrete the full intrinsic value of the embedded
beneficial conversion feature on the date of issue. As we did not have any
retained earnings on the date of issue, this has resulted in the $120.8 million
beneficial conversion feature being accreted out of additional paid in capital
into Mezzanine Equity.


          Hybrid capital units

     On December 17, 2003 and December 22, 2003, we issued in a public offering
a total of 5,750,000 Hybrid Capital Units ("HyCUs"). The aggregate net proceeds
were $141.9 million. Each HyCU consisted of (i) a purchase contract ("purchase
contract") to which the holder was obligated to purchase from us, on February
15, 2007, an agreed upon number of ordinary shares for a price of $25.00 and (b)
a convertible preferred share with a liquidation preference of $25.00
("Convertible Preferred Share").

     Holders of the HyCUs had the option to allow the Convertible Preferred
Shares to be included in the remarketing process and use the proceeds of the
remarketing to settle the purchase contract or elect not to participate in the
remarketing by either delivering the requisite amount of cash to settle the
purchase contract or surrendering the Convertible Preferred Shares.

     On January 25, 2007, we gave notice to holders of the HyCUs that we were
unable to satisfy certain conditions precedent to the remarketing that were
contained in the Remarketing Agreement and, therefore, the remarketing of the
Convertible Preferred Shares had failed. Accordingly, holders of the HyCUs only
had the option to settle the purchase contracts in cash or surrender the
Convertible Preferred Shares.

     On February 15, 2007, we received cash proceeds of $7.3 million to settle
purchase contracts, in exchange for 293,500 of our ordinary shares. We also
released to the settling holder 293,500 Convertible Preferred Shares which were
previously held as collateral against the holder's obligation under the purchase
contracts. Also on February 15, 2007, we issued 7,146,978 of our ordinary shares
to the holders of our HyCUs who did not settle in cash, and who had elected to
surrender their Convertible Preferred Shares. On February 22, 2007, we exercised
our right to foreclose on the 5,456,500 Convertible Preferred Shares held as
collateral for the 5,456,500 purchase contracts that were not settled in cash.


                                       17
<PAGE>


                           SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2007
                                  (UNAUDITED)


8.        Mezzanine equity (continued)


     In aggregate, we issued 7,440,478 of our ordinary shares on February 15,
2007. We redeemed the 293,500 Convertible Preferred Shares for an aggregate of
$7.3 million plus accrued dividends on May 21, 2007. Following their redemption
on May 21, 2007, there were no Convertible Preferred Shares outstanding.

9.        Contingencies

     Mediation

     On June 16, 2005, we requested mediation from Employers Reinsurance
Corporation ("ERC") pursuant to the stock purchase agreement transferring a 95%
interest in Scottish Re Life Corporation (formerly ERC Life Corporation) to
Scottish Holdings, Inc. We assert that ERC breached certain representations and
warranties under the agreement. Any negative outcome from this mediation will
not have a material adverse impact on our financial position because the
asserted breaches have already been fully reflected in our financial position at
September 30, 2007. The parties have held two mediation sessions, but have been
unable to resolve the dispute. No date has been scheduled for a future mediation
session.

     Class action lawsuit

     On August 2, 2006, a putative class action lawsuit was filed against us and
certain of our current and former officers and directors in the U.S. District
Court for the Southern District of New York on behalf of a putative class
consisting of investors who purchased our publicly traded securities between
December 16, 2005 and July 28, 2006. Between August 7, 2006 and October 3, 2006,
seven additional related class action lawsuits were filed against us, certain of
our current and former officers and directors, and certain third parties. Two of
the complaints were filed on August 7, 2006, and the remaining five complaints
were filed on August 14, 2006, August 22, 2006, August 23, 2006, September 15,
2006, and October 3, 2006, respectively. Each of the class actions filed seeks
an unspecified amount of damages, as well as other forms of relief. On October
12, 2006, all of the class actions were consolidated. On December 4, 2006, a
consolidated class action complaint was filed. The complaint names us; Dean E.
Miller, our former Chief Financial Officer; Scott E. Willkomm, our former Chief
Executive Officer; Elizabeth Murphy, our former Chief Financial Officer; our
former Board members Michael Austin, Bill Caulfeild-Browne, Robert Chmely,
Michael French, Lord Norman Lamont, Hazel O'Leary, and Glenn Schafer; and
certain third parties, including Goldman Sachs and Bear Stearns in their
capacities as underwriters in various securities offerings by us and Ernst &
Young LLP in their capacity as independent registered public accounting firm.
The complaint is brought on behalf of a putative class consisting of investors
who purchased our securities between February 17, 2005 and July 31, 2006. The
complaint alleges violations of Sections 10(b) and 20(a) of the Exchange Act,
Rule 10b-5, and Sections 11, 12(a)(2), and 15 of the Securities Act. The
complaint seeks an unspecified amount of damages, as well as other forms of
relief. On March 7, 2007 we filed a motion to dismiss the putative class action
lawsuit. On November 2, 2007, the Court dismissed the Section 10(b) and Rule
10b-5 claims against Ernst & Young LLP, but gave the plaintiffs leave to amend.
The Court denied the motions to dismiss brought by the other named defendants.
The Company believes the plaintiffs' claims to be without merit and intends to
defend itself against them.


                                       18
<PAGE>


                           SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2007
                                  (UNAUDITED)


9.        Contingencies (continued)

Shareholder derivative lawsuit

     In addition, on October 20, 2006, a shareholder derivative lawsuit was
filed against certain of our current and former directors in the U.S. District
Court for the Southern District of New York.

     The derivative lawsuit alleges, among other things, that defendants
improperly permitted us to make false and misleading statements to investors
concerning our business and operations, thereby exposing us to liability from
class action suits alleging violations of the U.S. securities laws. The
derivative lawsuit asserts claims against defendants for breach of fiduciary
duty, abuse of control, gross mismanagement, constructive fraud, and unjust
enrichment. On January 8, 2007 we filed a motion to dismiss the derivative
lawsuit. On May 7, 2007, our motion was granted and the lawsuit was dismissed
without prejudice. The plaintiff declined to submit an amended complaint and, on
May 30, 2007, the court dismissed the case with prejudice.

     Ballantyne Re

     The terms of the Class C-1 and Class C-2 Notes issued in connection with
the Ballantyne Re securitization require Ballantyne Re to write-off all or a
portion of the accrued interest and principal of the notes if the equity balance
of Ballantyne Re (determined in accordance with International Financial
Reporting Standards) falls below a specified amount as of September 30 of any
year. As of September 30, 2007, such equity balance fell below this specified
amount primarily due to mark to market declines affecting a large portion of
Ballantyne Re's investment portfolio. We are currently attempting to amend the
Notes to postpone the determination date for any write-off of the Class C-1
Notes for a 12-month period, although such an amendment requires the consent of
certain third parties. Absent this amendment, we expect that a portion of the
$42.0 million principal amount of Class C-1 Notes held by third parties would be
written off, in addition to any accrued and unpaid interest.

     Indemnification

     In connection with an examination of the statutory accounting books of
certain of our operating insurance subsidiaries, and specifically, the purchase
accounting entries made in connection with the 2004 acquisition of the ING
business, we determined that certain intercompany receivables and intercompany
claims were not reflected in the statutory financial statements of Scottish Re
(U.S.), Inc. and Scottish Re (Dublin) Limited in accordance with applicable
statutory accounting practices. Management has determined that as a result of
these errors the statutory surplus for Scottish Re (Dublin) Limited was
overstated on a cumulative basis at year end 2004, 2005 and 2006, resulting in a
restated statutory surplus at year end 2006 of approximately $285.0 million
after giving effect to these corrections. In addition, management has determined
that the statutory surplus for Scottish Re (U.S.), Inc. was understated on a
cumulative basis at year end 2005 and 2006, resulting in a restated statutory
surplus at year end 2006 of approximately $344.0 million after giving effect to
these corrections. The restated statutory surplus of each of Scottish Re (U.S.),
Inc. and Scottish Re (Dublin) Limited met the applicable minimum statutory
surplus requirements at December 31, 2006. None of these corrections impact our
historical consolidated financial statements under U.S. GAAP.

     Pursuant to our Securities Purchase Agreement, dated November 26, 2006 (the
"Agreement") with Mass Mutual Capital and Cerberus, we made certain
representations and warranties regarding the statutory financial statements of
each of our insurance subsidiaries, including Scottish Re (Dublin) Limited and
Scottish Re (U.S.), Inc., for the years ended 2003, 2004 and 2005 and, with
respect to Scottish Re (U.S.), Inc. but not Scottish Re (Dublin) Limited, the
first three quarters of 2006, including that these statements were prepared in
conformity with applicable statutory accounting practices and fairly present in
accordance with such practices in all


                                       19
<PAGE>


                           SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2007
                                  (UNAUDITED)

9.        Contingencies (continued)

material respects the statutory financial condition of the relevant insurance
subsidiary at the respective dates. In light of our recent discovery of the
corrections described above, we have notified the Investors, as required by the
terms of the Agreement, of the overstatement of statutory surplus in Scottish Re
(Dublin) Limited at year end 2004 and the understatement of such statutory
surplus at year end 2005 resulting in a cumulative overstatement for the two
year period at year end 2005 of approximately $70.6 million on an after-tax
basis, and the understatement of statutory surplus in Scottish Re (U.S.), Inc.
for the year ended 2005 of approximately $14.5 million on an after-tax basis. It
is possible that the Investors may assert a claim against us for indemnification
of losses (including diminution in value), if any, they may have incurred as a
result of these inaccuracies. Under the Agreement, in the event of a claim for
losses resulting from a diminution in value, such losses would be determined by
an independent investment banking firm of national reputation, agreed upon by us
and the Investors, based on changes in the valuation of Scottish Re Group
Limited using the assumptions and models used by the Investors at the time of
their decision to invest in us. Furthermore, should any claim for
indemnification be made by the Investors, the Agreement provides that any
decision regarding defending or settling such claim will be taken by a committee
of independent directors of our Board of Directors. At this time, we do not know
if any actual claim for indemnification will be asserted, if asserted what the
amount of any indemnifiable losses would be, if any, or what potential defenses
or other limitations on indemnification may be available to the Company under
those circumstances. The Agreement provides that any indemnification claim would
be satisfied by adjusting the conversion amount at which the Convertible
Cumulative Preferred Shares issued to the Investors are convertible into our
Ordinary Shares. We have been informed of the Investors' intention to file an
indemnification claim on this matter although no such claim has been received by
the Company at this time.


10.       Stock based compensation

2007 Stock Option Plan

     On July 18, 2007, the shareholders of the Company approved and adopted the
Scottish Re Group Limited 2007 Stock Option Plan ("2007 Plan"). The 2007 Plan
provides for the granting of stock options to eligible employees, directors and
consultants of the Company. The total number of our shares reserved and
available for issuance under the 2007 Plan is 18,000,000. The exercise price of
stock options granted under the 2007 Plan shall be the fair market value of our
ordinary shares on the date of grant and such options shall expire ten years
after the date of grant, or such shorter period as determined by the
Compensation Committee (unless earlier exercised or terminated pursuant to the
terms of the 2007 Plan). On July 18, 2007, we issued 2,250,000 options to
directors and 8,370,000 options to eligible employees.

     Options issued under the 2007 Plan vest as follows:

     o    50% of an option grant to an employee or consultant vests based on the
          recipient's continued employment with the Company ("Time-Based
          Options"). 20% of the Time-Based Options vest on the grant date and an
          additional 20% vest in four equal installments on each of the first,
          second, third and fourth anniversary of the grant date, based on
          continued employment. The Time-Based Options are exercisable upon
          vesting.

     o    50% of an option grant to an employee or consultant vests based on the
          achievement of certain performance targets as established by the Board
          with respect to each relevant fiscal year ("Performance-Based
          Options"). 10% of the Performance-Based Options vest following the
          close of each of the five fiscal years following the grant date,
          subject to the Company's attainment of the performance targets
          established by the Board with respect to the relevant fiscal year. In
          addition, 10% of the Performance-Based Options vest following the
          close of each of the five fiscal years following the grant date,
          subject to the recipient's respective division's or segment's
          attainment of the performance targets established by the Board with
          respect to the relevant fiscal year. Although the Performance-Based
          Options may vest, they shall not become exercisable until the end of
          the fifth fiscal year following May 7, 2007; provided, however, that
          if the Company achieves an A- rating or better from Standard & Poor's
          or AM Best within eighteen (18) months following the closing of the
          Transaction, all Performance-Based Options with regard to fiscal years
          2007 and 2008 will fully vest and become exercisable.


                                       20
<PAGE>


                           SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2007
                                  (UNAUDITED)


10.  Stock based compensation (continued)

     o    100% of options granted to directors vest on the grant date and are
          exercisable.


     Upon a change of control (as defined in the 2007 Plan), to the extent not
previously cancelled or forfeited, all Time-Based Options and Performance-Based
Options shall become 100% vested and exercisable.

     Option activity

     Option activity under the 2007 Plan for the three months ended September
30, 2007 is as follows:

<TABLE>
<CAPTION>
<S>                                           <C>
Outstanding, beginning of period......                -
Granted...............................        6,535,000
Cancelled.............................          (80,500)
                                              ----------
Outstanding, end of period............        6,454,500
                                              ==========
Options exercisable, end of period....        3,044,500
                                              ==========

</TABLE>

     Of the 10,620,000 options issued on July 18, 2007, 6,535,000 are Time-Based
Options and 4,085,000 are Performance Based options. As at September 30, 2007,
only the Time-Based Options are considered granted and fair valued as we have
not yet finalized the performance criteria of the Performance-Based Options to
eligible employees. The terms and conditions for the Performance-Based Options
are to be finalized and communicated to eligible employees in the fourth quarter
of 2007 and at that time, in accordance with SFAS No. 123(R) "Share Based
Payment", we can determine a grant date, calculate the fair value and recognize
the expense of the Performance-Based Options.

     During the three months ended September 30, 2007, the following activity
occurred under the 2007 Plan:

<TABLE>
<CAPTION>
<S>                                           <C>
Weighted average grant date fair value of
  options.................................    $     2.8902
Total fair value of options vested........    $  8,799,214

</TABLE>

     Valuation of options

     Stock options are accounted for in accordance with SFAS 123(R) "Share Based
Payment". The fair value of each option award is estimated on the date of grant
using the Black-Scholes option-pricing model, which uses the assumptions noted
in the following table.

     o    Expected dividend yield - The Company does not have a dividend policy
          at this time. We have assumed no dividends and under the Forbearance
          Agreement with HSBC, we are prohibited from declaring any cash
          dividend, exclusive of the Non-Cumulative Perpetual Preferred Shares,
          during the forbearance period from November 26, 2006 until December
          31, 2008 and, therefore, we have used 0% for the expected dividend
          yield.


                                       21
<PAGE>


                           SCOTTISH RE GROUP LIMITED
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
                               SEPTEMBER 30, 2007
                                  (UNAUDITED)


10.       Stock based compensation (continued)

     o    Expected volatility - The expected volatility is a measure of the
          amount by which a price has fluctuated and is expected to fluctuate
          during a period of time. The expected volatility of the Company's
          stock is based on historical volatility.

     o    Expected term - The expected term represents the anticipated amount of
          time between the grant date of the option and the exercise date or
          cancellation date based on historical data.

     o    Risk free interest rate - The risk-free interest rate at the expected
          term of the option is based on the U.S. Treasury yield curve in effect
          at the time of grant.


                                                               September 30,
                                                                   2007
                                                            --------------------
        Expected dividend yield..........................           0.00%
        Expected volatility..............................           63.4%
        Expected term of Time-Based Options..............         5.6 years
        Risk free interest rate for Time-Based Options...           4.97%

     Compensation expense

     Compensation expense for stock options for the three months ended September
30, 2007 was $9.0 million. We recognize compensation costs for stock options
with pro-rata vesting evenly over the requisite service period. As of September
30, 2007, there was $9.8 million of total unrecognized compensation costs
related to stock options. These costs are expected to be recognized over a
period of four years.

     Compensation expense for stock-based compensation for the nine months ended
September 30, 2007 was $19.1 million, which includes $10.1 million of
compensation expense associated with the pre-Transaction stock-based
compensation plans. Upon closing the Transaction on May 7, 2007, all previously
unrecognized compensation expense associated with the pre-Transaction
stock-based compensation plans was recognized immediately.

     Under the pre-Transaction stock-based compensation plans, compensation
expense for the three and nine months ended September 30, 2006 was $(3.0)
million and $1.6 million, respectively. As of September 30, 2006, there was $7.8
million of unrecognized compensation expense related to stock-based compensation
plans, which was expected to be recognized over a period of up to three years.

11.  Form 10-K Disclosure - Consolidated statements of comprehensive income

     On December 31, 2006, we adopted Financial Accounting Standards SFAS No.
158, "Employers' Accounting for Defined Benefit Pension and other Postretirement
Plans". Upon adoption we recorded a $2.9 million reduction in comprehensive
income (loss) for the year ended December 31, 2006. However, the cumulative
effect of the change in accounting, net of tax should have been recorded as a
separate component of accumulated other comprehensive income (loss). As of
December 31, 2006, we reported comprehensive loss of $356.4 million for the
year. With this revised presentation, comprehensive loss for the year ended
December 31, 2006 would have been $353.5 million. This revised presentation will
be reflected in our Form 10-K for the year ending December 31, 2007, since we
consider the adjustment to be not material in the context of comprehensive
income (loss) for the year ended December 31, 2006.


                                       22
<PAGE>


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

General

Forward-Looking Statements

     Some of the statements contained in this report are not historical facts
and are forward-looking statements within the meaning of the Private Securities
Litigation Reform Act. Forward-looking statements involve known and unknown
risks, uncertainties and other factors, which may cause the actual results to
differ materially from the forward-looking statements. Words such as
"anticipates", "expects", "intends", "plans", "believes", "seeks", "estimates",
"may", "will", "continue", "project", and similar expressions, as well as
statements in the future tense, identify forward-looking statements.

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

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

     o    uncertainties in our ability to raise equity capital or other sources
          of funding to support ongoing capital and liquidity needs;

     o    uncertainties relating to future actions that may be taken by
          creditors, regulators and ceding insurers relating to our ratings and
          financial condition;

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

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

     o    exposure to mortality experience which differs from our assumptions;

     o    risks related to recent negative developments in the residential
          mortgage market, especially in the sub-prime sector, and our exposure
          to such market;

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

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

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

     o    changes in the rate of policyholder withdrawals or recapture of
          reinsurance treaties, whether caused by ratings pressures or general
          market conditions;

     o    the impact of adjustments to previous financial estimates arising from
          our process improvement program under which we, among other things,
          enhance the automation of our reporting, valuation and administrative
          tools (such as cedant and retrocession accounting);

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

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

     o    political and economic risks in developing countries;

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

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

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


                                       23
<PAGE>


     o    losses due to foreign currency exchange rate fluctuations;

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

     o    risks relating to recent class action litigations;

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

     o    changes in accounting principles.

     The effects of these factors are difficult to predict. New factors emerge
from time to time and we cannot assess the financial impact of any such factor
on our business or the extent to which any factor, or combination of factors,
may cause results to differ materially from those contained in any
forward-looking statement. Any forward-looking statement speaks only as of the
date of this report and we do not undertake any obligation, other than as may be
required under the Federal securities laws, to update any forward looking
statements to reflect events or circumstances after the date of such statement
or to reflect the occurrence of unanticipated events.

     This discussion and analysis should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited Consolidated Financial Statements and Notes thereto,
presented under Item 7 and Item 8, respectively, of our 2006 Annual Report.

Overview

     See the introduction to "Management's Discussion & Analysis of Financial
Condition and Results of Operations" contained in our 2006 Annual Report.

Status of Financial Strength and Credit Ratings

     As of November 9, 2007, our insurer financial strength and credit ratings
are as follows:

<TABLE>
<CAPTION>
                                                                   Moody's
                                      A.M. Best      Fitch        Investors       Standard
                                     Company (1)   Ratings (2)    Service (2)   & Poor's (3)
                                     -----------   -----------    -----------   ------------
<S>                                     <C>           <C>           <C>            <C>
Insurer Financial Strength
--------------------------
Ratings:
-------
Scottish Annuity & Life
  Insurance Company (Cayman) Ltd        B+            BBB-          Baa3           BB+
Scottish Re (U.S.), Inc.........        B+            BBB-          Baa3           BB+
Scottish Re Limited.............        B+            BBB-             -           BB+
Scottish Re Life Corporation....        B+               -             -           BB+

Scottish Re Group Limited Credit
--------------------------------
  Ratings:
  -------
Senior unsecured................        bb-           BB-           Ba3            B+
Preferred stock.................         b             B            B2             CCC+

</TABLE>

----------------------------
1 Negative outlook
2 Stable outlook
3 Developing outlook


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


                                       24
<PAGE>


Critical Accounting Policies

     SFAS No. 123(R) "Share Based Payment"

     Effective January 1, 2006, we adopted SFAS No. 123(R) "Share Based
Payment". In accordance with SFAS No. 123(R), compensation cost is determined on
the option grant date using the Black-Scholes model to estimate the fair value
of the option. Under SFAS No. 123(R), the grant date for all Time-Based Options
is the date the options are issued, while the grant date for all
Performance-Based Options is the date the performance criteria are communicated
to the option holders, which may occur substantially after the issuance date.
Compensation cost, net of estimated pre-vesting forfeitures, is then recognized
on a straight-line basis over the requisite service period (vesting period).
However, per SFAS No. 123(R), compensation cost for the Performance-Based
Options is only recognized when it is probable that the performance criteria
will be met. Compensation cost is recognized as a component of operating
expenses with a corresponding increase in additional paid in capital.

     The Black-Scholes model incorporates six key factors: (i) the price of the
Company's stock on the grant date, (ii) the exercise price of the option, (iii)
the expected term of the option, (iv) the expected volatility of the Company's
stock, (v) the expected dividend rate and (vi) the risk-free interest rate as of
the grant date. Several of these factors (the expected term of the option, the
expected volatility of the Company's stock, and the expected dividend rate)
incorporate management's judgment, which could materially impact the fair value
of the option. Management has used historical Company data to estimate the
expected term or amount of time between the option grant date and the
exercise/cancellation date. The expected term of the option is also used to
select the risk-free interest rate as of the grant date. The expected volatility
of the Company's stock is based on historical volatility. As the Company is
currently prohibited from declaring any cash dividends, management has used an
expected dividend rate of zero in calculating the fair value of the option.

     See the discussion of our additional Critical Accounting Policies in Item 7
of our 2006 Annual Report.


                                       25
<PAGE>


Results of Operations - Three and Nine Months Ended September 30, 2007 and 2006

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

Consolidated results of operations

<TABLE>
<CAPTION>
                                                                  Three months ended              Nine months ended
                                                            -----------------------------   -----------------------------
                                                            September 30,   September 30,   September 30,   September 30,
                                                                 2007            2006            2007            2006
                                                            -------------   -------------   -------------   -------------
<S>                                                         <C>             <C>             <C>             <C>
Premiums earned, net ...................................    $   456,340     $   453,521     $ 1,360,850     $ 1,347,484
Investment income, net .................................        154,450         162,408         456,926         439,407
Fee and other income ...................................          6,017           2,380          14,881          10,752
Net realized losses ....................................       (101,986)         (1,072)       (108,330)        (25,971)
Change in value of embedded derivatives, net ...........        (14,777)         (5,891)         (5,886)         11,621
                                                            ------------    ------------    ------------    ------------
  Total revenues .......................................        500,044         611,346       1,718,441       1,783,293
                                                            ------------    ------------    ------------    ------------

Claims and other policy benefits .......................        368,731         377,713       1,140,562       1,124,277
Interest credited to interest sensitive
  contract liabilities .................................         34,793          42,423         106,515         140,523
Acquisition costs and other insurance
  expenses, net ........................................         97,755          86,241         289,363         278,644
Operating expenses .....................................         36,982          39,447         131,364         109,904
Collateral finance facilities expense ..................         73,667          67,323         222,647         145,646
Interest expense .......................................          3,304           5,005          14,914          16,964
                                                            ------------    ------------    ------------    ------------
  Total benefits and expenses ..........................        615,232         618,152       1,905,365       1,815,958
                                                            ------------    ------------    ------------    ------------
Loss before income taxes and minority interest .........       (115,188)         (6,806)       (186,924)        (32,665)
Income tax benefit (expense) ...........................          7,777         (20,841)        148,717        (102,427)
                                                            ------------    ------------    ------------    ------------
Loss before minority interest ..........................       (107,411)        (27,647)        (38,207)       (135,092)
Minority interest ......................................            227             232             501             (64)
                                                            ------------    ------------    ------------    ------------
Net loss ...............................................       (107,184)        (27,415)        (37,706)       (135,156)
Dividend declared on non-cumulative perpetual
  preferred shares .....................................         (2,266)         (2,266)         (6,797)         (6,797)
Deemed dividend on beneficial conversion
  feature ..............................................              -               -        (120,750)
Imputed dividend on prepaid variable share
  forward contract .....................................              -            (809)              -            (881)
                                                            ------------    ------------    ------------    ------------
Net loss attributable to ordinary shareholders .........    $  (109,450)    $   (30,490)    $  (165,253)    $  (142,834)
                                                            ============    ============    ============    ============

</TABLE>

     Net loss attributable to ordinary shareholders increased by 259% to $109.5
million for the three months ended September 30, 2007 compared to $30.5 million
in the same period in 2006 and increased by 16% to $165.3 million for the nine
months ended September 30, 2007 compared to $142.8 million in the same period in
2006. The increase in net loss attributable to ordinary shareholders for the
three and nine months ended September 30, 2007 is primarily the result of the
impact of write-downs taken on our sub-prime and Alt-A bonds held within our
consolidated investment portfolio.

          Revenues

     Total revenues decreased by 18% to $500.0 million for the three months
ended September 30, 2007 compared to $611.3 million in the same period in 2006,
primarily due to the write-downs taken on our sub-prime and Alt-A bonds and
changes in the value of embedded derivatives relating to our funds withheld at
interest. Premiums earned increased 1% to $456.3 million for the three months
ended September 30, 2007 compared to $453.5 million in the same period in 2006.
During the prior year quarter, there was a $16.5 million negative change in
estimate related to experience refunds in our Life Reinsurance North America
Segment. Excluding the effects of this adjustment, premiums earned has decreased
by $13.7 million compared to the prior year quarter due primarily to lower new
business production and lapsation effects.

     Investment income decreased by 5% to $154.5 million for the three months
ended September 30, 2007 compared to $162.4 million in the same period in 2006.
This decrease is primarily the result of reduced investment income on annuity
business relating to declining account values resulting from higher lapses. The
decrease was partially offset by an increase in interest rates.


                                       26
<PAGE>


     Realized losses for the quarter increased to $102.0 million for the three
months ended September 30, 2007 compared to $1.1 million in the same period in
2006. The increase is primarily due to write-downs taken on our sub-prime and
Alt-A bonds during the quarter.

     The net embedded derivative movement increased to a $14.8 million loss for
the three months ended September 30, 2007 compared to a $5.9 million loss in the
same period in 2006. These embedded derivatives relate to our funds withheld at
interest on modified coinsurance treaties under DIG B36 "Embedded Derivatives:
Modified Coinsurance Arrangements and Debt Instruments That Incorporate Credit
Risk Exposures that Are Unrelated or Only Partially Related to the
Creditworthiness of the Obligor Under Those Instruments". The increase during
the quarter is primarily due to a change in the yield curve used to value the
derivatives.

     Total revenues decreased by 4% to $1,718.4 million for the nine months
ended September 30, 2007 compared to $1,783.3 million in the same period in 2006
due to the impact of write-downs taken on our sub-prime and Alt-A bonds.
Premiums earned increased by 1% to $1,360.9 million for the nine months ended
September 30, 2007 compared to $1,347.5 million in the same period in 2006. The
increase is primarily the result of a $13.4 million increase in premium earned
in the Life Reinsurance North America Segment partially offset by a $10.9
million decrease in the Life Reinsurance International Segment.

     In the Life Reinsurance North America Segment, the increase is primarily
due to the aforementioned $16.5 million negative experience refund change in
estimate in the third quarter of 2006 along with a negative premium accrual
adjustment of $8.0 million in the second quarter of 2006. In the Life
Reinsurance International Segment, the decrease primarily relates to the
retrocession of our Middle Eastern business and adjustments to premium accruals
on treaties in runoff.

     Investment income increased by 4% to $456.9 million for the nine months
ended September 30, 2007 compared to $439.4 million in the same period in 2006.
The increase is primarily the result of higher interest rates and the level of
our average invested assets, which include the $556.0 million received in
connection with the closing of the Transaction with MassMutual Capital and
Cerberus. In the prior year, our invested assets increased due to the closing of
the Ballantyne Re securitization in May 2006 which contributed $1.7 billion to
our invested asset base and the closing of a $560.0 million annuity contract,
which was subsequently recaptured in the third quarter of 2006. These positive
variances are partially offset by the effect of the termination of four funding
agreements in 2006 and by a continued decline in account values on certain Life
Reinsurance North America Segment annuity treaties due to higher lapse rates.

     Realized losses for the nine months ended September 30, 2007 increased to
$108.3 million compared to $26.0 million in the same period in 2006. The
increase is primarily due to write-downs taken on our sub-prime and Alt-A
investments during the quarter.

     The net embedded derivative movement for the nine months ended September
30, 2007 decreased to a $5.9 million compared to an $11.6 million gain in the
same period in 2006. The movement is partially due to a change in the yield
curve used to value the derivatives in the current quarter and partially related
to a prior year realization of losses on certain securities held under a
modified coinsurance arrangement that were sold in the first quarter of 2006 in
order to provide collateral for the Ballantyne Re securitization.

Benefits and expenses

     Claims and other policy benefits decreased by 2% to $368.7 million for the
three months ended September 30, 2007 compared to $377.7 million in the same
period in 2006. The decrease is primarily the result of favorable mortality due
to lower claims volume and fewer large claims in the Life Reinsurance North
America Segment.

     Interest credited to interest sensitive contract liabilities decreased by
18% to $34.8 million for the three months ended September 30, 2007 compared to
$42.4 million in the same period in 2006. The decrease is primarily the result
of $4.9 million interest credited in the third quarter of 2006 on the
aforementioned terminated funding agreements. Also contributing to the decrease
was lower interest credited on annuity business relating to declining account
values resulting from higher lapses in the Life Reinsurance North America
Segment.

     Acquisition costs and other insurance expenses increased by 13% to $97.8
million for the three months ended September 30, 2007 compared to $86.2 million
in the same period in 2006. The increase is primarily the result of a $15.5
million increase in the Life Reinsurance North America Segment due to the
unfavorable impact of unlocking deferred acquisition costs on certain interest
sensitive


                                       27
<PAGE>


contracts. This was as a result of higher than expected policy surrenders in the
current period along with the effect of a third quarter of 2006 change in
estimate for expense allowances on certain interest sensitive contracts that
reduced expenses for that quarter. This is offset by a decrease in the Life
Reinsurance International Segment of $3.2 million which relates to the high
level of costs incurred in the third quarter of 2006 to honor secondary
collateral obligations in respect of a recaptured annuity agreement.

     Operating expenses decreased by 6% to $37.0 million for the three months
ended September 30, 2007 compared to $39.4 million in the same period in 2006.
The decrease is primarily the result of lower professional fees along with the
prior year effect of executive severance paid in the third quarter of 2006 in
both the Life Reinsurance North America Segment and Corporate and Other Segment.

     Collateral finance facilities expense increased by 9% to $73.7 million for
the three months ended September 30, 2007 compared to $67.3 million in the same
period in 2006. The increase is primarily the result of higher guarantor costs
relating to ratings downgrades and the timing of implementation of our
Clearwater Re securitization which coincides with the termination of the HSBC I
securitization in the Life Reinsurance North America Segment. This is offset by
the reduced borrowing cost on the Stingray financing facility in the Corporate
and Other Segment, which was fully drawn down during the third quarter of 2006
and repaid in June 2007.

     Claims and other policy benefits increased by 1% to $1,140.6 million for
the nine months ended September 30, 2007 compared to $1,124.3 million in the
same period in 2006. The increase is primarily the result of an $11.1 million
increase in the Life Reinsurance North America Segment, which is consistent with
expectations for a growing block of early duration mortality risk business for
which the increase in year over year mortality rates exceeds the underlying rate
of lapsation. This was partially offset by a net $2.2 million decrease in the
Life Reinsurance International Segment due to the retrocession of our Middle
Eastern business in January 1, 2007.

     Interest credited to interest sensitive contract liabilities decreased by
24% to $106.5 million for the nine months ended September 30, 2007 compared to
$140.5 million in the same period in 2006. The decrease is primarily the result
of the termination of four funding agreements in the third quarter of 2006 along
with a continued decline in account values on some Life Reinsurance North
America Segment annuity treaties due to higher surrender levels.

     Acquisition costs and other insurance expenses increased by 4% to $289.4
million for the nine months ended September 30, 2007 compared to $278.6 million
in the same period in 2006. In the Life Reinsurance North America Segment,
acquisition costs and other insurance expenses are consistent at 21% of premium
earned compared to 2006. In the Life Reinsurance International Segment
acquisition costs and other insurance expenses have decreased due to the absence
of secondary collateral costs incurred in 2006 related to an annuity contract
which was subsequently recaptured.

     Operating expenses increased by 20% to $131.4 million for the nine months
ended September 30, 2007 compared to $109.9 million in the same period in 2006.
The increase is primarily the result of payments triggered by the
change-in-control in May 2007, including employee bonuses relating to the
completion of the Transaction, change-in-control costs related to certain
executive officers, severance payments and the recognition of all previously
unrecognized compensation expense for our stock options and restricted share
awards.

     Collateral finance facilities expense increased by 53% to $222.6 million
for the nine months ended September 30, 2007 compared to $145.6 million in the
same period in 2006. The increase is primarily the result of the impact of the
Ballantyne Re securitization which closed in May 2006, along with higher
financial guarantor costs resulting from our credit rating downgrades and an
additional forbearance fee relating to the HSBC facilities incurred on the
change-in-control in May 2007. This is partially offset by the borrowing cost on
the Stingray financing facility in the Corporate and Other Segment, which was
fully drawn down during the third quarter of 2006 and repaid in June 2007.


                                       28
<PAGE>


Segment Operating Results - Three and Nine Months Ended September 30, 2007
and 2006

Life Reinsurance North America

<TABLE>
<CAPTION>
                                                                 Three months ended                Nine months ended
                                                           -----------------------------    -------------------------------
                                                           September 30,   September 30,    September 30,     September 30,
                                                                2007            2006             2007              2006
                                                           -------------   -------------    -------------     -------------
<S>                                                        <C>             <C>              <C>               <C>
Premiums earned, net ...............................       $   428,806      $   421,707      $ 1,282,459      $ 1,258,174
Investment income, net .............................           147,754          151,872          439,122          412,576
Fee and other income ...............................             5,661            1,620           12,288            8,516
Net realized gains (losses) ........................          (103,182)             173         (108,180)         (19,225)
Change in value of embedded derivatives, net .......           (14,777)          (5,891)          (5,886)          11,621
                                                           ------------     ------------     ------------     ------------
  Total revenues ...................................           464,262          569,481        1,619,803        1,671,662
                                                           ------------     ------------     ------------     ------------

Claims and other policy benefits ...................           349,811          360,968        1,083,379        1,046,874
Interest credited to interest sensitive
  contract liabilities .............................            34,793           42,423          106,515          140,523
Acquisition costs and other insurance
  expenses, net ....................................            89,613           74,082          266,493          255,770
Operating expenses .................................            12,841           14,569           38,260           43,699
Collateral finance facilities expense ..............            72,525           63,866          210,466          140,300
Interest expense ...................................             3,180            2,986            9,468            8,586
                                                           ------------     ------------     ------------     ------------
  Total benefits and expenses ......................           562,763          558,894        1,714,581        1,635,752
                                                           ------------     ------------     ------------     ------------
Income (loss) before income taxes and
  minority interest ................................       $   (98,501)     $    10,587      $   (94,778)     $    35,910
                                                           ============     ============     ============     ============

</TABLE>


     Loss before income taxes and minority interest increased to $98.5 million
and to $94.8 million for the three and nine months ended September 30, 2007,
compared to the same periods in 2006. The increase for both the three and nine
months ended September 30, 2007 is primarily the result of write-downs taken on
our sub-prime and Alt-A bonds.

Revenues

     Total revenues decreased by 18% to $464.3 million for the three months
ended September 30, 2007 compared to $569.5 million in the same period in 2006
primarily relating to write-downs taken on our sub-prime and Alt-A bonds. Net
premiums earned increased by 2% to $ 428.8 million for the three months ended
September 30, 2007 compared to $421.7 million in the same period in 2006. The
increase is primarily the result of a $16.5 million experience refund adjustment
that reduced premiums in the third quarter of 2006 partially offset by lower new
business production and lapsation effects.

     Net investment income decreased by 3% to $147.8 million for the three
months ended September 30, 2007 from $151.9 million in the same period in 2006.
This decrease is primarily the result of reduced investment income on annuity
business driven by declining account values resulting from higher lapses. This
decrease was partially offset by an increase in interest rates.

     Realized losses of $103.2 million in the third quarter 2007 compared to
$0.2 million realized gains in the same period in 2006 is due to the impact of
impairment charges and mark to market adjustments taken on our subprime and
Alt-A investments during the quarter.

     The net embedded derivative movement increased to a $14.8 million loss for
the three months ended September 30, 2007 compared to a $5.9 million loss in the
same period in 2006. The decrease during the quarter is primarily due to a
change in the yield curve used to value the derivatives.

     Fee income increased by 249% for the three months ended September 30, 2007
to $5.7 million compared to $1.6 million for the same period in 2006. The
increase is driven primarily by a gain on the re-pricing of one of our
significant excess retrocession treaties.

     Total revenues decreased by 3% to $1,619.8 million for the nine months
ended September 30, 2007 compared to $1,671.7 million in the same period in 2006
primarily relating to write-downs taken on our sub-prime and Alt-A bonds. Net
premiums earned increased by 2% to $1,282.5 million for the nine months ended
September 30, 2007 from $1,258.2 million in the same period in 2006. The
increase in net premiums earned is primarily the result of the aforementioned
$16.5 million experience


                                       29
<PAGE>


refund adjustment that reduced premiums in the third quarter of 2006, and
revised estimates of $8.0 million in the second quarter of 2006 related to prior
period premium accruals that resulted in lower premiums for the second quarter
of 2006.

     The prior year period adjustment of $8.0 million was comprised of two
adjustments of $4.0 million each and related primarily to the newly acquired ING
block in December 2004. In respect of the first $4.0 million adjustment, we
conducted a review of the policy administration data provided to us by ING in
the first year post acquisition of the block, which exhibited unusual premium
levels as a result of two policy years of data being received together. This
data had been used for trend purposes for the accrual estimate as of December
31, 2005. Based on actual cash received and the analysis of the data, we
determined a different trend on which to base our premium accrual and,
consequently, reduced our premium accrual estimate by $4.0 million.

     In respect of the second $4.0 million adjustment, we made a revision to our
previous estimation process for a certain group of new issuances from late 2004,
for which our administrative system did not have sufficient historical
information to provide a best estimate at December 31, 2005. During 2006, we
determined the premium estimates for these new issuances based on actual cash
received. We then revised the premium accrual because our updated data from the
administrative system showed clearer historical trends of actual cash received
for our automatic premium estimation process.

     Net investment income increased by 6% to $439.1 million for the nine months
ended September 30, 2007 compared to $412.6 million in the same period in 2006.
The increase is primarily the result of growth in our average invested assets.
Our total invested assets have increased significantly due to the proceeds of
the Ballantyne Re securitization that closed in May 2006, which contributed
approximately $1.7 billion to our invested asset base. Partially offsetting the
favorable variance was a $23.0 million reduction due to the termination of four
funding agreements in the third quarter of 2006 as a result of ratings
downgrades and $13.6 million of reduced investment income on annuity business
driven by declining account values resulting from higher lapses.

     Realized losses of $108.2 million for the nine months ended September 30,
2007 increased from $19.2 million in the prior year period due to the impact of
impairment charges and mark to market adjustments taken on our subprime and
Alt-A investments in the current year which was partially offset by prior year
losses driven predominantly by the Ballantyne Re securitization.

     The net embedded derivative movement for the nine months ended September
30, 2007 decreased to a $5.9 million loss compared to an $11.6 million gain in
the same period in 2006. The movement is partially due to a change in the yield
curve used to value the derivatives in the current quarter and partially related
to a prior year realization of losses on certain securities held under a
modified coinsurance arrangement that were sold in the first quarter of 2006 in
order to provide collateral for the Ballantyne Re securitization.

     Fee income increased by 44% to $12.3 million for the nine months ended
September 30, 2007 from $8.5 million for the same period in 2006. The increase
primarily relates to the aforementioned gain on the re-pricing of one of our
significant excess retrocession treaties.

Benefits and expenses

     Claims and other policy benefits decreased by 3% to $349.8 million for the
three months ended September 30, 2007 compared to $361.0 million in the same
period in 2006. The decrease is primarily the result of favorable mortality in
the third quarter of 2007 due to lower claims volumes and fewer large claims.

     Interest credited to interest sensitive contract liabilities decreased by
18% to $34.8 million for the three months ended September 30, 2007 compared to
$42.4 million in the same period in 2006. The decrease is primarily the result
of $4.9 million interest credited in the third quarter of 2006 on the
aforementioned terminated funding agreements. Also contributing to the decrease
was lower interest credited on annuity business driven by declining account
values resulting from higher lapses.

     Acquisition costs and other insurance expenses increased by 21% to $89.6
million for the three months ended September 30, 2007 compared to $74.1 million
in the same quarter in 2006. This increase is primarily the result of an $8.9
million change in estimate in the third quarter of 2006 for expense allowances
on certain interest sensitive contracts that reduced expenses for that quarter.
Additionally contributing to the increase is an unfavorable impact of unlocking
the deferred acquisition costs on interest sensitive contracts due to higher
than expected policy surrenders in the current period. Partially offsetting
these was a $5.7 million reduction in expenses, relating to one of our
significant traditional life treaties. This adjustment was driven by revised
premium accruals estimates, reserve and claims liabilities, and deferred
acquisition costs.


                                       30
<PAGE>


     Operating expenses decreased by 12% to $12.8 million for the three months
ended September 30, 2007 compared to $14.6 million in the same period in 2006.
Operating expenses as a percentage of operating revenues (total revenues
excluding realized gains and losses and changes in the value of embedded
derivatives) were 2% and 3% for the 2007 and 2006 periods, respectively. The
decrease is primarily the result of $2.0 million executive severance costs
recognized in the third quarter of 2006.

     Collateral finance facilities expense increased by 14% to $72.5 million for
the three months ended September 30, 2007 compared to $63.9 million in the same
period of 2006. The increase is primarily the result of higher guarantor costs
driven by ratings downgrades and the timing of implementation of our Clearwater
Re securitization which coincides with the unwinding of the HSBC securitization.

     Claims and other policy benefits increased by 3% to $1,083.4 million for
the nine months ended September 30, 2007 compared to $1,046.9 million in the
same period in 2006. The increase is primarily the result of an increase in
claims consistent with expectations for a growing block of early duration
mortality risk business for which the increase in year over year mortality rates
exceeds the underlying rate of lapsation. Total net mortality for the nine
months ended September 30, 2007 is moderately favorable to our internal
expectations.

     Interest credited to interest sensitive contract liabilities decreased by
24% to $106.5 million for the nine months ended September 30, 2007 compared to
$140.5 million in the same period in 2006. The decrease is primarily the result
of the termination of four funding agreements in the third quarter of 2006 for
which the nine month period of that year contained $19.9 million of interest
credited. Also impacting the decline was lower annuity business due to higher
lapses which drove a reduction of $13.9 million for the nine months ended
September 30, 2007.

     Acquisition costs and other insurance expenses increased by 4% to $266.5
million for the nine months ended September 30, 2007 compared to $255.8 million
in the same period in 2006. As a percentage of net premiums earned, acquisition
and other insurance expenses was 21% for both the nine months ended September
30, 2007 and 2006. This ratio remained flat as the aforementioned $5.7 million
reduction in expenses in the third quarter of 2007, was predominantly offset by
a greater adverse impact from the unlocking of deferred acquisition costs in the
prior year.

     Operating expenses decreased by 12% to $38.3 million for the nine months
ended September 30, 2007 compared to $43.7 million in the same period in 2006.
Operating expenses as a percentage of operating revenues (total revenues
excluding realized gains and losses and changes in the value of embedded
derivatives) were 2% and 3% for the 2007 and 2006 periods, respectively. The
decrease is primarily the result of the first quarter 2007 receipt of a $2.6
million indemnification settlement related to the acquisition of the ERC
business. This settlement was based on a provision in the purchase agreement
regarding the level of statutory unauthorized reinsurance liabilities required
for certain reinsurers. This indemnification settlement is not related to the
ERC mediation described in Note 9 to the Consolidated Financial Statements. Also
contributing to the expense reduction is $3.1 million executive severance paid
out in the second and third quarters of 2006.

     Collateral finance facilities expense increased by 50% to $210.5 million
for the nine months ended September 30, 2007 compared to $140.3 million in the
same period of 2006. The increase is primarily the result of the impact of the
Ballantyne Re securitization which closed in May 2006 along with higher
financial guarantor costs resulting from our credit rating downgrades.


                                       31
<PAGE>


Life Reinsurance International

<TABLE>
<CAPTION>
                                                                 Three months ended                 Nine months ended
                                                           ------------------------------    ------------------------------
                                                           September 30,    September 30,    September 30,    September 30,
                                                                2007             2006            2007             2006
                                                           -------------    -------------    -------------    -------------
<S>                                                            <C>              <C>              <C>              <C>
Premiums earned, net ...............................           $  27,534        $  31,814        $  78,391        $  89,310
Investment income, net .............................               3,440            8,528            9,520           20,488
Fee and other income ...............................                (353)               -              400                -
Net realized gains (losses) ........................                 245           (2,832)            (390)         (10,878)
                                                               ----------       ----------       ----------       ----------
  Total revenues ...................................              30,866           37,510           87,921           98,920
                                                               ----------       ----------      ----------       ----------
Claims and other policy benefits ...................              18,920           16,745           57,183           77,403
Acquisition costs and other insurance
  expenses, net ....................................               6,167            9,396           17,325           18,398
Operating expenses .................................               7,923            7,678           29,190           21,329
Interest expense ...................................                  11                -               11                -
                                                               ----------       ----------       ----------       ----------
  Total benefits and expenses ......................              33,021           33,819          103,709          117,130
                                                               ----------       ----------       ----------       ----------
Income (loss) before income taxes and
  minority interest ................................           $  (2,155)       $   3,691        $ (15,788)       $ (18,210)
                                                               ==========       ==========       ==========       ==========

</TABLE>


     Loss before income taxes and minority interest increased by 158% to $2.2
million for the three months ended September 30, 2007 compared to an income of
$3.7 million for the same period in 2006. The decrease is primarily due to the
positive gain in the prior year quarter resulting from the recapture of an
annuity contract, in addition to negative incurred but not reported claims
adjustments in the third quarter of 2007.

     Loss before income taxes and minority interest decreased by 13% to $15.8
million for the nine months ended September 30, 2007 compared to $18.2 million
for the same period in 2006. The decrease is primarily the result of the absence
of realized losses on recapture from the aforementioned annuity contract and
contribution from new business on U.K. protection treaties in 2007. Increased
claims in relation to our Loss of License business and expenses were offset by
the absence of updates to cedant data in 2006.

Revenues

     Total revenues decreased by 18% to $30.9 million for the three months ended
September 30, 2007 compared to $37.5 million in the same period in 2006. Net
premiums earned decreased 13% to $27.5 million for the three months ended
September 30, 2007 compared to $31.8 million in the same period in 2006. The
decrease is expected, and is primarily the result of the retrocession of our
Middle East block of business along with premium accrual adjustments reflected
in the prior year quarter, partially offset by new U.K. and Ireland protection
business.

     Investment income decreased by 60% to $3.4 million for the three months
ended September 30, 2007 compared to $8.5 million in the same period in 2006.
The decrease is primarily the result of an annuity contract which provided $5.1
million of investment income during the prior year quarter.

     Realized gains increased to $0.2 million for the three months ended
September 30, 2007 compared to a $2.8 million loss for the same period in 2006.
The prior year quarter realized loss was due to the realization of previously
unrealized losses on an annuity contract which was recaptured during the
quarter.

     Total revenues decreased by 11% to $87.9 million for the nine months ended
September 30, 2007 compared to $98.9 million in the same period in 2006. Net
premiums earned decreased by 12% to $78.4 million for the nine months ended
September 30, 2007 compared to $89.3 million in the same period in 2006. The
decrease is primarily due to the effect of the retrocession of the Middle East
block of business along with the net negative impact of certain premium accrual
adjustments, partially offset by new U.K. and Ireland protection business.

     Investment income decreased by 54% to $9.5 million for the nine months
ended September 30, 2007 compared to $20.5 million in the same period in 2006.
The decrease is primarily the result of an annuity contract which provided $11.0
million of investment income before it was recaptured in the third quarter of
2006.

     Realized losses for the nine months ended September 30, 2007 were $0.4
million compared to $10.9 million in the prior year period. The decrease in the
current year period is due to the aforementioned recaptured annuity contract.
Realized loss


                                       32
<PAGE>


for the prior year period was initially driven by a $7.2 million loss incurred
upon the restructuring of the annuity investment portfolio prior to recapture,
and then another $3.3 million loss upon recapture where previously unrealized
positions were then realized.

Benefits and expenses

     Claims and other policy benefits increased by 13% to $18.9 million for the
three months ended September 30, 2007 compared to $16.7 million in the same
period in 2006. The increase is primarily due to reserve releases upon recapture
of an annuity treaty in 2006, which decreased the overall expense for the period
and a strengthening in the basis of our reserve for incurred but not reported
claims in 2007. Reduced claims due to the retrocession of our Middle East
business along with the release of reserves related to premiums accrual
estimates offset these increases.

     Acquisition costs and other insurance expenses decreased by 34% to $6.2
million for the three months ended September 30, 2007 compared to $9.4 million
in the same period in 2006. The decrease is primarily the result of the $3.5
million expense to honor secondary collateral obligations to the cedant related
to the annuity contract in 2006.

     Operating expenses increased by 3% to $7.9 million for the three months
ended September 30, 2007 compared to $7.7 million in the same period in 2006.
The increase is primarily attributable to an increase in personnel costs in
response to the anticipated future growth in the Life Reinsurance International
Segment.

     Claims and other policy benefits decreased by 26% to $57.2 million for the
nine months ended September 30, 2007 compared to $77.4 million in the same
period in 2006. The prior year period included $15.2 million of unfavorable
claims and reserve mainly from updated cedant data. In the current year period,
a number of one time adjustments affect the claims cost. Reduced claims
following the retrocession of our Middle East business and accrual adjustments
are partially offset by adverse claims experience on our loss of license
business and reserve increases on our new U.K. and Ireland protection treaties.

     Acquisition costs and other insurance expenses decreased by 6% to $17.3
million for the nine months ended September 30, 2007 compared to $18.4 million
in the same period in 2006. The decrease is primarily the result of the $3.5
million expense to honor secondary collateral obligations to the cedant related
to the recapture of an annuity contract in 2006 offset by higher commission
rates due to a shift in business mix towards long term protection business.

     Operating expenses increased by 37% to $29.2 million for the nine months
ended September 30, 2007 compared to $21.3 million in the same period in 2006.
The increase is primarily the result of additional provisions taken on the
Windsor leasehold property along with change in control related employee
bonuses, stock option expense and equity based compensation costs incurred
during the current year period. In addition, there is an increase in personnel
costs in support of the anticipated growth in the Life Reinsurance International
Segment.


Corporate & Other


<TABLE>
<CAPTION>
                                                                  Three months ended                Nine months ended
                                                            ------------------------------    ------------------------------
                                                            September 30,    September 30,    September 30,    September 30,
                                                                 2007             2006             2007             2006
                                                            -------------    -------------    -------------    -------------
<S>                                                             <C>              <C>              <C>              <C>
Investment income, net .............................            $  3,256         $  2,008         $  8,284         $  6,343
Fee and other income ...............................                 709              760            2,193            2,236
Net realized gains .................................                 951            1,587              240            4,132
                                                                ---------        ---------        ---------        ---------
  Total revenues ...................................               4,916            4,355           10,717           12,711
                                                                ---------        ---------        ---------        ---------

Acquisition costs and other insurance
  expenses, net ....................................               1,975            2,763            5,545            4,476
Operating expenses .................................              16,218           17,200           63,914           44,876
Collateral finance facilities expense ..............               1,142            3,457           12,181            5,346
Interest expense ...................................                 113            2,019            5,435            8,378
                                                                ---------        ---------        ---------        ---------
  Total benefits and expenses ......................              19,448           25,439           87,075           63,076
                                                                ---------        ---------        ---------        ---------
Loss before income taxes ...........................            $(14,532)        $(21,084)        $(76,358)        $(50,365)
                                                                =========        =========        =========        =========
</TABLE>


                                       33
<PAGE>


     The Corporate and Other Segment is comprised of revenues and expenses that
are not included in the Life Reinsurance Segments and includes corporate related
overhead along with the results of our Wealth Management business.

Revenues

     Total revenues increased by 13% to $4.9 million for the three months ended
September 30, 2007 compared to $4.4 million in the same period in 2006.
Investment income increased by 62% to $3.3 million for the three months ended
September 30, 2007 from $2.0 million in the same period in 2006. The increase is
primarily the result of the remaining proceeds from the Transaction generating
additional investment income. Total revenues in the same period in 2006
primarily related to the drawdown of the Stingray facility and to the proceeds
received on the forward share sale agreement.

     Investment income increased by 31% to $8.3 million for the nine months
ended September 30, 2007 compared to $6.3 million in the same period in 2006.
The increase is primarily the result of the remaining proceeds received in
connection with the closing of the Transaction on May 7, 2007. Investment income
in the same period in 2006 primarily related to the drawdown of the Stingray
facility and receipt of proceeds from the forward share purchase agreement
executed in December 2005.

Benefits and expenses

     Acquisition costs and other insurance expenses decreased by 29% to $2.0
million for the three months ended September 30, 2007 compared to $2.8 million
in the same period in 2006. The decrease is primarily the result of $1.0 million
of federal excise tax incurred in 2006, which relates to payments made to
offshore companies.

     Operating expenses decreased by 6% to $16.2 million for the three months
ended September 30, 2007 compared to $17.2 million in the same period in 2006.
The decrease is primarily due to lower executive severance and lower
professional and directors' fees, which were high in the prior year due to
certain strategic evaluation costs incurred during the quarter, offset by the
$7.6 million of new stock option plan expense incurred in the current quarter.

     Collateral finance facilities expense decreased by 67% to $1.1 million for
the three months ended September 30, 2007 compared to $3.5 million in the same
period in 2006. The decrease is primarily due to the borrowing cost on the
Stingray financing facility, which was fully drawn down during the third quarter
of 2006 and repaid in June 2007.

     Interest expense decreased by 94% to $0.1 million for the three months
ended September 30, 2007 compared to $2.0 million in the same period in 2006.
The decrease results from repayments during 2006 and 2007 of facilities no
longer available, including the unsecured credit facility, the 4.5% Senior
Convertible Notes, the reverse repurchase security agreement, and the 1%
dividend payable on the Convertible Preferred Shares of our Hybrid Capital
Units.

     Acquisition costs and other insurance expenses increased by 24% to $5.5
million for the nine months ended September 30, 2007 from $4.5 million in the
same period in 2006. The increase is primarily due to incurring nine months of
costs related to the Tartan Capital Limited catastrophe bond, which was issued
in May 2006.

     Operating expenses increased by 42% to $63.9 million for the nine months
ended September 30, 2007 compared to $44.9 million in the same period in 2006.
The increase primarily relates to expenses triggered by the change-in-control,
which include a $5.8 million charge to restricted stock and stock option
expense, $11.9 million in severance payments, $5.9 million in change-in-control
costs related to employees and $2.0 million in employee retention bonuses
relating to the completion of the Transaction and a $7.6 million charge related
to the issuance of stock options in the third quarter. In addition to these
items, recruitment, audit fees and D&O insurance costs have increased in the
current year period. In comparison to the prior year period, a number of costs
affected the 2006 expense base including executive severance, restricted stock
awards reversals, and increased professional fees and directors' expenses
related to the strategic evaluation process.

     Collateral finance facilities expense increased by 128% to $12.2 million
for the nine months ended September 30, 2007 compared to $5.3 million in the
same period in 2006. The collateral finance facilities expense consists of the
interest charges and put premium on the Stingray financing facility along with
other collateral facility costs not associated with the operating segments. The
increase is primarily the result of the draw down of the full Stingray financing
facility in the third quarter of 2006, which remained outstanding until June
2007, along with a one-time $2.0 million fee incurred as part of the
change-in-control.


                                       34
<PAGE>


     Interest expense decreased by 35% to $5.4 million for the nine months ended
September 30, 2007 compared to $8.4 million in the same period in 2006. The
decrease is primarily the result of the repayments of facilities, including the
unsecured credit facility, a reverse repurchase security agreement, the 4.5%
Senior Convertible Notes and the 1.0% dividend payable on the Convertible
Preferred Shares of our Hybrid Capital Units. This decrease in expenses is
offset in the current year by $4.7 million of expenses incurred relating to an
interim term loan facility put in place by MassMutual Capital and an affiliate
of Cerberus between shareholder approval of the Transaction and closing of the
Transaction. Of the incremental expenses, $2.6 million of the expenses incurred
were paid to an affiliate of Cerberus in connection with the interim term loan
facility. The loan facility was terminated in connection with closing the
Transaction. The remaining balance of the 2007 expense is due to final
settlement amounts incurred on the Hybrid Capital Units.

Realized gains (losses)

     During the three months ended September 30, 2007, consolidated net realized
losses amounted to $102.0 million compared to $1.1 million in the same period in
2006. During the three months ended September 30, 2007 and 2006, there were
losses of $99.5 million and $0.3 million, respectively, in respect of other than
temporary impairments and adjustments required under Statement No. 115 ("SFAS
No. 115"), "Accounting for Certain Investments in Debt and Equity Securities".
The increase in net realized losses for the three months ended September 30,
2007 compared to the respective prior year periods was primarily due to the
deterioration of the sub-prime and Alt-A mortgage markets and liquidity
disruptions. For further discussion, see the "Securities Backed by Sub-Prime and
Alt-A Residential Mortgage Loans" section of the MD&A.

     During the nine months ended September 30, 2007, consolidated net realized
losses amounted to $108.3 million compared to $26.0 million in the same period
in 2006. During the nine months ended September 30, 2007 and 2006, there were
losses of $107.4 million and $1.3 million, respectively, in respect of other
than temporary impairments and SFAS No. 115 adjustments.

Income Taxes

     Income taxes are recorded in accordance with SFAS No. 109, "Accounting for
Income Taxes" ("SFAS No. 109"). In accordance with SFAS No. 109, for all years
presented we use the asset and liability method to record deferred income taxes.
Accordingly, deferred income tax assets and liabilities recognized reflect the
net tax effect of the temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes, using enacted tax rates. Such temporary differences are
primarily due to tax basis of reserves for future policy benefits, deferred
acquisition costs, and net operating loss carry forwards. A valuation allowance
is applied to deferred tax assets if it is more likely than not that all, or
some portion, of the benefits related to the deferred tax assets will not be
realized.

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

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

     Future quarterly tax amounts will continue to be dependent upon the
relationship between pre-tax GAAP profits and statutory profits and will also be
impacted by the size and timing of certain statutory related deferred tax
liabilities. Moreover, management will continue to assess and determine the need
for the amount of the valuation allowance in subsequent periods in accordance
with the requirements of SFAS No. 109 or in accordance with FIN 48.

     Income tax benefit in the three months ended September 30, 2007 was $7.8
million compared to income tax expense of $20.8 million in the same period in
2006. The change in our effective tax rate in the third quarter ended September
30, 2007 compared to the same period in 2006 is primarily related to a release
of our valuation allowance which was established in


                                       35
<PAGE>


previous periods on deferred tax assets for certain operating entities, as well
as an increase in the valuation allowance related to other operating entities
for which no current period benefit is being recognized. Income tax benefit in
the nine months ended September 30, 2007 was $148.7 million compared to income
tax expense of $102.4 million in the same period in 2006. The change in our
effective tax rate in the nine months ended September 30, 2007 compared to the
same period in 2006 is primarily related to the net release of a
$159.7 million valuation allowance, the impact from applying FIN 48 and other
adjustments.

Financial Condition

Investments

     At September 30, 2007, the investment portfolio controlled by us consisted
of fixed income securities, preferred stock and cash amounting to $8.87 billion
expressed at estimated fair value. The portfolio controlled by us excludes the
assets held by ceding insurers under modified coinsurance and funds withheld
coinsurance arrangements. The majority of these assets are publicly traded
securities; however, at September 30, 2007, $458.4 million of this amount
represents investments in private securities. Of the total portfolio controlled
by us, $7.74 billion expressed at estimated fair value represented the fixed
income and preferred stock portfolios managed by external investment managers
and $1.1 billion represented other cash balances. At December 31, 2006, the
portfolio controlled by us consisted of fixed income securities, preferred stock
and cash was $8.7 billion. The majority of these assets were publicly traded;
however, at December 31, 2006, $532.9 million was invested in private
securities. Of the total portfolio controlled by us, $8.2 billion represented
the fixed income and preferred stock portfolios managed by external investment
managers and $0.5 billion represented other cash balances.

     At September 30, 2007, the average Standard & Poor's rating of our
portfolio was "AA", the average effective duration was 3.4 years and the average
book yield was 5.5%, as compared with an average rating of "AA", an average
effective duration of 2.9 years and an average book yield of 5.5% at December
31, 2006. At September 30, 2007, the unrealized depreciation on investments, was
$422.0 million as compared with unrealized depreciation on investments, of $41.0
million at December 31, 2006. The unrealized depreciation on investments is
included in our consolidated balance sheet as part of shareholders' equity.

     The following table presents the fixed income investment portfolio credit
exposure by Standard & Poor's ratings, where available, and otherwise by ratings
provided by other agencies.

<TABLE>
<CAPTION>

          $ in millions                             September 30, 2007         December 31, 2006
                                                 -----------------------    ------------------------
                                                   Estimated                  Estimated
          Ratings                                 fair value         %       fair value          %
          -------                                -------------    ------    -------------     ------
          <S>                                    <C>              <C>       <C>               <C>
          AAA...............................     $     3,895.2     43.9%    $     3,350.5      38.5%
          AA................................           2,273.6     25.6           2,353.1      27.0
          A                                            1,867.9     21.1           2,050.9      23.6
          BBB...............................             806.8      9.1             918.5      10.6
          BB or below.......................              23.6      0.3              24.9       0.3
                                                 -------------    ------    -------------     ------
          Total.............................     $     8,867.1    100.0%    $     8,697.9     100.0%
                                                 =============    ======    =============     ======

</TABLE>


                                       36
<PAGE>


     The following table illustrates the fixed income investment portfolio
sector exposure.


<TABLE>
<CAPTION>

          $ in millions                            September 30, 2007           December 31, 2006
                                                 -----------------------     ------------------------
                                                   Estimated                  Estimated
          Sector                                  fair value        %        fair value         %
          -------                                -------------    ------    -------------     ------
          <S>                                    <C>              <C>       <C>               <C>
          U.S. Treasury securities and U.S.
            government agency obligations...     $        64.0      0.7%    $        68.0       0.8%
          Corporate securities..............           2,747.2     31.0           2,700.5      31.1
          Municipal bonds...................              51.0      0.6              52.2       0.6
          Mortgage and asset backed securities         4,773.5     53.8           5,244.8      60.3
          Preferred stock...................              99.3      1.1             116.9       1.3
                                                 -------------     ------    -------------     ------
                                                       7,735.0     87.2           8,182.4      94.1
          Cash..............................           1,132.1     12.8             515.5       5.9
                                                 -------------     ------    -------------     ------
          Total.............................     $     8,867.1    100.0%    $     8,697.9     100.0%
                                                 =============    ======    =============     ======

</TABLE>


     The Company reviews securities with material unrealized losses and tests
for other than temporary impairments on a quarterly basis. Factors involved in
the determination of potential impairment include fair value as compared to
cost, length of time the value has been below cost, credit worthiness of the
issuer, forecasted financial performance of the issuer, position of the security
in the issuer's capital structure, the presence and estimated value of
collateral or other credit enhancement, length of time to maturity, interest
rates and our intent and ability to hold the security until the estimated fair
value recovers. When a decline is considered to be other than temporary, the
cost basis of the impaired asset is adjusted to its fair value and a
corresponding realized investment loss is recognized in the consolidated
statements of income (loss). The actual value at which such financial
instruments could actually be sold or settled with a willing buyer may differ
from such estimated fair values.

     The following tables present the estimated fair values and gross unrealized
losses for the fixed maturity investments and preferred stock that have
estimated fair values below amortized cost or cost as of September 30, 2007 and
December 31, 2006. These investments are presented by class and grade of
security, as well as the length of time the related estimated fair value has
remained below amortized cost or cost.


<TABLE>
<CAPTION>
                                                                       September 30, 2007
                                                                        ($ in thousands)
                                       -------------------------------------------------------------------------------------------
                                        Less than or equal to              Greater than
                                              12 months                      12 months                        Total
                                       -------------------------     ---------------------------     -----------------------------
                                        Estimated    Unrealized        Estimated     Unrealized       Estimated       Unrealized
                                       fair value       loss          fair value        loss         fair value          loss
                                      ------------  ------------     -----------    ------------    ------------     -------------
<S>                                    <C>          <C>              <C>            <C>             <C>              <C>
Investment grade securities:
---------------------------
CMO...............................     $   874,455  $   (39,019)     $   309,034    $   (14,606)    $ 1,183,489      $   (53,625)
Corporates........................         992,735      (35,982)         881,615        (36,871)      1,874,350          (72,853)
Governments.......................          19,558         (314)          28,543           (720)         48,101           (1,034)
MBS...............................          22,008         (367)         129,909         (4,322)        151,917           (4,689)
Municipals........................           9,425          (76)          24,699           (644)         34,124             (720)
Other structured securities              2,130,246     (268,496)         569,091        (27,104)      2,699,337         (295,600)
Preferred stocks..................          16,368       (1,204)          78,034         (2,521)         94,402           (3,725)
                                       -----------  ------------     -----------    ------------    -----------      ------------
Total Investment grade
 securities.......................       4,064,795     (345,458)       2,020,925        (86,788)      6,085,720         (432,246)
                                       -----------  ------------     -----------    ------------    -----------      ------------
Below investment grade
----------------------
 securities:
 ----------
Corporates........................           5,403         (142)           7,453           (531)         12,856             (673)
Other structured securities                  6,037       (4,868)             859         (1,506)          6,896           (6,374)
Preferred stock...................             423           (2)             943            (78)          1,366              (80)
                                       -----------  ------------     -----------    ------------    -----------      ------------
Total below investment grade
 securities.......................          11,863       (5,012)           9,255         (2,115)         21,118           (7,127)
                                       -----------  ------------     -----------    ------------    -----------      ------------
Total.............................     $ 4,076,658  $  (350,470)     $ 2,030,180    $   (88,903)    $ 6,106,838      $  (439,373)
                                       ===========  ============     ===========    ============    ===========      ============

</TABLE>


                                       37
<PAGE>



<TABLE>
<CAPTION>
                                                                       December 31, 2006
                                                                        ($ in thousands)
                                       -----------------------------------------------------------------------------------------
                                        Less than or equal to            Greater than
                                              12 months                    12 months                          Total
                                       -------------------------     ---------------------------    ----------------------------
                                        Estimated    Unrealized       Estimated      Unrealized      Estimated       Unrealized
                                       fair value       loss         fair value         loss        fair value          loss
                                       -----------  ------------     ----------     ------------    -----------     ------------
<S>                                    <C>          <C>              <C>            <C>             <C>             <C>
Investment grade securities:
---------------------------
CMO................................    $   369,457  $    (2,365)     $   252,252    $    (6,327)    $   621,709     $    (8,692)
Corporates.........................        750,806      (15,690)         864,053        (29,078)      1,614,859         (44,768)
Governments........................         35,805         (615)          21,072           (752)         56,877          (1,367)
MBS................................         12,116         (136)         138,992         (4,674)        151,108          (4,810)
Municipal..........................         19,865         (187)          18,013           (640)         37,878            (827)
Other structured securities                415,596       (2,511)         613,974        (11,735)      1,029,570         (14,246)
Preferred stock....................         12,246         (295)          95,646         (3,181)        107,892          (3,476)
                                       -----------  ------------     -----------    ------------    -----------     ------------
Total investment grade
  securities.......................    $ 1,615,891  $   (21,799)     $ 2,004,002    $   (56,387)    $ 3,619,893     $   (78,186)
                                       -----------  ------------     -----------    ------------    -----------     ------------
Below investment grade
----------------------
  securities:
  ----------
Corporates.........................    $     3,416  $       (58)     $    14,975    $      (570)    $    18,391     $      (628)
Other structured securities                  1,405         (421)           1,256           (662)          2,661          (1,083)
Preferred stock....................              -            -              664            (33)            664             (33)
                                       -----------  ------------     -----------    ------------    -----------     ------------
Total below investment grade
  securities.......................          4,821         (479)          16,895         (1,265)         21,716          (1,744)
                                       -----------  ------------     -----------    ------------    -----------     ------------
Total..............................    $ 1,620,712  $   (22,278)     $ 2,020,897    $   (57,652)    $ 3,641,609     $   (79,930)
                                       ===========  ============     ===========    ============    ===========     ============

</TABLE>


     At September 30, 2007, our fixed income portfolio contained 3,053
securities, with total gross unrealized losses of $439.4 million and total gross
unrealized gains of $17.4 million. No single security had an unrealized loss
greater than $6.9 million. Included in the fixed income portfolio were 159
private securities with gross unrealized losses of $14.7 million. At December
31, 2006, our fixed income portfolio contained 2,967 securities, with total
gross unrealized losses of $79.9 million and total gross unrealized gains of
$38.9 million. No single security had an unrealized loss greater than $1.3
million. Included in the fixed income portfolio were 128 private securities with
gross unrealized losses of $5.1 million.

     After giving considerations to the write-downs taken on our sub-prime and
Alt-A bonds as disclosed under "Impairment methodology and realized losses", we
believe that the financial strength, liquidity, leverage, future outlook, and
our ability and intent to hold each security, whose price has been below market
for greater than twelve months, until recovery supports the view that the
security was not other than temporarily impaired as of September 30, 2007. The
unrealized losses on fixed maturity securities are primarily a result of rising
interest rates, changes in credit spreads and the long-dated maturities of the
securities. Additionally, as of September 30, 2007, approximately 98.4% of the
gross unrealized losses are associated with investment grade securities.

     Again after giving consideration to the write-downs taken on our sub-prime
and Alt-A bonds as disclosed under "Impairment methodology and realized losses",
unrealized losses on securities that have been in an unrealized loss position
for periods greater than two years amounted to $59.7 million at September 30,
2007 and $7.8 million at December 31, 2006. Unrealized losses on
below-investment grade securities amounted to $7.1 million and $1.7 million at
September 30, 2007 and December 31, 2006, respectively. Of these amounts,
below-investment grade securities with unrealized losses of $2.1 million at
September 30, 2007 and $1.3 million at December 31, 2006 had been in an
unrealized loss position for a period greater than one year.


                                       38
<PAGE>


     The following tables illustrate analysis of those securities that have an
unrealized loss at September 30, 2007 and December 31, 2006 by industry:

<TABLE>
<CAPTION>
                                                                            September 30, 2007
                                                                             ($ in thousands)
                                       -----------------------------------------------------------------------------------------
                                          Amortized                   Estimated Fair                  Unrealized
                                            Cost            %             Value            %             Loss             %
                                       -------------     --------     --------------    --------     ------------     ----------
<S>                                    <C>                 <C>           <C>              <C>        <C>                  <C>
Industry
--------
Mortgage and asset backed
  securities......................     $ 4,391,928          67.1%        $ 4,032,440       66.0%     $  (359,488)          81.8%
Banking...........................         377,003           5.8             363,853        6.0          (13,150)           3.0
Communications....................         196,087           3.0             188,227        3.1           (7,860)           1.8
Consumer non-cyclical.............         153,049           2.3             145,676        2.4           (7,373)           1.7
Brokerage.........................         160,765           2.5             155,589        2.5           (5,176)           1.2
Insurance.........................         173,667           2.6             166,607        2.7           (7,060)           1.6
Consumer cyclical.................         145,761           2.2             138,544        2.3           (7,217)           1.6
Finance companies.................         164,727           2.5             157,683        2.6           (7,044)           1.6
Electric..........................         135,332           2.1             130,362        2.1           (4,970)           1.1
Other*............................         647,892           9.9             627,857       10.3          (20,035)           4.6
                                       -----------         ------        -----------      ------     ------------         ------
Total.............................     $ 6,546,211         100.0%        $ 6,106,838      100.0%     $  (439,373)         100.0%
                                       ===========         ======        ===========      ======     ============         ======

</TABLE>


* Other industries represent less than 2% of the estimated fair value.



<TABLE>
<CAPTION>
                                                                            December 31, 2006
                                                                             ($ in thousands)
                                     ----------------------------------------------------------------------------------------
                                        Amortized                   Estimated Fair                  Unrealized
                                          Cost            %             Value            %             Loss            %
                                     -------------     --------     --------------    --------     ------------    ----------
<S>                                    <C>               <C>          <C>               <C>        <C>                 <C>
Industry
--------
Mortgage and asset backed
  securities......................     $ 1,833,878        49.3%       $ 1,805,047        49.6%     $   (28,831)         36.1%
Banking...........................         302,782         8.1            296,225         8.1           (6,557)          8.2
Communications....................         204,320         5.5            196,181         5.4           (8,139)         10.2
Consumer non-cyclical.............         153,941         4.1            148,277         4.1           (5,664)          7.1
Insurance.........................         137,378         3.7            134,516         3.7           (2,862)          3.6
Finance companies.................         126,646         3.4            124,233         3.4           (2,413)          3.0
Consumer cyclical.................         127,643         3.5            123,455         3.4           (4,188)          5.2
Other*............................         834,951        22.4            813,675        22.3          (21,276)         26.6
                                       -----------       ------       -----------       ------     ------------        ------
Total.............................     $ 3,721,539       100.0%       $ 3,641,609       100.0%     $   (79,930)        100.0%
                                       ===========       ======       ===========       ======     ============        ======

</TABLE>

* Other industries represent less than 3% of the estimated fair value.


                                       39
<PAGE>


     The expected maturity dates of our fixed maturity investments that have an
unrealized loss at September 30, 2007 and December 31, 2006 are presented in the
tables below.


<TABLE>
<CAPTION>
                                                                            September 30, 2007
                                                                             ($ in thousands)
                                       ------------------------------------------------------------------------------------------
                                          Amortized                   Estimated Fair                 Unrealized
                                            Cost            %             Value            %            Loss              %
                                       -------------     --------     --------------     --------   --------------     ----------
<S>                                      <C>               <C>           <C>               <C>        <C>                <C>
Maturity
--------
Due in one year or less...........       $   572,769         8.7%        $   550,494         9.0%     $   (22,275)           5.1%
Due in one through five years.....         3,656,439        55.9           3,338,230        54.6         (318,209)          72.4
Due in five through ten years.....         1,311,552        20.0           1,267,880        20.8          (43,672)           9.9
Due after ten years...............         1,005,451        15.4             950,234        15.6          (55,217)          12.6
                                         -----------       ------        -----------       ------     ------------       -------
Total.............................       $ 6,546,211       100.0%        $ 6,106,838       100.0%     $  (439,373)        100.0%
                                         ===========       ======        ===========       ======     ============       =======

</TABLE>



<TABLE>
<CAPTION>
                                                                            December 31, 2006
                                                                             ($ in thousands)
                                       -----------------------------------------------------------------------------------------
                                          Amortized                   Estimated Fair                  Unrealized
                                            Cost            %             Value            %             Loss              %
                                       -------------     --------     --------------    ---------    -------------      --------
<S>                                      <C>               <C>           <C>               <C>        <C>                <C>
Maturity
--------
Due in one year or less...........       $   337,455         9.1%        $   334,582         9.2%     $    (2,873)          3.6%
Due in one through five years.....         1,401,180        37.6           1,377,519        37.8          (23,661)         29.6
Due in five through ten years.....         1,206,367        32.4           1,179,292        32.4          (27,075)         33.9
Due after ten years...............           776,537        20.9             750,216        20.6          (26,321)         32.9
                                         -----------       ------        -----------       ------     ------------       -------
Total.............................       $ 3,721,539       100.0%        $ 3,641,609       100.0%     $   (79,930)       100.0%
                                         ===========       ======        ===========       ======     ============       =======

</TABLE>


     At September 30, 2007, there were 2,376 securities with unrealized loss
positions, with 94 securities having an unrealized loss greater than $1 million.
At December 31, 2006, there were 1,796 securities with unrealized loss, with two
securities having an unrealized loss greater than $1.0 million.

     At September 30, 2007, there were 6 securities with a fair value that
traded continuously at less than 80% of amortized cost for at least six months
or 90% of amortized cost for at least 12 months. The total unrealized loss on
these securities amounted to $1.7 million. At December 31, 2006, there were
three securities with a fair value that traded continuously at less than 80% of
amortized cost for at least six months or 90% of amortized cost for at least 12
months. The total unrealized loss on these securities amounted to $0.8 million.

     The following tables provide details of the sales proceeds, realized loss,
length of time the security had been in an unrealized loss position and reason
for sale for securities sold with a realized loss during the periods September
30, 2007 and 2006.

<TABLE>
<CAPTION>
                                                            Three months ended September 30, 2007
                                                                      ($ in thousands)
                       ---------------------------------------------------------------------------------------------------------
                             Credit Concern            Relative Value                Tactical                    Total
                       ------------------------   ------------------------   ------------------------   ------------------------
                        Proceeds        Loss       Proceeds        Loss       Proceeds        Loss        Proceeds      Loss
                       ----------    ----------   ----------    ----------   ----------    ----------   ----------    ----------
<S>                    <C>           <C>          <C>           <C>          <C>           <C>          <C>           <C>
Days
----
0-90................   $      586    $    (116)   $    5,256    $    (111)   $    2,085    $     (11)   $    7,927    $    (238)
91-180..............        1,681         (340)            -            -         1,671           (1)        3,352         (341)
181-270.............          685         (454)            -            -             -            -           685         (454)
Greater than 270....       13,390       (1,946)            -            -         6,194         (346)       19,584       (2,292)
                       ----------    ----------   ----------    ----------   ----------    ----------   ----------    ----------
Total...............   $   16,342    $  (2,856)   $    5,256    $    (111)   $    9,950    $    (358)   $   31,548    $  (3,325)
                       ==========    ==========   ==========    ==========   ==========    ==========   ==========    ==========

</TABLE>


                                       40
<PAGE>


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


</TABLE>


<TABLE>
<CAPTION>
                                                            Nine months ended September 30, 2007
                                                                      ($ in thousands)
                       ---------------------------------------------------------------------------------------------------------
                             Credit Concern            Relative Value                Tactical                    Total
                       ------------------------   ------------------------   ------------------------   ------------------------
                        Proceeds        Loss       Proceeds        Loss       Proceeds        Loss        Proceeds      Loss
                       ----------    ----------   ----------    ----------   ----------    ----------   ----------    ----------
<S>                    <C>           <C>          <C>           <C>          <C>           <C>          <C>           <C>
Days
----
0-90................   $    4,252    $    (180)   $    6,465    $    (161)   $  169,350    $    (158)   $  180,067    $    (499)
91-180..............        1,681         (340)        1,639          (72)        2,971          (21)        6,291         (433)
181-270.............        3,059         (487)            -            -         1,314           (7)        4,373         (494)
Greater than 270....       23,511       (2,320)        3,278          (34)       16,556         (594)       43,345       (2,948)
                       ----------    ----------   ----------    ----------   ----------    ----------   ----------    ----------
Total...............   $   32,503    $  (3,327)   $   11,382    $    (267)   $  190,191    $    (780)   $  234,076    $  (4,374)
                       ==========    ==========   ==========    ==========   ==========    ==========   ==========    ==========


</TABLE>



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

</TABLE>


Funds withheld at interest

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

     At September 30, 2007, funds withheld at interest totaled $1.7 billion with
an average rating of "A+", an average effective duration of 4.91 years and an
average book yield of 5.92%, as compared to $1.9 billion with an average rating
of "A", an average effective duration of 5.0 years and an average book yield of
5.9% at December 31, 2006. These are fixed income investments and include
marketable securities, commercial mortgages, private placements and cash. The
estimated fair value of the funds withheld amounted to $1.7 billion at September
30, 2007 and $1.9 billion at December 31, 2006.


                                       41
<PAGE>


     At September 30, 2007 and December 31, 2006, funds withheld at interest
were in respect of seven contracts with five ceding companies, respectively. At
September 30, 2007, we had three contracts with Lincoln National Life Insurance
Company that accounted for $629.1 million or 38% of the funds withheld balances.
Additionally, we had one contract with Security Life of Denver International
Limited that accounted for $371.8 million or 22% of the funds withheld balances
and one contract with Fidelity & Guaranty Life that accounted for $626.9 million
or 38% of the funds withheld balances. The remaining contracts were with
Illinois Mutual Insurance Company and American Founders Life Insurance Company.
Lincoln National Life Insurance Company has financial strength ratings of "A+"
from AM. Best, "AA" from Standard & Poor's, "Aa3" from Moody's and "AA" from
Fitch. In the event of insolvency of the ceding companies on these arrangements,
we would need to exert a claim on the assets supporting the contract
liabilities. However, the risk of loss is mitigated by our ability to offset
amounts owed to the ceding company with the amounts owed to us by the ceding
company. Reserves for future policy benefits and interest sensitive contract
liabilities relating to these contracts amounted to $1.6 billion and $1.9
billion at September 30, 2007 and December 31, 2006, respectively.

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

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


<TABLE>
<CAPTION>
     $ in millions                            September 30, 2007           December 31, 2006
                                            ------------------------   -------------------------
                                               Estimated                  Estimated
     Ratings                                  fair value        %        fair value         %
     -------                                -------------    -------   -------------     -------
     <S>                                    <C>              <C>       <C>               <C>
     AAA...............................     $       449.5     27.0%    $       427.5      22.1%
     AA................................             163.2      9.8             166.6       8.6
     A.................................             451.3     27.1             561.1      29.0
     BBB...............................             462.7     27.7             605.6      31.3
     BB or below.......................              51.7      3.1              75.1       3.9
                                            -------------    ------    -------------     ------

     Sub-total:                                   1,578.4     94.7           1,835.9      94.9
     Commercial mortgage loans.........              88.7      5.3              98.8       5.1
                                            -------------    ------    -------------     ------
     Total.............................     $     1,667.1    100.0%    $     1,934.7     100.0%
                                            =============    ======    =============     ======

</TABLE>

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


<TABLE>
<CAPTION>
     $ in millions                            September 30, 2007           December 31, 2006
                                            ------------------------   ------------------------
                                               Estimated                  Estimated
     Sector                                   fair value        %        fair value        %
     -------                                -------------    -------   -------------     ------
     <S>                                    <C>              <C>       <C>               <C>
     U.S. Treasury securities and U.S.
       government agency obligations...     $        35.7       2.1%   $       58.8        3.0%
     Corporate securities..............           1,075.2      64.5         1,321.1       68.3
     Municipal bonds...................              29.4       1.8            29.9        1.6
     Mortgage and asset backed securities           470.7      28.2           463.4       24.0
     Commercial mortgage loans.........              88.7       5.3            98.9        5.1
     Preferred stock...................               2.5       0.2             2.6        0.1
                                            --------------   -------   -------------     ------
     Sub-total                                    1,702.2     102.1         1,974.7      102.1
     Cash..............................             (35.1)     (2.1)          (40.0)      (2.1)
                                            --------------   -------   -------------     ------
     Total.............................     $     1,667.1     100.0%   $    1,934.7      100.0%
                                            ==============   =======   =============     ======

</TABLE>


                                       42
<PAGE>


Securities Backed by Sub-Prime and Alt-A Residential Mortgage Loans

Exposure to Sub-prime ABS and Alt-A RMBS

     At September 30, 2007, our total investment portfolio including controlled
assets and funds withheld at interest, had an amortized cost of $11.0 billion,
and an estimated fair value of $10.6 billion. Of the amortized cost, $1.9
billion, or 17.4%, were asset-backed securities ("ABS") backed by sub-prime
residential mortgage loans and $1.1 billion, or 9.8%, were residential
mortgage-backed securities ("RMBS") backed by Alt-A mortgage loans. These
include bonds held in portfolios in our securitizations, in portfolios of our
subsidiaries and by ceding companies in funds withheld at interest. Our exposure
to collateralized debt obligations backed by similar ABS and RMBS was
approximately $12,500.

     The slowing U.S. housing market, greater use of affordable mortgage
products, and relaxed underwriting standards for some originators of sub-prime
loans has recently led to higher delinquency and loss rates, especially for
those issued during 2006 and 2007. These factors have caused a decrease in
market liquidity and repricing of risk, which has led to estimated fair value
declines from December 31, 2006 to September 30, 2007. We expect delinquency and
loss rates in the sub-prime mortgage sector to continue to increase in the
future. Tranches of securities will experience losses according to the seniority
of the claim on the collateral, with the least senior (or most junior),
typically the unrated residual tranche, taking the initial loss. The credit
ratings of the securities reflect the seniority of the securities that we own.

     As sub-prime and Alt-A loan performance has deteriorated, the market has
become increasingly illiquid and unbalanced, with an absence of buyers, causing
market prices to decrease and a decline in the estimated fair value of our bonds
below their amortized cost. To date, all of our sub-prime and Alt-A holdings are
still paying full interest and principal and no securities have experienced any
defaults. Currently, it is our intention to hold these securities to recover our
amortized cost and we expect to recover principal and interest substantially
greater than what the current market prices indicate. We have written down any
bonds where we estimate we will not recover the full amortized cost or where we
lack the ability to hold the bonds through recovery of amortized cost.


Impairment Methodology and Realized Losses

     As part of our quarterly tests for other than temporary impairments of
investments, we have reviewed our sub-prime and Alt-A holdings in accordance
with Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS No. 115") and related
accounting guidance including Emerging Issues Task Force 03-01 "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments"
("EITF 03-01") and Emerging Issues Task Force 99-20 "Recognition of Interest
Income and Impairment on Purchased and Retained Interests in Securitized
Financial Assets ("EITF 99-20"). Among other matters, these GAAP accounting
rules require that we evaluate, for each security where the estimated fair value
is less than its amortized cost, whether we have the intent and ability to hold
the security for a reasonable time for a forecasted recovery of the fair value
up to the amortized cost of the investment. This requires us to consider our
capital and liquidity requirements and any contractual or regulatory obligations
that might indicate that securities may need to be sold before the forecasted
recovery of fair value occurs.

     Notwithstanding our intent and ability to hold our sub-prime and Alt-A
bonds through a forecasted recovery period, we have conducted an assessment of
each bond to evaluate the likely realization of amortized cost. Through our
third-party investment managers, we have performed detailed cash flow analyses
on our sub-prime and Alt-A holdings stressing multiple variables, and our best
estimate scenario considered deal specific assumptions and some general
assumptions for all bonds. The deal assumptions included a deal specific default
curve, taking into account the underlying collateral, loan, originator, vintage,
and tranche seniority. The general assumptions included loss severity and
prepayment speed.

     For all the bonds, we assumed prepayments on the securities underlying
collateral will be slower than originally modeled or 75% of pricing speed. When
home prices were rising and underwriting standards were becoming more
aggressive, borrowers were able to refinance or sell their homes and repay the
loans at the time mortgage rates reset. We assumed that this type of prepayment
will be less available going forward. For sub-prime bonds, we assumed the
existing delinquency pipeline experienced a severity of 50% over 18 months and
then we assumed a 40% severity after the initial 18 months. For Alt-A bonds, we
assumed the existing delinquency pipeline experienced a severity of 25% over 18
months and then we assumed a 20% severity after the initial 18 months. Second
lien mortgages have very high severity, usually 100%. We have no such pure
second lien bonds and our existing bonds have limited exposure to second liens,
typically 5% to 10%.

     Based on these multiple simulation analyses, our current best estimate of
projected principal losses over the next four years for our sub-prime and Alt-A
holdings is approximately $60.1 million and $26.2 million, respectively. We have
written down the amortized costs of any bonds for which we expect to experience
principal losses. The amortized cost of this subset of bonds were reduced to
estimated fair value as of September 30, 2007 resulting in the recognition of
realized losses of $54.2 million for the quarter ended September 30, 2007. The
simulation analysis results are a function of assumptions made. To the extent
that these assumptions are not correct, our conclusions will change.


                                       43
<PAGE>


     Currently, we do not intend to sell any of our sub-prime and Alt-A bonds
and our available capital and liquidity resources as noted in the "Liquidity and
Capital Resources" section are adequate to preclude the need to liquidate any of
our sub-prime and Alt-A investments. However, a subset of bonds that are held
within our securitizations were recently downgraded by one or more of Fitch,
Moody's and Standard & Poor's. The investment guidelines for certain trust
accounts within our securitizations govern our ability to continue to hold
individual securities that are no longer rated A3/A- or better or where the
weighted average rating factor for the portfolio exceeds a predetermined limit.
The recent ratings downgrades have resulted in individual securities with a
total amortized cost at September 30, 2007 of $127.8 million being out of
compliance with the investment guidelines of our securitizations. Although we do
not presently intend to sell these bonds, we can no longer demonstrate the
unfettered ability to hold them to realization of amortized cost. Accordingly,
we have written-down the amortized cost of these bonds to estimated fair value
as of September 30, 2007 in order to record a realized loss representing an
other-than-temporary impairment of $41.1 million for the quarter ended September
30, 2007. Further ratings downgrades of any of our sub-rime and Alt-A holdings
below the A3/A- credit rating requirements of our investment management
agreements which govern securitizations may result in additional
other-than-temporary impairments charges in future periods. The
other-than-temporary impairments of $41.1 million related to individual bonds
did not show any projected principal losses in our simulation analyses mentioned
below and we currently expect each of these bonds to continue to pay full
interest and principal.

    The table below summarizes the amortized cost, projected principal losses
and realized losses on our sub-prime and Alt-A bonds at September 30, 2007:


-------------------    -----------------    -----------------   ----------------
                                               Projected
                                               Principal
                        Amortized Cost         Losses at         Realized Loss
                         at September       September 30,        at September
    Impairment             30, 2007               2007              30, 2007
   Methodology         ($ in millions)      ($ in millions)     ($ in millions)
-------------------    -----------------    -----------------   ----------------
SFAS No. 115
  bonds without
  projected
  principal losses.....           $84.4                 $  -               $41.1
Bonds with
  projected
  principal losses.....            89.9                 86.3                54.2
                       -----------------    -----------------   ----------------
Total................            $174.3                $86.3               $95.3
                       =================    =================   ================


                                       44
<PAGE>


     The credit rating, amortized cost, estimated fair value and related
unrealized and realized losses related to our sub-prime and Alt-A securities are
set out below:

<TABLE>
<CAPTION>
                                                            September 30, 2007
                                                             ($ in millions)
                                   --------------------------------------------------------------------------
                                    Non-securitizations        Securitizations                Total
                                   --------------------------------------------------------------------------
                                   Sub-prime     Alt-A       Sub-prime      Alt-A      Sub-prime      Alt-A
                                   ---------    -------      ---------     -------     ----------   ---------
Book Value by Rating
--------------------
<S>                                <C>          <C>          <C>           <C>         <C>          <C>
AAA.......................         $ 152.2      $ 172.2      $   294.8     $ 66.2      $   447.0    $   238.4
AA........................           157.9         58.6          844.2      650.4        1,002.1        709.0
A+........................             5.9          2.5          175.4       43.3          181.3         45.8
A.........................            41.5         23.4          149.2       43.4          190.7         66.8
A-........................            26.4          2.1           15.5          -           41.9          2.1
BBB+ or lower.............            42.1         15.8            7.9          -           50.0         15.8
                                   -------      -------      ---------     ------      ---------    ---------
Total.....................         $ 426.0      $ 274.6      $ 1,487.0     $803.3      $ 1,913.0    $ 1,077.9
                                   -------      -------      ---------     ------      ---------    ---------

Estimated fair value by Rating
------------------------------
AAA.......................         $ 146.7      $ 168.0      $   279.2     $ 65.0      $   425.9    $   233.0
AA........................           142.5         56.2          696.8      614.4          839.3        670.6
A+........................             5.2          2.1          142.7       37.7          147.9         39.8
A.........................            36.1         21.2          130.3       33.1          166.4         54.3
A-........................            22.9          1.6           13.5          -           36.4          1.6
BBB+ or lower.............            29.4         11.7            7.9          -           37.3         11.7
                                   -------      -------      ---------     ------      ---------    ---------
Total.....................         $ 382.8      $ 260.8      $ 1,270.4     $750.2      $ 1,653.2    $ 1,011.0
                                   -------      -------      ---------     ------      ---------    ---------
Unrealized Loss by Rating
-------------------------
AAA.......................         $  (5.5)     $  (4.2)     $   (15.6)    $ (1.2)     $   (21.1)      $ (5.4)
AA........................           (15.4)        (2.4)        (147.4)     (36.0)        (162.8)       (38.4)
A+........................            (0.7)        (0.4)         (32.7)      (5.6)         (33.4)        (6.0)
A.........................            (5.4)        (2.2)         (18.9)     (10.3)         (24.3)       (12.5)
A-........................            (3.5)        (0.5)          (2.0)         -           (5.5)        (0.5)
BBB+ or lower.............           (12.7)        (4.1)             -          -          (12.7)        (4.1)
                                   -------      -------      ---------     ------       ---------   ----------
Total.....................         $ (43.2)     $ (13.8)     $  (216.6)    $(53.1)      $ (259.8)   $   (66.9)
                                   -------      -------      ---------     ------       ---------   ----------
Realized Loss by Impairment
---------------------------
 Methodology
 -----------
SFAS No. 115 bonds without
 projected principal losses        $     -      $     -      $   (41.1)    $    -      $   (41.1)   $       -
Bonds with projected
 principal losses.........           (1.4)         (0.2)         (45.1)      (7.5)         (46.5)        (7.7)
                                   -------      -------      ---------     ------      ---------    ---------
Total.....................         $ (1.4)      $  (0.2)     $   (86.2)    $ (7.5)     $   (87.6)   $    (7.7)
                                   -------      -------      ---------     ------      ---------    ---------


</TABLE>


Consolidated Sub-prime and Alt-A Portfolios

     The consolidated sub-prime portfolio includes securities that are
collateralized by mortgage loans issued in the United States to borrowers that
cannot qualify for prime financing terms due in part to an impaired or limited
credit history. The sub-prime portfolio also includes securities that are
collateralized by certain second lien mortgages regardless of the borrower's
credit profile. Of our $1,913.0 million in sub-prime residential ABS holdings,

o    $447.0 million (23.4%) were rated AAA/Aaa;

o    $1,449.1 million (75.8%) were rated AA-/Aa3 or above;

o    $1,863.0 million (97.4%) were rated A-/A3 or above;


                                       45
<PAGE>


o    $1,487.2 million (77.7%) reside in our securitizations.

     As part of our third quarter impairment process, we marked down sub-prime
bonds with a amortized cost of $137.1 million, realizing losses of $87.6
million. The unrealized loss of our sub-prime holdings was $259.8 million, or
13.6% of the amortized cost of our sub-prime holdings at September 30, 2007. As
a result of estimated fair value reductions from September 30, 2007 to October
31, 2007, we estimate that unrealized losses increased by approximately $150.8
million, or 7.9% of amortized cost of our sub-prime holdings and is 1.4% of our
investment portfolio.

          The following table shows the amortized costs of our consolidated
sub-prime portfolio by rating and vintage:


<TABLE>
<CAPTION>
                                      Consolidated Sub-Prime Portfolio as at September 30, 2007
                                                           ($ in millions)
                   ------------------------------------------------------------------------------------------------
                                                               Vintage
                   ------------------------------------------------------------------------------------------------
                      Years
                      ended
                     December                        Six           Six           Nine
                     31, 1997          Year         months        months        months
                        to             ended        ended         ended         ended                         % of
                     December        December        June        December      September                   Investment
Rating               31, 2004        31, 2005      30, 2006      30, 2007       30,2007        Total       Portfolio
------             -------------     ---------     ---------     ---------     ---------     ---------    -----------
<S>                     <C>           <C>          <C>           <C>            <C>          <C>               <C>
AAA.............        $   70.7       $  78.3      $  133.0      $  146.2       $  18.8      $  447.0           4.1%
AA..............           126.6         208.1         423.5         214.0          29.9       1,002.1           9.1%
A+..............             3.5         122.0          19.4          20.6          15.8         181.3           1.7%
A...............            33.1          11.4          57.5          78.8           9.9         190.7           1.7%
A-..............            21.0           6.0          12.3           2.6             -          41.9           0.3%
BBB+ and lower..            28.9           6.7          10.4           4.0             -          50.0           0.5%
                        --------      --------     ---------     ---------      --------     ---------         ------
Total...........        $  283.8       $ 432.5      $  656.1      $  466.2       $  74.4      $1,913.0          17.4%
                        ========      ========     =========     =========      ========     =========         ======


% of investment             2.6%          3.9%          6.0%          4.2%          0.7%         17.4%
   portfolio....        --------      --------     ---------     ---------      --------     ---------

</TABLE>


     Our consolidated Alt-A portfolio includes securities that are
collateralized by residential mortgage loans issued to borrowers with stronger
credit profiles than sub-prime borrowers, but who cannot qualify for prime
financing terms due to high loan-to-value ratios and/or limited supporting
documentation. Of our $1,077.9 million of Alt-A holdings,

o    $238.4 million (22.1%) were rated AAA/Aaa;

o    $947.4 million (87.9%) were rated AA-/Aa3 or above;

o    $1,062.1 million (98.5%) were rated A-/A3 or above;

o    $803.3 million (74.5%) reside in our securitizations.

     As part of our third quarter impairment process, we marked down Alt-A bonds
with an amortized cost of $37.1 million, realizing losses of $7.7 million. The
unrealized loss of our Alt-A holdings was $66.9 million, or 6.2% of amortized
cost of our Alt-A holdings at September 30, 2007. As a result of estimated fair
value reductions from September 30, 2007 to October 31, 2007, we estimate that
unrealized losses increased by approximately $26.3 million, or 2.4% of amortized
cost of our Alt-A holdings and is 0.2% of our investment portfolio.


                                       46
<PAGE>


     The following table shows the amortized costs of our Alt-A RMBS exposure by
rating and vintage:


<TABLE>
<CAPTION>
                                        Consolidated Alt-A Portfolio as at September 30, 2007
                                                             ($ in millions)
                     ----------------------------------------------------------------------------------------------
                                                                 Vintage
                     ----------------------------------------------------------------------------------------------
                        Years
                        ended
                       December                      Six          Six           Nine
                       31, 1997         Year        months       months        months
                          to            ended       ended        ended         ended                       % of
                       December       December       June       December      September                  Investment
Rating                 31, 2004       31, 2005     30, 2006     30, 2007       30,2007      Total        Portfolio
------               -------------    ---------    ---------    ---------    ---------    ----------    -----------
<S>                     <C>            <C>          <C>          <C>         <C>          <C>            <C>
AAA.............        $     64.2     $   74.3      $  64.2      $  35.7     $      -      $  238.4           2.2%
AA..............              58.7         70.3        305.9        272.7          1.4         709.0           6.5%
A+..............               1.6          0.9          1.1         42.2            -          45.8           0.4%
A...............              16.8          5.6         22.2         22.2            -          66.8           0.6%
A-..............                 -          2.1            -            -            -           2.1           0.0%
BBB+ and lower..               4.1         11.7            -            -            -          15.8           0.1%
                        ----------     --------     --------     --------    ---------     ---------       --------

Total...........        $    145.4     $  164.9      $ 393.4      $ 372.8     $    1.4     $ 1,077.9           9.8%
                        ==========     ========     ========     ========    =========     =========       ========
 % of investment
   portfolio....              1.3%         1.5%         3.6%         3.4%         0.0%          9.8%
                       -----------     --------     --------     --------    ---------     ---------

</TABLE>


Consolidated Sub-Prime and Alt-A Portfolios Excluding Those Held in
Securitizations

     The following table details the amount of amortized costs of the Company's
sub-prime ABS and Alt-A holdings by rating and vintage for its consolidated
portfolios excluding invested assets held in the Company's four securitizations:
Orkney Re, Inc., Orkney Re II plc, Ballantyne Re plc and Clearwater Re.


<TABLE>
<CAPTION>
                                    Sub-Prime Portfolio Excluding Securitizations as at September 30, 2007
                                                             ($ in millions)
                     ------------------------------------------------------------------------------------------------
                                                                 Vintage
                     ------------------------------------------------------------------------------------------------
                        Years
                        ended
                       December                       Six          Six           Nine
                       31, 1997         Year         months       months        months
                          to            ended        ended        ended         ended                       % of
                       December       December        June       December      September                   Investment
Rating                 31, 2004       31, 2005      30, 2006     30, 2007       30,2007        Total       Portfolio
------               -------------    ---------     ---------    ---------     ---------     ---------    -----------
<S>                      <C>           <C>          <C>            <C>           <C>          <C>             <C>
AAA.............         $    59.6      $  43.4      $  44.1        $  1.6        $  3.4       $ 152.1           1.4%
AA..............              76.8         43.6         37.5             -             -         157.9           1.4%
A+..............               3.5          2.4            -             -             -           5.9           0.1%
A...............              30.1         11.4            -             -             -          41.5           0.4%
A-..............              21.0          5.2          0.2             -             -          26.4           0.2%
BBB+ and lower..              28.9          6.7          6.4             -             -          42.0           0.4%
                         ---------     --------     --------       -------      --------      --------        -------

Total...........         $   219.9      $ 112.7      $  88.2        $  1.6        $  3.4       $ 425.8          3.9%
                         =========     ========     ========       =======       =======      ========        =======
 % of investment
   portfolio....              2.1%         1.0%         0.8%          0.0%          0.0%          3.9%
                         ---------     --------     --------       -------      --------      --------

</TABLE>


                                       47
<PAGE>


<TABLE>
<CAPTION>
                                    Alt-A Portfolio Excluding Securitizations As at September 30, 2007
                                                             ($ in millions)
                     --------------------------------------------------------------------------------------------------
                                                                 Vintage
                     --------------------------------------------------------------------------------------------------
                        Years
                        ended
                       December                       Six           Six            Nine
                       31, 1997         Year         months        months         months
                          to            ended        ended         ended           ended                       % of
                       December       December        June        December       September                   Investment
Rating                 31, 2004       31, 2005      30, 2006      30, 2007        30,2007        Total       Portfolio
------               -------------    ---------     ---------      ---------     ---------     ---------    -----------
<S>                      <C>           <C>           <C>            <C>            <C>          <C>             <C>
AAA.............         $    64.2      $  37.8       $  57.8        $  12.5        $    -       $ 172.3           1.6%
AA..............              30.2          9.7          17.2              -           1.4          58.5           0.6%
A+..............               1.6          0.9             -              -             -           2.5           0.0%
A...............              16.8          5.6           1.0              -             -          23.4           0.2%
A-..............                 -          2.1             -              -             -           2.1           0.0%
BBB+ and lower..               4.1         11.7             -              -             -          15.8           0.1%
                         ---------     --------      --------       --------     ---------       -------        -------

Total...........         $   116.9      $  67.8       $  76.0        $  12.5        $  1.4       $ 274.6           2.5%
                         =========     ========      ========       ========     =========       =======        =======
 % of investment
   portfolio....              1.1%         0.6%          0.7%           0.1%          0.0%          2.5%
                         ---------     --------      --------       --------     ---------      --------

</TABLE>


Sub-Prime and Alt-A Portfolios in Securitization Structures

     The following table details the amount of amortized costs of the Company's
sub-prime and Alt-A holdings by rating and vintage held in the Company's four
securitization structures:

<TABLE>
<CAPTION>
                                    Sub-Prime Portfolio in Securitizations as at September 30, 2007
                                                             ($ in millions)
                     --------------------------------------------------------------------------------------------------
                                                                 Vintage
                     --------------------------------------------------------------------------------------------------
                        Years
                        ended
                       December                       Six            Six           Nine
                       31, 1997         Year         months         months        months
                          to            ended        ended          ended         ended                        % of
                       December       December        June         December      September                  Investment
Rating                 31, 2004       31, 2005      30, 2006       30, 2007       30,2007        Total       Portfolio
------               -------------    ---------     ---------      ---------     ---------     ---------    -----------
<S>                         <C>         <C>           <C>            <C>            <C>        <C>               <C>
AAA.............            $ 11.1       $ 34.9        $ 88.9         $144.6         $15.4      $  294.9           2.7%
AA..............              49.8        164.5         386.0          214.0          29.9         844.2           7.7%
A+..............                 -        119.6          19.4           20.6          15.8         175.4           1.6%
A...............               3.0            -          57.5           78.8           9.9         149.2           1.3%
A-..............                 -          0.8          12.1            2.6             -          15.5           0.1%
BBB+ and lower..                 -            -           4.0            4.0             -           8.0           0.1%
                            ------      -------       -------        -------        ------     ---------         ------

Total...........            $63.9        $319.8        $567.9         $464.6         $71.0      $1,487.2          13.5%
                            ======      =======       =======        =======        ======     =========         ======
 % of investment
   portfolio....              0.6%         2.9%          5.2%           4.2%          0.6%         13.5%
                            ------      -------       -------        -------        ------     ---------

</TABLE>


                                       48
<PAGE>


<TABLE>
<CAPTION>
                                      Alt-A Portfolio in Securitizations as at September 30, 2007
                                                             ($ in millions)
                     --------------------------------------------------------------------------------------------------
                                                                 Vintage
                     --------------------------------------------------------------------------------------------------
                        Years
                        ended
                       December                       Six            Six           Nine
                       31, 1997         Year         months         months        months
                          to            ended        ended          ended         ended                        % of
                       December       December        June         December      September                   Investment
Rating                 31, 2004       31, 2005      30, 2006       30, 2007       30,2007        Total       Portfolio
------               -------------    ---------     ---------      ---------     ---------     ---------    -----------
<S>                      <C>           <C>          <C>             <C>              <C>        <C>             <C>
AAA.............         $       -      $  36.5      $    6.4        $  23.2          $  -       $  66.1           0.6%
AA..............              28.5         60.6         288.7          272.7             -         650.5           5.9%
A+..............                 -            -           1.1           42.2             -          43.3           0.4%
A...............                 -            -          21.2           22.2             -          43.4           0.4%
A-..............                 -            -             -              -             -             -           0.0%
BBB+ and lower..                 -            -             -              -             -             -           0.0%
                         ---------     --------     ---------       --------         -----      --------        -------

Total...........         $    28.5      $  97.1      $  317.4        $ 360.3          $  -       $ 803.3           7.3%
                         =========     ========     =========       ========         =====      ========        =======
 % of investment
   portfolio....              0.2%         0.9%          2.9%           3.3%          0.0%          7.3%
                         ---------     --------     ---------       --------         -----      --------

</TABLE>

Excess Assets and Liquidity Available for Securitizations

     As of September 30, 2007, the Company estimates that it had in excess of
$468.0 million of available liquidity among itself and its subsidiary, Scottish
Annuity & Life Insurance Company (Cayman) Ltd. This amount represents liquidity
in excess of liquidity held by the Company's insurance operating subsidiaries
and includes cash and marketable securities as well as $275.0 million available
under the Stingray facility.

     Our securitization structures provide reserve credit to the Company's
operating subsidiaries for business reinsured. Therefore, an important metric is
whether the value of the assets in the securitization portfolios is greater than
the statutory reserves of the underlying blocks of business. All of the
securitization structures are currently providing full reserve credit. If any
deficiency were to develop, then the Company's operating subsidiaries may be
required to pledge additional assets to secure reserve credit outside of the
securitization structure. As such, the amount of invested assets that exceeds
statutory reserves within the securitization portfolios potentially represents
additional protection from unexpected estimated fair value declines in invested
assets.

     As of September 30, 2007, the total invested assets within the Company's
three securitization structures, Orkney I, Orkney II and Ballantyne Re, exceeded
the statutory reserves covered by the structures by approximately $831.7
million, as summarized in the following table. Clearwater Re was excluded from
this table as it contains no sub-prime or Alt-A assets.


<TABLE>
<CAPTION>
                                                             As of                As of
                                                            June 30,          September 30,
                                                              2007                2007
                                                         ($ in millions)     ($ in millions)
                                                         ---------------     ---------------
          <S>                                            <C>                 <C>
          Invested assets within securitization
          portfolios................................     $      4,548.0      $      4,216.5
          Statutory reserves........................         (  3,161.0)           (3,384.8)
          Amount of invested assets that exceed
          statutory reserves within securitization       ---------------     ---------------
          portfolios................................     $      1,387.0      $        831.7
                                                         ===============     ===============

</TABLE>

     Management believes the Company's current financial position provides it
with sufficient capital and liquidity to withstand temporary market dislocations
or potential losses arising from underperformance of its sub-prime ABS and Alt-A
holdings in the current market environment.


                                       49
<PAGE>


     Over time, the Company expects to receive distributions from the
securitization structures through its debt and equity investments in the
securitization structures. Temporary and permanent changes in the estimated fair
value of assets in these structures could impact the size and timing of these
distributions.


Liquidity and Capital Resources

Liquidity

Cash flow

     Net cash provided by operating activities amounted to $271.9 million in the
nine months ended September 30, 2007 compared to net cash provided by operating
activities of $532.9 million in the same period in 2006. Operating cash flow
includes cash inflows from premiums, fees and investment income, and cash
outflows for benefits and expenses paid. In periods of growth of new business,
our operating cash flow may decrease due to first year commissions paid on new
business generated. For income recognition purposes these commissions are
deferred and amortized over the life of the business. The decrease in net cash
provided by operating activities principally relates to activity in the prior
year period where $442.3 million of funds withheld were released as a result of
the Ballantyne Re securitization. The remaining cash provided by operating
activities in the prior year was mainly due to the increase in reserves for
future policy benefits related to a new annuity contract written by the Life
Reinsurance International Segment, which was subsequently recaptured.

     We believe cash flows from operations will be positive over time. However,
they may be positive or negative in any one period depending on the amount of
new life reinsurance business written, the level of ceding commissions paid in
connection with writing that business, the level of renewal premiums earned in
the period and the timing of receipt of reinsurance receivables and settlement
of reinsurance payables.

     Net cash used in investing activities was $43.4 million in the nine months
ended September 30, 2007 compared to net cash used in investing activities of
$2,253.5 million in the same period in 2006. The decrease in net cash used in
investing activities principally relates to the purchases of fixed maturity
securities in the first quarter of 2006.

     Net cash provided by financing activities was $401.7 million in the nine
months ended September 30, 2007 compared to $1,656.5 million in the same period
in 2006. The decrease in net cash provided by financing activities principally
relates to prior year financings of $1,760.2 million mainly raised in the
Ballantyne Re securitization, $265.0 million related to drawdown of funds on the
Stingray facility, and $153.7 million from proceeds from a prepaid variable
share forward contract. The current year financings include $365.9 million
raised in the Clearwater Re securitization, $556.0 million in net proceeds from
the issuance of Convertible Cumulative Participating Preferred Shares offset by
$275.0 million repayment of funds drawn down on the Stingray financing facility.

The Holding Company

     We are a holding company whose primary uses of liquidity include, but are
not limited to, operating expenses, the immediate capital and collateral needs
of our operating companies, dividends paid to our shareholders and interest
payments on our indebtedness. The primary sources of our liquidity include
proceeds from our capital raising efforts and interest income on corporate
investments. The holding company also receives funding from its subsidiaries
through transfer pricing reflecting services performed by the holding company on
behalf of its subsidiaries. We will continue to be dependent upon these sources
of liquidity.

     Our liquidity position was greatly improved by the closing of the
Transaction, which provided net proceeds of $555.9 million (see Note 8 to the
Consolidated Financial Statements). The capital provided in the Transaction
allowed us to repay the $275.0 million previously drawn on the Stingray
financing facility and pay the closing costs of the Transaction. The remaining
proceeds from the Transaction remain in our holding company and Scottish Annuity
& Life Insurance Company (Cayman) Ltd., which will be used to fund the uses of
liquidity as described above. The amounts that we repaid under the Stingray
financing facility remain available as an additional source of liquidity to us
should we determine that it is needed.

     As of September 30, 2007, the Company estimates that it had in excess of
$468.0 million of available liquidity among itself and its subsidiary, Scottish
Annuity & Life Insurance Company (Cayman) Ltd. This amount represents liquidity
in excess of liquidity held by the Company's insurance operating subsidiaries
and includes cash and marketable securities as well as $275.0 million available
under the Stingray facility.


                                       50
<PAGE>


Capital and Long-Term Debt

     Since the Company has significant operations and capital outside of the
United States, the Company does not believe that limiting an analysis of its
financial position to U.S. statutory surplus calculated in accordance with the
NAIC Accounting Practices and Procedures Manual is an appropriate way to
evaluate the financial condition of its consolidated worldwide operations.
Management believes that a more appropriate measure is shareholders' equity. The
Company had total shareholders' equity, as calculated in accordance with GAAP,
of approximately $869.3 million as of September 30, 2007. Total capitalization
at September 30, 2007 and December 31, 2006 is as follows:

<TABLE>
<CAPTION>
                                                              September 30,       December 31,
                                                                  2007                2006
                                                            ($ in thousands)    ($ in thousands)
                                                            ----------------    ----------------
          <S>                                                   <C>                  <C>
          Shareholders' equity.............................     $    869,290         $ 1,057,192
          Mezzanine equity.................................          555,857             143,665
          Long-term debt...................................          129,500             129,500
                                                                ------------         -----------
          Total............................................     $  1,554,647         $ 1,330,357
                                                                ============         ===========

</TABLE>

     The decrease in shareholders' equity at September 30, 2007 as compared to
December 31, 2006 was primarily due to the issuance of the convertible
cumulative participating preferred shares resulting in aggregate net proceeds of
$555.9 million and the issuance of ordinary shares to holders of HyCUs on the
conversion of purchase contracts of $143.7 million. This is offset by the net
loss attributable to ordinary shareholders of $37.7 million for the nine months
ended September 30, 2007, the effect of the adoption of FIN 48 which reduced
beginning retained earnings by $32.6 million (see Note 7 to the Consolidated
Financial Statements) and the increase in unrealized depreciation net of tax and
deferred acquisition costs of $279.6 million.

     Our securitization structures provide reserve credit to the Company's
operating subsidiaries for business reinsured. Therefore, an important metric is
whether the value of the assets in the securitization portfolios is greater than
the statutory reserves of the underlying blocks of business. All of the
securitization structures are currently providing full reserve credit. If any
deficiency were to develop, then the Company's operating subsidiaries may be
required to pledge additional assets to secure reserve credit outside of the
securitization structure. As such, the amount of invested assets that exceeds
statutory reserves within the securitization portfolios potentially represents
additional protection from unexpected estimated fair value declines in invested
assets.

     As of September 30, 2007, the total invested assets within the Company's
three securitization structures, Orkney I, Orkney II and Ballantyne Re, exceeded
the statutory reserves covered by the structures by approximately $831.7
million, as summarized in the following table. Clearwater Re was excluded from
this table as it contains no sub-prime or Alt-A assets.

<TABLE>
<CAPTION>

                                                              As of              As of
                                                             June 30,        September 30,
                                                              2007               2007
                                                        ($ in millions)    ($ in millions)
                                                        ---------------    ---------------
<S>                                                     <C>                 <C>
          Invested assets within securitization
          portfolios................................    $      4,548.0       $    4,216.5
          Statutory reserves........................          (3,161.0)          (3,384.8)
          Amount of invested assets that exceed         ---------------     --------------
          statutory reserves within securitization
          portfolios................................    $      1,387.0       $      831.7
                                                        ===============     ==============

</TABLE>

     Management believes the Company's current financial position provides it
with sufficient capital and liquidity to withstand temporary market dislocations
or potential losses arising from underperformance of its sub-prime ABS and Alt-A
holdings in the current market environment.

     Over time, the Company expects to receive distributions from the
securitization structures through their debt and equity investments in the
securitization structures. Temporary and permanent changes in the estimated fair
value of assets in these structures could impact the size and timing of these
distributions.


                                       51
<PAGE>


Shareholder dividends

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

     In accordance with the Forbearance Agreement with HSBC (see Collateral
section below), we are prohibited from declaring any cash dividend, exclusive of
the Non-Cumulative Perpetual Preferred Shares, during the forbearance period
from November 26, 2006 until December 31, 2008, unless at the time of
declaration and payment of such cash dividend, Scottish Annuity & Life Insurance
Company (Cayman) Ltd. has an insurer financial strength rating of at least A-
for Standard & Poor's and A3 for Moody's Investors Service.

Collateral

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

     o    When Scottish Annuity & Life Insurance Company (Cayman) Ltd., Scottish
          Re (Dublin) Limited or Scottish Re Limited enter into a reinsurance
          treaty with a U.S. customer, they must contribute assets into a
          qualifying reserve credit trust and/or provide a letter of credit to
          enable the U.S. ceding company to obtain a reserve credit for the
          reinsurance transaction since these companies are not licensed or
          accredited U.S. reinsurers.

     o    When Scottish Re (U.S.), Inc. enters into a reinsurance transaction,
          it typically incurs a need for additional statutory capital to cover
          strain from acquisition costs and increases in required risk-based
          capital. To the degree its own surplus is not sufficient to meet this
          need, we can make an additional capital contribution into Scottish Re
          (U.S.), Inc. or Scottish Re (U.S.), Inc. can cede a portion of the
          transaction to another company within the group or to an unrelated
          reinsurance company. If that reinsurer is not a licensed or accredited
          U.S. reinsurer, it must contribute assets to a qualifying reserve
          credit trust and/or provide a letter of credit in order for Scottish
          Re (U.S.), Inc. to obtain reserve credit. Scottish Re (U.S.), Inc. has
          ceded significant amounts of business to Scottish Re (Dublin) Limited,
          relieving Scottish Annuity & Life Insurance Company (Cayman) Ltd. of
          the need to contribute substantial amounts of capital to Scottish Re
          (U.S.), Inc. in connection with such cessions by Scottish Re (U.S.),
          Inc. to Scottish Re (Dublin) Limited. Scottish Re (Dublin) Limited
          must contribute eligible assets to qualifying reserve credit trusts
          and/or provide letters of credit to provide Scottish Re (U.S.), Inc.
          with reserve credit.

     o    Scottish Re (U.S.), Inc. and Scottish Re Life Corporation are
          licensed, accredited, approved or authorized to write reinsurance in
          50 states and the District of Columbia. As a result, they generally
          are not required to provide collateral in order for each of the
          Company's U.S. customers to receive reserve credit; however, Scottish
          Re (U.S.), Inc. may agree to provide a reserve credit trust, security
          trust, or letter of credit to mitigate the counter-party risk from the
          customer's perspective, thereby enabling transactions that otherwise
          would be unavailable or would be available only on significantly less
          attractive terms.

ING Collateral Arrangement

     Pursuant to the terms of our acquisition of the individual life reinsurance
business of ING, ING is obligated to maintain collateral for the Regulation XXX
and AXXX statutory reserve requirements of the acquired business for the
duration of such requirements. We pay ING a fee based on the face amount of the
collateral provided until satisfactory alternative collateral arrangements are
made. In 2005 and 2006, we completed three transactions that collectively
provided approximately $3.7 billion in collateral arrangements to fund peak
Regulation XXX statutory reserve requirements that were assumed in connection
with the acquisition of ING's individual life reinsurance business. As of
September 30, 2007, ING is primarily providing collateral support for our AXXX
business.

HSBC I

     In 2004, we entered into a collateral finance facility with HSBC ("HSBC
I"). This facility originally provided $200.0 million, and as of July 1, 2007,
provided $188.5 million of amounts utilized for the purpose of collateralizing
reinsurance obligations under inter-company reinsurance agreements.
Simultaneously, we entered into a total return swap with HSBC under which we are
entitled to the total return of the investment portfolio of the trust
established for this facility. In


                                       52
<PAGE>


accordance with Financial Accounting Standards Board ("FASB") Interpretation No.
46R "Consolidation of Variable Interest Entities - An Interpretation of ARB No.
51" ("FIN 46R"), the trust is considered to be a variable interest entity and we
are deemed to hold the primary beneficial interest in the trust. As a result,
the trust has been consolidated in our financial statements. The assets of the
trust have been recorded as fixed maturity investments. Our consolidated
statements of income (loss) show the investment return of the trust as
investment income and the cost of the facility is reflected in collateral
finance facilities expense. The creditors of the trust have no recourse against
our general assets.

     On September 7, 2007, we terminated this facility in connection with the
establishment of the Clearwater Re transaction. In addition to repaying the
$188.5 million notional amount due to HSBC under a total return swap, we paid
$2.2 million in fees associated with the early termination of this facility.

     Due to the rating agency downgrades after our announcement of earnings for
the second quarter of 2006, HSBC requested additional collateral under the total
return swap agreements related to HSBC I. $65.0 million of additional collateral
was provided to HSBC in 2006. On November 26, 2006, we entered into an amended
and restated forbearance agreement with HSBC, pursuant to which HSBC has agreed
not to make demands for additional collateral under our collateral finance
facilities with HSBC so long as certain conditions are met during the
forbearance period which ends on December 31, 2008. Following the closing of the
Transaction on May 10, 2007, $40.0 million of the additional collateral noted
above was returned to us. The remaining amount will be returned upon the
attainment of an A- credit rating. No additional collateral was released in
connection with the termination of HSBC I.


Orkney Re, Inc.

     On February 11, 2005, Orkney Holdings, LLC, a Delaware limited liability
company ("Orkney I"), issued and sold in a private offering an aggregate of
$850.0 million Series A Floating Rate Insured Notes due February 11, 2035 (the
"Orkney Notes"). Orkney I was organized for the limited purpose of holding the
stock of Orkney Re, Inc., a special purpose captive insurance company, and
issuing the Orkney Notes. During May 2007, we redomesticated Orkney Re, Inc. to
Delaware to, among other considerations, take advantage of the synergies created
by having both Orkney Re, Inc. and our principle U.S. operating subsidiary,
Scottish Re (U.S.), Inc., subject to a single regulator with a more
comprehensive understanding of the overall combined business and statutory
considerations. Scottish Re (U.S.), Inc. holds all of the limited liability
company interest in Orkney I, and has contributed capital to Orkney I in the
amount of $268.5 million. Proceeds from this offering were used to fund the
Regulation XXX reserve requirements for a defined block of level premium term
life insurance policies issued between January 1, 2000 and December 31, 2003
reinsured by Scottish Re (U.S.), Inc. to Orkney Re, Inc. Proceeds from the
Orkney Notes have been deposited into a series of trusts that collateralize the
notes.

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

     Interest on the principal amount of the Orkney Notes is payable quarterly
at a rate equivalent to three month LIBOR plus 0.53%. At September 30, 2007, the
interest rate was 6.03%. Any payment of principal, including by redemption, or
interest on the Orkney Notes is sourced from dividends from Orkney Re, Inc. and
the balances available in a series of trust accounts. Dividends may only be made
with the prior approval of the Director of Insurance in accordance with the
terms of its licensing orders and in accordance with applicable law. The Orkney
Notes also contain a customary limitation on lien provisions and customary
events of default provisions, which, if breached, could result in the
accelerated maturity of the Orkney Notes. Orkney I has the option to redeem all
or a portion of the Orkney Notes on or after February 11, 2010, subject to
certain call premiums.

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

Orkney Re II plc

     On December 21, 2005, Orkney Re II plc, an orphan special purpose vehicle
incorporated under the laws of Ireland ("Orkney II"), whose issued ordinary
shares are held by a share trustee and its nominees in trust for charitable
purposes, issued


                                       53
<PAGE>


in a private offering $450.0 million of debt to external investors. The debt
consisted of $382.5 million Series A-1 Floating Rate Guaranteed Notes (the
"Series A-1 Notes"), $42.5 million in aggregate principal amount of Series A-2
Floating Rate Notes (the "Series A-2 Notes"), and $25.0 million Series B
Floating Rate Notes (the "Series B Notes"), all due December 31, 2035
(collectively, the "Orkney II Notes"). The Orkney II Notes are listed on the
Irish Stock Exchange. Proceeds from this offering were used to fund the
Regulation XXX reserve requirements for a defined block of level premium term
life insurance policies issued between January 1, 2004 and December 31, 2004
reinsured by Scottish Re (U.S.), Inc. to Orkney II. Proceeds from the Orkney II
Notes have been deposited into a series of trusts that collateralize the notes.

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

     The debt issued to Scottish Annuity & Life Insurance Company (Cayman) Ltd.
consisted of $30.0 million of Series C Floating Rate Notes due December 21,
2036. These notes accrue interest, but actual payment of interest does not occur
until the Orkney II Notes are fully repaid. The Company owns $0.5 million Series
D Convertible Notes due December 21, 2036 and 76,190,000 Preference Shares of
$1.00 each in capital.

     Interest on the principal amount of the Orkney II Notes is payable
quarterly at a rate equivalent to three-month LIBOR plus 0.425% for the Series
A-1 Notes, three-month LIBOR plus 0.73% for the Series A-2 Notes, and
three-month LIBOR plus 3.0 % for the Series B Notes. At September 30, 2007, the
interest rate on the Series A-1 Notes was 5.93%, Series A-2 Notes was 6.23%, and
Series B Notes was 8.5%. The Orkney II Notes also contain a customary limitation
on lien provisions and customary events of default provisions, which, if
breached, could result in the accelerated maturity of the Orkney II Notes.
Orkney II has the option to redeem all or a portion of the Orkney II Notes after
February 11, 2007, subject to certain call premiums.

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

HSBC II

     On December 22, 2005, we entered into a second collateral finance facility
with HSBC ("HSBC II"). This facility is a 20 year collateral finance facility
that provides up to $1.0 billion of Regulation XXX collateral support for the
business acquired from ING and can be used to collateralize reinsurance
obligations under inter-company reinsurance agreements. Simultaneously, we
entered into a total return swap with HSBC under which we are entitled to the
total return of the investment portfolio of the trust established for this
facility. In accordance with FIN 46R, the trust is considered to be a variable
interest entity and we are deemed to hold the primary beneficial interest in the
trust. As a result, the trust has been consolidated in our financial statements.
The assets of the trust have been recorded as fixed maturity investments, cash
and cash equivalents. Our consolidated statements of income (loss) show the
investment return of the trust as investment income and the cost of the facility
is reflected in collateral finance facilities expense. The creditors of the
trust have no recourse against our general assets. As at September 30, 2007,
$595.0 million of this facility was being utilized.

     On November 26, 2006, we entered into an amended and restated forbearance
agreement with HSBC, pursuant to which HSBC has agreed not to make demands for
additional collateral under our collateral finance facilities with HSBC so long
as certain conditions are met during the forbearance period which ends on
December 31, 2008.

Reinsurance Facility

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


                                       54
<PAGE>


Ballantyne Re plc

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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


                                       55
<PAGE>


     On and after September 4, 2007, interest payment on the Class B-1 Notes and
the Class B-2 Notes were suspended pursuant to the Indenture. Interest will
continue to accrue until it becomes eligible for payment under the terms of the
Indenture, which is primarily driven by the market value of the assets in
Ballantyne Re's accounts.

     In accordance with FIN 46R, Ballantyne Re is considered to be a variable
interest entity and we are considered to hold the primary beneficial interest.
As a result, Ballantyne Re is consolidated in our financial statements beginning
in the second quarter of 2006. The assets of Ballantyne Re are recorded as fixed
maturity investments and cash and cash equivalents. Our consolidated statements
of income (loss) include the investment return of Ballantyne Re as investment
income and the cost of the facility is reflected in collateral finance
facilities expense.

     The terms of the Class C-1 and Class C-2 Notes issued in connection with
the Ballantyne Re securitization require Ballantyne Re to write-off all or a
portion of the accrued interest and principal of the notes if the equity balance
of Ballantyne Re (determined in accordance with International Financial
Reporting Standards) falls below a specified amount as of September 30 of any
year. As of September 30, 2007, such equity balance fell below this specified
amount primarily due to mark to market declines affecting a large portion of
Ballantyne Re's investment portfolio. We are currently attempting to amend the
Notes to postpone the determination date for any write-off of the Class C-1
Notes for a 12-month period, although such an amendment requires the consent of
certain third parties. Absent this amendment, we expect that a portion of the
$42.0 million principal amount of Class C-1 Notes held by third parties would be
written off in addition to any accrued and unpaid interest.

Stingray

     On January 12, 2005, we entered into a put agreement with Stingray Investor
Trust ("Stingray") for an aggregate value of $325.0 million. Under the terms of
the put agreement, we acquired an irrevocable put option to issue funding
agreements to Stingray in return for the assets in a portfolio of 30 day
commercial paper. This put option may be exercised at any time. In addition, we
may be required to issue funding agreements to Stingray under certain
circumstances, including, but not limited to, the non-payment of the put option
premium and a non-payment of interest under any outstanding funding agreements
under the put agreement. The facility matures on January 12, 2015. This
transaction may also provide collateral for Scottish Re (U.S.), Inc. for
reinsurance obligations under inter-company reinsurance agreements. At September
30, 2007, $50.0 million was in use for this purpose. We drew down most of the
funds available under the facility, in the amount of $265.0 million, during 2006
and $10.0 million in the first quarter of 2007 and repaid the funds drawn down
of $275.0 million on June 10, 2007. The put premium and interest costs incurred
during the three months ended September, 2007 and 2006 amounted to $1.2 million
and $3.0 million, respectively, and is included in collateral finance facilities
expense in the consolidated statements of income (loss). The put premium and
interest costs incurred during the nine months ended September 30, 2007 and 2006
amounted to $9.9 million and $5.4 million, respectively. In accordance with FIN
46R, we are not considered to be the primary beneficiary of Stingray and, as a
result, we are not required to consolidate Stingray. We are not responsible for
any losses incurred by the Stingray Pass Through Trust.

Clearwater Re

     On June 25, 2007, Clearwater Re Limited ("Clearwater") was incorporated
under the laws of Bermuda and issued in a private offering $365.9 million of
Floating Rate Variable Funding Notes due August 11, 2037 to external investors
(the "Clearwater Notes"). Proceeds from this offering were used to fund the
Regulation XXX reserve requirements for a defined block of level premium term
life insurance policies issued between January 1, 2004 and December 31, 2006
reinsured by Scottish Re (U.S.), Inc. Clearwater replaces the 2004 collateral
finance facility with HSBC ("HSBC I"), which has been terminated. Prior to its
termination, the HSBC I facility had provided $188.5 million of Regulation XXX
reserve funding. Upon termination, this amount was repaid to HSBC in accordance
with the termination provisions of the agreement. In addition, HSBC was paid an
early termination fee of $2.2 million. Proceeds from the Clearwater Notes have
been deposited into a reinsurance credit trust to collateralize the statutory
reserve obligations of the defined block of policies noted above. External
investors have committed to funding up to $555.0 million in order to fund the
ongoing Regulation XXX collateral requirements on this block.

     Payment of interest and principal under the Clearwater Notes on the
maturity date and following an event of default by Clearwater and related
acceleration of the Clearwater Notes are guaranteed by Scottish Annuity and Life
Insurance Company (Cayman) Ltd. ("SALIC") and by Scottish Re Group Limited
("SRGL).


                                       56
<PAGE>


     Interest on the principal amount of the Clearwater Notes is payable
quarterly at a rate equivalent to three month LIBOR plus a spread determined by
SALIC's insurance financial strength rating and SRGL's senior unsecured credit
rating.

     The Clearwater Notes also contain customary events of default provisions,
which if breached, could result in the accelerated maturity of the Clearwater
Notes.

     In accordance with FIN 46R, Clearwater Re is considered to be a variable
interest entity and we are considered to hold the primary beneficial interest.
As a result, Clearwater Re is consolidated in our financial statements beginning
in the third quarter of 2007. The assets of Clearwater Re are recorded as fixed
maturity investments and cash and cash equivalents. Our consolidated statements
of income (loss) include the investment return of Clearwater Re as investment
income and the cost of the facility is reflected in collateral finance
facilities expense.


Collateral Summary

     At September 30, 2007, we had $4.2 billion of collateral finance facility
obligations relating to the HSBC II, Orkney I, Orkney II, Ballantyne Re and
Clearwater Re transactions. In connection with these transactions, we have
assets in trust of approximately $5.6 billion that represent assets supporting
the economic reserves, excess reserves, additional funding amounts and surplus
in the transactions. The assets in trust are managed in accordance with
predefined investment guidelines as to permitted investments, portfolio quality,
diversification and duration.

     During the first quarter of 2007, we entered into a $100 million term loan
facility with MassMutual Capital and Cerberus to provide a source of liquidity
between the shareholder vote of the Transaction and the closing of the
Transaction, if needed. No amounts were drawn on this facility and it was
terminated upon the closing of the Transaction on May 7, 2007.

Regulatory & Other Capital Requirements

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

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

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

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

     All of our regulated insurance entities are in excess of their minimum
regulatory capital requirements as of September 30, 2007 and we expect them to
remain as such.

Off Balance Sheet Arrangements

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


                                       57
<PAGE>


New Accounting Standards

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

     In July 2006, the FASB issued FASB Interpretation No. 48 ("FIN 48"),
"Accounting for Uncertainty in Income Taxes". FIN 48 prescribes detailed
guidance for the financial statement recognition, measurement and disclosure of
uncertain tax positions recognized in an enterprise's financial statements in
accordance with SFAS No. 109. Tax positions must meet a "more likely than not"
recognition threshold at the effective date to be recognized upon the adoption
of FIN 48 and in subsequent periods. (See Note 7 to the Consolidated Financial
Statements.)

FASB Statement No. 157, Fair Value Measurements

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

FASB Statement No. 159, Fair Value Option for Financial Assets and Financial
Liabilities

     In February 2007, the FASB issued Statement No. 159 ("SFAS No. 159"), "Fair
Value Option for Financial Assets and Financial Liabilities", which permits
entities to choose to measure many financial instruments and certain other items
at fair value. A company must report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each subsequent
reporting date. The fair value option may be applied on an instrument by
instrument basis, with a few exceptions. The fair value option is irrevocable
(unless a new election date occurs) and the fair value option may be applied
only to entire instruments and not to portions of instruments. SFAS 159 will be
effective for interim and annual financial statements issued after January 1,
2008. We are evaluating the implications of SFAS No. 159 on our results of
operations and financial position.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     Please refer to Part II "Item 1A: Risk Factors" and "Item 7A: Quantitative
and Qualitative Disclosures about Market Risk" in our 2006 Annual Report.

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures

     Our Chief Executive Officer and Chief Accounting Officer have evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on
such evaluation, such officers have concluded that our disclosure controls and
procedures were effective as of September 30, 2007 to ensure that information
required to be disclosed by us in the reports filed and submitted by us under
the Exchange Act were recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms.

Changes in internal controls

     In connection with the restatement of our Form 10-Q for the quarter ended
June 30, 2007, our Chief Executive Officer and Chief Accounting Officer, in
consultation with our management, have determined that, as of June 30, 2007, we
had a material weakness in our internal control over financial reporting, as
defined in the standards established by the Public Company Accounting Oversight
Board. Specifically, as of June 30, 2007, we had a material weakness relating to
our controls over the calculation of earnings per share in that our procedures
did not operate effectively to detect errors in the calculation of net loss
attributable to ordinary shareholders.

     To remedy the material weakness, we enhanced our procedures to provide
additional management oversight of our accounting activities and at the date of
this report, we consider our material weakness to be remediated.

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


                                       58
<PAGE>


PART II. OTHER INFORMATION

Item 1.   Legal Proceedings

     On August 2, 2006, a putative class action lawsuit was filed against us and
certain of our current and former officers and directors in the U.S. District
Court for the Southern District of New York on behalf of a putative class
consisting of investors who purchased our publicly traded securities between
December 16, 2005 and July 28, 2006. Between August 7, 2006 and October 3, 2006,
seven additional related class action lawsuits were filed against us, certain of
our current and former officers and directors, and certain third parties. Two of
the complaints were filed on August 7, 2006, and the remaining five complaints
were filed on August 14, 2006, August 22, 2006, August 23, 2006, September 15,
2006, and October 3, 2006, respectively. Each of the class actions filed seeks
an unspecified amount of damages, as well as other forms of relief. On October
12, 2006, all of the class actions were consolidated. On December 4, 2006, a
consolidated class action complaint was filed. The complaint names us; Dean E.
Miller, our former Chief Financial Officer; Scott E. Willkomm, our former Chief
Executive Officer; Elizabeth Murphy, our former Chief Financial Officer; our
former Board members Michael Austin, Bill Caulfeild-Browne, Robert Chmely,
Michael French, Lord Norman Lamont, Hazel O'Leary, and Glenn Schafer; and
certain third parties, including Goldman Sachs and Bear Stearns in their
capacities as underwriters in various securities offerings by us and Ernst &
Young LLP in their capacity as independent registered public accounting firm.
The complaint is brought on behalf of a putative class consisting of investors
who purchased our securities between February 17, 2005 and July 31, 2006. The
complaint alleges violations of Sections 10(b) and 20(a) of the Exchange Act,
Rule 10b-5, and Sections 11, 12(a)(2), and 15 of the Securities Act. The
complaint seeks an unspecified amount of damages, as well as other forms of
relief. On March 7, 2007 we filed a motion to dismiss the putative class action
lawsuit. On November 2, 2007, the court dismissed the Section 10(b) and Rule
10b-5 claims against Ernst & Young LLP, but gave the plaintiffs leave to amend.
The court denied the motions to dismiss brought by the other named defendants.
The Company believes the plaintiffs' claims to be without merit and intends to
defend itself against them.

     In addition, on or about October 20, 2006, a shareholder derivative lawsuit
was filed against certain of our current and former directors in the U.S.
District Court for the Southern District of New York. The derivative lawsuit
alleges, among other things, that defendants improperly permitted us to make
false and misleading statements to investors concerning our business and
operations, thereby exposing us to liability from class action suits alleging
violations of the U.S. securities laws. The derivative lawsuit asserts claims
against defendants for breach of fiduciary duty, abuse of control, gross
mismanagement, constructive fraud, and unjust enrichment. On January 8, 2007 we
filed a motion to dismiss the derivative lawsuit. On May 7, 2007, our motion was
granted and the lawsuit was dismissed without prejudice. The Plaintiff declined
to submit an amended complaint and, on May 30, 2007, the court dismissed the
case with prejudice.

Item 1A.  Risk Factors

     As a result of the closing of the Transaction, certain risks set forth in
our 2006 Annual Report relating to whether the Transaction would be completed
are no longer applicable. However, the other risks identified in our 2006 Annual
Report and those set forth below could materially affect our business, results
of operations or financial condition.

     Recent developments in the residential mortgage market, especially in the
nonprime sector, may adversely affect our financial condition.

     Recently, the residential mortgage market in the United States has
experienced a variety of difficulties and changed economic conditions. We have
exposure to the sub-prime market as a result of securities held in our
investment portfolio, as described in more detail under "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Financial
Condition - Exposure to Sub-prime ABS and Alt-A RMBS". Due to these recent
developments, especially in the nonprime sector, there is a risk that these
investment values may further decline which may adversely affect our financial
condition.

Process Improvement Risk

     We are implementing a process improvement program under which, among other
things, we intend to enhance the automation of our reporting, valuation and
administrative tools including the conversion of treaty level data onto our SAGE
platform. The results of such program may give rise to unforeseen adjustments to
our previous financial estimates, which could adversely affect our results of
operations.


                                       59
<PAGE>


Item 2.   Unregistered Sales of Equity Securities 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 Company held its 2007 Annual Meeting of Shareholders on July 18, 2007.
The items of business set forth below were presented to our shareholders (the
"Shareholders"). The number of shares set forth below includes the ordinary
shares into which the Convertible Cumulative Participating Preferred Shares are
convertible.

     Election of Directors

     The results of the vote of the Shareholders with respect to the eleven
directors who were elected as proposed in the Proxy Statement dated June 22,
2007, under the caption titled "Proposal for Election of Directors" were as
follows:

<TABLE>
<CAPTION>
----------------------------------- ---------------------- --------------------------
                                                               Item 6. Total Vote
                                      Item 5. Total Vote       Withheld From Each
               Name                   For Each Director             Director
----------------------------------- ---------------------- --------------------------
<S>                                           <C>                         <C>
Jonathan Bloomer                              168,186,128                 12,959,523
----------------------------------- ---------------------- --------------------------
Christopher Brody                             168,115,225                 13,030,426
----------------------------------- ---------------------- --------------------------
James Butler                                  178,204,800                  2,940,851
----------------------------------- ---------------------- --------------------------
James Chapman                                 178,204,550                  2,941,101
----------------------------------- ---------------------- --------------------------
Thomas Finke                                  168,186,028                 12,959,623
----------------------------------- ---------------------- --------------------------
Paul Goldean                                  168,152,724                 12,992,411
----------------------------------- ---------------------- --------------------------
Jeffrey Hughes                                178,208,306                  2,937,345
----------------------------------- ---------------------- --------------------------
Robert Joyal                                  178,196,306                  2,949,345
----------------------------------- ---------------------- --------------------------
Larry Port                                    168,112,005                 13,033,646
----------------------------------- ---------------------- --------------------------
Michael Rollings                              168,179,975                 12,965,676
----------------------------------- ---------------------- --------------------------
Lenard Tessler                                168,188,402                 12,957,249
----------------------------------- ---------------------- --------------------------

</TABLE>

     Approval of the 2007 Stock Option Plan

     The Compensation Committee of the Board of Directors recommended and the
Board of Directors approved, subject to shareholder approval, the 2007 Plan. The
results of the vote of the Shareholders with respect to this recommendation were
as follows:

---------------------- ----------------
For:                       167,754,033
---------------------- ----------------
Against:                    13,350,228
---------------------- ----------------
Abstain:                        41,390
---------------------- ----------------


     Ratification of Independent Auditors

     The Board of Directors has selected, based upon the recommendation of the
Audit Committee, Ernst & Young LLP, as the independent auditors for the Company
for the fiscal year ending December 31, 2007. The results of the vote of the
Shareholders with respect to this selection were as follows:

---------------------- ----------------
For:                       178,291,151
---------------------- ----------------
Against:                     2,817,117
---------------------- ----------------
Abstain:                        37,373
---------------------- ----------------


                                       60
<PAGE>


Item 7.   Other Information

     Not applicable.

Item 8.   Exhibits

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

3.1       Memorandum of Association of Scottish Re Group Limited.

3.2       Articles of Association of Scottish Re Group Limited.

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

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

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

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

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

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

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

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

10.1      Second Amended and Restated 1998 Stock Option Plan effective October
          22, 1998 (incorporated herein by reference to Exhibit 10.3 to Scottish
          Re Group Limited's Registration Statement on Form S-1). (1)(25)

10.2      Form of Stock Option Agreement in connection with 1998 Stock Option
          Plan (incorporated herein by reference to Exhibit 10.4 to Scottish Re
          Group Limited's Registration Statement on Form S-1). (1)(25)

10.3      Investment Management Agreement dated October 22, 1998 between
          Scottish Re Group Limited and General Re-New England Asset Management,
          Inc. (incorporated herein by reference to Exhibit 10.14 to Scottish Re
          Group Limited's Registration Statement on Form S-1). (1)

10.4      Form of Omnibus Registration Rights Agreement (incorporated herein by
          reference to Exhibit 10.17 to Scottish Re Group Limited's Registration
          Statement on Form S-1). (1)

10.5      1999 Stock Option Plan (incorporated herein by reference to Exhibit
          10.14 to Scottish Re Group Limited's 1999 Annual Report on Form 10-K).
          (2)(25)

10.6      Form of Stock Options Agreement in connection with 1999 Stock Option
          Plan (incorporated herein by reference to Exhibit 10.15 to Scottish Re
          Group Limited's 1999 Annual Report on Form 10-K). (2)(25)


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<PAGE>


10.7      2001 Stock Option Plan (incorporated herein by reference to Exhibit
          10.17 to Scottish Re Group Limited's 2001 Annual Report on Form 10-K).
          (4)(25)

10.8      Form of Nonqualified Stock Option Agreement in connection with 2001
          Stock Option Plan (incorporated herein by reference to Exhibit 10.17
          to Scottish Re Group Limited's 2001 Annual Report on Form 10-K).
          (4)(25)

10.9      Form of Indemnification Agreement between Scottish Re Group Limited
          and each of its directors and officers (incorporated by reference to
          Scottish Re Group Limited's Amended Quarterly Report on Form 10-Q/A
          for the period ended September 30, 2002). (8)(25)

10.10     Employment Agreement dated July 1, 2002 between Scottish Annuity &
          Life Insurance Company (Cayman) Ltd. and Thomas A. McAvity, Jr.
          (incorporated by reference to Scottish Re Group Limited's Amended
          Quarterly Report on Form 10-Q/A for the period ended September 30,
          2002). (8)(25)

10.11     Employment Agreement dated June 1, 2002 between Scottish Re Group
          Limited and Paul Goldean (incorporated herein by reference to Scottish
          Re Group Limited's Quarterly Report on Form 10-Q for the period ended
          March 31, 2004). (14)(25)

10.12     Employment Agreement dated June 1, 2002 between Scottish Re Group
          Limited and Clifford J. Wagner (incorporated by reference to Scottish
          Re Group Limited's Amended Quarterly Report on Form 10-Q/A for the
          period ended September 30, 2002). (8)(25)

10.13     Amended Employment Agreement dated February 10, 2003 between Scottish
          Re Group Limited and Thomas A. McAvity, Jr. (incorporated herein by
          reference to Scottish Re Group Limited's 2002 Annual Report on Form
          10-K). (12)(25)

10.14     Indenture, dated November 22, 2002, between Scottish Re Group Limited
          and The Bank of New York (incorporated herein by reference to Scottish
          Re Group Limited's Registration Statement on Form S-3). (9)

10.15     Registration Rights Agreement, dated November 22, 2002, by and among
          Scottish Re Group Limited and Bear Stearns & Co. and Putnam Lovell
          Securities Inc. (incorporated herein by reference to Scottish Re Group
          Limited's Registration Statement on Form S-3). (9)

10.16     Stock Purchase Agreement, dated as of October 24, 2003, by and among
          Scottish Re Group Limited, Scottish Holdings, Inc. and Employers
          Reinsurance Corporation (incorporated herein by reference to Scottish
          Re Group Limited's Current Report on Form 8-K). (11)

10.17     Tax Matters Agreement, dated as of January 22, 2003, by and among
          Scottish Re Group Limited, Scottish Holdings, Inc. and Employers
          Reinsurance Corporation (incorporated herein by reference to Scottish
          Re Group Limited's Current Report on Form 8-K). (11)

10.18     Transition Services Agreement, dated as of January 22, 2003, by and
          among Scottish Holdings, Inc. and Employers Reinsurance Corporation
          (incorporated herein by reference to Scottish Re Group Limited's
          Current Report on Form 8-K). (11)

10.19     Asset Purchase Agreement, dated as of October 17, 2004, by and among
          Security Life of Denver Insurance Company, Security Life of Denver
          International Limited, ING America Insurance Holdings, Inc. (for
          purposes of Section 11.11), Scottish Re Group Limited, Scottish Re
          (U.S.), Inc., Scottish Annuity & Life Insurance Company (Cayman) Ltd.
          (for purposes of Section 5.26) and Scottish Re Life Corporation (for
          purposes of Section 5.24) (incorporated herein by reference to
          Scottish Re Group Limited's Current Report on Form 8-K). (15)

10.20     Securities Purchase Agreement, dated as of October 17, 2004, by and
          among Scottish Re Group Limited and Cypress Merchant B Partners II
          (Cayman) L.P., Cypress Merchant Banking II-A C.V., 55th Street
          Partners II (Cayman) L.P. and Cypress Side-by-Side (Cayman) L.P.
          (including form of Subordinated Note, Class C Warrant, Shareholders'
          Agreement and Amendments to Articles of Association) (incorporated
          herein by reference to Scottish Re Group Limited's Current Report on
          Form 8-K). (15)


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<PAGE>


10.21     Form of Voting Agreement, by and among Cypress Merchant B Partners II
          (Cayman) L.P., Cypress Merchant Banking II-A C.V., 55th Street
          Partners II (Cayman) L.P. and Cypress Side-by-Side (Cayman) L.P.,
          Scottish Re Group Limited and, respectively, each director and each
          officer of Scottish Re Group Limited (incorporated herein by reference
          to Scottish Re Group Limited's Current Report on Form 8-K). (15)

10.22     Voting Agreement, dated as of October 15, 2004, by and among Scottish
          Re Group Limited, Cypress Merchant B Partners II (Cayman) L.P.,
          Cypress Merchant Banking II-A C.V., 55th Street Partners II (Cayman)
          L.P. and Cypress Side-by-Side (Cayman) L.P. and Pacific Life Insurance
          Company (incorporated herein by reference to Scottish Re Group
          Limited's Current Report on Form 8-K). (15)

10.23     Letter Agreement, dated as of October 17, 2004, by and among Scottish
          Re Group Limited and Cypress Merchant B Partners II (Cayman) L.P.,
          Cypress Merchant Banking II-A C.V., 55th Street Partners II (Cayman)
          L.P. and Cypress Side-by-Side (Cayman) L.P. (incorporated herein by
          reference to Scottish Re Group Limited's Current Report on Form 8-K).
          (15)

10.24     First Supplemental Indenture, dated as of October 26, 2004, between
          Scottish Re Group Limited and The Bank of New York (incorporated
          herein by reference to Scottish Re Group Limited's Current Report on
          Form 8-K, filed with the SEC on October 29, 2004).

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

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

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

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

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

10.30     Reserve Trust Agreement, dated as of December 31, 2004, between
          Scottish Re (U.S.) Inc., as Grantor, and Security Life of Denver
          Insurance Company, as Beneficiary, and The Bank of New York, as
          Trustee, and The Bank of New York, as Securities Intermediary
          (incorporated herein by reference to Scottish Re Group Limited's 2004
          Annual Report on Form 10-K). (20)

10.31     Security Trust Agreement, dated as of December 31, 2004, by and among
          Scottish Re (U.S.), Inc., as Grantor, Security Life of Denver
          Insurance Company, as Beneficiary, The Bank of New York, as Trustee,
          and The Bank of New York, as Securities Intermediary (incorporated
          herein by reference to Scottish Re Group Limited's 2004 Annual Report
          on Form 10-K). (20)

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

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


                                       63
<PAGE>


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

10.35     Reserve Trust Agreement, dated December 31, 2004, between Scottish Re
          Life (Bermuda) Limited, as Grantor, and Security Life of Denver
          International Limited, as Beneficiary. The Bank of New York, as
          Trustee, and The Bank of New York, as Securities Intermediary
          (incorporated herein by reference to Scottish Re Group Limited's 2004
          Annual Report on Form 10-K). (20)

10.36     Security Trust Agreement, dated as of December 31, 2004, by and among
          Scottish Re Life (Bermuda) Limited, as Grantor, Security Life of
          Denver International Limited, as Beneficiary, The Bank of New York, as
          Trustee, and the Bank of New York, as Securities Intermediary
          (incorporated herein by reference to Scottish Re Group Limited's 2004
          Annual Report on Form 10-K). (20)

10.37     Technology Transfer and License Agreement, dated as of December 31,
          2004, between Security Life of Denver Insurance Company, ING North
          America Insurance Corporation and Scottish Re (U.S.), Inc.
          (incorporated herein by reference to Scottish Re Group Limited's 2004
          Annual Report on Form 10-K). (20)

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

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

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

10.41     Amendment No. 1 to Scottish Re Group Limited 2004 Equity Incentive
          Compensation Plan (incorporated herein by reference to Scottish Re
          Group Limited's Current Report on Form 8-K). (18) (25)

10.42     Amendment No. 2 to Scottish Re Group Limited 2004 Equity Incentive
          Compensation Plan (incorporated herein by reference to Scottish Re
          Group Limited's Current Report on Form 8-K). (18) (25)

10.43     Form of Management Stock Option Agreement under the Scottish Re Group
          Limited 2004 Equity Incentive Compensation Plan (incorporated herein
          by reference to Scottish Re Group Limited's Current Report on Form
          8-K). (18) (25)

10.44     Form of Management Performance Share Unit Agreement under the Scottish
          Re Group Limited 2004 Equity Incentive Compensation Plan (incorporated
          herein by reference to Scottish Re Group Limited's Current Report on
          Form 8-K). (18) (25)

10.45     Form of Management Restricted Share Unit Agreement under the Scottish
          Re Group Limited 2004 Equity Incentive Compensation Plan (incorporated
          herein by reference to Scottish Re Group Limited's Current Report on
          Form 8-K). (18) (25)

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

10.47     Amendment to Employment Agreement, dated as of October 29, 2006,
          between Scottish Re Group Limited and Paul Goldean (incorporated
          herein by reference to Scottish Re Group Limited's Current Report on
          Form 8-K which was filed with the SEC on November 2, 2006). (25)


                                       64
<PAGE>


10.48     Securities Purchase Agreement, dated as of November 26, 2006, by and
          among Scottish Re Group Limited, MassMutual Capital Partners LLC and
          SRGL Acquisition, LLC (incorporated herein by reference to Scottish Re
          Group Limited's Current Report on Form 8-K). (22)

10.49     Form of Registration Rights and Shareholders Agreement (incorporated
          herein by reference to Scottish Re Group Limited's Current Report on
          Form 8-K). (22)

10.50     Voting Agreement, dated as of November 26, 2006, by and among Scottish
          Re Group Limited, MassMutual Capital Partners LLC, SRGL Acquisition,
          LLC, Cypress Merchant B Partners II (Cayman) L.P., Cypress Merchant B
          II-A C.V., Cypress Side-By-Side (Cayman) L.P. and 55th Street Partners
          II (Cayman) L.P. (incorporated herein by reference to Scottish Re
          Group Limited's Current Report on Form 8-K). (22)

10.51     First Amendment to Asset Purchase Agreement, dated as of November 26,
          2006, by and among Scottish Re (U.S.), Inc., Scottish Re Life
          (Bermuda) Limited, Security Life of Denver Insurance Company and
          Security Life of Denver International Limited (incorporated herein by
          reference to Scottish Re Group Limited's Current Report on Form 8-K).
          (22)

10.52     Letter Agreement, dated as of November 30, 2006, by and among Scottish
          Annuity & Life Insurance Company (Cayman) Ltd., Scottish Re Limited
          and Comerica Bank (incorporated herein by reference to Scottish Re
          Group Limited's Current Report on Form 8-K). (23)

10.53     Standby Letter of Credit Application and Agreement, dated as of
          November 30, 2006, by and between Scottish Annuity & Life Insurance
          Company (Cayman) Ltd. and Comerica Bank (incorporated herein by
          reference to Scottish Re Group Limited's Current Report on Form 8-K).
          (23)

10.54     Standby Letter of Credit Application and Agreement, dated as of
          November 30, 2006, by and between Scottish Re Limited and Comerica
          Bank (incorporated herein by reference to Scottish Re Group Limited's
          Current Report on Form 8-K). (23)

10.55     Amendment No. 2 to Securities Purchase Agreement, dated as of February
          20, 2007, by and among Scottish Re Group Limited, MassMutual Capital
          Partners LLC and SRGL Acquisition, LDC (incorporated herein by
          reference to Scottish Re Group Limited's Current Report on Form 8-K
          which was filed with the SEC on February 21, 2007).

10.56     Amendment Three to the 2004 Equity Incentive Compensation Plan. (25)

10.57     Scottish Re Group Limited 2007 Stock Option Plan (incorporated herein
          by reference to Scottish Re Group Limited's Proxy Statement filed with
          the SEC on June 22, 2007). (25)

10.58     Employment Agreement dated May 30, 2006 between Scottish Re Holdings
          Limited and Duncan Hayward. (24)(25)

10.59     Employment Agreement dated June 28, 2007 between Scottish Holdings,
          Inc. and Jeffrey M. Delle Fave. (24)(25)

10.60     Employment Agreement dated July 18, 2007 between Scottish Re Group
          Limited and George R. Zippel. (24)(25)

10.61     Employment Agreement dated July 25, 2007 between Scottish Holdings,
          Inc. and Michael Baumstein. (24)(25)

10.62     Employment Agreement dated July 26, 2007 between Scottish Re (U.S.),
          Inc. and Meredith Ratajczak. (24)(25)

10.63     Employment Agreement dated September 24, 2007 between Scottish Re
          Group Limited and Terry Eleftheriou. (25)

31.1      Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
          2002.

31.2      Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
          2002.

32.1      Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
          to Section 906 of the Sarbanes-Oxley Act of 2002.


                                       65
<PAGE>


32.2      Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
          to Section 906 of the Sarbanes-Oxley Act of 2002.

          (1)  Scottish Re Group Limited's Registration Statement on Form S-1
               was filed with the SEC on June 19, 1998, as amended.

          (2)  Scottish Re Group Limited's 1999 Annual Report on Form 10-K was
               filed with the SEC on April 3, 2000.

          (3)  Scottish Re Group Limited's 2000 Annual Report on Form 10-K was
               filed with the SEC on March 30, 2001.

          (4)  Scottish Re Group Limited's 2001 Annual Report on Form 10-K was
               filed with the SEC on March 5, 2002.

          (5)  Scottish Re Group Limited's Current Report on Form 8-K was filed
               with the SEC on December 31, 2001.

          (6)  Scottish Re Group Limited's Current Report on Form 8-K was filed
               with the SEC on June 2, 2005.

          (7)  Scottish Re Group Limited's Current Report on Form 8-K was filed
               with the SEC on August 9, 2001.

          (8)  Scottish Re Group Limited's Amended Quarterly Report on Form
               10-Q/A was filed with the SEC on August 8, 2002.

          (9)  Scottish Re Group Limited's Registration Statement on Form S-3
               was filed with the SEC on January 31, 2003, as amended.

          (10) Scottish Re Group Limited's Current Report on Form 8-K was filed
               with the SEC on December 17, 2003.

          (11) Scottish Re Group Limited's Current Report on Form 8-K was filed
               with the SEC on January 6, 2004.

          (12) Scottish Re Group Limited's 2002 Annual Report on Form 10-K was
               filed with the SEC on March 31, 2003.

          (13) Scottish Re Group Limited's Quarterly Report on Form 10-Q was
               filed with the SEC on August 12, 2003.

          (14) Scottish Re Group Limited's Quarterly Report on Form 10-Q was
               filed with the SEC on May 10, 2004.

          (15) Scottish Re Group Limited's Current Report on Form 8-K was filed
               with the SEC on October 21, 2004.

          (16) Scottish Re Group Limited's Current Report on Form 8-K was filed
               with the SEC on July 1, 2005.

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

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

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

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

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

          (22) Scottish Re Group Limited's Current Report on Form 8-K as filed
               with the SEC on November 29, 2006.

          (23) Scottish Re Group Limited's Current Report on Form 8-K was filed
               with the SEC on December 1, 2006.

          (24) Scottish Re Group Limited's Quarterly Report on Form 10-Q for the
               period ended June 30, 2007 was filed with the SEC on August 11,
               2007.

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


                                       66
<PAGE>


                                   SIGNATURES

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

                                        SCOTTISH RE GROUP LIMITED

Date: November 9, 2007                     By: /s/ George Zippel
                                           -------------------------------------
                                           George Zippel
                                           President and Chief Executive Officer


Date: November 9, 2007                     By: /s/ Duncan Hayward
                                           -------------------------------------
                                           Duncan Hayward
                                           Chief Accounting Officer


                                       67