<PAGE>

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

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-Q

<Table>
<C>          <S>
 (Mark One)
    [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934
             FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005

                                   OR




    [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934
             FOR THE TRANSITION PERIOD FROM         TO
</Table>

                         COMMISSION FILE NUMBER 0-07477

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

                             THE ENSTAR GROUP, INC.
             (Exact name of registrant as specified in its charter)

<Table>
<S>                                            <C>
                   GEORGIA                                       63-0590560
       (State or other jurisdiction of                        (I.R.S. Employer
        incorporation or organization)                      Identification No.)
</Table>

                               401 MADISON AVENUE
                           MONTGOMERY, ALABAMA 36104
                    (Address of principal executive offices)
                                 (334) 834-5483
              (Registrant's telephone number, including area code)

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

     Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.  Yes [X]   No [ ]

     Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes [X]   No [ ]

     The number of shares of Registrant's Common Stock, $.01 par value per
share, outstanding at May 10, 2005 was 5,517,909.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

     THIS FORM 10-Q AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY THE
ENSTAR GROUP, INC. OR MEMBERS OF ITS MANAGEMENT TEAM CONTAIN STATEMENTS WHICH
MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES
ACT OF 1933, AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995, 15 U.S.C.A. SECTIONS 77Z-2 AND 78U-5
(SUPP. 1996). THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF
OR CURRENT EXPECTATIONS OF THE ENSTAR GROUP, INC. AND MEMBERS OF ITS MANAGEMENT
TEAM, AS WELL AS THE ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED. PROSPECTIVE
INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH
FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN FORWARD-LOOKING
STATEMENTS ARE SET FORTH IN THE SAFE HARBOR COMPLIANCE STATEMENT FOR
FORWARD-LOOKING STATEMENTS INCLUDED AS EXHIBIT 99.1 TO THE ENSTAR GROUP, INC.
ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004, AND ARE
HEREBY INCORPORATED BY REFERENCE. THE ENSTAR GROUP, INC. UNDERTAKES NO
OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED
ASSUMPTIONS, THE OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO FUTURE
OPERATING RESULTS OVER TIME.
                                        i
<PAGE>

                                     PART I

                             FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                              MARCH 31,   DECEMBER 31,
                                                                2005          2004
                                                              ---------   ------------
                                                               (DOLLARS IN THOUSANDS)
                                                                    (UNAUDITED)
<S>                                                           <C>         <C>
                                        ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 81,515      $ 81,675
  Certificates of deposit...................................     4,077         4,058
  Other current assets......................................       101           132
                                                              --------      --------
       Total current assets.................................    85,693        85,865
Partially owned equity affiliates...........................    72,868        72,618
Other assets................................................       493           494
                                                              --------      --------
       Total assets.........................................  $159,054      $158,977
                                                              ========      ========

                         LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued liabilities..................  $    329      $    345
  Accounts payable to affiliates............................       365           358
  Income taxes payable......................................       723           639
                                                              --------      --------
       Total current liabilities............................     1,417         1,342
Deferred income tax liabilities.............................     7,658         7,730
Accrued taxes...............................................     2,625         2,625
Deferred compensation.......................................       697           662
Other liabilities...........................................       447           444
                                                              --------      --------
       Total liabilities....................................    12,844        12,803
                                                              --------      --------
Commitments and contingencies (Note 4)
Shareholders' equity:
  Common stock ($.01 par value; 55,000,000 shares
     authorized, 5,960,260 shares issued at March 31, 2005
     and December 31, 2004).................................        60            60
  Additional paid-in capital................................   190,008       190,008
  Deferred compensation of partially owned equity
     affiliate..............................................      (104)         (125)
  Accumulated other comprehensive income of partially owned
     equity affiliates, net.................................       367           391
  Accumulated deficit.......................................   (38,311)      (38,350)
  Treasury stock, at cost (442,351 shares)..................    (5,810)       (5,810)
                                                              --------      --------
       Total shareholders' equity...........................   146,210       146,174
                                                              --------      --------
       Total liabilities and shareholders' equity...........  $159,054      $158,977
                                                              ========      ========
</Table>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                        1
<PAGE>

                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME

<Table>
<Caption>
                                                                   THREE MONTHS ENDED
                                                                        MARCH 31,
                                                              -----------------------------
                                                                  2005            2004
                                                              -------------   -------------
                                                              (DOLLARS IN THOUSANDS, EXCEPT
                                                                     PER SHARE DATA)
                                                                       (UNAUDITED)
<S>                                                           <C>             <C>
Interest income.............................................   $      482      $      177
Earnings of partially owned equity affiliates...............          265           3,000
Other income................................................          100             100
General and administrative expenses.........................         (780)           (727)
                                                               ----------      ----------
Income before income taxes and minority interest............           67           2,550
Income taxes................................................          (28)           (829)
                                                               ----------      ----------
Income before minority interest.............................           39           1,721
Minority interest...........................................           --            (623)
                                                               ----------      ----------
Net income..................................................   $       39      $    1,098
                                                               ==========      ==========
Weighted average shares outstanding -- basic................    5,517,909       5,465,753
                                                               ==========      ==========
Weighted average shares outstanding -- assuming dilution....    5,849,053       5,934,877
                                                               ==========      ==========
Net income per common share -- basic........................   $     0.01      $     0.20
                                                               ==========      ==========
Net income per common share -- assuming dilution............   $     0.01      $     0.19
                                                               ==========      ==========
</Table>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                        2
<PAGE>

                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

           CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

<Table>
<Caption>
                                                                THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ----------------
                                                              2005      2004
                                                              -----    -------
                                                                (DOLLARS IN
                                                                 THOUSANDS)
                                                                (UNAUDITED)
<S>                                                           <C>      <C>
Net income..................................................   $39     $1,098
Other comprehensive income (loss) of partially owned equity
  affiliates:
  Unrealized holding gains on investments, net of income
    taxes of $47............................................    --         77
  Unrealized loss on cash flow hedge, net of income tax
    benefit of $32..........................................    --        (53)
  Currency translation adjustment, net of income tax expense
    (benefit) of $(15) and $33..............................   (24)        52
                                                               ---     ------
Other comprehensive income (loss)...........................   (24)        76
                                                               ---     ------
Comprehensive income........................................   $15     $1,174
                                                               ===     ======
</Table>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                        3
<PAGE>

                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                                THREE MONTHS ENDED
                                                                     MARCH 31,
                                                              -----------------------
                                                                 2005         2004
                                                              ----------   ----------
                                                              (DOLLARS IN THOUSANDS)
                                                                    (UNAUDITED)
<S>                                                           <C>          <C>
Cash flows from operating activities:
  Net income................................................    $    39      $ 1,098
  Adjustments to reconcile net income to net cash provided
     by operating activities:
     Earnings of partially owned equity affiliates..........       (265)      (3,000)
     Dividends and distributions received from partially
      owned equity affiliates...............................         --        6,185
     Minority interest in earnings of JCF CFN...............         --          623
     Noncash compensation expense...........................         --           17
     Deferred income taxes..................................        (57)         434
  Changes in assets and liabilities:
     Accounts payable and accrued expenses..................         75          495
     Other, net.............................................         48           83
                                                                -------      -------
       Net cash provided by (used in) operating
        activities..........................................       (160)       5,935
                                                                -------      -------
Cash flows from financing activities:
  Distributions to minority interest........................         --       (2,474)
                                                                -------      -------
       Net cash used in financing activities................         --       (2,474)
                                                                -------      -------
Increase (decrease) in cash and cash equivalents............       (160)       3,461
Cash and cash equivalents at the beginning of the period....     81,675       55,767
                                                                -------      -------
Cash and cash equivalents at the end of the period..........    $81,515      $59,228
                                                                =======      =======
Supplemental disclosures of cash flow information:
  Income taxes paid.........................................    $     1      $   150
                                                                =======      =======
</Table>

   The accompanying notes are an integral part of the consolidated financial
                                  statements.
                                        4
<PAGE>

                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

NOTE 1:  GENERAL

     The Enstar Group, Inc. and Subsidiaries, (the "Company"), is a publicly
traded company engaged in the operation of several equity affiliates in the
financial services industry. Enstar also continues its active search for one or
more additional operating businesses which meet its acquisition criteria.

     The Company, through the operations of its partially owned equity
affiliates, Castlewood Holdings Limited ("Castlewood Holdings") and B.H.
Acquisition Limited ("B.H. Acquisition"), and their subsidiaries, acquires and
manages insurance and reinsurance companies in run-off. The management of these
businesses includes claims administration, adjustment and settlement together
with the collection of reinsurance recoveries. Castlewood Holdings, a
Bermuda-based company, also provides management, consulting and other services
to the insurance and reinsurance industry for both fixed and success-based fee
arrangements. In general, reinsurance is an arrangement in which the reinsurer
agrees to indemnify an insurance or reinsurance company against all or a portion
of the risks underwritten by such insurance or reinsurance company under one or
more insurance or reinsurance contracts.

     The Company consolidates JCF CFN LLC and related entities (collectively,
the "JCF CFN Entities"). The JCF CFN Entities were formed to serve as members of
Green Tree Investment Holdings LLC (formerly known as CFN Investment Holdings
LLC) and related entities (collectively, "Green Tree"), which, in turn, were
formed to effect the acquisition of a portfolio of home equity and manufactured
housing loan securities and the associated servicing businesses from Conseco
Finance Corp. ("Conseco Finance"). In July 2004, the JCF CFN Entities completed
the sale of their entire interest in Green Tree. See Note 3 for further
discussion of this transaction.

     The condensed consolidated financial statements of the Company are
unaudited and, in the opinion of management, include all adjustments consisting
solely of normal recurring adjustments necessary to fairly state the Company's
financial condition, results of operations and cash flows for the interim
period. The results of operations for the three months ended March 31, 2005 are
not necessarily indicative of the results to be expected for the full year.
These statements should be read in conjunction with the consolidated financial
statements and notes thereto for the year ended December 31, 2004 included in
the Company's Form 10-K as filed with the Securities and Exchange Commission on
March 30, 2005 under the Securities Exchange Act of 1934, as amended.

NOTE 2:  SIGNIFICANT ACCOUNTING POLICIES

     (a) Principles of Consolidation -- The condensed consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiary,
Enstar Financial Services, Inc., an inactive company. In addition, the Company
consolidates the JCF CFN Entities, recording a minority interest in its
financial statements for Castlewood Holdings' 40% interest. All significant
intercompany balances and transactions have been eliminated in consolidation.

     (b) Use of Estimates -- The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates. The estimates susceptible to significant change are
those related to the valuation allowance for deferred tax assets and loss and
loss adjustment expenses included in earnings of partially owned equity
affiliates.

     (c) Cash Equivalents -- Cash equivalents consist of short term, highly
liquid investments with original purchased maturities of three months or less.

                                        5
<PAGE>
                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     (d) Partially Owned Equity Affiliates -- Partially owned equity affiliates
are accounted for under the equity method of accounting. Equity method
investments are recorded at cost and are adjusted periodically to recognize the
Company's proportionate share of the investee's income or loss, additional
contributions made and dividends and capital distributions received. In the
event any of the partially owned equity affiliates were to incur a loss and the
Company's cumulative proportionate share of the loss exceeded the carrying
amount of the equity method investment, application of the equity method would
be suspended and the Company's proportionate share of further losses would not
be recognized until the Company committed to provide further financial support
to the investee. The Company would resume application of the equity method once
the investee becomes profitable and the Company's proportionate share of the
investee's earnings equals its cumulative proportionate share of losses that
were not recognized during the period the application of the equity method was
suspended.

     (e) Comprehensive Income -- The Company reports comprehensive income in
accordance with Statement of Financial Accounting Standards ("SFAS") 130,
"Reporting Comprehensive Income" which defines comprehensive income as certain
changes in equity from non-owner sources. The Company recorded other
comprehensive income from its partially owned equity affiliates. This other
comprehensive income arose from currency translation adjustments resulting from
the translations of financial information of subsidiaries into U.S. dollars.

     The components of accumulated other comprehensive income are as follows:

<Table>
<Caption>
                                                              MARCH 31,   DECEMBER 31,
                                                                2005          2004
                                                              ---------   ------------
<S>                                                           <C>         <C>
Currency translation adjustment, net of income tax expense
  of $228 and $243..........................................    $367          $391
                                                                ----          ----
Total accumulated other comprehensive income................    $367          $391
                                                                ====          ====
</Table>

     (f) Revenue Recognition -- Revenue includes interest income earned from
cash, cash equivalents and certificates of deposit and the Company's
proportionate share of earnings from partially owned equity affiliates. Interest
income is recorded when earned. The Company's proportionate share of earnings
from partially owned equity affiliates is recorded as such earnings are
recognized by the partially owned equity affiliate.

     (g) Stock-Based Compensation -- For the three months ended March 31, 2005
and 2004, the Company utilized various stock-based compensation plans for the
benefit of non-employee directors and certain officers. In 1997, the Company
adopted the Deferred Compensation and Stock Plan for Non-Employee Directors and
a long-term incentive program made up of three stock option/incentive plans.
Additionally, in 2001, the Company adopted the 2001 Outside Directors' Stock
Option Plan and amended certain provisions of an existing plan. The Company
accounts for these plans under the intrinsic value recognition and measurement
principles of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") and related interpretations.
Compensation expense for the Deferred Compensation and Stock Plan for
Non-Employee Directors is recognized at the first of every quarter for retainer
fees and upon the occurrence of various Board of Director and committee
meetings. There is no compensation expense recognized in net earnings for stock
option/incentive plans that had an exercise price equal to the market value of
the Company's underlying common stock on the date of grant. In connection with
options granted in November 2001, the market value of the Company's common stock
on the date of grant exceeded the exercise price, resulting in a charge to
earnings for that year. In addition, compensation expense was recognized over
the vesting life of these options through June 2004. Had compensation costs for
grants under the Company's stock option/incentive plans been determined based on
the fair value recognition provision of SFAS 123,

                                        6
<PAGE>
                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

"Accounting for Stock-Based Compensation," the Company's pro forma net income
and net income per share for the three months ended March 31, 2005 and 2004
would have been as follows:

<Table>
<Caption>
                                                                   THREE MONTHS
                                                                  ENDED MARCH 31,
                                                              -----------------------
                                                                2005          2004
                                                              --------      ---------
                                                              (DOLLARS IN THOUSANDS,
                                                              EXCEPT PER SHARE DATA)
                                                                    (UNAUDITED)
<S>                                                           <C>           <C>
Net income, as reported.....................................   $  39         $1,098
Add: Stock-based employee compensation expense included in
  reported net income, net of income taxes..................      22             10
Deduct: Total stock-based employee compensation expense
  determined under fair value based method for all awards,
  net of income taxes.......................................     (78)          (118)
                                                               -----         ------
Pro forma net income........................................   $ (17)        $  990
                                                               =====         ======
Income per common share:
  Basic -- as reported......................................   $0.01         $ 0.20
                                                               =====         ======
  Basic -- pro forma........................................   $0.00         $ 0.18
                                                               =====         ======
  Assuming dilution -- as reported..........................   $0.01         $ 0.19
                                                               =====         ======
  Assuming dilution -- pro forma............................   $0.00         $ 0.17
                                                               =====         ======
</Table>

     The pro forma stock-based employee compensation reflected above is based on
the application of Emerging Issues Task Force No. 00-23, "Issues Related to the
Accounting for Stock Compensation Under APB 25 and Financial Accounting
Standards Board ("FASB") Interpretation No. 44," to the pro rata vesting of such
awards.

     The fair values for options granted under the Company's stock option plans
were calculated at the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions:

<Table>
<Caption>
                                                                THREE MONTHS
                                                              ENDED MARCH 31,
                                                              ----------------
                                                              2005       2004
                                                              -----      -----
<S>                                                           <C>        <C>
Risk-free interest rate.....................................   3.03%      4.38%
Dividend yield..............................................   0.00%      0.00%
Expected volatility.........................................  21.74%     18.77%
Expected life, in years.....................................   4.37       2.57
</Table>

     Based on these assumptions, the estimated weighted average fair value at
the date of grant for options vesting during the three months ended March 31,
2005 and 2004 were $9.50 and $3.29, respectively.

     In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
Payment" ("SFAS 123R"). SFAS 123R requires that the compensation cost resulting
from all share-based payment transactions (e.g. stock options and restricted
stock) be recognized in the financial statements. SFAS 123R requires all
entities to apply a fair-value-based measurement method in accounting for
share-based payment transactions with employees and non-employees except for
equity instruments held by employee share ownership plans. This statement
replaces SFAS 123 and supersedes APB 25. The Company currently accounts for
employee share-based payment awards under the provisions of APB 25. The Company
will apply the provisions of SFAS 123R beginning January 1, 2006. The Company is
currently evaluating the impact that the implementation of this statement will
have on its consolidated financial position and results of operations.

                                        7
<PAGE>
                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     (h) Reclassifications -- Certain prior period amounts have been
reclassified in the financial statements to conform to the current period
presentation.

NOTE 3:  PARTIALLY OWNED EQUITY AFFILIATES

  B.H. ACQUISITION

     In July 2000, the Company, through B.H. Acquisition, a joint venture with
Castlewood Limited ("Castlewood") and an entity controlled by Trident II, L.P.
("Trident"), acquired as an operating business two reinsurance companies,
Brittany Insurance Company Ltd. ("Brittany") and Compagnie Europeenne
d'Assurances Industrielles S.A. ("CEAI"). Brittany and CEAI are principally
engaged in the active management of books of reinsurance business from
international markets. The Company owns 50% of the voting stock and a 33%
economic interest in B.H. Acquisition. As part of the transaction, Castlewood
owns 33% of the voting stock and a 45% economic interest in B.H. Acquisition.
The Company's ownership in B.H. Acquisition is accounted for using the equity
method of accounting.

  CASTLEWOOD HOLDINGS LIMITED

     In November 2001, the Company, together with Trident and the shareholders
and senior management of Castlewood (the "Castlewood Principals"), completed the
formation of a new venture, Castlewood Holdings, to acquire and manage insurance
and reinsurance companies, including companies in run-off (insurance and
reinsurance companies that have ceased the underwriting of new policies), and to
provide management, consulting and other services to the insurance and
reinsurance industry (the "Castlewood Holdings Transaction"). As part of the
transaction, the Company made a capital commitment of $39.5 million for its
interest in Castlewood Holdings. The Company owns 50% of the voting stock of
Castlewood Holdings and the Castlewood Principals and Trident each own 25% of
Castlewood Holdings' voting stock. The Company owns a 32.89% economic interest
in Castlewood Holdings. Castlewood is a private Bermuda-based firm, experienced
in managing and acquiring reinsurance operations. The Company's ownership in
Castlewood Holdings is accounted for using the equity method of accounting.

     As a result of this transaction, the Company's 33% direct economic interest
in B.H. Acquisition increased by an additional indirect economic interest
through Castlewood Holdings. At March 31, 2005, the Company's beneficial
ownership in B.H. Acquisition was 47.8%. The Company's combined voting interest
in B.H. Acquisition is limited to 50%.

     Immediately following the closing of the Castlewood Holdings Transaction,
the Company contributed $12.5 million to Castlewood Holdings. In August 2002,
the Company funded an additional $21 million to Castlewood Holdings. The funds
were used, in part, to capitalize Fitzwilliam (SAC) Insurance Limited
("Fitzwilliam"), a wholly owned subsidiary. Fitzwilliam, based in Bermuda,
offers specialized reinsurance protections to related companies, clients of
Castlewood Holdings and other third-party companies. The remaining commitment of
approximately $7.2 million was funded in March 2003. The funds were used for the
purchase of The Toa-Re Insurance Company (UK) Limited ("Toa-UK"), a London-based
subsidiary of The Toa Reinsurance Company, Limited (described below).

     In conjunction with the closing of the Castlewood Holdings Transaction, the
Company also transferred its shares in Revir Limited ("Revir"), a newly-formed
Bermuda holding company, at cost to Castlewood Holdings. Revir then completed
the acquisition of two reinsurance companies in run-off, River Thames Insurance
Company Limited ("River Thames"), based in London, England, and Overseas
Reinsurance Corporation Limited ("Overseas Reinsurance"), based in Bermuda
(collectively, the "River Thames Transaction"). The total purchase price of
River Thames and Overseas Reinsurance was approximately $15.2 million.

                                        8
<PAGE>
                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In August 2002, Castlewood Holdings purchased Hudson Reinsurance Company
Limited ("Hudson"), a Bermuda-based company, for approximately $4.1 million.
Hudson reinsured risks relating to property, casualty and workers' compensation,
on a worldwide basis, and is now administering the run-off of its claims.

     In March 2003, Castlewood Holdings and Shinsei Bank, Limited ("Shinsei")
completed the acquisition of all of the outstanding capital stock of Toa-UK for
approximately $46 million. Toa-UK underwrote reinsurance business throughout the
world between 1980 and 1994, when it stopped writing new business and is
currently operating in run-off. The acquisition was effected through Hillcot
Holdings Ltd. ("Hillcot"), a newly formed Bermuda company, in which Castlewood
Holdings has a 50.1% economic interest and a 50% voting interest. Upon
completion of the transaction, Toa-UK's name was changed to Hillcot Re Limited.
Hillcot is included in Castlewood Holdings' consolidated financial statements,
with the remaining 49.9% economic interest reflected as minority interest. J.
Christopher Flowers ("Mr. Flowers"), a member of the Company's board of
directors and the Company's largest shareholder, is a director of Shinsei.
Castlewood Holdings' results of operations include the results of Toa-UK from
the date of acquisition in March 2003.

     In August 2004, Castlewood Holdings awarded a grant of 744 shares of its
Class D stock to certain of its employees under a stock-based compensation plan.
The plan allows total awards up to a maximum of 7.5% of the total issued share
capital of Castlewood Holdings. Of the shares awarded, 242 shares had vested as
of March 31, 2005. The remaining shares granted under the award will vest over
various periods through April 2009. As a result of the award in August 2004, the
Company's economic interest in Castlewood Holdings of 33 1/3% was diluted by
0.44% to 32.89% as of March 31, 2005. As shares issued under the August 2004
award vest and as additional shares are awarded in the future, the Company's
economic interest could decrease to a minimum of 30.83%. The Company's voting
interest will remain at 50%.

     During 2004, Castlewood Holdings, through one of its subsidiaries, invested
a total of approximately $9.1 million in Cassandra Equity LLC and Cassandra
Equity (Cayman) LP, (collectively, "Cassandra"), for a 27% interest in each.
Cassandra was formed to invest in equity shares of a publicly traded
international reinsurance company. J.C. Flowers I LP also owns a 27% interest in
Cassandra. J.C. Flowers I LP is a private investment fund, the general partner
of which is JCF Associates I LLC. Mr. Flowers is the managing member of JCF
Associates I LLC. In March 2005, Cassandra sold all of its holdings for total
proceeds of approximately $40.0 million. Castlewood Holdings' proportionate
share of the proceeds was approximately $10.8 million.

     Also during 2004, Castlewood Holdings, through one of its subsidiaries,
completed the acquisition of Mercantile Indemnity Company Ltd., Harper Insurance
Limited and Longmynd Insurance Company Ltd. for a total purchase price of
approximately $4.5 million. Castlewood Holdings recorded an extraordinary gain
of approximately $21.8 million relating to the excess of the fair value of the
net assets acquired over the cost of these acquisitions.

  PARTIALLY OWNED EQUITY AFFILIATES OF JCF CFN

     During 2003, the Company funded approximately $15.3 million to the JCF CFN
Entities in exchange for a 60% interest in such entities. In addition,
Castlewood Holdings funded approximately $10.2 million to the JCF CFN Entities
in exchange for a 40% interest.

     The JCF CFN Entities invested in Green Tree together with affiliates of
J.C. Flowers I LP, affiliates of Fortress Investment Group LLC and affiliates of
Cerberus Capital Management, L.P. In June 2003, the JCF CFN Entities invested
approximately $25.1 million in exchange for a 3.995% interest in Green Tree.
Green Tree completed the purchase of certain assets of Conseco Finance for
approximately $630 million in cash plus certain assumed liabilities. The assets
consisted primarily of a portfolio of home equity and manufactured housing loan
securities as well as the associated servicing businesses. J.C. Flowers I LP is
a private investment fund, the general partner of which is JCF Associates I LLC.
The managing member of JCF Associates I LLC

                                        9
<PAGE>
                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

is Mr. Flowers, a member of the Company's board of directors and the Company's
largest shareholder. The JCF CFN Entities accounted for the investment in Green
Tree under the equity method of accounting. Because the JCF CFN Entities are
consolidated, Green Tree was treated as a partially owned equity affiliate of
the Company.

     In July 2004, the JCF CFN Entities, along with certain affiliates of J.C.
Flowers I LP, completed the sale of their entire interests in Green Tree to FIT
CFN Holdings LLC, an affiliate of Fortress Investment Group LLC, and Cerberus
Green Tree Investments, LLC and Cerberus JCF Coinvest, LLC, each an affiliate of
Cerberus Capital Management L.P. In exchange for their entire interest, the JCF
CFN Entities received aggregate sales proceeds of approximately $40 million in
cash. Of this amount, Castlewood Holdings received aggregate sales proceeds of
approximately $16 million. The proceeds received by the JCF CFN Entities at
completion of the sale were reduced by prior cash distributions of approximately
$7.2 million made by Green Tree during 2004. The Company recorded a pre-tax
realized gain of approximately $6.9 million on the sale.

  SUMMARIZED FINANCIAL INFORMATION

     In accordance with APB No. 18, "The Equity Method of Accounting for
Investments in Common Stock", the Company prepared summarized financial
information for B.H. Acquisition and Castlewood Holdings as of March 31, 2005
and December 31, 2004 and for the three months ended March 31, 2005 and 2004,
respectively. Summarized financial information for Green Tree is presented for
the three months ended March 31, 2004 (Green Tree was sold in July 2004). The
summarized financial information presented below for B.H. Acquisition and
Castlewood Holdings is derived from their respective audited financial
statements for December 31, 2004 and their unaudited quarterly financial
statements. The summarized financial information presented below for Green Tree
is derived from its unaudited quarterly financial statements.

<Table>
<Caption>
                                                                   MARCH 31, 2005
                                                              ------------------------
                                                                 B.H.       CASTLEWOOD
                                                              ACQUISITION    HOLDINGS
                                                              -----------   ----------
                                                               (DOLLARS IN THOUSANDS)
<S>                                                           <C>           <C>
Total assets................................................   $108,333     $1,374,755
Total liabilities...........................................     69,808      1,164,375
Minority interest...........................................         --         31,772
Total equity................................................     38,525        178,608
</Table>

<Table>
<Caption>
                                                                 DECEMBER 31, 2004
                                                              ------------------------
                                                                 B.H.       CASTLEWOOD
                                                              ACQUISITION    HOLDINGS
                                                              -----------   ----------
                                                               (DOLLARS IN THOUSANDS)
<S>                                                           <C>           <C>
Total assets................................................   $110,414     $1,347,853
Total liabilities...........................................     71,748      1,139,123
Minority interest...........................................         --         31,392
Total equity................................................     38,666        177,338
</Table>

<Table>
<Caption>
                                                        THREE MONTHS ENDED MARCH 31, 2005
                                                       -----------------------------------
                                                          B.H.       CASTLEWOOD   COMBINED
                                                       ACQUISITION    HOLDINGS     TOTAL
                                                       -----------   ----------   --------
                                                             (DOLLARS IN THOUSANDS)
<S>                                                    <C>           <C>          <C>
Revenue..............................................                  $4,488      $4,488
Underwriting income (loss)...........................     $(290)        1,550       1,260
Net income (loss)....................................      (140)          945         805
</Table>

                                        10
<PAGE>
                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                   THREE MONTHS ENDED MARCH 31, 2004
                                            ------------------------------------------------
                                               B.H.       CASTLEWOOD                COMBINED
                                            ACQUISITION    HOLDINGS    GREEN TREE    TOTAL
                                            -----------   ----------   ----------   --------
                                                         (DOLLARS IN THOUSANDS)
<S>                                         <C>           <C>          <C>          <C>
Revenue...................................                  $4,379      $135,187    $139,566
Underwriting income (loss)................     $(290)        1,840                     1,550
Operating income..........................                                65,038      65,038
Net income (loss).........................      (257)        3,186        55,021      57,950
</Table>

     The Company's consolidated accumulated deficit includes undistributed
earnings of its partially owned equity affiliates of approximately $26.4 million
and approximately $26.1 million at March 31, 2005 and December 31, 2004,
respectively.

NOTE 4:  COMMITMENTS AND CONTINGENCIES

     In December 2004, the Company signed a one year lease beginning January 1,
2005 on an office building at 401 Madison Avenue, Montgomery, Alabama which
serves as the corporate headquarters. The lease also provides renewal options
for three periods of one year each. Additionally, pursuant to an oral agreement,
the Company leases space in a warehouse at 703 Howe Street, Montgomery, Alabama
on a month-to-month basis. The Company leases the office building and warehouse
space from unaffiliated third parties for $3,000 and $350 per month,
respectively. The Company believes the rental amounts are competitive with
market rates and that the cancellation or termination of either of these leases
would not have a material adverse effect on the Company's results of operations.
The Company incurred rent expense in the amount of $10,050 and $9,300 for the
three months ended March 31, 2005 and 2004, respectively. In February 2002, the
Company entered into an agreement with J.C. Flowers & Co. LLC running through
November 2005 for the use of certain office space and administrative services
from J.C. Flowers & Co. LLC for an annual payment of $66,000. J.C. Flowers & Co.
LLC is managed by Mr. Flowers, a member of the Company's board of directors and
the Company's largest shareholder.

NOTE 5:  INCOME TAXES

     Income tax expense was $28,000 for the three months ended March 31, 2005
compared to $829,000 for the same period in 2004. The Company's effective tax
rates for 2005 and 2004 differ from the statutory rate primarily due to changes
in the valuation allowance related to deferred tax assets, tax contingencies and
state income taxes.

     The Company provides U.S. taxes for the anticipated repatriation of certain
earnings of foreign subsidiaries. A valuation allowance is recorded when it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. The ultimate realization of the deferred tax assets depends on
the ability to generate sufficient taxable income in the future in the
appropriate jurisdictions. The Company has provided a valuation allowance for
operating losses of partially owned foreign subsidiaries at March 31, 2005 and
December 31, 2004.

     The Company has established reserves for tax-related uncertainties based on
its best estimates of whether, and the extent to which, additional taxes and
interest will be due. These reserves are adjusted in light of changing facts and
circumstances. At March 31, 2005, the accrual of $2.6 million for tax
contingencies is reflected in accrued taxes on the balance sheet.

NOTE 6:  SEGMENT INFORMATION

     The Company separately evaluates the performance of B.H. Acquisition and
Castlewood Holdings based on the different services provided by each of the
entities, and such evaluation is based on 100% of the entities'

                                        11
<PAGE>
                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

results of operations. Prior to the sale of Green Tree in July 2004, the Company
also separately evaluated the performance of the JCF CFN Entities. The Company
also reviews separate financial results for Enstar's corporate activity.

     B.H. Acquisition, through its wholly owned subsidiaries, Brittany and CEAI,
is principally engaged in the active management of books of reinsurance business
from international markets. Castlewood Holdings acquires and manages insurance
and reinsurance companies, including companies in run-off, and provides
management, consulting and other services to the insurance and reinsurance
industry. The JCF CFN Entities were formed to serve as a member of Green Tree
which, in turn, was formed to effect the acquisition of a portfolio of home
equity and manufactured housing loan securities and associated servicing
businesses from Conseco Finance.

     A reconciliation of the consolidated financial information by segment to
the Company's consolidated financial statements as of March 31, 2005 and
December 31, 2004 and for the three months ended March 31, 2005 and 2004,
respectively, is as follows:

<Table>
<Caption>
                                                            MARCH 31, 2005
                                            -----------------------------------------------
                                                           B.H.       CASTLEWOOD
                                            CORPORATE   ACQUISITION    HOLDINGS     TOTAL
                                            ---------   -----------   ----------   --------
                                                        (DOLLARS IN THOUSANDS)
<S>                                         <C>         <C>           <C>          <C>
Total reportable segment assets:
  Partially owned equity affiliates.......                $12,797      $60,071     $ 72,868
  Corporate assets........................   $86,186                                 86,186
                                             -------      -------      -------     --------
     Total................................   $86,186      $12,797      $60,071     $159,054
                                             =======      =======      =======     ========
</Table>

<Table>
<Caption>
                                                            DECEMBER 31, 2004
                                             -----------------------------------------------
                                                            B.H.       CASTLEWOOD
                                             CORPORATE   ACQUISITION    HOLDINGS     TOTAL
                                             ---------   -----------   ----------   --------
                                                         (DOLLARS IN THOUSANDS)
<S>                                          <C>         <C>           <C>          <C>
Total reportable segment assets:
  Partially owned equity affiliates........                $12,843      $59,775     $ 72,618
  Corporate assets.........................   $86,359                                 86,359
                                              -------      -------      -------     --------
     Total.................................   $86,359      $12,843      $59,775     $158,977
                                              =======      =======      =======     ========
</Table>

                                        12
<PAGE>
                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                     THREE MONTHS ENDED MARCH 31, 2005
                                                --------------------------------------------
                                                               B.H.       CASTLEWOOD
                                                CORPORATE   ACQUISITION    HOLDINGS    TOTAL
                                                ---------   -----------   ----------   -----
                                                           (DOLLARS IN THOUSANDS)
<S>                                             <C>         <C>           <C>          <C>
Net underwriting income (loss)................                 $(290)       $1,550
Revenue.......................................                               4,488
Net investment income.........................                   343         5,028
Interest income...............................    $ 482
Share of net income of partly-owned
  companies...................................                                  48
General and administrative expenses...........     (780)        (518)       (7,557)
Amortization of run-off provision.............                   333
Other income..................................      100
Foreign exchange loss.........................                    (8)       (1,057)
                                                ---------   -----------   ----------
Income (loss) before income taxes.............     (198)        (140)        2,500
Minority interest.............................       --                       (379)
Income taxes..................................      (28)                    (1,176)
                                                ---------   -----------   ----------
Net income (loss).............................    $(226)       $(140)       $  945
                                                  =====
Company's economic ownership %................                    33%        32.89%
                                                               -----        ------
Earnings (loss) of partially owned equity
  affiliates..................................                 $ (46)       $  311     $265
                                                               =====        ======     ====
</Table>

                                        13
<PAGE>
                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company's economic ownership percentage in Castlewood Holdings
decreased from 33 1/3% to 32.89% during the third quarter of 2004 (Note 3).

<Table>
<Caption>
                                                THREE MONTHS ENDED MARCH 31, 2004
                                     -------------------------------------------------------
                                                    B.H.       CASTLEWOOD
                                     CORPORATE   ACQUISITION    HOLDINGS    JCF CFN   TOTAL
                                     ---------   -----------   ----------   -------   ------
                                                     (DOLLARS IN THOUSANDS)
<S>                                  <C>         <C>           <C>          <C>       <C>
Net underwriting income (loss).....                 $(290)       $1,840
Revenue............................                               4,379
Net investment income..............                   458         2,206
Interest income....................   $   177
Share of net income of partly-owned
  companies........................                                 684     $2,334
General and administrative
  expenses.........................      (727)       (915)       (6,278)
Amortization of run-off
  provision........................                   333
Other income.......................       100
Foreign exchange gain..............                   157         1,077
                                     ---------   -----------   ----------   -------
Income (loss) before income
  taxes............................      (450)       (257)        3,908      2,334
Minority interest..................      (623)                     (456)
Income taxes.......................      (829)                     (266)
                                     ---------   -----------   ----------   -------
Net income (loss)..................   $(1,902)      $(257)       $3,186     $2,334
                                      =======
Company's economic ownership %.....                    33%       33 1/3%
                                                    -----        ------     ------
                                                                  1,062
Company's portion of earnings from
  JCF CFN..........................                                (311)
                                                                 ------
Earnings (loss) of partially owned
  equity affiliates................                 $ (85)       $  751     $2,334    $3,000
                                                    =====        ======     ======    ======
</Table>

     A minority interest for Castlewood Holdings' portion of earnings from the
JCF CFN Entities is reported in the Corporate column.

NOTE 7:  INCOME PER SHARE

     The table below illustrates the reconciliation between net income per
common share -- basic and net income per common share -- assuming dilution for
the three months ended March 31, 2005 and 2004. Net income per common
share -- basic is computed by dividing net income by the weighted average shares
outstanding. Net income per common share -- assuming dilution is computed by
dividing net income by the sum of the weighted average shares outstanding and
common share equivalents. Common share equivalents

                                        14
<PAGE>
                    THE ENSTAR GROUP, INC. AND SUBSIDIARIES

      NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

consist of stock units deferred under the Deferred Compensation and Stock Plan
for Non-Employee Directors and stock options granted under the Company's stock
option/incentive plans.

<Table>
<Caption>
                                                                   THREE MONTHS ENDED
                                                                        MARCH 31,
                                                              -----------------------------
                                                                  2005            2004
                                                              -------------   -------------
                                                              (DOLLARS IN THOUSANDS, EXCEPT
                                                                     PER SHARE DATA)
                                                                       (UNAUDITED)
<S>                                                           <C>             <C>
Net income..................................................   $       39      $    1,098
                                                               ==========      ==========
Net income per common share -- basic........................   $     0.01      $     0.20
                                                               ==========      ==========
Net income per common share -- assuming dilution............   $     0.01      $     0.19
                                                               ==========      ==========
Weighted average shares outstanding -- basic................    5,517,909       5,465,753
Common share equivalents....................................      331,144         469,124
                                                               ----------      ----------
Weighted average shares outstanding -- assuming dilution....    5,849,053       5,934,877
                                                               ==========      ==========
</Table>

                                        15
<PAGE>

                REPORT OF INDEPENDENT REGISTERED ACCOUNTING FIRM

Board of Directors and Shareholders of
The Enstar Group, Inc.
Montgomery, Alabama

     We have reviewed the accompanying condensed consolidated balance sheet of
The Enstar Group, Inc. and Subsidiaries ("Enstar") as of March 31, 2005, and the
related condensed consolidated statements of income, comprehensive income and
cash flows for the three-month periods ended March 31, 2005 and 2004. These
interim financial statements are the responsibility of Enstar's management.

     We conducted our reviews in accordance with standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with standards
of the Public Company Accounting Oversight Board (United States), the objective
of which is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.

     Based on our reviews, we are not aware of any material modifications that
should be made to such condensed consolidated interim financial statements for
them to be in conformity with accounting principles generally accepted in the
United States of America.

     We have previously audited, in accordance with standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheet of Enstar as of December 31, 2004, and the related consolidated statements
of income, comprehensive income, stockholders' equity, and cash flows for the
year then ended (not presented herein); and in our report dated March 30, 2005,
we expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of December 31, 2004 is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.

                                               /s/ DELOITTE & TOUCHE LLP

Birmingham, Alabama
May 10, 2005

                                        16
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

OVERVIEW

     Through the operations of the Company's partially owned equity affiliates,
Castlewood Holdings and B.H. Acquisition, and their subsidiaries, the Company
acquires and manages insurance and reinsurance companies in run-off. The
management of these businesses includes claims administration, adjustment and
settlement together with the collection of reinsurance recoveries. Castlewood
Holdings, a Bermuda-based company, also provides management, consulting and
other services to the insurance and reinsurance industry for both fixed and
success-based fee arrangements. In general, reinsurance is an arrangement in
which the reinsurer agrees to indemnify an insurance or reinsurance company
against all or a portion of the risks underwritten by such insurance or
reinsurance company under one or more insurance or reinsurance contracts. For a
discussion of certain risks and uncertainties relating to the Company's
participation in the reinsurance industry see "Safe Harbor Compliance Statement
for Forward-Looking Statements" included as Exhibit 99.1 to The Enstar Group,
Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2004,
which is hereby incorporated by reference.

     The Company is also actively engaged in the search for one or more
additional operating businesses which meet the Company's acquisition criteria.

RECENT ACCOUNTING PRONOUNCEMENTS

     In December 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123 (revised 2004),
"Share-Based Payment" ("SFAS 123R"). SFAS 123R requires that the compensation
cost resulting from all share-based payment transactions (e.g. stock options and
restricted stock) be recognized in the financial statements. SFAS 123R requires
all entities to apply a fair-value-based measurement method in accounting for
share-based payment transactions with employees and non-employees except for
equity instruments held by employee share ownership plans. This statement
replaces SFAS 123, "Accounting for Stock-Based Compensation," and supersedes
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). The Company currently accounts for employee share-based
payment awards under the provisions of APB 25. The Company will apply the
provisions of SFAS 123R beginning January 1, 2006. The Company is currently
evaluating the impact that the implementation of this statement will have on its
consolidated financial position and results of operations.

CRITICAL ACCOUNTING POLICIES

  ENSTAR

     In the ordinary course of business, the Company has made a number of
estimates and assumptions relating to the reporting of results of operations and
financial condition in the preparation of its financial statements in conformity
with accounting principles generally accepted in the United States of America.
Actual results could differ significantly from those estimates under different
assumptions and conditions. The most significant accounting estimates inherent
in the preparation of the Company's consolidated financial statements include
estimates associated with its evaluation of the income tax valuation allowance.

     Income Tax Valuation Reserve -- The Company recognizes deferred tax assets
and liabilities for the expected future tax consequences of events that have
been included in the financial statements or tax returns. The effect of
temporary differences on the financial statements includes certain operating
losses of partially owned foreign subsidiaries and tax credit carryforwards. The
Company has established a valuation allowance for the uncertainty of the
realization of these and any other net deferred tax assets. However, utilization
of the remaining deferred tax assets at March 31, 2005, is based on management's
assessment of the Company's earnings history, expectations of future taxable
income, and other relevant considerations.

                                        17
<PAGE>

  CASTLEWOOD HOLDINGS AND B.H. ACQUISITION

     Certain amounts in Castlewood Holdings' and B.H. Acquisition's consolidated
financial statements are the result of transactions that require the use of best
estimates and assumptions to determine reported values. These amounts could
ultimately be materially different than what has been provided for in their
consolidated financial statements. The assessment of loss reserves and
reinsurance recoverable are considered to be the values requiring the most
inherently subjective and complex estimates. In addition, the assessment of the
possible impairment of goodwill involves certain estimates and assumptions. As
such, the accounting policies for these amounts are of critical importance to
their consolidated financial statements.

     Loss and Loss Adjustment Expenses -- Because a significant amount of time
can lapse between the assumption of risk, the occurrence of a loss event, the
reporting of the event to an insurance or reinsurance company and the ultimate
payment of the claim on the loss event, Castlewood Holdings' and B.H.
Acquisition's liability for unpaid losses and loss expenses is based largely
upon estimates. Castlewood Holdings' and B.H. Acquisition's management must use
considerable judgment in the process of developing these estimates. The
liability for unpaid losses and loss expenses for property and casualty business
includes amounts determined from loss reports on individual cases and amounts
for losses incurred but not reported. Such reserves are reviewed and estimated
by management quarterly based upon reports received from ceding companies and
annually based upon independent actuarial estimates of ultimate unpaid losses.
Castlewood Holdings' and B.H. Acquisition's ultimate liability may be
significantly greater than or less than the amount estimated, with any
adjustments in such estimates being reflected in the periods in which they
become known.

     Reinsurance Balances Receivable -- One of the ways loss exposure is managed
is through the use of reinsurance. While reinsurance arrangements are designed
to limit losses and to permit recovery of a portion of direct unpaid losses,
reinsurance does not relieve Castlewood Holdings or B.H. Acquisition of their
liabilities to their insureds. Accordingly, loss reserves represent total gross
losses, and reinsurance recoverable represents anticipated recoveries of a
portion of those unpaid losses as well as amounts recoverable from reinsurers
with respect to claims, which have already been paid.

     Goodwill -- On January 1, 2002, Castlewood Holdings and B.H. Acquisition
adopted SFAS 142. This statement requires that goodwill be assessed for
impairment on at least an annual basis. In determining goodwill, Castlewood
Holdings must determine the fair values of the assets of an acquired company.
The determination of fair value necessarily involves many assumptions. Fair
values of reinsurance assets and liabilities acquired are derived from
probability weighted ranges of the associated projected cash flows, based on
actuarially prepared information and management run-off strategy. Fair value
adjustments are based on the estimated timing of loss and loss adjustment
expense payments and an assumed interest rate, and are amortized over the
estimated payout period, as adjusted for accelerations on commutation
settlements, using the constant yield method options. If the assumptions made in
initially valuing the assets change significantly in the future, Castlewood
Holdings may be required to record impairment charges which could have a
material impact on the financial statements.

     Castlewood Holdings assessed its recorded goodwill in 2004 in accordance
with SFAS 142 and determined that there had been no impairment in its carrying
value.

     SFAS 142 also requires that negative goodwill be reversed immediately.
During 2004, Castlewood Holdings took negative goodwill into earnings upon the
acquisition of three companies, and presented it as an extraordinary gain.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's primary uses of liquidity include, but are not limited to,
funding normal operating expenses as well as various expenses incurred in
connection with the Company's search for one or more suitable acquisitions. In
addition, the Company uses cash on hand to fund commitments made in connection
with the purchase of its partially owned equity affiliates. The primary sources
of the Company's liquidity include the receipt of dividends and distributions
from partially owned equity affiliates.

                                        18
<PAGE>

     Net cash used in operating activities was $160,000 for the three months
ended March 31, 2005 compared to net cash provided by operating activities of
approximately $5.9 million for the same period in 2004. This substantial
decrease was primarily due to the receipt of a distribution from Green Tree of
approximately $6.2 million in March 2004. There were no distributions from
partially owned equity affiliates during the three months ended March 31, 2005.

     There were no financing activities for the three months ended March 31,
2005. Net cash used in financing activities was approximately $2.5 million for
the three months ended March 31, 2004. This amount was distributed to Castlewood
Holdings as the minority interest portion of the approximately $6.2 million
distribution received from Green Tree in March 2004.

     The Company's assets, aggregating approximately $159.0 million at March 31,
2005, include approximately $81.5 million in cash and cash equivalents and
approximately $4.1 million in short-term certificates of deposit. The Company
believes its current liquidity is adequate to fund any foreseeable cash
requirements.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

     In December 2004, the Company signed a one year lease beginning January 1,
2005 on an office building at 401 Madison Avenue, Montgomery, Alabama which
serves as the corporate headquarters. The lease also provides renewal options
for three periods of one year each. Additionally, pursuant to an oral agreement,
the Company leases space in a warehouse at 703 Howe Street, Montgomery, Alabama
on a month-to-month basis. The Company leases the office building and warehouse
space from unaffiliated third parties for $3,000 and $350 per month,
respectively. The Company believes the rental amounts are competitive with
market rates and that the cancellation or termination of either of these leases
would not have a material adverse effect on the Company's results of operations.
The Company incurred rent expense in the amount of $10,050 and $9,300 for the
three months ended March 31, 2005 and 2004, respectively. In February 2002, the
Company entered into an agreement with J.C. Flowers & Co. LLC running through
November 2005 for the use of certain office space and administrative services
from J.C. Flowers & Co. LLC for an annual payment of $66,000. J.C. Flowers & Co.
LLC is managed by Mr. Flowers, a member of the Company's board of directors and
the Company's largest shareholder.

RESULTS OF OPERATIONS

     The Company reported net income of $39,000 for the three months ended March
31, 2005, compared to net income of approximately $1.1 million for the same
period in the prior year. The decrease in net income for the three months ended
March 31, 2005 compared to the same period in the prior year is primarily a
result of decreased earnings from partially owned equity affiliates.

     Interest income was $482,000 for the three months ended March 31, 2005
compared to $177,000 for the three months ended March 31, 2004. Interest income
was earned from cash, cash equivalents and certificates of deposit. Interest
income increased primarily as a result of an increase in cash resulting from the
sale of Green Tree in July 2004. In addition, interest rates earned on the
Company's cash, cash equivalents and certificates of deposit have increased
approximately 1.3 percent in the first quarter of 2005 compared to the same
period in 2004.

     Earnings of partially owned equity affiliates were $265,000 for the three
months ended March 31, 2005 compared to approximately $3.0 million for the same
period in 2004. The Company recorded equity in losses of $46,000 and $85,000
from B.H. Acquisition for the three months ended March 31, 2005 and 2004,
respectively. The Company recorded equity in earnings of $311,000 from
Castlewood Holdings for the three months ended March 31, 2005 compared to
$751,000 for the three months ended March 31, 2004. The Company recorded
approximately $2.3 million in earnings from Green Tree for the three months
ended March 31, 2004, with $623,000 reported as a minority interest. In July
2004, the JCF CFN Entities completed the sale of their entire interests in Green
Tree. For further discussion of the reasons underlying the changes in earnings
(losses) from B.H. Acquisition and Castlewood Holdings, see "-- Results of
Operations -- Partially Owned Equity Affiliates".

                                        19
<PAGE>

     Other income consists primarily of investment management fees charged to
Castlewood Holdings, one of the Company's partially owned equity affiliates.

     General and administrative expenses were $780,000 for the three months
ended March 31, 2005 compared to $727,000 for the same period in 2004. Of these
amounts, $297,000 and $301,000 related to employee expenses in 2005 and 2004,
respectively. General and administrative expenses also include legal and
professional fees as well as travel expenses incurred in connection with the
Company's search for one or more additional operating companies. Additionally,
the Company incurs legal and professional fees in connection with reporting
requirements associated with being a publicly traded company, and in connection
with handling various other accounting and tax matters. Legal and professional
fees and travel expenses were $340,000 in the first quarter of 2005 and $242,000
for the same period in 2004.

     Income tax expense was $28,000 for the three months ended March 31, 2005
compared to $829,000 for the same period in 2004. The Company's effective tax
rates for 2005 and 2004 differ from the statutory rate primarily due to changes
in the valuation allowance related to deferred tax assets, tax contingencies and
state income taxes.

RESULTS OF OPERATIONS -- PARTIALLY OWNED EQUITY AFFILIATES

     Since a substantial portion of the Company's results of operations are
comprised of the results of operations of Castlewood Holdings and B.H.
Acquisition, the following additional summary information is provided with
respect to those companies' results of operations:

  CASTLEWOOD HOLDINGS

     Castlewood Holdings reported consolidated net earnings of $945,000 for the
three months ended March 31, 2005 compared to net earnings of approximately $3.2
million for the same period in 2004. The decrease in income for the quarter
ended March 31, 2005 of approximately $2.3 million compared to the same period
in 2004 was primarily a result of a movement in foreign exchange resulting in a
$2.2 million loss, an increase in investment income of $2.8 million, a decrease
in income from partly owned companies of $636,000 and an increase in other
expenses of $2.3 million.

     Underwriting income was approximately $1.6 million and $1.8 million for the
three months ended March 31, 2005 and 2004, respectively.

     Castlewood Holdings earned consulting fees of approximately $4.5 million
for the three months ended March 31, 2005 compared to approximately $4.4 million
for the same period in 2004. Castlewood Holdings generates its consulting fees
based on a combination of fixed and success-based fee arrangements. Consulting
income will vary dependent on the success and timing of completion of
success-based fee arrangements. Included in these amounts was $313,000 in
consulting fees charged to B.H. Acquisition, a related party, for each of the
three months ended March 31, 2005 and 2004.

     Castlewood Holdings share of equity in earnings of partly-owned companies
was $48,000 and $684,000 for the three months ended March 31, 2005 and March 31,
2004, respectively. This amount represents Castlewood Holdings' proportionate
share of equity in the earnings of B.H. Acquisition and Cassandra Equity
(Cayman) LP ("Cassandra") in 2005 and of B.H. Acquisition and the JCF CFN
Entities in 2004. In March 2005, Cassandra's underlying assets were sold for
approximately $40.0 million. Castlewood Holdings' proportionate share of the
proceeds was approximately $10.8 million.

     Net investment income for the three months ended March 31, 2005 was
approximately $5.0 million compared to approximately $2.2 million for the same
period in 2004. Investment income includes interest income earned from cash,
cash equivalents and debt securities. The increase in the quarter was due to the
investment income earned on the Harper Insurance Limited portfolio which was
acquired on October 29, 2004.

     Castlewood Holdings recorded a foreign exchange loss of approximately $1.1
million for the three months ended March 31, 2005 and foreign exchange gains of
approximately $1.1 million for the same period in 2004.

                                        20
<PAGE>

Through its subsidiaries, Castlewood Holdings conducts business in a variety of
foreign (non-U.S.) currencies, the principal exposures being Euros and British
pounds. At each balance sheet date, recorded balances that are denominated in a
currency other than the functional currency of Castlewood Holdings are adjusted
to reflect the current exchange rate. Revenue and expense items are translated
into U.S. dollars at average rates of exchange for the periods. The resulting
exchange gains or losses are included in net earnings.

     Salaries and benefits, which include accrued bonuses, were approximately
$4.9 million for the three months ended March 31, 2005 compared to approximately
$4.2 million for the same period in 2004. Castlewood Holdings is a service based
company and, as such, employee salaries and benefits are its largest cost. The
increased cost is mainly attributable to the growth in staff of Castlewood
Holdings over the past year. Castlewood Holdings has in place a discretionary
bonus plan. Included as part of the salary cost is an accrual relating to this
plan.

     General and administrative expenses were approximately $2.7 million for the
three months ended March 31, 2005 compared to approximately $2.1 million for the
same period in 2004. General and administrative expenses include rent and rent
related costs, professional fees (legal, investment, audit and actuarial) and
travel expenses. Castlewood Holdings operates in both the UK and Bermuda, and
staff travel frequently in connection with Castlewood Holdings' search for
acquisition opportunities and in the general management of the business.

     Income taxes of approximately $1.2 million were recorded for the three
months ended March 31, 2005 compared to $266,000 for the same period in 2004.
Under current Bermuda law, Castlewood Holdings and its Bermuda subsidiaries are
not required to pay taxes in Bermuda on either income or capital gains.
Castlewood Holdings and its Bermuda subsidiaries have received an undertaking
from the Bermuda government that, in the event of income or capital gains taxes
being imposed, Castlewood Holdings and its Bermuda subsidiaries will be exempted
from such taxes until the year 2016. United Kingdom and United States
subsidiaries record income taxes based on their graduated statutory rates, net
of tax benefits arising from tax loss carryforwards.

     Castlewood Holdings recorded a minority interest in earnings of $379,000
and $456,000 for the three months ended March 31, 2005 and 2004, respectively,
reflecting the remaining 49.9% economic interest in the earnings from Hillcot.

  B.H. ACQUISITION

     B.H. Acquisition reported net losses of $140,000 and $257,000 for the three
months ended March 31, 2005 and 2004, respectively.

     The Company had underwriting losses of $290,000 for each of the three
months ended March 31, 2005 and 2004, respectively.

     Net investment income was $343,000 and $458,000 for the three months ended
March 31, 2005 and 2004, respectively. Investment income consists primarily of
interest income earned from cash, cash equivalents and mutual funds.

     Amortization of the run-off provision was $333,000 for each of the three
months ended March 31, 2005 and 2004, respectively. The Company established a
provision at the date of acquisition equal to the anticipated expenses to be
incurred over the expected life of the run-off. This provision is amortized on a
straight-line basis over this period.

     General and administrative expenses were $518,000 and $915,000 for the
three months ended March 31, 2005 and 2004, respectively. General and
administrative expenses include legal, audit, management and actuarial expenses.

     B.H. Acquisition recorded a foreign exchange loss of $8,000 and a foreign
exchange gain of $157,000 for the three months ended March 31, 2005 and 2004,
respectively. Through its subsidiaries, BH Acquisition conducts business in a
variety of foreign (non-U.S.) currencies, the principal exposures being Euros
and British pounds. At each balance sheet date, recorded balances that are
denominated in a currency other than the functional currency of B.H. Acquisition
are adjusted to reflect the current exchange rate. Revenue and
                                        21
<PAGE>

expense items are translated into U.S. dollars at average rates of exchange for
the years. The resulting exchange gains or losses are included in net income.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is exposed to market risk from changes in interest rates. At
March 31, 2005, the Company had cash and cash equivalents of approximately $81.5
million in interest bearing accounts (interest at floating rates) and
approximately $4.1 million of short-term certificates of deposit (interest at
fixed rates). Accordingly, each one percent change in market interest rates
would change interest income by approximately $856,000 per year. However, any
future transactions affecting the Company's cash and cash equivalents and
certificates of deposit will change this estimate. Additionally, although
interest rate changes would affect the fair value of the Company's certificates
of deposits, the weighted average original term of certificates held by the
Company at March 31, 2005 is approximately six months. The short-term nature of
these certificates limits the Company's risk of changes in the fair value of
these certificates.

     The Company is also exposed to foreign currency risk through its holdings
in partially owned equity affiliates and their subsidiaries. Foreign currency
risk is the risk that the Company will incur economic losses due to adverse
changes in foreign currency exchange rates. These entities conduct business in a
variety of foreign (non-U.S.) currencies, the principal exposures being in Euros
and British pounds. Assets and liabilities denominated in foreign currencies are
exposed to risk stemming from changes in currency exchange rates. Exchange rate
fluctuations impact the Company's and its partially owned equity affiliates'
reported consolidated financial condition, results of operations and cash flows
from year to year.

ITEM 4.  CONTROLS AND PROCEDURES

     As required by Securities and Exchange Commission ("SEC") rules, the
Company has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures as of the end of the period covered by this
quarterly report. This evaluation was carried out under the supervision and with
the participation of the Company's management, including its principal executive
officer and principal financial officer. Based on this evaluation, these
officers have concluded that the design and operation of the Company's
disclosure controls and procedures are effective. There were no changes to the
Company's internal controls over financial reporting during the period covered
by this report that materially affected, or are reasonably likely to materially
affect, the Company's internal controls over financial reporting subsequent to
the date of their evaluation.

     Disclosure controls and procedures are the Company's controls and other
procedures that are designed to ensure that information required to be disclosed
by the Company in the reports that it files or submits under the Exchange Act,
is recorded, processed, summarized and reported, within the time periods
specified in SEC rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files or submits
under the Exchange Act are accumulated and communicated to the Company's
management, including its principal executive officer and principal financial
officer, as appropriate, to allow timely decisions regarding required
disclosure.

                                        22
<PAGE>

                                    PART II

                               OTHER INFORMATION

ITEM 6.  EXHIBITS

<Table>
<Caption>
 REFERENCE
   NUMBER                              DESCRIPTION OF EXHIBITS
 ---------                             -----------------------
<S>            <C>   <C>
     2.1       --    Shareholders Agreement, dated as of July 3, 2000, among B.H.
                     Acquisition Limited, the Company and the other parties
                     thereto (incorporated by reference to Exhibit 2.1 to the
                     Current Report on Form 8-K, dated July 18, 2000).
     2.2       --    Investment Agreement, dated as of July 3, 2000, among B.H.
                     Acquisition Limited, the Company and the other parties
                     thereto (incorporated by reference to Exhibit 2.2 to the
                     Current Report on Form 8-K, dated July 18, 2000).
     2.3       --    Share Sale and Purchase Agreement, dated as of March 31,
                     2000, between PetroFina S.A. and B.H. Acquisition Limited
                     (incorporated by reference to Exhibit 2.3 to the Current
                     Report on Form 8-K, dated July 18, 2000).
     2.4       --    Share Sale and Purchase Agreement, dated as of March 31,
                     2000, between PetroFina S.A., Brittany Holdings Limited and
                     B.H. Acquisition Limited (incorporated by reference to
                     Exhibit 2.4 to the Current Report on Form 8-K, dated July
                     18, 2000).
     2.5       --    Share Purchase and Capital Commitment Agreement, dated as of
                     October 1, 2001, between the Company, Castlewood Holdings,
                     Trident, Marsh & McLennan Capital Professionals Fund, L.P.,
                     Marsh & McLennan Employees' Securities Company, L.P. and the
                     other parties thereto (incorporated by reference to Exhibit
                     2.1 to the Current Report on Form 8-K, dated December 13,
                     2001).
     2.6       --    Amendment No. 1 and Waiver of Certain Closing Conditions to
                     the Share Purchase and Capital Commitment Agreement, dated
                     as of November 29, 2001 (incorporated by reference to Ex-
                     hibit 2.2 to the Current Report on Form 8-K, dated December
                     13, 2001).
     2.7       --    Agreement Relating to the Sale and Purchase of the Entire
                     Issued Share Capital of Toa-UK, dated as of March 28, 2003,
                     between The Toa Reinsurance Company, Limited, Castlewood
                     Holdings and Shinsei (incorporated by reference to Exhibit
                     2.1 to the Current Report on Form 8-K, dated April 11,
                     2003).
     2.8       --    Purchase and Sale Agreement, dated March 10, 2004, by and
                     among J.C. Flowers I L.P., JCF CFN LLC, JCF CFN II LLC, JCF
                     AIV II LP, JCF AIV III LP, JCF Associates I LLC and FIT CFN
                     Holdings LLC (incorporated by reference to Exhibit 99.2 to
                     the Current Report on Form 8-K, dated March 23, 2004).
     2.9       --    Purchase and Sale Agreement, dated October 29, 2004, by and
                     among Zurich Insurance Company, Harper Holding Sarl and
                     Kenmare Holdings Limited (incorporated by reference to
                     Exhibit 99.2 to the Current Report on Form 8-K, dated
                     November 4, 2004).
     3.1       --    Articles of Incorporation of the Company, as amended on June
                     10, 1998 (incorporated by reference to Exhibit 3.1 to the
                     Quarterly Report on Form 10-Q, dated August 4, 1998).
     3.2       --    Bylaws of the Company, as amended on May 20, 1999
                     (incorporated by reference to Exhibit 3.2 to the Quarterly
                     Report on Form 10-Q, dated August 6, 1999).
     4.1       --    Rights Agreement between the Company and American Stock
                     Transfer & Trust Company, as Rights Agent, dated as of
                     January 20, 1997 (incorporated by reference to Exhibit 4.1
                     to Amendment No. 2 to the Registration Statement on Form 10,
                     dated March 27, 1997).
     4.2       --    Amendment Agreement, dated as of October 20, 1998, to the
                     Rights Agreement, dated as of January 20, 1997, between the
                     Company and American Stock Transfer & Trust Company
                     (incorporated by reference to Exhibit 10.2 to the Current
                     Report on Form 8-K dated October 20, 1998).
    31.1       --    Certification of Chief Executive Officer pursuant to Rule
                     13a -- 14(a) or Rule 15d -- 14(a) of the Securities Exchange
                     Act of 1934 as adopted under Section 302 of the
                     Sarbanes-Oxley Act of 2002.
</Table>

                                        23
<PAGE>

<Table>
<Caption>
 REFERENCE
   NUMBER                              DESCRIPTION OF EXHIBITS
 ---------                             -----------------------
<S>            <C>   <C>
    31.2       --    Certification of Chief Financial Officer pursuant to Rule
                     13a -- 14(a) or Rule 15d -- 14(a) of the Securities Exchange
                     Act of 1934 as adopted under Section 302 of the
                     Sarbanes-Oxley Act of 2002.
    32.1       --    Certification of Chief Executive Officer pursuant to 18
                     U.S.C. Section 1350, as adopted pursuant to Section 906 of
                     the Sarbanes-Oxley Act of 2002.
    32.2       --    Certification of Chief Financial Officer pursuant to 18
                     U.S.C. Section 1350, as adopted pursuant to Section 906 of
                     the Sarbanes-Oxley Act of 2002.
    99.1       --    The Enstar Group, Inc. Private Securities Litigation Reform
                     Act of 1995 Safe Harbor Compliance Statement For
                     Forward-Looking Statements (incorporated by reference to
                     Exhibit 99.1 to the Annual Report on Form 10-K, dated March
                     30, 2005).
</Table>

                                        24
<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.

                                          THE ENSTAR GROUP, INC.

                                          By:      /s/ CHERYL D. DAVIS
                                            ------------------------------------
                                                      Cheryl D. Davis
                                               Chief Financial Officer, Vice
                                                          President
                                               of Corporate Taxes, Secretary
                                                    (Authorized Officer)
                                               (Principal Financial Officer)

Date: May 10, 2005

                                        25