<PAGE>

                                                                   EXHIBIT 99.3


                      NONQUALIFIED STOCK OPTION AGREEMENT
                      -----------------------------------

     This AGREEMENT (the "Agreement") is made as of ______, _____ (the "Date of
Grant") by and between SCOTTISH ANNUITY & LIFE HOLDINGS, LTD., a Cayman Islands
company ("Scottish Annuity") and _________________ (the "Optionee").

     1.   Grant of Share Option.  Subject to and upon the terms, conditions, and
restrictions set forth in this Agreement, Scottish Annuity hereby grants to the
Optionee a stock option (the "Option") to purchase _______ of Scottish Annuity's
Ordinary Shares (the "Optioned Shares"). The Option may be exercised from time
to time in accordance with the terms of this Agreement. The price at which the
Optioned Shares may be purchased pursuant to this Option shall be $____ per
share, subject to adjustment as hereinafter provided (the "Option Price"). The
Option is intended to be a nonqualified stock option and shall not be treated as
an "incentive stock option" within the meaning of that term under Section 422 of
the Internal Revenue Code of 1986, as amended, or any successor provision
thereto.

     2.   Term of Option.  The term of the Option shall commence on the Date of
Grant and, unless earlier terminated in accordance with Section 6 hereof, shall
expire seven (7) years from the Date of Grant.

     3.   Right to Exercise.  Subject to expiration or earlier termination, on
each anniversary of the Date of Grant the number of Optioned Shares equal to
thirty-three and one-third percent (33%) multiplied by the initial number of
Optioned Shares specified in this Agreement shall become exercisable on a
cumulative basis until the Option is fully exercisable. To the extent the Option
is exercisable, it may be exercised in whole or in part. In no event shall the
Optionee be entitled to acquire a fraction of one Optioned Share pursuant to
this Option. The Optionee shall be entitled to the privileges of ownership with
respect to Optioned Shares purchased and delivered to him upon the exercise of
all or part of this Option.

     4.   Transferability.  The Option granted hereby is not transferable by the
Optionee.

     5.   Notice of Exercise; Payment.

          (a)  To the extent then exercisable, the Option may be exercised by
written notice to Scottish Annuity stating the number of Optioned Shares for
which the Option is being exercised and the intended manner of payment. The date
of such notice shall be the exercise date. Payment equal to the aggregate Option
Price of the Optioned Shares being exercised shall be tendered in full with the
notice of exercise to Scottish Annuity in cash in the form of currency or check
or other cash equivalent acceptable to Scottish Annuity. The requirement of
payment in cash shall be deemed satisfied if, with the consent of the Board, the
Optionee makes arrangements that are satisfactory to Scottish Annuity with a
broker that is a member of the National Association of Securities Dealers, Inc.
to sell a sufficient number of Optioned Shares which are being purchased
pursuant to the exercise, so that the net proceeds of the sale transaction will
at least equal the amount of the aggregate Option Price, and pursuant to which
the broker undertakes to deliver to Scottish Annuity the amount of the aggregate
Option Price not later than the date on which the sale transaction will settle
in the ordinary course of business. The Optionee may also, with the consent of
the Board, tender the Option Price by a combination of the foregoing methods of
payment.
<PAGE>

          (b)  Within ten (10) days after notice, Scottish Annuity shall direct
the due issuance of the Optioned Shares so purchased.

          (c)  As a further condition precedent to the exercise of this Option,
the Optionee shall comply with all regulations and the requirements of any
regulatory authority having control of, or supervision over, the issuance of
Ordinary Shares and in connection therewith shall execute any documents which
the Board shall in its sole discretion deem necessary or advisable.

     6.   Termination of Agreement.  The Agreement and the Option granted hereby
shall terminate automatically and without further notice on the earliest of the
following dates:

          (a)  Two (2) years after the Optionee's death if the Optionee dies
while in the employ of Harbourton Reassurance, Inc. ("Harbourton") or Scottish
Annuity;

          (b)  Two (2) years after the date of the Optionee's permanent and
total disability if the Optionee becomes permanently and totally disabled while
an employee of Harbourton or Scottish Annuity;

          (c)  Except as provided on a case-by-case basis, 60 days after the
date the Optionee ceases to be an employee of Harbourton for any reason other
than as described in this Section 6; or

          (d)  Seven (7) years from the Date of Grant.

In the event that the Optionee's employment is terminated for "Cause" as defined
in the Employment Agreement among Harbourton, Scottish Annuity, and Optionee
dated as of _________, ____ (the "Employment Agreement"), this Agreement shall
terminate at the time of such termination notwithstanding any other provision of
this Agreement.

Any determination of whether an Optionee's employment was terminated for cause
shall be made by the Board of Directors of Scottish Annuity (the "Board"), whose
determination shall be binding and conclusive.  This Agreement shall not be
exercisable for any number of Optioned Shares in excess of the number of
Optioned Shares for which this Agreement is then exercisable, pursuant to
Sections 3 and 7 hereof, on the date of termination of employment.  For the
purposes of this Agreement, the continuous employment of the Optionee with
Harbourton shall not be deemed to have been interrupted, and the Optionee shall
not be deemed to have ceased to be an employee of Harbourton, by reason of the
transfer of his employment among Harbourton, Scottish Annuity and its
Subsidiaries, as defined in the Employment Agreement, or a leave of absence
approved by the Board.

     7.   Acceleration of Option.  Notwithstanding Section 3, but subject to
earlier termination, the Option granted hereby shall become immediately
exercisable in full in the event of a Change of Control. Change of Control shall
mean the occurrence of any of the following events shall have occurred:

          (a)  Scottish Annuity is merged or consolidated or reorganized into or
with another corporation or other legal person, and as a result of such merger,
consolidation or reorganization less than a majority of the combined voting
power of the then-outstanding

                                       2
<PAGE>

securities of such corporation or person immediately after such transaction are
held in the aggregate by the holders of Ordinary Shares immediately prior to
such transaction;

          (b)  Scottish Annuity sells or otherwise transfers all or
substantially all of its assets to any other corporation or other legal person,
and less than a majority of the combined voting power of the then-outstanding
securities of such corporation or person immediately after such sale or transfer
is held in the aggregate by the holders of Ordinary Shares immediately prior to
such sale or transfer; or

          (c)  Scottish Annuity files a report or proxy statement with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act") disclosing in response to Form 8-K or
Schedule 14A (or any successor schedule, form or report or item therein) that a
change in control of the Company has or may have occurred or will or may occur
in the future pursuant to any then-existing contract or transaction.

     Notwithstanding the foregoing provisions of Paragraph 7(c) above, a "Change
in Control" shall not be deemed to have occurred for purposes of this Plan
solely because Scottish Annuity, a Subsidiary, or any Scottish Annuity-sponsored
employee stock ownership plan or other employee benefit plan of Scottish Annuity
either files or becomes obligated to file a report or proxy statement under or
in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any
successor schedule, form or report or item therein) under the Exchange Act,
disclosing beneficial ownership by it of shares, or because Scottish Annuity
reports that a change of control of Scottish Annuity has or may have occurred or
will or may occur in the future by reason of such beneficial ownership, or
solely because of a change in control of any Subsidiary other than Scottish
Annuity & Life Insurance Company (Cayman) Ltd.

     8.   No Employment Contract.  Nothing contained in this Agreement shall
confer upon the Optionee any right with respect to continuance of employment by
Scottish Annuity, nor limit or affect in any manner the right of Scottish
Annuity or a subsidiary of Scottish Annuity to terminate the employment or
adjust the compensation of the Optionee.

     9.   Taxes and Withholding.  If Scottish Annuity shall be required to
withhold any federal, state, local, or foreign tax in connection with the
exercise of the Option, and the amounts available to Scottish Annuity for such
withholding are insufficient, the Optionee shall pay the tax or make provisions
that are satisfactory to Scottish Annuity for the payment thereof. Scottish
Annuity will pay any and all issue and other taxes in the nature thereof which
may be payable by Scottish Annuity in respect of any issue or delivery upon a
purchase pursuant to this Option.

     10.  Compliance with Law.  Scottish Annuity shall make reasonable efforts
to comply with all applicable federal and state securities laws; provided,
however, notwithstanding any other provision of this Agreement, the Option shall
not be exercisable if the exercise thereof would result in a violation of any
such law.

     11.  Adjustments.  The Board may make or provide for such adjustments in
the number of Optioned Shares covered by this Option, in the Option Price
applicable to such Option, and in the kind of shares covered thereby, as the
Board in its sole discretion, exercised in good faith, may determine is
equitably required to prevent dilution or enlargement of the Optionee's rights
that otherwise would result from (a) any stock dividend, stock split,

                                       3
<PAGE>

combination of shares, recapitalization, or other change in the capital
structure of Scottish Annuity, (b) any merger, consolidation, spin-off,
reorganization, partial or complete liquidation, or issuance of rights or
warrants to purchase securities, or (c) any other corporate transaction or event
having an effect similar to any of the foregoing. In the event of any such
transaction or event, the Board may provide in substitution for this Option such
alternative consideration as it may determine to be equitable in the
circumstances and may require in connection therewith the surrender of this
Option. Any fractional shares resulting from the foregoing adjustments shall be
eliminated.

     12.  Severability.  In the event that one or more of the provisions of this
Agreement shall be invalidated for any reason by a court of competent
jurisdiction, any provision so invalidated shall be deemed to be separable from
the other provisions hereof, and the remaining provisions hereof shall continue
to be valid and fully enforceable.

     13.  Successors and Assigns.  The provisions of this Agreement shall inure
to the benefit of, and be binding upon, the successors, administrators, heirs,
legal representatives and assigns of the Optionee, and the successors and
assigns of Scottish Annuity.

     14.  Governing Law. The interpretation, performance, and enforcement of
this Agreement shall be governed by the laws of the Cayman Islands, British West
Indies, without giving effect to the principles of conflict of laws thereof.

     15.  Notices.  Any notice to Scottish Annuity provided for herein shall be
in writing to Scottish Annuity, marked Attention: Chief Executive Officer, and
any notice to the Optionee shall be addressed to said Optionee at his or her
address currently on file with Scottish Annuity. Except as otherwise provided
herein, any written notice shall be deemed to be duly given if and when
delivered personally or deposited in the mail, postage and fees prepaid, and
addressed as aforesaid. Any party may change the address to which notices are to
be given hereunder by written notice to the other party as herein specified
(provided that for this purpose any mailed notice shall be deemed given on the
third business day following deposit of the same in the United States mail).

                                       4
<PAGE>

     IN WITNESS WHEREOF, Scottish Annuity has caused this Agreement to be
executed on its behalf by its duly authorized officer and Optionee has also
executed this Agreement as of the day and year first above written.  If this
Agreement is executed in duplicate counterparts, each counterpart shall be
deemed an original, but the duplicate counterparts together constitute one and
the same instrument.

                                        SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

                                        By:
                                           ----------------------------------
                                           Name:
                                                -----------------------------
                                           Title:
                                                 ----------------------------


                                        OPTIONEE

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

                                       5