<PAGE>   1

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                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

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

                                   FORM 10-K

(MARK ONE)

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934 (NO FEE REQUIRED)

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

                 FOR THE TRANSITION PERIOD FROM             TO

                         COMMISSION FILE NUMBER 1-11340

                              LIFE RE CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      01-0437851
       (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NO.)

      969 HIGH RIDGE ROAD, STAMFORD, CT                            06905
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                      (ZIP CODE)
</TABLE>

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 321-3000

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<TABLE>
<CAPTION>
              TITLE OF EACH CLASS                      NAME OF EACH EXCHANGE ON WHICH REGISTERED
              -------------------                      -----------------------------------------
<S>                                                   <C>
         COMMON STOCK, $.001 PAR VALUE                          NEW YORK STOCK EXCHANGE
6% ADJUSTABLE CONVERSION-RATE EQUITY SECURITY UNITS             NEW YORK STOCK EXCHANGE
</TABLE>

        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

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

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]

     As of March 26, 1998, the aggregate market value of Common Stock, $.001 par
value held by non-affiliates was $1,069,508,203.

                   APPLICABLE ONLY TO CORPORATE REGISTRANTS:

     As of March 26, 1998, 17,279,279 shares of Common Stock, $.001 par value
were outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE:

     Certain information required by Items 10, 11, 12 and 13 of Form 10-K is
incorporated by reference into Part III hereof from the registrant's proxy
statement for the 1998 Annual Meeting which will be filed with the Securities
and Exchange Commission within 120 days of the close of the registrant's fiscal
year ended December 31, 1997.

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                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
ITEM                                                                 PAGE
----                                                                 ----
<C>    <S>                                                           <C>
                                 PART I
  1    Business....................................................
  2    Properties..................................................
  3    Legal Proceedings...........................................
  4    Submission of Matters to a Vote of Security Holders.........

                                 PART II
  5    Market for Registrant's Common Equity and Related
       Stockholder Matters.........................................
  6    Selected Financial Data.....................................
  7    Management's Discussion and Analysis of Financial Condition
       and Results of Operations...................................
  8    Financial Statements and Supplementary Data.................
  9    Changes in and Disagreements with Accountants on Accounting
       and Financial Disclosure....................................

                                PART III
 10    Directors and Executive Officers of the Registrant..........
 11    Executive Compensation......................................
 12    Security Ownership of Certain Beneficial Owners and
       Management..................................................
 13    Certain Relationships and Related Transactions..............

                                 PART IV
 14    Exhibits, Financial Statement Schedules, and Reports on Form
       8-K.........................................................
</TABLE>

                                        1
<PAGE>   3

                                     PART I

ITEM 1  BUSINESS

     Life Re Corporation ("Life Re" or the "Company"), through its principal
wholly-owned subsidiary, Life Reassurance Corporation of America ("Life
Reassurance"), provides ordinary and group life reinsurance in the United
States. Life Reassurance has specialized in providing life reinsurance since its
formation in 1967.

     Life Re was founded in 1988 by Rodney A. Hawes, Jr., Douglas M. Schair and
Jacques E. Dubois for the purpose of acquiring Life Reassurance from General
Reinsurance Corporation ("General Re"). Life Re serves as a holding company for
all of the common stock of TexasRe Life Insurance Company ("TexasRe"), which in
turn owns all of the common stock of Life Reassurance. Life Re purchased all of
the common stock of Life Reassurance from General Re in November 1988 for an
adjusted purchase price of $306.3 million (the "Acquisition"). At that time,
Life Re also purchased all of the common stock of TexasRe for $0.3 million.

     Life Re's two core lines of business are traditional life reinsurance,
which involves the transfer of mortality risks on new sales from primary (or
ceding) insurers of ordinary and group life insurance to the Company, and
Administrative Reinsurance(SM), which involves the acquisition of blocks of life
insurance in force and, frequently, the assumption of administrative
responsibility by the Company.

     In July 1995, Life Reassurance acquired all of the common stock of John
Deere Life Insurance Company (since renamed Reassure America Life Insurance
Company or "REALIC") from two subsidiaries of Deere & Company for an adjusted
purchase price of $33.3 million, to serve as the Company's initial platform for
Administrative Reinsurance(SM). With the acquisition of REALIC, the Company
obtained primary insurance licenses and began outsourcing administrative
services for primary insurance in force on a variable cost basis. During 1997
the Company entered into reinsurance agreements covering in force business of
Allianz Life Insurance Company of North America and UNUM Life Insurance Company
of America, and acquired 79% of AML Acquisition Company, the owner of American
Merchants Life Insurance Company ("AML"). In addition, during February 1998 the
Company acquired Mission Life Insurance Company ("Mission Life") and announced
its agreement to acquire Lincoln Liberty Life Insurance Company ("Lincoln
Liberty Life") and First Delaware Life Insurance Company ("First Delaware
Life").

     TexasRe, Life Reassurance, REALIC and AML are sometimes referred to herein
collectively as the "Subsidiaries."

     In 1995, Life Re formed a Bermuda subsidiary, Life Re International Ltd.,
for the reinsurance of domestic and internationally generated life and health
insurance risks. Currently, Life Re International Ltd. has minimal business in
force.

     During 1997, Life Re withdrew from the group accident and health and
special risk reinsurance business.

BUSINESS WRITTEN

  General

     The business of reinsurance generally consists of reinsurers, such as Life
Re, which enter into contractual arrangements (treaties) with primary insurers
(ceding companies) whereby the reinsurer agrees to indemnify the ceding company
for all or a portion of the risks associated with the underlying insurance
policy in exchange for a reinsurance premium payable to the reinsurer.
Reinsurers also may enter into retrocessional reinsurance arrangements with
other reinsurers, which operate in a manner similar to the underlying
reinsurance arrangement described above. Under retrocessional reinsurance
arrangements, the reinsurer shifts a portion of the risk associated with the
underlying insurance policy to the retrocessionaires.

     Reinsurance agreements may be written on an automatic treaty basis or
facultative basis, and reinsurance may be marketed directly by the reinsurer or
through reinsurance intermediaries or brokers. An automatic treaty provides for
a ceding company to cede contractually agreed-upon risks on specific blocks of
business to a reinsurer and binds that reinsurer without obtaining further
approval from that reinsurer. Facultative reinsurance is the reinsurance of
individual risks whereby a reinsurer has the opportunity to analyze and

                                        2
<PAGE>   4

separately underwrite a risk prior to agreeing to accept the risk. In addition,
both automatic treaty and facultative reinsurance may be written on either a
quota share basis (a percentage of each risk in the reinsured class of risk is
assumed by the reinsurer from the ceding company with premiums proportional to
such assumed risk being paid to reinsurers) or an excess of loss basis
(reinsurers indemnify the ceding company up to a contractually-specified amount
for a portion of claims exceeding a specified retention amount in consideration
of non-proportional premiums being paid).

     Life Re's major lines of business are traditional life reinsurance, which
includes ordinary and group life reinsurance, and Administrative
Reinsurance(SM). The Administrative Reinsurance(SM) line of business, which
focuses on acquiring and administering primary life insurance in force, includes
closed blocks of directly written life insurance, annuities and automobile
credit life and disability reinsurance. Life Re's lines of business cover the
following risks: (i) mortality and morbidity, (ii) investment, (iii) lapsation,
and (iv) expense. Life Re writes reinsurance predominantly on a direct basis
with primary life insurance companies. Life Re ceased writing new group accident
and health and special risk reinsurance during 1997.

     The following table sets forth selected information for the indicated
periods concerning Life Re's insurance operations:

             DISTRIBUTION OF POLICY REVENUES AND INSURANCE IN FORCE

<TABLE>
<CAPTION>
                                                     YEARS ENDED DECEMBER 31,
                                    -----------------------------------------------------------
                                          1997                 1996                 1995
                                    -----------------    -----------------    -----------------
                                     AMOUNT       %       AMOUNT       %       AMOUNT       %
                                    --------    -----    --------    -----    --------    -----
<S>                                 <C>         <C>      <C>         <C>      <C>         <C>
Policy revenues:
  Traditional life reinsurance....  $319,404     65.2%   $292,115     64.8%   $268,114     70.0%
  Administrative
     Reinsurance(SM)..............    49,633     10.1      19,224      4.2       2,714      0.7
Group accident and health and
  special risk reinsurance (in
  run-off)........................   121,242     24.7     139,653     31.0     112,403     29.3
                                    --------    -----    --------    -----    --------    -----
          Total policy revenues...  $490,279    100.0%   $450,992    100.0%   $383,231    100.0%
                                    ========    =====    ========    =====    ========    =====
Insurance in force at end of year
  (in millions and before
  reinsurance ceded):
  Traditional life reinsurance....  $135,451             $111,493             $ 90,098
  Administrative Reinsurance(SM)..    22,152                4,519                1,185
                                    --------             --------             --------
          Total insurance in
            force.................  $157,603             $116,012             $ 91,283
                                    ========             ========             ========
Ordinary life lapse ratio.........                9.8%                 9.4%                10.8%
</TABLE>

  Traditional Life Reinsurance

     Life Re's traditional life reinsurance business has two primary components,
ordinary life reinsurance and group life reinsurance. The Company provides life
reinsurance primarily for mortality risks with respect to both ordinary and
group life reinsurance products.

     Ordinary life reinsurance generally is the reinsurance of individual term
life insurance policies, whole life insurance policies, universal life insurance
policies, and joint and survivor insurance policies. Life Re's ordinary life
line of business reinsures all of these products.

     Substantially all of Life Re's policy revenues with respect to ordinary
life reinsurance are written on an automatic treaty basis. Ordinary life
reinsurance is written on a facultative basis only in limited circumstances,
generally for primary insurers with which Life Re has automatic treaty
reinsurance business. Facultative reinsurance is individually underwritten by
Life Re for each policy to be reinsured, with the pricing and other terms
established at the time the policy is underwritten based upon rates negotiated
in advance. Most of Life Re's ordinary life reinsurance business is written on a
quota share basis. Life Re generally requires ceding companies to retain at
least 10% of every risk, whether the business is written on an excess or quota
share

                                        3
<PAGE>   5

basis. Life Re generally limits its own net liability on any one ordinary life
risk to $1.0 million. Life Re's reinsurance agreements frequently provide for
rights of recapture, which permit the ceding company to increase the amount of
liability it retains on the reinsured policies after the policies have remained
in force for a designated period of time (generally between ten and twenty
years).

     Life Re's ordinary life reinsurance agreements typically remain in force
for the life of the underlying policies reinsured. Life Re is entitled to
renewal policy revenues absent the death of the insured, voluntary surrender or
lapse of the policy due to nonpayment of premium or the recapture by the ceding
company of the risks reinsured.

     The following table sets forth Life Re's net policy revenues on traditional
life reinsurance separated between first year business and renewal business for
the periods indicated:

             DISTRIBUTION OF FIRST YEAR AND RENEWAL POLICY REVENUES
                        FOR TRADITIONAL LIFE REINSURANCE

<TABLE>
<CAPTION>
                                                     YEARS ENDED DECEMBER 31,
                                    -----------------------------------------------------------
                                          1997                 1996                 1995
                                    -----------------    -----------------    -----------------
                                     AMOUNT       %       AMOUNT       %       AMOUNT       %
                                    --------    -----    --------    -----    --------    -----
                                                      (DOLLARS IN THOUSANDS)
<S>                                 <C>         <C>      <C>         <C>      <C>         <C>
Traditional life reinsurance
  policy revenues:
  First year(1)...................  $ 58,078     13.5%   $ 36,217     12.4%   $ 17,736      6.6%
  Renewal.........................   261,326     86.5     255,898     87.6     250,378     93.4
                                    --------    -----    --------    -----    --------    -----
          Total traditional life
            reinsurance policy
            revenues..............  $319,404    100.0%   $292,115    100.0%   $268,114    100.0%
                                    ========    =====    ========    =====    ========    =====
</TABLE>

---------------
(1) First year policy revenues are premiums received within one year of the date
    of issuance of the underlying policy, whether reinsured under treaties
    entered into prior to or during the indicated period.

     As of December 31, 1997 Life Re reinsured ordinary life insurance business
under treaties with approximately 460 ceding companies. In 1997, 51 ceding
companies each accounted for at least $1.0 million of ordinary life reinsurance
policy revenues and in the aggregate represented approximately 91% of Life Re's
ordinary life reinsurance policy revenues. Life Re markets its ordinary life
reinsurance to a broad cross section of companies, which vary in size, corporate
structure and geographic location. No ordinary life ceding company accounted for
more than 10% of Life Re's policy revenues in 1997.

     Life Re reinsures, or retrocedes, portions of certain risks for which it
has accepted liability. Life Re's policy is to retain up to $1.0 million of
liability on any one life for ordinary life insurance. The next $15.0 million of
liability in excess of $1.0 million is retroceded to a pool of ten
retrocessionaires. In certain limited circumstances Life Re reinsures policies
where the underlying risk exceeds $16.0 million. In such cases, Life Re
retrocedes any such risk in excess of $16.0 million on a facultative basis.

     Each retrocessionaire in Life Re's current ordinary life pool reinsures a
percentage of each risk that is retroceded to the pool. Each of the domestic
participants in the pool is rated "A" or better by A.M. Best Company, Inc.
("A.M. Best"). Although the foreign retrocessionaires, which constitute 20% of
the pool, are not rated by A.M. Best, each of the foreign retrocessionaires
provides Life Re with an irrevocable letter of credit drawn on a U.S. bank or a
U.S. branch of a foreign bank in the amount of the reserves held by such
retrocessionaire for the benefit of Life Re. If a foreign retrocessionaire were
to default on its payments, Life Re could collect such funds by exercising its
rights under the applicable letter of credit. To date, Life Re has not
experienced any default in connection with its retrocessional arrangements.

     Group life reinsurance is the reinsurance of various types of group life
policies. These policies generally include employee-employer group term life
(representing the majority of such business), voluntary and supplemental term
life, association or affinity term life, group universal life and voluntary
group universal life.

                                        4
<PAGE>   6

Group life reinsurance generally is written on an annual basis resulting in the
terms of such contracts being subject to renegotiation or cancellation each
year. Life Re typically reinsures group life clients on an experience rated
basis, whereby the ceding company receives a refund of a portion of the profits
resulting from favorable claims experience with respect to the underlying
policies. Group life reinsurance policy revenues were $15.2 million, $23.2
million and $24.4 million in 1997, 1996 and 1995, respectively. Experience
rating refunds amounted to $0.7 million, $3.1 million and $3.8 million for 1997,
1996, and 1995, respectively.

     Life Re markets its group life reinsurance to a broad cross section of
client entities, which vary in size, corporate structure and geographic
location. No group life client accounted for more than 10% of Life Re's policy
revenues in 1997.

     Life Re's group life retrocessionaire is rated "A" by A.M. Best and to
date, Life Re has not experienced any default in connection with its
retrocessional arrangements of group life claims. Life Re's retention limit for
group life insurance business generally may be in an amount up to $350,000, with
amounts in excess thereof being retroceded.

  Administrative Reinsurance(SM)

     Administrative Reinsurance(SM) is Life Re's other core line of business. In
furtherance of REALIC's strategy of providing its clients with block reinsurance
of existing insurance in force and assisting those clients who wish to
discontinue the administration of older non-core blocks of business, Life Re
established its Administrative Reinsurance(SM) line of business. By combining an
administrative transfer with block reinsurance of insurance in force, Life Re's
clients may realize value and release capital embedded in non-core businesses or
ease administrative burdens and costs associated with maintaining outdated or
inefficient systems. Through Administrative Reinsurance, Life Re participates in
the consolidation in the life insurance industry by focusing on acquiring
non-core or smaller blocks of life insurance in force.

     Administrative Reinsurance(SM) takes at least two forms: the reinsurance of
insurance in force from life insurers, and the acquisition of life insurance
companies that lack critical mass to effectively market products and efficiently
administer blocks of insurance. In either case, Life Re organizes the conversion
of the client's block of business to the systems of one of its current third
party administrators, Cybertek Corporation ("Cybertek"), Computer Sciences
Corporation ("CSC") or Transactions Applications Group ("TAG").

     REALIC utilizes the services of outside administrators to provide the
administrative services needed for the primary business. The administrative
services provided by the outside administrators are set forth in written
agreements and include premium processing, billing, policyholder service and
claims administration. The use of several outside administrators allows the
Company to efficiently integrate acquisitions and retain the capacity to pursue
multiple acquisition opportunities simultaneously, while at the same time reduce
its dependence on any one provider. The supervision of the outside
administrators is performed by Life Re.

     During 1997, the Company's completed Administrative Reinsurance(SM)
transactions included the assumption of blocks of insurance in force with
respect to business from Allianz Insurance Company of North America ("Allianz"),
and UNUM Life Insurance Company of America ("UNUM"), and the acquisition of 79%
of AML. During 1996, REALIC entered into a block reinsurance agreement with
United Insurance Company of America ("United"), and acquired Modern American
Life Insurance Company ("Modern") and Western Pioneer Life Insurance Company
("Western") from an insurance subsidiary of I.C.H. Corporation and New American
Life Insurance Company ("New American") from a subsidiary of General Accident
plc. All three of the companies acquired during 1996 were merged with and into
REALIC. These transactions, in the aggregate, added approximately $1,865 million
in assets and liabilities to Life Re, consisting primarily of fixed maturities
and future policy benefits, respectively. In February 1998, the Company
purchased Mission and announced its agreement to purchase Lincoln Liberty Life
and First Delaware Life.

     In connection with the Allianz transaction, in December 1997, the Company
entered into a transaction whereby the Company and Employers Reassurance
Corporation ("ERAC") coinsured a block of life insurance and annuity business
from Allianz, with the Company's portion of the business reinsured increasing

                                        5
<PAGE>   7

from 20% to 60% over the term of the agreement. The total block of business
being coinsured entails $1.1 billion of life insurance and annuity reserves.
Under its agreement with ERAC, the Company will assume administrative
responsibility for this block. The administration of the block will be performed
by CSC.

     Included in Administrative Reinsurance(SM) is the automobile credit life
and disability reinsurance line of business. In connection with such business,
in July 1996, Life Re entered into certain transactions with Resource Financial
Corporation ("Resource"), which was formerly Ryan Dealer Group and a subsidiary
of Aon Corporation ("Aon"). Resource also purchased from Aon a life insurance
carrier, American Combined Life Insurance Company, which was renamed Resource
Life Insurance Company ("Resource Life").

     Life Re's transactions with Resource included (i) the purchase of 5.9% of
the voting and 32.7% of the non-voting stock of Resource, (ii) the investment of
$15.0 million in the preferred stock of, and a $5.0 million loan to, an
intermediate holding company of Resource Life, and (iii) reinsurance
arrangements involving Resource Life and Life Reassurance. Life Reassurance also
has entered into reinsurance agreements with affiliates of Aon, and in
connection with such reinsurance arrangements and the arrangements with Resource
Life, Life Reassurance agreed to pay contingent consideration to a subsidiary of
Aon based on premiums produced by Resource for a period of five years subsequent
to July 1, 1996.

  Group Accident and Health and Special Risk Reinsurance (in run-off)

     Life Re announced in 1997 its withdrawal from the group accident and health
and special risk reinsurance business. Accordingly, the Company will not renew
or accept new participations in this line of business. The Company previously
had reduced or canceled certain of its participations, and effective January 1,
1997, retroceded 50% of its 1997 group accident and health and special risk
reinsurance risks. Group accident and health reinsurance consists of the
reinsurance of medical expense, disability and accident risks. Special risk
reinsurance consists principally of accidental death coverage and catastrophic
excess of loss coverage, as well as occupational accident coverage. In the
substantial majority of Life Re's group accident and health reinsurance
treaties, the original client is a self insured corporate health plan.
Reinsurance for such self insured plans is secured in order to minimize the risk
to the plan of claims in excess of those originally projected. The reinsurance
is usually in the form of specific and aggregate stop loss coverage. Specific
stop loss coverages provide for reimbursement of individual losses in excess of
a specified per person retention. Aggregate stop loss covers accumulations of
claims within the specified retention, once they exceed an agreed percentage
(usually 125%) of the total original estimated claims cost. The average
specified retention is generally at a level in excess of $25,000 to $100,000 per
person. Group accident and health and special risk reinsurance policy revenues
were $121.2 million, $139.7 million and $112.4 million in 1997, 1996 and 1995,
respectively.

     Life Re generally participated in group accident and health and special
risk reinsurance through reinsurance facilities. Such reinsurance facilities
typically are formed by managing general underwriters to accept given types of
risk. The managing general underwriters then market their facilities and invite
reinsurers to share the risks. Usually, reinsurance facilities consist of
several reinsurance companies. Other functions performed by managing general
underwriters typically include underwriting of the reinsurance risk, adjustment
and payment of claims, marketing and accounting.

     Reinsurance of group accident and health and special risk business
generally was written on an annual basis resulting in the terms of such
contracts being subject to renegotiation or cancellation each year. Many of the
specific and aggregate medical facilities have a profit commission feature which
is based on the profitability of the treaty.

     A substantial portion of the group accident and health and special risk
business was written on an excess basis as measured by policy revenues.

     At December 31, 1997, Life Re reinsured risks under treaties with
approximately 150 ceding client entities with respect to group accident and
health and special risk business. In 1997, thirty ceding client entities each
accounted for at least $1.0 million of group accident and health or special risk
policy revenues and represented, in the aggregate, approximately 93% of Life
Re's group accident and health and special risk

                                        6
<PAGE>   8

policy revenues. Prior to withdrawing from this line of business, Life Re
marketed its group accident and health and special risk reinsurance to a broad
cross section of client entities, which varied in size, corporate structure and
geographic location. No group accident and health or special risk ceding client
entity accounted for more than 5% of Life Re's policy revenues in 1997.

     On group health reinsurance, Life Re generally retains up to $300,000 for
any one insured person per year. Life Re's net liability in excess of its
retention up to $1.0 million is retroceded to a pool of reinsurers and the next
$1.0 million of liability is retroceded to a single retrocessionaire. For one
group health client, Life Re has a retrocessional arrangement with a single
retrocessionaire. To date, Life Re has not experienced any default in connection
with its group health retrocessional arrangements.

     On special risk reinsurance, Life Re generally retains up to $1.0 million
on any one risk. Amounts in excess of $1.0 million are retroceded to a syndicate
of reinsurers in Europe. Life Re has not experienced any difficulty in
collecting claims recoverable from its special risk retrocessionaires.

     Approximately 8% of group accident and health and special risk reinsurance
was written directly. The remaining 92% of group accident and health and special
risk reinsurance was placed through reinsurance intermediaries, and of that
amount, 21% was placed by a single intermediary, D.W. Van Dyke and Company of
Connecticut, Inc. Intermediaries solicit, negotiate or place reinsurance
cessions or retrocessions on behalf of a ceding insurer, reinsurer or a
reinsurance facility. Intermediaries do not have the authority to bind Life Re
with respect to reinsurance agreements, and Life Re does not commit in advance
to accept any portion of the business that intermediaries submit.

UNDERWRITING

     Life Re has developed underwriting guidelines, policies and procedures with
the objective of controlling the quality and pricing of business written. Life
Re's underwriting process emphasizes close collaboration among its underwriting,
actuarial, administration and claims departments.

     Life Re determines whether to write reinsurance business by considering
many factors, including the type of risks to be covered, ceding company
retention and binding authority, product and pricing assumptions and the ceding
company's underwriting standards, financial strength and distribution systems.
Life Re generally does not assume 100% of a risk and requires the ceding company
to retain at least 10% of every reinsured risk. Life Re generally assumes all of
the risks in connection with Administrative Reinsurance(SM).

     Life Re regularly updates its underwriting policies, procedures and
standards to take into account changing industry conditions, market developments
and changes in medical technology. Life Re endeavors to ensure that the
underwriting standards and procedures of its ceding client entities are
compatible with those of Life Re. Toward this end, Life Re conducts periodic
reviews of the ceding clients' underwriting and claims procedures. Life Re
maintains its underwriting manual, which is distributed for use by its ceding
clients, to reflect current medical technology and Life Re's underwriting
standards. In addition, with respect to a portion of Life Re's run-off group
accident and health and special risk reinsurance business, certain underwriting
functions are performed on Life Re's behalf by managing general underwriters
according to underwriting guidelines reviewed by Life Re.

MARKETING

     Life Re has developed its business on the basis of direct marketing
relationships established over many years through responsive service. Life Re's
senior management is directly involved in all aspects of Life Re's marketing
efforts, including the formulation, execution and evaluation of marketing
strategies, the identification of marketing opportunities and the maintenance of
relationships with senior executives at client companies. Life Re seeks to
evaluate each client's specific reinsurance needs, tailor reinsurance programs
to meet those needs and be responsive in processing claims. Life Re believes
this strategy will enable it to achieve its objective of favorably competing on
the basis of service as well as price.

     In January 1996, Life Re announced the creation of the Office of Life
Marketing. The Office of Life Marketing is responsible for direct marketing of
traditional life reinsurance, all of which are marketed on a
                                        7
<PAGE>   9

direct basis. The Office of Life Marketing consists of executives having
expertise in various disciplines within the insurance industry. These
disciplines include actuarial, legal, marketing and underwriting. The Office of
Life Marketing is designed to provide excellent service to Life Re's clients by
working with clients to identify and address their specific needs.

     During 1997, substantially all policy revenues with respect to traditional
life reinsurance were written directly.

CLAIMS ADMINISTRATION

     Life Re's claims department (i) reviews and verifies reinsurance claims,
(ii) obtains information necessary to evaluate claims, (iii) determines Life
Re's liability with respect to claims and (iv) arranges for timely claim
payments. Claims are subjected to a thorough review process to ensure that the
risk was properly ceded, the claim complies with the contract provisions and the
ceding company is current in the payment of reinsurance policy premiums to Life
Re. Ordinary life and group life claims generally are reported on an individual
basis by the ceding entity. The ceding entity will provide the Company with
proofs of loss, which the Company then reviews for compliance with treaty terms.

     Ordinary life claims under policies reinsured on a facultative basis and
underwritten within the five previous years and ordinary life claims under
policies reinsured under automatic treaties and underwritten within the two
previous years generally are reviewed by the underwriting department. The claims
department also investigates claims generally for evidence of misrepresentation
in the policy application and approval process. In addition to reviewing and
paying claims, the claims department monitors both specific claims and overall
claims handling procedures of ceding companies.

     Group accident and health claims generally are reported to the Company by
the ceding entity on an aggregate basis. The ceding entity will provide the
Company with a listing of the claims paid by the ceding entity, which the
Company then reviews for compliance with treaty terms.

     Outside administrators provide claims administration for the Company's
Administrative Reinsurance(SM) on a variable fee basis. The administrators
review and process all claims information and provide for the payment of claims.
The Company reviews and must approve prior to payment all claims received by the
respective administrators which involve a death benefit in excess of certain
specified levels or in which the insured died within two years of policy
issuance.

POLICY BENEFIT LIABILITIES

     Policy benefit liabilities comprise the majority of the Company's financial
obligations. Policy benefit liabilities for other than annuities and interest
sensitive life insurance products reflected in Life Re's consolidated financial
statements included herein are based upon Life Re's best estimates of mortality,
persistency and investment income, with appropriate provision for adverse
deviation. The liabilities for policy benefits established by Life Re with
respect to individual risks or classes of business may be greater or less than
those established by ceding companies due to the use of different mortality and
other assumptions. Policy benefit liabilities for annuities and interest
sensitive life insurance products are reported at the accumulated fund balance
of such contracts. Policy benefit liabilities include both mortality and
morbidity claims in the process of settlement and claims that have been incurred
but not yet reported. Actual experience in a particular period may be worse than
assumed experience and, consequently, may adversely affect Life Re's operating
results for such period. See Notes 2 and 6 of "Notes to Consolidated Financial
Statements" for certain additional information regarding reserve assumptions
under generally accepted accounting principles ("GAAP").

INVESTMENTS

     All investments made by Life Re are governed by the general requirements
and guidelines established and approved by the Boards of Directors of Life Re
and the Subsidiaries and by qualitative and quantitative limits prescribed by
Connecticut, Illinois and Texas insurance laws and regulations. Life Re's
investment

                                        8
<PAGE>   10

policy is designed to maintain a high quality portfolio, maximize current
income, maintain a high degree of liquidity, and match the cash flows of the
portfolio to the required cash flows of Life Re's liabilities.

     At December 31, 1997, Life Re's invested assets had an aggregate fair value
of $2,784.6 million, of which 88% were fixed maturities with a weighted average
investment quality rating of "A." At December 31, 1997, the weighted average
duration of invested assets was 5.7 years. In the event the duration of invested
assets were to materially differ from the duration of liabilities and if
significant rapid increases in market interest rates were to occur, Life Re
could be required to sell assets at a loss. Conversely, if significant rapid
decreases in market interest rates were to occur, Life Re could earn less income
than it credits. Such consequences could have a material adverse effect on Life
Re's capital resources and financial condition. Although no assurances as to
future performance can be given, Life Re has not experienced any material
differences in cash flows relating to its assets and liabilities.

     Life Re's investment securities are managed by two professional investment
advisors, Conseco Capital Management, Inc. ("CCM") and Liberty Capital Advisors,
Inc. ("LCA"), each of which manages a segment of the portfolio. Certain equity
and short-term investments aggregating approximately $52.4 million at fair value
are managed directly by Life Re. CCM is the primary investment advisor for Life
Re, managing 83% of its invested assets (approximately $2,315.6 million at fair
value as of December 31, 1997). LCA acts as an investment advisor for the
portion of Life Re's invested assets relating to the reinsured universal life
insurance policies of an affiliate of LCA (approximately $270.6 million at fair
value as of December 31, 1997). The agreements with CCM and LCA may be
terminated by either party at the end of each calendar year upon sixty days'
notice. The performance of CCM and LCA and the fees associated with the
arrangements are periodically reviewed by the Boards of Directors of Life Re and
the Subsidiaries.

     The following table summarizes certain of Life Re's investment results for
the years indicated:

                               INVESTMENT RESULTS

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                         --------------------------------------
                                                            1997          1996          1995
                                                         ----------    ----------    ----------
                                                                 (DOLLARS IN THOUSANDS)
<S>                                                      <C>           <C>           <C>
Total invested assets(1)...............................  $2,784,630    $1,833,242    $1,504,175
Investment income, net of related expenses.............  $  150,960    $  124,340    $   98,616
Effective yield rate(2)................................        7.65%         7.77%         8.16%
Realized investment gains..............................  $    4,514    $   17,210    $    3,702
</TABLE>

---------------
(1) Fair value at end of the indicated year.

(2) The effective yield rate equals (i) net pre-tax investment income divided by
    (ii) the average of total adjusted invested assets (fixed maturities at
    amortized cost) at the end of each calendar quarter included in the
    indicated period.

     Life Re's invested assets consist primarily of fixed maturities. The
Company's fixed maturities are invested primarily in U.S. government
obligations, foreign government obligations, public utilities obligations,
corporate fixed maturities, and mortgage-backed securities.

     Mortgage-backed securities represented approximately 17.2% of total
invested assets as of December 31, 1997. Investors in these securities are
compensated primarily for reinvestment risk rather than credit quality risk.
Investments in mortgage-backed securities include collateralized mortgage
obligations ("CMOs") and mortgage-backed pass-through securities.
Mortgage-backed securities generally are collateralized by mortgages issued by
the Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation
("FHLMC"), all of which are agencies of the U.S. government. Of these, only GNMA
mortgages are backed by the full faith and credit of the U.S. government. Credit
risk generally is not a consideration when investing in agency mortgage-backed
securities. Life Re's mortgage-backed securities portfolio had a weighted
average investment quality rating of AAA at December 31, 1997.

                                        9
<PAGE>   11

     At December 31, 1997 approximately 31.6% of Life Re's mortgage-backed
investment portfolio consists of planned amortization class ("PAC"), target
amortization class ("TAC") and sequential instruments. These investments are
designed to amortize in a more predictable manner by shifting the primary risk
of prepayment of the underlying collateral to investors in other tranches
("support classes") of the CMO.

     In addition to fixed maturities, approximately 5.0% of the Company's
invested assets consisted of policy loans at December 31, 1997. These policy
loans present no credit risk because the amount of the loan cannot exceed the
obligation due the ceding company upon the death of the insured or surrender of
the underlying policy. The policy loan interest rates charged are determined by
the provisions of the treaties in force and the underlying policies.

COMPETITION

     Life Re operates in a highly competitive environment. Reinsurers compete
based upon many factors, including financial strength, A.M. Best rating, pricing
and other terms and conditions of reinsurance agreements, reputation, service
and experience in the lines of business underwritten. Life Re believes that
there are over 30 companies with significant competitive positions within the
traditional life reinsurance market. Life Re believes that within this market it
is among the five largest of those companies, based on reinsurance in force.

     In connection with Administrative Reinsurance(SM), the nature of the
competition faced by Life Re depends on the company targeted for acquisition or
the block of business to be reinsured. Based on results achieved thus far, Life
Re believes that it is competitively positioned to achieve its objectives for
growth in this area.

A.M. BEST RATING

     Life Reassurance has been rated "A+" (Superior) by A.M. Best every year
since 1981. A.M. Best's ratings for insurance companies currently range from
"A++" to "F", and some companies are not rated. Publications of A.M. Best
indicate that "A++" and "A+" ratings are assigned to those companies which in
A.M. Best's opinion have achieved superior overall performance when compared to
the norms of the life insurance industry and generally have demonstrated a
strong ability to meet their policyholder and other contractual obligations.
Life Reassurance's A.M. Best "Financial Size Category" is Class VIII, which
encompasses companies with adjusted policyholders' surplus of $100.0 million to
$250.0 million.

     REALIC is currently rated "A" (Excellent) by A.M. Best, the rating that was
given to REALIC prior to its acquisition by Life Reassurance. Publications of
A.M. Best indicate that "A" and "A-" ratings are assigned to those companies
which in A.M. Best's opinion have a strong ability to meet their obligations to
policyholders over a long period of time. REALIC's A.M. Best "Financial Size
Category" is Class VI, which encompasses companies with adjusted policyholders'
surplus of $25.0 million to $50.0 million.

     In evaluating a company's financial and operating performance, A.M. Best
reviews such company's profitability, leverage and liquidity as well as its book
of business, the adequacy and soundness of its reinsurance, the quality and
estimated market value of its assets, the adequacy of its policy reserves and
the experience and competency of its management. A.M. Best's ratings are based
upon factors of concern to policyholders, agents and intermediaries and are not
directed toward the protection of investors.

EMPLOYEES

     As of December 31, 1997, Life Re had 128 employees. None of these employees
is represented by a labor union. Life Re believes that its relationship with its
employees is generally satisfactory.

REGULATION

     The Company and the Subsidiaries are subject to the insurance laws and
regulations of Connecticut, Illinois and Texas, the domiciliary states of the
Subsidiaries, and the laws and regulations of the other states in which the
Subsidiaries are licensed to do business. At present, Life Reassurance is
licensed to conduct
                                       10
<PAGE>   12

business or is an authorized reinsurer in all 50 states, the District of
Columbia and Puerto Rico, and REALIC is licensed to conduct business in all such
locations except for New Hampshire, New York, the District of Columbia and
Puerto Rico. The insurance laws and regulations, as well as the level of
supervisory authority that may be exercised by the various state insurance
departments vary by jurisdiction, but generally grant broad powers to
supervisory agencies or state regulators to examine and supervise insurance
companies and insurance holding companies with respect to every significant
aspect of the conduct of the insurance business. These laws and regulations
generally require insurance companies to meet certain solvency standards and
asset tests, to maintain minimum standards of business conduct and to file
certain reports with regulatory authorities, including information concerning
their capital structure, ownership and financial condition. The Subsidiaries
generally are required to file annual and quarterly statutory financial
statements in each jurisdiction in which they are licensed. Additionally, the
Subsidiaries are subject to periodic examination by the insurance departments of
the jurisdictions in which each is licensed, authorized and accredited. The
Connecticut Insurance Department and the Texas Department of Insurance completed
their most recent respective examinations of Life Reassurance and TexasRe for
the years ended December 31, 1987 through December 31, 1992, and the Texas
Department of Insurance is in the process of completing its examination of
TexasRe for years through December 31, 1995. The Illinois Department of
Insurance completed its most recent examination of REALIC for years through
December 31, 1991 and is in the process of completing an examination of REALIC
for subsequent years through December 31, 1995. The results of each of the
completed examinations contained no findings which would have a material adverse
effect on the operations of any of the Subsidiaries. Although the rates and
policy terms of primary insurance agreements are regulated by state insurance
departments, the rates, policy terms and conditions of reinsurance agreements
generally are not subject to regulation by any regulatory authority.

     Restrictions on Dividends and Distributions.  The principal sources of cash
for the Company to make payments of principal, interest and dividends are
payments under two surplus notes issued by TexasRe to the Company in connection
with the purchase of Life Reassurance from General Reinsurance Corporation in
1988 (the "Surplus Debentures") and dividends paid by TexasRe. TexasRe's
principal sources of funds are dividends from Life Reassurance and distributions
by Life Reassurance under a tax allocation agreement among the Company, TexasRe
and Life Reassurance (the "Tax Allocation Agreement"), a portion of which
distributions are used to pay TexasRe's income taxes. Under current Connecticut,
Illinois and Texas laws, any proposed payment of a dividend or distribution
which, together with dividends or distributions paid during the preceding twelve
months, exceeds the greater of (i) 10% of statutory capital and surplus as of
the preceding December 31 or (ii) statutory net gain from operations for the
preceding calendar year, is designated an "extraordinary dividend" and may not
be paid until either it has been approved, or a 30-day waiting period shall have
passed during which it has not been disapproved, by the Insurance Commissioner
of the State of Connecticut (the "Connecticut Insurance Commissioner"), the
Director of Insurance of the State of Illinois (the "Illinois Director of
Insurance") or the Commissioner of Insurance of the State of Texas (the "Texas
Insurance Commissioner"), as the case may be. In addition, Connecticut law
provides that an insurance company may not pay dividends in an amount exceeding
its earned surplus without prior regulatory approval. Life Reassurance has
received approval from the Connecticut Department of Insurance to define its
earned surplus for this purpose to include amounts of paid in surplus in excess
of $125.0 million, and as of December 31, 1997, such earned surplus was $44.9
million. Currently, no prior approval of the Texas Department of Insurance is
required to pay scheduled principal or interest on the Surplus Debentures
provided that, after giving effect to any such payment, the statutory surplus of
TexasRe exceeds $125.0 million. Life Reassurance paid $23.2 million of dividends
in 1997, which was the maximum amount of dividends Life Reassurance could have
paid in 1997 without the prior approval of the Connecticut Insurance
Commissioner. Life Reassurance paid $14.9 million of dividends in 1996, although
the maximum amount of dividends Life Reassurance could have paid in 1996 without
the prior approval of the Connecticut Insurance Commissioner was $34.8 million.
Life Reassurance paid the maximum amount of dividends permitted without the
prior approval of the Connecticut Insurance Commissioner of $30.9 million in
1995. TexasRe had the capacity to pay dividends of $16.3 million, $27.1 million,
and $28.2 million in 1997, 1996 and 1995, respectively, without the prior
approval of the Texas Insurance Commissioner. TexasRe paid dividends aggregating
$16.3 million,

                                       11
<PAGE>   13

$12.1 million and $15.0 million in 1997, 1996 and 1995, respectively. REALIC has
not paid any dividends subsequent to its acquisition by Life Reassurance in July
1995.

     The Connecticut, Illinois and Texas insurance laws require that the
statutory surplus of Life Reassurance, REALIC and TexasRe, as the case may be,
following any dividend or distribution, be reasonable in relation to its
outstanding liabilities and adequate to meet its financial needs. The Insurance
Commissioner of any such state may bring an action to enjoin or rescind the
payment of a dividend or distribution that would cause statutory surplus to be
unreasonable or inadequate under this standard.

     In the event of a default on the Company's debt or the bankruptcy,
liquidation or other reorganization of the Company, the creditors and
stockholders of the Company will have no right to proceed against the assets of
the Life Reassurance, REALIC or TexasRe. If Life Reassurance, REALIC or TexasRe
were to be liquidated, such liquidation would be conducted by the Connecticut,
Illinois or Texas Insurance Commissioner, as the case may be, as the receiver
with respect to such insurance company's property and business. Under the
Connecticut, Illinois and Texas insurance laws, all creditors of such insurance
companies, including, without limitation, holders of its reinsurance agreements
and the various state guaranty associations, would be entitled to payment in
full from such assets before the Company, as a stockholder, would be entitled to
receive any distribution therefrom.

     NAIC Regulatory Changes.  The NAIC and insurance regulators are in the
process of reexamining existing laws and regulations and their application to
insurance companies. In particular, this reexamination has focused on insurance
company investment and solvency issues and, in some instances, has resulted in
new interpretations of existing law, the development of new laws and the
implementation of nonstatutory guidelines. The NAIC has formed committees and
appointed advisory groups to study and formulate regulatory proposals on diverse
issues. As part of this review, the NAIC recently adopted the Valuation of Life
Insurance Policies Model Regulation (the "Model Regulation").

     If adopted in its current form, the Model Regulation will have the greatest
impact on level term life insurance products with current premiums guaranteed
for more than five years. Companies with these products generally will have to
increase reserves above the current levels or limit the period of guaranteed
premiums to five years. The Model Regulation also will impact the reserve
requirements for other increasing premium products, deficiency reserves and
certain benefit guarantees in universal life products. The Model Regulation will
not impact the financial statements of the Company prepared in accordance with
GAAP; however, as a statutory accounting principle, the Model Regulation may
impact the statutory financial statements of the Subsidiaries.

     Codification.  In addition to the above regulatory changes being reexamined
and considered by the NAIC, the NAIC is in the process of codifying statutory
accounting principles. The purpose of such codification is to establish a
uniform set of accounting rules and regulations for use by insurance companies
in financial report preparation in connection with financial reporting to
regulatory authorities. The Company is unable to determine what impact, if any,
this codification will have on its Subsidiaries' statutory surplus requirements.

     Assessments Against Insurers.  Under insolvency or guaranty laws in most
states in which the Company operates, insurers can be assessed for policyholder
losses incurred by insolvent insurance companies. At present, most insolvency or
guaranty laws provide for assessments based upon the amount of primary
insurance, rather than reinsurance, underwritten in a given jurisdiction.
Primary insurance written by REALIC is subject to such laws. REALIC incurred an
immaterial amount of guaranty fund assessments in 1996. To date, the Company has
paid only a de minimis amount of assessments with respect to insurer insolvency
proceedings.

     Insurance Holding Company Regulations.  The Company and the Subsidiaries
are subject to regulation under the insurance and insurance holding company
statutes of Connecticut, Illinois and Texas. The insurance holding company laws
and regulations vary from jurisdiction to jurisdiction, but generally require
insurance and reinsurance subsidiaries of insurance holding companies to
register with the applicable state regulatory authorities and to file with those
authorities certain reports describing, among other information, their capital

                                       12
<PAGE>   14

structure, ownership, financial condition, certain intercompany transactions and
general business operations. The insurance holding company statutes also require
prior regulatory agency approval or, in certain circumstances, prior notice of
certain material intercompany transfers of assets as well as certain
transactions between insurance companies, their parent companies and affiliates.

     Under the Connecticut, Illinois and Texas insurance laws, unless (i)
certain filings are made with the Connecticut Insurance Department, the Illinois
Department of Insurance or the Texas Department of Insurance, as the case may
be, (ii) certain requirements are met, including, in the case of Texas, a public
hearing and/or (iii) approval or exemption is granted by the applicable
insurance commissioner, no person may acquire any voting security or security
convertible into a voting security of an insurance holding company, such as the
Company, which controls a Connecticut insurance company or an Illinois insurance
company or a Texas insurance company, or merge with such a holding company, if
as a result of such transaction such person would "control" the insurance
holding company. "Control" is presumed to exist in Connecticut, Illinois and
Texas if a person directly or indirectly owns or controls 10% or more of the
voting securities of another person.

     Federal Regulation.  Although the federal government generally does not
directly regulate the insurance or reinsurance industries, federal legislation,
financial services regulation and federal taxation can significantly affect the
insurance business. In recent years, increased scrutiny has been placed upon the
insurance regulatory framework and legislation has been introduced in Congress
which could result in the federal government assuming some role in the
regulation of the insurance industry.

     It is not possible to predict the future impact of changing state and
federal regulation on the operations of the Subsidiaries or the Company, and
there can be no assurance that existing insurance related laws and regulations
will not become more restrictive in the future or that laws and regulations
enacted in the future will not be more restrictive.

TAX MATTERS

     Under applicable provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), a life insurance company is not permitted to file a
consolidated federal income tax return with a company that is not a life
insurance company until such life insurance company has been a member of the
"affiliated group" (as such term is defined for federal income tax purposes) for
five taxable years. REALIC and AML will each file a separate company income tax
return for 1997. AML has retained its small life insurance company identity and
will be taxed accordingly. TexasRe and Life Reassurance (together, the "Life Tax
Group") as life insurance companies, file a consolidated federal income tax
return with Life Re. Losses generated by Life Re can be used to offset taxable
income of the Life Tax Group reported on the consolidated federal income tax
return and those losses can only be so used to a limited extent (generally, the
lesser of 35% of such losses or 35% of the taxable income of the Life Tax
Group).

     Pursuant to the Tax Allocation Agreement, the members of the Life Tax Group
are required to pay to Life Re an amount of tax measured by the total amount
that would have been due and payable by the Life Tax Group to the taxing
authorities had the Life Tax Group filed a life insurance company consolidated
federal income tax return. That amount is required to be paid even if Life Re
is, due to its own tax status apart from the Life Tax Group, in a net tax loss
or nontaxable position. In the event that the Life Tax Group incurs tax losses,
credits or other benefits (including tax loss or credit carryforwards) that
reduce the tax liability of the consolidated group consisting of the Life Tax
Group and Life Re, Life Re is required to pay to the Life Tax Group the amount
of such reduction.

ITEM 2  PROPERTIES

     Life Re's principal operations are conducted from approximately 51,000
square feet of leased office space located at 969 High Ridge Road, Stamford,
Connecticut 06905. The lease with respect to such space expires on September
30, 2004. The rental expense paid by Life Re under the lease during 1997 was
$1.0 million.

                                       13
<PAGE>   15

ITEM 3  LEGAL PROCEEDINGS

     Life Re is not a party to any material pending litigation or arbitration.

ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     During the fourth quarter of 1997, no matters were submitted to the
security holders of Life Re for a vote.

                                    PART II

ITEM 5  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

     The common stock of Life Re has been listed for trading on the New York
Stock Exchange (the "NYSE") since October 28, 1992, the date of Life Re's
initial public offering, under the symbol LRE. Based upon information reported
in the Bloomberg consolidated transaction reporting system, the high and low
sales prices for each quarterly period from January 1, 1996 to December 31, 1997
were:

<TABLE>
<CAPTION>
                           PERIOD                             HIGH    LOW
                           ------                             ----    ---
<S>                                                           <C>     <C>
January 1, 1996 -- March 31, 1996...........................   27 3/8 22 1/2
April 1, 1996 -- June 30, 1996..............................   31     27 1/2
July 1, 1996 -- September 30, 1996..........................   36     26 5/8
October 1, 1996 -- December 31, 1996........................   38 5/8 33 3/4
January 1, 1997 -- March 31, 1997...........................   45 3/8 38 5/8
April 1, 1997 -- June 30, 1997..............................   48 1/8 37 3/8
July 1, 1997 -- September 30, 1997..........................   56     46 5/8
October 1, 1997 -- December 31, 1997........................   65 3/8 52 1/16
</TABLE>

     As of March 26, 1998, there were approximately 3,500 holders of the
outstanding shares of common stock, including individual participants in
securities position listings.

DIVIDENDS

     Dividends of $0.10 per share and $0.13 per share were declared in each
calendar quarter of 1996 and 1997, respectively. On February 12, 1998, Life Re's
Board of Directors declared a dividend of $0.15 per share to be paid on March
25, 1998.

     The declaration and payment of future dividends to holders of its common
stock by Life Re will be at the discretion of the Board of Directors and will
depend upon Life Re's earnings and financial condition, capital requirements of
its subsidiaries, regulatory considerations and other factors the Board of
Directors deems relevant. (See "Liquidity" in Management's Discussion and
Analysis of Financial Condition and Results of Operations and Note 10 of "Notes
to Consolidated Financial Statements" included elsewhere herein.) Life Re's
general policy is to retain most of its earnings to finance the growth and
development of its business.

ITEM 6  SELECTED FINANCIAL DATA

     The following table sets forth selected financial data and other operating
information. The selected financial data have been derived from the consolidated
financial statements of Life Re Corporation and Subsidiaries("Life Re") and
should be read in conjunction with the consolidated financial statements and
accompanying notes of Life Re and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.

                                       14
<PAGE>   16

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                            ----------------------------------------------------
                                              1997       1996       1995       1994       1993
                                            --------   --------   --------   --------   --------
                                                    (IN MILLIONS, EXCEPT PER SHARE DATA)
<S>                                         <C>        <C>        <C>        <C>        <C>
INCOME STATEMENT DATA:
Revenues:
  Policy revenues.........................  $  490.3   $  451.0   $  383.2   $  350.9   $  289.0
  Investment income.......................     151.0      124.3       98.6       82.4       73.5
  Realized investment gains...............       4.5       17.2        3.7         .1       21.0
                                            --------   --------   --------   --------   --------
          Total revenues..................     645.8      592.5      485.5      433.4      383.5
                                            --------   --------   --------   --------   --------
Benefits and Expenses
  Policy benefits.........................     341.0      332.5      281.5      245.8      208.7
  Acquisition costs.......................     142.2      111.9       95.7       88.7       71.1
  Interest credited to policyholder
     accounts.............................      40.7       34.6       21.2       15.0       15.0
  Interest expense........................       8.0        8.4       10.7        9.1        9.9
  Distributions on capital securities.....       5.0         --         --         --         --
  Other operating expenses................      32.7       29.0       21.6       22.0       18.1
                                            --------   --------   --------   --------   --------
          Total benefits and expenses.....     569.6      516.5      430.8      380.6      322.8
                                            --------   --------   --------   --------   --------
Income before federal income taxes and
  extraordinary charge....................      76.2       76.1       54.8       52.8       60.6
Provision for federal income taxes........      26.7       21.9       19.2       18.5       21.4
                                            --------   --------   --------   --------   --------
Income before extraordinary charge........      49.5       54.2       35.6       34.3       39.2
Extraordinary charge, net of federal
  income tax benefit......................        --         --        1.0         --         --
                                            --------   --------   --------   --------   --------
Net income................................  $   49.5   $   54.2   $   34.6   $   34.3   $   39.2
                                            ========   ========   ========   ========   ========
Net income (excluding realized investment
  gains and extraordinary charge).........  $   46.6   $   38.3   $   33.2   $   34.3   $   25.8
                                            ========   ========   ========   ========   ========
Diluted Earnings Per Share(1):
  Income before extraordinary charge......  $   3.48   $   3.89   $   2.39   $   2.21   $   2.50
  Extraordinary charge, net of federal
     income tax benefit...................        --         --      (.07)         --         --
                                            --------   --------   --------   --------   --------
  Net income..............................  $   3.48   $   3.89   $   2.32   $   2.21   $   2.50
  Net income (excluding realized
     investment gains and extraordinary
     charge)..............................  $   3.28   $   2.75   $   2.22   $   2.21   $   1.63
Common dividends per share................  $    .52   $    .40   $    .28   $    .24   $    .20
Weighted average common and common
  equivalent shares.......................      14.2       13.9       14.9       15.5       15.7

BALANCE SHEET DATA(AT PERIOD END):
Invested assets...........................  $2,784.6   $1,833.2   $1,504.2   $  998.5   $  944.6
Total assets..............................  $3,700.2   $2,519.3   $2,024.1   $1,442.3   $1,339.7
Loans payable.............................  $  125.0   $  125.0   $  140.0   $  140.0   $  150.0
Capital securities........................  $  100.0         --         --         --         --
Common shareholders' equity...............  $  373.8   $  290.1   $  279.3   $  194.9   $  230.7
Common shareholders' equity (excluding
  unrealized investment gains and
  losses).................................  $  312.4   $  265.3   $  229.9   $  228.8   $  198.2
</TABLE>

                                       15
<PAGE>   17

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                            ----------------------------------------------------
                                              1997       1996       1995       1994       1993
                                            --------   --------   --------   --------   --------
                                                    (IN MILLIONS, EXCEPT PER SHARE DATA)
<S>                                         <C>        <C>        <C>        <C>        <C>
OTHER FINANCIAL DATA (AS OF OR FOR THE
  PERIOD ENDED):
Return on average shareholders'
  equity(2)...............................        16%        15%        14%        16%        14%
Book value per common share(3)............  $  22.92   $  19.61   $  16.45   $  14.75   $  12.77
Ratio of earnings to fixed charges:
  Excluding interest on annuities and
     financial products(4)................       6.7x       9.8x       6.0x       6.6x       6.9x
  Including interest on annuities and
     financial products(5)................       2.4x       2.8x       2.7x       3.2x       3.4x
First year reinsurance premiums assumed...  $   61.3   $   38.2   $   22.6   $   19.3   $   13.6
Capital invested in Administrative
  Reinsurance(SM) transactions(6).........  $   85.1   $   32.0   $   35.9   $     --   $     --
Life insurance in force(7)................  $148,986   $116,012   $ 91,283   $ 81,213   $ 79,652
Statutory capital and surplus(7)..........  $  210.5   $  209.3   $  208.2   $  193.8   $  187.4
</TABLE>

---------------
(1) Diluted earnings per share have been calculated in accordance with Financial
    Accounting Standards Board Statement No. 128, Earnings Per Share ("SFAS
    128"). Basic earnings per share in accordance with SFAS 128 for the years
    ended 1997, 1996, 1995, 1994 and 1993 were $3.64, $3.97, $2.32, $2.21 and
    $2.53, respectively. The adoption of SFAS 128 did not result in the
    restatement of previously reported earnings per share, as diluted earnings
    per share calculated in accordance with SFAS 128 results in the same per
    share amounts as previously reported by Life Re.

(2) Return on shareholders' equity is calculated by dividing net income
    (excluding realized investment gains and extraordinary charge) by average
    shareholders' equity for the period (which is the simple average of
    beginning and end of period shareholders' equity excluding unrealized
    investment gains or losses).

(3) Book value per share is calculated by dividing end of period shareholders'
    equity (excluding unrealized investment gains and losses) by end of period
    common shares outstanding.

(4) For purposes of determining this ratio, earnings consist of income before
    federal income taxes and extraordinary charge (1995), plus fixed charges.
    Fixed charges consist of interest expense on debt, distributions on capital
    securities and the portion of operating leases that are representative of
    the interest factor.

(5) Same as the ratio of earnings to fixed charges, excluding interest on
    annuities and financial products, except fixed charges and earnings include
    interest on annuities and financial products.

(6) Capital invested in Administrative Reinsurance transactions represents the
    sum of the consideration paid for life insurance in force acquired and the
    related capital to support the business.

(7) Amounts have been derived from the Annual Statements of Life Reassurance,
    REALIC, AML and TexasRe, as filed with insurance regulatory authorities and
    prepared in accordance with statutory accounting practices. For purposes of
    this presentation, capital and surplus are defined as statutory capital and
    surplus of Life Reassurance only, as its capital and surplus materially
    reflect that of Life Reassurance, REALIC and TexasRe, plus the Asset
    Valuation Reserve ("AVR") and the Interest Maintenance Reserve ("IMR") of
    Life Reassurance and REALIC.

ITEM 7  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     The following analysis of Life Re's consolidated financial condition and
results of operations should be read in conjunction with "Selected Financial
Data" and the consolidated financial statements and accompanying notes included
elsewhere herein.

     With the exception of historical information, the matters contained in the
following analysis are "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended and

                                       16
<PAGE>   18

Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
may include, but are not limited to, projections of earnings, revenues, income
or loss, capital expenditures, plans for future operations and financing needs
or plans, as well as assumptions relating to the foregoing. The words "expect",
"project", "estimate", "predict", "anticipate", "believes" and similar
expressions are also intended to identify forward-looking statements.
Forward-looking statements are inherently subject to risks and uncertainties,
some of which cannot be predicted or quantified. Future events and actual
results, performance and achievements could differ materially from those set
forth in, contemplated by or underlying the forward-looking statements. Such
factors include, but are not limited to, the uncertainties relating to general
economic and business conditions which may impact the reinsurance marketplace;
changes in laws and government regulations applicable to Life Re, the ability of
Life Re to implement its operating strategies successfully, the ability of Life
Re to execute Administrative Reinsurance transactions and the amount, timing and
returns therefrom; material fluctuations in interest rate levels; material
changes in mortality and morbidity experience; material changes in persistency;
material changes in the level of operating expenses; and the success or failure
of certain of Life Re's clients in premium writing, and other risks and
uncertainties. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, actual outcomes may vary
materially from those indicated.

  General

     The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
developed by management. Any adjustments to reported bases of assets or
liabilities resulting from changes in estimates are reflected in earnings in the
period the estimates are revised. Certain management estimates are based, in
part, on information provided by ceding companies. As is usual in the
reinsurance business, Life Re's ceding companies periodically update, refine and
revise reinsurance information provided to Life Re. The financial effects
resulting from the incorporation of revised data are reflected in earnings as
changes in estimates.

     Mortality and morbidity experience, both significant factors in the
determination of the results of operations of Life Re, generally are predictable
over time but are subject to fluctuations from year to year and quarter to
quarter. Significant fluctuations from period to period could adversely affect
Life Re's results of operations.

     Life Re's reinsurance agreements frequently provide for rights of
recapture, which permit the ceding company to increase the amount of liability
it retains on the reinsured policies after the policies have remained in force
for a designated period of time (generally ten to twenty years). Accordingly, an
increase in the amount of liability retained by the ceding company will decrease
both Life Re's insurance in force and premiums to be received from the reinsured
policies. To date, recaptures have not had a material impact on Life Re's
results of operations.

     Life Re retrocedes portions of certain risks in excess of a predetermined
retention amount for which it has accepted liability. From time to time, Life Re
also has entered into quota share retrocessional agreements, and maintained
catastrophe reinsurance to protect against catastrophic event risks. Failure of
a retrocessionaire to honor its obligations could result in material losses to
Life Re; to date, no such losses have occurred. No amounts due Life Re from its
retrocessionaires were deemed uncollectible at December 31, 1997.

     Life Re is party to several reinsurance agreements for which transactions
are denominated in Canadian currency. The assets and liabilities related to such
reinsurance agreements are remeasured in U.S. dollars, the functional currency,
at current exchange rates as of the end of each reporting period. Deterioration
in the exchange rate of Canadian currency could have an adverse effect on
results of operations. At December 31, 1997, Life Re had $23.7 million of net
assets denominated in Canadian currency. Life Re has not engaged in hedging or
any other activities to mitigate the effect on earnings of a deterioration in
the exchange rate of Canadian currency.

     In 1997, Life Re derived approximately 65% of its policy revenues from
traditional life reinsurance, which includes ordinary and group life
reinsurance. Ordinary life reinsurance policy revenues were derived under
agreements with approximately 460 ceding companies and accounted for
approximately 62% of total policy
                                       17
<PAGE>   19

revenues. The agreements cover primarily new business to be written by the
client and/or existing blocks of in force business. This business is
predominately marketed directly by Life Re without the use of intermediaries. In
1997, 51 ceding companies each accounted for at least $1.0 million of ordinary
life reinsurance policy revenues and in the aggregate represented approximately
91% of Life Re's ordinary life reinsurance policy revenues.

     Group life reinsurance accounted for approximately 3% of policy revenues in
1997. Group life reinsurance is written on a direct basis and generally is
excess of loss and often includes experience rating provisions.

     Approximately 10% of 1997 policy revenues were derived from Administrative
Reinsurance. This line of business involves the acquisition and administration
of blocks of primary insurance policies (both interest sensitive and
traditional) and annuity contracts and is expected to become an increasingly
significant component of policy revenues in the future. This line of business
also includes Life Re's reinsurance of automobile credit life and disability.

     Approximately 25% of Life Re's policy revenues were generated from group
accident and health and special risk reinsurance in 1997. This business
generally is written on an annual basis through reinsurance facilities which are
managed by managing general underwriters. Generally the risks are shared by
several reinsurers on a quota share basis. During 1997, Life Re withdrew from
the group accident and health and special risk marketplace. Life Re previously
had reduced or canceled certain pool participations, and effective January 1,
1997, retroceded 50% of its 1997 group accident and health and special risk
reinsurance risks. For the year ended December 31, 1997, Life Re had $121.2
million of policy revenues related to group accident and health and special risk
reinsurance, a reduction of 13% from the prior year. Life Re anticipates further
declines of 50% in 1998 and 80% in 1999. Life Re expects no adverse financial
impact from its withdrawal from this business.

  Recent Transactions

     In 1995, Life Re, through its acquisition of REALIC, put into place a
platform for acquiring and administering blocks of primary insurance in force.
This platform, known as Administrative Reinsurance, provides a mechanism for an
insurer to transfer to Life Re administrative responsibilities to facilitate the
insurer's exit from a line of business by means of reinsurance or sale. Life Re
outsources policy administration to third party administrators while maintaining
management responsibilities.

     During 1997 and 1996, Life Re completed several transactions through which
it acquired blocks of insurance in force (collectively, the "Transactions"). The
1997 transactions, which were the 79% stock purchase of AML Acquisition Company,
parent of American Merchants Life Insurance Company, a coinsurance agreement
with UNUM Life Insurance Company of America and a coinsurance agreement with
Employers Reassurance Corporation, covering in force business of Allianz Life
Insurance Company of North America ("Allianz"), together represented assets
acquired of approximately $930 million (collectively, the "1997 Transactions").
The 1996 transactions represented assets acquired of approximately $390 million
(collectively, the "1996 Transactions"). The assets received as a result of the
Transactions consisted primarily of cash and high quality investments. The
Transactions were accounted for under the purchase method of accounting, and
therefore, results of operations include the effect of the Transactions only
from their respective dates of acquisition. For 1997 and 1996, the Transactions
contributed policy revenues totaling $26.0 million and $10.9 million,
respectively, and approximately $32.7 million and $10.8 million, respectively,
of investment income. Policy revenues and investment income related to the
Transactions exclude the effects of the acquisition of REALIC and the
reinsurance of automobile credit life and disability.

  Results of Operations

     NET INCOME decreased by $4.6 million in 1997 to $49.5 million, or $3.48 per
share, compared with $54.2 million, or $3.89 per share, in 1996 and increased
from $34.6 million, or $2.32 per share, in 1995. Included in these results were
after-tax realized investment gains of $2.9 million and $15.9 million in 1997
and 1996, respectively. In March 1996, Life Re realized a gain of $13.5 million
from the sale of its equity investment in Nacolah Holding Corporation
("Nacolah"), parent of North American Company for Life and Health
                                       18
<PAGE>   20

Insurance (see Note 5 of "Notes to Consolidated Financial Statements"). Life Re
utilized existing tax net operating loss carryforwards to offset the taxes
otherwise payable in connection with the gain and reversed an existing deferred
tax valuation allowance, resulting in a tax benefit of $4.8 million. Net income
in 1995 included an extraordinary charge amounting to $1.0 million, which
resulted from the write-off of unamortized loan costs associated with amending
and restating the 1992 credit agreement (see Note 8 of "Notes to Consolidated
Financial Statements").

     EARNINGS EXCLUDING REALIZED INVESTMENT GAINS increased by $8.3 million, or
22%, to $46.6 million, or $3.28 per share, in 1997 compared with $38.3 million,
or $2.75 per share, in 1996 and $33.2 million, or $2.22 per share, in 1995. The
increase in earnings experienced in 1997 and 1996 was due to higher volumes of
ordinary life reinsurance in force and the Transactions, partially offset by a
deterioration in accident and health morbidity experience.

     POLICY REVENUES by major source for the three year period are as follows:

<TABLE>
<CAPTION>
                                                               1997      1996      1995
                                                              ------    ------    ------
                                                                    (IN MILLIONS)
<S>                                                           <C>       <C>       <C>
Ordinary and group life reinsurance.........................  $319.5    $292.2    $268.1
Administrative Reinsurance..................................    49.6      19.2       2.7
Group accident and health and special risk reinsurance......   121.2     139.6     112.4
                                                              ------    ------    ------
                                                              $490.3    $451.0    $383.2
                                                              ======    ======    ======
</TABLE>

     The growth in ordinary life reinsurance revenues was largely due to new
reinsurance agreements entered into during the last three years. First year
premiums totaled $58.1 million in 1997 and increased by 53% and 68% in 1997 and
1996, respectively. The ordinary life reinsurance in force lapse rate has ranged
from 9-11% during the last three years. The growth in ordinary life reinsurance
revenues was partially offset by a decline in group life reinsurance revenues.
Group life reinsurance premiums declined by $8.0 million in 1997 due to treaty
terminations.

     The growth in Administrative Reinsurance policy revenues has been due to
the Transactions and an increase in automobile credit reinsurance premiums.

     Group accident and health and special risk premiums decreased by $18.4
million in 1997 due to Life Re's aforementioned reduced participations and
retrocession agreement. Due to Life Re's decision to exit the accident and
health and special risk reinsurance business, it anticipates further declines in
group accident and health and special risk premiums of 50% in 1998 and 80% in
1999. Growth in 1996 was due principally to increased participation in major
medical and accident reinsurance pools and quota share arrangements.

     INVESTMENT INCOME increased by 21% in 1997 to $151.0 million and by 26% in
1996 to $124.3 million. These increases were largely due to the growth in
invested assets resulting from the Transactions. This rate of growth is
dependent on new Administrative Reinsurance transactions and, to a lesser
extent, new ordinary life reinsurance business. The weighted average portfolio
yield rate (amortized cost basis) was 7.4% in 1997, 7.8% in 1996 and 8.2% in
1995. The decrease in the yield rate is primarily due to the investment of
assets acquired from the Transactions at current rates.

     POLICY BENEFITS increased by 3% in 1997 and 18% in 1996. The increase in
1997 was due to the Transactions and higher volumes of ordinary life reinsurance
business. The increase in 1996 was due to an increase in accident and health and
special risk pool participations, the 1996 Transactions and the purchase of
REALIC in July 1995. As a percentage of policy revenues, policy benefits were
70% in 1997 and 74% in each of 1996 and 1995. Contributing to the lower
percentage in 1997 was a shift in the mix of ordinary life reinsurance business
from excess to first dollar quota share reinsurance; under first dollar quota
share reinsurance, typically a higher portion of the reinsurance premium funds
acquisition costs and a lesser portion funds mortality costs. Partially
offsetting the shift in the mix of ordinary reinsurance business in 1997 was a
deterioration in group accident and health and special risk morbidity
experience. The higher percentages in 1996 and 1995 were primarily due to an
increase in revenues generated under reinsurance treaties with no

                                       19
<PAGE>   21

acquisition costs, coinsurance involving paid-up insurance and Administrative
Reinsurance, which produces no new business and, therefore, generally has a
higher ratio of benefits to policy revenues.

     ACQUISITION COSTS increased by 27% in 1997 and 17% in 1996. These increases
reflect the higher volumes of ordinary life and group accident and health
reinsurance business and the Transactions and, in addition, the aforementioned
shift in the mix of ordinary reinsurance business from excess reinsurance to
first dollar quota share reinsurance. As a percentage of policy revenues, policy
acquisition costs were 29% in 1997 and 25% in each of 1996 and 1995.

     INTEREST CREDITED TO POLICYHOLDER ACCOUNTS increased by 17% in 1997 and by
63% in 1996. These increases are attributable to the acquisition of REALIC and
the Transactions as the majority of the policy benefit liabilities acquired in
these transactions are interest sensitive.

     INTEREST EXPENSE decreased to $8.0 million in 1997 from $8.4 million in
1996 and $10.7 million in 1995. This decrease was due to (i) a decrease in the
weighted average variable rate charged on outstanding debt, which decreased to
6.0% in 1997 from 6.2% in 1996 and 7.1% in 1995, and (ii) a decrease in the
outstanding principal balance to $125.0 million resulting from a first quarter
1996 repayment of $15.0 million. The effective interest rate as of December 31,
1997 was 6.3%.

     DISTRIBUTIONS ON CAPITAL SECURITIES of $5.0 million were incurred from the
issuance in June 1997 of $100 million of 8.72% capital securities by a
subsidiary trust as further described in the Financial Condition and Liquidity
section (also see Note 9 of the "Notes to Consolidated Financial Statements").

     OTHER OPERATING EXPENSES increased in 1997 and 1996 mainly due to i)
administrative fees of third party administrators ("TPAs") incurred within
Administrative Reinsurance due to the Transactions and ii) higher compensation
costs. Administrative Reinsurance utilizes the services of TPAs to administer
all of its business; accordingly, to the extent Life Re is successful in
expanding Administrative Reinsurance, its operating expenses will continue to
increase.

     The effective FEDERAL INCOME TAX rate was 35% in 1997. In 1996, the
effective tax rate was 29% due to a $4.8 million federal tax benefit resulting
from the reversal of a deferred tax valuation allowance in connection with the
realized investment gain on the Nacolah transaction. In 1995, the effective tax
rate was 35%.

FINANCIAL CONDITION AND LIQUIDITY

  Investments

     Invested assets at fair value amounted to $2,784.6 million and $1,833.2
million at December 31, 1997 and 1996, respectively. The increase in invested
assets in 1997 resulted from the Transactions. Net unrealized gains on invested
assets totaled $101.5 million and $39.7 million at year end 1997 and 1996,
respectively, and generally reflect the decrease in interest rates from period
to period.

     Life Re's investment policy is designed to maintain a high quality
portfolio, maximize current income, maintain a high degree of liquidity and
match the cash flows of the portfolio to the required cash flows of Life Re's
liabilities.

     Life Re does not engage in trading activities to generate realized
investment gains and, thus, does not have a trading portfolio. However, Life Re
evaluates the desirability of continuing to hold a security when market
conditions, creditworthiness or other measurement factors change. These changes
may relate to a change in the credit risk of an issuer and a decision to sell
may be made to avoid further declines in realizable value. Securities also may
be sold prior to maturity to provide liquidity should the need arise.

     Life Re's fixed maturity securities, which constituted 88%, or $2,442.9
million, of the total fair value of its invested assets as of December 31, 1997,
are predominantly investment grade, liquid securities with varying maturity
dates. The fair value of such investments may vary depending on economic and
market conditions, the level of interest rates and the perceived
creditworthiness of the issuer.

     At December 31, 1997, approximately $70.6 million (at fair value), or less
than 3%, of Life Re's invested assets consisted of below investment grade
securities. Life Re generally limits its investments in fixed

                                       20
<PAGE>   22

maturities that are rated below investment grade, as these investments are
subject to a higher degree of credit risk than investment grade securities. Life
Re closely monitors its below investment grade securities as well as the
creditworthiness of the portfolio as a whole. When fair values decline for
reasons other than changes in interest rates or other perceived temporary
conditions, the security is written down to its net realizable value. In 1997,
1996 and 1995, Life Re wrote down the value of certain securities by $2.6
million, $0.5 million and $0.9 million, respectively. Life Re had no fixed
maturities in default at December 31, 1997.

     The results of operations and the financial condition of Life Re are
significantly affected by the performance of its investments and by changes in
interest rates. During a period of declining interest rates, if Life Re's
investments are prematurely sold, called, prepaid or redeemed, Life Re would be
unable to reinvest the proceeds in securities with comparable rates of return.
During a period of rising interest rates, the fair value of Life Re's invested
assets could decline. In addition, rising interest rates could also cause
disintermediation which in turn could cause Life Re to be required to sell
investments at prices and times when the fair values of such investments are
less than their amortized cost. Life Re believes that its traditional life
insurance liabilities are not highly interest sensitive and, therefore, the
effects of fluctuating interest rates on these liability cash flows are not
significant. For interest sensitive liabilities, Life Re utilizes
asset/liability matching to minimize the impact of changes in interest rates.
Life Re has not engaged in hedging activities to mitigate the effects of
interest rate changes on its invested assets and related liabilities.

     At December 31, 1997, collateralized mortgage obligations and
mortgage-backed pass-through securities represented approximately 17% of Life
Re's invested assets. Certain of such investments may be subject to prepayment
risk and, therefore, are susceptible to fluctuations in the level of interest
rates. Prepayments of these investments did not have a material impact on Life
Re's 1997 results of operations.

     During 1997, 1996 and 1995, proceeds from sales of fixed maturities
amounted to $301.0 million, $253.4 million and $370.8 million, respectively. The
net gains realized from such sales were $7.3 million, $1.8 million and $4.5
million for the respective periods. The majority of the 1997 and 1996 sales was
attributable to the restructuring of portfolios acquired in connection with the
Transactions.

     Real estate and mortgages (at cost) totaled $12 million at December 31,
1997 and were acquired as part of the Transactions. Mortgage loans comprise the
majority of this amount.

  Policy Benefit Liabilities

     Life Re's obligations for policy benefit liabilities increased by 45% and
33% during 1997 and 1996, respectively. These increases resulted from the
Transactions and increased reinsurance of new and in force life insurance.
Policy benefits consist of the present value of future benefits under
traditional ordinary and group life insurance policies, account values under
interest sensitive life and annuity contracts, group accident and health claim
reserves, life claims payable and other miscellaneous liabilities. Through the
Transactions, the relative proportion of interest sensitive and annuity policy
benefit liabilities to the total has increased significantly and, at December
31, 1997, totaled approximately 60% of the policy benefits under life insurance
contracts.

     Asset/liability management techniques are utilized by Life Re to minimize
the risks associated with interest rate fluctuations. For interest sensitive
policy benefits, Life Re seeks to invest in assets with equal durations while
attaining a targeted rate of return. Life Re currently does not engage in
hedging transactions to mitigate the effects of interest rate fluctuations.

  Debt, Capital Securities and Shareholders' Equity

     In 1995, Life Re amended and restated the 1992 credit agreement to convert
the facility to a senior secured revolving and term loan. The revolving loan has
a commitment amount of $160.0 million and converts to a term loan in January
2000, with a final maturity date of January 4, 2004. The date of conversion to a
term loan can be extended to January 2001, with bank consent (see Note 8 of
"Notes to Consolidated Financial Statements"). At December 31, 1997, loans
totaling $125.0 were outstanding.

                                       21
<PAGE>   23

     Interest rates on the loans are variable and, subject to certain
restrictions, Life Re may select the applicable interest rate index and the
period of applicability.

     The 1995 credit agreement contains certain covenants which, among other
things, restrict under certain circumstances the payment of dividends and
repurchase of treasury stock. Further, certain actions of Life Re are limited,
including those related to mergers, acquisitions, indebtedness and investments.
Life Re and its subsidiaries are required to meet certain financial ratios and
maintain a minimum level of statutory surplus.

     On June 6, 1997, Life Re completed a private placement under Rule 144A of
the Securities Act of 1933, as amended, of $100 million of 8.72% capital
securities of Life Re Capital Trust I ("Trust I"), a subsidiary of Life Re.
Distributions are cumulative and payable in arrears beginning December 15, 1997.
The securities have a maturity date of June 15, 2027 and may be redeemed at any
time on or after June 12, 2007. Payments on the securities are fully and
unconditionally guaranteed by Life Re. The securities have an effective interest
rate of 8.75%. The assets of the Trust I consist of junior subordinated
debentures issued by Life Re which have terms that parallel the terms of the
capital securities.

     On March 17, 1998 Life Re completed two separate public offerings in which
it sold 3,500,000 shares of common stock, and 2,070,000 6.0% Adjustable
Conversion-rate Equity Security Units issued through Life Re Capital Trust II
("Trust II") (the "Units"), (together, the "Offerings"). Life Re realized net
proceeds of approximately $352 million from the Offerings. The Units consist of
a stock purchase contract (the "Contract") and Quarterly Income Preferred
Securities ("QUIPS"). Under the terms of the Contract, on March 15, 2001 the
holder will purchase from Life Re between 0.81967 of a share and one share of
common stock, depending on the then current market price, for a purchase price
of $66.00. Distributions on the QUIPS are cumulative, accrue from the first date
of issuance of the QUIPS and are payable at a stipulated annual rate on a
quarterly basis in arrears on a predetermined payment date. The QUIPS have a
maturity of March 15, 2003 and are subject to a put option exercisable by the
QUIPS holder on either March 15, 2001 or June 15, 2001.

     Shareholders' equity increased by $83.7 million to $373.8 million at
December 31, 1997 from $290.1 million at December 31, 1996 primarily as a result
of net income of $49.5 million, net unrealized investment gains of $36.6
million, proceeds of $2.9 million from stock option exercises and tax benefits
of approximately $2.3 million related to stock option and stock grants,
partially offset by treasury stock purchases of $1.5 million and common
shareholder dividends of $7.1 million.

     Under the stock repurchase program initially approved by Life Re's Board of
Directors during 1995, 2.2 million shares have been purchased. Due to the
Offerings, the Board of Directors elected to discontinue the stock repurchase
program as of February 1998.

     Dividends paid to common shareholders reflect an annual rate of $.52 per
share in 1997, $.40 per share in 1996 and $.28 per share in 1995. Effective in
the first quarter of 1998, Life Re increased its dividend rate to an effective
annual rate of $.60 per share.

     Debt to total capitalization (outstanding debt divided by the sum of
outstanding debt, capital securities, and shareholders' equity) has decreased
significantly during the last two years. As a percentage, these amounts were
21%, 30% and 33% at year-end 1997, 1996 and 1995, respectively. Management
believes Life Re's prospective debt to total capitalization generally should not
exceed 25%.

  Liquidity

     Sources of liquidity are available to Life Re in the form of cash and
short-term investments and, if necessary, the sale of invested assets. Life Re
also may borrow an additional $35.0 million under the 1995 credit agreement and
may enter into reverse repurchase agreements to fund short-term cash needs. In
addition to its debt servicing and dividend and capital securities distribution
obligations, Life Re's financial obligations consist of policy benefit and
acquisition costs, taxes and general operating expenses. During the next twelve
months, management believes these obligations will be adequately provided for by
policy revenues and investment income.

                                       22
<PAGE>   24

     In order to provide additional liquidity and capital needed to support its
core businesses, Life Re raised capital in the first quarter of 1998 (see "Debt,
Capital Securities and Shareholders' Equity" and Notes 9 and 10 "Notes to
Consolidated Financial Statements") through the Offerings.

     The primary sources of funds for Life Re Corporation (the "Parent") consist
of dividends and surplus debenture principal and interest payments from TexasRe,
which are further funded by dividends from LRCA to TexasRe. The ability of the
Parent to make payments of principal and interest, distributions on capital
securities, as well as to continue to pay common stock dividends, is ultimately
dependent on the statutory earnings and surplus of its subsidiaries. The
following table shows surplus debenture principal and interest payments
received, dividends received by the Parent for the last three years as well as
dividends available for payment in that year without prior approval of state
regulatory authorities, and dividends paid to TexasRe for the last three years
as well as dividends available for payment to TexasRe in that year without prior
approval of state regulatory authorities:

<TABLE>
<CAPTION>
                                                       YEARS ENDED DECEMBER 31,
                                                      --------------------------
                                                       1997      1996      1995
                                                      ------    ------    ------
                                                            (IN MILLIONS)
<S>                                                   <C>       <C>       <C>
Surplus debentures:
  Interest..........................................  $10.0     $10.0     $19.4
  Principal.........................................                       10.0
                                                      -----     -----     -----
                                                       10.0      10.0      29.4
Dividends received from TexasRe.....................   16.3      12.1      15.0
                                                      -----     -----     -----
                                                      $26.3     $22.1     $44.4
                                                      =====     =====     =====
Dividends available for payment by TexasRe..........  $16.3     $27.1     $28.2
                                                      =====     =====     =====
Dividends paid to TexasRe by LRCA...................  $23.2     $14.9     $30.9
                                                      =====     =====     =====
Dividends available for payment by LRCA.............  $23.2     $34.8     $30.9
                                                      =====     =====     =====
</TABLE>

     The unpaid principal amount of the surplus debentures at December 31, 1997
was $160.5 million. The interest rate payable under the terms of the surplus
debentures is the same as the interest rate under the 1995 credit agreement. In
1995, the principal amortization terms of the surplus debentures were changed to
conform to the terms of the 1995 credit agreement.

     Currently, no prior approval of the Texas Insurance Commissioner is
required to prepay or pay scheduled interest or principal on the surplus
debentures provided that, after giving effect to any such payment, the statutory
surplus of TexasRe is $125.0 million.

     TexasRe relies primarily on dividends from LRCA to meet its obligations
under the surplus debentures as well as to pay dividends to Life Re Corporation.

     The payments of dividends by TexasRe and LRCA are subject to restrictions
set forth in Texas and Connecticut insurance laws and regulations (see Note 10
of "Notes to Consolidated Financial Statements"). Under Connecticut law, no
dividend in an amount exceeding LRCA's earned surplus may be paid without prior
regulatory approval. Approval has been received from the Connecticut Department
of Insurance to define earned surplus for this purpose to include amounts of
paid in surplus in excess of $125.0 million.

     Purchases and sales of fixed maturities increased substantially in 1997 and
1996 due primarily to restructuring of portfolios related to the Transactions.
The completion of these types of transactions generally produces a cash outlay
for acquisitions and a net cash inflow upon reinsurance of insurance in force.
During 1997, net cash of $213.0 million was generated by the receipt of cash as
consideration for the assumption of insurance liabilities partially offset by
the purchase price paid in acquiring companies. Financing cash flows include
debt prepayments of $15.0 million in 1996. Withdrawals from annuity and interest
sensitive life insurance contracts totaled $108.6 million in 1997 compared to
$74.7 million in 1996 due to increased volumes of business resulting from the
Transactions and an increase in the related rate of lapsation.

                                       23
<PAGE>   25

  Outlook

     Life Re intends to continue its strategy of growth through i) increased
reinsurance of ordinary life new business and ii) the expansion of
Administrative Reinsurance through purchases of in force blocks of insurance
business and insurance companies.

     The growth in ordinary life reinsurance new business was substantial in
1997 and 1996, with increases in first year reinsurance premiums totaling 58%
and 68%, respectively. Although Life Re does not expect the rate of growth
experienced in 1997 to continue, its objective is to increase ordinary life
reinsurance first year premiums written by 15-20% during 1998. This growth could
be constrained by (i) competition, which could dilute the profitability of this
business and (ii) the success of ceding companies in writing primary business.

     Life Re believes that consolidation within the insurance industry will
continue as companies shed non-core businesses or exit the industry due to
operating inefficiencies. Through Administrative Reinsurance, Life Re expects to
participate in this consolidation as it has in place the infrastructure through
primary licenses and multiple administrative capabilities with which to effect
reinsurance or other acquisition transactions. However, this participation may
be adversely affected by such factors as the availability of adequate capital,
the types of business opportunities presented and the competition for such
business.

     Life Re anticipates financing ordinary reinsurance and Administrative
Reinsurance growth through (i) the proceeds from the Offerings, (ii) the
availability of an additional $35 million under the 1995 credit agreement and
(iii) internally generated funds.

     In December 1997, Life Re entered into a coinsurance transaction whereby
Life Re and Employers Reassurance Corporation ("ERAC") coinsured a block of life
insurance and annuity business from Allianz. Under the transaction, Life Re, in
conjunction with ERAC, coinsured certain universal life and traditional life
insurance policies and annuity contracts. Life Re's agreement with ERAC provides
that Life Re initially will reinsure 20% of the total block of business. Based
on the terms of its agreement, Life Re expects that its share of the total block
of business being reinsured will increase to 60% over a period of several years.
The total block of business coinsured aggregates $1.1 billion of life insurance
and annuity reserves, $90 million of annualized premiums and approximately
225,000 policies. Under its agreement with ERAC, Life Re will have the primary
responsibility for management oversight and administration of the block of
business.

     In February 1998, Life Re acquired 100% of the outstanding stock of Mission
Life Insurance Company ("Mission Life") for a purchase price of approximately
$60 million. Mission Life's business is concentrated in life insurance policies
designed to meet final expenses. As of December 31, 1997, Mission Life had
statutory assets of $230 million and statutory capital and surplus including AVR
of $28 million. Mission Life's 1997 premium income was $39 million. In a related
transaction, Life Re and Mission Life's selling shareholders agreed to purchase
a new company that will continue to market final expense life insurance
policies. Life Re expects to own 20% of this entity and to reinsure the majority
of new writings.

     In February 1998, Life Re entered into an agreement to acquire Lincoln
Liberty Life Insurance Company ("Lincoln Liberty") and First Delaware Life
Insurance Company ("First Delaware")for an estimated purchase price of $50
million, including adjusted capital and surplus and AVR of approximately $29
million. Lincoln Liberty's and First Delaware's businesses primarily consist of
traditional and universal life insurance policies. For the year ended December
31, 1997, on a combined basis, Lincoln Liberty and First Delaware had annual
premiums of $7 million and total statutory assets of $230 million.

     Currently, blocks of insurance in force acquired through Administrative
Reinsurance are administered by several third party administrators. Life Re
believes its strategy of outsourcing administrative services for direct
insurance in force allows it to efficiently integrate acquisitions and to retain
the capacity to pursue multiple acquisition opportunities simultaneously.

IMPACT OF YEAR 2000

     Life Re plans to complete, by June 1998, a comprehensive review of its
computer systems to identify systems that could be affected by the year 2000
issue. Life Re presently believes that, with modifications to

                                       24
<PAGE>   26

existing software and by converting to new software, the year 2000 issue will
not pose significant operations problems for its computer systems.

     Life Re believes that the systems of its third party administrators are or
will be year 2000 compliant. Life Re plans to conduct a review of its third
party administrator's systems to ensure such compliance.

     Life Re has initiated formal communications with its ceding companies to
determine the extent to which data received and utilized by Life Re is
vulnerable to those third parties' failure to remediate their own year 2000
issues. There is no guarantee that the systems of other companies on which Life
Re may rely for data will be timely converted and would not have an adverse
effect on analyses and reports that utilize that data. However, Life Re believes
it own systems and processes mitigate the risk that ceding companies year 2000
noncompliance will have a material adverse effect on its operations.

ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                       INDEX TO FINANCIAL STATEMENTS AND
                          FINANCIAL STATEMENT SCHEDULE
                      LIFE RE CORPORATION AND SUBSIDIARIES

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
FINANCIAL STATEMENTS
  Report of Management......................................
  Report of Independent Auditors............................
  Consolidated Balance Sheets at December 31, 1997 and
     1996...................................................
  Consolidated Statements of Income for the years ended
     December 31, 1997, 1996 and 1995.......................
  Consolidated Statements of Changes in Shareholders' Equity
     for the years ended December 31, 1997, 1996 and 1995...
  Consolidated Statements of Cash Flows for the years ended
     December 31, 1997, 1996 and 1995.......................
  Notes to Consolidated Financial Statements................
FINANCIAL STATEMENT SCHEDULE
  Schedule II  Condensed Financial Information of
     Registrant.............................................
  All other schedules for which provision is made in the
  applicable accounting regulations of the Securities and
  Exchange Commission are not required under the related
  instructions or are inapplicable and therefore have been
  omitted or the information is presented in the
  consolidated financial statements or accompanying notes.
</TABLE>

                                       25
<PAGE>   27
                              REPORT OF MANAGEMENT

     The Management of Life Re Corporation has primary responsibility for
preparing the accompanying financial statements and for their integrity and
objectivity. The statements were prepared in accordance with generally accepted
accounting principles applied on a consistent basis and are fairly stated in all
material respects. The financial statements include amounts that are based on
management's best estimates and judgements. Management also prepared the other
information presented in the annual report and is responsible for its accuracy
and consistency with the financial statements.

     Management of the Company has established and maintains a system of
internal control that provides reasonable assurance as to the integrity and
reliability of the financial statements, the protection of assets from
unauthorized use or disposition and the prevention and detection of fraudulent
financial reporting. In addition, the adequacy and effectiveness of the system
of internal control is reviewed periodically by the Company's internal auditors.

     The Company's financial statements have been audited by independent
auditors. The independent auditors have unrestricted access to each member of
management in conducting their audit. Management has made available to the
independent auditors all of the Company's financial records and related data, as
well as the minutes of shareholders' and directors' meetings. Furthermore,
management believes that all representations made to the independent auditors
during their audits were valid and appropriate.

     The Audit Committee of the Board of Directors is comprised of certain
directors who are neither employees nor officers of the Company. The Audit
Committee meets periodically with management and the independent auditors
regarding independent audit scope, timing, results and to discuss other auditing
and financial reporting matters. The independent auditors have direct access to
and meet privately with the Audit Committee.

/s/ Rodney A. Hawes, Jr.                     /s/ Jacques E. Dubois
-----------------------------------          -----------------------------------
Rodney A. Hawes, Jr.                         Jacques E. Dubois
Chairman of the Board and                    President and
Chief Executive Officer                      Chief Operating Officer

/s/ Chris C. Stroup
-----------------------------------
Chris C. Stroup
Executive Vice President
and Chief Financial Officer


                         REPORT OF INDEPENDENT AUDITORS

The Board of Directors
Life Re Corporation

     We have audited the accompanying consolidated balance sheets of Life Re
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in common shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1997.
Our audits also included the financial statement schedule listed in the Index as
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Life Re Corporation and subsidiaries at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.

                                          Ernst & Young LLP

Stamford, Connecticut
February 12, 1998,
except for Notes 9 and 10,
as to which the date is
March 17, 1998



                                       26
<PAGE>   28

                      LIFE RE CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              ------------------------
                                                                 1997          1996
                                                              ----------    ----------
                                                                   (IN THOUSANDS,
                                                                 EXCEPT SHARE DATA)
<S>                                                           <C>           <C>
ASSETS
Fixed maturities -- at fair value (amortized cost:
  $2,243,423 and $1,576,371, respectively)..................  $2,335,795    $1,610,694
Equity securities -- at fair value (cost: $25,171 and
  $20,841, respectively)....................................      26,775        21,536
Assets held by ceding company under reinsurance treaty -- at
  fair value (amortized cost: $101,767 and $105,519,
  respectively).............................................     109,266       110,246
Mortgage loans and real estate..............................      12,007         6,957
Short-term investments......................................     166,801        25,589
Policy loans................................................     133,986        58,220
                                                              ----------    ----------
          Total investments.................................   2,784,630     1,833,242

Cash........................................................      16,797         6,337
Accrued investment income...................................      43,378        31,963
Policy revenues receivable..................................     158,560       120,809
Amounts receivable on reinsurance ceded.....................     347,828       277,625
Deferred acquisition costs..................................     325,570       223,972
Other assets................................................      23,479        25,372
                                                              ----------    ----------
          Total assets......................................  $3,700,242    $2,519,320
                                                              ==========    ==========
LIABILITIES
Policy benefits.............................................  $2,871,243    $1,982,295
Acquisition costs payable...................................      54,247        34,059
Amounts due on reinsurance ceded............................      55,085        25,526
Other liabilities...........................................     120,877        62,329
Loans payable...............................................     125,000       125,000
                                                              ----------    ----------
          Total liabilities.................................   3,226,452     2,229,209
                                                              ----------    ----------
Corporation-obligated, mandatorily redeemable capital
  securities of subsidiary trust............................     100,000
                                                              ----------    ----------
COMMON SHAREHOLDERS' EQUITY
Common stock (par value $.001 per share; authorized
  40,000,000 shares; issued 15,835,785 and 15,700,935
  shares, respectively).....................................          16            16
Paid in capital.............................................     111,337       105,226
Net unrealized appreciation of securities...................      61,416        24,854
Retained earnings...........................................     249,297       206,822
Treasury stock -- at cost (2,205,223 and 2,172,769 shares,
  respectively).............................................     (48,276)      (46,807)
                                                              ----------    ----------
          Total common shareholders' equity.................     373,790       290,111
                                                              ----------    ----------
          Total liabilities and shareholders' equity........  $3,700,242    $2,519,320
                                                              ==========    ==========
</TABLE>

 The accompanying notes are an integral component of the consolidated financial
                                  statements.
                                       27
<PAGE>   29

                      LIFE RE CORPORATION AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                    YEARS ENDED DECEMBER 31,
                                                             --------------------------------------
                                                                1997          1996          1995
                                                             ----------    ----------    ----------
                                                             (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                          <C>           <C>           <C>
REVENUES
  Policy revenues..........................................   $490,278      $450,992      $383,231
  Investment income........................................    150,960       124,340        98,616
  Realized investment gains................................      4,514        17,210         3,702
                                                              --------      --------      --------
          Total revenues...................................    645,752       592,542       485,549
                                                              --------      --------      --------
BENEFITS AND EXPENSES
  Policy benefits..........................................    341,044       332,476       281,518
  Acquisition costs........................................    142,144       111,933        95,707
  Interest credited to policyholder accounts...............     40,647        34,637        21,241
  Interest expense.........................................      7,997         8,356        10,743
  Distributions on capital securities......................      4,970
  Other operating expenses.................................     32,726        29,049        21,552
                                                              --------      --------      --------
          Total benefits and expenses......................    569,528       516,451       430,761
                                                              --------      --------      --------
  Income before federal income taxes and extraordinary
     charge................................................     76,224        76,091        54,788
  Provision for federal income taxes.......................     26,678        21,890        19,176
                                                              --------      --------      --------
  Income before extraordinary charge.......................     49,546        54,201        35,612
  Extraordinary charge, net of federal income tax
     benefit...............................................                                  1,004
                                                              --------      --------      --------
NET INCOME.................................................   $ 49,546      $ 54,201      $ 34,608
                                                              ========      ========      ========
  Earnings per common share:
     Income before extraordinary charge....................   $   3.64      $   3.97      $   2.39
     Extraordinary charge, net of federal income tax
       benefit.............................................                                    .07
                                                              --------      --------      --------
          Net income.......................................   $   3.64      $   3.97      $   2.32
                                                              ========      ========      ========
  Earnings per common share assuming dilution:
     Income before extraordinary charge....................   $   3.48      $   3.89      $   2.39
     Extraordinary charge, net of federal income tax
       benefit.............................................                                    .07
                                                              --------      --------      --------
          Net income.......................................   $   3.48      $   3.89      $   2.32
                                                              ========      ========      ========
  Dividends per common share...............................   $   0.52      $   0.40      $   0.28
                                                              ========      ========      ========
</TABLE>

 The accompanying notes are an integral component of the consolidated financial
                                  statements.
                                       28
<PAGE>   30

                      LIFE RE CORPORATION AND SUBSIDIARIES

                       CONSOLIDATED STATEMENTS OF CHANGES
                         IN COMMON SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                      -----------------------------------------
                                                         1997           1996           1995
                                                      -----------    -----------    -----------
                                                          (IN THOUSANDS EXCEPT SHARE DATA)
                                                                       AMOUNTS
                                                      -----------------------------------------
<S>                                                   <C>            <C>            <C>
COMMON STOCK AND PAID IN CAPITAL
  Balance, beginning of year........................  $   105,242    $   101,598    $   101,429
  Exercises of stock options........................        2,921          3,464            110
  Federal income tax benefit related to stock
     options and stock grants.......................        2,331
  Reductions of employee stock loans................          369            180             59
  Other.............................................          490
                                                      -----------    -----------    -----------
  Balance, end of year..............................      111,353        105,242        101,598
                                                      -----------    -----------    -----------
UNREALIZED APPRECIATION (DEPRECIATION) OF SECURITIES
  Balance, beginning of year........................       24,854         49,403        (33,867)
  Net unrealized appreciation (depreciation) of
     securities.....................................       36,562        (24,549)        83,270
                                                      -----------    -----------    -----------
  Balance, end of year..............................       61,416         24,854         49,403
                                                      -----------    -----------    -----------
RETAINED EARNINGS
  Balance, beginning of year........................      206,822        158,075        127,590
  Net income........................................       49,546         54,201         34,608
  Common stock dividends............................       (7,071)        (5,454)        (4,123)
                                                      -----------    -----------    -----------
  Balance, end of year                                    249,297        206,822        158,075
                                                      -----------    -----------    -----------
TREASURY STOCK
  Balance, beginning of year........................      (46,807)       (29,763)          (211)
  Treasury stock acquired...........................       (1,469)       (17,044)       (29,552)
                                                      -----------    -----------    -----------
  Balance, end of year..............................      (48,276)       (46,807)       (29,763)
                                                      -----------    -----------    -----------
TOTAL COMMON SHAREHOLDERS' EQUITY...................  $   373,790    $   290,111    $   279,313
                                                      ===========    ===========    ===========

                                                                       SHARES
                                                      -----------------------------------------
COMMON STOCK ISSUED
  Balance, beginning of year........................   15,700,935     15,531,310     15,526,310
  Exercises of stock options........................      134,850        169,625          5,000
                                                      -----------    -----------    -----------
  Balance, end of year..............................   15,835,785     15,700,935     15,531,310
                                                      -----------    -----------    -----------
TREASURY STOCK
  Balance, beginning of year........................   (2,172,769)    (1,557,969)        (9,600)
  Treasury stock acquired...........................      (32,454)      (614,800)    (1,548,369)
                                                      -----------    -----------    -----------
  Balance, end of year..............................   (2,205,223)    (2,172,769)    (1,557,969)
                                                      -----------    -----------    -----------
COMMON STOCK OUTSTANDING............................   13,630,562     13,528,166     13,973,341
                                                      ===========    ===========    ===========
</TABLE>

 The accompanying notes are an integral component of the consolidated financial
                                  statements.
                                       29
<PAGE>   31

                      LIFE RE CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                          -----------------------------------
                                                            1997         1996         1995
                                                          ---------    ---------    ---------
                                                                    (IN THOUSANDS)
<S>                                                       <C>          <C>          <C>
OPERATING ACTIVITIES
Income before federal income taxes......................  $  76,224    $  76,091    $  54,788
Adjustments to reconcile income before federal income
  taxes to net cash provided by operating activities:
  Change in accrued investment income...................     (2,751)      (2,815)      (1,890)
  Change in policy revenues receivable, net.............    (16,771)     (13,373)         407
  Change in policy benefits.............................    (10,605)      51,063       24,971
  Change in reinsurance ceded balances..................     19,447        4,769        1,235
  Interest credited to policyholder accounts............     39,492       34,637       20,429
  Fees and charges deducted from policyholder
     accounts...........................................    (35,918)     (29,636)     (20,184)
  Deferral of acquisition costs.........................    (56,576)     (37,410)     (12,371)
  Amortization of acquisition costs, net of interest
     accretion..........................................     20,396       16,852       15,230
  Net realized gains on investments.....................     (4,514)     (17,210)      (3,702)
  Depreciation and amortization.........................      1,799        1,095          303
  Other.................................................     19,964        5,411        9,888
                                                          ---------    ---------    ---------
          Net cash provided by operations...............     50,187       89,474       89,104
  Federal income taxes recovered (paid).................      2,354      (13,500)     (13,145)
                                                          ---------    ---------    ---------
          Net cash provided by operating activities.....     52,541       75,974       75,959
                                                          ---------    ---------    ---------
INVESTING ACTIVITIES
Purchases of fixed maturities...........................   (528,191)    (433,608)    (484,848)
Purchases of equity securities..........................     (4,202)     (17,200)
Sales of fixed maturities...............................    301,020      253,408      370,813
Maturities of fixed maturities..........................     78,617       78,259       69,977
Sales or redemptions of equity securities...............        902       26,808           30
Change in short-term investments, policy loans and other
  investments...........................................   (134,347)      18,441       36,726
Cash received (paid) in connection with acquisitions and
  reinsurance transactions, net.........................    212,960       63,365      (34,383)
Other, net..............................................     (2,491)        (829)        (878)
                                                          ---------    ---------    ---------
          Net cash used by investing activities.........    (75,732)     (11,356)     (42,563)
                                                          ---------    ---------    ---------
FINANCING ACTIVITIES
Purchases of common stock for treasury..................       (956)     (16,861)     (29,497)
Proceeds from exercises of common stock options.........      2,921        3,570
Issuance of corporation-obligated, mandatorily
  redeemable capital securities of subsidiary trust, net
  of issuance costs.....................................     98,803
Loan principal repayments...............................                 (15,000)
Fees related to amendments to credit agreement..........                                 (404)
Dividends on common stock...............................     (7,071)      (5,454)      (4,123)
Deposits to policyholder accounts.......................     48,595       45,092       33,560
Withdrawals from policyholder accounts..................   (108,641)     (74,691)     (30,741)
Other...................................................         --            7            4
                                                          ---------    ---------    ---------
          Net cash provided (used) by financing
            activities..................................     33,651      (63,337)     (31,201)
                                                          ---------    ---------    ---------
Increase in cash........................................     10,460        1,281        2,195
Cash, beginning of year.................................      6,337        5,056        2,861
                                                          ---------    ---------    ---------
Cash, end of year.......................................  $  16,797    $   6,337    $   5,056
                                                          =========    =========    =========
</TABLE>

 The accompanying notes are an integral component of the consolidated financial
                                  statements.
                                       30
<PAGE>   32

                      LIFE RE CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 1997

1.  BASIS OF PRESENTATION AND NATURE OF BUSINESS

     The consolidated financial statements of Life Re Corporation and
Subsidiaries (the "Company") include the accounts of TexasRe Life Insurance
Company ("TexasRe"), Life Reassurance Corporation of America ("LRCA"), Reassure
America Life Insurance Company ("REALIC"), AML Acquisition Company and Life Re
International, Ltd. (Note 3). All significant intercompany balances and
transactions have been eliminated. The accompanying financial statements have
been prepared in accordance with generally accepted accounting principles.
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year's presentation. All dollar amounts are
reported in thousands unless otherwise indicated.

  Business

     The Company's business activities consist of traditional life reinsurance
and Administrative Reinsurance(SM). Traditional life reinsurance primarily
involves the transfer to the Company of mortality risks on insurance products
from primary (or ceding) insurers of ordinary and group life policies.
Substantially all of the traditional life reinsurance business is marketed
directly by the Company without the use of intermediaries. Administrative
Reinsurance, which was initiated in 1995 with the purchase of REALIC, involves
the acquisition of blocks of life insurance and/or annuity contracts in force.
The Company has obtained its Administrative Reinsurance business through
purchases of life insurance companies and also through indemnity coinsurance or
assumption reinsurance agreements with ceding insurers. The Company also assumes
responsibility for policy administration for the business obtained from these
transactions which it outsources to third party administrators.

     During 1997, the Company made a strategic decision to withdraw from the
group accident and health and special risk reinsurance business. This business
was primarily conducted through participation in reinsurance pools. Since
October 1997, the Company has ceased to renew or accept new pool participations
and has also ceased direct marketing activity.

  Estimates, Risks and Uncertainties

     The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
developed by management. Any adjustments to reported bases of assets or
liabilities resulting from changes in estimates are reflected in earnings in the
period the estimates are revised.

     Certain management estimates are based, in part, on information provided by
ceding companies. As is usual in the reinsurance business, ceding companies
periodically update, refine and revise reinsurance information provided to the
Company. The financial effects resulting from the incorporation of revised data
are reflected in earnings as changes in estimates.

     Mortality and morbidity experience, significant factors in the
determination of the results of operations for the life insurance industry,
generally are predictable over time but are subject to fluctuations from year to
year and quarter to quarter. A significant fluctuation from period to period
could adversely affect the Company's results of operations.

     As of December 31, 1997, the Company had net assets of $23,745 related to
reinsurance of Canadian risks. A deterioration in the exchange rate of Canadian
currency could have an adverse effect on results of operations.

                                       31
<PAGE>   33
                      LIFE RE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2.  SIGNIFICANT ACCOUNTING POLICIES

  Investments

     Fixed maturities in these notes include fixed maturity securities which are
part of assets held by ceding company under reinsurance treaty and those
included in the caption fixed maturities in the accompanying consolidated
balance sheets.

     Fixed maturities, consisting of bonds and redeemable preferred stocks, and
equity securities, consisting of common and nonredeemable preferred stocks, are
classified as available for sale and are reported at fair value. Unrealized
gains and losses on available for sale securities are recorded directly in
common shareholders' equity with no effect on income. These amounts are net of
deferred income taxes and a valuation adjustment which represents the change in
amortization of deferred acquisition costs that would have been recorded as a
charge or credit to operations had the relating unrealized gains or losses been
realized.

     Mortgage loans are carried at amortized unpaid balances, net of provisions
for estimated losses. Real estate is carried at cost.

     Short-term investments are stated at cost and policy loans are stated at
aggregate unpaid principal balances.

     Realized gains or losses from sales of investments, determined on the
specific identification basis, and declines in fair value determined to be other
than temporary are included in net income.

     Realized investment gains and losses are reported net of related expenses
and include the amount of amortization of deferred acquisition costs resulting
from the inclusion of such realized gains or losses in the gross profits used
for the calculation of such amortization.

  Fair Values of Financial Instruments

     The fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between willing parties.
All financial instruments of the Company are carried at amounts which
approximate fair value except amounts related to insurance contracts, which are
exempt from fair value reporting and disclosure requirements.

     The following methods and assumptions were used by the Company to estimate
the fair value of financial instruments reported or disclosed in the financial
statements.

     Investment securities:  Fair values of fixed maturities and equity
securities are obtained from independent pricing services which generally use
quoted market prices, where available. For securities for which quoted market
prices are not available and for securities which independent pricing services
are unable to price, fair values are obtained from the Company's outside
portfolio managers, who obtain them from broker/dealers or estimate them using
analytic pricing methods. These pricing methods determine fair values by
discounting expected future cash flows using current market rates applicable to
the yield, credit quality and maturity of comparable quoted securities. The fair
values resulting from the application of these methods are affected by the
assumptions used, including the discount rate and estimates of future cash
flows. Such derived fair value estimates may not be substantiated by comparison
to independent markets and, in many cases, could not be realized in immediate
settlements of the instruments.

     Policy loans:  The carrying value of policy loans approximates fair value,
as the average loan interest rate approximates interest rates currently offered
for similar loans.

     Cash and short-term investments:  The carrying amounts reported for these
instruments approximate their fair values, due to their short maturity.

                                       32
<PAGE>   34
                      LIFE RE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Loans payable:  The carrying value of loans payable approximates their fair
value, as these loans have variable rate interest terms.

     Capital Securities:  The carrying value of capital securities approximates
their fair value.

     Insurance contracts:  Fair values of insurance contracts are not required
to be disclosed. The fair values of liabilities under all insurance contracts
are taken into consideration in the Company's overall management of interest
rate risk, which minimizes exposure to changing interest rates by seeking to
match investment cash flows with amounts due under insurance contracts.

  Recognition of Policy Revenues and Related Expenses

     Policy revenues consist of premiums under traditional life and accident and
health and special risk insurance policies and fees and charges under interest
sensitive life insurance policies and annuity contracts.

     Premiums are recognized as revenues over the premium paying periods of the
policies. Benefits and expenses are provided against such revenues to recognize
profits over the estimated lives of the policies through the provision for
future policy benefits and the deferral and amortization of acquisition costs.

     Revenues for annuities and interest sensitive life insurance contracts
consist of policy fees and charges for the cost of insurance, policy
administration and surrenders that have been assessed against policyholder
account balances during the period. Policy claims and benefits in excess of
related policyholder account balances are charged to expense.

  Deferred Acquisition Costs

     The costs of acquiring new business are deferred as acquisition costs and
amortized. For acquisitions of in force blocks of business and stock
acquisitions accounted for as purchases, such costs represent the excess of the
liabilities assumed over the net assets received. For new reinsurance, such
costs are those which vary with and are directly related to the production of
new business, principally commissions. Costs deferred in connection with
traditional life insurance products are amortized over the premium paying period
of the related policies using assumptions consistent with those used to compute
future policy benefits. For annuities and interest sensitive life insurance
products, acquisition costs are amortized generally in proportion to the present
value of expected gross profits from such products. Amortization is adjusted
when current estimates of future gross profits are revised.

  Policy Benefit Liabilities

     Future policy benefits under traditional long-term and group life insurance
contracts have been computed based upon expected investment yields, mortality,
persistency and other assumptions. These assumptions include a margin for
adverse deviation and vary with the characteristics of the plan of insurance,
year of issue, age of insured and other appropriate factors. Mortality and
persistency assumptions are based on the Company's experience as well as
industry experience and standards.

     Future policy benefits for annuities and interest sensitive life insurance
contracts are recorded at accumulated policyholder account values.

     Policy claims include amounts determined on an individual case basis for
reported claims and estimates of incurred but not reported claims developed on
the basis of past experience.

  Federal Income Taxes

     The Company accounts for income taxes using the liability method. Under
this method, deferred tax assets and liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities calculated using the tax rate in effect at the measurement date.
                                       33
<PAGE>   35
                      LIFE RE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Stock Options

     The Company accounts for its stock options under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related Interpretations. Under APB 25, the Company does not incur any expense
from the issuance of stock options because the exercise price of the option
equals the market price of the underlying stock on the date of grant.

  Earnings Per Common Share and Earnings Per Common Share Assuming Dilution

     Earnings per share have been calculated in accordance with Financial
Accounting Standards Board Statement No. 128, "Earnings Per Share" ("SFAS 128").

     Earnings per common share is computed using the weighted average number of
common shares outstanding during the periods presented. Earnings per share
assuming dilution reflects the dilution that could occur if options to purchase
common stock granted under the Company's stock option plans were exercised. The
adoption of SFAS 128 did not result in the restatement of previously reported
earnings per share as the calculation of earnings per share assuming dilution in
accordance with SFAS 128 results in the same per share amounts previously
reported. The following table presents the effect of dilutive common stock
options.

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                                           --------------------------
                                                            1997      1996      1995
                                                           ------    ------    ------
<S>                                                        <C>       <C>       <C>
Weighted average common shares outstanding...............  13,593    13,662    14,921
Net effect of stock options assumed to be exercised......     635       256        16
                                                           ------    ------    ------
  Total common shares assuming dilution..................  14,228    13,918    14,937
                                                           ======    ======    ======
</TABLE>

  New Accounting Pronouncements

     In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), effective for years beginning after December 15, 1997. SFAS 130
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general
purpose financial statements. SFAS 130 requires that all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements and requires that the accumulated
balance of other comprehensive income be displayed separately from retained
earnings and paid in capital in the equity section of the balance sheet. The
implementation of SFAS 130 will not affect results of operations or financial
position but will affect their presentation and disclosure.

     Also in June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"), effective for years
beginning after December 15, 1997. SFAS 131 requires that a public company
report financial and descriptive information about its reportable operating
segments pursuant to criteria that differ from current accounting practice.
Operating segments, as defined, are components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. The financial information to be reported includes segment
profit or loss, certain revenue and expense items and segment assets and
reconciliations to corresponding amounts in the general purpose financial
statements. SFAS 131 also requires information about revenues from products or
services, countries where the company has operations or assets and major
customers. The implementation of SFAS 131 will not affect results of operations
or financial position but will affect the disclosure of segment information.

                                       34
<PAGE>   36
                      LIFE RE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3.  ACQUISITIONS AND REINSURANCE TRANSACTIONS

     The following table summarizes the acquisitions and in force reinsurance
transactions completed by the Company during the three years ended December 31,
1997. These transactions were accounted for as purchases and therefore results
of operations include their effects only from their respective dates of
acquisition. Significant transactions are further discussed below.

<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                                     --------------------------------
                                                       1997        1996        1995
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
Fair value of assets acquired......................  $901,632    $360,372    $327,865
Deferred acquisition costs.........................    71,040      31,993      20,183
                                                     --------    --------    --------
Total assets acquired..............................  $972,672    $392,365    $348,048
                                                     ========    ========    ========
Fair value of liabilities assumed..................  $972,672    $392,365    $348,048
                                                     ========    ========    ========
</TABLE>

     Effective December 30, 1997, the Company entered into an indemnity
reinsurance agreement to coinsure 60% of a block of life insurance policies and
annuity contracts coinsured by Employers Reassurance Corporation ("ERAC") from
Allianz Life Insurance Company of North America. The Company simultaneously
retroceded to ERC Life Insurance Company ("ERC Life"), a subsidiary of ERAC, on
a modified coinsurance basis, 67% of the business assumed. The Company recorded
a liability for policy benefits aggregating $683,345 and received assets,
primarily fixed maturities, with a fair value of $652,019. The Company is
required to maintain assets in a trust at least equal to the statutory reserves
reinsured. The trust assets are managed by the Company's primary investment
manager and are included in total investments in the accompanying balance sheet.
The Company will administer the entire block using a third party administrator.
Under the terms of the agreement, the Company can recapture the business
retroceded to ERC Life over a ten year period beginning in 1998. This agreement
had no effect on results of operations in 1997.

     On September 30, 1997, the Company acquired a 79% interest in American
Merchants Life Insurance Company ("AML") through the purchase of 79% of the
common stock of AML's parent company, AML Acquisition Company, for a purchase
price of $13,034. In conjunction with the purchase, the Company repaid $9,800 of
long-term debt of AML Acquisition Company. The assets acquired, consisting
primarily of invested assets, had a fair value of $145,268 and the liabilities
assumed, principally future policy benefits under life insurance and annuity
contracts, aggregated $132,234.

     Effective July 1, 1997, the Company entered into an indemnity reinsurance
agreement with life insurance subsidiaries of UNUM Corporation to coinsure and
administer a block of insurance in force with liabilities for policy benefits
under life insurance and annuity contracts totaling $117,622. Assets,
principally cash, totaling $108,122 were transferred to the Company.

     On July 31, 1995, the Company acquired 100% of the common stock of REALIC,
formerly John Deere Life Insurance Company, from two wholly owned subsidiaries
of Deere & Company for an adjusted purchase price of $33,335, including direct
costs of the acquisition. The fair value of the assets acquired was $368,779 and
liabilities assumed aggregated $335,444.

     As of June 30, 1996, REALIC acquired, for an adjusted purchase price of
$16,828, 100% of the common stock of two subsidiaries of I.C.H. Corporation. The
assets acquired and liabilities assumed were $166,948 and $150,120,
respectively. By December 31, 1996, these companies had been merged with and
into REALIC.

     On October 31, 1996, REALIC acquired, for a purchase price of $22,314, 100%
of the common stock of New American Life Insurance Company from a subsidiary of
General Accident plc. At the purchase date, this company was merged with and
into REALIC. The assets acquired and liabilities assumed were $135,461 and
$113,147, respectively.

                                       35
<PAGE>   37
                      LIFE RE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Effective May 31, 1996, REALIC acquired a block of insurance in force under
an assumption reinsurance agreement with United Insurance Company of America, a
subsidiary of Unitrin, Inc., whereby it assumed liabilities for future policy
benefits totaling $124,245. Assets totaling $107,334, principally cash, were
transferred to REALIC by the ceding company.

     Effective July 1, 1996, the Company purchased 20% of the common stock of
Resource Financial Corporation ("RFC") for $200 and on September 30, 1996,
purchased $15,000 of preferred stock and $5,000 of long-term debt of a wholly
owned subsidiary of RFC. RFC and its subsidiary, Resource Life Insurance
Company, were organized for the purpose of acquiring certain assets and
operations from subsidiaries of Aon Corporation ("Aon"). RFC provides insurance
product distribution and administrative and financial services for the retail
automobile industry throughout the United States.

     Also effective July 1, 1996, the Company entered into agreements with
affiliates of Aon and with Resource Life Insurance Company which provide for the
Company to reinsure automobile credit insurance produced through RFC or its
predecessor, a substantial portion of which is retroceded by the Company. The
Company pays contingent consideration for a period of five years to a subsidiary
of Aon based on premiums produced through RFC subsequent to June 30, 1996. The
contingent consideration paid through December 31, 1997 is deferred and is being
amortized over the life of the related agreement.

                                       36
<PAGE>   38
                      LIFE RE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4.  POLICY REVENUES AND ACQUISITION COSTS

     Policy revenues are as follows:

<TABLE>
<CAPTION>
                                                     YEARS ENDED DECEMBER 31,
                                           --------------------------------------------
                                               1997            1996            1995
                                           ------------    ------------    ------------
<S>                                        <C>             <C>             <C>
Ordinary life reinsurance................  $    304,198    $    268,902    $    243,672
Group life reinsurance...................        15,206          23,213          24,442
Group accident and health and special
  risk reinsurance.......................       121,241         139,653         112,403
Administrative Reinsurance...............        49,633          19,224           2,714
                                           ------------    ------------    ------------
     Total policy revenues...............  $    490,278    $    450,992    $    383,231
                                           ============    ============    ============
Policy revenues by type are as follows:
Short-term accident and health insurance
  Assumed................................  $    271,142    $    179,549    $    128,934
  Ceded..................................      (139,000)        (39,329)        (16,765)
                                           ------------    ------------    ------------
     Net short-term accident and health
       policy revenues...................       132,142         140,220         112,169
                                           ------------    ------------    ------------
Percentage of amount assumed to net......           205%            128%            115%
Short-term life insurance
  Assumed................................        92,140          53,164          28,576
  Ceded..................................       (70,797)        (29,517)         (4,134)
                                           ------------    ------------    ------------
     Net short-term life policy
     revenues............................        21,343          23,647          24,442
                                           ------------    ------------    ------------
Percentage of amount assumed to net......           432%            225%            117%
Long-term life insurance
  Primary................................        32,385          19,521           2,792
  Assumed................................       371,061         331,282         292,920
  Ceded..................................       (66,653)        (63,678)        (49,092)
                                           ------------    ------------    ------------
     Net long-term life policy
     revenues............................       336,793         287,125         246,620
                                           ------------    ------------    ------------
Percentage of amount assumed to net......           110%            115%            119%
     Total policy revenues...............  $    490,278    $    450,992    $    383,231
                                           ============    ============    ============
Percentage of amount assumed to net......           129%            125%            118%
Life insurance in force
  Primary................................  $  5,257,000    $  4,519,000    $  1,185,000
  Assumed................................   152,346,000     111,493,000      90,098,000
  Ceded..................................   (28,694,000)    (19,679,000)    (15,500,000)
                                           ------------    ------------    ------------
     Net life insurance in force.........  $128,909,000    $ 96,333,000    $ 75,783,000
                                           ============    ============    ============
Percentage of amount assumed to net......           118%            116%            119%
</TABLE>

     Changes in deferred acquisition costs are as follows:

<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                                     --------------------------------
                                                       1997        1996        1995
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
Balance, beginning of year.........................  $223,972    $166,424    $165,023
Acquisitions and in force reinsurance
  transactions.....................................    71,040      31,993      20,183
Capitalization of costs of acquiring new
  business.........................................    56,576      37,410      12,371
Interest accretion.................................    18,508      15,888      15,685
Amortization.......................................   (38,904)    (32,740)    (30,914)
Amortization related to realized gains.............      (118)                   (494)
Valuation adjustment for unrealized (gains)
  losses...........................................    (5,504)      4,997     (15,430)
                                                     --------    --------    --------
     Balance, end of year..........................  $325,570    $223,972    $166,424
                                                     ========    ========    ========
</TABLE>

                                       37
<PAGE>   39
                      LIFE RE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Deferred acquisition costs are amortized with interest at rates ranging
from 5.3% to 8.7% except for the amount attributable to the acquisition of LRCA
which is amortized with interest at 15%. The percentage of deferred acquisition
costs which is expected to be amortized in each of the next five years is 15.6%,
14.2%, 13.0%, 11.8% and 10.8%, and the percentage expected to be amortized in
each of the next five years, net of interest accretion, is 8.6%, 7.9%, 7.2%,
6.5% and 6.0%.

5.  INVESTMENTS

     Securities with a fair value of $109,266 at December 31, 1997 are owned by
a ceding company and held in a dedicated portfolio in conjunction with an
indemnity reinsurance agreement. Under the terms of the agreement, investment
income, realized gains and losses and all other risks and rewards of ownership
of the assets in the portfolio inure to the benefit or detriment of the Company.
Accordingly, these assets, consisting of $107,103 of fixed maturities and $1,037
of equity securities classified as available for sale and $1,126 of short-term
investments at December 31, 1997, have been included as investments in the
accompanying balance sheet. The portfolio is managed by the Company's primary
investment advisor under guidelines approved by both parties to the reinsurance
agreement, subject to the requirement that the statutory carrying value of the
assets in the dedicated portfolio must be maintained by the Company in an amount
at least equal to the statutory reserves on the reinsured business.

     Securities with a fair value of $121,931 at December 31, 1997 were on
deposit with various governmental insurance regulatory agencies to comply with
applicable insurance laws.

     Net unrealized appreciation of available for sale securities is as follows:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1997       1996
                                                              --------    -------
<S>                                                           <C>         <C>
Net unrealized gains on securities..........................  $101,475    $39,745
Deferred federal income tax on net unrealized gains.........    35,357     13,910
                                                              --------    -------
  Net unrealized gains......................................    66,118     25,835
                                                              --------    -------
Adjustment to deferred acquisition costs on annuities and
  interest sensitive life insurance products................    (7,012)    (1,508)
Deferred federal income tax benefit on adjustment...........    (2,454)      (527)
                                                              --------    -------
  Net adjustment............................................    (4,558)      (981)
                                                              --------    -------
Minority interest in net unrealized appreciation of
  securities................................................      (144)
                                                              --------    -------
  Net unrealized appreciation of securities.................  $ 61,416    $24,854
                                                              ========    =======
</TABLE>

                                       38
<PAGE>   40
                      LIFE RE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The amortized cost, unrealized gains and losses and estimated fair values
of available for sale securities are as follows (see Note 2 for a discussion of
the fair value of financial instruments):

<TABLE>
<CAPTION>
                                             GROSS        GROSS
                AMORTIZED                  UNREALIZED   UNREALIZED    FAIR
            DECEMBER 31, 1997                 COST        GAINS      LOSSES      VALUE
            -----------------              ----------   ----------   -------   ----------
<S>                                        <C>          <C>          <C>       <C>
Fixed maturities:
  U.S. government obligations............  $   31,910    $    583    $     5   $   32,488
  Foreign government obligations.........      68,278       3,693        684       71,287
  Public utilities.......................     215,656      14,635        155      230,136
  Corporate securities...................   1,559,850      71,918      7,248    1,624,520
  Mortgage-backed securities.............     461,545      17,085        560      478,070
  Redeemable preferred stock.............       5,825         575          3        6,397
                                           ----------    --------    -------   ----------
                                            2,343,064     108,489      8,655    2,442,898
Equity securities........................      26,171       1,643          2       27,812
                                           ----------    --------    -------   ----------
                                           $2,369,235    $110,132    $ 8,657   $2,470,710
                                           ==========    ========    =======   ==========
</TABLE>

<TABLE>
<CAPTION>
                                             GROSS        GROSS
                AMORTIZED                  UNREALIZED   UNREALIZED    FAIR
            DECEMBER 31, 1996                 COST        GAINS      LOSSES      VALUE
            -----------------              ----------   ----------   -------   ----------
<S>                                        <C>          <C>          <C>       <C>
Fixed maturities:
  U.S. government obligations............  $   13,421    $    160    $    16   $   13,565
  Foreign government obligations.........      25,318       1,523         23       26,818
  Public utilities.......................     219,987       9,052      1,644      227,395
  Corporate securities...................   1,042,825      34,636     11,065    1,066,396
  Mortgage-backed securities.............     374,216       8,753      2,669      380,300
  Redeemable preferred stock.............       5,772         351          8        6,115
                                           ----------    --------    -------   ----------
                                            1,681,539      54,475     15,425    1,720,589
Equity securities........................      20,841         695                  21,536
                                           ----------    --------    -------   ----------
                                           $1,702,380    $ 55,170    $15,425   $1,742,125
                                           ==========    ========    =======   ==========
</TABLE>

     At December 31, 1997, the contractual maturities of investments in fixed
maturities are as follows:

<TABLE>
<CAPTION>
                                                              AMORTIZED        FAIR
                                                                 COST         VALUE
                                                              ----------    ----------
<S>                                                           <C>           <C>
Due in one year or less.....................................  $   14,072    $   14,063
Due after one year through five years.......................     238,729       242,307
Due after five years through ten years......................     671,830       684,318
Due after ten years.........................................     956,888     1,024,140
Mortgage-backed securities..................................     461,545       478,070
                                                              ----------    ----------
                                                              $2,343,064    $2,442,898
                                                              ==========    ==========
</TABLE>

                                       39
<PAGE>   41
                      LIFE RE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Investments in any entity in excess of ten percent of common shareholders'
equity at December 31, 1997, other than investments issued or guaranteed by the
U.S. government, are as follows:

<TABLE>
<CAPTION>
                                                              FAIR VALUE
                                                              ----------
<S>                                                           <C>
Fixed maturities:
  Green Tree Financial Corporation..........................   $ 37,622
  Federal National Mortgage Association.....................   $160,264
  Federal Home Loan Mortgage Corporation....................   $178,587
</TABLE>

     Major sources and related amounts of investment income are as follows:

<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                                     --------------------------------
                                                       1997        1996        1995
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
Fixed maturities...................................  $146,032    $120,759    $ 95,391
Short-term investments.............................     2,348       1,901       3,010
Other..............................................     6,160       3,905       1,931
                                                     --------    --------    --------
Total investment income............................   154,540     126,565     100,332
Investment expenses................................    (3,580)     (2,225)     (1,716)
                                                     --------    --------    --------
Investment income..................................  $150,960    $124,340    $ 98,616
                                                     ========    ========    ========
</TABLE>

     The changes in unrealized gains (losses) on securities are as follows:

<TABLE>
<CAPTION>
                                                         YEARS ENDED DECEMBER 31,
                                                      -------------------------------
                                                       1997        1996        1995
                                                      -------    --------    --------
<S>                                                   <C>        <C>         <C>
Fixed maturities....................................  $60,784    $(42,898)   $141,971
Equity securities...................................      946         133         374
                                                      -------    --------    --------
Change in unrealized gains (losses).................  $61,730    $(42,765)   $142,345
                                                      =======    ========    ========
</TABLE>

     Realized investment gains are as follows:

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                                        -----------------------------
                                                         1997       1996       1995
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Sales:
  Realized gains......................................  $ 8,659    $18,744    $ 6,497
  Realized losses.....................................   (1,406)    (3,383)    (1,973)
                                                        -------    -------    -------
  Net realized gains on sales.........................    7,253     15,361      4,524
                                                        -------    -------    -------
Calls, maturities and writedowns:
  Realized gains......................................      372      3,253      1,006
  Realized losses.....................................     (373)      (194)      (464)
  Writedowns..........................................   (2,620)      (533)      (869)
                                                        -------    -------    -------
  Net realized gains (losses) on calls, maturities and
     writedowns.......................................   (2,621)     2,526       (327)
                                                        -------    -------    -------
Amortization of deferred acquisition costs............     (118)                 (495)
                                                        -------    -------    -------
Related expenses......................................                (677)
                                                        -------    -------    -------
     Total realized investment gains..................  $ 4,514    $17,210    $ 3,702
                                                        =======    =======    =======
</TABLE>

     On March 18, 1996, Life Re Corporation sold its equity investment in
Nacolah Holding Corporation ("Nacolah"), the parent of North American Company
for Life and Health Insurance, in connection with the

                                       40
<PAGE>   42
                      LIFE RE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

acquisition of Nacolah by Sammons Enterprises, Inc. The Company received
proceeds of $25,057 and recorded a realized investment gain of $13,540.

6.  POLICY BENEFIT LIABILITIES

     Policy benefit liabilities consist of the following:

<TABLE>
<CAPTION>
                                                      DECEMBER 31,
                                                ------------------------     INTEREST
                                                   1997          1996       RATE RANGE
                                                ----------    ----------    -----------
<S>                                             <C>           <C>           <C>
Future policy benefits under life insurance
  and annuity contracts:
  Traditional life............................  $1,019,078    $  769,673    6.0% - 9.5%
  Interest Sensitive Life.....................   1,046,036       521,837    4.5% - 7.5%
  Annuities...................................     512,175       421,160    4.0% - 9.0%
  Group life..................................      11,042        10,410    2.5% - 5.5%
                                                ----------    ----------
                                                 2,588,331     1,723,080
Claims payable under life insurance
  contracts...................................      92,970        94,117
Accident and health insurance claim
  reserves....................................     134,220       127,061    3.0% - 7.0%
Other policy benefits.........................      55,722        38,037
                                                ----------    ----------
                                                $2,871,243    $1,982,295
                                                ==========    ==========
</TABLE>

     The Company's accident and health insurance business is of short duration
and generally claims are reported within a short period of time after incurral.
There have been no material favorable or adverse developments affecting accident
and health insurance claims reserves in 1997, 1996 or 1995.

7.  INCOME TAXES

     TexasRe and LRCA file a consolidated federal income tax return with Life Re
Corporation. REALIC and AML file separate federal income tax returns.

     The provisions for federal income taxes are as follows:

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                                        -----------------------------
                                                         1997       1996       1995
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Current...............................................  $24,362    $ 4,065    $10,270
Deferred..............................................      (15)    17,825      8,906
Allocated to paid in capital for tax benefit related
  to stock options and stock grants...................    2,331
                                                        -------    -------    -------
Provision for federal income taxes....................  $26,678    $21,890    $19,176
                                                        =======    =======    =======
</TABLE>

                                       41
<PAGE>   43
                      LIFE RE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The deferred income tax balances, included in other liabilities, are as
follows:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                1997       1996
                                                              --------    -------
<S>                                                           <C>         <C>
Deferred tax liabilities:
  Deferred acquisition costs................................  $ 84,621    $60,204
  Net unrealized appreciation of securities.................    35,357     13,910
  Policy receivables, net...................................     2,637      1,086
                                                              --------    -------
          Total deferred tax liabilities....................   122,615     75,200
                                                              --------    -------
Deferred tax assets:
  Policy benefits, net......................................    52,211     30,884
  Other investment items....................................     1,174      2,584
  Net operating loss carryforwards..........................       805        211
  Other, net................................................     5,258      2,843
                                                              --------    -------
          Total deferred tax assets.........................    59,448     36,522
                                                              --------    -------
          Net deferred tax liabilities......................  $ 63,167    $38,678
                                                              ========    =======
</TABLE>

     At December 31, 1997, income taxes payable of $17,240 are included in other
liabilities, and at December 31, 1996, federal income taxes recoverable of
$7,937 are included in other assets. In 1997 and 1995, the effective income tax
rate on income before federal income taxes and extraordinary charge did not vary
materially from the statutory federal income tax rate. The realized gain on the
sale of Nacolah in 1996 (Note 5) and other income triggered the utilization of
tax net operating loss carryforwards available to Life Re Corporation and a
corresponding reversal of the previously established deferred tax valuation
allowance, resulting in a tax benefit of $4,775. This reduced the effective
income tax rate in 1996 to 29%.

8.  LOANS PAYABLE

     The Company has a senior secured revolving and term loan facility with a
total commitment of $160,000 (the "Amended and Restated Credit Agreement").
Under the Amended and Restated Credit Agreement, at the conclusion of the
revolving loan period, the loan converts to a five year amortizing term loan in
a principal amount equal to the balance of the revolving loan at conversion.
During 1997, the maturity date of the revolving loan period was extended to
January 2000 and may, with bank consent, be extended for an additional one year
period. As of December 31, 1997, borrowings were $125,000. Unamortized deferred
loan costs associated with a prior credit agreement of $1,545, before federal
tax benefit of $541, were charged to income in 1995 as an extraordinary charge.

     Borrowings under the Amended and Restated Credit Agreement are secured by a
first priority perfected security interest in all of the capital stock and
surplus debentures of TexasRe and a negative pledge with respect to the capital
stock of LRCA.

     The Amended and Restated Credit Agreement contains certain covenants which,
among other things, restrict under certain circumstances the payment of
dividends and repurchase of treasury stock. Further, certain actions of the
Company are limited, including those related to mergers, acquisitions,
indebtedness and investments. The Company and the life insurance subsidiaries
are required to meet certain financial ratios and maintain a minimum level of
statutory surplus.

     Interest is payable at a rate or rates equal to a margin plus a eurodollar
interbank offered rate ("IBOR"). Such margin over IBOR is adjustable based on
the Company's indebtedness to capitalization ratio as defined at the end of each
quarter.

                                       42
<PAGE>   44
                      LIFE RE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Principal payments are due on January 5 of each year as follows (assuming
no additional extension of the revolving loan):

<TABLE>
<CAPTION>
                                              PERCENT OF PRINCIPAL
                                                  OUTSTANDING
                                                 AT CONVERSION
                    YEAR                          TO TERM LOAN
                    ----                      --------------------
<S>                                           <C>
2000........................................           12.5%
2001........................................         15.625%
2002........................................         21.875%
2003........................................           25.0%
2004........................................           25.0%
</TABLE>

     At December 31, 1997, the outstanding borrowings bear interest at an annual
effective rate of 6.26%. Interest paid on outstanding loans was $8,083, $8,774
and $9,807 in 1997, 1996 and 1995, respectively.

9.  CORPORATION-OBLIGATED, MANDATORILY REDEEMABLE CAPITAL SECURITIES

     On June 6, 1997, the Company completed a private placement under Rule 144A
of the Securities Act of 1933, as amended, of $100,000 of 8.72% capital
securities of Life Re Capital Trust I ("Trust I"), a subsidiary of the Company.
Distributions are cumulative and payable in arrears beginning December 15, 1997.
The securities have a maturity date of June 15, 2027 and may be redeemed, at the
option of the Company, at any time on or after June 15, 2007. Payments on the
securities are fully and unconditionally guaranteed by the Company. The
securities have an effective interest rate of 8.75%. The assets of Trust I
consist of junior subordinated debentures issued by Life Re Corporation which
have terms that parallel the terms of the capital securities.

     On March 17, 1998, the Company, through Life Re Capital Trust II ("Trust
II"), completed a public offering of 2,070,000 6% Adjustable Conversion-rate
Equity Security Units ("Units") (the "Units Offering"). The Units consist of
Quarterly Income Preferred Securities ("QUIPS") and a forward purchase contract
(the "Contract") for the Company's common stock. The QUIPS have a maturity of
March 15, 2003 and are subject to a put option by the QUIPS holder on either
March 15, 2001 or June 15, 2001.

10.  COMMON SHAREHOLDERS' EQUITY

     Concurrently with the Units Offering (Note 9), on March 17, 1998, the
Company completed a public offering in which it sold 3,500,000 shares of common
stock (the "Common Stock Offering"). The Company intends to use the net proceeds
of the Common Stock Offering and the Units Offering totaling approximately
$352,000 to provide additional capital to the insurance subsidiaries to support
business growth, as well as for general corporate purposes.

     In addition, under the terms of the Contract (Note 9), on March 15, 2001,
the holder will purchase from the Company between 0.81967 of a share and one
share of common stock, depending on the then current market price, for a
purchase price of $66.00.

     Under Life Re Corporation's Restated Certificate of Incorporation,
5,000,000 shares of preferred stock are available for future issuance without
shareholder approval. The rights, terms and preferences of the preferred stock
may be determined by the Company's Board of Directors.

     Pursuant to a stock repurchase program approved by the Company's Board of
Directors, 2,150,400 shares of common stock out of a total authorization of
3,000,000 shares were acquired through December 31, 1997 for a total purchase
price of $46,647. In conjunction with the Common Stock and Units Offerings, the
Board of Directors elected to discontinue the stock repurchase program. Treasury
stock also reflects the repurchase of shares of stock from certain officers in
accordance with the terms of their stock purchase agreements.

                                       43
<PAGE>   45
                      LIFE RE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The availability of funds to meet obligations, including dividends, capital
security distributions and debt service, is dependent, in part, on the ability
of its subsidiaries to transfer funds to Life Re Corporation. The subsidiaries
are subject to certain state laws and regulations which limit their ability to
transfer funds and pay dividends. Generally, the subsidiaries may not, without
prior regulatory approval, transfer cash dividends, loans or advances in any
twelve month period in excess of the greater of the prior year's statutory
operating income or 10% of capital and surplus at the preceding year end.
Additionally, under Connecticut law, no dividend in an amount exceeding LRCA's
earned surplus may be transferred to TexasRe without prior regulatory approval.
Approval has been received from the Connecticut Department of Insurance to
define earned surplus for this purpose to include amounts of paid in surplus in
excess of $125,000. At December 31, 1997, net assets of TexasRe totaling
$113,130 are not available for transfer to Life Re Corporation in 1998 except
with prior approval of state regulatory authorities. Dividends paid to Life Re
Corporation by TexasRe were $16,314 in 1997, $12,087 in 1996 and $15,000 in
1995.

     Life Re Corporation owns $160,500 of surplus debentures issued by TexasRe
which provide funds to Life Re Corporation in the form of principal and interest
payments. Under the terms of an amendment to TexasRe's surplus debentures, no
prior approval of the Texas Department of Insurance is required to pay or prepay
scheduled principal or interest on the surplus debentures provided that, after
giving effect to any such payment, the statutory surplus of TexasRe exceeds
$125,000. The amendment to TexasRe's surplus debentures was approved under the
consideration that statutory surplus, as defined, in excess of $125,000 be
reflected in liabilities to the extent of outstanding surplus debenture interest
and principal. Payments of surplus debenture principal and interest to Life Re
Corporation by TexasRe totaled $9,799, $10,008 and $29,400 in 1997, 1996 and
1995, respectively.

     The subsidiaries' statutory basis financial statements are prepared in
accordance with accounting practices prescribed or permitted by their respective
domiciliary states. "Prescribed" statutory accounting practices include state
laws, regulations and general administrative rules, as well as publications of
the National Association of Insurance Commissioners ("NAIC"). "Permitted"
statutory accounting practices encompass all accounting practices that are not
prescribed; such practices may differ from state to state, may differ from
company to company within a state and may change in the future. The Company does
not utilize any permitted accounting practices. The NAIC currently is in the
process of codifying statutory accounting practices. That project, when
completed, may change prescribed statutory accounting practices and thus may
result in changes to the accounting practices that the subsidiaries use to
prepare their statutory basis financial statements.

                                       44
<PAGE>   46
                      LIFE RE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The combined statutory basis financial position of TexasRe and subsidiaries
as of December 31, 1997 and 1996 is as follows:

<TABLE>
<CAPTION>
                                  REALIC        LRCA       TEXASRE     ELIMINATIONS*      TOTAL
                                  ------     ----------    --------    -------------    ----------
<S>                              <C>         <C>           <C>         <C>              <C>
December 31, 1997:
Assets.........................  $689,664    $2,328,054    $184,645      $(328,881)     $2,873,482
                                 ========    ==========    ========      =========      ==========
Liabilities....................   644,100     2,154,144      58,945       (109,407)      2,747,782
Capital and surplus............    45,564       173,910     125,700       (219,474)        125,700
                                 --------    ----------    --------      ---------      ----------
                                 $689,664    $2,328,054    $184,645      $(328,881)     $2,873,482
                                 ========    ==========    ========      =========      ==========
December 31, 1996:
Assets.........................  $717,898    $1,434,253    $188,274      $(318,300)     $2,022,125
                                 ========    ==========    ========      =========      ==========
Liabilities....................  $684,663    $1,261,357    $ 62,574      $(112,169)     $1,896,425
Capital and surplus............    33,235       172,896     125,700       (206,131)        125,700
                                 --------    ----------    --------      ---------      ----------
                                 $717,898    $1,434,253    $188,274      $(318,300)     $2,022,125
                                 ========    ==========    ========      =========      ==========
</TABLE>

---------------
* Represents the elimination of intercompany balances.

     Combined statutory basis net income of TexasRe and subsidiaries was $16,315
and $27,087 in 1996 and 1995. In 1997, TexasRe and subsidiaries had a statutory
basis net loss of $54,121.

11.  STOCK OPTIONS

     At December 31, 1997, 2,740,525 shares of authorized common stock are
reserved for issuance under two stock options plans, the 1992 Life Re
Corporation Stock Option Plan and the 1993 Non-Employee Directors Stock Option
Plan. The Board of Directors has approved an amendment to the 1992 Life Re
Corporation Stock Option Plan to allocate an additional 1,500,000 common shares
to the Plan to be effective when it is approved by stockholders. The plans
provide for the granting of nonqualified stock options or incentive stock
options to certain officers, employees and directors. Options are granted at no
less than fair value on the date of grant for a period not in excess of ten
years. They vest over periods of four to five years or in full upon the
occurrence of certain events including a change in control of the Company.

     Statement of Financial Accounting Standards No. 123, "Accounting for Stock
Based Compensation" ("SFAS 123"), requires disclosure of pro forma information
regarding net income and earnings per share as if the Company had accounted for
its employee stock options under the fair value method of SFAS 123. This method
provides for employee stock options to be measured at fair value on the date of
grant which is then amortized to expense over the options' vesting period. The
fair value of the options for the pro forma disclosures which follow was
estimated using a Black-Scholes option pricing model with the following
assumptions for 1997, 1996 and 1995, respectively: risk-free interest rates
ranging from 6.3% to 6.4%, 5.4% to 6.8% and 6.8% to 7.7%, respectively; dividend
yields of 1.0% in each year; volatility factors of the expected market price of
the Company's common stock of 20% in 1997 and 25% in 1996 and 1995; and
weighted-average expected life of the options of 5 years.

     The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. Option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

                                       45
<PAGE>   47
                      LIFE RE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Pro forma net income and earnings per common share including the effects of
amortization of the estimated fair values of employee stock options granted
after December 15, 1994 are as follows:

<TABLE>
<CAPTION>
                                                          YEARS ENDED DECEMBER 31,
                                                        -----------------------------
                                                         1997       1996       1995
                                                        -------    -------    -------
<S>                                                     <C>        <C>        <C>
Pro forma net income..................................  $47,256    $53,116    $34,299
Pro forma earnings per common share...................  $  3.48    $  3.89    $  2.30
Pro forma earnings per common share assuming
  dilution............................................  $  3.32    $  3.82    $  2.30
</TABLE>

Options outstanding are as follows:

<TABLE>
<CAPTION>
                                                        YEARS ENDED DECEMBER 31,
                       ------------------------------------------------------------------------------------------
                                   1997                           1996                           1995
                       ----------------------------   ----------------------------   ----------------------------
                                   WEIGHTED-AVERAGE               WEIGHTED-AVERAGE               WEIGHTED-AVERAGE
                        OPTIONS     EXERCISE PRICE     OPTIONS     EXERCISE PRICE     OPTIONS     EXERCISE PRICE
                       ---------   ----------------   ---------   ----------------   ---------   ----------------
<S>                    <C>         <C>                <C>         <C>                <C>         <C>
Balance, beginning of
  year...............  1,794,125         $23.19       1,258,500         $20.89         912,500         $21.40
Granted..............    637,500         $39.65         714,000         $26.61         368,000         $19.60
Exercised............   (134,850)        $21.67        (169,625)        $20.58          (5,000)        $22.00
Canceled.............    (15,750)        $29.95          (8,750)        $22.70         (17,000)        $20.05
                       ---------                      ---------                      ---------
Balance, end of
  year...............  2,281,025         $27.83       1,794,125         $23.19       1,258,500         $20.89
                       =========                      =========                      =========
Exercisable at end of
  year...............    946,481         $22.23         487,225         $21.45         476,750         $21.72
Weighted-average fair
  value of options
  granted during the
  year...............                    $11.07                          $8.12                          $6.39
</TABLE>

     Exercise prices for options outstanding as of December 31, 1997 range from
$16.63 to $42.38. The weighted-average remaining contractual life of those
options is 7 years.

12.  EMPLOYEE BENEFIT PLANS

     Substantially all full time employees are covered by a noncontributory
defined benefit pension plan. Benefits are determined by a formula which relates
the pension payable to years of service at retirement, final five year average
salary and wages covered by Social Security. Annual contributions to the plan
are sufficient to satisfy legal funding requirements. In addition, the Company
has an unfunded Supplemental Executive Retirement Plan which is a nonqualified
plan that provides certain officers defined pension benefits in excess of limits
imposed by federal tax law. The Company also sponsors a defined contribution
savings plan covering substantially all employees with at least six months of
service. The Company contributes 50% of the first 6% of salary contributed by
employees. Participants vest in Company contributions over a four year period.
The combined expense associated with employee benefit plans was $1,438, $1,151
and $1,031 in 1997, 1996 and 1995, respectively.

13.  REINSURANCE CEDED

     In the normal course of business, the Company seeks to limit its exposure
to loss by ceding reinsurance to retrocessionaires. In general, the Company
retains a maximum of $1,000 on any one life for ordinary life insurance business
with certain limited exceptions depending upon age and classification of the
risk. Amounts in excess of the retention are ceded to a pool of
retrocessionaires. From time to time, the Company has also entered into quota
share retrocessional agreements. In general, the Company's policy in regard to
group

                                       46
<PAGE>   48
                      LIFE RE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

insurance business is to retain not more than $250 of liability on any one life
insurance risk, $300 on any one accident or health insurance risk or, for
special risk insurance, $1,000 on any one risk. The Company has agreements with
group retrocessionaires primarily on an excess basis. Contracts for reinsurance
ceded do not relieve the Company from its obligations under contracts for
reinsurance assumed. Failure of retrocessionaires to honor their obligations
could result in losses to the Company; however, no amounts are deemed
uncollectible at December 31, 1997.

     The Company's policy generally is to require collateral from those
retrocessionaires not authorized to conduct reinsurance business in Connecticut,
LRCA's domiciliary state, in an amount at least equal to the statutory reserves
reinsured. Collateral is provided in the form of letters of credit and trust
agreements.

     Amounts receivable on reinsurance ceded are as follows:

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                              --------------------
                                                                1997        1996
                                                              --------    --------
<S>                                                           <C>         <C>
Future policy benefits under life insurance contracts.......  $192,259    $213,001
Claims recoverable under life insurance contracts...........    23,577      19,752
Accident and health insurance claims reserves...............    42,302      27,446
Other policy benefits.......................................    15,245      14,478
Acquisition costs...........................................    74,445       2,948
                                                              --------    --------
                                                              $347,828    $277,625
                                                              ========    ========
</TABLE>

     Amounts receivable on reinsurance ceded includes approximately $60,000
representing ERC Life's 67% retrocessional share of the acquisition costs
associated with the ERAC agreement (Note 3).

     Policy benefits recovered on reinsurance ceded for the years ended December
31, 1997, 1996 and 1995 were $107,309, $75,971 and $90,435, respectively.

                                       47
<PAGE>   49
                      LIFE RE CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14.  UNAUDITED QUARTERLY FINANCIAL DATA

<TABLE>
<CAPTION>
                                           FIRST      SECOND     THIRD      FOURTH
                                          QUARTER    QUARTER    QUARTER    QUARTER     TOTAL
                                          --------   --------   --------   --------   --------
<S>                                       <C>        <C>        <C>        <C>        <C>
1997
Policy revenues.........................  $114,713   $122,608   $123,573   $129,384   $490,278
                                          ========   ========   ========   ========   ========
Total revenues..........................  $150,359   $159,988   $163,426   $171,979   $645,752
Total benefits and expenses.............   134,901    141,453    143,666    149,508    569,528
                                          --------   --------   --------   --------   --------
Income before federal income taxes......    15,458     18,535     19,760     22,471     76,224
Provision for federal income taxes......     5,410      6,488      6,917      7,863     26,678
                                          --------   --------   --------   --------   --------
Net income..............................  $ 10,048   $ 12,047   $ 12,843   $ 14,608   $ 49,546
                                          ========   ========   ========   ========   ========
Earnings per common share...............  $    .74   $    .89   $    .94   $   1.07   $   3.64
                                          ========   ========   ========   ========   ========
Earnings per common share assuming
  dilution..............................  $    .71   $    .85   $    .90   $   1.01   $   3.48
                                          ========   ========   ========   ========   ========
1996
Policy revenues.........................  $100,728   $104,467   $123,750   $122,047   $450,992
                                          ========   ========   ========   ========   ========
Total revenues..........................  $143,588   $133,603   $157,346   $158,005   $592,542
Total benefits and expenses.............   119,871    117,638    141,273    137,669    516,451
                                          --------   --------   --------   --------   --------
Income before federal income taxes......    23,717     15,965     16,073     20,336     76,091
Provision for federal income taxes......     3,561      5,588      5,623      7,118     21,890
                                          --------   --------   --------   --------   --------
Net income..............................  $ 20,156   $ 10,377   $ 10,450   $ 13,218   $ 54,201
                                          ========   ========   ========   ========   ========
Earnings per common share...............  $   1.45   $    .76   $    .77   $    .98   $   3.97
                                          ========   ========   ========   ========   ========
Earnings per common share assuming
  dilution..............................  $   1.43   $    .74   $    .76   $    .95   $   3.89
                                          ========   ========   ========   ========   ========
</TABLE>

     Due to changes in the number of average shares outstanding, quarterly
earnings per share do not add to the total.

     The adoption of SFAS 128 did not result in the restatement of previously
reported earnings per share as the calculation of earnings per share assuming
dilution in accordance with SFAS 128 results in the same per share amounts
previously reported.

                                       48
<PAGE>   50

                      LIFE RE CORPORATION AND SUBSIDIARIES

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                  SCHEDULE II

                              LIFE RE CORPORATION
                                 BALANCE SHEETS
                                (PARENT COMPANY)

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              ----------------------
                                                                1997         1996
                                                              ---------    ---------
                                                              (IN THOUSANDS, EXCEPT
                                                                   SHARE DATA)
<S>                                                           <C>          <C>
ASSETS
Investment in common stock of subsidiaries(1)...............  $412,716     $250,483
Long-term debt of subsidiaries(1)...........................   170,300      160,500
Securities available for sale...............................     6,472          202
Short-term investments......................................     9,174        1,699
Cash........................................................      (127)         175
Interest receivable on long-term debt of subsidiaries(1)....       869          608
Due from subsidiaries(1)....................................    13,427
Other assets................................................     7,861       11,781
                                                              --------     --------
          Total assets......................................  $620,692     $425,448
                                                              ========     ========
LIABILITIES
Accrued expenses and other liabilities......................  $ 21,902     $  2,085
Due to subsidiaries(1)......................................                  8,252
Junior subordinated debentures payable to subsidiary(1).....   100,000
Loans payable...............................................   125,000      125,000
                                                              --------     --------
          Total liabilities.................................   246,902      135,337
                                                              --------     --------
SHAREHOLDERS' EQUITY
Common stock (par value $.001 per share; authorized
  40,000,000 shares; issued 15,835,785 and 15,700,935
  shares, respectively).....................................  $     16     $     16
Paid in capital.............................................   111,337      105,226
Net unrealized appreciation of securities...................    61,416       24,854
Retained earnings...........................................   249,297      206,822
Treasury stock -- at cost (2,205,223 and 2,172,769 shares,
  respectively).............................................   (48,276)     (46,807)
                                                              --------     --------
          Total shareholders' equity........................  $373,790     $290,111
                                                              --------     --------
          Total liabilities and shareholders' equity........  $620,692     $425,448
                                                              ========     ========
</TABLE>

---------------
(1) Eliminated in consolidation.

     The condensed parent company financial statements should be read in
conjunction with the consolidated financial statements of Life Re Corporation
and Subsidiaries included elsewhere herein.

                                       49
<PAGE>   51

                      LIFE RE CORPORATION AND SUBSIDIARIES
                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            SCHEDULE II -- CONTINUED

                              LIFE RE CORPORATION
                              STATEMENTS OF INCOME
                                (PARENT COMPANY)

<TABLE>
<CAPTION>
                                                                YEARS ENDED DECEMBER 31,
                                                              -----------------------------
                                                               1997       1996       1995
                                                              -------    -------    -------
                                                                     (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
REVENUES
Interest income on long-term debt of subsidiaries(1)........  $ 9,906    $ 9,892    $11,402
Investment income...........................................    1,574        767      1,788
Realized investment gains...................................              12,767         61
                                                              -------    -------    -------
          Total revenues....................................   11,480     23,426     13,251
                                                              -------    -------    -------
EXPENSES
Interest expense on loans payable...........................    7,997      8,356     10,743
Interest expense on junior subordinated debentures(1).......    4,970
Other operating expenses....................................    4,693      4,647      2,626
                                                              -------    -------    -------
          Total expenses....................................   17,660     13,003     13,369
                                                              -------    -------    -------
Income before income taxes, equity in undistributed earnings
  of subsidiaries and extraordinary charge..................   (6,180)    10,423       (118)
Provision for federal income taxes (benefit)................   (1,510)         6        (42)
                                                              -------    -------    -------
Income before equity in undistributed earnings of
  subsidiaries and extraordinary charge.....................   (4,670)    10,417        (76)
Equity in earnings of subsidiaries(1).......................   54,216     43,784     35,688
                                                              -------    -------    -------
Income before extraordinary charge..........................   49,546     54,201     35,612
Extraordinary charge, net of tax benefit....................                          1,004
                                                              -------    -------    -------
NET INCOME..................................................  $49,546    $54,201    $34,608
                                                              =======    =======    =======
</TABLE>

---------------
(1) Eliminated in consolidation.

     The condensed parent company financial statements should be read in
conjunction with the consolidated financial statements of Life Re Corporation
and Subsidiaries included elsewhere herein.

                                       50
<PAGE>   52

                      LIFE RE CORPORATION AND SUBSIDIARIES
                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            SCHEDULE II -- CONTINUED

                              LIFE RE CORPORATION
                            STATEMENTS OF CASH FLOWS
                                (PARENT COMPANY)

<TABLE>
<CAPTION>
                                                                 YEARS ENDED DECEMBER 31,
                                                             --------------------------------
                                                               1997        1996        1995
                                                             --------    --------    --------
                                                                      (IN THOUSANDS)
<S>                                                          <C>         <C>         <C>
OPERATING ACTIVITIES
Net income.................................................  $ 49,546    $ 54,201    $ 34,608
Extraordinary charge.......................................                             1,004
Adjustments to reconcile net income to net cash used by
  operating activities
  Equity in earnings of subsidiaries(1)....................   (54,216)    (43,784)    (35,688)
  Interest on long-term debt of subsidiaries(1)............    (9,906)     (9,892)    (11,402)
  Realized gains on investments............................               (12,767)        (61)
  Other....................................................     3,674         950         335
                                                             --------    --------    --------
     Net cash used by operating activities.................   (10,902)    (11,292)    (11,204)
                                                             --------    --------    --------
INVESTING ACTIVITIES
Purchases of securities....................................    (5,917)       (200)     (3,162)
Sales of securities........................................                25,057       5,266
Change in short-term investments...........................    (7,475)     (1,069)       (350)
Surplus debenture interest received from subsidiary(1).....     9,799      10,008      19,400
Contributions to subsidiaries(1)...........................   (75,000)
Dividends received from subsidiaries.......................    18,982      12,087      15,000
Repayment of surplus debenture principal by
  subsidiary(1)............................................                            10,000
Cash paid for acquisition of subsidiary....................   (20,995)
Purchases of furniture and equipment, net..................    (2,491)       (829)       (878)
                                                             --------    --------    --------
     Net cash (used) provided by investing activities......   (83,097)     45,054      45,276
                                                             --------    --------    --------
FINANCING ACTIVITIES
Purchases of common stock for treasury.....................      (956)    (16,861)    (29,497)
Proceeds from exercises of common stock options............     2,921       3,570
Issuance of junior subordinated debentures(1)..............   100,000
Issuance costs of capital securities of subsidiary trust...    (1,197)
Loan principal repayments..................................               (15,000)
Fees related to amendments to credit agreement.............                              (404)
Dividends on common stock..................................    (7,071)     (5,454)     (4,123)
Other......................................................                     7           4
                                                             --------    --------    --------
     Net cash provided (used) by financing activities......    93,697     (33,738)    (34,020)
                                                             --------    --------    --------
Increase (decrease) in cash................................      (302)         24          52
Cash balance at beginning of period........................       175         151          99
                                                             --------    --------    --------
Cash balance at end of period..............................  $   (127)   $    175    $    151
                                                             ========    ========    ========
</TABLE>

---------------
(1) Eliminated in consolidation.

     The condensed parent company financial statements should be read in
conjunction with the consolidated financial statements of Life Re Corporation
and Subsidiaries included elsewhere herein.

                                       51
<PAGE>   53

ITEM 9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     None.

                                    PART III

ITEM 10  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     The information required by Item 10 is hereby incorporated by reference
from the Registrant's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A within 120 days after December 31, 1997.

ITEM 11  EXECUTIVE COMPENSATION

     The information required by Item 11 is hereby incorporated by reference
from the Registrant's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A within 120 days after December 31, 1997.

ITEM 12  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required by Item 12 is hereby incorporated by reference
from the Registrant's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A within 120 days after December 31, 1997.

ITEM 13  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by Item 13 is hereby incorporated by reference
from the Registrant's definitive proxy statement to be filed with the Commission
pursuant to Regulation 14A within 120 days after December 31, 1997.

                                    PART IV

ITEM 14  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed or incorporated by reference as part of
    this Form 10-K:

     1.  Financial Statements

     The audited consolidated financial statements of Life Re and the related
auditor's report listed in the Index to Financial Statements and Financial
Statement Schedule appearing on page   .

     2.  Financial Statement Schedule

     The schedule listed in the Index to Financial Statements and Financial
Statement Schedule appearing on page   .

     3.  Exhibits

     The accompanying Exhibit Index appearing on page 55 is incorporated herein
by reference. The exhibits listed in the Exhibit Index are filed or incorporated
by reference as part of this Form 10-K.

(b) No reports on Form 8-K were filed with the Securities and Exchange
    Commission during the three months ended December 31, 1996. A Current Report
    on Form 8-K was filed with the Securities and Exchange Commission on
    February 13, 1998 regarding the Company's 1997 financial results.

                                       53
<PAGE>   54

     Pursuant to the requirements of Section 13 or 15(d) 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.

                                          LIFE RE CORPORATION

                                          By:   /s/ RODNEY A. HAWES, JR.
                                            ------------------------------------
                                                    Rodney A. Hawes, Jr.
                                                   Chairman of the Board,
                                                  Chief Executive Officer,
                                            Office of the Chairman and Director
March 30, 1998

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<C>                                                  <S>                                <C>
             /s/ RODNEY A. HAWES, JR.                Chairman of the Board, Chief       March 30, 1998
---------------------------------------------------    Executive Officer, Office of
               Rodney A. Hawes, Jr.                    the Chairman and Director

               /s/ DOUGLAS M. SCHAIR                 Vice Chairman of the Board, Chief  March 30, 1998
---------------------------------------------------    Investment Officer, Office of
                 Douglas M. Schair                     the Chairman and Director

               /s/ JACQUES E. DUBOIS                 President, Chief Operating         March 30, 1998
---------------------------------------------------    Officer, Office of the Chairman
                 Jacques E. Dubois                     and Director

                /s/ CHRIS C. STROUP                  Executive Vice President, Chief    March 30, 1998
---------------------------------------------------    Financial Officer, (principal
                  Chris C. Stroup                      accounting officer and
                                                       principal financial officer)
                                                       and Director

              /s/ SAMUEL V. FILOROMO                 Vice President -- Operations and   March 30, 1998
---------------------------------------------------    Director
                Samuel V. Filoromo
</TABLE>

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<C>                                                  <S>                                <C>
             /s/ CAROLYN K. MCCANDLESS               Director                           March 30, 1998
---------------------------------------------------
               Carolyn K. McCandless

                /s/ K. FRED SKOUSEN                  Director                           March 30, 1998
---------------------------------------------------
                  K. Fred Skousen

            /s/ T. BOWRING WOODBURY, II              Director                           March 30, 1998
---------------------------------------------------
              T. Bowring Woodbury, II
</TABLE>

                                       54
<PAGE>   55

                              LIFE RE CORPORATION

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
                                                                             SEQUENTIAL
EXHIBIT                                                                         PAGE
NUMBER                            DESCRIPTION OF EXHIBIT                       NUMBER
-------                           ----------------------                     ----------
<C>       <S>  <C>                                                           <C>
  3.01    --   Restated Certificate of Incorporation of Life Re Corporation
               (the "Company"), dated November 13, 1997, incorporated by
               reference to Exhibit 3.01 of the Company's Form 10-Q for the
               quarterly period ended September 30, 1997, as filed with the
               Securities and Exchange Commission ("SEC") on November 13,
               1997........................................................
  3.02    --   By-Laws of the Company, dated August 5, 1992, incorporated
               by reference to Exhibit 3.02 of the Company's Form 10-Q for
               the quarterly period ended September 30, 1997, as filed with
               the SEC on November 13, 1997................................
  4.01    --   Specimen Common Stock Certificate of the Company,
               incorporated by reference to Exhibit 4.1 of the Company's
               Registration Statement on Form S-1 (File No. 33-50556)......
  4.02    --   Certificate of Trust of Life Re Capital Trust II ("Trust
               II"), incorporated by reference to Exhibit 4.3 of the
               Company's Registration Statement on Form S-3 (File No.
               333-46213)..................................................
  4.03    --   Declaration of Trust of Trust II, incorporated by reference
               to Exhibit 4.4 of the Company's Registration Statement on
               Form S-3 (File No. 333-46213)...............................
  4.04    --   Form of Amended and Restated Declaration of Trust of Trust
               II, incorporated by reference to Exhibit 4.5 of the
               Company's Registration Statement on Form S-3 (File No.
               333-46213)..................................................
  4.05    --   Form of Quarterly Income Preferred Security ("QUIPS") of
               Trust II, incorporated by reference to Exhibit 4.6 of the
               Company's Registration Statement on Form S-3 (File No.
               333-46213)..................................................
  4.06    --   Form of Junior Subordinated Debenture, incorporated by
               reference to Exhibit 4.8 of the Company's Registration
               Statement on Form S-3 (File No. 333-46213)..................
  4.07    --   Form of Indenture between the Company and The Bank of New
               York, as Trustee, pursuant to which the Junior Subordinated
               Debentures are to be issued, incorporated by reference to
               Exhibit 4.7 of the Company's Registration Statement on Form
               S-3 (File No. 333-46213)....................................
  4.08    --   Form of Guarantee Agreement with respect to the QUIPS,
               incorporated by reference to Exhibit 4.9 of the Company's
               Registration Statement on Form S-3 (File No. 333-46213).....
  4.09    --   Form of Master Unit Agreement, incorporated by reference to
               Exhibit 4.11 of the Company's Registration Statement on Form
               S-3 (File No. 333-46213)....................................
  4.10    --   Form of Adjustable Conversion-rate Equity Security Units,
               incorporated by reference to Exhibit 4.12 of the Company's
               Registration Statement on Form S-3 (File No. 333-46213).....
  4.11    --   Form of Pledge Agreement, incorporated by reference to
               Exhibit 4.13 of the Company's Registration Statement on Form
               S-3 (File No. 333-46213)....................................
  4.12    --   Form of Call Option Agreement, incorporated by reference to
               Exhibit 4.14 of the Company's Registration Statement on Form
               S-3 (File No. 333-46213)....................................
  4.13    --   Company's Agreement to File Indenture, incorporated by
               reference to Exhibit 4.02 of the Company's Form 10-Q for the
               quarterly period ended June 30, 1997, as filed with the SEC
               on August 13, 1997..........................................
 10.01    --   Surplus Debenture No. 1 in the amount of $180,500,000, dated
               November 16, 1988, issued by First of Groves Life Insurance
               Company ("First of Groves") to the Company, incorporated by
               reference to Exhibit 10.16 of the Company's Registration
               Statement on Form S-1 (File No. 33-50556)...................
 10.02    --   First Amendment to Surplus Debenture No. 01 of TexasRe Life
               Insurance Company (formerly known as First of
               Groves)("TexasRe"), effective November 3, 1992, incorporated
               by reference to Exhibit 10.12 of the Company's Form 10-K for
               the year ended December 31, 1994, as filed with the SEC on
               March 31, 1994..............................................
</TABLE>
<PAGE>   56

<TABLE>
<CAPTION>
                                                                             SEQUENTIAL
EXHIBIT                                                                         PAGE
NUMBER                            DESCRIPTION OF EXHIBIT                       NUMBER
-------                           ----------------------                     ----------
<C>       <S>  <C>                                                           <C>
 10.03    --   Second Amendment to Surplus Debenture No. 01 of TexasRe
               (formerly known as First of Groves), effective January 1,
               1994, incorporated by reference to Exhibit 10.13 of the
               Company's Form 10-K for the year ended December 31, 1994, as
               filed with the SEC on March 31, 1995........................
 10.04    --   Third Amendment to Surplus Debenture No. 01 of TexasRe
               (formerly known as First of Groves), effective November 6,
               1995, incorporated by reference to Exhibit 10.13 of the
               Company's Form 10-K for the year ended December 31, 1995, as
               filed with the SEC on March 28, 1996........................
 10.05    --   Surplus Debenture No. 2 in the amount of $80,000,000, dated
               November 16, 1988, issued by First of Groves to the Company,
               incorporated by reference to Exhibit 10.17 of the Company's
               Registration Statement on Form S-1 (File No. 33-50556)......
 10.06    --   First Amendment to Surplus Debenture No. 02 of TexasRe
               (formerly known as First of Groves), effective November 3,
               1992, incorporated by reference to Exhibit 10.15 of the
               Company's Form 10-K for the year ended December 31, 1994, as
               filed with the SEC on March 31, 1995........................
 10.07    --   Second Amendment to Surplus Debenture No. 02 of TexasRe
               (formerly known as First of Groves), effective January 1,
               1994, incorporated by reference to Exhibit 10.16 of the
               Company's Form 10-K for the year ended December 31, 1994, as
               filed with the SEC on March 31, 1995........................
 10.08    --   Third Amendment to Surplus Debenture No. 02 of TexasRe
               (formerly known as First of Groves), effective November 6,
               1995, incorporated by reference to Exhibit 10.17 of the
               Company's Form 10-K for the year ended December 31, 1995, as
               filed with the SEC on March 28, 1996........................
 10.09    --   Amended and Restated Credit Amendment dated as of November
               2, 1995 among the Company, as the Borrower, Various
               Financial Institutions, as the Lenders, Shawmut Bank
               Connecticut, N.A., Bank of America Illinois and The Bank of
               New York, as Co-Agents, and Bank of America National Trust
               and Savings Association ("Bank of America NT & SA"), as
               Administrative Agent for the Lenders (the "Amended and
               Restated Credit Agreement"), incorporated by reference to
               Exhibit 10.01 of the Company's Form 10-Q for the quarterly
               period ended September 30, 1995, as filed with the SEC on
               November 14, 1995...........................................
 10.10    --   Form of Amended and Restated Pledge Amendment dated as of
               November 2, 1995 between the Company, as the Pledgor, and
               Bank of America NT & SA, as Administrative Agent for the
               Lenders, incorporated by reference to Exhibit 10.02 of the
               Company's Form 10-Q for the quarterly period ended September
               30, 1995, as filed with the SEC on November 14, 1995........
 10.11    --   First Amendment dated as of April 29, 1997 to the Amended
               and Restated Credit Agreement, incorporated by reference to
               Exhibit 10.02 of the Company's Form 10-Q for the quarterly
               period ended March 31, 1997, as filed with the SEC on May
               14, 1997....................................................
 10.12    --   Second Amendment dated as of June 30, 1997 to the Amended
               and Restated Credit Agreement, incorporated by reference to
               Exhibit 10.01 of the Company's Form 10-Q for the quarterly
               period ended June 30, 1997, as filed with the SEC on August
               13, 1997....................................................
 10.13    --   Third Amendment and Waiver dated as of February 6, 1998 to
               the Amended and Restated Credit Agreement...................
 10.14    --   Consent to extension of Commitment Termination Date, dated
               November 6, 1996, pursuant to the Amended and Restated
               Credit Agreement, incorporated by reference to Exhibit 10.08
               of the Company's Form 10-Q for the quarterly period ended
               September 30, 1996, as filed with the SEC on November 14,
               1996........................................................
 10.15    --   Consent to extension of Commitment Termination Date, dated
               October 20, 1997, pursuant to the Amended and Restated
               Credit Agreement............................................
</TABLE>
<PAGE>   57

<TABLE>
<CAPTION>
                                                                             SEQUENTIAL
EXHIBIT                                                                         PAGE
NUMBER                            DESCRIPTION OF EXHIBIT                       NUMBER
-------                           ----------------------                     ----------
<C>       <S>  <C>                                                           <C>
 10.16    --   Tax Allocation Agreement, effective as of the first day of
               the consolidated return taxable year beginning January 1,
               1994 by and among the Company, TexasRe and Life Reassurance
               Corporation of America ("Life Reassurance"), incorporated by
               reference to Exhibit 10.1 of the Company's Form 10-Q for the
               quarterly period ended June 30, 1995, as filed with the SEC
               on August 14, 1995..........................................
 10.17    --   Employment Agreement, effective as of June 9, 1995, between
               the Company and Rodney A. Hawes, Jr., incorporated by
               reference to Exhibit 10.18 of the Company's Form 10-K for
               the fiscal year ended December 31, 1995, as filed with the
               SEC on March 28, 1996.......................................
 10.18    --   Amendment to Employment Agreement, dated as of November 11,
               1996, to the Employment Agreement, effective as of June 9,
               1995, between the Company and Rodney A. Hawes, Jr.,
               incorporated by reference to Exhibit 10.01 of the Company's
               Form 10-Q for the quarterly period ended September 30, 1996,
               as filed with the SEC on November 14, 1996..................
 10.19    --   Employment Agreement, effective as of June 9, 1995, between
               the Company and Douglas M. Schair, incorporated by reference
               to Exhibit 10.19 of the Company's Form 10-K for the fiscal
               year ended December 31, 1995, as filed with the SEC on March
               28, 1996....................................................
 10.20    --   Amendment to Employment Agreement, dated as of November 11,
               1996, to the Employment Agreement, effective as of June 9,
               1995, between the Company and Douglas M. Schair,
               incorporated by reference to Exhibit 10.02 of the Company's
               Form 10-Q for the quarterly period ended September 30, 1996,
               as filed with the SEC on November 14, 1996..................
 10.21    --   Employment Agreement, effective as June 9, 1995, between the
               Company and Jacques E. Dubois, incorporated by reference to
               Exhibit 10.20 of the Company's Form 10-K for the fiscal year
               ended December 31, 1995, as filed with the SEC on March 28,
               1996........................................................
 10.22    --   Amendment to Employment Agreement, dated as of November 11,
               1996, to the Employment Agreement, effective as of June 9,
               1995, between the Company and Jacques E. Dubois,
               incorporated by reference to Exhibit 10.03 of the Company's
               Form 10-Q for the quarterly period ended September 30, 1996,
               as filed with the SEC on November 14, 1996..................
 10.23    --   Employment Agreement, effective as of June 1, 1996, between
               the Company and Samuel V. Filoromo, incorporated by
               reference to Exhibit 10.06 of the Company's Form 10-Q for
               the quarterly period ended June 30, 1996, as filed with the
               SEC on August 13, 1996......................................
 10.24    --   Employment Agreement, effective as of June 1, 1996, between
               the Company and Chris C. Stroup, incorporated by reference
               to Exhibit 10.07 of the Company's Form 10-Q for the
               quarterly period ended June 30, 1996, as filed with the SEC
               on August 13, 1996..........................................
 10.25    --   Employment Agreement, effective as of June 1, 1996, between
               the Company and W. Weldon Wilson, incorporated by reference
               to Exhibit 10.08 of the Company's Form 10-Q for the
               quarterly period ended June 30, 1996, as filed with the SEC
               on August 13, 1996..........................................
 10.26    --   Severance Agreement, effective as of June 1, 1996, between
               the Company and Tracy L. Rudolph, incorporated by reference
               to Exhibit 10.10 of the Company's Form 10-Q for the
               quarterly period ended June 30, 1996, as filed with the SEC
               on August 13, 1996..........................................
 10.27    --   Severance Agreement, effective as of December 17, 1996,
               between the Company and Robert L. Beisenherz, incorporated
               by reference to Exhibit 10.01 of the Company's Form 10-Q for
               the quarterly period ended March 31, 1997, as filed with the
               SEC on May 14, 1997.........................................
 10.28    --   Life Reassurance and its Affiliates Employee Savings Plan,
               effective January 1, 1989, incorporated by reference to
               Exhibit 10.31 of the Company's Registration Statement on
               Form S-1 (File No. 33-50556)................................
</TABLE>
<PAGE>   58

<TABLE>
<CAPTION>
                                                                             SEQUENTIAL
EXHIBIT                                                                         PAGE
NUMBER                            DESCRIPTION OF EXHIBIT                       NUMBER
-------                           ----------------------                     ----------
<C>       <S>  <C>                                                           <C>
 10.29    --   Employees' Retirement Plan of Life Reassurance and its
               Affiliates, effective January 1, 1989, as amended on January
               1, 1991, incorporated by reference to Exhibit 10.32 of the
               Company's Registration Statement on Form S-1 (File No.
               33-50556)...................................................
 10.30    --   The Company's Supplemental Executive Retirement Plan,
               Effective: January 1, 1995, incorporated by reference to
               Exhibit 10.09 of the Company's Form 10-Q for the quarterly
               period ended June 30, 1996, as filed with the SEC on August
               13, 1996....................................................
 10.31    --   Form of the Company's Stock Investment Plan, incorporated by
               reference to Exhibit 4(e) of the Company's Registration
               Statement on Form S-8 (File No. 33-54138)...................
 10.32    --   Form of the Company's Restricted Stock Purchase Agreement,
               incorporated by reference to Exhibit 10.33 of the Company's
               Registration Statement on Form S-1 (File No. 33-50556)......
 10.33    --   Form of Amendment No. 1 to Promissory Note as executed by
               certain officers of the Company, incorporated by reference
               to Exhibit 10.01 of the Company's Form 10-Q for the
               quarterly period ended September 30, 1997, as filed with the
               SEC on November 13, 1997....................................
 10.34    --   The Company's Stock Option Plan, effective November 3, 1992
               (the "1992 Stock Option Plan"), incorporated by reference to
               Exhibit 10.17 of the Company's Form 10-K for the fiscal year
               ended December 31, 1992, as filed with the SEC on March 31,
               1993........................................................
 10.35    --   Form of Amendment Number One to the 1992 Stock Option Plan,
               incorporated by reference to Exhibit 10.63 of the Company's
               Form 10-K for the year ended December 31, 1996, as filed
               with the SEC on March 28, 1997..............................
 10.36    --   Amendment Number Two to the 1992 Stock Option Plan,
               incorporated by reference to Exhibit 10.61 of the Company's
               Form 10-K for the year ended December 31, 1996, as filed
               with the SEC on March 28, 1997..............................
 10.37    --   The Company's 1993 Non-Employee Directors Stock Option Plan,
               effective June 9, 1993, incorporated by reference to Exhibit
               28.1 of the Company's Form 10-Q for the quarterly period
               ended June 30, 1993, as filed with the SEC on August 16,
               1993........................................................
 10.38    --   Amendment Number One to the Company's 1993 Non-Employee
               Directors Stock Option Plan incorporated by reference to
               Exhibit 10.62 of the Company's Form 10-K for the year ended
               December 31, 1996, as filed with the SEC on March 28,
               1997........................................................
 10.39    --   The Company's Long-Term Incentive Plan, dated November 3,
               1994, incorporated by reference to Exhibit 10.66 of the
               Company's Form 10-K for the year ended December 31, 1996, as
               filed with the SEC on March 28, 1997........................
 10.40    --   The Company's Annual Incentive Plan, dated November 3, 1994,
               incorporated by reference to Exhibit 10.65 of the Company's
               Form 10-K for the year ended December 31, 1996, as filed
               with the SEC on March 28, 1997..............................
 10.41    --   Amended and Restated Advisory Agreement, dated November 16,
               1988, between Life Reassurance and Conseco Capital
               Management, Inc. (the "Conseco Amended and Restated Advisory
               Agreement"), incorporated by reference to Exhibit 10.45 of
               the Company's Registration Statement on Form S-1 (File No.
               33-50556)...................................................
 10.42    --   October 1993 Amendment, dated October 1, 1993, to the
               Conseco Amended and Restated Advisory Agreement,
               incorporated by reference to Exhibit 10.25 of the Company's
               Form 10-K for the year ended December 31, 1993, as filed
               with the SEC on March 31, 1994..............................
 10.43    --   November 1994 Amendment to the Conseco Amended and Restated
               Advisory Agreement, effective as of November 1, 1994,
               incorporated by reference to Exhibit 10.04 of the Company's
               Form 10-Q for the quarterly period ended September 30, 1996,
               as filed with the SEC on November 14, 1996..................
 10.44    --   May 1995 Amendment to the Conseco Amended and Restated
               Advisory Agreement, effective as of May 31, 1995,
               incorporated by reference to Exhibit 10.05 of the Company's
               Form 10-Q for the quarterly period ended September 30, 1996,
               as filed with the SEC on November 14, 1996..................
</TABLE>
<PAGE>   59

<TABLE>
<CAPTION>
                                                                             SEQUENTIAL
EXHIBIT                                                                         PAGE
NUMBER                            DESCRIPTION OF EXHIBIT                       NUMBER
-------                           ----------------------                     ----------
<C>       <S>  <C>                                                           <C>
 10.45    --   September 1996 Amendment to the Conseco Amended and Restated
               Advisory Agreement, effective as of September 15, 1996,
               incorporated by reference to Exhibit 10.06 of the Company's
               Form 10-Q for the quarterly period ended September 30, 1996,
               as filed with the SEC on November 14, 1996..................
 10.46    --   January 1998 Amendment to the Conseco Amended and Restated
               Advisory Agreement, effective as of January 1, 1998.........
 10.47    --   Advisory Agreement, dated December 31, 1991, between Life
               Reassurance and Liberty Capital Advisors, Inc. (The "Liberty
               Advisory Agreement"), incorporated by reference to Exhibit
               10.46 of the Company's Registration Statement on Form S-1
               (File No. 33-50556).........................................
 10.48    --   Amendment Number One to the Liberty Advisory Agreement,
               effective as of July 1, 1996, incorporated by reference to
               Exhibit 10.07 of the Company's Form 10-Q for the quarterly
               period ended September 30, 1996, as filed with the SEC on
               November 14, 1996...........................................
 21.01    --   Subsidiaries of the Company.................................
 23.01    --   Consent of Ernst & Young LLP................................
    27    --   Financial Data Schedule.....................................
</TABLE>