ESG RE LTD, F-1/A, 1997-12-10

ESG RE LTD
F-1/A, 1997-12-10
LIFE INSURANCE

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 1997

REGISTRATION NO. 333-40341
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

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

AMENDMENT NO. 2
TO
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

------------
ESG RE LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

------------
BERMUDA 6719 NOT APPLICABLE
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)

------------
SKANDIA INTERNATIONAL HOUSE
16 CHURCH STREET
HAMILTON, HM 11, BERMUDA
(441) 295-2185
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

------------
ESG RE LIMITED
C/O CT CORPORATION SYSTEM
1633 BROADWAY
NEW YORK, NEW YORK 10019
(212) 664-1666
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

------------
WITH COPIES TO:
RICHARD S. BORISOFF, ESQ. JAMES C. SCOVILLE, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & DEBEVOISE & PLIMPTON
GARRISON 875 THIRD AVENUE
1285 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10022
NEW YORK, NEW YORK 10019 (212) 909-6000
(212) 373-3153
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.

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

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [_]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.

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<PAGE>

EXPLANATORY NOTE

This Registration Statement contains two forms of prospectus relating to a
public offering of an aggregate of 9,000,000 Common Shares, $1.00 par value,
of ESG Re Limited. One is to be used in connection with an offering in the
United States and Canada (the "U.S. Prospectus"), and the other is to be used
in connection with a concurrent offering outside the United States and Canada
(the "International Prospectus"). The U.S. Prospectus and the International
Prospectus are identical except that they contain different front cover pages.
The form of the U.S. Prospectus follows immediately after this Explanatory
Note and is followed by the front cover page to be used for the International
Prospectus which is labeled "Alternate Page for International Prospectus." A
copy of each complete prospectus in the exact form in which it is to be used
after effectiveness will be filed with the Securities and Exchange Commission
pursuant to Rule 424(b).
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED DECEMBER 10, 1997

PROSPECTUS
, 1997
ESG
INTELLIGENT
REINSURANCE

ESG RE LIMITED

9,000,000 COMMON SHARES

All of the Common Shares, par value $1.00 per share (the "Common Shares"), of
ESG Re Limited (the "Company" or "ESG") offered hereby are being sold by the
Company. Of the 9,000,000 Common Shares offered hereby, Common Shares are
being offered for sale in the United States and Canada by the U.S. Underwriters
(the "U.S. Offering") and Common Shares are being offered for sale outside
the United States and Canada in a concurrent offering by the International
Managers (the "International Offering," and together with the U.S. Offering,
the "Offerings"), subject to transfers between the U.S. Underwriters and the
International Managers (collectively, the "Underwriters"). See "Underwriting."
It is estimated that the initial public offering price will be $20.00 per
share. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price.

Certain affiliates of Head & Company L.L.C. (the "Head Group") and certain
other investors (together with the Head Group, the "Direct Purchasers") have
severally purchased for investment directly from the Company (i) an aggregate
of 2,673,799 Common Shares, (ii) Class A Warrants to purchase up to 1,247,284
Common Shares, and (iii), in the case of the Head Group, Class B Warrants to
purchase up to 1,247,284 Common Shares (if certain performance criteria are
satisfied), at an aggregate price equal to 2,673,799 multiplied by the initial
public offering price per Common Share less the underwriting discounts and
commissions (the "Direct Sales"). See "Direct Sales." The closing of the Direct
Sales occurred on December 3, 1997. The initial exercise price for the Class A
Warrants and the Class B Warrants is the initial public offering price per
Common Share, subject to a reduction of $1.50 on September 1, 2001, for the
Class B Warrants.

Prior to the Offerings, there has been no market for the Common Shares. The
Common Shares have been accepted for quotation on the Nasdaq National Market
subject to official notice of issuance under the symbol "ESREF."

SEE "RISK FACTORS" COMMENCING ON PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
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<CAPTION>
UNDERWRITING PROCEEDS
INITIAL PUBLIC DISCOUNTS AND TO THE
OFFERING PRICE COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Common Share......... $20.00 $1.30 $18.70
Total(3)................. $180,000,000 $11,700,000 $168,300,000
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the United States Securities Act
of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $2,000,000.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 1,350,000 shares at the Price to the Public per share less
Underwriting Discounts and Commissions, solely to cover over-allotments, if
any. If such option is exercised in full, the total Price to the Public,
Underwriting Discounts and Commissions and Proceeds to the Company will be
$207,000,000, $13,455,000 and $193,545,000, respectively. See
"Underwriting." Including the Direct Sales, the total proceeds to Company
will be $218,300,000 or $243,545,000 if the over-allotment option is
exercised in full.

-----------

The Common Shares are being offered by the several Underwriters, when, as and
if delivered to and accepted by the Underwriters and subject to various
conditions. It is expected that the delivery of the Common Shares will be made
in New York, New York on or about , 1997, in New York, New York against
payment therefor in New York funds.

DEUTSCHE MORGAN GRENFELL INC. HAS SERVED AS ADVISOR TO THE COMPANY IN
CONNECTION WITH THIS TRANSACTION. SEE "UNDERWRITING."

-----------

JOINT GLOBAL COORDINATORS AND JOINT BOOK-RUNNERS

DEUTSCHE MORGAN GRENFELL DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

-----------

DONALDSON, LUFKIN & JENRETTE DEUTSCHE MORGAN GRENFELL
SECURITIES CORPORATION

CONNING & COMPANY STEPHENS INC.
<PAGE>

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH THESE OFFERINGS TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REP-
RESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Additional Information............. 3
Preparation of Financial
Statements........................ 3
Enforceability of Civil Liabilities
under United States Federal
Securities Laws................... 4
Summary............................ 6
Risk Factors....................... 16
Use of Proceeds.................... 22
Capitalization..................... 22
Dilution........................... 23
Dividend Policy.................... 23
Selected Financial Data............ 24
Management's Discussion and
Analysis of Financial Condition
and Results of Operations......... 25
The Company........................ 30
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Management......................... 49
Certain Relationships and Related
Transactions...................... 53
Principal Shareholders............. 54
Description of Capital Stock....... 55
Shares Eligible for Future Sale.... 58
Direct Sales....................... 59
Certain Tax Considerations......... 59
Underwriting....................... 69
Legal Considerations............... 73
Legal Matters...................... 74
Experts............................ 74
Available Information.............. 74
Glossary of Selected Insurance
Terms............................. 75
Index to Financial Statements...... F-1
</TABLE>

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UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THESE OFFERINGS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON SHARES, WHETHER OR NOT PARTICI-
PATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DE-
LIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOT-
MENTS OR SUBSCRIPTIONS.

CERTAIN PERSONS PARTICIPATING IN THESE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERINGS
AND MAY BID FOR AND PURCHASE COMMON SHARES IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

The Common Shares have not been recommended by any federal or state
securities commission or regulatory authority or the Registrar of Companies of
Bermuda. Furthermore, the foregoing authorities have not confirmed the
accuracy or determined the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.

This Prospectus may not be distributed to any person in the United Kingdom
unless that person is a qualifying institution or corporation or other person
falling within article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1986 of the United Kingdom and also either
is a qualifying securities professional within regulation 7(2)(a) of the
Public Offers of Securities Regulations 1995 of the United Kingdom or is
personally selected by or on behalf of the underwriters.

Consent under the Bermuda Exchange Control Act 1972 (and regulations
thereunder) has been obtained from the Bermuda Monetary Authority for the
issue of the shares being offered pursuant to these Offerings to persons not
resident in Bermuda for exchange control purposes. In addition, a copy of this
document has been delivered to the Registrar of Companies in Bermuda for
filing pursuant to the Companies Act 1981 of Bermuda.

2
<PAGE>

In giving such consent and in accepting this Prospectus for filing, the
Bermuda Monetary Authority and the Registrar of Companies in Bermuda accept no
responsibility for the financial soundness of any offer or for the correctness
of any of the statements made or opinions expressed herein.

No action has been or will be taken in any jurisdiction by the Company or by
any Underwriter that would permit a public offering of the Common Shares or
possession or distribution of this Prospectus in any jurisdiction where action
for that purpose is required, other than in the United States. Persons who
come into possession of this Prospectus are required by the Company and the
Underwriters to inform themselves about and to observe any restrictions as to
the offering of the Common Shares and the distribution of this Prospectus.

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NOTICE TO NORTH CAROLINA RESIDENTS ONLY:

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSIONER
OF INSURANCE FOR THE STATE OF NORTH CAROLINA, NOR HAS THE COMMISSIONER OF
INSURANCE RULED UPON THE ACCURACY OR THE ADEQUACY OF THIS DOCUMENT. THE BUYER
IN NORTH CAROLINA UNDERSTANDS THAT NEITHER THE COMPANY NOR ITS SUBSIDIARIES IS
LICENSED IN NORTH CAROLINA PURSUANT TO CHAPTER 58 OF THE NORTH CAROLINA
GENERAL STATUTES.

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ADDITIONAL INFORMATION

The Company will register the Common Shares under Section 12(b) of the
United States Securities Exchange Act of 1934 (the "Exchange Act"). As a
foreign private issuer (as defined in Rules under the Exchange Act), the
Company is exempt from the periodic reporting requirements imposed upon a U.S.
domestic private issuer of equity securities registered under the Exchange
Act, as well as the provisions of the Exchange Act prescribing the content and
filing of proxy statements and the solicitation of proxies and the provisions
of Section 16 of the Exchange Act alluding to the reporting of securities
transactions by certain persons and the recovery of "short-swing" profits from
the purchase or sale of securities.

The Company's Bye-Laws require it (i) to furnish to the holders of Common
Shares and submit to the U.S. Securities and Exchange Commission (the
"Commission") (unless the Commission will not accept such materials) annual
reports, quarterly reports and reports with respect to specified events
required of a U.S. issuer on Forms 10-K, 10-Q and 8-K, respectively, and (ii)
to comply substantially with the proxy rules under the Exchange Act except to
the extent that such rules require filings with the Commission and the
inclusion of shareholder proposals in proxy materials prepared by the Company
and except for provisions specifying the required disclosures relating to
corporate reorganizations. The proxy rules include rules prescribing the
content of annual reports to shareholders. The audited financial statements
contained in such annual reports and unaudited quarterly financial information
contained in such quarterly reports will be prepared in accordance with
generally accepted accounting principles in the United States ("U.S. GAAP").
In addition, requirements with regard to the accuracy of proxy disclosures
will be governed by certain Bye-law provisions interpreted under Bermuda law.
The Company has been advised that, under Bermuda law, the record and
beneficial owners of Common Shares will, to the extent indicated in the
Company's Bye-Laws, also be bound by such principles incorporated from
Commission rules relating to proxy statements and the solicitation of proxies.
These Bye-Law provisions can be amended only by a vote of two-thirds of
shareholders present at a shareholders' meeting. See "Description of Capital
Stock--Periodic Reports and Proxy Statements."

PREPARATION OF FINANCIAL STATEMENTS

The Company's financial statements have been prepared in accordance with
U.S. GAAP. Audited financial statements for 1994 through 1996 are included
herein. The financial statements included herein represent the financial
performance and results of the Company's prior operations as a reinsurance
management company and do not reflect the financial performance and results of
the Company as a reinsurer for its own account. As used in this Prospectus,
"$" refers to U.S. dollars and "BD$" refers to Bermuda dollars.

3
<PAGE>

ENFORCEABILITY OF CIVIL LIABILITIES UNDER
UNITED STATES FEDERAL SECURITIES LAWS

The Company is organized pursuant to the laws of Bermuda and all of its
assets are located outside the United States. In addition, most of the
directors, officers and controlling persons of the Company, as well as certain
of the experts named herein, reside outside the United States, and all or a
substantial portion of their assets are located outside the United States. As
a result, it may be difficult for investors to effect service of process
within the United States upon such persons or to execute against them
judgments of courts of the United States predicated upon civil liabilities
under the U.S. federal securities laws ("Foreign Judgments").

The Company has been informed by its Bermuda counsel, Appleby, Spurling &
Kempe, that the United States and Bermuda do not currently have a treaty
providing for reciprocal recognition and enforcement of judgments of U.S.
courts in civil and commercial matters and that a final judgment for the
payment of money rendered by any federal or state court in the United States
based on civil liability, whether or not predicated solely upon the U.S.
federal securities laws, would, therefore, not be automatically enforceable in
Bermuda. The Company has also been advised by Appleby, Spurling & Kempe that a
final and conclusive judgment obtained in federal or state courts in the
United States under which a sum of money is payable as compensatory damages
(i.e., not being a sum claimed by a revenue authority for taxes or other
charges of a similar nature by a governmental authority, or in respect of a
fine or penalty or multiple or punitive damages) may be the subject of an
action on a debt in the Supreme Court of Bermuda under the common law doctrine
of obligation. Such an action should be successful upon proof that the sum of
money is due and payable, and without having to prove the facts supporting the
underlying judgment, as long as: (i) the court that gave the judgment was
competent to hear the action in accordance with private international law
principles as applied by the courts in Bermuda; and (ii) the judgment is not
contrary to public policy in Bermuda, was not obtained by fraud or in
proceedings contrary to natural justice of Bermuda and is not based on an
error in Bermuda law. A Bermuda court may impose civil liability on the
Company or its directors or officers in a suit brought in the Supreme Court of
Bermuda against the Company or such persons with respect to a violation of
U.S. federal securities laws, provided that the facts surrounding such
violation would constitute or give rise to a cause of action under Bermuda
law.

The Company has been advised by its German counsel, Meyersrenken &
Rheingantz, that there may be doubt as to the enforceability in Germany, in
original actions, of Foreign Judgments and that in Germany both recognition
and enforcement of Foreign Judgments are solely governed by Section 328 of the
German Civil Procedure Code (Zivilprozessordnung or "ZPO") as well as
multilateral and bilateral treaty agreements. In some cases, especially when
according to the German statutory provisions, the international jurisdiction
of the U.S. court will not be recognized or the Foreign Judgments conflict
with basic principles of German law (e.g., the restriction to compensatory
damages and limited pre-trial discovery), the U.S. judgment might not be
recognized by a German court.

The enforceability of Foreign Judgments in Germany requires their
recognition in Germany. Under German law, the enforceability of Foreign
Judgments requires a "writ of enforcement" under Section 722 ZPO. A writ of
enforcement is issued only after a contested proceeding resulting from a
complaint of a plaintiff against a defendant and renders the Foreign Judgments
enforceable in Germany. A precondition for the issuance of such a writ is that
the Foreign Judgments be a non-appealable final judgement and otherwise be
permitted under Section 328 ZPO. Under Section 1042 I ZPO, the results of an
arbitration can only be enforced if it is entered as a judgment by a court.

The service of process in U.S. proceedings on persons in Germany is
regulated by a multilateral treaty guaranteeing service of writs and other
legal documents in civil cases if the current address of the defendant is
known.

The Company has been advised by its Irish counsel, Matheson Ormsby Prentice,
that any proceedings taken in Ireland for the enforcement of Foreign Judgments
would be recognized and enforced by the courts of Ireland

4
<PAGE>

except that, to enforce such a Foreign Judgment in Ireland, it would be
necessary to obtain an order of the Irish courts. Such order would be granted
on proper proof of the Foreign Judgment without any retrial or examination of
the merits of the case subject to the following qualifications: (i) the
Foreign Judgment must be final; (ii) that the foreign court had jurisdiction
in the view of the laws of Ireland; (iii) that the Foreign Judgment was not
obtained by fraud; (iv) that the Foreign Judgment was not contrary to the
public policy or natural justice as understood in Irish law; (v) that the
Foreign Judgment is for a definite sum of money; and (vi) that the procedural
rules of the court giving the Foreign Judgment have been observed.

Any such order of the Irish courts may be expressed in a currency other than
Irish pounds in respect of any amount due and payable, but such order may be
issued out of the Central Office of the Irish High Court expressed in Irish
pounds by reference to the official rate of exchange prevailing on the date of
issue of such Order. However, in the event of a winding up, amounts claimed in
a foreign currency would, to the extent properly payable in the winding up, be
paid if not in such currency in the Irish currency equivalent of the amount
due in the currency converted at the rate of exchange pertaining on the date
of the commencement of such winding up or, in the case of winding up by the
court, the date of the making of the winding up order. While in a proceeding
being brought in an Irish court in respect of a monetary obligation payable in
a currency other than Irish pounds, an Irish court would have the power to
give a judgment to pay such obligation in a currency other than Irish pounds,
it may decline to do so in its discretion. An Irish court might not enforce
currency conversion or indemnity clauses of a contract not governed by Irish
Law and, with respect to a bankruptcy, liquidation, insolvency, reorganization
or similar proceedings, Irish law may require that all claims or debts are
converted into Irish pounds at an exchange rate determined by the court as of
a date related thereto, such as the date of commencement of a winding up.
Also, provisions of contracts not governed by Irish Law providing for
indemnification for losses, in a liquidation, suffered on conversion of a
foreign currency claim into Irish pounds, may not be enforceable.

An Irish court has power to stay an action where it is shown that there is
some other forum having competent jurisdiction which is more appropriate for
the trial of the action and in which the case can be tried more suitably for
the interests of all parties and the ends of justice.

The Company has irrevocably appointed CT Corporation System, New York, New
York, as its agent to receive service of process in actions against it arising
out of or in connection with violations of the U.S. federal securities laws in
any federal or state court in the United States relating to the transactions
covered by this Prospectus.

5
<PAGE>

SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements
included elsewhere in this Prospectus. The sale of Common Shares, Class A
Warrants and Class B Warrants by ESG Re Limited (the "Company" or "ESG") to
certain affiliates of Head & Company L.L.C. ("HMI") and certain pension plan
trusts and other entities created by affiliates of HMI (together with HMI, the
"Head Group") and to a limited number of other investors (together with the
Head Group, the "Direct Purchasers"), is referred to herein as the "Direct
Sales." All financial statements presented in this Prospectus have been
prepared in accordance with U.S. GAAP. Unless the context otherwise requires,
references herein to the "Company" or "ESG" include the Company's subsidiaries
(through which the Company will operate all of its businesses upon completion
of the Offerings). All references to the Company prior to the Offerings are to
the Company's subsidiary, European Specialty Group Holding AG, and its
subsidiaries (collectively, "ES Management"). Insurance terms defined in
"Glossary of Selected Insurance Terms" are printed in boldface type the first
time they appear in this Prospectus. Except where otherwise indicated, the
information in this Prospectus assumes that the Underwriters' over-allotment
option is not exercised.

THE COMPANY

The Company was formed on August 21, 1997 to provide accident, health, life
and special risk REINSURANCE ("personal and special risk reinsurance") to
insurers and selected reinsurers on a worldwide basis. The Company intends to
become a leading specialist reinsurer writing for its own account with a
priority of UNDERWRITING PROFITABILITY.

Since 1994, the Company, through its subsidiary, ES Management, has provided
UNDERWRITING management services by operating as a personal and special risk
reinsurance underwriter on behalf of certain reinsurers. ES Management has
performed the principal underwriting functions normally handled by a reinsurer,
including risk analysis, pricing, contract structuring, claims management and
LOSS RESERVE estimation on behalf of certain companies (its "reinsurance
partners") participating in reinsurance pools arranged by ES Management, or has
been retained under FACULTATIVE or treaty arrangements outside of the pools.
Under the pool arrangements, the reinsurance partners each assume a
contractually fixed share of the risk underwritten by ES Management, which does
not assume risk for its own account. The share of risk underwritten by each
reinsurance partner has been negotiated by ES Management and its reinsurance
partners based on estimates of market capacity, the relative amount of capacity
that each such reinsurance partner has been willing to make available and ES
Management's strategic considerations. The pool business reflects the Company's
personal and special risk focus. See "The Company--Lines of Business." The pool
contracts limit the business ES Management is permitted to write to personal
and special risk business. The management and business origination fees paid to
ES Management by its reinsurance partners have been established by agreement
between ES Management and such partners and range up to 9.5% of the premiums
that are paid to the reinsurance partners by CEDING CLIENTS in consideration
for ES Management's management services, with the remainder of the premiums
retained by its reinsurance partners in consideration for assuming the
reinsurance risk. In addition, ES Management's agreements with its partners
entitle it to receive negotiated profit commissions, which depend on the pools'
loss ratios. ES Management's relationship with ceding clients approximates the
relationship between an insurer and a reinsurer except that ES Management uses
its pool underwriting authority to accept risk on behalf of other reinsurers
rather than on its own behalf. In essence, ES Management serves as the agent
for its reinsurance partners. ES Management's reinsurance partners have
included Swiss Re Life & Health/The Mercantile and General Life Reinsurance
Company Limited, Manulife Reinsurance, AXA RE VIE and Skandia International
Insurance Corporation.

6
<PAGE>

successful management business are the same skills required to operate a
successful reinsurance company and that, following its transition, its
underwriting activities and its relationships with ceding clients will remain
largely unchanged.

THE BUSINESS

The Company believes that its reinsurance management subsidiary, ES
Management, distinguishes itself and strengthens its client relationships by
offering "intelligent reinsurance" products and services that help its ceding
clients to better manage their risks. These include software solutions to
particular underwriting problems (including software developed by reinsurance
and health care professionals to predict future severity of medical conditions
based on current diagnoses), actuarial support, product design, and, in the
field of medical expense reinsurance, loss prevention and disease management.
In order to maximize the quality of the information related to the risks that
it underwrites, the Company maintains close relationships with its ceding
clients and professional reinsurance BROKERS.

In 1996, gross premiums written by ES Management on behalf of its reinsurance
partners totaled $63.9 million. ES Management expects that its GROSS PREMIUMS
WRITTEN on behalf of its reinsurance partners for the year ending December 31,
1997, will be approximately $100 million. ES Management's principal lines of
business as a percentage of gross premiums written on behalf of its reinsurance
partners were as follows for the year ended December 31, 1996:
<TABLE>
<CAPTION>
1996 GROSS
PREMIUMS
WRITTEN
<S> <C>
Medical Expense................................................. 39%
Personal Accident and Disability................................ 35
Credit/Life..................................................... 16
Special Risk.................................................... 10
---
100%
===
</TABLE>

In the years ended December 31, 1994, 1995 and 1996, ES Management's revenues
were $3.3 million, $4.5 million and $4.1 million, respectively. ES Management's
revenues in these years derived primarily from management fees, except for the
year ended December 31, 1996, in which $398,000 in profit commissions were
recognized as a result of favorable loss developments with respect to earlier
underwriting years.

ES Management's business can be characterized as short-TAIL. Approximately
85% of its business has a typical RUN-OFF pattern of less than 24 months and
13% has a slightly longer run-off pattern of up to 60 months. The remaining 2%
of ES Management's business is long-tail. Of ES Management's business, 88% is
written on a proportional basis, as quota share reinsurance, and 12% is written
on a non-proportional basis, as specific EXCESS OF LOSS REINSURANCE.

ES Management underwrites risks emanating from more than 49 countries and
maintains operations in its key markets. Approximately 69% of ES Management's
gross premiums written in 1996 originated in Europe. In addition to ES
Management's offices in Hamburg, London, Hong Kong and Moscow, the Company has
offices in Bermuda and Ireland, and has formed a strategic alliance with an
independent broker in Miami with respect to Latin American business. This
international network of offices enables ES Management to be close to its
customers and the risks underwritten, in line with the operating principle of
"think globally--act locally." ESG is seeking a selective North American
presence in the health care field and, to this end, has opened an office and
hired additional personnel in Toronto.

POOL UNDERWRITING RESULTS

7
<PAGE>

alone. ES Management's business underwritten on behalf of its reinsurance
partners is derived from (i) pool business, where ES Management is authorized
to underwrite reinsurance coverage on behalf of, and bind, reinsurance partners
in specified lines of business; (ii) facultative business, where ES Management
separately negotiates coverage on a risk-by-risk basis between CEDENTS and
reinsurance companies; and (iii) other business, where ES Management arranges
coverage outside of pools because of coverage or risk restrictions contained in
the pool agreements. In 1996, pool business amounted to $53.2 million (or 83.3%
of total gross premiums written), facultative business amounted to $5.7 million
(or 8.9% of total gross premiums written) and other business amounted to $5.0
million (or 7.8% of total gross premiums written). As reflected in the
following table, ES Management has achieved underwriting profitability and
steady growth in the business it managed for each of the 1994, 1995 and 1996
UNDERWRITING YEARS:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1995 1996
(U.S. DOLLARS IN MILLIONS,
EXCEPT RATIO DATA)
<S> <C> <C> <C>
Gross premiums written....................... $ 36.5 $ 58.3 $ 63.9
NET PREMIUMS WRITTEN (2)..................... 35.6 57.6 62.7
Net losses and loss adjustment expenses (3).. 18.1 25.4 34.7
Net losses and loss adjustment expenses as a
percentage of net premiums written.......... 51.0% 44.1% 55.3%
Commissions and expenses (4)................. $ 11.5 $ 22.5 $ 18.1
Commissions and expenses as a percentage of
net premiums written........................ 32.2% 39.1% 28.9%
</TABLE>
- --------------------
(1) All figures show the business as underwritten by ES Management on behalf of
its reinsurance partners and do not represent premiums received by, or
revenues of, ES Management, which are determined under the terms of ES
Management's arrangements with its reinsurance partners.
(2) Net premiums written represent gross premiums written reduced by the cost
of excess of loss reinsurance coverage.
(3) Net losses and loss adjustment expenses include claims costs and reserves,
and represent the actual or anticipated final close-out ratio reduced by
any amounts recovered under excess of loss reinsurance coverage. Claims
costs include actual claims expenditures, loss adjustment costs, and loss
prevention charges and consulting expenses directly related to particular
claims. Net losses do not include costs for internal claims supervision and
auditing charges, if applicable, for ES Management and corresponding items
for the pool or open market reinsurers.
(4) Commissions and expenses include all original commissions, overriders,
reinsurance brokerage fees and other fees, taxes and general loss
prevention charges. Commissions and expenses do not include (i) ES
Management's general expenses for managing and administering its business,
(ii) the expenses incurred by reinsurance partners for their internal
administration functions, such as accounting, auditing and investment
management and (iii) expenses allocated to cover the reinsurer's
utilization of capital and surplus. ES Management's total operating
expenses for the years ended December 31, 1994, 1995 and 1996 were $3.1
million, $3.8 million and $3.6 million, respectively.

FINANCIAL TRANSITION

Subsequent to the Offerings, ESG will assume for its own account risks that
its subsidiary, ES Management, previously underwrote on behalf of its
reinsurance partners. After completion of the Offerings, the Company will
exercise a contractual right provided for in its current pool agreements to
underwrite for its own account a 30% share, retroactive to January 1, 1997, of
the 1997 business it currently manages for its reinsurance partners in its
reinsurance pools. ESG's assumption of 30% of the current pool business will be
through retrocession from its reinsurance partners, proportional to such
partners' share of the pool. After completion of the Offerings, ESG will no
longer perform any management functions on behalf of third parties except in
connection with the runoff of the reinsurance pools. Beginning in 1998, ESG
will write reinsurance on its own behalf, retaining not less

8
<PAGE>

than 70% of the total book of business, including renewals. ESG believes this
transition will not have a significant negative impact on its relationship with
its reinsurance partners or ceding clients since the Company will continue to
provide identical underwriting capabilities and related services. The Company
will not be required to compensate either its ceding clients or its reinsurance
partners by reason of the Company's current contractual arrangements. The
Company intends to form strategic alliances with other reinsurers (some of
which may be current reinsurance partners), which will assume up to 30% of the
business that will be underwritten by ESG as lead reinsurer. Since ES
Management's business is characterized by high renewal ratios and the Company's
reinsurance subsidiaries will offer a strong financial position, the Company is
confident that it will retain all or a substantial part of this business. From
1994 to 1995, 90% of ES Management's business with ceding clients was renewed
and from 1995 to 1996, 79% was renewed. The Company will not act as an agent on
behalf of its reinsurance partners and will not receive management and profit
commissions from them.

As ES Management has handled all of the functions usually administered by a
professional reinsurer, other than investment management, the Company believes
that its established infrastructure is sufficiently developed to meet the
demands of ESG's new role and its anticipated growth. The Company has entered
into an Investment Advisory Agreement (as defined herein) with Head Asset
Management (as defined herein) for the provision of investment advisory
services. See "The Company--Investments." In the future, the Company may add
additional personnel to meet its anticipated growth.

Because the Company previously acted only as a management company through ES
Management, its initial capital will be unencumbered by issues of LOSS RESERVE
adequacy, unrealized losses in its investment portfolio and uncollectible
reinsurance. As a management company, ES Management's revenues were previously
comprised of underwriting management fees and profit commissions based on the
underwriting results of the reinsurance pools. As a reinsurer, the Company's
revenues will include premiums written for its own account as well as income
derived from its investment portfolio.

The Company will seek an early rating from a major rating agency. In
addition, the Company will enter into co-reinsurance agreements and licensing
and fronting arrangements, as necessary, allowing the Company to share
underwriting knowledge of, and to gain access to, markets in which it currently
is not doing business. Under such arrangements, ESG would be able to accept
risks in the name of the other reinsurers, and those reinsurers would be
obligated to cede to ESG a portion of the business underwritten by ESG on their
behalf.

MARKET GROWTH

ESG believes that its reinsurance markets are currently experiencing
significant growth as a result of: (i) the worldwide trend of transferring
social security and national health responsibilities to the private sector,
particularly in Western Europe; (ii) increasing insurance demand accompanying
economic growth in emerging markets in Eastern Europe, Asia and Latin America;
(iii) the deregulation of certain European markets as a consequence of new
trade directives from the European Union, enabling the introduction of new
products; (iv) increasing individual MORBIDITY and decreasing MORTALITY within
large demographic segments of the population; and (v) increased capacity
requirements for the insurance of major global sports and entertainment events.

GROWTH STRATEGY

The Company believes that it is well positioned to benefit from these market
growth developments because of ES Management's reputation as a lead underwriter
in negotiating on behalf of the pools, its risk-oriented approach and its far-
ranging and well-established relationship network.

While continuing ES Management's strategy of placing primary emphasis on
underwriting profitability rather than market share, the Company's goal is to
underwrite gross premiums written exceeding $190 million in 1998 and $300
million in 1999. There can be no assurance that this goal will be achieved. See
"Risk Factors--Forward-Looking Statements." The Company intends to achieve this
growth objective through the following strategic initiatives:

9
<PAGE>

PRODUCTS AND SERVICES

Management believes that its ES Management subsidiary is recognized by its
customers as a provider of intelligent reinsurance through innovative
reinsurance products and services. ESG intends to maintain its competitive
position by developing reinsurance products and services that are tailored to
the needs of particular markets and working closely with primary insurers and
insureds to implement loss control techniques. The Company intends to (i)
introduce and implement managed care techniques in Germany, Spain, Italy and
other European markets where these techniques have been underutilized; (ii)
create private medical care and insurance products for emerging markets within
Eastern Europe, Latin America and Asia; (iii) expand occupational injury and
health reinsurance programs in Scandinavia; and (iv) continue to structure
innovative special risk reinsurance programs for major sporting events and
performances such as World Cup Soccer, European Soccer Championships and the
"Three Tenors" concerts. Consistent with ES Management's practice and
experience, ESG will offer reinsurance of health risks in conjunction with
loss-reducing products and services. The Company expects that its ceding
clients will assist with the use and implementation of such products and
services because of their favorable impact on claims expenses.

In support of its loss prevention programs, the Company intends to assume
responsibility for claims assistance services that were previously provided by
third parties. Assistance services include such functions as 24-hour emergency
evacuation and repatriation, medical treatment referrals and supporting
clinical services. In addition, the Company will use the ESIMS software system
developed by ES Management to assist ceding companies with portfolio and claims
handling.

NEW BUSINESSES AND MARKETS

The Company plans to enter the North American market, where business
agreements with one of ES Management's reinsurance partners previously
prevented ES Management from competing. Ms. Renate M. Nellich, Chief Executive
Officer of European Specialty (North America) Limited ("ES North America") and
her team have had considerable experience in the North American health business
and will pursue opportunities in these markets. See "Management." In addition,
access to specialized U.S. claims service providers and the consummation of
additional strategic alliances will enable the Company to import managed care
techniques that have proven successful in the United States to Europe and other
areas where they are currently underutilized by health care providers.

STANDING AS A SPECIALIST LEAD REINSURER

The Company believes that its specialist reputation and substantial
capitalization will qualify it to be included on the security lists of major
reinsurance brokers and ceding clients and, as a result, will be presented with
lead and participation risk opportunities not previously available to it as a
reinsurance management company. Management expects that ES Management's
profitable underwriting history on behalf of reinsurance partners will give ESG
opportunities to participate in additional reciprocal reinsurance programs with
its current reinsurance partners as well as with new reinsurers in strategic
alliances. ES Management has generally incurred losses as an underwriting
management company as a result of the expense of initial system development
and, in 1996, charges relating to the Company's reorganization to become a
reinsurer. See "Management's Discussion Analysis of Financial Condition and
Results of Operations." The Company believes that its losses as a reinsurance
management company are not indicative of its future performance as a reinsurer
and will not adversely affect the Company's ability to attract ceding clients.

FOCUS ON HIGH GROWTH MARKETS

ES Management focuses its health insurance underwriting activities on markets
with high growth potential in developing areas such as Latin America, the
Commonwealth of Independent States ("CIS"), Eastern Europe and Asia, and the
Company intends to continue this emphasis after completion of the Offerings.

10
<PAGE>

legislation recently enacted by the German parliament, that the Company
believes will lead to greater demand for health reinsurance.

CAPITALIZING ON EXPERIENCE OF MANAGEMENT

The Company's Managing Director and Chief Executive Officer, Mr. Wolfgang M.
Wand, has extensive experience in the personal and health insurance areas and
has been in the insurance business for over 20 years. He formed a specialized
health care insurance group in 1983 that was acquired by Winterthur Insurance
Group in 1993.

Mr. Steven H. Debrovner, Chief Operating Officer, was the European Accident
and Health Manager of AFIA, which was subsequently acquired by CIGNA, where he
assumed global marketing responsibility for all non-life business at CIGNA
Worldwide headquarters. With more than 30 years of underwriting experience, Mr.
Debrovner is considered within the reinsurance industry to be one of the
leading personal accident underwriters.

The Company's Chief Financial Officer, Mr. Gerhard Jurk, was Chief Executive
Officer of a Winterthur Group insurance subsidiary and Chief Internal Auditor
for Transatlantic Insurance Group. Mr. Jurk has worked in the insurance
industry for more than 25 years and is an accountant certified by the German
government.

Dr. Jean-Claude Mayor, a member of the Supervisory Board of ESG Germany (as
defined herein), was formerly a member of the executive board of Swiss Re
Group, responsible for the worldwide life and disability business, and has
established life reinsurance programs in many international markets.

Ms. Renate M. Nellich, Chief Executive Officer of ES North America, heads
ESG's Toronto-based operations. Ms. Nellich previously served as Chief
Operating Officer of North American life and health operations for Swiss Re
Life & Health/The Mercantile and General Life Reinsurance Company Limited. Ms.
Nellich has more than 25 years of experience in the North American life and
health insurance industry.

The Company believes that the experience of its management in the insurance
and financial markets positions it to take advantage of reinsurance
opportunities and to maintain and attract additional experienced underwriting,
marketing and administrative personnel.

11
<PAGE>

ORGANIZATION

The Company currently operates its reinsurance management business through ES
Management, which consists of ESG Germany and its subsidiaries in their
capacity as reinsurance management companies. The Company believes it will
benefit from the market presence and efficiency of its operation in Germany and
the favorable regulatory and fiscal environments of its locations in Bermuda
and Ireland, where the Company expects a substantial portion of its business to
be written. The Company's non-North American business will be generated
primarily on behalf of European Specialty Reinsurance (Ireland) Limited ("ES
Ireland"), and a substantial portion of its business will be ceded to European
Specialty Reinsurance (Bermuda) Limited ("ES Bermuda"), with profits accruing
primarily in Bermuda and Ireland. Canadian business will be generated on behalf
of ES Ireland, while the remainder of the Company's North American business
written will be generated on behalf of ES Bermuda. The Company expects to be
subject to no taxation in Bermuda and a maximum corporate tax rate of 10% on
its trading profits in Ireland. The Company's European business will be
generated primarily on behalf of ES Germany and ES Ireland. See "Certain Tax
Considerations--Taxation of the Company and its Subsidiaries." European
Specialty Group (United Kingdom) Limited ("ESG UK") will fulfill certain
administrative and other functions on behalf of its wholly-owned subsidiaries
in the United Kingdom, Canada and Germany. The chart below depicts the
organization of ESG and its subsidiaries after completion of the Formation (as
defined herein). Each of the companies specifically named below, except ESG
Germany, has been formed for the purpose of effectuating the Company's
transition to a reinsurer for its own account and has no current operations.

[CHART APPEARS HERE]

The Company's principal offices are located at Skandia International House,
16 Church Street, Hamilton, HM 11 Bermuda, and its telephone number is (441)
295-2185.

12
<PAGE>

THE OFFERINGS

<TABLE>
<S> <C>
Common Shares offered in the
Offerings
U.S. Offering.................... shares
International Offering........... shares
-----------
Total.......................... 9,000,000 shares
================
Direct Sales (1):
The Head Group................... 574,867 shares
Other Direct Purchasers.......... 2,098,932 shares
----------------
Total.......................... 2,673,799 shares
================
Common Shares outstanding after
giving effect to the Formation (as
defined herein), Direct Sales, and
the Offerings..................... 12,573,799 shares (1)(2)
Proposed Nasdaq National Market
symbol............................ ESREF
Use of Proceeds.................... Proceeds from the Direct Sales are
estimated to be $50.0 million and net
proceeds from the Offerings are estimated
to be $168.3 million. Approximately $5.6
million of net proceeds from the Offerings
will be used for the payment of certain
expenses and fees related to the Direct
Sales and the Offerings. The remainder of
net proceeds from the Offerings together
with the proceeds from the Direct Sales
will be contributed to the Company's
operating subsidiaries to establish a
capital base to be used to support the
underwriting of reinsurance or will be held
by the Company for general corporate
purposes.
Dividend Policy.................... The Board of Directors intends to declare
quarterly cash dividends of $0.075 per
share beginning in the first quarter of
1998. The declaration and payment of
dividends to holders of Common Shares will
be at the discretion of the Board of
Directors. See "Dividend Policy."
</TABLE>
- --------------------

(1) Does not include (i) 1,247,284 Common Shares reserved for issuance upon the
exercise of Class A Warrants purchased by the Direct Purchasers and (ii)
1,247,284 Common Shares reserved for issuance upon the exercise of Class B
Warrants (if certain performance criteria are satisfied) purchased by the
Head Group, which will be received upon completion of the Direct Sales and
the Offerings. See "Direct Sales" and "Description of Capital Stock--
Warrants."
(2) Does not include 12,000 Ordinary Shares that will be repurchased by the
Company and retired simultaneously upon completion of the Formation.

13
<PAGE>

SPONSOR

The Company's sponsor is Head & Company L.L.C. ("Head Company"). As sponsor,
Head Company has provided support and assistance in the planning, structuring
and formation of the Company and capital raising in both the Direct Sales and
Offerings, in the belief that both the capital markets and the insurance
markets will view favorably a well-capitalized, knowledgeable, personal and
special risk reinsurer that enjoys strong sponsorship.

Head Company is an investment banking firm formed in 1987 to specialize in
the insurance industry. The primary activity of Head Company is the management
of its investment affiliates dedicated to making equity investments in
insurance and reinsurance companies and companies providing services to the
insurance industry. Head Company has a proven investment track record,
extensive contacts throughout the insurance industry and an established
reputation in the investment community.

Affiliates of Head Company made capital investments in the Direct Sales.
Following the completion of the Offerings, the Head Group will hold 4.6% of the
outstanding Common Shares. John C Head III, Chairman of the Board of Directors,
is a Managing Member of Head Company. Head Asset Management L.L.C. ("Head Asset
Management"), an affiliate of Head Company, is party to an Investment Advisory
Agreement (as defined herein) with the Company for the provision of certain
investment advisory services. See "The Company--Investments" and "Principal
Shareholders."

FORMATION AND DIRECT SALES

The Company was formed on August 21, 1997 under the laws of Bermuda. On
December 2, 1997, the current shareholders of European Specialty Group Holding
AG ("ESG Germany") exchanged all of their interests in ESG Germany for 900,000
Common Shares (the "Formation"). ESG Germany thereby became an indirect,
wholly-owned subsidiary of the Company. As adjusted to give effect to the
Direct Sales and the Offerings, such Common Shares will represent 7.2% of the
aggregate outstanding Common Shares.

Following the Formation, on December 3, 1997, the Direct Purchasers purchased
from the Company Common Shares, Class A Warrants and Class B Warrants. See
"Direct Sales."

14
<PAGE>

SUMMARY FINANCIAL INFORMATION

The following table sets forth the summary consolidated financial data for
European Specialty Group Holding AG and Subsidiaries or, prior to 1996,
European Specialty Group GmbH and Subsidiaries, for the periods and as of the
dates indicated. The financial statements included herein represent the
financial performance and results of the Company's prior operations as a
reinsurance management company and do not reflect the financial performance and
results of the Company as a reinsurer for its own account. The consolidated
statement of income data for the years ended December 31, 1994, 1995 and 1996,
and the consolidated balance sheet data as of December 31, 1995, and 1996, have
been derived from the Company's audited consolidated financial statements. The
consolidated statement of income data for the years ended December 31, 1992,
and 1993, and the periods ended June 30, 1996 and 1997, and the consolidated
balance sheet data as of December 31, 1992, 1993 and 1994, and as of June 30,
1996 and 1997, have been derived from the Company's unaudited consolidated
financial statements and, in the opinion of management, reflect all adjustments
necessary for a fair presentation of the results of operations and financial
condition. The data should be read in conjunction with the Company's
Consolidated Financial Statements, related notes, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and other financial
information appearing elsewhere herein. For information on underwriting
results, see "The Company--Underwriting Results" and "--Lines of Business."

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED JUNE 30,
----------------------------------------------------- ---------------------
1992 1993(1) 1994 1995 1996 1996 1997
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (U.S. DOLLARS
IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DA-
TA:
Total revenues.......... $ 921.4 $ 1,820.9 $ 3,351.0 $ 4,541.0 $ 4,149.5 $ 3,242.7 $ 2,680.3
Total expenses (excludes
tax
benefits/expenses)..... 1,143.1 2,329.0 3,313.2 4,097.2 4,156.9 2,116.1 2,139.3
Net income (loss)....... (70.9) (165.3) (6.0) 145.5 (162.6)(2) 441.3 197.9
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------------------------------------- ---------------------
1992 1993(1) 1994 1995 1996 1996 1997
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............ $ 503.5 $ 1,505.0 $ 2,881.1 $ 2,683.5 $ 2,518.7 $ 3,532.6 $ 3,153.6
Short-term and current
portion of long-term
debt................... 147.2 674.1 537.3 1,745.7 1,812.7 1,731.5 1,882.7
Long-term debt.......... -- 724.1 1,736.9 195.4 -- -- --
Total shareholders'
equity................. 87.2 (76.9) (90.4) (151.8) (488.8)(3) 38.5 (233.1)
</TABLE>
- --------------------
(1) In 1994, the Company began operations as an underwriting management
company. Prior to 1994, the Company operated principally as a reinsurance
intermediary.
(2) In 1996, the Company incurred a one-time tax expense of $121.0 related to
the reorganization of ESG Germany. Also in 1996, the Company incurred an
expense of $130.0 (after tax) for advisory services provided by an
affiliate of Deutsche Morgan Grenfell Inc., one of the Representatives (as
defined herein) of the Underwriters. For 1996, on a pro forma basis, the
Company would have had a net loss of $(0.18) per share assuming 900,000
shares outstanding after the Formation (prior to the Direct Sales and the
Offerings). Earnings per share data is not meaningful for the historical
operations of the Company.
(3) In 1996, the Company entered into a series of equity transactions to
simplify its capital structure that, upon the settlement of certain of
these transactions, resulted in a reduction of shareholders' equity at
December 31, 1996, of $173.0. Subsequent to December 31, 1996, certain of
these transactions settled and resulted in an increase in capital of
$440.4.

15
<PAGE>

RISK FACTORS

An investment in the Common Shares involves material risks. Prospective
investors should carefully consider the matters set forth below as well as the
other information set forth in this Prospectus.

NO HISTORY AS A REINSURER; INCREASED SCOPE OF BUSINESS

Although the Company has acted as a reinsurance management company for
several years through its subsidiary, ES Management, and, as such, has
performed substantially all of the functions of a reinsurance company, other
than investment management services, the Company has never been a reinsurance
company and has never underwritten insurance or reinsurance for its own
account. The financial statements of ES Management included herein are not
representative of the Company's future business. There can be no assurance
that the Company will be able to make the transition successfully from a
management company to a reinsurance company or that its customers will
continue to work with the Company in such capacity. In addition, the scope of
the Company's current management operations is substantially smaller than the
proposed scope of its reinsurance operations and the Company will have to
increase its management capacity to handle such business successfully. There
can be no assurance that the Company will be able to attract adequate business
or to manage the increased business with the same financial results as are
currently realized.

DEPENDENCE ON KEY CLIENTS

The business that ES Management currently manages on behalf of its
reinsurance partners depends on a limited number of clients for a substantial
portion of its premium revenue. ES Management has approximately 180 centrally
administered reinsurance acceptances from ceding clients. During 1996, ES
Management's largest ceding client, Chiyoda Fire & Marine Insurance Company
(Europe) Ltd., accounted for 14.4% of the premium revenue generated on behalf
of reinsurance partners. ES Management's second and third largest ceding
clients, Best Meridian Insurance Company and ADAC Schutzbrief Versicherungs-
AG, accounted for 12.1% and 4.2% of the premium revenue generated on behalf of
reinsurance partners in 1996, respectively. The non-renewal of even a limited
number of programs or policies after completion of the Offerings could
adversely affect the business of the Company in the future as it seeks to
write reinsurance on its own behalf. The Company will solicit new ceding
clients to supplement the existing clients of ES Management, but there can be
no assurance that the Company will be successful in doing so.

DEPENDENCE ON KEY EMPLOYEES

The Company's success will depend in substantial part upon the continued
service of Wolfgang M. Wand, Steven H. Debrovner, Renate M. Nellich and
Gerhard Jurk, and the Company's ability to attract and retain executives and
underwriting personnel for its expanded operations. Each of Mr. Wand, Mr.
Debrovner, Ms. Nellich and Mr. Jurk has entered into an employment contract
with the Company, effective upon the Closing Date, through September 1, 2000.
There can be no assurances that the Company will be successful in attracting
and retaining qualified employees and the failure to do so could have a
material adverse effect on the Company. See "Management."

VOLATILITY OF RESULTS

The Company's profitability and revenue trends could be affected by volatile
and unpredictable developments in the specialty risk lines, which are
characterized by a relatively small number of large risks, e.g., the risk of
cancellation of a World Cup Soccer championship or the nonappearance of a
performing artist.

REINSURANCE BUSINESS CONSIDERATIONS

Historically the reinsurance industry has been cyclical, with reinsurers
experiencing significant fluctuations in operating results due to competition,
catastrophic events, levels of capacity, general economic conditions, and
other factors. Demand for reinsurance is influenced significantly by
underwriting results of PRIMARY INSURERS and prevailing general economic
conditions. The supply of reinsurance is related directly to prevailing prices
and levels of surplus capacity which, in turn, may fluctuate in response to
changes in rates of return on

16
<PAGE>

investments being realized in the reinsurance industry. Of particular
significance to the Company is the risk of a general account deterioration,
i.e., an increase of LOSS RATIOS, and the ability to maintain an appropriate
mix of risk classes and regions. The insolvency of a retrocessionaire could
affect the operating results and the profitability of the Company. As a
reinsurer, the Company will need to establish loss reserves for risks it
underwrites. See "--Loss Reserves."

COMPETITION AND RATINGS

The reinsurance industry is highly competitive. The Company will compete
with major domestic and foreign insurers and reinsurers, some of which have
substantially greater financial, marketing and management resources than the
Company. Competition in the types of reinsurance business that the Company
intends to underwrite is based on many factors, including the perceived
financial strength of the reinsurers, premium charges, other terms and
conditions offered, services provided, ratings assigned by independent rating
agencies, speed of claims payment and reputation and experience in the line of
reinsurance to be written. Ultimately, this competition could affect the
Company's ability to attract business on terms having the potential to yield
appropriate levels of profits.

Ratings by insurance rating agencies are based on a quantitative evaluation
of performance with respect to profitability, leverage and liquidity and a
qualitative evaluation of spread of risk, reinsurance programs, investments,
reserves and management. The Company is not currently rated by any of the
major independent rating agencies. Insurance ratings are used by insurers and
reinsurance intermediaries as an important means of assessing the financial
strength and quality of reinsurers. Subsequent to the completion of the
Offerings, the Company will seek a rating by a major credit rating agency as
to claims payment ability. In the event that such an early and adequate rating
cannot be obtained, the lack of such a rating may dissuade a ceding client
from reinsuring with the Company.

The Company and its subsidiaries are not licensed or admitted as reinsurers
in any jurisdiction other than Bermuda, Ireland and Germany. Because many
jurisdictions do not permit insurance companies to take credit for reinsurance
obtained from unlicensed or non-admitted insurers on their statutory financial
statements unless security is posted, the Company's reinsurance contracts may
frequently require it to post a letter of credit or other security immediately
or after a reinsured reports a claim. Although the Company intends to seek a
letter of credit facility, it does not yet have one and no assurances can be
made that it will be able to obtain a letter of credit facility on terms
favorable to the Company.

There can be no assurances that increased competitive pressure from current
reinsurers and future entrants and the lack of a rating by insurance rating
agencies will not adversely affect the Company. See "The Company--
Competition."

FOREIGN CURRENCY

The Company's functional currency is the U.S. dollar. However, because the
Company expects to write a portion of its business in currencies other than
the U.S. dollar and will maintain a portion of its investment portfolio in
investments denominated in currencies other than the U.S. dollar, the Company
could experience significant exchange gains and losses, which will in turn
affect the Company's results of operations. See Notes to the Balance Sheet of
ESG Re Limited.

While a substantial portion of the Company's investments will be in U.S.
dollar-denominated instruments, the Company might be exposed to significant
underwriting losses in currencies other than U.S. dollars. Exchange rate
fluctuations may increase the Company's losses (as measured in U.S. dollars)
as claim amounts are settled.

REGULATION

The Company is subject to the general corporate and insurance laws and
regulations of Bermuda, Ireland and Germany, the jurisdictions of
incorporation of ESG and each of its principal operating subsidiaries, and the
laws and regulations of the other jurisdictions in which such entities are
licensed or authorized to do business. The insurance laws of each state of the
United States and of many non-U.S. jurisdictions regulate the sale of

17
<PAGE>

insurance and reinsurance within their jurisdiction by foreign insurers, such
as the Company, which are not admitted to do business within such
jurisdiction. The Company does not intend to maintain an office or to solicit,
advertise, settle claims or conduct other insurance activities in any
jurisdiction where the conduct of such activities would be prohibited by the
Company's lack of license in such jurisdiction. There can be no assurances
that inquiries or challenges relating to the activities of the Company will
not be raised in the future or that the Company's location, regulatory status
or restrictions on its activities resulting therefrom will not adversely
affect its ability to conduct its business. No assurance can be given that if
the Company were to become subject to any such laws of the United States or
any state thereof or of any other country at any time in the future, it would
be in compliance with such laws. See "The Company--Regulation."

The Company is unable to predict what additional government regulations, if
any, affecting its business may be promulgated in the future or how they might
be interpreted; such changes could have a material adverse effect on the
Company or the insurance industry in general.

LOSS RESERVES

The Company will establish loss reserves for the ultimate payment of all
losses and loss adjustment expenses ("LAE") incurred with respect to the
business it underwrites. Under U.S. GAAP, the Company will not be permitted to
establish loss reserves with respect to its personal and special risk
reinsurance until an event which may give rise to a claim occurs. Reserves are
estimates for reported but not paid claims and for INCURRED BUT NOT REPORTED
("IBNR") claims involving actuarial and statistical projections at a given
time to reflect the Company's expectations of the costs of the ultimate
settlement and administration of claims. The estimation of reserves by new
reinsurers, such as the Company, may be inherently less reliable than the
reserve estimations of a reinsurer with a stable volume of business and an
established long-term loss history. Actual losses and LAE paid may deviate,
perhaps substantially, from estimates reflected in the Company's loss reserves
in its financial statements. If the Company's loss reserves in respect of
business written are inadequate due to the occurrence of unpredicted events or
unpredicted demographic or political developments, the Company will be
required to increase loss reserves with a corresponding reduction in the
Company's net income in the period in which the deficiency is identified.
There can be no assurances that losses will not exceed the Company's loss
reserves and have a material adverse effect on the Company's financial
condition or results of operations in a particular period. See "The Company--
Underwriting" and "--Reserves."

TAX MATTERS

The Company and its subsidiaries intend to operate their business in a
manner that will not cause them to be viewed as engaged in a trade or business
in the United States and, thus, will not require them to pay United States
corporate income taxes (other than withholding taxes). However, because there
is considerable uncertainty as to the activities which constitute being
engaged in a trade or business within the United States, there can be no
assurances that the United States Internal Revenue Service (the "IRS") will
not contend successfully that the Company or a subsidiary is engaged in a
trade or business in the United States. If the Company or any of its
subsidiaries were subject to U.S. income tax, the Company's shareholders'
equity and earnings could be materially adversely affected. See "Certain Tax
Considerations--Taxation of the Company and its Subsidiaries--United States."

If the Company has "related person insurance income" ("RPII"), determined on
a gross basis, in excess of 20% of its gross insurance income for any fiscal
year, each U.S. shareholder of the Company who owns Common Shares (directly or
through foreign entities) on the last day of such fiscal year may be required
to include in such shareholder's gross income for U.S. tax purposes a
proportionate share of such RPII. RPII is income of the Company or one of its
subsidiaries attributable to insurance or reinsurance policies where the
direct or indirect insureds are U.S. shareholders or are related to U.S.
shareholders. RPII may be included in a U.S. shareholder's gross income
whether or not such shareholder or a person related to it is a policyholder.
While the Company intends to operate its business so that RPII does not exceed
20% of gross insurance income, there can

18
<PAGE>

be no assurance that it will not have gross RPII exceeding such threshold. See
"Certain Tax Considerations--Taxation of Shareholders--United States Taxation
of U.S. and Non-U.S. Shareholders."

Under ESG's Bye-laws, no U.S. shareholder is permitted to hold 10% or more
of ESG's total combined voting power, except for John C Head III and persons
deemed to own Common Shares with him ("Head") under Section 958 of the
Internal Revenue Code of 1986, as amended (the "Code"), subsequent to the
Closing Date, who are not permitted to hold 25% or more of such voting power.
Accordingly, the Company believes that no shareholder other than Head could be
considered to be a "U.S. shareholder" for purposes of Section 951(b) of the
Code. Additionally, Head has no intention of acquiring any shares that would
cause Head to be treated as owning 25% or more of the value of the Company.
Therefore, the Company does not believe that either it or any of its
subsidiaries will be "controlled foreign corporations" ("CFC") for U.S.
federal income tax purposes. In the absence of any controlling authority,
however, there can be no assurance that the IRS would not take a contrary
position regarding the effect of the foregoing limitations on voting power,
and therefore assert that the Company is a CFC. Moreover, if Head acquires
sufficient shares that would cause Head to be treated as owning (for purpose
of the CFC rules) more than 25% of the value of the Company for an
uninterrupted period of 30 days or more during any tax year, the Company would
be a CFC. If the Company or any subsidiary of the Company were deemed to be a
CFC, each "U.S. shareholder" would be required to include in its gross income
for U.S. federal income tax purposes its pro rata share of the Company's
"Subpart F income," even if the "Subpart F" income is not distributed.
"Subpart F income" includes, among other things, "insurance income" within the
meaning of Section 953(a) of the Code.

The Company, ES Ireland and ES Bermuda intend to operate their business in a
manner that will not cause the Company and its subsidiaries, other than the
German subsidiaries, to be subject to tax in Germany. However, because this is
essentially a factual test and there is considerable uncertainty as to the
activities which will cause a foreign corporation to be subject to tax in
Germany, there can be no assurance that German tax authorities will not
successfully contend that the Company and/or ES Ireland or ES Bermuda are
subject to tax in Germany. If the Company, ES Ireland or ES Bermuda were
subject to German tax, the Company's shareholders' equity and earnings would
be materially and adversely affected. At present, the overall effective tax
rate in Germany for ES Ireland or ES Bermuda would be approximately 56%
although non-deductible expenses would increase the overall effective tax
burden. See "Certain Tax Considerations--Taxation of the Company and its
Subsidiaries--Germany."

The Company and its subsidiaries intend to operate their business in a
manner that will not cause the Company or any of its subsidiaries, other than
ES North America, its Canadian subsidiary, to be subject to tax in Canada.
However, because this is essentially a factual test and there is considerable
uncertainty as to the activities which will cause a foreign corporation to be
subject to tax in Canada, there can be no assurance that Canadian tax
authorities will not successfully contend that the Company and/or a non-
Canadian subsidiary are subject to tax in Canada. If the Company and/or its
non-Canadian subsidiaries were subject to Canadian tax, the Company's
shareholders' equity and earnings could be materially and adversely affected.
At present, the overall effective tax rate in Canada is approximately 44%. See
"Certain Tax Considerations--Taxation of the Company and its Subsidiaries--
Canada."

ANTI-TAKEOVER CONSIDERATIONS

The provision for a staggered Board of Directors and voting cut-backs in the
Company's Bye-laws will have the effect of discouraging unsolicited takeover
bids from third parties or the removal of incumbent management. The Company's
Bye-Laws provide that the voting rights with respect to Common Shares and any
other voting securities directly or indirectly beneficially or constructively
owned by any person, other than Head subsequent to the Closing Date, will be
limited, in the aggregate, to a voting power of 9.9%. The voting rights with
respect to all shares held by such person in excess of the 9.9% limitation
will be allocated to the other holders of Common Shares, pro rata based on the
number of Common Shares held by all such other holders of Common Shares,
subject only to the further limitation that no shareholder allocated any such
voting rights, other than Head subsequent to the Closing Date, may exceed the
9.9% limitation as a result of such allocation. See "Description

19
<PAGE>

of Capital Stock--Common Shares." In addition, the terms of Class B Warrants
provide that any such Class B Warrants remaining unvested at the time of a
change of control of the Company will vest immediately upon the occurrence of
such change. See "Description of Capital Stock--Warrants."

CERTAIN TRANSACTIONS, CONFLICTS OF INTEREST AND BUSINESS OPPORTUNITIES

The Company has entered into an agreement with Head Asset Management, an
affiliate of Head Company, relating to the provision of investment management
services, for which the Company will pay fees. Conflicts of interest could
arise with respect to future transactions involving the Direct Purchasers, on
the one hand, and the Company, on the other hand. Such transactions must be
approved by a majority vote of the disinterested members of the Board of
Directors. See "The Company--Investments."

Conflicts of interest could also arise with respect to business
opportunities that could be advantageous to Head Company, on the one hand, and
the Company, on the other hand. Head Company, through its affiliates, makes
investments in insurance and reinsurance companies and companies providing
services to the insurance industry. The Company may compete with affiliates of
Head Company on personal and special risk reinsurance programs for the same
prospective clients. In such cases, the Company will conduct its underwriting
and pricing analyses independently.

Wolfgang M. Wand is the legal representative in Germany of Les Mutuelles du
Mans, a French insurance company. In this capacity, Mr. Wand's duties to Les
Mutuelles du Mans may conflict with his duties to the Company, as Les
Mutuelles du Mans and the Company may have diverging business priorities with
respect to opportunities to which Mr. Wand may have access.

NO PRIOR MARKET

Prior to the Offerings, there has been no public trading market for the
Common Shares and there can be no assurance that an active trading market will
develop and continue upon completion of the Offerings or that the market price
of the Common Shares will not decline below the initial public offering price.
The initial public offering price was determined by agreement among the
Company and the Underwriters and may not be indicative of the market price of
the Common Shares after the Offerings. See "Underwriting" for factors
considered in determining the initial public offering price.

SHARES ELIGIBLE FOR FUTURE SALE

No prediction can be made as to the effect, if any, that future sales of
Common Shares, or the availability of Common Shares for future sale, will have
on the market price of the Common Shares prevailing from time to time. Sales
of substantial amounts of the Common Shares following the Offerings, or the
perception that such sales could occur, could adversely affect the market
price of the Common Shares and may make it more difficult for the Company to
sell its equity securities in the future at a time and price which it deems
appropriate. Upon completion of the Formation, Direct Sales and the Offerings,
there will be 12,573,799 Common Shares outstanding and Class A Warrants to
purchase 1,247,284 Common Shares that will be immediately exercisable. If the
Underwriters' over-allotment option is exercised, 13,923,799 Common Shares
will be outstanding and Class A Warrants to purchase 1,381,200 Common Shares
will be immediately exercisable. The Common Shares sold in the Offerings will
be freely transferable without restriction or further registration under the
Securities Act of 1933 (the "Securities Act"), except for any of those Common
Shares owned at any time by an "affiliate" of the Company (an "Affiliate")
within the meaning of Rule 144 under the Securities Act (which sales will be
subject to the volume limitations and certain other restrictions). The Direct
Purchasers have been granted rights to require the Company to register their
Common Shares, Warrants and Common Shares underlying the Warrants, which
rights can be exercised, contingent upon the closing of the Offerings,
immediately upon expiration of the lock-up agreement they have entered into
with the Company. Pursuant to such lock-up agreements, each of the Company and
the Direct Purchasers, excluding HMI, has agreed, subject to certain limited
exceptions, not to offer, sell, contract to sell or otherwise dispose of any
Common Shares or any other

20
<PAGE>

securities convertible into or exercisable or exchangeable for any Common
Shares or grant options or warrants to purchase any Common Shares for a period
of one year after the date of this Prospectus, without the prior written
consent of the Representatives. HMI, Mr. Wand and Mr. Debrovner have agreed to
such restrictions for two years after the date of this Prospectus unless
otherwise agreed in writing by the Representatives. Certain other shareholders
who acquired Common Shares in the Formation have agreed to such restrictions
for six months after the date of this Prospectus unless otherwise agreed in
writing by the Representatives. See "Shares Eligible for Future Sale."

SERVICE OF PROCESS AND ENFORCEMENT OF JUDGMENTS

The majority of the Company's officers and directors are residents of
various jurisdictions outside the United States. All or a substantial portion
of the assets of such officers and directors and of the Company are or may be
located in jurisdictions outside the United States. Although the Company has
irrevocably agreed that it may be served with process in New York, New York
with respect to actions based on offers and sales of the Common Shares made
hereby, it could be difficult for investors to effect service of process
within the United States on directors and officers of the Company who reside
outside the United States or to recover against the Company or such directors
and officers on judgments of United States courts predicated upon civil
liabilities under the United States federal securities laws. See
"Enforceability of Civil Liabilities Under United States Federal Securities
Laws."

HOLDING COMPANY STRUCTURE AND DIVIDENDS

The Company is a holding company with no operations or significant assets
other than through its ownership of the capital stock of subsidiaries. Future
dividends and other permitted payments from subsidiaries are expected to be
the Company's sole source of funds to pay expenses and dividends, if any.
While the Company is not itself subject to any significant legal prohibitions
in the payment of dividends, its subsidiaries are subject to regulatory
constraints which affect their ability to pay dividends to the Company. See
"The Company--Regulation," "Description of Capital Stock" and "Dividend
Policy."

DILUTION

The subscription agreements pursuant to which the Warrants were purchased
provide that Warrants will be granted to purchase a proportion of the total
number of Common Shares outstanding on the Closing Date, together with Common
Shares sold pursuant to the exercise of the Underwriters' over-allotment
option. See "Direct Sales" and "Description of Capital Stock--Warrants."
Therefore, to the extent that the number of Common Shares to be sold in the
Offerings varies, the number of Common Shares issuable upon the exercise of
the Warrants will vary. Upon completion of the Offerings, Class A Warrants to
purchase up to 1,247,284 Common Shares, and Class B Warrants to purchase up to
1,247,284 Common Shares (if certain performance criteria are satisfied), will
be outstanding. The purchasers in the Offerings will experience an immediate
dilution of $3.13 per share upon completion of the Offerings. See "Dilution."

FORWARD-LOOKING STATEMENTS

This Prospectus contains certain forward-looking statements concerning the
Company's operations, economic performances and financial condition,
including, in particular, the likelihood of the Company's success in
maintaining the favorable results of its current book of business. These
statements are based upon a number of assumptions and estimates which are
inherently subject to significant uncertainties and contingencies, many of
which are beyond the control of the Company, and reflect future business
decisions which are subject to change. The foregoing description of risk
factors specifies the principal contingencies and uncertainties to which the
Company believes it is subject. Some of these assumptions inevitably will not
materialize, and unanticipated events will or may occur which will affect the
Company's results.

21
<PAGE>

USE OF PROCEEDS

Proceeds from the Direct Sales are estimated to be $50.0 million and net
proceeds from the Offerings are estimated to be $168.3 million. Approximately
$5.6 million of net proceeds from the Offerings will be used for the payment
of certain expenses and fees related to the Direct Sales and the Offerings.
The remainder of net proceeds from the Offerings together with the proceeds
from the Direct Sales will be contributed to the Company's operating
subsidiaries to establish a capital base to be used to support the
underwriting of reinsurance or will be held by the Company for general
corporate purposes. See "The Company--Investments."

CAPITALIZATION

The following table sets forth the capitalization of ESG (i) as of August
21, 1997, (ii) as adjusted to give effect to the Formation, (iii) as adjusted
to give effect to the Formation and Direct Sales, and (iv) as adjusted to give
effect to the Formation, Direct Sales and the Offerings.

<TABLE>
<CAPTION>
AS ADJUSTED AS ADJUSTED FOR
FOR THE THE FORMATION,
AS ADJUSTED FOR FORMATION AND DIRECT SALES AND
ACTUAL THE FORMATION DIRECT SALES THE OFFERINGS
<S> <C> <C> <C> <C>
Long-term debt.......... $ -- $ -- $ -- $ --
Preference Shares
(50,000,000 shares
authorized; 0 shares
issued and
outstanding)........... -- -- -- --
Shareholders' equity:
Ordinary Shares, par
value $ 1.00 per
share(12,000 shares
authorized, issued
and outstanding)..... 12,000 -- -- --
Common Shares, par
value $1.00 per share
(100,000,000 shares
authorized;
12,573,799 shares
issued and
outstanding)......... -- 900,000 3,573,799 12,573,799
Class B Common Shares,
par value $1.00 per
share (100,000,000
shares authorized; 0
shares issued and
outstanding)......... -- -- -- --
Additional paid-in
capital.............. 0 (780,100) 46,546,101 (1) 200,246,101 (4)
Less: receivable from
shareholders......... (12,000)(2) -- --
Accumulated deficit.... -- (608,700)(3) (608,700)(3) (608,700)(3)
-------- --------- ----------- ------------
Total shareholders'
equity................. 0 (488,800) 49,511,200 212,211,200
-------- --------- ----------- ------------
Total capitalization.... $ 0 $(488,800) $49,511,200 $212,211,200
======== ========= =========== ============
</TABLE>
- ---------------------

(1) Includes $50.0 million from the Direct Sales, which includes $5.6 million
attributable to Class A Warrants to purchase 1,247,284 Common Shares and
no amount attributable to Class B Warrants to purchase up to 1,247,284
Common Shares (if certain performance criteria are satisfied).
(2) Represents the required contributions from the Company's initial issuance
of Ordinary Shares in connection with the incorporation of the Company.
Such shares will be repurchased by the Company and retired simultaneously
upon completion of the Formation.
(3) Reflects the December 31, 1996, accumulated deficit of ESG Germany and the
inclusion of its shares in connection with the Formation. See Notes to the
Balance Sheet of ESG Re Limited.

(4) Includes $168.3 million of net proceeds from the Offerings and estimated
expenses and fees of $5.6 million. See "Summary--The Offerings" and "--
Formation and Direct Sales."

22
<PAGE>

DILUTION

The net tangible book value (deficiency) of the Company, after giving effect
to the Formation and prior to the Direct Sales and the Offerings, was
approximately $(0.6) million, or $(0.61) per share. Net tangible book value
(deficiency) per share is equal to the Company's total assets excluding
intangible assets less its total liabilities, divided by the total number of
Common Shares then outstanding. After giving effect to the Formation, Direct
Sales and the Offerings, and after deducting the Underwriters' discounts and
commissions and estimated expenses related to the Offerings, the net tangible
book value of the Company would be $212.1 million, or $16.87 per share. This
represents an immediate increase in net tangible book value of $17.48 per
share to shareholders at the time of the Formation and an immediate dilution
in net tangible book value of $3.13 per share to investors in the Offerings.
The following table illustrates the per share dilution in net tangible book
value to investors in the Offerings.

<TABLE>
<S> <C> <C>
Assumed price per share to investors in the Offerings.......... $20.00
Net tangible book value (deficiency) per share prior to the
Direct Sales and the Offerings (1)............................ $(0.61)
Increase in net tangible book value per share attributable to
the Direct Sales and the Offerings............................ 17.48
Net tangible book value per share after giving effect to the
Formation, Direct Sales and the Offerings..................... 16.87
======
Dilution per share to investors in the Offerings............... $ 3.13
======
</TABLE>

The following table summarizes the number of Common Shares purchased from
the Company, the total consideration paid and the average price per share paid
in the Formation, Direct Sales and the Offerings:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------- ------------------------PRICE PER
AMOUNT % AMOUNT % SHARE
<S> <C> <C> <C> <C> <C>
Formation.................. 900,000 7.2 $ -- -- $ --
Direct Sales............... 2,673,799 21.3 50,000,000(2) 21.7 18.70(2)
The Offerings.............. 9,000,000 71.6 180,000,000 78.3 20.00
---------- ----- ------------- ------
12,573,799 100.0 $ 230,000,000 100.0
========== ===== ============= ======
</TABLE>

The calculations of net tangible book value and other computations above
assume no exercise of the Underwriters' over-allotment option and that the
Class A Warrants and Class B Warrants are not exercised. See "Description of
Capital Stock."
- ---------------------
(1) Based upon the December 31, 1996 financial statements of ESG Germany and
after giving effect to the Formation.
(2) Represents amount paid for Common Shares and Warrants in the Direct Sales.
The average price per share is based on the number of Common Shares
purchased in the Direct Sales.

DIVIDEND POLICY

The Board of Directors expects to declare quarterly cash dividends of $0.075
per share beginning in the first quarter of 1998. The declaration and payment
of dividends will be at the discretion of the Board of Directors and will
depend upon the Company's results of operations and cash flows, the financial
position and capital requirements of the Company's reinsurance operations,
general business conditions, legal, tax and regulatory restrictions on the
payment of dividends and other factors the Board of Directors deems relevant.
While the Company is not itself subject to any significant legal prohibitions
on the payment of dividends, its subsidiaries are subject to regulatory
constraints which affect their ability to pay dividends to the Company. See
"The Company--Regulation" and "Description of Capital Stock." Accordingly,
there can be no assurance that dividends will be declared or paid by the
Company in the future.

23
<PAGE>

SELECTED FINANCIAL DATA

The following table sets forth the selected consolidated financial data for
European Specialty Group Holding AG and Subsidiaries or, prior to 1996,
European Specialty Group GmbH and Subsidiaries, for the periods and as of the
dates indicated. The financial statements included herein represent the
financial performance and results of the Company's prior operations as a
reinsurance management company and do not reflect the financial performance
and results of the Company as a reinsurer for its own account. The
consolidated statement of income data for the years ended December 31, 1994,
1995 and 1996, and the consolidated balance sheet data as of December 31,
1995, and 1996, have been derived from the Company's audited consolidated
financial statements. The consolidated statement of income data for the years
ended December 31, 1992, and 1993, and the periods ended June 30, 1996 and
1997, and the consolidated balance sheet data as of December 31, 1992, 1993
and 1994, and as of June 30, 1996 and 1997 have been derived from the
Company's unaudited consolidated financial statements and, in the opinion of
management, reflect all adjustments necessary for a fair presentation of the
results of operations and financial condition. The data should be read in
conjunction with the Company's Consolidated Financial Statements, related
notes, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and other financial information appearing elsewhere
herein. For information on underwriting results, see "The Company--
Underwriting Results" and "--Lines of Business."

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, PERIOD ENDED JUNE 30,
----------------------------------------------------- ---------------------
1992 1993(1) 1994 1995 1996 1996 1997
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA) (U.S. DOLLARS
IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DA-
TA:
Total revenues.......... $ 921.4 $ 1,820.9 $ 3,351.0 $ 4,541.0 $ 4,149.5 $ 3,242.7 $ 2,680.3
Total expenses (excludes
tax
benefits/expenses)..... 1,143.1 2,329.0 3,313.2 4,097.2 4,156.9 2,116.1 2,139.3
Net income (loss)....... (70.9) (165.3) (6.0) 145.5 (162.6)(2) 441.3 197.9
<CAPTION>
DECEMBER 31, JUNE 30,
----------------------------------------------------- ---------------------
1992 1993(1) 1994 1995 1996 1996 1997
(U.S. DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............ $ 503.5 $ 1,505.0 $ 2,881.1 $ 2,683.5 $ 2,518.7 $ 3,532.6 $ 3,153.6
Short-term and current
portion of long-term
debt................... 147.2 674.1 537.3 1,745.7 1,812.7 1,731.5 1,882.7
Long-term debt.......... -- 724.1 1,736.9 195.4 -- -- --
Total shareholders'
equity................. 87.2 (76.9) (90.4) (151.8) (488.8)(3) 38.5 (233.1)
</TABLE>
- ---------------------
(1) In 1994, the Company began operations as an underwriting management
company. Prior to 1994, the Company operated principally as a reinsurance
intermediary.
(2) In 1996, the Company incurred a one-time tax expense of $121.0 related to
the reorganization of ESG Germany. Also in 1996, the Company incurred an
expense of $130.0 (after tax) for advisory services provided by an
affiliate of Deutsche Morgan Grenfell Inc., one of the Representatives of
the Underwriters. For 1996, on a pro forma basis, the Company would have
had a net loss of $(0.18) per share assuming 900,000 shares outstanding
after the Formation (prior to the Direct Sales and the Offerings).
Earnings per share data is not meaningful for the historical operations of
the Company.
(3) In 1996, the Company entered into a series of equity transactions to
simplify its capital structure that, upon the settlement of certain of
these transactions, resulted in a reduction of shareholders' equity at
December 31, 1996, of $173.0. Subsequent to December 31, 1996, certain of
these transactions settled and resulted in an increase in capital of
$440.4.

24
<PAGE>

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

The following discussion and analysis should be read in conjunction with the
"Selected Financial Data" and the Company's financial statements included
elsewhere in this Prospectus. Unless otherwise indicated, all dollar
references below are to thousands of U.S. dollars.

GENERAL

The Company currently operates as a personal and special risk reinsurance
management company through its subsidiary, ES Management. Upon completion of
the Offerings, the Company intends to operate as a specialist reinsurer
writing for its own account and will assume for its own account risks it
previously underwrote on behalf of its reinsurance partners.

The financial statements included herein represent the financial performance
and results of the Company's prior operations as a reinsurance management
company and do not reflect the financial performance and results of the
Company as a reinsurer for its own account. Such results are not, therefore,
an indication of the Company's future financial performance.

RESULTS OF OPERATIONS

SIX MONTHS ENDED JUNE 30, 1997, COMPARED TO SIX MONTHS ENDED JUNE 30, 1996

Total expenses increased by $23.2 or 1.1% from $2,116.1 to $2,139.3.
Personnel costs increased by $268.8 which was principally due to a
reallocation of expenses from consulting and related expenses to personnel
expenses of $289.3, an increase in staff salaries of approximately $125.5 and
an offsetting decrease resulting from an approximate decline of 13% in the
value of translating the Deutsche Mark into U.S. dollars for reporting
purposes. As described in the notes to the December 31, 1996 financial
statements, two consultants engaged by ES Management during 1996 signed
employment agreements effective January 1, 1997. The related expenses of these
consultants has therefore been transferred to personnel expenses for the
period ended June 30, 1997. This explains the reallocation of expenses between
personnel costs and consulting and related expenses. Other operating expenses
increased by $45.1. This increase was due principally to relocation expenses
and additional rent incurred when the company moved offices of $90.7. The
increase in total expenses was offset by the approximate decline of 13% in the
value of translating the Deutsche Mark into U.S. dollars for reporting
purposes.

As described in the footnotes to the financial statements included elsewhere
in the prospectus, revenue is recognized when an underwriting contract becomes
effective. A significant majority of underwriting contracts that ES Management
writes becomes effective on January 1 each year. Thus the majority of the
revenue is recognized in the first quarter of the year. As the estimated cost
of the administrative services required to be provided with respect to these
contracts is accrued when the contract becomes effective, the accrual will
therefore be greater at interim accounting periods than at the end of the
year.

25
<PAGE>

Given the nature of the ES Management's business cycle as described and its
accounting policies, interim financial statements should be read in
conjunction with the full year financial statements.

YEAR ENDED DECEMBER 31, 1996, COMPARED TO YEAR ENDED DECEMBER 31, 1995

Total revenues decreased by $391.5 or 8.6% from $4,541.0 to $4,149.5. This
decrease was caused by a management decision to reduce ES Management's fees
and commissions by approximately 20% in order to enhance ES Management's
competitive position and the underwriting profitability of the business
underwritten for the pools. This decision resulted in a decrease in fee
revenue of approximately $881.8. There was a further decline in total revenue
of $253.5 due to an approximately 6% decline in the value of translating the
Deutsche Mark into U.S. dollars for reporting purposes. These decreases were
offset in part by the ES Management's recognition of approximately $398.0 in
profit commissions in 1996 of which no amounts were recognized in prior years.
ES Management can earn a profit commission based on the underlying
profitability of the pool business. ES Management recorded its first profit
commission in 1996 based upon the clear emergence of profitability in the
underlying pools. ES Management had not recorded profit commission in 1995 and
1994 as management believed it prudent to ensure the profitability of the
pools.

Total expenses increased by $59.7 or 1.5% from $4,097.2 to $4,156.9. This
was principally due to an increase in personnel costs of $80.5. This net
increase resulted from an increase in the numbers of staff of $164.9 and a
decrease caused by the decline of approximately 6% in the value of translating
the Deutsche Mark into U.S. dollars for reporting purposes of $84.4. In
addition, an advisory fee expense of $251.9 was incurred for advice on
possible ways to enhance the capitalization of ES Management and for support
in the production of the draft prospectus to potential investors. Additional
advisory fees have been incurred in 1997 which are directly attributable to
the formation, direct sales and offerings. Occupancy and related expenses
increased by $258.3 due to the opening of additional representative offices
and other relocation costs. These advisory fees will be shown as a reduction
of the proceeds raised and not as an expense of the period. These increases
were offset by a decrease of $253.9 in total operating expenses due to the
decline of approximately 6% in translating the Deutsche Mark into U.S. dollars
for reporting purposes.

In addition, in 1996, ES Management incurred a one-time tax expense related
to the reorganization of ESG Germany of $121.0. The total effect of these
transactions was a net loss of $(162.6) for 1996 in comparison with net income
of $145.5 in 1995.

YEAR ENDED DECEMBER 31, 1995, COMPARED TO YEAR ENDED DECEMBER 31, 1994

Total revenues increased in 1995 by $1,190.0 or 35.5% from $3,351.0 to
$4,541.0. This increase was primarily attributable to the increased
underwriting activities of ES Management on behalf of reinsurance partners in
the personal accident market. Fee revenue from the personal accident market
increased by $887.8 from 1994 to 1995. In addition, revenues increased by
$439.6 reflecting the approximate 11% increase in translating the Deutsche
Mark into U.S. dollars for reporting purposes. In addition, ES Management
increased its interest earnings from funds held in the pools by $21.8.

Total expenses increased by $784.0 or 23.7% from $3,313.2 to $4,097.2.
Personnel costs accounted for $276.0 of this increase. This increase was due
in part to an increase in the number of staff and an increase in employee
compensation of $150.1 and an increase of $125.9 due to the approximate 11%
increase in translating the Deutsche Mark into U.S. dollars for reporting
purposes. In addition, marketing and selling-related costs increased by $99.7
principally for the opening of new representative offices to cover the Eastern
European markets. In addition, expenses increased by $396.6 reflecting the
approximately 11% increase in translating the Deutsche Mark into U.S. dollars
for reporting purposes. Net income increased to $145.5 from the prior year net
loss of $(6.0).

YEAR ENDED DECEMBER 31, 1994, COMPARED TO YEAR ENDED DECEMBER 31, 1993

1994 represented the first year of ES Management's new core activities as an
underwriting management company, whereas previously ES Management's
predecessor had only performed services as a personal and

26
<PAGE>

special risk broker. ES Management's revenues were principally generated from
business written and ceded on behalf of various reinsurers into pools
pertaining to the classes of medical expense, personal accident, credit/life
as well as special risk. The underwriting activities resulted in a generation
of management fees and interest income amounting to $3,351.0 and represent an
increase in revenue in comparison to 1993 of $1,530.1 or 84.0%. This revenue
was also positively affected by an approximately 5% or $163.5 increase in the
rate of exchange for translating Deutsche Marks into U.S. dollars for
reporting purposes.

ES Management incurred total expenses of $3,313.2, which included charges
for depreciation, amortization and interest. Total expenses in 1994 increased
42.3% over total expenses in 1993, which were $2,329.0. This increase was
directly related to ES Management's increased business activities.
Specifically, consulting fees increased by $691.9 as a result of ES
Management's increased business activities.

ES Management incurred a net loss of $(6.0) in 1994 as compared with a net
loss of $(165.3) for 1993.

ES Management does not believe inflation has had a material impact on its
operations for any of the three years presented.

LIQUIDITY AND CAPITAL RESOURCES

After the Formation, the Company will rely primarily on cash dividends from
ES Bermuda to pay its operating expenses. The payment of dividends by ES
Bermuda to the Company is governed by Bermuda law. The Bermuda Companies Act
1981 would allow dividend payments when there are reasonable grounds for
believing that (i) ES Bermuda's assets will exceed the aggregate value of its
liabilities and its issued share capital and premium accounts, and (ii) ES
Bermuda will be able to pay its debts as they become due after payment of a
dividend. The Bermuda Insurance Act 1978 requires the Company to maintain a
minimum solvency margin and a minimum liquidity ratio. See "The Company--
Regulation."

The primary sources of liquidity for the Company will be net cash flow from
the maturity or sale of investments and operating activities, principally
premiums received. The Company's cash flow will also be affected by claim
payments which, due to the nature of the reinsurance coverage provided by the
Company, may include large loss payments. Therefore, the Company's cash flow
may fluctuate significantly from period to period.

It is currently the Company's intention that all fixed income securities in
its portfolio will be classified as securities available for sale and will be
carried at fair market value. Any unrealized gains or losses as a result of
changes in fair value over the period such investments are held will not be
reflected in the Company's statement of operations but rather will be
reflected in shareholders' equity. See Notes to the Balance Sheet of ESG Re
Limited.

As of January 1, 1997, ES Management had the following material commitments
for operating leases and employment contracts:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31
-----------------------
<S> <C>
1997............................................................. $1,308.5
1998............................................................. 1,451.2
1999............................................................. 1,424.2
2000............................................................. 1,109.5
2001............................................................. 945.5
Thereafter....................................................... --
--------
Total.......................................................... $6,238.9
========
</TABLE>

27
<PAGE>

In addition to the employment contracts entered into on January 1, 1997, ES
Management is obliged to pay 12.5% of its annual profits to these executives.
However upon the successful completion of the Offering, these employment
contracts will be replaced with new employment contracts as described under
"Employment Arrangements" of the Prospectus.

In August 1997, the Company committed to open a new office in Toronto,
Canada, the cost of which the Company estimates to be $420.0.

The Company expects that its financing and operational needs for the
foreseeable future will be met by the proceeds of the Direct Sales and the
Offerings, as well as by funds generated from on-going operations. However, no
assurance can be given that the Company will be successful in the
implementation of its new operating strategy. See "Risk Factors--No History as
a Reinsurer; Increased Scope of Business."

ES Management's total outstanding debt increased by $70.0 or 3.9% from
$1,812.7 to $1,882.7 in the six month period ended June 30, 1997 compared to
December 31, 1996. This increase was the result of additional short term
borrowings of $278.8 (15.4%). This increase in outstanding debt was offset by
the decline in the value of translating the Deutsche Mark into U.S. dollars
for reporting purposes.

During 1996, ES Management entered into agreements to issue 80,000 common
shares, but such shares were not legally registered until July 1997.
Subsequent to legal registration, the common shares were sold, increasing the
Company's common shareholders' equity by $440.4.

ES Management's total outstanding debt decreased by $128.4 from $1,941.1 in
1995 to $1,812.7 in 1996. This decrease was the result of principal repayments
of $132.6 to a former shareholder and $139.2 to banks for long-term debt. This
decrease was offset by an increase in short-term debt of $296.0 and the effect
of translating the Deutsche Mark into U.S. dollars for reporting purposes. ES
Management also purchased $152.5 of fixed assets and intangible assets.

In 1996, ES Management entered into a series of equity transactions to
simplify its capital structure, resulting, upon the settlement of certain of
these transactions, in a reduction of shareholders' equity at December 31,
1996 of $173.0. Subsequent to December 31, 1996 certain other of these
transactions settled and resulted in an increase in capital of $516.0.

During 1995 ES Management reduced its outstanding debt by repaying $771.0 of
long-term debt, including $633.2 to a former shareholder, which was partially
offset by an increase in short-term borrowings from banks of $251.3. ES
Management also made capital purchases for furniture and equipment of $46.3
and ES Management agreed to repurchase from a selling shareholder $203.9 of
equity capital.

During 1994, ES Management borrowed from certain of its shareholders $857.7
to finance its new activities. In addition, the Company increased its long-
term bank borrowings by $182.6 before paydowns of other previously existing
long-term bank borrowings of $36.9. With these borrowings ES Management
decreased its borrowings under short-term credit arrangements by approximately
$299.0. ES Management also paid $193.7 to secure a franchise agreement. The
balance of the increased borrowings were used to fund current operations.

CURRENCY

The Company's functional currency is the U.S. dollar. However, because the
Company expects to write a portion of its business in currencies other than
the U.S. dollar and will maintain a portion of its investment portfolio in
investments denominated in currencies other than the U.S. dollar, the Company
expects that it may experience significant exchange gains and losses, which
will in turn affect the Company's statement of operations. See Notes to
Consolidated Financial Statements of European Specialty Group Holding AG and
Subsidiaries.

28
<PAGE>

While a substantial portion of the Company's investments will be in U.S.
dollar-denominated instruments, the Company may be exposed to significant
underwriting losses in currencies other than U.S. dollars. Exchange rate
fluctuations may increase the Company's losses as claim amounts are settled.
Foreign currency exposure originates as a result of the fact that, while the
Company publishes its financial statements in U.S. dollars, a portion of its
revenues and its expenses are denominated in other currencies.

The Company intends to hold investments in the currencies in which it will
collect premiums, pay claims and hold reserves thus creating a natural foreign
exchange hedge so that resulting foreign exchange rate gains and losses can be
reduced to the extent assets equal liabilities. If in the future this hedging
strategy is not effective, the Company may consider other hedging activities
to reduce its foreign currency exposures. See "Risk Factors--Foreign
Currency."

29
<PAGE>

THE COMPANY

The Company was formed on August 21, 1997 to provide personal and special
risk reinsurance to insurers and selected reinsurers on a worldwide basis. The
Company intends to become a leading specialist reinsurer writing for its own
account with a priority of underwriting profitability.

Since 1994, the Company, through its subsidiary, ES Management, has operated
as a personal and special risk reinsurance underwriter on behalf of certain
reinsurers. ES Management has performed the principal underwriting functions
normally handled by a reinsurer, including risk analysis, pricing, contract
structuring, claims management and loss reserve estimation on behalf of its
reinsurance partners participating in reinsurance pools arranged by ES
Management, or has been retained under facultative or treaty arrangements
outside of the pools. Under the pool arrangements, the reinsurance partners
each assume a contractually fixed share of the risk underwritten by ES
Management, which does not assume risk for its own account. The share of risk
underwritten by each reinsurance partner has been negotiated by ES Management
and its reinsurance partners based on estimates of market capacity, the
relative amount of capacity that each such reinsurance partner has been
willing to make available and ES Management's strategic considerations. The
pool business reflects the Company's personal and special risk focus. See "--
Lines of Business." The pool contracts limit the business ES Management is
permitted to write to personal and special risk business. The management and
business origination fees paid to ES Management by its reinsurance partners
have been established by agreement between ES Management and such partners and
range up to 9.5% of the premiums that are paid to the reinsurance partners by
ceding clients in consideration for ES Management's management services, with
the remainder of the premiums retained by its reinsurance partners in
consideration for assuming the reinsurance risk. In addition, ES Management's
agreements with its partners entitle it to receive negotiated profit
commissions, which depend on the pools' loss ratios. ES Management's
relationship with ceding clients approximates the relationship between an
insurer and a reinsurer except that ES Management uses its pool underwriting
authority to accept risk on behalf of other reinsurers rather than on its own
behalf. In essence, ES Management serves as the agent for its reinsurance
partners. ES Management's reinsurance partners have included the following:

AXA RE VIE;
Caisse Centrale de Reassurance;
CNP Assurances;
Manulife Reinsurance;
ReliaStar Reinsurance Group (NL) (a subsidiary of ReliaStar Financial
Corporation);
Rhine Reinsurance Company Ltd.;
Royal Belge Re, a subsidiary of AXA RE VIE;
Skandia International Gestion de Reassurance Vie S.A. (a subsidiary of
Skandia International Holdings AB);
Skandia International Insurance Corporation (a subsidiary of Skandia
International Holdings AB);
Swiss Re Life & Health/The Mercantile and General Life Reinsurance Company
Limited; and Union Reinsurance Company (subsidiaries of Swiss Reinsurance
Company).

Following the Offerings, the Company will discontinue its management
services business and become a reinsurer of risks for its own account. The
Company believes that the skills which have allowed it to develop a successful
management business are the same skills required to operate a successful
reinsurance company and that, following its transition, its underwriting
activities and its relationships with ceding clients will remain largely
unchanged.

THE BUSINESS

30
<PAGE>

reinsurance, loss prevention and disease management. In order to maximize the
quality of the information related to the risks that it underwrites, the
Company maintains close relationships with its ceding clients and professional
reinsurance brokers.

In 1996, gross premiums written by ES Management on behalf of its
reinsurance partners totaled $63.9 million. ES Management expects that its
gross premiums written on behalf of its reinsurance partners for the year
ending December 31, 1997 will be approximately $100 million. ES Management's
principal lines of business as a percentage of gross premiums written on
behalf of its reinsurance partners were as follows for the year ended December
31, 1996:

<TABLE>
<CAPTION>
1996 GROSS
PREMIUMS
WRITTEN
<S> <C>
Medical Expense................................................. 39%
Personal Accident and Disability................................ 35
Credit/Life..................................................... 16
Special Risk.................................................... 10
---
100%
===
</TABLE>

In the years ended December 31, 1994, 1995 and 1996, ES Management's
revenues were $3.3 million, $4.5 million and $4.1 million, respectively. ES
Management's revenues in these years derived primarily from management fees,
except for the year ended December 31, 1996, in which $398,000 in profit
commissions were recognized as a result of favorable loss developments with
respect to earlier underwriting years.

ES Management's business can be characterized as short-tail. Approximately
85% of its business has a typical run-off pattern of less than 24 months and
13% has a slightly longer run-off pattern of up to 60 months. The remaining 2%
of ES Management's business is long-tail. Of ES Management's business, 88% is
written on a proportional basis, as quota share reinsurance, and 12% is
written on a non-proportional basis, as specific excess of loss reinsurance.

31
<PAGE>

POOL UNDERWRITING RESULTS

ES Management's underwriting approach is analytical and proactive, taking
into consideration trends and developments that affect loss development,
rather than focusing on pricing techniques based on loss history alone. ES
Management's business underwritten on behalf of its reinsurance partners is
derived from (i) pool business, where ES Management is authorized to
underwrite reinsurance coverage on behalf of, and bind, reinsurance partners
in specified lines of business; (ii) facultative business, where ES Management
separately negotiates coverage on a risk-by-risk basis between cedants and
reinsurance companies; and (iii) other business, where ES Management arranges
coverage outside of pools because of coverage or risk restrictions contained
in the pool agreements. In 1996, pool business amounted to $53.2 million (or
83.3% of total gross premiums written), facultative business amounted to $5.7
million (or 8.9% of total gross premiums written) and other business amounted
to $5.0 million (or 7.8% of total gross premiums written). As reflected in the
following table, ES Management has achieved underwriting profitability and
steady growth in the business it managed for each of the 1994, 1995 and 1996
underwriting years:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1995 1996
(U.S. DOLLARS IN MILLIONS,
EXCEPT RATIO DATA)
<S> <C> <C> <C>
Gross premiums written.......................... $ 36.5 $ 58.3 $ 63.9
Net premiums written (2)........................ 35.6 57.6 62.7
Net losses and loss adjustment expenses (3)..... 18.1 25.4 34.7
Net losses and loss adjustment expenses as a
percentage of net premiums written............. 51.0% 44.1% 55.3%
Commissions and expenses (4).................... $ 11.5 $ 22.5 $ 18.1
Commissions and expenses as a percentage of net
premiums written............................... 32.2% 39.1% 28.9%
</TABLE>
- ---------------------
(1) All figures show the business as underwritten by ES Management on behalf
of its reinsurance partners and do not represent premiums received by, or
revenue of, ES Management, which are determined under the terms of ES
Management's arrangements with its reinsurance partners.
(2) Net premiums written represent gross premiums written reduced by the cost
of excess of loss reinsurance coverage.
(3) Net losses and loss adjustment expenses include claims costs and reserves,
and represent the actual or anticipated final close-out ratio reduced by
any amounts recovered under excess of loss reinsurance coverage. Claims
costs include actual claims expenditures, loss adjustment costs and loss
prevention charges and consulting expenses directly related to particular
claims. Net losses do not include costs for internal claims supervision
and auditing charges, if applicable, for ES Management and corresponding
items for the pool or open market reinsurers.
(4) Commissions and expenses include all original commissions, overriders,
reinsurance brokerage fees and other fees, taxes and general loss
prevention charges. Commissions and expenses do not include (i) ES
Management's general expenses for managing and administering its business,
(ii) the expenses incurred by reinsurance partners for their internal
administration functions, such as accounting, auditing and investment
management and (iii) expenses allocated to cover the reinsurer's
utilization of capital and surplus. ES Management's total operating
expenses for the years ended December 31, 1994, 1995 and 1996 were $3.1
million, $3.8 million and $3.6 million, respectively.

FINANCIAL TRANSITION

Subsequent to the Offerings, ESG will assume for its own account risks that
its subsidiary, ES Management, previously underwrote on behalf of its
reinsurance partners. After completion of the Offerings, the Company will
exercise a contractual right provided for in its current pool agreements to
underwrite for its own account a 30% share, retroactive to January 1, 1997, of
the 1997 business it currently manages for its reinsurance partners in its
reinsurance pools. ESG's assumption of 30% of the current pool business will
be through retrocession from its reinsurance partners, proportional to such
partners' share of the pool. After completion of the Offerings, ESG

32
<PAGE>

will no longer perform any management functions on behalf of third parties
except in connection with the runoff of the reinsurance pools. Beginning in
1998, ESG will write reinsurance on its own behalf, retaining not less than
70% of the total book of business, including renewals. ESG believes this
transition will not have a significant negative impact on its relationship
with its reinsurance partners or ceding clients since the Company will
continue to provide identical underwriting capabilities and related services.
The Company will not have to compensate either its ceding clients or
reinsurance partners by reason of the Company's current contractual
arrangements. The Company intends to form strategic alliances with other
reinsurers, (some of which may be current reinsurance partners), to assume up
to 30% of the business that will be underwritten by ESG as lead reinsurer.
Since ES Management's business is characterized by high renewal ratios and the
Company's reinsurance subsidiaries will offer a strong financial position, the
Company is confident that it will retain all or a substantial part of this
business. From 1994 to 1995, 90% of the ES Management's business with ceding
clients was renewed and from 1995 to 1996, 79% was renewed. The Company will
not act as an agent on behalf of its reinsurance partners and will not receive
management and profit commissions from them.

As ES Management has handled all of the functions usually administered by a
professional reinsurer, other than investment management, the Company believes
that its established infrastructure is sufficiently developed to meet the
demands of ESG's new role and its anticipated growth. The Company has entered
into an Investment Advisory Agreement with Head Asset Management for the
provision of investment advisory services. See "--Investments." In the future,
the Company may add additional personnel to meet its anticipated growth.

Because the Company previously acted only as a management company through ES
Management, its initial capital will be unencumbered by issues of loss reserve
adequacy, unrealized losses in its investment portfolio and uncollectible
reinsurance. As a management company, ES Management's revenues were previously
comprised of underwriting management fees and profit commissions based on the
underwriting results of the reinsurance pools. As a reinsurer, the Company's
revenues will include premiums written for its own account as well as income
derived from its investment portfolio.

The Company will seek an early rating from a major rating agency. In
addition, the Company will enter into co-reinsurance agreements and licensing
and fronting arrangements, as necessary, allowing the Company to share
underwriting knowledge of, and gain access to, markets in which it currently
is not doing business. Under such arrangements, ESG would be able to accept
risks in the name of the other reinsurers, and those reinsurers would be
obligated to cede to ESG a portion of the business underwritten by ESG on
their behalf.

MARKET GROWTH

ESG believes that its reinsurance markets are currently experiencing
significant growth as a result of: (i) the worldwide trend of transferring
social security and national health responsibility to the private sector,
particularly in Western Europe; (ii) increasing insurance demand accompanying
economic growth in emerging markets in Eastern Europe, Asia and Latin America;
(iii) the deregulation of certain European markets as a consequence of new
trade directives from the European Union enabling the introduction of new
products; (iv) increasing individual morbidity and decreasing mortality within
large demographic segments of the population; and (v) increased capacity
requirements for the insurance of major global sports and entertainment
events.

GROWTH STRATEGY

The Company believes that it is well positioned to benefit from these market
growth developments because of ES Management's reputation as a lead
underwriter in negotiating on behalf of its pools, its risk-oriented approach
and its far-ranging and well-established relationship network.

While continuing ES Management's strategy of placing primary emphasis on
underwriting profitability rather than market share, the Company's goal is to
underwrite gross premiums written exceeding $190 million in 1998 and $300
million in 1999. There can be no assurance that this goal will be achieved.
See "Risk Factors--Forward-Looking Statements." The Company intends to achieve
this growth objective through the following strategic initiatives:

33
<PAGE>

PRODUCTS AND SERVICES

Management believes that its ES Management subsidiary is recognized by its
customers as a provider of intelligent reinsurance through innovative
insurance products and services. ESG intends to maintain its competitive
position by developing reinsurance products and services that are tailored to
the needs of particular markets and working closely with primary insurers and
insureds to implement loss control techniques. The Company intends to (i)
introduce and implement managed care techniques in Germany, Spain, Italy and
other European markets where these techniques have been underutilized; (ii)
create private medical care and insurance products for emerging markets within
Eastern Europe, Latin America and Asia; (iii) expand occupational injury and
health reinsurance programs in Scandinavia; and (iv) continue to structure
innovative special risk reinsurance programs for major sporting events and
performances such as World Cup Soccer, European Soccer Championships and the
"Three Tenors" concerts. Consistent with ES Management's practice and
experience, ESG will offer reinsurance of health risks in conjunction with
loss-reducing products and services. The Company expects that its ceding
clients will assist with the use and implementation of such products and
services because of their favorable impact on claims expenses.

NEW BUSINESSES AND MARKETS

The Company plans to enter the North American market, where business
agreements with one of ES Management's North American-based reinsurance
partners previously prevented ES Management from competing. Ms. Renate M.
Nellich, Chief Executive Officer of ES North America, has considerable
experience in the North American health business and will pursue opportunities
in these markets. See "Management." In addition, access to specialized U.S.
claims service providers and the consummation of additional strategic
alliances will enable the Company to import managed care techniques that have
proven successful in the United States to Europe and other areas where they
are currently underutilized by health care providers.

STANDING AS A SPECIALIST LEAD REINSURER

The Company believes that its specialist reputation and substantial
capitalization will qualify it to be included on the security lists of major
reinsurance brokers and ceding clients and, as a result, will be presented
with lead and participation risk opportunities not previously available to it
as a reinsurance management company. Management expects that ES Management's
profitable underwriting history on behalf of reinsurance partners will give
ESG opportunities to participate in additional reciprocal reinsurance programs
with its current reinsurance partners as well as with new reinsurers in
strategic alliances. ES Management has generally incurred losses as an
underwriting management company as a result of the expense of initial system
development and, in 1996, charges relating to the Company's reorganization to
become a reinsurer. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The Company believes that its losses as
a reinsurance management company are not indicative of its future performance
as a reinsurer and will not adversely affect the Company's ability to attract
ceding clients.

FOCUS ON HIGH GROWTH MARKETS

ES Management focuses its health insurance underwriting activities on
markets with high growth potential in developing areas such as Latin America,
CIS, Eastern Europe and Asia, and the Company will continue this emphasis
after completion of the Offerings.

The Company will also target selected developed markets for the introduction
of innovative products. In Germany, for example, the public health sector is
undergoing rapid changes, attributable in part to health reform legislation
recently enacted by the German parliament, that the Company believes will lead
to greater demand for health reinsurance.

34
<PAGE>

CAPITALIZE ON EXPERIENCE OF MANAGEMENT

Mr. Steven H. Debrovner, Chief Operating Officer, was the European Accident
and Health Manager of AFIA, which was subsequently acquired by CIGNA, where he
assumed global marketing responsibility for all non-life business at CIGNA
Worldwide headquarters. With more than 30 years of underwriting experience,
Mr. Debrovner is considered within the reinsurance industry to be one of the
leading personal accident underwriters.

Dr. Jean-Claude Mayor, member of the Supervisory Board of ESG Germany, was
formerly a member of the executive board of Swiss Re Group, responsible for
the worldwide life and disability business, and has established life
reinsurance programs in many international markets.

LINES OF BUSINESS

ES Management's major lines of business include medical expense, personal
accident and disability, credit/life and special risk reinsurance. ES
Management also underwrites primary insurance on a selected basis as an agent
of the French insurance company, Les Mutuelles du Mans. The Company believes
it will maintain ES Management's current client base of ceding companies. See
"--Financial Transition."

MEDICAL EXPENSE

Medical expense reinsurance consists primarily of medical expense
reimbursement plans, short-term travel, defined illnesses and dread diseases,
as well as medical expense add-on coverages, TOP-UP BENEFITS and CARVE-OUT
PROGRAMS. To properly evaluate these reinsurance risks, ES Management relies
on its detailed knowledge of the underlying insurance product and active risk
management, instead of relying solely on past performance or general market
pricing. This approach has historically resulted in profitability from ES
Management's underwriting operations on behalf of its reinsurance partners. ES
Management usually underwrites risk only concurrently with the implementation
of ES Management's loss control measures and underwriting support systems. ES
Management focuses on underwriting high net worth individuals, frequent
travelers and expatriates, with less emphasis on underwriting volume group
business. ES Management generally does not underwrite business where the
insured has no deductible or co-payment without being able to influence its
loss ratios (by applying cost containment measures whenever prudent). To this
end, ES Management generally seeks to have insurers include deductibles and
coinsurance requirements in the primary insurance contracts. In developing
countries, ES Management encourages ceding clients to develop adequate
RETENTION levels.

35
<PAGE>

ES Management requires its ceding clients to employ ES Management's
stringent cost control and loss prevention measures, such as limiting a
patient's choice of doctors and hospital networks, reducing benefit
utilization and minimizing claims patterns. ES Management implements managed
care concepts in Europe and emerging insurance markets through intelligent
reinsurance (i.e., the combination of capacity, system and data management
support and the application of preventative loss control). The Company
believes insurance companies in these markets are receptive to managed care
since they often have less experience with contemporary cost containment
measures.

As part of the intelligent reinsurance concept, ES Management has developed
a complete software package, which includes medical tarification, policy
issuance, portfolio management and claims handling. An advanced clinically
driven loss prevention and early warning software program called EcuQuest is
integrated into ES Management's system. EcuQuest, for which ES Management
acquired the license rights outside North America, was developed by a
subsidiary of Swiss Re Life & Health/The Mercantile & General Life Reinsurance
Company Limited and enables ES Management to equip ceding clients with
clinically driven data management for the early identification of potential
shock losses or disease developments.

ESG believes that medical expense reinsurance is one of the strongest
growing classes in the insurance industry. The restructuring of social
security systems throughout numerous countries generates the need for private
insurance and, consequently, generates reinsurance demand. New markets have
emerged particularly in Eastern Europe, due to changes in laws that have
transferred insurance responsibility from government funds to private
institutions, such as trade unions.

In the area of health reinsurance, ES Management has focused its
underwriting activities on both highly developed markets, like Germany, and
less developed markets (with high growth potential), like Latin America, the
CIS, Eastern Europe and Asia. In Bulgaria, ES Management and Bulstrad, the
leading Bulgarian insurer, created the first national health care policy which
is modeled on international private health-care standards.

The financial results of the ES Management's medical expense reinsurance
line of business managed on behalf of reinsurance partners are set forth in
the table below on an underwriting year basis:

Gross premiums written for the medical expense reinsurance line of business
represented 46%, 37% and 39% of total gross premiums written by ES Management
on behalf of its reinsurance partners for the 1994, 1995 and 1996 underwriting
years, respectively.

PERSONAL ACCIDENT AND DISABILITY

Personal accident reinsurance covers death and dismemberment, disability,
loss of license and special coverages for credit card issuing corporations
relating to injuries to card holders. The reinsurance of nontraditional risks,
such as tailor-made coverage for occupational injuries, also comprises an
important part of ES Management's personal accident reinsurance business. ESG
favors the "local approach" to personal accident reinsurance (i.e., it
acquires direct knowledge of the underlying business by establishing personal
relationships and transacting business directly with the ceding clients or
local brokers in the country of origin). ES

36
<PAGE>

Management is reluctant to solicit business through non-local brokers or to
conduct business in areas in which it does not have detailed knowledge of
local culture, insureds' behavior, market conditions and other risk elements,
since such knowledge allows ES Management to assess and price risk
appropriately.

The financial results of ES Management's personal accident and disability
reinsurance line of business managed on behalf of reinsurance partners are set
forth in the table below on an underwriting year basis:

Gross premiums written for the personal accident and disability reinsurance
line of business represented 45%, 35% and 35% of total gross premiums written
by ES Management on behalf of its reinsurance partners for the 1994, 1995 and
1996 underwriting years, respectively.

CREDIT/LIFE

ES Management provides reinsurance for credit/life, accident, disability and
unemployment insurance. In this market, ES Management seeks to avoid single
premium coverage where it cannot vary terms annually. ES Management has
considerable experience underwriting credit/life reinsurance in the American,
French and Scandinavian markets. The Company will seek to enter the German and
selected European markets for credit/life reinsurance, applying the same
underwriting practice it has employed in its existing markets (with the
necessary adaptations for local markets). ES Management has recently begun
underwriting activities in the area of traditional life reinsurance, initially
limited to the Eastern European and CIS markets. Because the Company does not
intend to compete with established insurers and reinsurers in long-term life
insurance or investment-related life products, it seeks to offer these
products in less established markets.

The financial results of the ES Management's credit/life reinsurance line of
business managed on behalf of reinsurance partners are set forth in the table
below on an underwriting year basis:

Gross premiums written for the credit/life reinsurance line of business
represented 7%, 24% and 16% of total gross premiums underwritten by ES
Management on behalf of its reinsurance partners for the 1994, 1995 and 1996
underwriting years, respectively.

37
<PAGE>

SPECIAL RISK

Special risk reinsurance includes insurance with unique risk character, such
as sports disabilities, sports and entertainment contingency, non-appearance,
cancellation and abandonment. For example, for the 1998 World Cup Soccer
Tournament, ES Management controlled the largest contingency insurance risk
ever arranged in the global market. ES Management has also covered the 1994
World Soccer Tournament, the European Soccer Championships, the World Athletic
Championship, the ATP finals, the European Athletic Association Cups and
numerous performances by internationally renowned artists such as the "Three
Tenors," Ziegfried & Roy and the Holiday on Ice events.

The financial results of ES Management's special risk reinsurance line of
business managed on behalf of reinsurance partners are set forth in the table
below on an underwriting year basis:

Gross premiums written for the special risk reinsurance line of business
represented 2%, 4% and 10% of total gross under premiums written by ES
Management on behalf of its reinsurance partners for the 1994, 1995 and 1996
underwriting years, respectively.

PRIMARY INSURANCE

ES Management also underwrites primary insurance in the same classes in
which it manages reinsurance on behalf of Les Mutuelles du Mans, using and
benefitting from the direct writing license of Les Mutuelles du Mans to
provide direct coverage for personal and special risk insurance in selected
markets. Les Mutuelles du Mans has delegated underwriting authority to ES
Management for personal accident, medical and life insurance. This operation
does not compete with ES Management's core client base of direct writing
companies and enables ES Management to explore new opportunities and concepts
that may be applied within its reinsurance business. See "Risk Factors--
Certain Transactions, Conflicts of Interest and Business Opportunities."

38
<PAGE>

GEOGRAPHICAL MARKETS

In 1996, ES Management's business comprised approximately 180 reinsurance
acceptances from ceding clients emanating from more than 49 countries. In most
of the 180 acceptances, ES Management, as underwriting manager, acted in a
capacity similar to a lead or sole reinsurer.

The geographical split of gross premiums underwritten on behalf of
reinsurance partners illustrates ES Management's strong European origin and
client base:

<TABLE>
<CAPTION>
1996 GROSS
COUNTRY OR REGION PREMIUMS WRITTEN
<S> <C>
Europe
Western and Northern Europe (excluding
United Kingdom and Germany)........................... 34%
United Kingdom......................................... 20
Germany................................................ 14
Eastern Europe/CIS..................................... 1
Latin America............................................ 23
North America............................................ 1
Asia..................................................... 1
Other.................................................... 6
---
100%
===
</TABLE>

WESTERN AND NORTHERN EUROPE (EXCLUDING UNITED KINGDOM AND GERMANY)

As a reinsurance manager, ES Management has pioneered occupational injury
reinsurance within the Norwegian insurance markets and believes itself to have
the highest market share of any foreign reinsurer or reinsurance manager. ES
Management performs the function of a lead reinsurer for loss of license as a
consequence of accidental injury for the oil rig workers in the Norwegian
North Sea and for compulsory occupational injury coverage in Oslo and
Trondheim Commune, Norway. Because of its existing connections in Scandinavia,
management believes it is in a strong position to introduce private medical
insurance (providing insureds quicker access to treatment) in Sweden and
Denmark. The Company believes it will have opportunities throughout Europe to
increase premium volume and develop new markets by introducing tailored
product solutions for particular markets. In Spain, ES Management has agreed
to structure and support self-funded health care plans using systems
technology and reinsurance capacity in partnership with the largest Spanish
industrial brokerage company.

UNITED KINGDOM

The Company has been critically assessing ES Management's presence in the
London market. The Company believes that present market conditions are
characterized by over-capacity and poor profitability and, accordingly,
expects to reduce its exposure in London in future years.

GERMANY

In Germany, the public health sector is currently undergoing rapid changes
that the Company believes will result in greater demand for health
reinsurance. The health reform legislation recently enacted by the German
parliament includes provisions to stimulate competition among public health
care providers. Management believes that new competition may lead to
instability in health insurance pricing. In this environment, insurers may
consider certain forms of non-PROPORTIONAL REINSURANCE to stabilize their
accounts. The Company believes that it is at the forefront to benefit from
this legal reform due to its existing network of relationships within the
German health care system.

39
<PAGE>

As a consequence of European Union deregulation, management believes the
German market shows significant potential for successful introduction of new
products. One such new product is credit/life insurance, which includes
unemployment insurance and until recently was not available in the German
market. In addition, disability as a result of either accident or sickness is
now insurable by non-life, non-health insurers on a stand-alone basis in
Germany. The Company believes that its expertise in accident and health
insurance places it in a strong position to assess risk and create products
tailored to these insurers' needs.

EASTERN EUROPE/COMMONWEALTH OF INDEPENDENT STATES

The Company believes that less developed markets such as Eastern Europe and
the Commonwealth of Independent States ("CIS") show considerable potential for
new reinsurance demand with the growth of per capita income. The Company
believes that ES Management has a strong reputation with respect to product
development, access to primary insurance companies and targeted risk
solutions, all of which support the Company's view that it has the potential
to exploit new opportunities in Eastern Europe and the CIS. This is
demonstrated by ES Management's introduction in Bulgaria of the first private
health plan with Western coverage standards.

LATIN AMERICA

During the 1990s, Latin America has experienced increasing demand for
insurance and, accordingly, reinsurance, in line with the growth of the middle
class and increases in per capita income. Restructuring of social security,
health and occupational injury programs have occurred in a number of countries
throughout Latin America. ES Management also participates in various programs
of this nature in Colombia and Mexico. In addition, ES Management provides
reinsurance on behalf of its reinsurance partners to local private insurance
companies which sell private health care programs with U.S. coverage
standards. In keeping with its intelligent reinsurance concept, ES Management
also provides claims handling and management to its cedents.

NORTH AMERICA

Under the terms of its pool agreements, ES Management was previously
restricted from competing in the North American markets. The Company has hired
a senior executive with considerable experience in the North American health
business to pursue opportunities in these markets. See "Management." Access to
specialized U.S. claims service providers and the consummation of additional
strategic alliances will enable the Company to import managed care techniques
that have proven successful in the United States to Europe and other areas
where they are currently underutilized by health care providers.

ASIA

In Asia, ES Management has been active in the Hong Kong and Philippine
reinsurance markets. In addition, it recently began reinsurance activities in
Indonesia in response to significantly increased demand for health reinsurance
during the mid-1990s.

MARKETING

ES Management markets its reinsurance products through five regional offices
in the key target areas which allows ES Management to stay close to its
clients and the risks which it underwrites.

ES Management markets its reinsurance products through direct contacts with
primary insurers (in 1996 representing 70% of total gross premiums written on
behalf of reinsurance partners) as well as through reinsurance brokers (in
1996 representing 30% of total gross premiums written on behalf of reinsurance
partners). Given the loyalty of customers in the reinsurance industry,
management believes that its existing portfolio of business, which had a
renewal ratio between 1995 and 1996 of 79%, is a valuable asset. Because of
the importance of relationships within the industry, management intends to
strengthen ties with its existing clients and brokers.

40
<PAGE>

ES Management seeks, and the Company intends to continue, to avoid competing
solely on price for most of its products. Instead, ES Management offers
additional intelligent reinsurance services to its clients in order to become
a valuable partner to ceding clients, particularly in the areas of product
development and claims handling. Aside from consultation and development of
products, ES Management's service programs encompass actuarial support, claims
administration and loss prevention measures as well as computer-based
administrative support, in an attempt to further strengthen client loyalty
toward ES Management. Management believes that products, services and loss
prevention techniques that have proven successful in North America can be
successfully transferred into areas which have not previously been introduced
to these products.

The Company intends to closely monitor potential regulatory changes in its
target markets in order to respond to these changes with innovative products
and services.

UNDERWRITING

Consistent with ES Management's past practices, the Company intends to
employ a disciplined, analytical and forward-looking approach to underwriting
in order to maximize underwriting profitability. The Company intends to
construct a portfolio of reinsurance contracts in the personal and special
risk markets that maximizes shareholders' return on equity, subject to prudent
risk constraints.

Underwriting new and renewal business is conducted on a risk-by-risk basis,
with consideration given to the general direction of rates, policy terms, loss
histories and future exposures, ES Management's acceptance limits and general
book of business. As part of its underwriting process, the Company will focus
on the reputation of the proposed cedent, the likelihood of establishing a
long-term relationship with the cedent, the geographic area in which the
cedent conducts business and the cedent's market share. The Company will
review historical loss data in order to compare the cedent's historical loss
experience to industry averages, as well as the perceived financial strength
of the cedent. Over time, ES Management has developed its own comprehensive
underwriting manuals that serve as a detailed guideline for the markets in
which ES Management is active.

As a pool manager, ES Management has, and the Company intends to continue,
to protect its portfolio by effecting non-proportional reinsurance coverage in
various LAYERS to protect against large individual losses, serial losses and
risk of known and unknown concentration. In addition, the Company will
continue to effect proportional coverage on underwritten risks that might have
fluctuating results.

The Company, together with co-reinsurers, intends to provide initially the
following gross capacities:

<TABLE>
<C> <S>
Medical Expense $5 million life time benefit
Personal Accident and Disability $3 million any one person and $30 million
in accumulated losses from any one known
event
Credit/Life $1 million any one person
Special Risk $10 million any one event or series of
events
</TABLE>

Initially, the Company does not intend to expose itself to risk for any
individual in excess of $500,000 for personal accident, special risk, medical,
life and credit/life reinsurance, $1 million for any one known accumulation
and $2,500,000 for contingency for major events, prior to additional co-
reinsurance.

CLAIMS

Normally a reinsurer is not actively involved in claims handling. It is the
task of the ceding client to adjust the original losses and settle claims made
by its direct insureds. Although some of the business managed by ES Management
operates in this manner, ESG's approach differs from other reinsurers in that
it actively seeks to reduce risks in most of its medical expense reinsurance
lines while its reinsurance policies are in effect.

41
<PAGE>

ES Management's claims handling activities, particularly for complicated
cases, have proven to be successful in significantly reducing loss ratios of
ceding clients' portfolios in comparison to their loss ratios before ES
Management's involvement. Involvement in claims handling also will allow the
Company to be constantly aware of claims development in the health care field
and to establish reserves more accurately at an early point in time. The
Company, therefore, believes that its exposure to IBNR losses after it begins
reinsuring for its own account should be less than that of its competitors.
These claims support techniques have also proven to be an important tool in
the acquisition of new business.

Depending on the experience and the retention of the ceding client and the
extent of non-proportional reinsurance made available through the Company, it
will require either claims control or claims cooperation clauses in the
reinsurance treaties it negotiates. Claims control clauses allow the reinsurer
to determine the extent to which a claim will be paid, whereas claims
cooperation clauses require the agreement of the insurer and reinsurer to
jointly determine the extent to which a claim will be paid. These clauses
improve the claims performance of a ceding client which might not always be
sufficiently experienced in dealing with complex issues.

The Company performs regular audits at its ceding clients where deemed
necessary. Such audits may include underwriting claims, financial, and systems
audits. Qualitatively, such audits do not serve solely to test compliance, but
to discover weaknesses in the reporting and reserving system of a ceding
client and thereby help the ceding client to arrive at a realistic and timely
methodology to evaluate risk exposure. The Company has begun to conduct a
portion of the audits electronically by directly linking EcuQuest technology
into the Company's operations and expects to offer this service to a majority
of its customers by 1998.

COMPETITION

The reinsurance industry is highly competitive. The Company will compete
with other reinsurers, some of which have substantially greater financial,
marketing and management resources than the Company. It may also compete with
new market entrants in the future, including entities which may currently be
in the process of formation. Management believes that virtually all major
reinsurers write personal accident business, mainly through their property and
casualty departments. A relatively smaller number engages also in the fields
of health, credit/life and special risks. On an international basis, excluding
carriers which are predominantly focused on the United States, few reinsurers
are considered lead reinsurers in the segments in which ESG is active. In
other markets, however, certain traditional or domestic reinsurers hold a
dominant position, creating highly competitive market conditions.

Most reinsurers provide capacities for the various classes of personal
reinsurance through discrete units or profit centers. ESG believes that it
will benefit from being a flexible, innovative specialist reinsurer with its
focus on personal and special risk reinsurance (allowing specialized risk
solutions from one source).

The Company intends to apply for a voluntary and early claims paying ability
rating with a major credit rating agency. In the event that such an early and
adequate rating cannot be obtained, the lack of such a rating may dissuade a
ceding client from reinsuring with the Company.

OPERATIONS

The Company has structured its operations according to business lines.
Underwriters are responsible for underwriting the business according to
internal guidelines and procedural and underwriting manuals, as well as for
supervising claims and handling claims subsequent to entering into the
contract. All business is continuously monitored by the Company's actuary,
supported by consulting actuaries, management and internal control staff. The
Company's recently introduced management and underwriting information system,
Open Co, provides a current database for individual and general risk
assessment.

42
<PAGE>

The Company has entered, or intends to enter, into agreements with various
companies in the SINSER Group (subsidiaries of the Skandia Group of
Companies), for the provision of office space, certain administrative
services, and accounting and regulatory reporting support in Ireland and
Bermuda.

PROPERTIES

The Company leases office space in Bermuda, Dublin, Hamburg, London, Toronto
and Moscow. The Company does not own any real property. The Company believes
its space is adequate to meet its expected needs.

RESERVES

The Company expects that, due to the short-tail nature of personal and
special risk reinsurance claims, most claims under its treaties will generally
become known and ascertainable within approximately 12 to 24 months from the
date the insurance policy is written. However, a portion of ES Management's
business, written and classified as typical "London market business," is
generally longer-tail in nature. The benefit of short-tail business is that it
allows the reinsurer to determine exposure to risk at an early stage. The
majority of ES Management's reinsurance contracts permit annual adjustment of
terms.

As a reinsurance management company, ES Management has not been required to
establish reserves for losses and loss expenses to date, although it
recommends appropriate levels for such reserves for its reinsurance customers.
The reserve for losses and loss expenses established by the Company will
include reserves for unpaid reported losses and loss expenses and for IBNR.
Such reserves will be estimated by management based upon reports received from
ceding clients, supplemented by ES Management's own estimates of reserves for
which ceding client reports have not been received and its own historical
experience. To the extent that the Company's own historical experience is
inadequate for estimating reserves, such estimates may be actuarially
determined based upon industry experience and management's judgment. The
estimates will be continually reviewed and reflected in current operations as
adjustments to reserves become necessary. The Company's recommended reserve
setting methodology has been deemed realistic in the opinion of an actuarial
trustee approved by the Bundesaufsichtsamt fur das Versicherungswesen ("BAV"),
the German Federal Supervisory Authority for Insurance.

Loss reserves represent estimates of what an insurer or reinsurer ultimately
expects to pay on claims at a given time, based on facts and circumstances
then known, and it is possible that the ultimate liability may exceed or be
less than such estimates. The estimates are not precise in that, among other
things, they are based on predictions of future developments and estimates of
future trends in claim severity and other variable factors such as inflation.
During the loss settlement period, it often becomes necessary to refine and
adjust the estimates of liability on a claim either upward or downward. Even
after such adjustments, ultimate liability may exceed or be less than the
revised estimates. The estimation of reserves by new reinsurers, such as the
Company, may be inherently less reliable than the reserve estimations of a
reinsurer with a stable volume of business and an established loss history.
Each of Messrs. Wand, Debrovner and Jurk has over 15 years of experience in
estimating and adjusting loss reserves during their tenures with various
insurance companies.

INVESTMENTS

After the Offerings, the Company's primary investment objective for the
portfolio will be to preserve the capital assets of the Company while
achieving a total return commensurate with market conditions. The Company has
entered into an investment advisory agreement (the "Investment Advisory
Agreement") with Head Asset Management, an affiliate of Head Company, to
supervise and direct the investment of the Company's asset portfolio in
accordance with, and subject to, the investment objectives and guidelines
established by the Company. Since 1990, Head Asset Management and its
affiliate have managed portfolios for other insurance companies affiliated
with Head Company. In the future, the Company may enter into additional
investment advisory agreements with third parties (together with Head Asset
Management, the "Investment Advisors").

43
<PAGE>

Pursuant to the terms of the Investment Advisory Agreement, the Company will
pay a fee, payable quarterly in arrears, equal to 0.25% per annum of the first
$200 million of assets under its management declining to 0.15% per annum of
the assets under its management, in excess of $200 million. The Investment
Advisory Agreement may be terminated upon 90 days written notice by the
Investment Advisor or by the Company on five days notice or upon shorter
notice upon mutual written agreement by the parties. See "Certain
Relationships and Related Transactions--Investment Advisory Agreement." The
performance of, and the fees paid to, the Investment Advisor will be reviewed
periodically by the Board of Directors.

The Company's present intention, subject to periodic review by the Board of
Directors, is to invest in a diversified portfolio of investment grade debt
securities. The Company does not intend to invest in real estate other than
for its own use.

FOREIGN CURRENCY EXPOSURES

Initially, the Company's investment portfolio will be invested predominantly
in fixed income securities denominated in U.S. and Canadian dollars and
European currencies. The Investment Advisors may be instructed to invest the
balance of the Company's investment portfolio in securities denominated in
currencies other than U.S. dollars based upon the business the Company
anticipates writing and the local currency outlook compared to that of the
U.S. and Canadian dollars and European currencies. It is anticipated that the
Company's primary risk exposures and premiums receivable will be denominated
predominantly in U.S. and Canadian dollars and European currencies. As the
Company develops its business, unearned premium and loss reserves will
generally be invested in fixed income securities in currencies matching its
liabilities.

EMPLOYEES

As of June 30, 1997, the Company had 35 employees. None of these employees
is represented by a labor union. It is expected that the Company will add
additional underwriting, marketing and administrative staff subsequent to the
Offerings and the implementation of the Company's business plan. The Company
believes that its employee relations are generally good.

LEGAL PROCEEDINGS

Management expects that the Company will be subject to litigation and
arbitration in the ordinary course of its business. Neither the Company nor
any of its subsidiaries is currently involved in any litigation or arbitration
that could result in a material adverse effect on the financial condition or
results of operations of the Company.

REGULATION

The following discussion of regulation of the Company pertains to its
operations as a reinsurer for its own account after completion of the
Offerings and not to its operation as a reinsurance management company.

BERMUDA

The Companies Act 1981 (as amended) and Related Regulations. The Companies
Act regulates the business of both the Company and ES Bermuda.

The Insurance Act 1978 (as amended) and Related Regulations. The Insurance
Act 1978 of Bermuda (as amended) and related regulations from time to time in
force (the "Act"), which regulates the business of ES Bermuda, provides that
no person shall carry on an insurance business in or from within Bermuda
unless registered as an insurer under the Act by the Minister of Finance. The
Company intends to register under the Act upon completion of the Offering. The
Minister of Finance in deciding whether to grant registration, has broad
discretion to act as he thinks fit in the public interest. The Minister of
Finance is required by the Act to determine whether the applicant is a fit and
proper body to be engaged in insurance business and, in particular, whether it
has, or has available to it, adequate knowledge and expertise. In connection
with registration, the Minister of Finance may impose conditions relating to
the writing of certain types of insurance.

44
<PAGE>

An Insurance Advisory Committee and sub-committees thereof appointed by the
Minister of Finance advises him on matters connected with the discharge of his
functions and supervise and review the law and practice of insurance in
Bermuda, including reviews of accounting and administrative procedures.

The Act imposes on Bermuda insurance companies solvency and liquidity
standards and auditing and reporting requirements and grants to the Minister
of Finance powers to supervise, investigate and intervene in the affairs of
insurance companies. Significant aspects of the Bermuda insurance regulatory
framework are set out below.

Cancellation of Insurer's Registration. An insurer's registration may be
canceled by the Minister of Finance on certain grounds specified in the Act,
including failure of the insurer to comply with its obligations under the Act
or if, in the opinion of the Minister of Finance, after consultation with the
Insurance Advisory Committee, the insurer has not been carrying on business in
accordance with sound insurance principles.

Independent Approved Auditor. Every registered insurer must appoint an
independent auditor who will annually audit and report on the Statutory
Financial Statements and the Statutory Financial Return of the insurer, which
are required to be filed annually with the Registrar of Companies (the
"Registrar"), who is the chief administrative officer under the Act. The
auditor must be approved by the Minister of Finance as the independent auditor
of the insurer. The approved auditor may be the same person or firm which
audits the insurer's financial statements and reports for presentation to its
shareholders.

Statutory Financial Statements. An insurer must prepare annual Statutory
Financial Statements. The Act prescribes rules for the preparation and
substance of such Statutory Financial Statements (which include, in statutory
form, a balance sheet, income statement, and a statement of capital and
surplus, and detailed notes). The insurer is required to give detailed
information and analyses regarding premiums, claims, reinsurance and
investments. The Statutory Financial Statements are not prepared in accordance
with U.S. GAAP and are distinct from the financial statements prepared for
presentation to the insurer's shareholders under The Companies Act 1981 of
Bermuda, which financial statements may be prepared in accordance with U.S.
GAAP. Copies of the Company's and ES Bermuda's Statutory Financial Statements
must be filed annually together with its Statutory Financial Return. The
Statutory Financial Statements must be maintained at the principal office of
the insurer for a period of five years.

Minimum Capital and Surplus. Under the Act, ES Bermuda has been designated
as a Class 3 composite insurer. The Act requires $1.25 million minimum capital
and surplus for Class 3 composite insurers (i.e. insurers which write both
general business and long term business) with a minimum paid up share capital
of $370,000. Upon completion of the Offerings, ES Bermuda will satisfy the
minimum paid up capital and surplus requirements of the Act.

Minimum Solvency Margin. The Act provides that the statutory assets of a
Class 3 insurer writing general business must exceed its statutory liabilities
by an amount equal to or greater than the applicable minimum solvency margin
for that class. The applicable minimum solvency margin for a Class 3 insurer
is 20% of net premiums written for the first $6 million of net premium
writings plus 15% of net premium writings in excess of $6 million or 15% of
loss and loss expense reserves, whichever is greater. The minimum solvency
margin for writers of long-term business is $250,000. Upon completion of the
Offerings, ES Bermuda will meet the Act's minimum solvency margin.

Minimum Liquidity Ratio. The Act provides a minimum liquidity ratio for
insurers which write general business. An insurer engaged in general
businesses is required to maintain the value of its relevant assets at not
less than 75% of the amount of its relevant liabilities. Relevant assets
include cash and time deposits, quoted investments, unquoted bonds and
debentures, first liens on real estate, investment income due and accrued,
accounts and premiums receivable, reinsurance balances receivable and funds
held by ceding reinsurers. There are certain categories of assets which,
unless specifically permitted by the Minister of Finance, do not automatically
qualify as relevant assets, such as unquoted equity securities, investments in
and advances to

45
<PAGE>

affiliates, real estate and collateral loans. The relevant liabilities are
total general business insurance reserves and total other liabilities less
deferred income tax and sundry liabilities (by interpretation, those not
specifically defined) and certain letters of credit and guarantees. Upon
completion of the Offerings, ES Bermuda will meet the Act's minimum liquidity
ratio.

Statutory Financial Return. A Class 3 insurer is required to file with the
Registrar an Annual Statutory Financial Return at the same time as it files
its Statutory Financial Statements but, in any event, no later than four
months from the insurer's financial year end (unless specifically extended).
The Statutory Financial Return includes, among other matters, a report of the
approved independent auditor on the Statutory Financial Statements of the
insurer, a schedule of ceded reinsurers, an annual actuarial opinion or loss
reserves prepared by the approved loss specialist and a declaration of the
statutory ratios and a solvency certificate.

Supervision, Investigation and Intervention. The Minister of Finance may
appoint an inspector with extensive powers to investigate the affairs of an
insurer if the Minister of Finance believes that an investigation is required
in the interest of the insurer's policyholders or persons who may become
policyholders. In order to verify or supplement information otherwise provided
to him, the Minister of Finance may direct an insurer to produce documents or
information relating to matters connected with the insurer's business.

If it appears to the Minister of Finance that there is a risk of the insurer
becoming insolvent, the Minister of Finance may direct the insurer not to take
on any new insurance business; not to vary any insurance contract if the
effect would be to increase the insurer's liabilities; not to make certain
investments; to realize certain investments; to maintain in Bermuda, or
transfer to the custody of a Bermuda bank, certain assets; and to limit its
premium income. Neither the Company nor any of its subsidiaries has ever been
subjected to an investigation by the Minister of Finance or subject to
intervention relating to insolvency.

An insurer is required to maintain a principal office in Bermuda and to
appoint and maintain a principal representative in Bermuda to oversee the
business of the Company and to report to the Minister of Finance and the
Registrar of Companies in respect of certain events. Unless the approval of
the Minister of Finance has been obtained, an insurer may not terminate the
appointment of its principal representative, and the principal representative
may not cease to act as such, unless thirty days' notice in writing to the
Minister of Finance is given of the intention to do so. It is the duty of the
principal representative, within thirty days of his reaching the view that
there is a likelihood of the insurer, for which he acts, becoming insolvent or
its coming to his knowledge, or his having reason to believe, that an "event"
has occurred, to make a written report to the Minister of Finance setting out
all the particulars of the case that are available to him. Examples of such an
"event" include failure by the reinsurer to comply substantially with a
condition imposed upon the reinsurer by the Minister of Finance relating to a
solvency margin or a liquidity or other ratio.

Dividends. The Bermuda Companies Act 1981 would allow dividend payments when
there are reasonable grounds for believing that (i) ES Bermuda's assets will
exceed the aggregate value of its liabilities and its issued share capital and
premium accounts, and (ii) ES Bermuda will be able to pay its debts as they
fall due after payment of a dividend. The Bermuda Insurance Act 1978 requires
ES Bermuda to maintain a minimum solvency margin and a minimum liquidity
ratio.

Reduction of Statutory Capital. Approval is needed from the Minister of
Finance for any reduction in total statutory capital of an insurance company
of 15% or more. Applicants are required to show that the proposed reduction of
capital will not cause ES Bermuda to fail to meet applicable statutory margin
requirements in Bermuda.

GERMANY

The German regulatory framework for the insurance industry is provided by
the Insurance Supervisory Law (Versicherungsaufsichtsgesetz, or "VAG"). The
supervision of all insurance companies domiciled in Germany is the
responsibility of the BAV, which is an agency of the Ministry of Finance.

46
<PAGE>

Other than the area of primary insurance, reinsurance has been largely
liberalized. Consequently, except as set forth under "European Union" below,
there are no detailed regulations for reinsurers under the law of the European
Union or Germany.

A professional reinsurance company requires no license from the BAV. Only a
summary filing is required, setting forth the domicile and corporate form of
the reinsurance company and the members of the executive and supervisory
boards. The BAV encourages reinsurers to submit the names of the company's
shareholders with such filings, and also to include the qualifications of the
members of the executive and supervisory boards. The submission of a business
plan is not necessary.

Insurance and reinsurance companies are under the direct supervision of the
BAV. For reinsurers, however, the level of supervision is substantially
relaxed, and pertains primarily to the financial supervision of reinsurers,
requiring only submission of financial statements. Except as set forth above,
the provisions of the VAG and the Capitalization Law (KapitalausstattungsVO)
do not apply to reinsurers. Reinsurance mutuals (Ruckversicherungsverein VVaG)
are subject to solvency controls. Reinsurance companies, such as ES Germany,
are not subject to capitalization requirements, but the BAV prefers that
reinsurance companies have the same level of capitalization as primary
insurers (approximately 16-18% of net premiums).

Sections 55-59 VAG, pertaining to accounting and auditing of insurance
companies, are also applicable to reinsurance companies.

IRELAND

Irish law directly regulates only one of the Company's subsidiaries, ES
Ireland.

Regulation. Direct insurance business in Ireland is regulated by an
extensive list of acts and regulations from the Assurance Companies Act 1909
to the Insurance Act 1989 and the European Communities (Non Life Insurance)
Regulations 1976 to the European Communities (Non Life Insurance) Framework
Regulations 1994. Direct insurance companies must be authorized by the
Minister for Enterprise, Trade and Employment (the "Minister") before
commencing business.

Specialist reinsurers incorporated in Ireland, such as ES Ireland, are not
subject to authorization by the Irish Government and are only required to
notify the Minister that they carry on the business of Reinsurance pursuant to
Section 22 of the Insurance Act 1989.

Auditor's Report and Duties. The Companies Act 1963 requires all companies
incorporated in Ireland to prepare and have audited annual accounts for their
shareholders. Section 22(1) Insurance Act 1989 requires reinsurance companies
to prepare their accounts in such form as the Minister may specify and such
audited accounts are required to be filed in the Companies Registration Office
and are available for public inspection.

EUROPEAN UNION

The European Communities (Insurance Undertakings: Accounts) Regulations 1996
(the "1996 Regulations") apply both to direct insurance companies and
reinsurance companies (but not reinsurance management companies, such as ES
Management), and provide that reinsurers must calculate their reserves and
value the assets representing them on the same basis as direct insurance
underwriters. Technical reserves consist of the aggregate provisions for
outstanding claims (including those incurred but not yet reported at the end
of the Company's financial year). The 1996 Regulations require that
reinsurance companies value the assets representing their reserves on the same
basis as direct insurance underwriters and set out the detailed requirements
for the preparation of the accounts of insurance and reinsurance underwriters.
The 1996 Regulations require insurance and reinsurance underwriters to
demonstrate that they possess sufficient free assets to cover a safety margin,
that is financial resources exceeding those necessary to cover the technical
reserves.

47
<PAGE>

UNITED STATES AND OTHER

The Company is not admitted to do business in any jurisdiction except
Bermuda, Ireland and Germany. The insurance laws of each state of the United
States and of many foreign countries regulate the sale of insurance within
their jurisdictions by alien insurers, such as the Company, which are not
admitted to do business within such jurisdiction. With some exceptions, such
sale of insurance within a jurisdiction where the insurer is not admitted to
do business is prohibited. The Company does not intend to maintain an office
or to solicit, advertise, settle claims or conduct other insurance activities
in any jurisdiction where the conduct of such activities would require that
the Company be so admitted and the Company is not so admitted.

48
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The table below sets forth the names, ages and titles of the persons who
will be the directors of the Company and executive officers of the Company
and/or its principal operating subsidiaries. Messrs. Jurk, Newkirk, Poutsiaka
and Tilly will become directors of the Company immediately following the
completion of the Offerings.

<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Wolfgang M. Wand.............. 45 Managing Director and Chief Executive Officer
Steven H. Debrovner........... 60 Chief Operating Officer
Gerhard Jurk.................. 48 Chief Financial Officer and Director
Renate M. Nellich............. 59 Chief Executive Officer of ES North America
Anthony Parfitt............... 31 Audit and Compliance Officer
John C Head III............... 49 Chairman of the Board
David L. Newkirk.............. 45 Director
William J. Poutsiaka.......... 44 Director
Edward A. Tilly............... 54 Director
</TABLE>

Wolfgang M. Wand has been active in the insurance business for over 20
years, 17 of which were in the international insurance market. In 1983, Mr.
Wand founded a specialized health care insurance group in which Winterthur
Insurance Group acquired a majority interest in 1989 and a 100% interest in
1993. Later in 1993, Mr. Wand co-founded ESG Germany, through which the
Company operated its insurance businesses prior to the Offerings. Mr. Wand
serves as a member of the German delegation of the International Chamber of
Commerce and is a representative on the Chamber's Committee for insurance
affairs in Eastern Europe. Following the reunification of Germany, Mr. Wand
served on behalf of the German government's privatization agency, the
Treuhandanstalt, in connection with the privatization and restructuring of the
East German economy, as Chairman of the Board of Directors for certain
segments of the German shoe manufacturing industry from 1991 to 1992. Mr. Wand
also acts as designated legal representative of Les Mutuelles du Mans in
Germany. Mr. Wand completed a degree in economics in 1974 and studied at
Cologne and Wuppertal Universities.

Steven H. Debrovner co-founded ESG Germany with Mr. Wand in 1993. From 1987
to 1993, Mr. Debrovner served as the head of marketing for all non-life
business at CIGNA Worldwide headquarters in Philadelphia. In 1974, he created
the European accident and health activities for AFIA and, subsequently, CIGNA.
Mr. Debrovner received a bachelor's degree in history from Duke University in
1959. Mr. Debrovner has more than 30 years of insurance underwriting
experience, having started with American International Group, Inc. in 1967. He
has also been both a student and lecturer in Harvard's Graduate International
Marketing Program.

Gerhard Jurk has been Chief Financial Officer of ES Management since 1996.
From 1992 to 1996, Mr. Jurk was Chief Internal Auditor of the Transatlantic
Insurance Group. In this function, he was a member of the audit team of
Winterthur Insurance Group. Between 1993 and 1996, Mr. Jurk acted as Chief
Executive Officer for a Winterthur Group underwriting subsidiary. Prior to
that, from 1984 to 1992, Mr. Jurk was the Chief Officer of the Financial and
Investment Department of the Transatlantic Insurance Group, then a subsidiary
of ITT Corporation and subsequently a subsidiary of Winterthur Insurance
Group. Mr. Jurk has worked in the insurance industry for more than 25 years
and is an accountant certified by the German government.

Renate M. Nellich has been Chief Executive Officer of European Specialty
(North America) Limited ("ES North America") since September 1997. Prior to
that, Ms. Nellich was Chief Operating Officer of Swiss Re Life and
Health/Mercantile and General Life Reinsurance Company Limited responsible for
the Group Reinsurance Operation of the Americas from 1985 to 1997. Between
1975 and 1985, Ms. Nellich served in various capacities in the Mercantile and
General's North American Group Division. Ms. Nellich is a Director of Avandel

49
<PAGE>

Healthcare, Inc. Ms. Nellich has more than 25 years of experience in the North
American life and health insurance industry.

Anthony Parfitt has been Assistant Managing Director of ESG Germany since
1995 and was the technical account manager in 1994. From 1991 to 1994 Mr.
Parfitt was head of the International Risk Placement Department of the
predecessor of ESG Germany.

John C Head III has been a Managing Member of Head Company since 1987.
Mr.Head is also a Director of PartnerRe Ltd., Kiln Capital plc, FFTW, Inc. and
other private companies.

David L. Newkirk has been Vice President of Booz-Allen & Hamilton, Inc. and
various of its wholly-owned subsidiaries since 1991.

William J. Poutsiaka has been President and Chief Executive Officer of
Arkwright Mutual Insurance Company, Waltham, Massachusetts since 1994 and has
served in other executive capacities for the company since 1989.

Edward A. Tilly has been Chairman and Chief Executive of Consolidated
Financial Insurance Group, Ltd., a subsidiary of General Electric Company,
since 1994. Prior to that, Mr. Tilly was Chairman and Chief Executive of
Financial Insurance Group Ltd. since 1989.

The following table sets forth the annual base salaries that the Company
intends to pay in 1997, and the compensation the Company actually paid in
1996, to its Chief Executive Officer and the four most highly compensated
executive officers during such years:

<TABLE>
<CAPTION>
1996 TOTAL 1997
NAME POSITION COMPENSATION BASE SALARY
<S> <C> <C> <C>
Wolfgang M. Wand........ Managing Director and Chief Executive Officer $508,292 $300,000
Steven H. Debrovner..... Chief Operating Officer 239,084 275,000
Renate M. Nellich....... Chief Executive Officer of ES North America -- 250,000
Gerhard Jurk............ Chief Financial Officer and Director 114,803 200,000
Anthony Parfitt......... Audit and Compliance Officer 56,410 70,000
</TABLE>

No amounts were paid to John C Head III, David L. Newkirk, William J.
Poutsiaka and Edward A. Tilly in 1996. Amounts to be paid to these individuals
are described under "Compensation of Directors". The salary paid to Renate M.
Nellich is to be pro-rated from September 1, 1997 to December 31, 1997 for an
amount of $83,333.

The Company is not obliged to make provision for pension, retirement or
similar benefits for directors and officers of the Company.

ROTATION OF THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS

The Company's Bye-Laws provide that the Board of Directors will be divided
into three classes which classes will be as follows: the first class, whose
initial term expires at the first annual meeting of the Company's shareholders
following the completion of the Offerings, will be comprised of John C Head
III and Wolfgang M. Wand; the second class, whose initial term expires at the
second annual meeting of the Company's shareholders following the completion
of the Offerings, will be comprised of Gerhard Jurk and William J. Poutsiaka;
and the third class, whose initial term expires at the third annual meeting of
the Company's shareholders following the completion of the Offerings, will be
comprised of Edward A. Tilly and David L. Newkirk. Following their initial
terms, all classes of directors will be elected to three-year terms.

The Board of Directors has established a Compensation Committee and an Audit
Committee, each of which reports to the Board of Directors. The Compensation
Committee consists of Messrs. Head, Newkirk and Tilly. The Compensation
Committee will recommend to the Board of Directors the compensation for the
Board of

50
<PAGE>

Directors and senior employees. The Audit Committee consists of Messrs.
Newkirk, Poutsiaka and Tilly. The Audit Committee will establish standards for
review of the Company's compliance with applicable accounting and regulatory
requirements.

COMPENSATION OF DIRECTORS

Directors who are full-time employees of ESG or its subsidiaries will not be
paid any fees or additional compensation for services as members of the Board
of Directors or any committee thereof. Directors who are not full-time
employees of ESG or its subsidiaries ("Non-Management Directors") will be
eligible to participate in the ESG Re Limited Non-Management Directors'
Compensation and Option Plan (the "Directors Plan"). A total of 1,000,000
Common Shares may be issued under the Directors Plan, which limit will be
proportionately adjusted in the event of certain changes in the Company's
capitalization, a merger or a similar transaction. For their services, Non-
Management Directors will receive fees annually which will be paid in cash,
and Common Shares, unless the Non-Management Director otherwise elects to
receive all or a portion of such fees in options or to defer all or a portion
of such fees pursuant to the terms of the Directors Plan as described below.
For services rendered from the Offerings until the first annual meeting
following the Offerings, Non-Management Directors will receive fees of
$35,000. If a Non-Management Director elects to receive options in lieu of
such stock and cash payment, such Director may elect to receive options for
Common Shares with a value, as determined by the Board, equal to two times the
amount of fees that would otherwise be payable. The Non-Management Directors
may alternatively elect to receive deferred compensation ("Deferred
Compensation") indexed to the greater of (i) total return on the Common Shares
and (ii) the one-year U.S. treasury bill rate. Deferred Compensation will be
paid in cash, in accordance with the terms of the Directors Plan. Directors'
shares granted under the Directors Plan will be subject to restrictions on
transfer, for six months after receipt. In addition to the amounts paid to the
Non-Management Directors, the Chairman will receive $55,000 for services
rendered from the Offerings until the first annual meeting following the
Offerings. All Directors will be reimbursed for travel and other related
expenses incurred in attending meetings of the Board of Directors or
committees thereof.

In addition, under the Directors Plan, Non-Management Directors joining the
Board of Directors within one year of the closing of the Offerings will
receive options to purchase 10,000 Common Shares. Options granted on the
closing of the Offerings will be granted at the initial public offering price
and all other options will be granted at the then market price per share. Non-
Management Directors will also receive automatic annual awards of options to
purchase 5,000 Common Shares (or such other amount as the Board may determine)
at an exercise price per share equal to the then market price per share (or,
in each case, a lesser amount prorated to the extent the participating
director did not serve on the Board of Directors for the entire year preceding
the relevant annual shareholders' meeting), on each successive annual
shareholders' meeting. The Board shall also have discretionary authority to
(i) award additional options to the Chairman of the Board, the Deputy Chairman
of the Board and the Committee Chairmen and members of the Board of Directors
or the Supervisory Board of any of the subsidiaries of ESG and (ii) grant
options to permit a Non-Management Director to reacquire any Common Shares the
Non-Management Director delivered as payment of the exercise price or to
satisfy any withholding obligation in connection will the exercise of an
option. All options will be vested and exercisable at the time of grant.
Common Shares issued on exercise of options issued pursuant to the Directors
Plan may be either authorized but unissued shares or treasury shares. Options
granted under the Directors Plan are non-transferable, except in limited
circumstances in the Board's discretion as set forth in the Directors Plan.

The Directors Plan may be amended or terminated by the Board at any time, in
whole or in part. However, any amendment for which shareholder approval is
required by law will not be effective until such approval has been attained.
Unless earlier terminated, the Directors Plan will expire on the tenth
anniversary of its effective date, and no further options may be granted
thereunder.

EMPLOYMENT ARRANGEMENTS

The Company and ESG UK have entered into an employment agreement with Mr.
Wand to serve as Managing Director and Chief Executive Officer of the Company,
Chairman of ESG Germany and Chief Executive Officer of ESG UK, effective as of
December 1, 1997. Mr. Wand's compensation under the employment agreement
includes (i) an annual base salary of $300,000 which is subject to review
annually for increase at the discretion of the Compensation Committee, (ii) an
annual bonus determined by the Compensation

51
<PAGE>

Committee (which will be not less than $100,000 in 1998), and (iii) pension,
welfare and fringe benefits. Mr. Wand is entitled to receive reimbursement of
expenses incurred in connection with promoting the business of the Company or
any of its subsidiaries, including expenses for travel and other expenses
while away from home on business or in the service of the Company or any of
its subsidiaries. The term of the employment agreement is three years, subject
to automatic renewal for successive one-year periods unless the Company, ESG
UK or Mr. Wand provides written notice at least 12 months prior to the then
scheduled expiration date. In the event of termination of Mr. Wand's
employment by the Company or ESG Germany without Cause (as defined in the
Employment Agreement) or by Mr. Wand for Good Reason (as defined in the
Employment Agreement), Mr. Wand will receive his then current base salary for
the remaining term of the agreement, but in no event less than 12 months base
salary. In the event that Mr. Wand's employment is terminated by the Company
or ESG Germany without Cause or by Mr. Wand for Good Reason within one year of
a Change in Control (as defined in the Employment Agreement), in addition to
the compensation otherwise payable to Mr. Wand upon his termination of
employment, as set forth above, Mr. Wand will be entitled to a lump sum
payment in an amount which, when added to the present value of all other
benefits or payments which would constitute "Parachute Payments" (as defined
in Section 280G of the Code), equals 2.99 times Mr. Wand's "Base Amount" (as
defined in Section 280G). In the event that any excise taxes are assessed
under Section 4999 of the Code, the Company will reimburse Mr. Wand for such
taxes. Mr. Wand will retain any other rights and benefits as determined in
accordance with the applicable terms of the benefit programs maintained by the
Company, ESG Germany or any of it's affiliates in which Mr. Wand participates.
In the event the employment agreement expires by reason of the Company or ESG
Germany's election not to renew the term, or death or disability, Mr. Wand
will receive his base salary through the date of termination. In the event of
the termination of Mr. Wand's employment for Cause, or by Mr. Wand without
Good Reason, Mr. Wand will be entitled to his base salary through the date of
termination. The Employment Agreement prohibits Mr. Wand from using or
disclosing confidential information about the Company and its affiliates and
their operations at any time and from engaging in any competitive reinsurance
or insurance business or soliciting any employee of the Company or its
affiliates for a period of 18 months after the termination of employment
(other than a termination within one year of a Change in Control).

The Company has entered into an employment agreement with Mr. Debrovner to
serve as the Chief Operating Officer as of December 1, 1997. ESG Germany has
entered into an employment agreement with Mr. Jurk to serve as Chief Financial
Officer of the Company as of December 1, 1997. ES North America has entered
into an Employment Agreement with Ms. Nellich to serve as Chief Executive
Officer of ES North America as of December 1, 1997. The employment agreements
of Mr. Debrovner, Ms. Nellich and Mr. Jurk will continue, unless terminated
upon one year's notice, until September 1, 2000. Under their employment
agreements, Mr. Debrovner, Ms. Nellich and Mr. Jurk will receive annual base
salaries of $275,000, $250,000 and $200,000, respectively. Other benefits
granted to Mr. Debrovner, Ms. Nellich and Mr. Jurk will be similar to those
granted to Mr. Wand. The employment agreements of Mr. Debrovner, Ms. Nellich
and Mr. Jurk prohibit the executive from using or disclosing confidential
information about the Company and its affiliates and their operations and from
engaging in any competitive reinsurance or insurance business for a period of
one year after the term of employment.

Mr. Head is not party to any employment agreement with the Company.

STOCK OPTION PLAN

The Company has adopted the 1997 Stock Option Plan (the "Stock Option Plan")
under which employees of ESG and its subsidiaries are eligible to participate.

The Stock Option Plan is administered by the Compensation Committee. Subject
to the provisions of the Stock Option Plan, the Compensation Committee has
sole discretionary authority to interpret the Stock Option Plan and to
determine the type of awards to grant, when, if and to whom awards are
granted, the number of Common Shares covered by each award and the terms and
conditions of the award.

52
<PAGE>

The exercise price of the options granted at the Closing Date will be the
initial public offering price. Thereafter the exercise price of the options
will be determined by the Compensation Committee when the options are granted.
In the discretion of the Compensation Committee, the option exercise price may
be paid in cash or in Common Shares or other property having Fair Market Value
(as defined in the Stock Option Plan) on the date of exercise equal to the
option exercise price, or by delivering to the Company a copy of irrevocable
instructions to a stock broker to deliver promptly to the Company an amount of
sale or loan proceeds sufficient to pay the exercise price. Options granted
under the Stock Option Plan are non-transferrable except in limited
circumstances as set forth in the Stock Option Plan, in the Board's
discretion. The Board may amend or terminate the Stock Option Plan provided
that no such amendment will be made without shareholder approval if such
approval is necessary to comply with any tax or regulatory requirement and
provided that any such amendment that would impair the rights of any holder of
an option already granted will not be effective without the consent of the
holder.

The Company has reserved 2,000,000 Common Shares for issuance under the
Stock Option Plan, which limit will be proportionately adjusted in the event
of certain changes in the Company's capitalization, a merger or similar
transaction.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ADVISORY FEE

For advisory services rendered by Head Company in connection with the Direct
Sales and the Offerings, Head Company will be paid a fee of $2,500,000 and
reimbursed for reasonable out-of-pocket expenses. As sponsor of the Company,
Head Company has provided support and assistance in connection with the
planning, structuring and formation of the Company, as well as capital raising
in both the Direct Sales and the Offerings.

INVESTMENT ADVISORY AGREEMENT

The Company has entered into an Investment Advisory Agreement with Head
Asset Management, an affiliate of Head Company. See "The Company--
Investments."

TRANSACTIONS BETWEEN MR. WAND AND SHAREHOLDER

During 1996, Mr. Wand received payments from ES Management in consideration
of a loan made by Mr. Wand to a shareholder of ESG Germany to enable such
shareholder to purchase shares of ESG Germany. In order to repay Mr. Wand,
amounts payable to the debtor by ES Management in respect of reinsurance
brokerage services provided by the debtor are paid directly to Mr. Wand. For
1996, ES Management paid Mr. Wand $32,870 in respect of this loan. Prior to
the Offerings, such loan was repaid in full by the debtor.

INDEMNIFICATION FOR CONTINGENT LIABILITIES

In connection with the Formation, certain shareholders of ESG Germany have
agreed to indemnify ESG Germany for certain contingent liabilities.

DIRECT SALES

William J. Poutsiaka, a director of the Company, is President and Chief
Executive Officer of Arkwright Mutual Insurance Company. Arkwright Mutual
Insurance Company is a Direct Purchaser. See "Direct Sales."

Affiliates of Head Company have made capital investments in the Direct
Sales. See "Direct Sales" for a description of the Common Shares and Warrants
purchased by the Head Group.

53
<PAGE>

PRINCIPAL SHAREHOLDERS

The table below sets forth the expected beneficial ownership of Ordinary
Shares or Common Shares (i) before giving effect to the Formation, Direct
Sales and the Offerings, (ii) after giving effect to the Formation and Direct
Sales and (iii) after giving effect to the Formation, Direct Sales and the
Offerings, by all persons who will beneficially own 5% or more of the Ordinary
Shares or Common Shares and the number of Ordinary Shares or Common Shares
beneficially owned by each director and executive officer and by the directors
and executive officers of the Company as a group.

<TABLE>
<CAPTION>
BEFORE GIVING EFFECT
TO THE FORMATION, AS ADJUSTED AS ADJUSTED FOR THE
DIRECT SALES AND FOR THE FORMATION FORMATION, DIRECT SALES
THE OFFERINGS AND DIRECT SALES AND THE OFFERINGS
----------------------------------- -------------------------------- --------------------------------
NUMBER OF PERCENT OF NUMBER OF PERCENT OF NUMBER OF PERCENT OF
ORDINARY SHARES (1) ORDINARY SHARES COMMON SHARES COMMON SHARES COMMON SHARES COMMON SHARES
<S> <C> <C> <C> <C> <C> <C>
John C Head III ........ 6,000 50.0% 2,084,214 (2)(3) 54.4% 2,978,905 (4)(5) 21.7%
Madie Ivy .............. 6,000 50.0% 2,084,214 (2)(3) 54.4% 2,968,905 (4) 21.6%
ESG Partners (Bermuda)
L.P. .................. 6,000 50.0% 869,302 (2)(6) 23.8% 876,745 (2)(7) 6.9%
Wolfgang M. Wand........ 3,000 25.0% 369,315 10.3% 404,315 (8) 3.2%
Steven H. Debrovner..... -- -- 228,600 6.4% 251,100 (9) 2.0%
David L. Newkirk........ -- -- -- -- 10,000 (5) *
William J. Poutsiaka.... -- -- -- -- 10,000 (5) *
Edward A. Tilly......... -- -- -- -- 10,000 (5) *
Gerhard Jurk............ 3,000 25.0% -- -- 6,250 (10) *
Renate M. Nellich....... -- -- -- -- 6,250 (10) *
Anthony Parfitt......... -- -- -- -- 1,000 (11) *
All directors and
executive officers as a
group (6 persons,
6 persons and
9 persons,
respectively).......... 12,000 100.0% 2,682,129 (2) 69.9% 3,677,820 (2) 26.6%
</TABLE>
- ---------------------
*Less than 1%
(1) Reflects the Company's initial issuance of Ordinary Shares in connection
with the incorporation of the Company. Such shares were repurchased by the
Company and retired simultaneously upon completion of the Formation.
(2)Assumes the exercise of Class A Warrants but not Class B Warrants.
(3) Includes (a) 451,872 Common Shares held by HMI, (b) 122,995 Common Shares
held by certain pension plan trusts of Head Company and other entities
created by affiliates of HMI, (c) 123,627 Common Shares issuable upon
exercise of Class A Warrants held by HMI and certain pension plan trusts
of Head Company, (d) 783,155 Common Shares held by ESG Partners (Bermuda)
L.P. ("ESG Partners") and 465,241 Common Shares held by an affiliate
investor, and (e) 86,147 and 51,177 Common Shares issuable upon exercise
of Class A Warrants held by ESG Partners and held by an affiliate
investor, respectively. Does not include up to 354,510 Common Shares
issuable upon exercise of Class B Warrants (if certain performance
criteria are satisfied) held by HMI. Mr. Head is married to Ms. Ivy.

(4) Includes (a) 451,872 Common Shares held by HMI, (b) 122,995 Common Shares
held by certain pension plan trusts of Head Company and other entities
created by affiliates of HMI, (c) 996,453 Common Shares issuable upon
exercise of Class A Warrants held by HMI and certain pension plan trusts
of Head Company, (d) 783,155 Common Shares held by ESG Partners and
465,241 Common Shares held by an affiliate investor, and (e) 93,590 and
55,599 Common Shares issuable upon exercise of Class A Warrants held by
ESG Partners and held by an affiliate investor, respectively. Does not
include up to 1,247,284 Common Shares issuable upon exercise of Class B
Warrants (if certain performance criteria are satisfied) held by HMI.
(5)Includes options to purchase 10,000 Common Shares. See "Management--
Compensation of Directors."
(6)Includes 86,147 Common Shares issuable upon exercise of Class A Warrants.

(7) Includes 93,590 Common Shares issuable upon exercise of Class A Warrants.

(8) Includes 35,000 Common Shares issuable upon exercise of Management Options
and 144,405 Common Shares owned by Mr. Wand's wife. Mr. Wand disclaims
beneficial ownership of all such shares held by his wife. See
"Management--Executive Officers and Directors."

(9) Includes 22,500 Common Shares issuable upon exercise of Management
Options. See "Management--Executive Officers and Directors."

(10) Includes 6,250 Common Shares issuable upon exercise of Management
Options. See "Management--Executive Officers and Directors."

(11) Includes 1,000 Common Shares issuable upon exercise of Management
Options. See "Management-- Executive Officers and Directors."

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DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized share capital of the Company after the completion of the
Formation, Direct Sales and the Offerings will consist of 100,000,000 Common
Shares, par value $1.00 per share, of which 12,573,799 shares will be issued
and outstanding; 100,000,000 Class B Common Shares, par value $1.00 per share,
of which no shares will be issued and outstanding; and 50,000,000 Preference
Shares, of which no shares will be issued and outstanding. Prior to the Direct
Sales, 12,000 Ordinary Shares, par value $1.00 per share, were issued and
outstanding. The Ordinary Shares will be repurchased by the Company and
retired simultaneously upon completion of the Formation. The Common Shares and
the Class B Common Shares are identical except that the Class B Common Shares
have no voting rights except as required by applicable law.

COMMON SHARES

Holders of the Common Shares have no preemptive, redemption, conversion or
sinking fund rights. Subject to the voting restrictions set forth below,
holders of Common Shares are entitled to one vote per share on all matters
submitted to a vote of holders of Common Shares and do not have any cumulative
voting rights. In the event of a liquidation, dissolution, or winding-up of
the Company, the holders of Common Shares are entitled to share equally and
ratably in the assets of the Company, if any, remaining after the payment of
all debts and liabilities of the Company and the liquidation preference of any
outstanding Preference Shares. Upon completion of the Offerings, all
outstanding Common Shares will be fully paid and nonassessable. Additional
authorized but unissued Common Shares may be issued by the Board of Directors
without the approval of the shareholders.

Each Common Share has one vote, except that if, and so long as, the
Controlled Shares (as defined below) of any person, other than Head subsequent
to the Closing Date, constitute more than 9.9% of the voting power of the
outstanding shares, including Common Shares, of the Company (a "Ten-percent
Shareholder"), the voting rights with respect to the Controlled Shares owned
by such person will be limited, in the aggregate, to a voting power of 9.9%,
pursuant to a formula specified in the Bye-Laws. The Common Share votes that
could be cast by Ten-percent Shareholders but for the restrictions on voting
rights described above will be allocated to the other holders of Common
Shares, pro rata based on the number of Common Shares held by all other
holders of Common Shares, subject only to the further limitation that no
shareholder, other than Head subsequent to the Closing Date, allocated any
such voting rights may exceed the 9.9% limitation as a result of such
allocation. "Controlled Shares" includes, among other things, all Common
Shares that a person is deemed (i) to constructively own directly or
indirectly pursuant to rules defining a CFC under the Code (see "Certain Tax
Considerations--Taxation of Shareholders") or (ii) to beneficially own
directly or indirectly (other than ownership attributable to Head) as a result
of the possession of sole or shared voting power within the meaning of Section
13(d)(3) of the Exchange Act and the rules and regulations promulgated
thereunder. These voting reallocation provisions could make it difficult or
impossible for any person or group of persons acting in concert to acquire
control of the Company without agreement by the Company's Board of Directors
and its shareholders.

The holders of Common Shares will receive such dividends, if any, as may be
declared by the Board of Directors out of funds legally available for such
purposes. Under Bermuda law, a company may not declare or pay a dividend, or
make a distribution out of contributed surplus, if there are reasonable
grounds for believing that (i) the company is, or after the payment would be,
unable to pay its liabilities as they fell due, or (ii) the realizable value
of the company's assets after such payment or distribution would be less than
the aggregate amount of its liabilities and its issued share capital and share
premium accounts. See "Dividend Policy." For a description of taxes and
withholding provisions to which U.S. shareholders are subject, see "Certain
Tax Considerations--Taxation of Shareholders--United States Taxation of U.S.
and Non-U.S. Shareholders."

PREFERENCE SHARES

The Board of Directors is authorized to provide for the issuance of up to
50,000,000 Preference Shares without shareholder approval in one or more
series and to fix the designations, preferences, powers, and relative,

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participating, optional or other rights and restrictions thereof, including
but not limited to the dividend rate, conversion rights, voting rights,
redemption price and liquidation preference, to fix the number of shares
constituting any such series and to increase and decrease the number of shares
of such series. In determining the voting rights of holders of any such
series, however, the Board will take appropriate steps, analogous to the
restrictions described above on the voting rights of holders of Common Shares,
to assure that Holdings will not be a CFC for U.S. tax purposes. See "Certain
Tax Considerations--Taxation of Shareholders."

The issuance of Preference Shares could decrease the amount of earnings and
assets available for distribution to the holders of Common Shares or adversely
affect the rights and powers, including voting rights, of the holders of
Common Shares. Additionally, the issuance of preference shares could have the
effect of delaying or preventing a change in control of the Company without
further action by the shareholders. The Company has no current plans to issue
any Preference Shares.

WARRANTS

Upon completion of the Offerings, Class A Warrants to purchase 1,247,284
Common Shares will have been issued to the Direct Purchasers. The Class A
Warrants are exercisable for a period of 10 years from the Closing Date. The
exercise price per Common Share of the Class A Warrants will be the initial
public offering price per share. Upon completion of the Offerings, Class B
Warrants to purchase up to 1,274,284 Common Shares (if certain performance
criteria are satisfied) will have been issued to certain members of the Head
Group as part of the Direct Sales. Additional Class A Warrants and Class B
Warrants will be issued if the over-allotment option is exercised. See "Direct
Sales." Twenty percent of the Class B Warrants are available for vesting
during each of the first five years following the Closing Date, and will vest
only if, for any 20 consecutive trading days during the one-year vesting
period, the percentage change in the market price (as defined below) of the
Common Shares since the Closing Date, as compared to the initial public
offering price, exceeds by at least 500 basis points the percentage change in
the Wilshire 5000 Equity Index as measured in the same manner during the same
period. Any Class B Warrants not vested in any year will vest in any
subsequent period (during the first five years following the closing of the
Direct Sales) in which the vesting test is met. Any Class B Warrants not
vested by the fifth anniversary of the Closing Date will be forfeited and no
longer deemed outstanding. In addition, in the event of a Change of Control
(as defined below) of the Company, all Class B Warrants then outstanding will
automatically vest. The Class B Warrants are exercisable for a period of 10
years from the date of vesting. The exercise price per Common Share of the
Class B Warrants is initially the initial public offering price and will be
reduced by $1.50 on September 1, 2001.

The exercise prices for the Warrants are subject to adjustment upon the
occurrence of certain events including: (i) the issuance or sale of Common
Shares at a price below 90% of the then current market price per share (except
for such sales in connection with an underwritten public offering); (ii) the
grant or issuance of certain rights, options or warrants to purchase Common
Shares or securities convertible into or exchangeable for Common Shares; (iii)
the payment of dividends upon the Common Shares in Common Shares or certain
other capital stock of the Company; or (iv) subdivisions, combinations or
certain reclassifications of the Common Shares.

For purposes of the foregoing, (i) the "market price" as of any day is the
average of the closing reported bid and asked prices for the Common Shares
during the 15 consecutive trading days concluding on such day in the over-the-
counter market as furnished by the National Quotation Bureau, Inc., so long as
the Common Shares are traded on Nasdaq, (ii) "Wilshire 5000 Equity Index" as
of any day means the average of the closing quotations during the 15
consecutive trading days concluding on such day of the index prepared by
Wilshire Associates, Inc., as reported on Bloomberg Financial Markets, or in
the event such index is no longer published, a comparable index selected by
the Board of Directors in good faith and (iii) "Change of Control" means the
acquisition by any person of 50% or more, in the aggregate, of either the
voting power of the then outstanding Common Shares or the combined voting
power of the Company's then outstanding voting securities entitled to vote
generally in the election of directors; provided, however, that if such
acquisition results in whole or in part from a transfer of any Common Shares
or other voting securities by the holder of any Class B Warrants, such

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<PAGE>

acquisition shall not constitute a Change of Control for purposes of
determining whether such holder's Class B Warrants will vest unless such
transfer is effected pursuant to an offer by such acquiror to purchase all of
the Company's outstanding Common Shares.

Fractional Common Shares will not be issued upon exercise of Warrants; in
lieu thereof the Company will pay a cash adjustment.

The Warrant holders have been granted certain registration rights with
respect to the Warrants and any Common Shares acquired upon exercise of the
Warrants, and have entered into certain lock-up agreements with the
Underwriters relating to such securities. See "Shares Eligible for Future
Sale" and "Underwriting."

THE BYE-LAWS

The Bye-Laws provide for the corporate governance of the Company, including
the establishment of share rights, modification of such rights, issuance of
share certificates, imposition of a lien over shares in respect of unpaid
amounts on those shares, calls on shares which are not fully paid, forfeiture
of shares, the transfer of shares, alterations to capital, the calling and
conduct of general meetings, proxies, the appointment and removal of
directors, conduct and powers of directors, dividends, the appointment of an
auditor and the winding-up of the Company.

POTENTIAL ANTI-TAKEOVER EFFECTS

The voting provisions of the Common Shares and the discretion conferred upon
the Board of Directors with respect to the issuance of series of Preference
Shares (including with respect to voting rights) could substantially impede
the ability of one or more shareholders (acting in concert) to acquire
sufficient influence over the election of directors and other matters to
effect a change in control or management of the Company, and the Board of
Directors' ability to issue Preference Shares could also be utilized to change
the economic and control structure of the Company. As a result, such
provisions, together with certain other provisions of the Company's Bye-Laws
summarized below, may be deemed to have an anti-takeover effect and may delay,
defer or prevent a tender offer or takeover attempt that a shareholder might
consider in such shareholder's best interest, including attempts that might
result in a premium over the market price for the Common Shares held by
shareholders.

The Bye-Laws provide that the Board of Directors shall be divided into three
classes that are elected for staggered three-year terms. Shareholders may only
remove a director for cause prior to the expiration of such director's term at
a special meeting of shareholders at which eighty percent of the holders of
shares entitled to vote thereon vote in favor of such action.

The Bye-Laws establish an advance notice procedure for the nomination, other
than by or at the direction of the Board of Directors, of candidates for
election as directors, as well as for other shareholder proposals to be
considered at annual meetings of shareholders. In general, notice of intent to
nominate a director or raise business at such meeting must be received by the
Company not less than 60 nor more than 90 days prior to the anniversary of the
previous year's annual meeting, and must contain certain specified information
concerning the person to be nominated or the matter to be brought before the
meeting and concerning the shareholder submitting the proposal.

The Company's Bye-Laws further provide that a 75% vote for the outstanding
voting shares is required to amend the Memorandum of Association and Bye-Laws
with respect to certain matters, including, without limitation, the voting
provisions and other matters set forth above.

PERIODIC REPORTS AND PROXY STATEMENTS

The Company intends and has included provisions in its Bye-Laws requiring it
(i) to furnish to the holders of Common Shares and submit to the Commission
(unless the Commission will not accept such materials) annual and quarterly
reports, and reports with respect to specified events, required of a U.S.
domestic private issuer on

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Forms 10-K, 10-Q and 8-K, respectively, and (ii) to comply with the proxy
rules under the Exchange Act except to the extent that such rules require
filings with the Commission and the inclusion of shareholder proposals in
proxy materials prepared by the Company and except for provisions specifying
the required disclosures relating to corporate reorganizations. The proxy
rules include rules prescribing the content of annual reports to shareholders.
The audited financial statements contained in such annual reports and
unaudited quarterly financial information contained in such quarterly reports
will be prepared in accordance with U.S. GAAP. In addition, requirements with
regard to the accuracy of proxy disclosures will be governed by certain Bye-
law provisions interpreted under Bermuda law. The Company has been advised
that, under Bermuda law, the record and beneficial owners of Common Shares
will, to the extent indicated in the Company's Bye-Laws, also be bound by such
principles incorporated from Commission rules relating to proxy statements and
the solicitation of proxies. These Bye-Law provisions can be amended only by a
vote of two-thirds of shareholders present at a shareholders' meeting.

TRANSFER AGENT

The transfer agent and registrar of the Common Shares will be State Street
Bank and Trust Company, Boston, Massachusetts.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to the Offerings, there has been no market for the Common Shares, and
no predictions can be made as to the effect, if any, that market sales of
Common Shares or the availability of Common Shares for sale will have on the
market price prevailing from time to time. Sales of substantial amounts of
Common Shares, or the perception that such sales could take place, may
adversely affect prevailing market prices of the Common Shares as well as the
ability of the Company to raise additional capital in the public equity
markets at a desirable time and price.

Upon completion of the Offerings, the Company will have outstanding
12,573,799 Common Shares, 9,000,000 of which will have been sold in the
Offerings (10,350,000 if the initial Purchasers' over-allotment option is
exercised) and 3,573,799 of which will be sold in the Direct Sales or issued
in the Formation. The Common Shares sold in the Offerings will be freely
transferable without restriction or further registration under the Securities
Act, except for any of those Common Shares owned at any time by an Affiliate
of the Company (which sales will be subject to the volume limitations and
certain other restrictions). The Common Shares sold in the Direct Sales, or
issued as part of the Formation are deemed "restricted securities" as defined
in Rule 144 under the Securities Act and may not be resold in the absence of
registration under the Securities Act or pursuant to an exemption from such
registration, including the exemption provided by Rule 144 under the
Securities Act.

In connection with the Direct Sales, the Company has agreed with each of the
Direct Purchasers to register the Common Shares, Warrants and Common Shares
underlying the Warrants (the "Registrable Securities") sold to each Direct
Purchaser under the Securities Act on a shelf registration statement to become
effective one year after the closing date of the Direct Sales. The Direct
Purchasers have agreed not to dispose of Registrable Securities for a period
of one year following the closing date of the Direct Sales (two years in the
case of HMI), or such shorter period as is consented to by the
Representatives. In addition, whenever the Company proposes to register Common
Shares under the Securities Act for its own account or for the account of
another security holder, the Direct Purchasers are entitled to include their
Registrable Securities in the registration, subject to the waiting periods
described above and certain other conditions.

In connection with each such registration, the Company is required to bear
all registration and selling expenses (other than underwriting fees and
commissions and the fees of any counsel for the holders participating in such
registrations).

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DIRECT SALES

The Company entered into subscription agreements, dated September 30, 1997,
relating to the purchase by the Direct Purchasers of (i) an aggregate of
2,673,799 Common Shares and, after giving effect to the closing of the Direct
Sales and the Offerings, (ii) Class A Warrants to purchase up to 1,247,284
Common Shares, and (iii) in the case of the Head Group, Class B Warrants to
purchase up to 1,247,284 Common Shares (if certain performance criteria are
satisfied), for an aggregate purchase price of $50.0 million.

The number of Common Shares sold to the Direct Purchasers in the Direct
Sales was calculated as the quotient of (i) the aggregate dollar amount the
Direct Purchasers have committed to invest in the Company, divided by (ii) the
initial public offering price less the underwriting discounts and commissions
rounded to the nearest whole Common Share. The Direct Purchasers will receive
warrants to purchase a proportion of the total number of Common Shares
outstanding, which, if applicable, will include Common Shares sold pursuant to
the Underwriters' over-allotment option. One-half of the warrants issued will
be Class A Warrants and one-half will be Class B Warrants. Therefore, to the
extent that the number of Common Shares to be sold in the Offerings varies,
the number of Common Shares issuable upon the exercise of the warrants will
vary. Upon completion of the Offerings, Class A Warrants to purchase up to
1,247,284 Common Shares (1,381,200 Common Shares if the Underwriters' over-
allotment option is exercised), and Class B Warrants (if certain performance
criteria are satisfied), to purchase up to 1,247,284 Common Shares (1,381,200
Common Shares if the Underwriters over-allotment option is exercised) will be
outstanding.

CERTAIN TAX CONSIDERATIONS

The following summary of the taxation of the Company, ES Bermuda, ESG
Germany and ES Ireland and the taxation of shareholders of the Company is
based upon current law. Legislative, judicial or administrative changes may be
forthcoming that could affect this summary. Statements made below as to
Bermuda law are based upon the opinion of Appleby, Spurling & Kempe, Bermuda
counsel to the Company. Statements made below as to United States law are
based upon the opinion of Paul, Weiss, Rifkind, Wharton and Garrison, United
States counsel to the Company. Statements made below as to German taxation are
based upon the opinion of Deloitte & Touche GmbH, German advisors to the
Company. Statements made below as to United Kingdom taxation are based upon
the opinion of Deloitte & Touche, United Kingdom advisors to the Company.
Statements made below as to Canadian taxation are based upon the opinion of
Deloitte & Touche, Canadian advisors to the Company. Statements made below as
to Irish law are based upon the opinion of Matheson Ormsby Prentice, Irish
counsel to the Company.

TAXATION OF THE COMPANY AND ITS SUBSIDIARIES

BERMUDA

The Company and ES Bermuda have each received from the Minister of Finance
of Bermuda a written undertaking under the Exempted Undertakings Tax
Protection Act, 1966 (as amended) of Bermuda, to the effect that in the event
of there being enacted in Bermuda any legislation imposing tax computed on
profits or income, or computed on any capital asset, gain or appreciation, or
any tax in the nature of estate duty or inheritance tax, then the imposition
of any such tax shall not be applicable to the Company and ES Bermuda or to
any of their operations or the shares, debentures or other obligations of the
Company and ES Bermuda until March 28, 2016. These assurances are subject to
the proviso that they are not construed so as to prevent the application of
any tax or duty to such persons as are ordinarily resident in Bermuda or to
prevent the application of any tax payable in

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accordance with the provisions of The Land Tax Act 1967 of Bermuda or
otherwise payable in relation to the land leased to the Company and ES
Bermuda. Each of the Company and ES Bermuda is required to pay certain annual
Bermuda government fees and ES Bermuda, additionally, is required to pay
certain insurance registration fees as an insurer under the Insurance Act
1978. Under current rates, the Company pays a fixed fee of BD$1,680 and ES
Bermuda pays a total of BD$7,904 per year (which includes the annual Bermuda
government fee and the annual insurance registration fee). Currently there is
no Bermuda withholding tax on dividends that may be paid by ES Bermuda to the
Company.

UNITED STATES

The Company and its subsidiaries intend to operate their business in a
manner that will not cause them to be treated as engaged in a trade or
business within the United States. On this basis, the Company and its
subsidiaries do not expect to be required to pay U.S. income tax (other than
withholding tax as described below). However, because there is considerable
uncertainty as to the activities which constitute being engaged in a trade or
business in the United States, there can be no assurances that the IRS will
not contend successfully that the Company or a subsidiary is engaged in a
trade or business in the United States. A foreign corporation deemed to be so
engaged (i) would be subject to U.S. income tax, as well as the branch profits
tax, on its income which is treated as effectively connected with the conduct
of that trade or business except to the extent the corporation is entitled to
relief under the permanent establishment provision of a tax treaty, as
discussed below, and (ii) would be required to file yearly income tax returns.
Such income tax, if imposed, would be based on effectively connected income
computed in a manner generally analogous to that applied to the income of a
domestic corporation, except that a foreign corporation can claim an allowance
of deductions and credits only if it files a U.S. income tax return. Under
regulations, the foreign corporation would be entitled to deductions and
credits for a taxable year only if the return for that year is filed timely
under rules set forth therein. Currently, the maximum federal tax rate on a
corporation's effectively connected income is 35% and the branch profits tax
rate is 30%. The branch profits tax is imposed each year on a corporation's
effectively connected earnings and profits (with certain adjustments) deemed
repatriated out of the United States.

Under the tax convention between Bermuda and the United States (the "Bermuda
Treaty"), a Bermuda company, such as ES Bermuda, predominantly engaged in the
insurance business, is subject to U.S. income tax on income found to be
effectively connected with a U.S. trade or business only if that trade or
business is conducted through a permanent establishment in the United States.
The Bermuda Treaty exemption, according to its terms, does not apply to
dividends and interest income. While there can be no assurances, the Company
does not believe ES Bermuda will have a permanent establishment in the United
States. ES Bermuda would not be entitled to the benefits of the Bermuda
Treaty, however, if (i) 50% or more of ES Bermuda's stock were beneficially
owned, directly or indirectly, by persons other than Bermuda residents or U.S.
citizens or residents, or (ii) ES Bermuda's income were used in substantial
part to make disproportionate distributions to, or to meet certain liabilities
to, persons who are not Bermuda residents or U.S. citizens or residents. While
there can be no assurances, the Company believes that the above exception to
Bermuda Treaty benefits will not apply to ES Bermuda after the Offerings. The
Bermuda Treaty does not provide relief from the U.S. branch profits tax.

ES Ireland intends to operate its business activities in a manner that will
not result in its being considered to be engaged in a trade or business or to
have a permanent establishment in the United States under the income tax
treaty between Ireland and the United States (and the new treaty expected to
become effective January 1, 1998 (the "Irish Treaty"). Whether or not a
company is engaged in a trade or business or has a permanent establishment in
the United States is essentially a factual test, and there is considerable
uncertainty as to the activities that will cause a foreign corporation to be
subject to tax in the United States, and thus, there can be no assurance that
U.S. tax authorities will not successfully contend that ES Ireland is subject
to United States tax. If, however, ES Ireland were subject to U.S. tax, it is
not expected that the amount of such tax would materially affect the Company's
shareholders' equity and earnings.

Under the income tax treaty between Germany and the United States (the
"German Treaty") ES Germany (or any other German subsidiary of the Company)
will generally not be subject to United States Federal income tax unless it
engages in a trade or business in the United States through a permanent
establishment. While there can be no assurances, the Company believes that ES
Germany and other German subsidiaries of the Company

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will operate their business activities in a manner that will not result in
them being considered to be engaged in a trade or business or to have a
permanent establishment in the United States.

Under the income tax treaty between United Kingdom and the United States
(the "U.K. Treaty"), ESG UK (or any other U.K. subsidiary of the Company) will
generally not be subject to United States Federal income tax unless it engages
in a trade or business in the United States through a permanent establishment.
While there can be no assurances, the Company believes that ESG UK will
operate its business activities in a manner that will not result in its being
considered to be engaged in a trade or business or to have a permanent
establishment in the United States.

Under the income tax treaty between Canada and the United States, ES North
America will generally not be subject to United States Federal income tax by
reason of its Toronto operations unless it engages in a trade or business in
the United States through a permanent establishment. While there can be no
assurances, the Company believes that its Toronto operations will operate its
business activities in a manner that will not result in its being considered
to be engaged in a trade or business or to have a permanent establishment in
the United States.

Foreign corporations not engaged in a trade or business in the United States
are nonetheless subject to U.S. income tax on certain "fixed or determinable
annual or periodic gains, profits and income" derived from sources within the
United States as enumerated in Section 881(a) of the Code (such as dividends
and certain interest on investments).

The United States also imposes an excise tax on insurance and reinsurance
premiums paid to foreign insurers or reinsurers with respect to risks located
in the United States. The rate of tax applicable to reinsurance premiums paid
to ES Bermuda and ES Ireland is 1% of gross premiums.

IRELAND

In general, Irish companies must pay corporation tax on their trading income
at the rate of 36%. However, a company which holds a certificate (a
"Certificate") under Section 39B of the Irish Finance Act, 1980 ("IFSC
Company") qualifies for special relief. The effect of Section 39B(2) Finance
Act, 1980 ("Section 39B") is to reduce the rate of corporation tax on income
arising from the trading operations specified in a Certificate to 10%,
provided the conditions attaching to the Certificate are met. Section 39B
defines the trading operations specified in a Certificate as relevant trading
operations ("Relevant Trading Operations"). The Irish Authorities have
approved the grant of a Certificate to ES Ireland. The Certificate will issue
after ES Ireland commences trading and unless it is revoked, it shall remain
in force until December 31, 2005. The principal Relevant Trading Operations of
ES Ireland comprise:

(a) the provision of reinsurance facilities consisting of the
underwriting by ES Ireland of reinsurance placements of insurance or
reinsurance companies where such placements are solely in respect of risks
arising outside Ireland; and

(b) reinsurance (RETROCESSION) of the risk referred to at (a) above with
insurance and reinsurance companies.

To the extent that ES Ireland is engaged in activities outside the scope of
its Relevant Trading Operations, its profits on such activities will be liable
to Irish taxation at the rate of 36%.

Withholding Taxes/Advance Corporation Tax. There is no withholding tax on
dividends or interest payments made by IFSC Companies in the course of
carrying on their Relevant Trading Operations.

Advance corporation tax ("ACT") is, however, payable on dividends paid by an
IFSC company to a non-resident 75% parent in a country which does not have a
tax treaty with Ireland. Where the dividends are paid out of profits earned
carrying out relevant trading operations the ACT payable is one eighteenth of
the dividend. ACT may be offset against the general corporation tax liability
of the IFSC Company.

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Stamp Duty. Irish capital duty will generally arise in respect of monies
subscribed for shares in Irish limited liability companies such as ES Ireland.
The rate of duty is 1%. Irish capital duty does not arise in respect of monies
subscribed to unlimited companies or to limited companies if the effective
center of management of that limited company is located in another European
Union member state. Where the effective center of management of a limited
liability company is in another member state, there may be a liability to
capital duty in that other state.

The transfer of the beneficial ownership of any shares in ES Ireland will
give rise to Irish stamp duty at a rate of 1%. Stamp duty becomes payable when
the share transfer is executed. No stamp duty is chargeable on a transfer of
nominal or legal title.

No stamp duty is payable on the issue of policies of insurance which relate
to risk located outside Ireland.

GERMANY

ESG Germany and its subsidiaries will be subject to tax in Germany on their
income. By entering into fiscal unity (Organschaft) with ES Germany and the
other German subsidiaries of ESG Germany, the income of the subordinated
companies is directly attributed to ESG Germany. Fiscal unity requires that
the subordinated companies are integrated financially, organizationally and
economically from the beginning of the respective business year and that a
profit and loss pooling agreement has been concluded for a period of at least
five years and is in fact carried on.

ESG Germany will be subject to trade tax on its income (including the income
of the Company's other subsidiaries attributed to it) at an effective rate of
about 19% based upon the current municipal multiplier of 470% for Hamburg. The
remaining profit after the deduction of the trade tax on income as a business
expense is subject to corporate income tax at a retention rate of 45% for
retained earnings which is reduced to 30% if the profits are distributed to
ESG UK. Additionally, a solidarity surcharge of 7.5% is levied on the
corporate income tax. Accordingly, the overall effective tax rate in Germany
will be approximately 58% for retained earnings and 45% for distributed
earnings. Non-deductible expenses would increase the overall effective tax
burden.

Dividends paid by ESG Germany to ESG UK will be exempt from German
withholding tax and solidarity surcharge, provided there is sufficient
business purpose for ESG UK under German tax law. The Company expects that a
sufficient business purpose will be found, under German tax law, because ESG
UK will own all of the shares of ES North America, European Specialty Limited,
and European Specialty Insurance Management Services Limited, in addition to
all of the shares of ESG Germany, and will provide management functions for
these companies. If sufficient business purpose were lacking, ESG Germany
would have to withhold 25% withholding tax and a solidarity surcharge of 7.5%
on the withholding tax on dividends paid to ESG UK. The total withholding tax
burden would then be 26.875%.

ES Ireland will not be subject to tax in Germany unless it operates through
a permanent establishment in Germany. Although it is not free from doubt, the
Company expects that ES Germany will qualify as an independent agent acting in
the ordinary course of its business for ES Ireland and thus will not
constitute a permanent establishment. In this regard, it is intended that the
activities of ES Germany will be structured as follows:

ES Germany will be independently capitalized at a level comparable to that
of other German reinsurers with similar levels of business and will assume a
considerable part of the business. ES Germany will have its own employees with
extensive experience, knowledge and relationships in the reinsurance industry,
and decisions regarding the underwriting business will be made in Germany by
employees of ES Germany. ES Germany will write reinsurance policies on behalf
of itself, ES Ireland and to a considerable extent also on behalf of unrelated
companies. ES Ireland will not direct the manner in which ES Germany operates,
nor will it exercise any other form of control over ES Germany's operations.
ES Ireland will not guarantee the profitability of ES Germany, there will be
no common employees, and the fees charged by ES Germany to ES Ireland will be
calculated on the same basis as those charged to the unrelated reinsurers.

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<PAGE>

Although not free from doubt, the Company believes that structuring the
activities of ES Germany as described above should also support the opinion
that ES Bermuda, which assumes business from ES Ireland, is not subject to tax
in Germany. The tax position of ES Bermuda is strengthened by the fact that it
will have no contractual relationship with ES Germany. If ES Ireland or ES
Bermuda were taxed in Germany, the current overall effective tax rate would be
approximately 56%, although non-deductible expenses would increase the overall
effective tax burden.

UNITED KINGDOM

ESG UK and its U.K. subsidiaries will be subject to corporate income tax in
the United Kingdom at the 31% rate. ESG UK will be entitled to a foreign tax
credit for German taxes paid by ESG Germany, and for Canadian taxes paid by ES
North America, with respect to profits paid as dividends to ESG UK, so that
the effective U.K. corporate tax rate on dividends received from ESG Germany
and ES North America should be zero on the assumption that foreign tax borne
in each jurisdiction is at least equivalent to the UK rate of taxation.

The Company intends that ESG UK qualify as an International Holding Company
("IHC") for U.K. tax purposes. ESG UK may qualify as an IHC if the shares of
the Company are listed and traded on a non-U.K. stock exchange, or if other
tests are met. Assuming ESG UK qualifies as an IHC, dividends paid by ESG UK
to ESG will be exempt from ACT, to the extent they are comprised of dividends
from ESG Germany, or other non-U.K. subsidiaries of ESG UK. Dividends paid by
ESG UK, to the extent they are not comprised of dividends from non-U.K.
subsidiaries, will be subject to ACT, which may be offset, subject to certain
limitations, against the U.K. corporate tax of ESG UK and its U.K.
subsidiaries. On November 25, 1997, it was announced that ACT is to be
abolished with respect to dividends paid on or after April 6, 1999.

CANADA

ES North America will be subject to Canadian federal and provincial income
tax on its income at a combined rate of approximately 44%. It will also be
subject to Canadian federal and provincial capital taxes at a combined rate of
up to 0.5%. Dividends paid by ES North America to ESG UK will be subject to
Canadian withholding tax at the rate of 10%.

Non-resident companies that carry on business in Canada may also be subject
to Canadian income and capital taxes on the profits of the business carried on
in Canada. Pursuant to the Canada-Ireland tax treaty, ES Ireland will be
subject to tax in Canada only if it carries on business through a permanent
establishment in Canada, and then only on income attributable to that
permanent establishment. The Company intends to operate so that none of its
subsidiaries, other than ES North America, is subject to tax in Canada.

TAXATION OF SHAREHOLDERS

BERMUDA TAXATION

There is no Bermuda withholding tax on dividends paid by the Company.

UNITED STATES TAXATION OF U.S. AND NON-U.S. SHAREHOLDERS

Classification as a Controlled Foreign Corporation. Under Section 951(a) of
the Code, each "U.S. shareholder" of a CFC must include, among other things,
in its gross income for U.S. federal income tax purposes its pro rata share of
the CFC's "subpart F income", even if the subpart F income is not distributed.
"Subpart F income" includes, inter alia, "insurance income", defined as
including income (including premium and investment income) attributable to the
issuing (or reinsuring) of any insurance or annuity contract in connection
with risks located in, liabilities arising out of activities in or lives or
health of residents of a country other than the country under the laws of
which the corporation is organized and which would be taxed under the
provisions of the Code relating to insurance companies if the income were the
income of a domestic insurance

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<PAGE>

company. Subpart F insurance income does not include, however, any income from
sources within the United States that is effectively connected with the
conduct of a trade or business within the United States (unless such income is
exempt from, or subject to a reduced rate of, tax pursuant to an income tax
treaty with the United States), or in the case of a company entitled to the
benefits of an income tax treaty with the U.S., any income which is
attributable to a permanent establishment in the United States. Moreover,
subpart F insurance income does not include any item of income received by a
CFC if such income was subject to an effective rate of income tax imposed by a
foreign country greater than 90% of the maximum rate specified in Section 11
of the Code. As discussed above, such maximum tax rate is currently 35%.

Under Section 951(b) of the Code, any U.S. person who owns, directly or
indirectly through foreign persons, or is considered to own (by application of
the rules of constructive ownership set forth in Section 958(b) of the Code),
10% or more of the voting power of all classes of shares of the foreign
corporation will be considered to be a "U.S. shareholder". In general, a
foreign corporation is treated as a CFC if "U.S. shareholders" collectively
own more than 50% of the total combined voting power or total value of the
corporation's shares for an uninterrupted period of 30 days or more during any
tax year. Additionally, a 25% threshold applies if more than 75% of a foreign
corporation's gross premium or other income in respect of all risks is derived
from the issuance (or reinsurance) of insurance or annuity contracts with
respect to risks outside its country of organization. The Company believes
that neither the 25% or 50% ownership tests will apply to it or its
subsidiaries because (i) share ownership of ESG will be widely dispersed and
(ii) under ESG's Articles of Association, no U.S. Holder except Head is
permitted to hold as much as 10% of ESG's total combined voting power, and
Head is not permitted to hold more than 25% of such voting power. See "Risk
Factors-Anti-Takeover Considerations." Additionally, Head has no intention of
acquiring any shares that would cause it to be treated as owning 25% or more
of the total value of the Company. Therefore, the Company does not believe
that either it or any of its subsidiaries will be a CFC for U.S. federal
income tax purposes. In the absence of any controlling authority, however,
there can be no assurance that the IRS would not successfully take a contrary
position regarding the effect of the foregoing limitations on voting power and
therefore assert that the Company is a CFC. Moreover, if Head acquires
sufficient shares that would cause Head to be treated as owning more than 25%
of the value of the Company for an uninterrupted period of 30 days or more
during any tax year, the Company would be a CFC. If the Company or any
subsidiary of the Company were deemed to be a CFC, each "U.S. shareholder"
would be required to include in its gross income for U.S. federal income tax
purposes its pro rata share of the Company's "Subpart F income," even if the
"Subpart F" income is not distributed. "Subpart F income" includes, among
other things, "insurance income" within the meaning of Section 953(a) of the
Code.

Related Person Insurance Income. The discussion below is generally
applicable only to the RPII, if any, of ES Bermuda, ES Ireland or ES Germany.
The rules below will not apply to ES Bermuda, ES Ireland or ES Germany if (i)
less than 20% of the voting power and less than 20% of the total value of ES
Bermuda, ES Ireland or ES Germany is owned (directly or indirectly) by persons
who are (directly or indirectly) insured under any policy of insurance or
reinsurance issued by such corporation or who are related persons to any such
person, (ii) the RPII of ES Bermuda, ES Ireland or ES Germany for the taxable
year is less than 20% of its insurance income (as defined above but without
provisions which limit insurance income to income from countries other than
the country in which the corporation was created or organized), (iii) such
foreign corporation elects to treat its RPII as income effectively connected
with the conduct of a trade or business in the U.S., or (iv) ES Bermuda, ES
Ireland or ES Germany elects to be treated as a United States corporation.

RPII is defined in Section 953(c)(2) of the Code as any "insurance income"
attributable to policies of insurance (or reinsurance) with respect to which
the person (directly or indirectly) insured is a "U.S. shareholder" or a
"related person" to such a shareholder. For these purposes, a "U.S.
shareholder" generally includes any U.S. person who beneficially owns any
amount (rather than 10% or more by vote) of ES Bermuda, ES Ireland or ES
Germany shares. (Such "U.S. shareholders" hereafter are referred to as "RPII
Shareholders.") In determining the RPII Shareholders of ES Bermuda, ES Ireland
or ES Germany, shares of ES Bermuda, ES Ireland or ES Germany held indirectly
by U.S. persons through any non-U.S. entity generally will be treated as held
by such persons. The term "related person" for these purposes generally means
someone who controls or

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<PAGE>

is controlled by the RPII Shareholder, or someone who is controlled by the
same person or persons that control the RPII Shareholder. Control is generally
defined by reference to ownership interests in excess of 50% measured by vote
or value in the case of corporate entities.

If none of the exceptions described above applies and if all RPII
Shareholders own, directly or indirectly, 25% or more of the total combined
voting power or total value of ES Bermuda, ES Ireland or ES Germany shares,
the RPII of ES Bermuda, ES Ireland or ES Germany must be included in the gross
income of each RPII Shareholder even though not distributed, under the rules
summarized below. Although no assurances can be given, the Company anticipates
that its RPII as a percentage of gross insurance income in 1997 and in future
fiscal years will not equal or exceed the 20% threshold.

Computation of RPII. In order to determine how much RPII ES Bermuda, ES
Ireland or ES Germany has earned in each fiscal year in which the Company
considers there to be a substantial possibility of it reaching or exceeding
the 20% limits described above, the Company intends to obtain and rely upon
information from its RPII Shareholders to determine which, if any, of the RPII
Shareholders or persons related to such RPII Shareholders were or are insured
by ES Bermuda, ES Ireland or ES Germany. For any year in which gross RPII is
20% or more of ES Bermuda, ES Ireland or ES Germany's gross insurance income,
the Company may also seek information from its shareholders as to whether
beneficial owners of shares at the end of the year are RPII Shareholders so
that the status of ES Bermuda, ES Ireland or ES Germany as a CFC and the
apportionment of the RPII among such persons may be determined. The Company
may also take any other reasonable actions it deems necessary to comply with
the IRS rules.

There are currently no IRS rulings or Treasury Regulations that provide a
definitive method for determining whether an insured is, or is related to, an
RPII Shareholder or whether a beneficial owner of shares is a U.S. person.
Although there is no currently active regulations project, the U.S. Treasury
Department is authorized to promulgate regulations that provide that a person
will not be treated as an RPII Shareholder with respect to any foreign
corporation if neither such person nor any related person to such person is
(directly or indirectly) insured under any policy of insurance or reinsurance
issued by such foreign corporation. To the extent the Company is unable to
make determinations with respect to who constitutes an RPII Shareholder, it is
possible that it may assume that insureds are, or are related to RPII
Shareholders for purposes of determining the amount of RPII, but may assume
for apportionment purposes that such owners are not RPII Shareholders, thereby
increasing the per share RPII amount for all known RPII Shareholders.

Apportionment of RPII to RPII Shareholders. The amount of RPII includible in
the income of any RPII Shareholder is based upon the net RPII income for the
year after deducting related expenses such as losses, loss reserves and
operating expenses. Where no exceptions apply, each RPII Shareholder owning or
treated as owning shares in ES Bermuda, ES Ireland or ES Germany on the last
day of ES Bermuda, ES Ireland or ES Germany's fiscal year will be required to
include in its gross income for federal income tax purposes its share of the
RPII for the entire taxable year, determined as if all such RPII were
distributed proportionately only to such RPII Shareholder at that date, but
limited to such RPII Shareholder's share of the ES Bermuda, ES Ireland or ES
Germany's earnings and profits for the current taxable year and reduced by the
RPII Shareholders' share, if any, of certain deficits in earnings and profits
for prior taxable years. This inclusion would be required even though the
shareholder may not have owned the Common Shares for more than one day during
the entire year. On the other hand, a RPII Shareholder who owns Common Shares
during a fiscal year but not on the last day of the fiscal year may not be
required to include in gross income any part of ES Bermuda, ES Ireland or ES
Germany's RPII.

Dispositions of Ordinary Shares. Section 1248 of the Code provides that if a
U.S. person owns directly or indirectly through foreign persons, or is
considered to own (by application of the rules of constructive ownership set
forth in section 958(b) of the Code), 10% or more of the voting shares of a
corporation that is or within a certain period was, a CFC (such person being
referred to as a "10% U.S. Shareholder"), any gain from the sale or exchange
of stock of such CFC may be treated as ordinary income to the extent of the
CFC's earnings and profits during the period that the shareholder held the
shares (with certain adjustments). A 10% U.S. Shareholder

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<PAGE>

may, in certain circumstances, be required to report a disposition of shares
of a CFC by attaching IRS Form 5471, Information Return with Respect to a
Foreign Corporation, to the U.S. income tax or information return that it
would normally file for the taxable year in which the disposition occurs. It
is unclear whether Section 1248 of the Code will also apply to the sale or
exchange of shares in a foreign insurance company that earns RPII, and 25% or
more of the shares of which are owned by U.S. persons, even if (i) the U.S.
person is not a 10% shareholder, (ii) RPII does not constitute 20% or more of
the corporation's gross insurance income and/or (iii) 20% or more of either
the voting power or value of the corporation is not owned directly or
indirectly through foreign entities by persons (directly or indirectly)
insured (or reinsured) by such foreign insurer, or by persons related to such
insureds (or reinsureds).

The Company believes that such rules (and related reporting requirements)
will not apply to the disposition of Common Shares of ESG because ESG does not
expect to have any 10% U.S. Shareholders other than HMI, ESG is not directly
engaged in the insurance business, and the proposed regulations issued by the
U.S. Department of the Treasury ("Treasury Department") on April 17, 1991
should be interpreted in this manner. No assurance, however, can be given that
the IRS will agree with this interpretation or that the final Treasury
regulations when issued will provide that Section 1248 of the Code and the
respective reporting requirements will apply to the disposition of the shares
of the Company.

If the IRS or Treasury Department were to make section 1248 and the Form
5471 filing requirement applicable to the sale of Common Shares, the Company
would notify shareholders that Section 1248 of the Code and the requirement to
file Form 5471 will apply to dispositions of Common Shares. Thereafter, the
Company will send a notice after the end of each calendar year to all persons
who were shareholders during the year notifying them that Section 1248 of the
Code and the requirement to file Form 5471 apply to dispositions of Common
Shares. The Company will attach to this notice a copy of Form 5471 completed
with all Company information and instructions for completing the shareholder
information.

Information Reporting. A U.S. Holder of Common Shares may have an
independent obligation to file a copy, for informational purposes, of IRS Form
5471 with its tax return for any taxable year in which such holder: (i)
acquires 5% or more of the value of the Common Shares; or (ii) disposes of a
sufficient number of Common Shares to decrease its interest below 5%. The Form
5471 is an information return on which the holder must provide data concerning
the holder, ESG and the acquisition or disposition of Common Shares. Effective
January 1, 1998, the foregoing threshold for reporting will increase from 5%
to 10% of the total value or total combined voting power of a corporation.

Foreign Tax Credit. Because U.S. persons are likely to own a majority of ESG
shares, only a portion of the RPII and dividends paid by ESG (including any
gain from the sale of shares that are treated as a dividend under section 1248
of the Code) will be treated as foreign source income for purposes of
computing a shareholder's U.S. foreign tax credit limitation. The Company will
provide shareholders with information regarding the portion of such RPII or
dividend inclusions constituting foreign source income. It is likely that
substantially all of the RPII and dividends that are foreign source income
will constitute either "passive" or "financial services" income for foreign
tax credit limitation purposes. Thus, it may not be possible for most U.S.
Holders to utilize excess foreign tax credits to reduce U.S. tax on such
income.

Passive Foreign Investment Companies. Sections 1291 through 1297 of the Code
contain special rules applicable to foreign corporations that are "passive
foreign investment companies" ("PFICs"). In general, a foreign corporation
will be a PFIC if 75% or more of its income constitutes "passive income" or
50% or more of its assets produce passive income. If the Company were to be
characterized as a PFIC, its United States shareholders would be subject to a
penalty tax at the time of their sale of (or receipt of an "excess
distribution" with respect to) the Common Shares. In general, a shareholder
receives an "excess distribution" if the amount of the distribution is more
than 125% of the average distribution with respect to the Common Shares during
the three preceding taxable years (or shorter period during which the taxpayer
held the Common Shares). In general, the penalty tax is equivalent to the
taxes that are deemed due during the period the U.S. shareholder owned the
Common Shares, computed by assuming that the excess distribution or gain (in
the case of a sale) with respect

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<PAGE>

to the Common Shares was taxed in equal portions throughout the holder's
period of ownership at the maximum tax rate for ordinary income applicable to
each such period, and an interest charge thereon. The interest charge is equal
to the applicable rate imposed on underpayment of U.S. federal income tax for
such period.

The PFIC statutory provisions contain an express exception for income
"derived in the active conduct of an insurance business by a corporation which
is predominantly engaged in an insurance business." This exception is intended
to ensure that income derived by a bona fide insurance company is not treated
as passive income, except to the extent such income is attributable to
financial reserves in excess of the reasonable needs of the insurance
business. It is the Company's intention that the Company and ES Bermuda, ES
Ireland and ES Germany taken together, will be predominantly engaged in an
insurance business and will not have financial reserves in excess of the
reasonable needs of their insurance business. The PFIC statutory provisions
contain a look-through rule that states that, for purposes of determining
whether a foreign corporation is a PFIC, such foreign corporation shall be
treated as if it "received directly its proportionate share of the income" and
as if it "held its proportionate share of the assets" of any other corporation
in which it owns at least 25% of the shares. While no explicit guidance is
provided by the statutory language, the Company believes that under the look-
through rule the Company would be deemed to own the assets and to have
received any income of ES Bermuda, ES Ireland and ES Germany directly for the
purposes of determining whether the Company qualifies for the aforementioned
insurance exception. The Company believes, based upon the advice of counsel,
that its interpretation of the look-through rule is consistent with the
legislative intention generally to exclude bona fide insurance companies from
the application of PFIC provisions; there can, of course, be no assurance as
to what positions the IRS or a court might take in the future.

No regulations interpreting these specific issues under the PFIC provisions
have yet been issued. Therefore, substantial uncertainty exists with respect
to their application or their possible retroactivity. Each U.S. person who is
considering an investment in the Common Shares should consult its tax advisor
as to the effects of these rules.

Other. Dividends paid by the Company to U.S. corporate shareholders will not
be eligible for the dividends received deduction provided by section 243 of
the Code.

Except as discussed below with respect to backup withholding, dividends paid
by the Company will not be subject to U.S. withholding tax.

Nonresident alien individuals will not be subject to U.S. estate tax with
respect to Common Shares of the Company.

Information reporting to the IRS by paying agents and custodians located in
the United States will be required with respect to payments of dividends on
the Common Shares to U.S. persons. Thus, a holder of Common Shares may be
subject to backup withholding at the rate of 31% with respect to dividends
paid by such persons, unless such holder (i) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact, or
(ii) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. The backup withholding tax is
not an additional tax and may be credited against a holder's regular federal
income tax liability. Subject to certain exceptions, persons that are not U.S.
persons will be subject to United States federal income tax on dividend
distributions with respect to, and gain realized from the sale or exchange of,
Common Shares only if such dividends or gains are effectively connected with
the conduct of a trade or business within the United States.

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GERMANY TAXATION

Profits from the Company should not be taxed at the level of a German
shareholder until they are distributed.

However, because Bermuda is considered as a low tax state and the Company's
income should qualify as (normal) passive income and/or passive income with
investment character, German shareholders of the Company may be subject to
German CFC rules.

Under CFC rules, passive income qualifying as passive income with investment
character derived at the level of a foreign company, which is subject to low
taxation, is included in the income of a German resident in proportion to his
participation in the foreign company and is therefore subject to German
taxation. Such passive income is subject to German taxation if the German
resident has at least 10% of the shares or voting rights in the foreign
company.

If the Company has (normal) passive income, its income would be attributed
to the German residents in proportion to their participation, if German
residents in their totality held more than 50% of the shares of voting rights
in the Company, even if the shareholding of each resident is lower than 10%.

The CFC rules may also be applicable if one or several companies or
partnerships are interposed between the shareholders and the Company.

The CFC rules, under certain circumstances, may also require German
residents to include in income their proportionate share of the income of
subsidiaries of ESG. German residents are urged to consult their personal tax
advisors regarding the possible application of the CFC rules to their
particular circumstances.

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

The opinions of Appleby, Spurling & Kempe, Paul, Weiss, Rifkind, Wharton and
Garrison, Matheson Ormsby Prentice, Deloitte & Touche, Canada, Deloitte &
Touche, United Kingdom and Deloitte & Touche GmbH upon which the foregoing
discussion is based do not include any factual or accounting matters,
determinations or conclusions such as RPII amounts and computations and
amounts of components thereof (e.g., amounts or computations of income or
expense items or reserves entering into RPII computations) or facts relating
to the Company's business or activities. The summary is based upon current tax
law. The tax treatment of a holder of Common Shares, or of a person treated as
a holder of Common Shares for United States federal income, state, local or
non-U.S. tax purposes, may vary depending on the holder's particular tax
situation. Legislative, judicial or administrative changes or interpretations
may be forthcoming that could be retroactive and could affect the tax
consequences to holders of Common Shares. PROSPECTIVE INVESTORS SHOULD CONSULT
THEIR OWN TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL, STATE, LOCAL AND
NON-U.S. TAX CONSEQUENCES OF OWNING THE COMMON SHARES.

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UNDERWRITING

Subject to the terms and conditions of an Underwriting Agreement, dated
, 1997 (the "Underwriting Agreement"), the U.S. Underwriters named below
(the "U.S. Underwriters"), who are represented by Donaldson, Lufkin & Jenrette
Securities Corporation, Deutsche Morgan Grenfell Inc., Conning & Company and
Stephens Inc. (the "U.S. Representatives"), and the International Managers
named below (the "International Managers" and, together with the U.S.
Underwriters, the "Underwriters"), who are represented by Morgan Grenfell &
Co. Limited, Donaldson, Lufkin & Jenrette International, Conning & Company and
Stephens Inc. (the "International Representatives" and, together with the U.S.
Representatives, the "Representatives"), have severally agreed to purchase
from the Company the respective number of shares of Common Shares set forth
opposite their names below.

<TABLE>
<CAPTION>
NUMBER OF
U.S. UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation...................
Deutsche Morgan Grenfell Inc..........................................
Conning & Company.....................................................
Stephens Inc. ........................................................
---------
U.S. Offering subtotal..............................................
=========
<CAPTION>
NUMBER OF
INTERNATIONAL MANAGERS SHARES
<S> <C>
Morgan Grenfell & Co. Limited.........................................
Donaldson, Lufkin & Jenrette International............................
Conning & Company.....................................................
Stephens Inc. ........................................................
International Offering subtotal....................................
---------
Total............................................................... 9,000,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Shares
offered hereby are subject to approval by their counsel of certain legal
matters and to certain other conditions. The Underwriters are obligated to
purchase and accept delivery of all the shares of Common Shares offered hereby
(other than those shares covered by the over-allotment option described below)
if any are purchased.

The Underwriters initially propose to offer the shares of Common Shares in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including
the Underwriters) at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may re-allow, to certain
other dealers a concession not in excess of $ per share. After the initial
offering of the Common Shares, the public offering price and other selling
terms may be changed by the Representatives at any time without notice. The
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.

The Company has granted to the Underwriters an option, exercisable within 30
days after the date of this Prospectus, to purchase, from time to time, in
whole or in part, up to an aggregate of 1,350,000 additional shares of Common
Shares at the initial public offering price less underwriting discounts and
commissions. The

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<PAGE>

Underwriters may exercise such option solely to cover over-allotments, if any,
made in connection with the Offerings. To the extent that the Underwriters
exercise such option, each Underwriter will become obligated, subject to
certain conditions, to purchase its pro rata portion of such additional shares
based on such Underwriter's percentage underwriting commitment in the
Offerings as indicated in the preceding table.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.

Each of the Company and the Direct Purchasers, excluding HMI, has agreed,
subject to certain limited exceptions, not to offer, sell, offer to sell,
contract to sell or otherwise dispose of any Common Shares or any other
securities convertible into or exercisable or exchangeable for any Common
Shares or grant options or warrants to purchase any Common Shares for a period
of one year after the date of this Prospectus without the prior written
consent of the Representatives. HMI, Mr. Wand and Mr. Debrovner have agreed to
such restrictions for two years after the date of this Prospectus unless
otherwise agreed in writing by the Representatives. Certain other shareholders
who received Common Shares in the Formation have agreed to such restrictions
for six months after the date of this Prospectus unless otherwise agreed in
writing by the Representatives.

Prior to the Offerings, there has been no established trading market for the
Common Shares. The initial public offering price for the shares of Common
Shares offered hereby was determined by negotiation between the Company and
the Representatives. The factors considered in determining the initial public
offering price and exercise price for Warrants and options included the
history of and the prospects for the industry in which the Company competes,
the past and present operations of the Company, the historical results of
operations of the Company, the prospects for future earnings of the Company,
the recent market prices of securities of generally comparable companies and
the general condition of the securities markets at the time of the Offerings.
The Representatives have informed the Company that they intend to make a
market in the Common Shares subsequent to the Offerings, but there can be no
assurance that the Representatives will take any action to make a market in
any securities of the Company.

The Common Shares have been accepted for quotation on the Nasdaq National
Market in the United States subject to official notice of issuance under the
symbol "ESREF."

Pursuant to an Agreement Between U.S. Underwriters and International
Managers (the "Intersyndicate Agreement"), each U.S. Underwriter has
represented and agreed that, with certain exceptions, (i) it is not purchasing
any shares of Common Shares offered hereby for the account of anyone other
than a United States or Canadian Person (as defined below) and (ii) it has not
offered or sold, and will not offer or sell, directly or indirectly, any
shares of Common Shares offered hereby or distribute any prospectus relating
to such shares of Common Shares outside the United States or Canada or to
anyone other than a United States or Canadian Person. Pursuant to the
Intersyndicate Agreement, each International Manager has represented and
agreed that, with certain exceptions, (i) it is not purchasing any shares of
Common Shares offered hereby for the account of any United States or Canadian
Person and (ii) it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares of Common Shares offered hereby or
distribute any prospectus relating to such shares of Common Shares in the
United States or Canada or to any United States or Canadian Person. With
respect to any Underwriter that is both a U.S. Underwriter and an
International Manager, the foregoing representations and agreements (i) made
by it in its capacity as a U.S. Underwriter apply only to it in its capacity
as a U.S. Underwriter and (ii) made by it in its capacity as an International
Manager apply only to it in its capacity as an International Manager. The
foregoing limitations do not apply to stabilization transactions and to
certain other transactions specified in the Intersyndicate Agreement. As used
herein, "United States or Canadian Person" means any individual who is
resident in the United States or Canada, or any corporation, pension, profit-
sharing or other trust or other entity organized under or governed by the laws
of the United States or Canada or of any political subdivision thereof (other
than the foreign branch of any United States or Canadian Person), and includes
any United States or Canadian branch of a person other than a United States or
Canadian Person.

Pursuant to the Intersyndicate Agreement, sales may be made between the
syndicates of U.S. Underwriters and International Managers of such number of
shares of Common Shares offered hereby as may be mutually

70
<PAGE>

agreed. Unless otherwise determined by the Representatives, the per share
price of any shares of Common Shares so sold shall be the initial public
offering price set forth on the cover page hereof, in United States dollars,
less an amount not greater than the per share amount of the concession to
dealers set forth above.

Pursuant to the Intersyndicate Agreement, each U.S. Underwriter has
represented and agreed that (i) it has not offered or sold and will not offer
or sell, directly or indirectly, any shares of Common Shares offered hereby in
any province or territory of Canada or to, or for the benefit of, any resident
of any province or territory of Canada in contravention of the securities laws
thereof and (ii) without limiting the generality of the foregoing, any offer
or sale of such shares of Common Shares in Canada will be made only pursuant
to an exemption from the requirement to file a prospectus in the province or
territory of Canada in which such offer or sale is made. Each U.S. Underwriter
has further agreed to send to any dealer who purchases from it any shares of
Common Shares offered hereby a notice stating in substance that by purchasing
such shares of Common Shares such dealer represents and agrees that (i) it has
not offered or sold and will not offer or sell, directly or indirectly, any of
such shares of Common Shares in any province or territory of Canada or to, or
for the benefit of, any resident of any province or territory of Canada in
contravention of securities laws thereof, (ii) any offer or sale of such
shares of Common Shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of
Canada in which such offer or sale is made and (iii) it will send to any other
dealer to whom it sells any of such shares of Common Shares a notice
containing substantially the same statement as is contained in this sentence.

Pursuant to the Intersyndicate Agreement, each International Manager has
represented and agreed that (i) it has not offered or sold and, prior to the
date six months after the closing date for the sale of shares of Common Shares
to the International Managers pursuant to the Underwriting Agreement, will not
offer or sell, any shares of Common Shares offered hereby to persons in the
United Kingdom except to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances
which have not resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of Securities
Regulations 1995; (ii) it has complied and will comply with all applicable
provisions of the Financial Services Act 1986 with respect to anything done by
it in relation to the shares of Common Shares offered hereby in, from or
otherwise involving the United Kingdom; and (iii) it has only issued or passed
on and will only issue or pass on in the United Kingdom any document received
by it in connection with the Offerings to a person who is of a kind described
in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom the document
may otherwise lawfully be issued or passed on.

Pursuant to the Intersyndicate Agreement, each International Manager has
further represented and agreed that it has not offered or sold and will not
offer or sell, directly or indirectly, any Common Shares acquired in
connection with the distribution contemplated hereby in Japan or to or for the
account of any resident thereof, except for offers or sales to Japanese
International Managers or dealers and except pursuant to an exemption from the
registration requirements of the Securities and Exchange Law of Japan and
otherwise in compliance with applicable provisions of Japanese law. Each
International Manager has further agreed to send to any dealer who purchases
from it any Common Shares offered hereby a notice stating in substance that by
purchasing such Common Shares such dealer represents and agrees that (i) it
has not offered or sold and will not offer or sell, directly or indirectly,
any of such Common Shares in Japan or to or for the account of any resident
thereof, except for offers or sales to Japanese International Managers or
dealers and except pursuant to an exemption from the registration requirements
of the Securities and Exchange Law of Japan and otherwise in compliance with
applicable provisions of Japanese law and (ii) it will send to any other
dealer whom it sells any of such Common Shares a notice containing
substantially the same statement as is contained in this sentence.

Other than in the United States, no action has been taken by the Company or
the Underwriters that would permit a public offering of the shares of Common
Shares offered hereby in any jurisdiction where action for that purpose is
required. The shares of Common Shares offered hereby may not be offered or
sold, directly or indirectly, nor may this Prospectus or any other offering
material or advertisements in connection with the offer

71
<PAGE>

and sale of any such shares of Common Shares be distributed or published in
any jurisdiction, except under circumstances that will result in compliance
with the applicable rules and regulations of such jurisdiction. Persons into
whose possession this Prospectus comes are advised to inform themselves about
and to observe any restrictions relating to the Offerings and the distribution
of this Prospectus. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any shares of Common Shares offered hereby in
any jurisdiction in which such an offer or a solicitation is unlawful.

In connection with the Offerings, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the Offerings,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Shares in the open market to cover such syndicate short
position or to stabilize the price of the Common Stock. In addition, the
underwriting syndicate may reclaim selling concessions from syndicate members,
if the Representatives repurchase previously distributed Common Shares in
syndicate covering transactions, in stabilization transactions or otherwise or
if the Representatives receive a report that indicates that the clients of
such syndicate members have "flipped" the Common Stock. These activities may
stabilize or maintain the market price of the Common Shares above independent
market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.

Certain of the Underwriters have in the past, and may in the future, provide
investment banking and other services to the Company and its affiliates in the
ordinary course of business. Deutsche Morgan Grenfell Inc. has served as
advisor to the Company, its predecessors and affiliates, in connection with
the formation of the Company. In connection with these services, Deutsche
Morgan Grenfell Inc. will receive a fee of $1,100,000 on the closing of the
Offerings.

72
<PAGE>

LEGAL CONSIDERATIONS

The Company has been designated as a non-resident for exchange control
purposes by the Bermuda Monetary Authority, Foreign Exchange Control, whose
permission for the issue of Common Shares has been obtained. Prior to the
Offerings, this Prospectus will be filed with the Registrar of Companies in
Bermuda in accordance with Bermuda law.

IT MUST BE DISTINCTLY UNDERSTOOD THAT, IN GRANTING SUCH PERMISSION AND UPON
ACCEPTING THIS PROSPECTUS FOR FILING, THE BERMUDA MONETARY AUTHORITY AND THE
REGISTRAR OF COMPANIES IN BERMUDA WILL ACCEPT NO RESPONSIBILITY FOR THE
FINANCIAL SOUNDNESS OF ANY SCHEMES OR FOR THE CORRECTNESS OF ANY OF THE
STATEMENTS MADE OR OPINIONS EXPRESSED WITH REGARD TO THEM.

The transfer of Common Shares between persons regarded as non-resident in
Bermuda for exchange control purposes and the issue of shares after the
completion of the Offerings to such persons may be effected without specific
consent under the Exchange Control Act of 1972 and regulations thereunder.
Issues and transfers of shares to any person regarded as resident in Bermuda
for exchange control purposes require specific prior approval under the
Exchange Control Act of 1972.

There are no limitations on the rights of persons regarded as non-resident
of Bermuda for foreign exchange control purposes owning Common Shares to hold
or vote their Common Shares. Because the Company has been designated as a non-
resident for Bermuda exchange control purposes, there are no restrictions on
its ability to transfer funds in and out of Bermuda or to pay dividends to
U.S. residents who are holders of Common Shares, other than in respect of
local Bermuda currency.

In accordance with Bermuda law, share certificates are issued only in the
names of corporations or individuals. In the case of an applicant acting in a
special capacity (for example, as an executor or trustee), certificates may,
at the request of the applicant, record the capacity in which the applicant is
acting. Notwithstanding the recording of any such special capacity, the
Company is not bound to investigate or incur any responsibility in respect of
the proper administration of any such estate or trust.

The Company will take no notice of any trust applicable to any of its Common
Shares whether or not it had notice of such trust.

As an "exempted company," the Company is exempt from Bermuda laws
restricting the percentage of share capital that may be held by non-
Bermudians, but as an exempted company the Company may not participate in
certain business transactions, including: (i) the acquisition or holding of
land in Bermuda (except that required for its business and held by way of
lease or tenancy for terms of not more than 21 years) without the express
authorization of the Bermuda legislature; (ii) the taking of mortgages on land
in Bermuda to secure an amount in excess of $50,000 without the consent of the
Minister of Finance of Bermuda; (iii) the acquisition of securities created or
issued by, or any interest in, any local company or business, other than
certain types of Bermuda government securities or securities of another
"exempted" company, partnership or other corporation resident in Bermuda but
incorporated abroad; or (iv) the carrying on of business of any kind in
Bermuda, except in furtherance of the business of the Company carried on
outside Bermuda or under a license granted by the Minister of Finance of
Bermuda.

The Bermuda government actively encourages foreign investment in "exempted"
entities like the Company that are based in Bermuda but do not operate in
competition with local business. In addition to having no restrictions on the
degree of foreign ownership, the Company is subject neither to taxes on its
income or dividends nor to any foreign exchange controls in Bermuda. In
addition, there is no capital gains tax in Bermuda, and profits can be
accumulated by the Company, as required, without limitation. There is no
minimum subscription which must be raised by the issue of Common Shares
pursuant to the Offerings in order to provide for the matters listed in
section 28 of the Companies Act 1981 of Bermuda.

73
<PAGE>

LEGAL MATTERS

Certain legal matters in connection with the Offerings will be passed upon
for the Company by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New
York, who will rely as to Bermuda law upon the opinion of Appleby, Spurling &
Kempe, Hamilton, Bermuda. The validity of the issuance of the Common Shares
offered hereby is being passed upon for the Company by Appleby, Spurling &
Kempe. Certain legal matters will be passed upon for the Underwriters by
Debevoise & Plimpton, New York, New York. Certain German legal matters will be
passed upon for the Company and the Underwriters by Meyersrenken & Rheingantz,
Cologne, Germany. Certain Irish legal matters will be passed upon for the
Company and the Underwriters by Matheson Ormsby Prentice, Dublin, Ireland.
Certain Bermuda tax matters have been passed upon for the Company and the
Underwriters by Appleby, Spurling & Kempe.

EXPERTS

The consolidated financial statements of European Specialty Group Holding AG
and Subsidiaries as of December 31, 1996 and 1995 and for each of the three
years in the period ended December 31, 1996 have been audited by Deloitte &
Touche GmbH, independent auditors, as stated in their report appearing herein
and are included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing. The balance sheet of ESG Re
Limited as of August 21, 1997, has been audited by Deloitte & Touche,
Hamilton, Bermuda, independent chartered accountants, as stated in their
report appearing herein and is included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.

AVAILABLE INFORMATION

The Company has filed with the Commission a Registration Statement (which
term shall include any amendments thereto) on Form F-1 under the Securities
Act with respect to the Common Shares offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which
are contained in exhibits to the Registration as permitted by the rules and
regulations of the Commission. Statements made in this Prospectus concerning
the contents of any document referred to herein are not necessarily complete.
With respect to each such document filed with the Commission as an exhibit to
the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved.

The Registration Statement, as well as such reports and other information
filed by the Company with the Commission, may be inspected at the public
reference facilities maintained by the Commission at its principal office
located at 450 Fifth Street, N.W., Washington, D.C. 20549, and at its regional
offices located at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661, and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies
of such material may be obtained by mail from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Commission maintains a World Wide Web site
(http://www.sec.gov) that contains material regarding issuers that file
electronically with the Commission. The Registration Statement, of which the
Prospectus forms a part, has been so filed and may be obtained at such site.

74
<PAGE>

GLOSSARY OF SELECTED INSURANCE TERMS

Attachment point............. The amount of loss (per occurrence or in the
aggregate, as the case may be) above which
excess of loss coverage becomes operative.

Broker....................... One who negotiates contracts of insurance or
reinsurance, receiving a commission for
placement and other services rendered, between
(1) a policy holder and a primary insurer, on
behalf of the primary insurer (or, in the U.K.,
on behalf of the insured party), (2) a primary
insurer and reinsurer on behalf of the primary
insurer, or (3) a reinsurer and a
retrocessionaire, on behalf of the reinsurer.

Carve-out Programs........... Carve-out programs refer to the coverage of
segmented benefits under an existing medical
program. A typical example relates to Blue
Cross/Blue Shield which at a certain point in
time only reinsured the cost of transplant
coverage and related exposure in the
reinsurance market and bore all other risk
elements themselves.

Cedent; Ceding Client........ When a party reinsures its liability with
another, it "cedes" business and is referred to
as the "cedent" or "ceding client."

Excess of loss reinsurance... A generic term describing reinsurance that
indemnifies the reinsured against all or a
specified portion of losses on underlying
insurance policies in excess of a specified
amount, which is called a "level" or
"retention." Also known as non-proportional
reinsurance. Excess of loss reinsurance is
written in layers. A reinsurer or group of
reinsurers accepts a band of coverage up to a
specified amount. The total coverage purchased
by the cedent is referred to as a "program" and
will typically be placed with predetermined
reinsurers in renegotiated layers. Any
liability exceeding the outer limit of the
program reverts to the ceding client, which
also bears the credit risk of a reinsurer's
insolvency.

Facultative.................. The reinsurance of all or a portion of the
insurance provided by a single policy or
program. Each policy reinsured is separately
negotiated. Facultative reinsurance is
evidenced by "facultative certificates."

Gross premiums written....... Total premiums for insurance and reinsurance
assumed during a given period before deduction
of brokerage, commission and other acquisition
costs.

Incurred but not reported Reserves for estimated losses that have been
(IBNR)....................... incurred by insureds and reinsureds but not yet
reported to the insurer or reinsurer including
unknown future developments on losses which are
known to the insurer or reinsurer.

Layer........................ The interval between the retention or
attachment point and the maximum limit of
indemnity for which a reinsurer is responsible.

Loss adjustment expenses The expenses of settling claims, including
(LAE)........................ legal and other fees and the portion of general
expenses allocated to claim settlement costs.

Loss ratio...................
The ratio of incurred losses including loss
reserves, IBNR and loss adjustment expenses to
premium earned.

75
<PAGE>

Loss reserves................
Liabilities established by insurers and
reinsurers to reflect the estimated cost of
claims payments and the related expenses that
the insurer or reinsurer will ultimately be
required to pay in respect of insurance or
reinsurance it has written. Reserves are
established for losses and for loss adjustment
expenses.

Morbidity.................... Frequency of illness, sickness and diseases
contracted.

Mortality.................... Frequency of death.

Net premiums written......... Gross premiums written for a given period less
premiums ceded to reinsurers and
retrocessionaires during such period.

Primary insurer.............. An insurance company that contracts with the
consumer to provide insurance coverage. Such
primary insurer may then cede a portion of its
business to reinsurers.

Proportional reinsurance..... A generic term describing all forms of
reinsurance in which the reinsurer shares a
proportional part of the original premiums and
losses of the ceding clients. (Also known as
pro rata reinsurance, quota share reinsurance
or participating reinsurance.) In proportional
reinsurance the reinsurer generally pays the
ceding client a ceding commission. The ceding
commission generally is based on the ceding
client's cost of acquiring the business being
reinsured (including commissions, premium
taxes, assessments and miscellaneous
administrative expense) and also may include a
profit factor.

Reinsurance.................. An arrangement in which the reinsurer agrees to
indemnify the ceding client against all or a
portion of reinsurance risks underwritten by
the ceding client under one or more policies.
Reinsurance can provide a ceding client with
several benefits, including a reduction in net
liability on individual risks and catastrophe
protection from large or multiple losses.
Reinsurance also provides a ceding client with
additional UNDERWRITING CAPACITY by permitting
it to accept larger risks and write more
business than would be possible without a
concomitant increase in capital and surplus,
and facilitates the maintenance of acceptable
financial ratios by the ceding client.

Retention.................... The amount or portion of risk that an insurer
retains for its own account. Losses in excess
of the retention level are paid by the
reinsurer. In proportional treaties, the
retention may be a percentage of the original
policy's limit. In excess of loss reinsurance,
the retention is a dollar amount of loss, a
loss ratio or a percentage.

Retrocession................. A transaction whereby a reinsurer cedes to
another reinsurer (the "retrocessionaire") all
or part of the reinsurance that the first
reinsurer has assumed. Retrocessions do not
legally discharge the ceding reinsurer from its
liability with respect to its obligations to
the reinsured. Reinsurance companies cede risks
to retrocessionaires

76
<PAGE>

for reasons similar to those that cause primary
insurers to purchase reinsurance: to reduce net
liability on individual risks, to protect
against catastrophic losses, to stabilize
financial ratios and to obtain additional
underwriting capacity.

Run-off...................... Liability of an insurance or reinsurance
company for future claims that it expects to
pay and for which a reserve has been
established. This term also can refer to the
period of discontinuance related to a book of
business for which no new premiums are being
written and claims are continuing to be paid.

Tail......................... The period of time that elapses between the
writing of the applicable insurance policy or
the loss event (or the insurer's knowledge of
the loss event) and the payment in respect
thereof.

Top-up Benefits..............
Special coverage implemented over and above an
underlying medical expense policy to create a
uniform level of coverage. This is standard in
multinational employee benefit programs where
the various local coverages might have
different benefits. The term can be best
compared with DIC (Difference in Conditions)
coverage customary in the casualty field.

Treaty....................... The reinsurance of a specified type or category
of risks defined in a reinsurance agreement
between an insurer and a reinsurer or between a
reinsurer and a retrocessionaire. In treaty
reinsurance the cedent is typically obligated
to offer, and the reinsurer or retrocessionaire
is obligated to accept, a specified portion of
a type or category of risks insured by the
ceding client as set forth in the governing
contract. Treaty reinsurance may provide for
proportional or non-proportional reinsurance.

Underwrite or Underwriting...
The process of reviewing applications submitted
for insurance coverage, deciding whether to
accept all or part of the coverage requested
and determining the applicable premiums
undertaken by an insurer or reinsurer, or its
authorized management company.

Underwriting capacity........ The maximum amount that an insurance company
can underwrite. The limit is generally
determined by the company's retained earnings
and investment capital. Reinsurance serves to
increase a company's capacity by reducing its
exposure to particular risks.

Underwriting profitability...
Profit that remains after paying claims and
expenses without including investment income.

Underwriting year............ The calendar year in which a reinsurance
contract began and in which premiums and losses
for such contract are reflected.

77
<PAGE>

INDEX TO FINANCIAL STATEMENTS

ESG RE LIMITED

BALANCE SHEET
August 21, 1997 (date of inception)

<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report............................................... F-2
Balance Sheet.............................................................. F-3
Notes to the Balance Sheet................................................. F-4

EUROPEAN SPECIALTY GROUP HOLDING AG AND SUBSIDIARIES

FINANCIAL STATEMENTS
as of December 31, 1996 and 1995 and
for each of the three years in the period ended December 31, 1996

<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report............................................... F-8
Consolidated Balance Sheets................................................ F-9
Consolidated Statements of Income.......................................... F-10
Consolidated Statements of Cash Flows...................................... F-11
Consolidated Statements of Shareholders' Equity............................ F-12
Notes to Consolidated Financial Statements................................. F-13

EUROPEAN SPECIALTY GROUP HOLDING AG AND SUBSIDIARIES

UNAUDITED FINANCIAL STATEMENTS
as of June 30, 1997 and 1996 and
for the six month periods ended June 30, 1997 and 1996

<CAPTION>
PAGE
<S> <C>
Consolidated Balance Sheets................................................ F-22
Consolidated Statements of Income.......................................... F-23
Consolidated Statements of Cash Flow....................................... F-24
Notes to Consolidated Financial Statements................................. F-25
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
ESG Re Limited

We have audited the accompanying balance sheet of ESG Re Limited as at
August 21, 1997 (date of inception). This financial statement is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement based on our audit.

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

In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of ESG Re Limited as at August 21, 1997 (date
of inception) in conformity with accounting principles generally accepted in
the United States of America.

Deloitte & Touche
Chartered Accountants

Hamilton, Bermuda
August 28, 1997

F-2
<PAGE>

ESG RE LIMITED
BALANCE SHEET
August 21, 1997 (date of inception)
(U.S. dollars)

<TABLE>
<S> <C>
ASSETS.............................................................. $ 0
========
SHAREHOLDERS' EQUITY
Ordinary Shares (par value $1.00; 12,000 shares authorized, issued
and outstanding)................................................... $ 12,000
Less: receivable from shareholders.................................. (12,000)
--------
Total shareholders' equity........................................ $ 0
========
</TABLE>

See accompanying notes to balance sheet.

F-3
<PAGE>

NOTES TO THE BALANCE SHEET
August 21, 1997 (date of inception)
(U.S. dollars)

1. ORGANIZATION

ESG Re Limited (the "Company" or "ESG") was incorporated under the laws of
Bermuda on August 21, 1997 by an affiliate of Head & Company L.L.C. ("Head
Company") and senior members of the Company's management. Its principal
activities will be to provide accident, health, life and special risk
reinsurance.

The shareholders of European Specialty Group Holding AG ("ESG Germany") have
entered into agreements to receive Common Shares, par value $1 per share, of
the Company (the "Common Shares") in exchange for all of their interests in
ESG Germany (the "Formation"). ESG Germany will thereby become a wholly-owned
indirect subsidiary of the Company. For accounting purposes, the Formation
will be considered a recapitalization, since the majority shareholders of ESG
Germany will continue to be significant shareholders in ESG, key management of
ESG will be substantially the same individuals holding such positions in ESG
Germany, and the assets, revenues, net earnings and current value of ESG
Germany will significantly exceed those of ESG, which was recently formed and
has no prior operating activity. Additionally, no other group of shareholders
will obtain control of ESG Re Limited through the direct sales to investors or
through offerings to the public.

The Company formed European Specialty Reinsurance (Bermuda) Limited ("ES
Bermuda"), European Specialty Reinsurance (Ireland) Limited ("ES Ireland"),
European Specialty Group (United Kingdom) Limited ("ESG UK") and European
Specialty (North America) Limited ("ES North America") through which it will
carry out its operations. No amounts have been recorded in the financial
statements for these operating subsidiaries as they will have no operating
activity until the completion of the Direct Sales and Offerings as described
in Note 3 and they have not yet been capitalized.

2. ACCOUNTING POLICIES

The balance sheet has been prepared in conformity with accounting principles
generally accepted in the United States of America ("U.S. GAAP"). The Company
intends to record transactions in accordance with U.S. GAAP and include the
following significant accounting policies.

(a) Premiums

Premiums written will be estimated based upon reports received from ceding
companies, supplemented by the Company's estimates of premium written for
which ceding company reports have not been received. Differences between such
estimates and actual amounts will be recorded in the period in which the
actual amounts are determined.

The reinsurance contracts entered into by the Company will primarily be
short-duration contracts which provide insurance protection for a fixed period
of time. Premiums will be recognized as revenue over the period of the
contract or policy in proportion to the amount of insurance protection
provided. Unearned premiums represent the portion of premiums written which is
applicable to the unexpired terms of policies in force.

(b) Losses and loss adjustment expenses

The reserve for losses and loss adjustments expenses will include an amount
determined from loss reports and individual cases and an amount for losses
incurred but not reported. Such reserves will be estimated based upon reports
received from ceding companies supplemented by the Company's estimate of
reserves for which ceding company reports have not been received and its own
historical experience. To the extent that the Company's historical experience
is inadequate for estimating reserves such estimates may be actuarially
determined based upon industry experience and management's judgment. These
estimates will be reviewed and

F-4
<PAGE>

ESG RE LIMITED
NOTES TO THE BALANCE SHEET--(CONTINUED)
August 21, 1997 (date of inception)
(U.S. dollars)

will be subject to the impact of future changes in such factors as claim
severity and frequency. The ultimate liability may be in excess of, or less
than, the amounts provided and any adjustments will be reflected in the
periods in which they become known.

The Company will designate all debt securities either as available-for-sale-
securities or held-to-maturity securities. Securities available-for-sale will
be carried at fair value with unrealized holding gains and losses excluded
from net earnings and reported as an amount in a separate component of
shareholders' equity. Securities which are considered held-to-maturity will be
carried at amortized cost. Realized gains and losses on sales of securities
will be recognized in net earnings on the specific identification basis.

(d) Deferred Acquisition Costs

Commissions and other costs incurred in the acquisition of new and renewal
business will be deferred over the terms of the policies or contracts of
reinsurance to which they relate and amortized in proportion to premium
revenue recognized.

(e) Reinsurance

Reinsurance premiums ceded will be reported as prepaid reinsurance premiums
and amortized over the respective contract or policy periods in proportion to
the amount of insurance protection provided. At this time the Company does not
anticipate ceding business on a retroactive basis. Commissions on reinsurance
ceded will be deferred over the terms of the contracts of reinsurance to which
they relate and amortized in proportion to the amount of insurance protection
provided.

(f) Translation of Foreign Currencies

Foreign currency receivables or payables that are denominated in a currency
other than U.S. dollars will be translated into U.S. dollars at the rates of
exchange in effect at the balance sheet date. Revenues and expenses will be
translated at the average yearly exchange rate. The resulting exchange gains
or losses will be included in the results of operations. Exchange gains and
losses related to the translation of investments available for sale will be
included in net unrealized gains and losses on investments, a separate
component of shareholders' equity.

Financial statements of subsidiaries denominated in foreign currencies will
be translated into U.S. dollars using the rate of exchange in effect at the
balance sheet date for assets and liabilities, and the average yearly exchange
rate for revenues and expenses. Related translation adjustments will be
reported as a separate component of shareholder's equity.

(g) Organizational Costs

Costs incurred by the Company relating to its organization will be
capitalized and amortized over a period of 5 years.

(h) Cash and cash equivalents

The Company will consider all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.

F-5
<PAGE>

ESG RE LIMITED
NOTES TO THE BALANCE SHEET--(CONTINUED)
August 21, 1997 (date of inception)
(U.S. dollars)

(i) Income Taxes

The Company will account for income tax expense and liabilities under the
liability method in accordance with Financial Accounting Standards Board
("FASB") Statement No. 109, "Accounting for Income Taxes." Deferred income
taxes may arise from the recognition of temporary differences between income
reported for financial statement purposes and for income tax purposes. These
deferred taxes will be measured by applying currently enacted tax rates.

(j) Consolidation

The consolidated financial statements of the Company will include the
accounts of its wholly-owned subsidiaries, ES Ireland, ESG UK, ESG Germany,
and ES North America. All significant intercompany balances will be
eliminated.

(k) Earnings per Share

Basic earnings per share are computed by dividing net income by the weighted
average number of Common Shares. Fully diluted earnings per Common Share
reflect the maximum dilution that would have resulted from the exercise of
stock options and warrants to purchase Common Shares. Fully diluted earnings
per Common Share are computed by dividing net income by the weighted average
number of common shares and all dilutive securities.

(l) Stock-Based Compensation

Statement of Financial Accounting Standards ("SFAS") SFAS No. 123,
"Accounting for Stock-Based Compensation" defines a fair value based method of
accounting for stock-based employee compensation plans. Under SFAS No. 123,
companies are encouraged, but are not required, to adopt the fair value method
for all employee awards granted. Companies are permitted to account for such
transactions under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB No. 25), but must disclose in a note to the
financial statements pro forma net income and earnings per share as if SFAS
No. 123 had been applied. The Company has determined that it will account for
stock-based compensation under APB No. 25 with the fair value method
disclosures required by SFAS No. 123.

(m) Estimates

The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period as well as the disclosure of such amounts. Actual
results could differ from those estimates and assumptions.

3. DIRECT SALES AND THE OFFERINGS

Simultaneous with the closing of the Direct Sales (as defined below), the
ordinary shares issued upon the incorporation of the Company will be retired.
The Company will issue Common Shares upon closing of the Direct Sales and the
Offerings (as defined below).

The Company intends to enter into subscription agreements with affiliates of
Head Company and certain other investors for the purchase for investment
directly from the Company of an aggregate of 2,673,799 Common Shares, Class A
Warrants to purchase up to 1,247,284 Common Shares and Class B Warrants to
purchase up to

F-6
<PAGE>

ESG RE LIMITED
NOTES TO THE BALANCE SHEET--(CONTINUED)
August 21, 1997 (date of inception)
(U.S. dollars)

1,247,284 Common Shares (in the event that certain performance criteria are
satisfied) (the "Direct Sales"). In addition, the shareholders of ESG Germany
have entered into agreements to exchange all of their interests in ESG Germany
for 900,000 Common Shares in the Formation. Further, the Company intends to
offer to sell 9,000,000 Common Shares in offerings (the "Offerings")
registered under the United States Securities Act of 1933 (the "Securities
Act").

Upon completion of the Offerings, the Company expects that the Common Shares
will be quoted on Nasdaq.

4. TAXATION

Under current Bermuda law the Company will not be required to pay taxes in
Bermuda on either income or capital gains. The Company will be subject to
taxes in other jurisdictions in which it will have operations including but
not limited to Germany, Ireland, Canada and England. The Company intends to
operate its business in a manner such that it will not pay United States
income tax.

On completion of the Formation as discussed in Note 1, ESG Germany will
become a wholly owned indirect subsidiary of the Company. As of December 31,
1996, ESG Germany had a deferred tax asset of $271,900 resulting primarily
from a net operating loss carryforward for which no valuation allowance was
deemed necessary. Based on management's plan for the future operation of the
Company, under German tax law which recently changed as to the utilization of
loss carryforwards, management believes it is more likely than not that the
realization of the net deferred tax asset will not be affected by the
recapitalization.

5. AGREEMENTS WITH RELATED PARTIES

In connection with the Formation, initial financing and commencement of
operations of the Company, the Company has entered, or plans to enter, into
various agreements for various investment management and administrative
services.

The Company has entered into an agreement with Head Asset Management L.L.C.
("Head Asset Management"), which is an affiliate of Head Company, relating to
the provision of investment management services. Pursuant to this agreement
which will be subject to the Company's investment guidelines and other
restrictions, the Company will pay Head Asset Management a fee equal to the
sum of (i) 0.25% per annum of the first $200 million of assets under
management, and (ii) 0.15% per annum of assets under management in excess of
$200 million.

6. STOCK AND STOCK OPTION PLANS

(a) Employee Stock Option Plan

The Company plans to adopt the 1997 Employee Stock Option Plan (the "Stock
Option Plan") under which employees of the Company and its subsidiaries are
eligible to participate. The Stock Option Plan is administered by the
Compensation Committee. Subject to the provisions of the Stock Option Plan,
the Compensation Committee has sole discretionary authority to interpret the
Stock Option Plan and to determine the type of awards to grant, when, if and
to whom awards are granted, the number of Common Shares covered by each award
and the terms and conditions of the award.

The exercise price of the options will be determined by the Compensation
Committee when the options are granted. At the discretion of the Compensation
Committee, the option exercise price may be paid in cash or in Common Shares
or other property having Fair Market Value (as defined in the Stock Option
Plan) on the date of

F-7
<PAGE>

ESG RE LIMITED
NOTES TO THE BALANCE SHEET--(CONTINUED)
August 21, 1997 (date of inception)
(U.S. dollars)

exercise equal to the option exercise price, or by delivering to the Company a
copy of irrevocable instructions to a stock broker to deliver promptly to the
Company an amount of sale or loan proceeds sufficient to pay the exercise
price. Options granted under the Stock Option Plan are freely assignable
subject to certain limitations. The Company has reserved 2,000,000 Common
Shares for issuance under the Stock Option Plan.

(b) Directors' Stock Plan

The Company also plans to adopt the ESG Re Limited Non-Management Directors'
Compensation and Option Plan (the "Directors Plan"), under which non-
management directors joining the Board of Directors within one year of the
closing of the Offering shall receive stock options ("Options") to purchase
10,000 Common Shares. Options granted on the date of the initial public
offering will be at the initial public offering price and all other options
will be granted at the then market price per share. In addition, the Directors
Plan provides for automatic annual awards of Options to purchase 5,000 Common
Shares (or, in each case, a lesser amount prorated to the extent the
participating director did not serve on the Board of Directors for the entire
year preceding the relevant annual shareholders' meeting) at an exercise price
per share equal to the then market price per share, to be made to non-
management directors on each successive annual shareholders' meeting. In
addition, non-management Directors will receive fees for services as a member
of the board of directors and its committees, in amounts determined by the
Board of Directors, to be paid in a combination of cash and Common Shares, as
determined by the Board of Directors, unless otherwise elected pursuant to the
terms of the Directors Plan, as described below. In any year, in lieu of such
stock and cash payment, a director may elect to receive all or a portion of
such fees in options or to defer all or a portion of such fees. If a director
elects to receive options, the director will receive options for Common Shares
with a value, as determined by the Board, equal to two times the fees that
would otherwise be payable. Compensation expense equal to the fee payable
would be recorded upon such election date. If the director elects to defer the
receipt of the fees, he will receive deferred compensation indexed to the
greater of (i) the total return on the Common Shares or (ii) the one-year U.S.
treasury bill rate. Deferred Compensation will be paid in cash at the time
elected by the directors, in accordance with the terms of the Directors Plan.
Directors' shares granted under the Directors Plan will be non-transferable,
for six months after receipt. The Company has reserved 1,000,000 Common Shares
for issuance under the Directors Plan.

F-8
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of
European Specialty Group Holding AG

We have audited the accompanying consolidated balance sheets of European
Specialty Group Holding AG and Subsidiaries (the "Company"), prior to 1996
European Specialty Group GmbH and Subsidiaries, as of December 31, 1996 and
1995, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of European Specialty Group
Holding AG and Subsidiaries as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996 in conformity with accounting principles
generally accepted in the United States of America.

Deloitte & Touche GmbH
Wirtschaftsprufungsgesellschaft

Hamburg, Germany
August 15, 1997

F-9
<PAGE>

EUROPEAN SPECIALTY GROUP AG AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except share data)

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
<S> <C> <C>
ASSETS
Current assets:
Cash.................................................. $ 33.2 $ 15.0
Fees receivable....................................... 1,045.1 856.7
Other current assets.................................. 95.6 248.2
--------- ---------
Total current assets................................ 1,173.9 1,119.9
--------- ---------
Fees receivable--non-current............................ 1,031.5 922.7
Intangibles (net of accumulated amortization of $124.9
and $205.5)............................................ 105.3 62.5
Fixed assets (net of accumulated depreciation of $68.0
and $104.3)............................................ 58.0 117.3
Deferred taxes.......................................... 293.9 271.9
Equity investments...................................... 20.9 24.4
--------- ---------
Total assets........................................ $ 2,683.5 $ 2,518.7
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt ($941.8 and $868.3 due to related
parties)............................................. $ 1,745.7 $ 1,812.7
Accrued expenses...................................... 473.2 713.9
Liability for share transactions...................... 203.9 373.0
Accounts payable...................................... 217.1 107.9
--------- ---------
Total current liabilities........................... 2,639.9 3,007.5
--------- ---------
Fiduciary liabilities................................... 6,495.9 4,928.6
Less: Cash and cash equivalents held in a fiduciary
capacity............................................... (6,495.9) (4,928.6)
--------- ---------
-- --
Long-term debt.......................................... 195.4 --
--------- ---------
Total liabilities................................... 2,835.3 3,007.5
--------- ---------
Commitments and contingencies (notes 6, 7, 8, 11)
--------- ---------
Shareholders' equity:
Common stock (5DM par value, 100,000 shares
authorized, 20,000 issued and outstanding)........... -- 62.0
Registered capital.................................... 316.6 --
Additional paid-in capital............................ -- 62.3
Treasury capital...................................... (19.3) --
Accumulated deficit................................... (446.1) (608.7)
Foreign currency translation adjustments.............. (3.0) (4.4)
--------- ---------
Total shareholders' equity.......................... (151.8) (488.8)
--------- ---------
Total liabilities and shareholders' equity.......... $ 2,683.5 $ 2,518.7
========= =========
</TABLE>

See accompanying notes to the Consolidated Financial Statements.

F-10
<PAGE>

EUROPEAN SPECIALTY GROUP HOLDING AG AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(U.S. dollars in thousands, except share data)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
<S> <C> <C> <C>
Fee revenues..................................... $3,309.3 $4,514.5 $3,869.4
Other income..................................... 41.7 26.5 280.1
-------- -------- --------
Total revenues................................. 3,351.0 4,541.0 4,149.5
-------- -------- --------
Operating expenses
Personnel costs.................................. 1,025.5 1,301.5 1,382.0
Consulting and related expenses (includes $747.4,
$793.0 and $861.2 for related parties).......... 990.3 1,005.4 986.1
Advisory fee..................................... -- -- 251.9
Depreciation and amortization.................... 57.3 93.4 132.5
Occupancy and related expenses................... 330.4 382.8 641.1
Selling expenses................................. 417.3 517.0 387.9
Other operating and administrative expenses...... 310.5 611.9 234.7
-------- -------- --------
Total operating expenses....................... 3,131.3 3,912.0 4,016.2
-------- -------- --------
Interest expense (includes $118.5, $129.5 and
$67.7 to related parties)....................... 181.9 185.2 140.7
-------- -------- --------
Total expenses................................. 3,313.2 4,097.2 4,156.9
-------- -------- --------
Income (loss) before income taxes................ 37.8 443.8 (7.4)
-------- -------- --------
Provision for income taxes....................... 43.8 298.3 155.2
-------- -------- --------
Net income (loss)................................ $ (6.0) $ 145.5 $ (162.6)
======== ======== ========
</TABLE>

See accompanying notes to the Consolidated Financial Statements.

F-11
<PAGE>

EUROPEAN SPECIALTY GROUP HOLDING AG AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands, except share data)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................ $ (6.00) $ 145.5 $(162.6)
Depreciation and amortization.................... 57.3 93.4 132.5
Changes in operating assets and liabilities:
Fees receivable................................ (1,037.5) 158.6 139.4
Deferred taxes................................. 49.1 222.7 (0.1)
Accrued expenses............................... 236.1 91.0 286.1
Other current assets........................... 11.6 (24.4) (164.9)
Accounts payable............................... 261.7 (130.6) (95.1)
--------- ------- -------
Net cash flows provided by (used in) operating
activities...................................... (427.7) 556.2 135.3
--------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equity investments................... (25.8) -- --
Sale of equity investment........................ -- 21.1 --
Purchases of fixed assets........................ (15.6) (46.3) (108.9)
Purchases of intangible assets................... (220.1) (2.9) (43.6)
--------- ------- -------
Net cash flows (used in) investing activities.... (261.5) (28.1) (152.5)
--------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of capital............................ -- -- (203.9)
Reorganization of holding company................ -- -- 58.2
Sale of shares................................... -- -- 66.1
Advances for issuance of shares.................. -- -- 66.3
Net change in short-term debt.................... (299.0) 251.3 296.0
Proceeds from long-term borrowings............... 1,040.3 -- --
Repayments of long-term borrowings............... (36.9) (771.0) (271.8)
--------- ------- -------
Net cash flows provided by (used in) financing
activities...................................... 704.4 (519.7) 10.9
--------- ------- -------
Effect of exchange rate changes on cash.......... 5.4 4.1 (11.9)
--------- ------- -------
Net change in cash............................... 20.6 12.5 (18.2)
Cash, at beginning of period..................... .1 20.7 33.2
--------- ------- -------
Cash, at end of period........................... $ 20.7 $ 33.2 $ 15.0
========= ======= =======
Supplemental disclosures of cash flow
information:
Interest paid.................................. $ 164.4 $ 193.3 $ 124.4
========= ======= =======
Income taxes paid.............................. $ -- $ 75.3 $ 156.1
========= ======= =======
</TABLE>

See accompanying notes to the Consolidated Financial Statements.

F-12
<PAGE>

EUROPEAN SPECIALTY GROUP HOLDING AG AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(U.S. dollars in thousands, except share data)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY
COMMON REGISTERED PAID-IN TREASURY ACCUMULATED TRANSLATION
STOCK CAPITAL CAPITAL CAPITAL DEFICIT ADJUSTMENTS TOTAL
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1993....... $ -- $ 316.6 $ -- $ -- $(401.0) $ 7.5 $ (76.9)
Net loss................ (6.0) (6.0)
Foreign currency
translation
adjustments............ (7.5) (7.5)
----- ------- ----- ------ ------- ----- -------
December 31, 1994....... -- 316.6 -- -- (407.0) -- (90.4)
Net income.............. 145.5 145.5
Capital repurchased..... (19.3) (184.6) (203.9)
Foreign currency
translation
adjustments............ (3.0) (3.0)
----- ------- ----- ------ ------- ----- -------
December 31, 1995....... -- 316.6 -- (19.3) (446.1) (3.0) (151.8)
Reorganization of
holding company........ 62.0 (316.6) 62.3 19.3 (173.0)
Net loss................ (162.6) (162.6)
Foreign currency
translation
adjustments............ (1.4) (1.4)
----- ------- ----- ------ ------- ----- -------
December 31, 1996....... $62.0 $ -- $62.3 $ -- $(608.7) $(4.4) $(488.8)
===== ======= ===== ====== ======= ===== =======
</TABLE>

See accompanying notes to the Consolidated Financial Statements.

F-13
<PAGE>

EUROPEAN SPECIALTY GROUP HOLDING AG AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share data)

1. ORGANIZATION

European Specialty Group Holding AG (the "Company"), a closely held
corporation, is incorporated under the laws of Germany. The Company
principally operates through its wholly-owned subsidiary, European Specialty
Group GmbH (the "Agency") an underwriting management company which specializes
in personal accident, health, life and special risk reinsurance. In addition
to the Agency, the Company's consolidated financial statements also include
European Specialty Group London, Ltd., an operative unit of the Agency,
European Specialty Insurance Management Services Limited, an administrative
unit of the Agency, ESG Asia Limited, a representative office, and European
Specialty Ruckversicherungs AG, a reinsurance company founded in 1996. In
1995, the Company agreed to repurchase 6% of the registered capital from a
former employee, totaling $203.9. Payment was made in 1996.

Prior to 1996, the Company and its subsidiaries were owned by the Agency. To
simplify its capital structure and to provide additional capital, the
Company's shareholders executed a series of transactions which has resulted in
the Company owning 100% of the Agency and its subsidiaries (the
"Reorganization of Holding Company"). Because these cash transactions closed
over a period of time, shareholders' equity was reduced by $173.0 for those
transactions closing in 1996, and increased by $440.4 for those transactions
settling in 1997. Transactions not closing in 1996 resulted in a liability for
share transactions of $373.0 at December 31, 1996. All of these share
transactions were executed among the existing shareholders or other related
parties.

The detail of these transactions are described in the following table:

<TABLE>
<CAPTION>
ACCOUNTS EFFECTED
---------------------------
LIABILITY FOR
SHARE SHAREHOLDERS'
DATE TRANSACTION TRANSACTIONS EQUITY
---- ----------- ------------- -------------
<C> <S> <C> <C>
January 1, 1996... Opening balance of equity
representing the registered
capital of the Agency. $ 297.3
May 6, 1996....... The Shareholders of the
Agency sold their ownership
in the Agency to the Company.
The balance was not paid thus
is presented as a liability
in the caption: "Liability
for Share Transactions." $297.3 $(297.3)
May 6, 1996....... The Agency sold 94% of its
investment in the Company to
the Shareholders of the
Agency. Consideration for
this transaction was $58.2. $ 58.2
May 6, 1996....... The Shareholders of the
Company authorized the
issuance of an additional
80,000 shares in the Company.
However final legal
registration of these shares
was not approved until July
1997. Thus there was no
effective increase in shares
outstanding until July 1997.
August 2, 1996.... The Shareholders of the
Company paid consideration of
$66.3 for 80,000 shares which
were not legally registered.
Since the shares were not
properly registered as at
August 2, 1996, the
consideration is accounted
for as a liability and is
disclosed as "Liability for
share transactions." $ 66.3
November 4, 1996.. The Agency sold its remaining
6% ownership in the Company
for $66.1 to RVERS GmbH which
is wholly owned by the ex-
spouse, a related party, of a
senior executive and
shareholder of the Company. $ 66.1
</TABLE>

F-14
<PAGE>

EUROPEAN SPECIALTY GROUP HOLDING AG AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(U.S. dollars in thousands, except share data)

<TABLE>
<CAPTION>
ACCOUNTS EFFECTED
---------------------------
LIABILITY FOR
SHARE SHAREHOLDERS'
DATE TRANSACTION TRANSACTIONS EQUITY
---- ----------- ------------- -------------
<C> <S> <C> <C>
December 31, 1996.. Closing balance $373.0 $124.3
July 15, 1997...... The Shareholders of the
Company paid the remaining
consideration for 80,000
shares issued of $165.2. The
consideration previously
accounted for as a liability
of $55.0 was transferred to
equity. ($55.0) $220.2
July 15, 1997...... RVERS GmbH purchased 6%,
being its ownership share of
the Company of the 80,000
shares issued for
consideration of $220.2. $220.2
</TABLE>

The Agency earns a management fee from reinsurers for administering various
underwriting pools without directly participating in the underwriting results
as well as providing underwriting services to reinsurers outside of the pool
structure.

2. ACCOUNTING POLICIES

The Company's consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
of America ("U.S. GAAP"). The Company's significant accounting policies
include the following:

(a) Revenue Recognition

Revenue is primarily comprised of underwriting management and related fees
and profit commissions based on the underwriting results of the reinsurance
pools, as well as commissions for facultative and other business placed with
reinsurers that do not participate in the pools. Management and related fees
are recorded based on the estimated gross premiums written in each
underwriting year net of estimated uncollectible amounts and are recognized in
revenue when the underwriting contract becomes effective. The Company has had
no provision for uncollectible fees for each of the three years in the period
ended December 31, 1996. The recognition of fee revenue as of the effective
date of the contract is based upon the fact that the Company has no future
obligations under these contracts except to provide ancillary administrative
services. Management and related fees, which generally are collected over a
period up to 24 months, are discounted for any amounts expected to be
collected after the first twelve months of the underwriting contract. Any
adjustments to management and related fees are made in the period in which
ceding companies report information requiring such changes. The Company is
only entitled to receive its management fees to the extent that gross written
premiums are collected. Profit commissions due from reinsurers are based upon
the actual underwriting results of each underwriting pool and are generally
calculated and earned 12 to 24 months after the end of each underwriting year.
The Company relies on data from ceding companies and the expertise of its
actuarial staff to determine when profit commissions are earned. It is
possible that profit commissions from various underwriting years may be earned
and recognized in the same accounting year. For the years ended 1994 and 1995,
no profit commissions were earned. For the year ended 1996, profit commissions
of $398.0 were recognized as earned from the 1994 and 1995 underwriting years.
Expenses for future administrative services that the Company is obligated to
provide are accrued when the underwriting contract is established. Such
accrued expenses were $77.0 and $72.3 at December 31, 1995 and 1996,
respectively.

(b) Fixed Assets

Fixed assets primarily consist of computer equipment and office furniture
and are depreciated over the estimated useful lives of the assets by the
straight-line method. The estimated useful lives of assets are for periods

F-15
<PAGE>

EUROPEAN SPECIALTY GROUP HOLDING AG AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(U.S. dollars in thousands, except share data)

ranging between three and ten years depending on the type of the asset.
Leasehold improvements are amortized over the shorter of the term of the lease
or the estimated useful lives of the improvements. Balances are periodically
reviewed and evaluated for impairment.

As of December 31, 1996, the Company has a 40% ownership interest in
SportSecure GmbH, a reinsurance intermediary specializing in sports and
entertainment risks and a 30% ownership interest in European Specialty Group
Berlin GmbH, a representative office. These investments are accounted for
under the equity method. The Company's proportion of the results was $5.3,
$3.9 and $5.3 for the years ended December 31, 1994, 1995 and 1996,
respectively.

(d) Intangibles

Intangible assets consist primarily of a fee paid for the exclusive rights
to certain businesses generated for three years, software which was purchased
in 1996 and trademark rights. These assets are recorded at cost and are
amortized on a straight-line basis over useful lives of three to five years.
Balances are periodically reviewed and evaluated for impairment. The exclusive
rights fee of $193.7 was paid to a then shareholder of the Company in April
1994. In the exclusive rights agreement the then shareholder of the Company
agreed to exclusively use the Company's reinsurance pools for any insurance
developed in Latin America and the Company granted the third party exclusive
rights to market the Company's reinsurance pools throughout Latin America.
This asset had a net book value of $98.8 and $26.8 at December 31, 1995 and
1996, respectively.

(e) Translation of Foreign Currencies

The reporting currency of the financial statements is the U.S. dollar. The
functional currency is the Deutsche Mark and the British Pound Sterling for
subsidiaries in Germany and England, respectively. Subsequent to December 31,
1996 the Deutsche Mark declined in value relative to a number of currencies in
which the Company transacts business, including the Company's reporting
currency. It is not practicable for the Company to estimate the financial
impact of this relative decline in value. Assets and liabilities are
translated at current exchange rates and the related revenues and expenses are
translated at the average rates of exchange in effect during the period.

Gains and losses from foreign currency transactions, primarily related to
management fees, are reflected in current operating results.

(f) Income Taxes

The Company and its subsidiaries file separate income tax returns as
required. The Company accounts for income tax expense and liabilities under
the liability method in accordance with Financial Accounting Standards Board
("FASB") Statement No. 109, "Accounting for Income Taxes". Deferred income
taxes arise from the recognition of temporary differences between income
reported for financial statement purposes and for income tax purposes. These
deferred taxes are measured by applying currently enacted tax rates. In
addition, FASB Statement 109 requires the recognition of future benefits, such
as for net operating loss carryforwards, to the extent that realization of
such benefits are more likely than not.

(g) Dividends

Under German law, the Company is restricted as to the amounts of dividends
it may pay. The Company may only pay dividends from positive retained earnings
(based on accounting principles generally accepted in Germany) as adjusted by
certain formulae. There were no amounts available for dividend payments at
December 31, 1995 and 1996, respectively.

F-16
<PAGE>

EUROPEAN SPECIALTY GROUP HOLDING AG AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(U.S. dollars in thousands, except share data)

(h) Estimates

3. FORMATION

The current shareholders of the Company have entered into agreements to
exchange all of their interest in the Company for 900,000 Common Shares of ESG
Re Limited, a company which will be incorporated under the laws of Bermuda on
August 21, 1997. The exchange of shares (the "Formation") will occur on or
before December 2, 1997.

The Formation will result in the Company becoming a wholly-owned indirect
subsidiary of ESG Re Limited. For accounting purposes, the Formation will be
considered to be a recapitalization, since the majority shareholders of the
Company, including the principal shareholder, continue to be significant
shareholders in ESG Re Limited, key management of ESG Re Limited will be
substantially the same individuals holding such positions in the Company, and
the assets, revenues, net earnings and current value of the Company
significantly exceed those of ESG Re Limited, which will have no operating
activity prior to the Formation. Additionally, no other group of shareholders
will obtain control of ESG Re Limited through Direct Sales to investors or
through the Offerings to the public.

4. RECEIVABLES

Receivables represent management fee and related revenue, which are
primarily due from the reinsurers participating in the reinsurance pools. The
Company's receivables are collectible in various currencies. In selective
instances, the Company has entered into foreign currency contracts in order to
hedge the risk of fluctuations in exchange rates. Net foreign currency
realized gains and (losses), including results from foreign currency
contracts, are reflected in other income and amounted to ($33.1), ($128.7) and
$87.6, for the years ended December 31, 1994, 1995 and 1996, respectively. The
receivables are recorded net of $244.2 and $321.6 of advances from the pool
participants as of December 31, 1995 and 1996, respectively. As described in
Note 2 (a), receivables are discounted for any amounts expected to be
collected after the first twelve months of the underwriting contract. The
discount rate used by the Company was 6.1% for 1995 and 1996 which is an
approximation of U.S. treasury rates during these periods. This discount is
amortized into other income over a period of 24 months. Amounts included in
other income were $45.7, $105.7 and 113.7 for the years ended December 31,
1994, 1995 and 1996, respectively.

F-17
<PAGE>

EUROPEAN SPECIALTY GROUP HOLDING AG AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(U.S. dollars in thousands, except share data)

5. DEBT

The Company has outstanding debt as of December 31, 1995, and 1996, as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
<S> <C> <C>
Shareholder loan, due December 1997, payable in balloon
payment, interest at bank borrowing rate of 5.7% and 7.4%,
plus 1%, for 1996 and 1995, respectively.................. $767.40 $707.50
Shareholder loan, due December 1997, payable in balloon
payment, interest at bank borrowing rate of 5.7% and 7.4%,
plus 1%, for 1996 and 1995, respectively.................. 174.4 160.8
Shareholder loan, due December 1996, payable in balloon
payment, interest at bank borrowing of 5.7% and 7.4% plus
1% for 1996 and 1995 respectively......................... 139.5 --
Bank payable on demand borrowings, monthly adjustable
interest rate; 8%-8.5% during 1996 and 1995,
respectively.............................................. 691.7 925.0
Loan payable to bank due January 1997, interest rate 7.2%,
monthly installment of $8.6............................... 107.8 7.9
Loan payable to bank due March 1997, interest rate 7.7%,
monthly installment of $4.2............................... 60.3 11.5
------- -------
Total debt............................................... 1,941.1 1,812.7
======= =======
Current portion of debt.................................... 1,745.7 1,812.7
------- -------
Long-term portion of debt.................................. $ 195.4 $ --
======= =======
</TABLE>

The Company's debt is scheduled to be paid during 1997. No amounts are due
to be paid after 1997.

One of the shareholder loans was scheduled to mature in December 1996. The
loan was extended under the same terms until December 1997.

Included in interest expense was $118.5, $129.5 and $67.7 for the
shareholder loans for the years ended December 31, 1994, 1995 and 1996,
respectively.

As of December 31, 1996, the Company has available the ability to borrow an
additional $419.0 under its bank demand borrowing arrangements.

6. EMPLOYMENT CONTRACTS

The Company had entered into employment contracts with certain of its
employees. Amounts expensed under these contracts were $225.0, $243.7 and
$253.9 for the periods ended December 31, 1994, 1995 and 1996, respectively.
In addition, the Company also had entered into annual consulting contracts
with two individuals. Amounts expensed under these arrangements were $747.4,
$793.0 and $828.3 for the periods ended December 31, 1994, 1995 and 1996,
respectively.

Effective January 1, 1997, the Company entered into three employment
contracts, which included the two former consultants, which had total
commitments of $3,750.0. These contracts are to expire in 2001 and represent
approximately $750.0 of commitments per annum. These contracts also pay
annually to the employees a total of 12.5% of the annual profits. It is the
intention of the Company and management to replace these contracts with new
employment contracts effective as of the earlier of December 1, 1997 or upon
the closing of the initial public

F-18
<PAGE>

EUROPEAN SPECIALTY GROUP HOLDING AG AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(U.S. dollars in thousands, except share data)

offering of ESG Re Limited. Annual profit is calculated on the basis of net
income for the year, less losses carried forward from the preceding year, less
any earnings that must be retained as stipulated by law. The contracts
remunerate the employees for providing services to the Company. There are no
other specific rights and obligations of each party to the contract included
in the contracts. In addition, in August 1997 the Company also entered into an
employment contract with a new employee for a total minimum commitment of
$900.0 payable equally over three years (which includes a $50.0 minimum annual
bonus). The employee may also receive a discretionary bonus based on
performance to be determined by the board of directors. As part of that
agreement the Company has also agreed to open a new office in Canada which the
Company estimates may cost $420.0.

7. RELATED PARTIES

During 1996, the principal shareholder of the Company received payments from
the Company in consideration of a loan made to another shareholder to enable
such shareholder to purchase shares of the Company. In order to repay the
principal shareholder, amounts payable to the debtor in respect of reinsurance
brokerage services provided by the debtor are paid directly to the principal
shareholder. During 1996, the Company paid the principal shareholder $32.9.
During 1997 such loan was paid in full.

In connection with the Formation, certain shareholders of ESG Germany
participating in the Formation have agreed to indemnify ESG Germany for
certain contingent liabilities. The Company believes that the likelihood of
incurring a loss related to any of those contingent liabilities is remote.

8. UNDERWRITING MANAGEMENT SERVICES

As a part of its underwriting pool management services, the Company collects
premiums and pays claims on behalf of the pool participants. In addition to
fees received for the underwriting services, the Company also earns interest
income on funds it is authorized to hold in accordance with the underwriting
management agreement between the Company and the pool participants. The
Company is authorized to retain 25% of gross premiums as a claims fund held in
bank accounts having trustee status with any interest accruing to such balance
being credited to the Company quarterly. Interest income on these funds
amounted to $23.8, $45.6 and $73.5 for the years ended December 31, 1994, 1995
and 1996, respectively. All of the underwriting pool funds are invested in
short-term investments with original maturities of less than ninety days. The
total amount of funds held on behalf of the pools was $6,495.9 and $4,928.6 at
December 31, 1995 and 1996, respectively.

9. SIGNIFICANT CLIENTS

The percentages of the Company's management fees obtained from its three
most significant client relationships were 25.5%, 9.1% and 5.8% in 1994,
20.4%, 10.4% and 9.1% in 1995, and 20.0%, 6.8% and 5.8% in 1996.

F-19
<PAGE>

EUROPEAN SPECIALTY GROUP HOLDING AG AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(U.S. dollars in thousands, except share data)

10. TAXATION

The provision for income taxes consists of the German Federal corporate
income tax and solidarity surcharge, the German municipal income tax referred
to as the Trade tax and Foreign income taxes which includes all non-German
income taxes. The provision for income taxes consists of the following
components:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
<S> <C> <C> <C>
Current:
Federal......................................... $ -- $ 22.4 $ 61.0
Foreign......................................... -- -- 56.3
Trade........................................... -- 52.9 38.8
------- ------- -------
Total Current................................. -- 75.3 156.1
------- ------- -------
Deferred:
Federal......................................... 40.2 203.5 (53.9)
Foreign......................................... (31.3) (42.9) 73.0
Trade........................................... 34.9 62.4 (20.0)
------- ------- -------
Total Deferred................................ 43.8 223.0 (0.9)
------- ------- -------
Total......................................... $ 43.8 $ 298.3 $ 155.2
======= ======= =======
</TABLE>

In 1995, the company incurred a significant deferred tax charge primarily as
a result of utilizing net operating loss carryforwards from earlier years
which had been recorded as a deferred tax asset as of December 31, 1994.

The net deferred tax asset (liability) recorded as of December 31, 1995, and
1996 represents the net temporary difference between the tax bases of assets
and liabilities and their amounts for financial reporting. The components of
the net deferred tax assets (liability) are as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------
1995 1996
<S> <C> <C>
Net operating loss carryforward.............................. $ 76.9 $178.3
Fee income................................................... 38.2 --
Investments.................................................. 193.9 53.6
Rent expense................................................. -- 31.8
Foreign currency............................................. -- 16.3
Other deferred tax assets.................................... 1.3 14.0
------ ------
Total deferred tax assets.................................. $310.3 $294.0
------ ------
Deferred tax liabilities
Fee income................................................. -- (22.1)
Investment income.......................................... (16.4) --
------ ------
Total deferred tax liabilities........................... (16.4) (22.1)
------ ------
Net deferred tax asset....................................... $293.9 $271.9
====== ======
</TABLE>

Realization of the deferred tax asset is dependent on generating sufficient
taxable income in the future. Although realization is not assured, management
believes it is more likely than not that all of the deferred tax assets will
be realized. The amount of the deferred tax assets considered realizable,
however, could be reduced in the near term if estimates of future taxable
income are reduced. The Company has a tax loss carryforward

F-20
<PAGE>

EUROPEAN SPECIALTY GROUP HOLDING AG AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(U.S. dollars in thousands, except share data)

included in the calculation of the deferred tax assets as of December 31, 1996
of $262.3 available to offset future German taxable income. This tax loss
carryforward currently does not have an expiration date under German tax law.
Based on management's plan for the future operation of the Company, under
German tax law which recently changed as to the utilization of loss
carryforwards, management believes it is more likely than not that the
realization of the net deferred tax asset will not be affected by the
recapitalization.

The actual income tax expense attributable to income for the three years in
the period ended December 31, 1996, differed from the amount computed by
applying the combined effective rate of 48.375% (comprised of German Federal
Corporate Income tax rate (45%) and Solidarity Tax Surcharge (7.5%)) to income
before income taxes, as a result of the following:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
<S> <C> <C> <C>
Computed "expected tax expense": $ 18.4 $ 214.7 $ (3.6)
Tax effect of:
Trade taxes, net of federal corporation
income tax benefit......................... 18.0 59.6 9.6
Foreign taxes............................... 6.5 (9.2) 9.3
Taxable gain on Reorganization of Holding
Company...................................... -- -- 121.0
Non-deductible expenses....................... 5.7 9.8 6.9
Other......................................... (4.8) 23.4 12.0
------- -------- --------
Total..................................... $ 43.8 $ 298.3 $ 155.2
======= ======== ========
</TABLE>

11. COMMITMENTS & CONTINGENCIES

(a) Lease Commitments

The Company and its subsidiaries have various lease obligations. Rental
expenses are amortized on the straight-line basis over the term of the lease.
Total rental expense was approximately $167.8, $193.7 and $295.3 for the years
ended December 31, 1994, 1995 and 1996, respectively. Future minimum
commitments under lease agreements are as follows:

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
<S> <C>
1997.............................................................. $ 458.5
1998.............................................................. 401.2
1999.............................................................. 374.2
2000.............................................................. 359.5
2001.............................................................. 195.5
Thereafter........................................................ --
--------
Total........................................................... $1,788.9
========
</TABLE>

The Company has recorded a current liability of $38.6 as of December 31,
1996 for vacated office space at its former headquarters pursuant to an
agreement with the lessor.

(b) Pension obligations

Certain subsidiaries are obligated to make defined contributions to personal
pension plans for their employees. There was no outstanding liability for
pension contributions as of December 31, 1995 and 1996, respectively. Pension
contribution expense was $19.8, $24.5 and $20.0 for the years ended December
31, 1994, 1995 and 1996, respectively.

F-21
<PAGE>

EUROPEAN SPECIALTY GROUP HOLDING AG AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(U.S. dollars in thousands, except share data)

12. FOREIGN CURRENCY DERIVATIVE FINANCIAL INSTRUMENTS

The Company records receivables for estimated management fees to be received
under noncancelable management contracts entered into with the reinsurers
participating in the reinsurance pools. The management fees to be received
under the various management agreements are denominated in different
currencies. The Company periodically enters into foreign currency put options
and forward exchange contracts to mitigate its exposure to fluctuations in
foreign currency exchange rates. Gains and losses arising from these contracts
are recorded currently in income, and offset gains or losses arising from the
receivable being hedged. Any discount or premium on foreign exchange contracts
are deferred and recognized in income over the life of the forward contract in
accordance with Statement of Financial Accounting Standards No. 52 "Foreign
Currency Translation."

The Company's forward exchange contracts and put options are subject to the
credit risk that counterparties to the agreement may be unable to fulfill
their obligations upon settlement of the contracts. To mitigate this risk,
management only enters into such agreements with reputable and financially
sound institutions.

13. FAIR VALUE INFORMATION

The carrying amount for Cash, Fees Receivable, Fiduciary Liabilities and
Debt approximate their fair market values. Fair values relating to foreign
currency contracts reflect the estimated amounts that the Company would
receive or pay to terminate the contracts at the reporting date based on
exchange rates as of December 31, 1995, and 1996, respectively. These
contracts related to the conversion of U.S. dollars into Deutsche Marks.

<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------
CONTRACT PRINCIPAL CARRYING ESTIMATED MATURITY
TYPE DATE AMOUNTS AMOUNT FAIR VALUE DATE
<S> <C> <C> <C> <C> <C> <C>
Forward contract............ Dec 95 $900.0 -- $ (2.1) Jan 96
Put Option.................. Dec 95 300.0 -- (18.4) Mar 96
Put Option.................. Dec 95 200.0 -- (12.2) June 96
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------
CONTRACT PRINCIPAL CARRYING ESTIMATED MATURITY
TYPE DATE AMOUNTS AMOUNT FAIR VALUE DATE
<S> <C> <C> <C> <C> <C> <C>
Forward contract............ Dec 96 $244.0 -- $(11.7) Jan 97
</TABLE>

F-22
<PAGE>

EUROPEAN SPECIALTY GROUP HOLDING AG AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except share data)

<TABLE>
<CAPTION>
AUDITED UNAUDITED UNAUDITED
DECEMBER 31, JUNE 30, JUNE 30,
1996 1996 1997
------------ --------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................... $ 15.0 $ 45.0 $ 51.5
Fees receivable........................... 856.7 2,080.8 2,054.7
Other current assets...................... 248.2 231.4 85.2
--------- --------- ---------
Total current assets.................... 1,119.9 2,357.2 2,191.4
--------- --------- ---------
Fees receivable--non-current................ 922.7 712.4 592.1
Intangibles (net of accumulated amortization
of $205.5,
$175.2 and $196.3)......................... 62.5 80.8 27.3
Fixed assets (net of accumulated
depreciation of $104.3, $101.4 and
$112.9).................................... 117.3 119.3 112.2
Deferred taxes.............................. 271.9 240.5 201.3
Equity investments.......................... 24.4 22.4 29.3
--------- --------- ---------
Total assets............................ $ 2,518.7 $ 3,532.6 $ 3,153.6
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt ($868.3, $978.1 and $764.8
due to related parties).................. $ 1,812.7 $ 1,731.5 $ 1,882.7
Accrued expenses.......................... 713.9 1,206.2 1,119.7
Liability for share transactions.......... 373.0 443.6 333.2
Accounts payable.......................... 107.9 112.8 51.1
--------- --------- ---------
Total current liabilities............... 3,007.5 3,494.1 3,386.7
--------- --------- ---------
Fiduciary liabilities....................... 4,928.6 5,539.6 6,581.0
Less Cash and cash equivalents held in a
fiduciary capacity......................... (4,928.6) (5,539.6) (6,581.0)
--------- --------- ---------
Total liabilities....................... 3,007.5 3,494.1 3,386.7
--------- --------- ---------
Commitments and contingencies............... -- -- --
Shareholders' equity:
Common stock (5DM par value, 100,000
shares authorized, 20,000, 18,800 and
20,000 issued and outstanding)........... 62.0 58.2 62.0
Additional paid-in capital................ 62.3 -- 62.3
Accumulated deficit income................ (608.7) (4.7) (410.9)
Foreign currency translation adjustments.... (4.4) (15.0) 53.5
--------- --------- ---------
Total shareholders' equity/(deficit).... (488.8) 38.5 (233.1)
--------- --------- ---------
Total liabilities and shareholders'
equity................................. $ 2,518.7 $ 3,532.6 $ 3,153.6
========= ========= =========
</TABLE>

See accompanying notes to the Unaudited Consolidated Financial Statements.

F-23
<PAGE>

EUROPEAN SPECIALTY GROUP HOLDING AG AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
(U.S. dollars in thousands)

<TABLE>
<CAPTION>
UNAUDITED
SIX MONTHS ENDED JUNE 30,
-------------------------
1996 1997
------------ ------------
<S> <C> <C>
Fee revenues........................................ $3,138.3 $2,594.8
Other income........................................ 104.4 85.5
------------ ------------
Total revenues...................................... 3,242.7 2,680.3
------------ ------------
Operating expenses
Personnel costs..................................... 644.0 912.8
Consulting and related expenses (includes $272.8 and
$0 for related parties)............................ 396.1 132.1
Depreciation and amortization....................... 64.1 57.1
Other operating expenses............................ 935.1 980.2
------------ ------------
Total operating expenses............................ 2,039.3 2,082.2
------------ ------------
Interest expense (includes $23.8 and $16.3 for
related parties)................................... 76.8 57.1
------------ ------------
Total expenses...................................... 2,116.1 2,139.3
------------ ------------
Income before income taxes.......................... 1,126.6 541.0
------------ ------------
Provision for income taxes.......................... 685.3 343.1
------------ ------------
Net income.......................................... $ 441.3 $ 197.9
============ ============
</TABLE>

See accompanying notes to the Unaudited Consolidated Financial Statements.

F-24
<PAGE>

EUROPEAN SPECIALTY GROUP HOLDING AG AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)

<TABLE>
<CAPTION>
UNAUDITED
-----------------
SIX MONTHS ENDED
JUNE 30,
-----------------
1996 1997
------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 441.3 $ 197.9
Depreciation and amortization............................... 64.1 57.1
Increase in equity investment............................... (1.5) (4.9)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Fees receivable........................................... (856.6) (1,119.9)
Deferred taxes............................................ 38.1 44.1
Accrued expenses.......................................... 781.6 510.6
Other current assets...................................... (145.3) 144.6
Accounts payable.......................................... (94.9) (48.0)
------- --------
Net cash flows provided by (used in) operating activities... 226.8 (218.5)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets................................... (21.4) (32.0)
Purchases of intangible assets.............................. (87.4) --
------- --------
Net cash flows (used in) investing activities............... (108.8) (32.0)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of capital....................................... (65.9) --
Reorganization of holding company........................... 58.2 --
Net change in short-term debt............................... 85.4 278.8
Repayments of long-term borrowings.......................... (190.0) --
------- --------
Net cash flows provided by (used in) financing activities... (112.3) 278.8
Effect of exchange rate changes on cash..................... 6.1 8.2
Net change in cash.......................................... 11.8 36.5
Cash, at beginning of period................................ 33.2 15.0
------- --------
Cash, at end of period...................................... $ 45.0 $ 51.5
======= ========
</TABLE>

See accompanying notes to the Unaudited Consolidated Financial Statements.

F-25
<PAGE>

EUROPEAN SPECIALTY GROUP HOLDING AG AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited; U.S. dollars in thousands except share data)

The unaudited consolidated financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. The Company's unaudited consolidated
financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America ("U.S. GAAP").
In the opinion of management, the unaudited consolidated financial statements
reflect all adjustments, consisting only those of a normal and recurring
nature, necessary for a fair presentation of the results of operations and
financial condition. The interim results presented herein are not indicative
of full year results. These unaudited consolidated financial statements should
be read in conjunction with the audited financial statements and the notes
thereto as presented elsewhere in this prospectus.

2. ACCOUNTING POLICIES

The Company's unaudited significant accounting policies include the
following:

(a) Revenue Recognition

Revenue is primarily comprised of underwriting management and related fees
and profit commissions based on the underwriting results of the reinsurance
pools, as well as commissions for facultative business placed with reinsurers
that do not participate in the pools. Management and related fees are recorded
based on the estimated gross premiums written in each underwriting year and
are recognized in revenue when the underwriting contract becomes effective.
The recognition of fee revenue as of the effective date of the contract is
based upon the fact that the Company has no future obligations under these
contracts except to provide ancillary administrative services. Management and
related fees, which generally are collected over a period up to 24 months, are
discounted for any amounts expected to be collected after the first twelve
months of the underwriting contract. Any adjustments to management and related
fees are made in the period in which ceding companies report information
requiring such changes. The Company is only entitled to receive its management
fees to the extent that gross written premiums are converted. Profit
commissions due from reinsurers are based upon the actual underwriting results
of each underwriting pool and are generally calculated and earned 12 to 24
months after the end of each underwriting year. Expenses for future
administrative services that the Company is obligated to provide are accrued
when the underwriting contract is established. Such accrued expenses were
$159.4 and $145.1 at June 30, 1996, and 1997, respectively.

(b) Estimates

3. FORMATION

The Formation will result in the Company becoming a wholly-owned subsidiary
of ESG Re Limited. For accounting purposes, the Formation will be considered
to be a recapitalization, since the majority shareholders of the Company,
including the principal shareholder, will continue to be significant
shareholders in ESG Re

F-26
<PAGE>

EUROPEAN SPECIALTY GROUP HOLDING AG AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(unaudited; U.S. dollars in thousands, except share data)

Limited, key management of ESG Re Limited will be substantially the same
individuals holding such positions in the Company, and the assets, revenues,
net earnings and current value of the Company will significantly exceed those
of ESG Re Limited, which will have no operating activity prior to the
Formation. Additionally, no other group of shareholders will obtain control of
ESG Re Limited through Direct Sales to investors or through the Offerings to
the public.

4. UNDERWRITING MANAGEMENT SERVICES

As a part of its underwriting pool management services, the Company collects
premiums and pays claims on behalf of the pool participants. In addition to
fees received for the underwriting services, the Company also earns interest
income on funds it is authorized to hold in accordance with the underwriting
management agreement between the Company and the pool participants. The
Company is authorized to retain 25% of gross premiums as a claims fund held in
bank accounts having trustee status with any interest accruing to such
balances being credited to the Company quarterly. Interest income on these
funds amounted to $27.2 and $15.1 for the periods ended June 30, 1996 and
1997, respectively. All of the underwriting pool funds are invested in short-
term investments with original maturities of less than ninety days. The total
amount of funds held on behalf of the pools was $5,539.6 and $6,581.0 at June
30, 1996 and 1997, respectively.

5. CAPITAL TRANSACTIONS

The Company principally operates through its wholly-owned subsidiary,
European Specialty Group GmbH (the "Agency") an underwriting management
company which specializes in personal accident, health, life and special risk
reinsurance. In 1995, the Company agreed to repurchase 6% of the registered
capital from a former employee, totaling $203.9. Payment of $65.9 was made
during the first six months of 1996.

Prior to 1996, the Company and its subsidiaries were owned by the Agency. To
simplify its capital structure and to provide additional capital, the
Company's shareholders executed a series of transactions which has resulted in
the Company owning 100% of the Agency and its subsidiaries (the
"Reorganization of Holding Company"). Because these cash transactions closed
over a period of time, shareholder's equity was reduced by $239.1 (which
include a cash settlement of $58.2) for those transactions closing in the six
month period ended June 30, 1996, and increased by $66.1 for those
transactions settling by the six month period ended December 31, 1996.
Transactions not closing by June 30, 1996 and June 30, 1997 resulted in a
liability for share transactions of $443.6 and $333.2, respectively. Certain
of these transactions were settled in July 1997 which resulted in an increase
of shareholder's equity by $440.4. All of these share transactions were
executed amongst the existing shareholders or other related parties.

6. INTERIM PERIOD RESULTS

As described in the accounting policy for the recognition of revenue above,
revenue is recognized when the underwriting contract becomes effective. A
significant majority of underwriting contracts that the Company writes become
effective on January 1 each year. Thus the majority of the revenue is
recognized in the first quarter of the year. As the estimated cost of the
administrative services required to be provided in respect to these contracts
is accrued when the contract becomes effective, the accrual will therefore be
greater at interim accounting periods than at the end of the year.

Given the nature of the Company's business cycle as described and its
accounting policies, interim financial statements should be read in
conjunction with the full year financial statements.

7. CURRENT ACCOUNTING PRONOUNCEMENTS

In February 1997, the FASB issued SFAS No. 128, "Earnings per Share" ("EPS")
which supersedes Accounting Principles Board Opinion No. 15 "Earnings per
Share" ("APB No. 15") and replaces the-

F-27
<PAGE>

EUROPEAN SPECIALTY GROUP HOLDING AG AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(unaudited; U.S. dollars in thousands, except share data)

presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and provides guidance on
other computational changes. SFAS No. 128 is effective for financial
statements for both interim and annual periods ending after December 15, 1997.
Earlier application is not permitted. The Company intends to adopt this new
standard for its annual statement for the year ended December 31, 1997. The
Company's capital structure did not require it to report EPS for any periods
prior to the year ended December 31, 1997.

In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income", SFAS No. 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 No. 130 will
require the Company to (a) classify items of other comprehensive income by
their nature in a financial statement and (b) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.

In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which will be effective for the
Company beginning January 1, 1998. SFAS No. 131 redefines how operating
segments are determined and requires disclosure of certain financial and
descriptive information about a company's operating segments. The Company has
not yet completed its analysis of the impact of SFAS No. 131.

F-28
<PAGE>

ESG
INTELLIGENT
REINSURANCE

<PAGE>

SUBJECT TO COMPLETION, DATED DECEMBER 10, 1997

PROSPECTUS
, 1997

ESG RE LIMITED ESG
INTELLEGENT
REINSURANCE

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

9,000,000
COMMON SHARES

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

All of the Common Shares, par value $1.00 per share (the "Common Shares"), of
ESG Re Limited (the "Company" or "ESG") offered hereby are being sold by the
Company. Of the 9,000,000 Common Shares offered hereby, Common Shares are
being offered for sale outside the United States and Canada by the
International Managers (the "International Offering") and Common Shares are
being offered for sale in the United States and Canada in a concurrent
offering by the U.S. Underwriters (the "U.S. Offering" and together with the
International Offering, the "Offerings"), subject to transfers between the
International Managers and the U.S. Underwriters (collectively, the
"Underwriters"). See "Underwriting." It is estimated that the initial public
offering price will be $20.00 per share. See "Underwriting" for a discussion
of the factors considered in determining the initial public offering price.

Certain affiliates of Head & Company L.L.C. (the "Head Group") and certain
other investors (together with the Head Group, the "Direct Purchasers") have
severally purchased for investment directly from the Company (i) an aggregate
of 2,673,799 Common Shares, (ii) Class A Warrants to purchase up to 1,247,284
Common Shares, and (iii), in the case of the Head Group, Class B Warrants to
purchase up to 1,247,284 Common Shares (if certain performance criteria are
satisfied), at an aggregate price equal to 2,673,799 multiplied by the
initial public offering price per Common Share less the underwriting
discounts and commissions (the "Direct Sales"). See "Direct Sales." The
closing of the Direct Sales occurred on December 3, 1997. The initial
exercise price for the Class A Warrants and the Class B Warrants is the
initial public offering price per Common Share, subject to a reduction of
$1.50 on September 1, 2001, for the Class B Warrants.

Prior to the Offerings, there has been no market for the Common Shares. The
Common Shares have been accepted for quotation on the Nasdaq National Market
in the United States subject to official notice of issuance under the symbol
"ESREF."

SEE "RISK FACTORS" COMMENCING ON PAGE 16 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
THE PUBLIC AND COMMISSIONS(1) THE COMPANY(2)
<S> <C> <C> <C>
Per Common Share $20.00 $1.30 $18.70
Total(3) $180,000,000 $11,700,000 $168,300,000
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the United States Securities Act
of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $2,000,000.

(3) The Company has granted the Underwriters a 30-day option to purchase up
to an additional 1,350,000 shares at the Price to the Public per share
less Underwriting Discounts and Commissions, solely to cover over-
allotments, if any. If such option is exercised in full, the total Price
to the Public, Underwriting Discounts and Commissions and Proceeds to the
Company will be $207,000,000, $13,455,000 and $193,545,000, respectively.
See "Underwriting." Including the Direct Sales, the total proceeds to
Company will be $218,300,000 or $243,545,000 if the over-allotment option
is exercised in full.

The Common Shares are being offered by the several Underwriters, when, as and
if delivered to and accepted by the Underwriters and subject to various
conditions. It is expected that the delivery of the Common Shares will be
made in New York, New York on or about , 1997, in New York, New York
against payment therefor in New York funds.

DEUTSCHE MORGAN GRENFELL INC. HAS SERVED AS ADVISOR TO THE COMPANY IN
CONNECTION WITH THIS TRANSACTION.
SEE "UNDERWRITING."

--------

JOINT GLOBAL COORDINATORS AND JOINT BOOK-RUNNERS

--------

DEUTSCHE MORGAN GRENFELL DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL

-----------

DEUTSCHE MORGAN GRENFELL DONALDSON, LUFKIN & JENRETTE
INTERNATIONAL

CONNING & COMPANY STEPHENS INC.
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered which will be paid
solely by the Company. All the amounts shown are estimates, except the
Securities and Exchange Commission registration fee and the NASD filing fee:

<TABLE>
<S> <C>
SEC Registration Fee........................................... $ 62,543
NASD Fees...................................................... 18,900
Transfer Agent and Registrar Fees and Expenses................. 15,000
Printing and Engraving Expenses................................ 350,000
Legal Fees and Expenses........................................ 650,000
Accounting Fees and Expenses................................... 850,000
Blue Sky Fees and Expenses..................................... 50,000
Miscellaneous Expenses......................................... 3,557
----------
Total........................................................ $2,000,000
==========
</TABLE>
- ---------------------
* To be completed by amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 98 of the Companies Act 1981 of Bermuda (the "Act") provides
generally that a Bermudian company may indemnify its directors, officers and
auditors against any liability which by virtue of Bermudian law otherwise
would be imposed on them, except in cases where such liability arises from the
willful negligence, willful default, fraud or dishonesty of which such
director, officer or auditor may be guilty in relation to the company. Section
98 further provides that a Bermudian company may indemnify its directors,
officers and auditors against any liability incurred by them in defending any
proceedings, whether civil or criminal, in which judgment is awarded in their
favor or they are acquitted or in which they are acquitted or granted relief
by the Supreme Court of Bermuda in certain proceedings arising under Section
281 of the Act.

The Company has adopted provisions in its Memorandum of Association and Bye-
Laws that provide that the Company shall indemnify its officers and directors
to the maximum extent permitted under the Act. The Company also entered into
indemnification agreements with each of its directors and officers to provide
them with the maximum indemnification allowed under its Memorandum of
Association, Bye-Laws and the Act.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The Company was incorporated in August 1997 under the laws of Bermuda. On
August 21, 1997, the Company issued 6,000 of its Ordinary Shares to ESG
Partners (Bermuda) L.P. (then known as Head Insurance Investors IX (Bermuda)
L.P.), and 3,000 each to Gerhard Jurk and Wolfgang M. Wand. The General
Partner of ESG Partners (Bermuda) L.P. is an affiliate of Head Company. Such
securities were sold in a private placement outside the United States and
therefore are exempt from registration under the Securities Act pursuant to
Section 4(2) thereof. The aggregate offering price for this transaction was
$12,000.

On December 3, 1997, the Company issued 2,673,799 Common Shares, and, after
giving effect to the Offerings, Class A Warrants to purchase 1,247,284 Common
Shares, and Class B Warrants to purchase 1,247,284 Common Shares (if certain
performance criteria are satisfied) for an aggregate purchase price of
$50 million. Such securities were sold in a private placement and therefore
are exempt from registration under the Securities Act pursuant to Section 4(2)
thereof.

On December 2, 1997, the Company issued 900,000 Common Shares in exchange
for all of the outstanding capital stock of European Specialty Group (United
Kingdom) Limited ("ESG UK"). See "Summary--Formation and Direct Sales." Such
securities were sold in a private placement outside the United States and
therefore are exempt from registration under the Securities Act pursuant to
Regulation S under the Securities Act. The Company issued 900,000 Common
Shares in exchange for all of the outstanding capital stock of ESG UK. At the
time of this exchange, European Specialty Group Holding AG was a wholly owned
subsidiary of ESG UK.

II-1
<PAGE>

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(A) EXHIBITS.

<TABLE>
<C> <S>
1.1* --Form of Underwriting Agreement
2.1* --Share Exchange Agreement between ESG Re Limited and European
Specialty Group (United Kingdom) Limited, dated as of November 13,
1997.
2.2* --Share Exchange Agreement between the shareholders of European
Specialty Group Holding AG and European Specialty Group (United
Kingdom) Limited, dated as of November 13, 1997.
3.1* --Memorandum of Association
3.2* --Bye-Laws
4.1* --Specimen Common Share certificate
4.2* --Form of Class A Warrant
4.3* --Form of Class B Warrant
5.1+ --Opinion of Appleby, Spurling & Kempe as to the legality of the Common
Shares
8.1* --Opinion of Paul, Weiss, Rifkind, Wharton & Garrison as to certain tax
matters
8.2* --Opinion of Deloitte & Touche GmbH as to certain tax matters
8.3* --Opinion of Deloitte & Touche, United Kingdom as to certain tax
matters
8.4* --Opinion of Deloitte & Touche, Canada as to certain tax matters
8.5+ --Opinion of Appleby, Spurling & Kempe as to certain tax matters
8.6+ --Opinion of Matheson Ormsby Prentice as to certain tax matters
10.1* --Form of Subscription Agreement, between ESG Re Limited and certain
Direct Purchasers, dated as of September 30, 1997
10.2* --Employment Agreement between European Specialty Group (United
Kingdom) Limited, ESG Re Limited and Wolfgang M. Wand, dated as of
December 1, 1997
10.3* --Employment Agreement between ESG Re Limited and Steven H. Debrovner,
dated as of December 1, 1997
10.4* --Employment Agreement between European Specialty Group Holding AG and
Gerhard Jurk, dated as of December 1, 1997
10.5* --Employment Agreement between European Specialty (North America)
Limited and Renate M. Nellich, dated as of December 1, 1997
10.6* --Investment Advisory Agreement, between ESG Re Limited and Head Asset
Management L.L.C., dated as of December 1, 1997
10.7* --Investment Advisory Agreement, between ES Ruckversicherungs AG and
Head Asset Management L.L.C., dated as of December 1, 1997
10.8* --Form of Registration Rights Agreement between ESG Re Limited and the
Direct Purchasers named therein
22.1* --Subsidiaries of the Registrant
23.1 --Consent of Deloitte & Touche GmbH
23.2* --Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in
Exhibit 8.1)
23.3* --Consent of Deloitte & Touche GmbH (included in Exhibit 8.2)
23.4* --Consent of Deloitte & Touche, United Kingdom (included in Exhibit
8.3)
23.5* --Consent of Deloitte & Touche, Canada (included in Exhibit 8.4)
23.6+ --Consent of Appleby, Spurling & Kempe (included in Exhibits 5.1 and
8.5)
23.7 --Consent of Deloitte & Touche, Hamilton, Bermuda
23.8+ --Consent of Matheson Ormsby Prentice (included in Exhibit 8.6)
23.9* --Consent of David L. Newkirk
23.10* --Consent of William J. Poutsiaka
23.11* --Consent of Edward A. Tilly
24.1* --Power of Attorney
</TABLE>
- ---------------------
* Previously filed.
+ To be filed by amendment

II-2
<PAGE>

ITEM 17. UNDERTAKINGS

(1) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.

(2) Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to its Memorandum
of Association, Bye-Laws, the Underwriting Agreement or otherwise, the
Registrant has been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by the director,
officers or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.

(3) The Registrant hereby undertakes that:

(a) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of the Registration Statement as of the time it was declared
effective.

(b) For purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-3
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT CERTIFIES
THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE REQUIREMENTS
FOR FILING ON FORM F-1 AND HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF NEW YORK, STATE OF NEW YORK, ON DECEMBER 10, 1997.

ESG Re Limited

/s/ Gerhard Jurk
By: __________________________________
NAME: GERHARD JURK
TITLE: CHIEF FINANCIAL OFFICER

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.

SIGNATURE TITLE DATE

* Chief Executive
- ------------------------------------ Officer, Director
WOLFGANG M. WAND (Principal
Executive Officer)

* Chief Operating
- ------------------------------------ Officer
STEVEN H. DEBROVNER

/s/ Gerhard Jurk Chief Financial
- ------------------------------------ Officer, Director December 10,
GERHARD JURK (Principal 1997
Financial and
Accounting
Officer)

/s/ John C Head III Chairman of the
- ------------------------------------ Board December 10,
JOHN C HEAD III 1997

/s/ John C Head III Authorized
- ------------------------------------ Representative in December 10,
JOHN C HEAD III the United States 1997

/s/ John C Head III Attorney-in-Fact
*By: _______________________________ December 10,
JOHN C HEAD III 1997

II-4
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
1.1* --Form of Underwriting Agreement
2.1* --Share Exchange Agreement between ESG Re Limited and European
Specialty Group (United Kingdom) Limited, dated as of November 13,
1997.
2.2* --Share Exchange Agreement between the shareholders of European
Specialty Group Holding AG and European Specialty Group (United
Kingdom) Limited, dated as of November 13, 1997.
3.1* --Memorandum of Association
3.2* --Bye-Laws
4.1* --Specimen Common Share certificate
4.2* --Form of Class A Warrant
4.3* --Form of Class B Warrant
5.1+ --Opinion of Appleby, Spurling & Kempe as to the legality of the
Common Shares
8.1* --Opinion of Paul, Weiss, Rifkind, Wharton & Garrison as to certain
tax matters
8.2* --Opinion of Deloitte & Touche GmbH as to certain tax matters
8.3* --Opinion of Deloitte & Touche, United Kingdom as to certain tax
matters
8.4* --Opinion of Deloitte & Touche, Canada as to certain tax matters
8.5+ --Opinion of Appleby, Spurling & Kempe as to certain tax matters
8.6+ --Opinion of Matheson Ormsby Prentice as to certain tax matters
10.1* --Form of Subscription Agreement, between ESG Re Limited and certain
Direct Purchasers, dated as of September 30, 1997
10.2* --Employment Agreement between European Specialty Group (United
Kingdom) Limited, ESG Re Limited and Wolfgang M. Wand, dated as of
December 1, 1997
10.3* --Employment Agreement between ESG Re Limited and Steven H. Debrovner,
dated as of December 1, 1997
10.4* --Employment Agreement between European Specialty Group Holding AG and
Gerhard Jurk, dated as of December 1, 1997
10.5* --Employment Agreement between European Specialty (North America)
Limited and Renate M. Nellich, dated as of December 1, 1997
10.6* --Investment Advisory Agreement, between ESG Re Limited and Head Asset
Management L.L.C., dated as of December 1, 1997
10.7* --Investment Advisory Agreement, between ES Ruckversicherungs AG and
Head Asset Management L.L.C., dated as of December 1, 1997
10.8* --Form of Registration Rights Agreement between ESG Re Limited and the
Direct Purchasers named therein
22.1* --Subsidiaries of the Registrant
23.1 --Consent of Deloitte & Touche GmbH
23.2* --Consent of Paul, Weiss, Rifkind, Wharton & Garrison (included in
Exhibit 8.1)
23.3* --Consent of Deloitte & Touche GmbH (included in Exhibit 8.2)
23.4* --Consent of Deloitte & Touche, United Kingdom (included in Exhibit
8.3)
23.5* --Consent of Deloitte & Touche, Canada (included in Exhibit 8.4)
23.6+ --Consent of Appleby, Spurling & Kempe (included in Exhibits 5.1 and
8.5)
23.7 --Consent of Deloitte & Touche, Hamilton, Bermuda
23.8+ --Consent of Matheson Ormsby Prentice (included in Exhibit 8.6)
23.9* --Consent of David L. Newkirk
23.10* --Consent of William J. Poutsiaka
23.11* --Consent of Edward A. Tilly
24.1* --Power of Attorney
</TABLE>
- ---------------------
* Previously filed.
+ To be filed by amendment.

<PAGE>

EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of ESG Re Limited on
Form F-1 of our report dated August 15, 1997 on the consolidated financial
statement of European Specialty Group Holding AG and Subsidiaries, appearing
in the Prospectus, which is part of this Registration Statement.

Deloitte & Touche GmbH
Wirtschaftsprufungsgesellschaft
Hamburg, Germany
November 14, 1997

<PAGE>

EXHIBIT 23.7

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of ESG Re Limited on
Form F-1 of our report dated August 28, 1997 on the balance sheet of ESG Re
Limited as of August 21, 1997 (date of inception), appearing in the
Prospectus, which is part of this Registration Statement. We also consent to
the reference to us under the heading "Experts" in such Prospectus.

Deloitte & Touche
Chartered Accountants
Hamilton, Bermuda
November 14, 1997