ANNUITY & LIFE RE HOLDINGS LTD, 424B1, 1998-04-09

ANNUITY & LIFE RE HOLDINGS LTD
424B1, 1998-04-09
LIFE INSURANCE

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<PAGE> 1

Filed Pursuant to Rule 424B1
Registration No. 333-43301
PROSPECTUS
- --------------------------------------------------------------------------------
17,078,765 Shares
ANNUITY AND LIFE RE (HOLDINGS), LTD.
Common Shares
- --------------------------------------------------------------------------------

All of the 17,078,765 common shares, par value $1.00 per share (the "Common
Shares"), offered hereby (the "Offering") are being sold by Annuity and Life Re
(Holdings), Ltd. (the "Company"). Prior to the Offering, the Company has not
conducted any business and there has been no public market for the Common
Shares.

In connection with the formation of the Company and the establishment of a core
group of strategic investors, The Prudential Insurance Company of America, EXEL
Limited, Risk Capital Reinsurance Company, Insurance Partners, L.P. and
Insurance Partners Offshore (Bermuda), L.P. (collectively, the "Strategic
Investors") have severally agreed to purchase for investment directly from the
Company an aggregate of 5,638,299 Common Shares and Class B Warrants to purchase
an aggregate of 397,500 Common Shares. Such purchases will be consummated
simultaneously with the consummation of the Offering for an aggregate purchase
price for the Common Shares and the Class B Warrants of $79.5 million. The
aggregate purchase price to be paid by the Strategic Investors is based on a
price of $14.10 for (i) one Common Share and (ii) the right to purchase
approximately seven one-hundredths of a Common Share under the Class B Warrants.
The exercise price for the Class B Warrants will be $15.00 per share. The
closing of the Offering made hereby is conditioned upon the closing of sales by
the Company to the Strategic Investors of Common Shares and related Class B
Warrants with an aggregate purchase price of at least $50.0 million.

The Company is also offering by a separate prospectus up to 221,121 Common
Shares directly to certain of its directors and officers at a price per share
equal to the initial public offering price per share, less the per share
underwriting discounts and commissions, for an aggregate purchase price if all
such purchases are made of approximately $3.1 million. Any such purchases are
also expected to be consummated simultaneously with the consummation of the
Offering. The offering to such directors and officers, together with the
purchases by the Strategic Investors, are referred to in this Prospectus as the
"Direct Sales." See "Direct Sales."

The Common Shares have been approved for quotation in The Nasdaq Stock Market's
National Market (the "Nasdaq National Market") under the symbol "ALREF," subject
to final notice of issuance.

The Common Shares offered hereby are subject to limitations on ownership,
transfers and voting rights which, among other things, generally prevent
transfers to holders beneficially owning 10% or more of the Common Shares of the
Company (other than as described herein), require divestiture of Common Shares
to reduce the beneficial ownership of any holder to less than 10% of the Common
Shares of the Company and reduce the voting power of any holder beneficially
owning 10% or more of the Common Shares of the Company to less than 10% of the
total voting power of the Company's capital stock. See "Description of Capital
Stock."

SEE "RISK FACTORS" ON PAGES 9 TO 17 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON SHARES
OFFERED HEREBY.
- --------------------------------------------------------------------------------

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>
=============================================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Common Share............... $15.00 $0.90 $14.10
- -------------------------------------------------------------------------------------------------------------
Total(3)....................... $256,181,475 $15,370,888 $240,810,587(4)
=============================================================================================================
</TABLE>

(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting certain advisory fees and offering expenses payable by the
Company estimated to be $4,200,000. See "Use of Proceeds."
(3) The Company has granted the several Underwriters a 30-day over-allotment
option to purchase up to 2,561,814 additional Common Shares on the same
terms and conditions as set forth above. If all such additional shares are
purchased by the Underwriters, the total Price to Public will be
$294,608,685, the total Underwriting Discounts and Commissions will be
$17,676,521 and the total Proceeds to Company will be $276,932,164. See
"Underwriting."
(4) Assuming completion of all the Direct Sales, the total proceeds to the
Company will be $323,428,393. If the Underwriters' over-allotment option
described above is exercised in full, the total proceeds to the Company
including the Direct Sales will be $359,549,970. See "Direct Sales."
- --------------------------------------------------------------------------------
The Common Shares are offered by the several Underwriters subject to delivery by
the Company and acceptance by the Underwriters, to prior sale and to withdrawal,
cancellation or modification of the offer without notice. Delivery of the shares
to the Underwriters is expected to be made through the facilities of The
Depository Trust Company, New York, New York, on or about April 15, 1998.
------------------------
Joint Lead Managers and Joint Bookrunners
PRUDENTIAL SECURITIES INCORPORATED MERRILL LYNCH & CO.
------------------------
BT ALEX. BROWN
CIBC OPPENHEIMER
SCHRODER & CO. INC.
April 8, 1998
<PAGE> 2

CONSENT UNDER THE EXCHANGE CONTROL ACT 1972 (AND REGULATIONS THEREUNDER) HAS
BEEN OBTAINED FROM THE BERMUDA MONETARY AUTHORITY FOR THE ISSUE AND TRANSFER OF
THE COMMON SHARES BEING OFFERED PURSUANT TO THIS OFFERING. 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. 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 PROPOSAL OR FOR THE CORRECTNESS OF ANY OF THE STATEMENTS MADE
OR OPINIONS EXPRESSED HEREIN.

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

In this Prospectus, amounts are expressed in United States dollars and the
financial statements contained herein have been prepared in accordance with
United States generally accepted accounting principles ("GAAP").

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES,
INCLUDING PURCHASES OF THE COMMON SHARES TO STABILIZE ITS MARKET PRICE,
PURCHASES OF THE COMMON SHARES TO COVER SOME OR ALL OF A SHORT POSITION IN THE
COMMON SHARES MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

2
<PAGE> 3

ENFORCEABILITY OF CIVIL LIABILITIES
UNDER UNITED STATES FEDERAL SECURITIES LAWS

The Company is organized pursuant to the laws of Bermuda. In addition,
certain of the directors and officers 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 and the assets of the Company are or may be located in
jurisdictions outside the United States. In particular, Annuity and Life
Reassurance, Ltd., the Company's sole subsidiary, through which the Company
expects to conduct all its operations, is also a Bermuda corporation. Therefore,
it may be difficult for investors to effect service of process within the United
States upon such persons or to recover against the Company or such persons on
judgments of courts in the United States, including judgments predicated upon
the civil liability provisions of the United States federal securities laws.
However, the Company may be served with process in the United States with
respect to actions against it arising out of or in connection with violations of
United States federal securities laws relating to offers and sales of Common
Shares made hereby by serving CT Corporation System, 1633 Broadway, New York,
New York 10019, its United States agent irrevocably appointed for that purpose.

The Company has been advised by Conyers Dill & Pearman, its Bermuda
counsel, that there is doubt as to whether the courts of Bermuda would enforce
(i) judgments of United States courts obtained in actions against the Company or
its directors and officers, as well as the experts named herein, who reside
outside the United States predicated upon the civil liability provisions of the
United States federal securities laws, or (ii) original actions brought in
Bermuda against the Company or such persons predicated solely upon United States
federal securities laws. The Company has also been advised by Conyers Dill &
Pearman that there is no treaty in effect between the United States and Bermuda
providing for such enforcement, and there are grounds upon which Bermuda courts
may not enforce judgments of United States courts. Certain remedies available
under the laws of United States jurisdictions, including certain remedies
available under the United States federal securities laws, may not be allowed in
Bermuda courts as contrary to that nation's public policy.

3
<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements,
including the notes thereto, included elsewhere in this Prospectus. Unless the
context otherwise requires, references herein to the "Company" mean Annuity and
Life Re (Holdings), Ltd., together with its wholly-owned subsidiary, Annuity and
Life Reassurance, Ltd. ("Annuity Reassurance"), through which the Company
expects to conduct all its operations. The Company and Annuity Reassurance were
incorporated on December 2, 1997 in Bermuda and neither has any operating
history. Annuity Reassurance has been licensed in Bermuda as a long-term
insurer, which license authorizes it to write reinsurance on annuity and life
insurance-related risks. See "Glossary of Selected Annuity and Life Insurance
Terms" for definitions of certain terms used in this Prospectus. Unless
otherwise noted, this Prospectus assumes that the Underwriters' over-allotment
option will not be exercised.

THE COMPANY

The Company and Annuity Reassurance were recently organized in Bermuda to
provide annuity and life reinsurance. The Company intends to market its
reinsurance products to select insurers and reinsurers on a worldwide basis,
with its primary target market initially being North America. Upon consummation
of the Offering, the Company expects to be the first publicly-traded
Bermuda-based reinsurance company focused principally on writing annuity and
life reinsurance.

By focusing on annuity and life reinsurance, the Company will seek to
participate in what it believes to be a market with significant growth
potential. As of year end 1996, according to LIMRA International, Inc., an
independent research organization ("LIMRA"), United States annuity assets under
management totaled approximately $919 billion, and, according to A.M. Best
Company, Inc. ("A.M. Best"), approximately $17.6 trillion of life insurance was
in force in the United States. Management believes that annuity reinsurance
presents an attractive opportunity because of the large potential size of the
market coupled with the limited number of companies currently providing such
reinsurance on a third-party basis. Furthermore, management believes that the
demand for the Company's life reinsurance products should be aided by growth in
new life reinsurance business production which management estimates, based on
industry surveys, grew at a compounded annual rate of approximately 28% from
1993 to 1996, excluding retrocessional and group life reinsurance.

The Company's business strategy has been developed to respond to a number
of trends in the insurance and reinsurance industries, which trends management
believes are increasing the demand for annuity and life reinsurance, including:

- Increasing risk-based capital and reserve requirements being applied to
annuity issuers and life insurers by regulatory bodies and rating
agencies;

- Continuing consolidation in the annuity and life insurance industry,
including strategic decisions to divest large blocks of business through
the use of reinsurance;

- Increasing demutualization activity by mutual life insurers leading to
increasing demand for reinsurance;

- Growing use of multiple reinsurance partners by annuity issuers and life
insurers; and

- Expanding price sensitivity among purchasers of reinsurance.

Management believes that through controls on overhead costs and the absence of a
corporate level tax in Bermuda on the Company's revenues and earnings, the
Company will be able to capitalize on these trends by having one of the lowest
cost structures in the annuity and life reinsurance industry. The Company
expects that its low cost structure will enable it to offer its products at
attractive prices and to compete effectively in the annuity and life reinsurance
market.

4
<PAGE> 5

Upon consummation of the Offering and the Direct Sales, the Company will
have an equity capitalization of approximately $319.1 million. Management
believes that this level of capitalization will demonstrate a strong financial
position and a high level of commitment to the annuity and life reinsurance
market and will enable the Company to compete for desirable business and
establish long-term relationships with a select group of primary insurers and
reinsurers. As a newly-formed entity, the Company's capital is presently
unencumbered by issues of loss reserve adequacy, unrealized losses in its
investment portfolio and uncollectible reinsurance. In addition, although the
Company does expect that it may seek a working capital line of credit to finance
its operations, the Company does not presently have any indebtedness. In part
because of the Company's expected capitalization following the Offering and the
Direct Sales, A.M. Best has assigned Annuity Reassurance a preliminary Best
Rating of "A-" (Excellent), and Standard & Poor's Ratings Service ("Standard &
Poor's") and Duff & Phelps Credit Rating Co. ("Duff & Phelps") have assigned
Annuity Reassurance preliminary claims paying ability ratings of "A-" and "A,"
respectively. The A.M. Best and Duff & Phelps ratings are contingent on the
Company raising gross proceeds of $250 million in the Offering. The Standard &
Poor's rating is contingent on the Company raising gross proceeds of $200
million in the Offering. A.M. Best assigns an "A-" (Excellent) rating to
companies that have, in its opinion, on balance, excellent financial strength,
operating performance and market profile, as well as strong abilities to meet
their ongoing obligations to policyholders. Standard & Poor's assigns an "A-"
rating to companies that have, in its opinion, good financial security, but
their capacity to meet policyholder obligations is somewhat susceptible to
adverse economic and underwriting conditions. Duff & Phelps assigns an "A"
rating to companies that it characterizes as having high claims paying ability,
average protection factors and an expectation of variability in risk over time
due to economic or underwriting conditions. Each rating represents the
respective rating agency's opinion of the Company's ability to meet its
obligations to its policyholders.

The Company's principal executive office is located at Victoria Hall,
Victoria Street, P.O. Box HM1262, Hamilton, HM FX, Bermuda, and its telephone
number is (441) 296-7667.

BUSINESS STRATEGY

The Company's objective is to develop an efficient, low cost annuity and
life reinsurance business that will enable it to achieve attractive total rates
of return for its shareholders through prudent underwriting of insurance risks
and careful management of its investment portfolio. The Company will seek to
achieve this objective through the implementation of its business strategy, the
principal components of which are:

- - Maintain Low Cost Structure

Management believes that the price of reinsurance is the primary determinant
used by its potential clients in selecting an annuity or life reinsurer.
Consequently, a key component of the Company's business strategy is to
maintain a low cost structure. The Company intends to focus on writing
primarily treaty reinsurance and reinsuring large blocks of business where the
underlying policies meet the underwriting criteria of the primary insurer. The
Company anticipates that this focus will permit it to make fewer underwriting
assessments than would typically be required with respect to the underwriting
of a large number of individual policies. As a consequence, the Company
expects to limit its number of employees initially to approximately ten and to
use third-party service providers to perform certain functions. As a part of
this strategy, the Company has contracted with Marsh & McLennan Management
Services (Bermuda) Limited ("Marsh & McLennan") to provide claims processing
and other administrative services. By minimizing its personnel and overhead
costs, the Company expects to be better able to control expense levels as
market conditions for writing reinsurance fluctuate. In addition, the Company
also expects to benefit from the absence of a corporate level tax in Bermuda
on the Company's revenues and earnings. As a result of these factors, the
Company expects to have one of the lowest cost structures in the annuity and
life reinsurance industry.

- - Utilize a Disciplined Underwriting Approach

are mortality risk and investment risk. Mortality risk is actuarially
quantifiable when spread across large numbers of insureds. The Company will be
exposed to investment risk when the products it reinsures guarantee an
investment return or fixed benefit. The Company intends to manage these risks
by using modeling techniques to structure its investments in an effort to
match its anticipated liabilities under reinsurance policies. In addition, the
Company's underwriting guidelines limit the maximum aggregate net risk on any
one life to $1.0 million and require any purchaser of reinsurance from the
Company to retain at least 10% of the total risk being reinsured. Waivers of
the Company's underwriting guidelines, including waivers of the 10% retention
requirement, must be approved by the Company's Board of Directors. Initially,
the Company intends to supplement its underwriting analyses with commercially
available actuarial models and may retain consultants to assist in the
analysis of the risks that it reinsures, while it develops its own proprietary
models. The Company believes that its focus on annuity and life reinsurance
will enable it to structure its reinsurance products to meet the specific
requirements of its clients while managing its exposure to the risks being
assumed. Furthermore, the reinsurance of annuity and life insurance products
will not expose the Company to the catastrophic risks normally associated with
property/casualty reinsurance, which the Company does not intend to write.

- - Employ Professional Investment Management

The Company will seek to generate attractive levels of investment income
through a professionally managed fixed income investment portfolio. Annuity
Reassurance has entered into an investment advisory agreement with Pacific
Investment Management Company ("PIMCO"), which is anticipated to manage
initially approximately 50% of Annuity Reassurance's investment portfolio.
Annuity Reassurance has also retained Alliance Capital Management L.P. and The
Prudential Investment Corporation (together with PIMCO, the "Investment
Managers"). Annuity Reassurance may also retain other investment managers from
time to time. Each Investment Manager will have discretionary authority over
the portion of Annuity Reassurance's investment portfolio allocated to it,
subject to the investment guidelines established by Annuity Reassurance (the
"Investment Guidelines"). Annuity Reassurance's investment portfolio will
principally consist of investment grade fixed income securities and will be
invested in an effort to match Annuity Reassurance's anticipated liabilities
under the reinsurance policies it writes. Assets held in the investment
portfolio that Annuity Reassurance believes exceed such anticipated
liabilities, if any, will be invested in an attempt to maximize total return
as well as to provide for diversification of risk and maintenance of
liquidity, and up to 25% of such assets may be invested in fixed income
securities that are rated below investment grade. The Investment Guidelines
require Annuity Reassurance's overall fixed income portfolio to maintain a
minimum weighted average rating of "A." The Investment Guidelines prohibit any
investment in common equity securities or equity-based futures and options
other than pursuant to strategies intended to hedge the equity-based
investment risk associated with annuity and life insurance products which
Annuity Reassurance reinsures.

- - Capitalize on Skill and Experience of Management and Board of Directors

6
<PAGE> 7

Mr. Reale was assigned overall pricing responsibility for that company's
United States life and annuity reinsurance market. William W. Atkin, the Chief
Financial Officer and Treasurer of the Company, has over 24 years experience
in the insurance industry. Mr. Atkin formerly served as an Executive Vice
President, the Chief Financial Officer and a director of Security Mutual Life
Insurance Company of New York where he was responsible for that company's
operating plans, annuity product line and relationships with credit rating
agencies, investment advisors, banks and independent accountants. Richard
Tucker, a Vice President of the Company, has over 18 years of experience in
the insurance and reinsurance industries and was formerly a Senior Vice
President and a director of PaineWebber Life Insurance Company. While employed
by PaineWebber Life Insurance Company, Mr. Tucker was responsible for that
company's financial and administrative operations, development of variable
annuity products and negotiation of annuity reinsurance agreements. Robert P.
Mills, Jr., a Vice President and the Chief Actuary of the Company, has over 26
years of experience in the insurance and reinsurance industries. Mr. Mills was
formerly an Assistant Vice President and Actuary for Allmerica Financial where
he was responsible for reinsurance administration and pricing. The Company's
Board of Directors consists of several individuals with extensive experience
in the insurance and financial services industries. Management believes that
the reputation and expertise possessed by the Company's officers and directors
should provide the Company with a marketing advantage.

STRATEGIC INVESTORS

In connection with the formation of the Company, management determined it
would be desirable to have a core group of investors composed of companies in
the insurance or reinsurance industries. In furtherance of this goal, the
Company has entered into agreements with The Prudential Insurance Company of
America ("Prudential Insurance"), EXEL Limited ("EXEL"), Risk Capital
Reinsurance Company ("Risk Capital"), Insurance Partners, L.P. ("Insurance
Partners") and Insurance Partners Offshore (Bermuda), L.P. ("Insurance Partners
Offshore") for the purchase for investment directly from the Company of an
aggregate of 5,638,299 Common Shares and Class B Warrants to purchase an
aggregate of 397,500 Common Shares. Such purchases will be completed
simultaneously with the consummation of the Offering for an aggregate purchase
price for the Common Shares and the Class B Warrants of $79.5 million. The
aggregate purchase price to be paid by the Strategic Investors is based on a
price of $14.10 for (i) one Common Share and (ii) the right to purchase
approximately seven one-hundredths of a Common Share under the Class B Warrants.
The exercise price of the Class B Warrants will be $15.00 per share. Prudential
Insurance is the largest life insurance company in the United States based on
total assets at December 31, 1997. EXEL is a diversified Bermuda-based insurer
and reinsurer. Risk Capital provides reinsurance and other forms of capital,
either on a stand-alone basis or as part of integrated solutions for insurance
companies with capital needs that cannot be met by reinsurance alone. Insurance
Partners and Insurance Partners Offshore are investment partnerships formed to
sponsor acquisitions, recapitalizations, demutualizations and other structured
transactions in the property/casualty, life and health insurance and reinsurance
industries.

7
<PAGE> 8

THE OFFERING

<TABLE>
<S> <C>
Common Shares Offered in the Offering....................... 17,078,765 shares
Direct Sales(1)............................................. 5,859,420 shares
Common Shares to be Outstanding after the Offering and the
Direct Sales(2)........................................... 22,938,185 shares
Use of Proceeds from the Offering and the Direct Sales...... The net proceeds of the Offering
and Direct Sales will be
approximately $236.6 million and
$82.6 million, respectively.
Substantially all of the net
proceeds will be contributed to
the capital of Annuity Reassurance
to support its reinsurance
underwriting capacity. See "Use of
Proceeds."
Nasdaq National Market Symbol............................... ALREF
</TABLE>

- ---------------
(1) Unless otherwise noted, this Prospectus assumes that upon consummation of
the Offering the sale of 5,638,299 Common Shares and Class B Warrants to
purchase 397,500 Common Shares to the Strategic Investors has been completed
and the 221,121 Common Shares offered by the Company to certain of its
directors and officers have been purchased. Such directors and officers have
indicated their intention to make such purchases, but are not obligated to
do so.

(2) The Annuity Re Purpose Trust, a Bermuda trust (the "Purpose Trust"), owns
12,000 Common Shares, which constitute all of the currently outstanding
Common Shares. Upon consummation of the Offering, the Purpose Trust has
agreed to sell such Common Shares to the Company for an aggregate price of
$12,000 and such Common Shares will be cancelled. Common Shares to be
outstanding after the Offering and the Direct Sales excludes the 12,000
Common Shares currently held by the Purpose Trust, 2,752,573 Common Shares
issuable upon exercise of outstanding Class A Warrants, 397,500 Common
Shares issuable upon exercise of Class B Warrants to be included in the
Direct Sales, 1,250,461 Common Shares issuable upon exercise of options to
be granted to management and certain directors upon consummation of the
Offering and 161,139 Common Shares reserved for future issuance pursuant to
the Company's Initial Stock Option Plan (the "Stock Option Plan"). If the
Underwriters' over-allotment option is exercised in full, upon consummation
of the Offering and the Direct Sales 25,499,999 Common Shares will be
outstanding, the number of Common Shares issuable upon exercise of
outstanding Class A Warrants will increase to 3,059,990 Common Shares, the
number of Common Shares issuable upon exercise of options to be granted to
management and certain directors upon consummation of the Offering will
increase to 1,370,865 Common Shares and the number of Common Shares reserved
for future issuance pursuant to the Stock Option Plan will increase to
181,635 Common Shares. The number of Common Shares issuable upon exercise of
the Class B Warrants will not change if the Underwriters' over-allotment
option is exercised. The Class A Warrants, Class B Warrants and options are
not currently exercisable. See "Management -- Stock Option Plan,"
"Description of Capital Stock -- Warrants" and "Direct Sales."

RISK FACTORS

Businesses such as the Company which are in their initial stages of
development present substantial business and financial risks and may suffer
significant losses for reasons not anticipated by management. In addition, the
Company's business strategy has not been tested and may not succeed. Investors
should consider the material risk factors involved in connection with an
investment in the Common Shares and the impact to investors from various
circumstances which could adversely affect the Company's business. See "Risk
Factors."

8
<PAGE> 9

RISK FACTORS

An investment in the Common Shares involves a high degree of risk.
Prospective investors should carefully consider the following risk factors, in
addition to the other information set forth in this Prospectus, in connection
with the investment in the Common Shares.

When used in this Prospectus, the words "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "plan," "intend" and similar
expressions are intended to identify forward-looking statements regarding among
other things: (i) the Company's business and growth strategies; (ii) the
Company's relationship with third-party service providers and clients; (iii) the
use of the net proceeds of the Offering and the Direct Sales; (iv) trends in the
insurance and reinsurance industries; (v) government regulations; (vi) the
Company's financing plans; (vii) trends affecting the Company's financial
condition or results of operations; and (viii) the declaration and payment of
dividends. Prospective investors are cautioned that any forward-looking
statements are not guarantees of future performance and are subject to risks and
uncertainties and that actual results may differ materially from those included
within the forward-looking statements as a result of various factors. Factors
that could cause or contribute to such differences include, but are not limited
to, those described below, and under the heading "Management's Discussion and
Analysis of Financial Condition and Plan of Operations" and elsewhere in this
Prospectus.

START UP OPERATIONS; RELIANCE ON SERVICE PROVIDERS. The Company and
Annuity Reassurance were formed on December 2, 1997, and neither has any
operating history. Annuity Reassurance has been licensed in Bermuda as a
long-term insurer, which license authorizes it to write reinsurance on annuity
and life insurance-related risks. Businesses which are starting up or in their
initial stages of development present substantial business and financial risks
and may suffer significant losses. They must successfully develop business
relationships, establish operating procedures, hire staff and complete other
tasks appropriate for the conduct of their intended business activities.
Furthermore, the Company intends to have only a limited staff and at least
initially to outsource many functions, including claims processing and
investment management. The Company currently has retained Marsh & McLennan and
the Investment Managers to perform such functions. The Company will be dependent
upon the quality of the services provided by such firms. The inability of the
Company to retain qualified service providers or the failure of outside service
providers to perform adequately their functions could delay or prevent the
Company from fully implementing its business strategy or could otherwise
adversely affect the Company. See "Business."

COMPETITION AND FINANCIAL RATINGS. The reinsurance industry is highly
competitive. The Company will compete with major reinsurers, many 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 premium charges, the
general reputation and perceived financial strength of the reinsurers, other
terms and conditions of products offered, ratings assigned by independent rating
agencies, speed of claims payment and reputation and experience in the
particular line of reinsurance to be written. The Company has no experience in
competing against such other companies, and there can be no assurance that it
will be successful. Furthermore, because the Company expects to rely at least
initially on a small number of clients, its business may be more susceptible to
the adverse effects of competition from other reinsurers.

Insurance ratings are used by insurers and reinsurance intermediaries as an
important means of assessing the financial strength and quality of reinsurers.
In addition, the rating of a company purchasing reinsurance may be adversely
affected by an unfavorable rating or the lack of a rating of its reinsurer. The
Company has received a preliminary Best Rating of "A-" (Excellent) from A.M.
Best and preliminary claims paying ability ratings of "A-"and "A" from Standard
& Poor's and from Duff & Phelps, respectively. The A.M. Best and Duff & Phelps
ratings are contingent upon the Company raising gross proceeds of $250 million
in the Offering. The Standard & Poor's rating is contingent on the Company
raising gross proceeds of $200 million in the Offering. If the Company fails to
satisfy these conditions and consequently does not receive a final rating from
such firms, the Company's prospects would be adversely affected. See
"Business -- Competition."

DEPENDENCE ON KEY EMPLOYEES. The Company will be substantially dependent
in the implementation of its business strategy on Lawrence S. Doyle, the
President and Chief Executive Officer of the Company,

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Robert J. Reale, a Senior Vice President and the Chief Underwriter of the
Company, William W. Atkin, the Chief Financial Officer and Treasurer of the
Company, Richard Tucker, a Vice President of the Company, and Robert P. Mills,
Jr., a Vice President and the Chief Actuary of the Company. Messrs. Doyle,
Reale, Atkin, Tucker and Mills have each entered into an employment contract
with the Company for a term expiring three years after the consummation of the
Offering. See "Management -- Employment Agreements." The loss of the services of
these individuals, or the inability of the Company to hire and retain other
talented personnel, could delay or prevent the Company from fully implementing
its business strategy or could otherwise adversely affect the Company.

Under Bermuda law, non-Bermudians (other than spouses of Bermudians) may
not engage in any gainful occupation in Bermuda without an appropriate
Governmental work permit. Such a work permit may be granted or extended upon
showing that, after proper public advertisement, no Bermudian (or spouse of a
Bermudian) is available who meets the minimum standards for the advertised
position. Mr. Doyle, the President and Chief Executive Officer of the Company,
Mr. Reale, a Senior Vice President and the Chief Underwriter of the Company, and
Mr. Mills, a Vice President and the Chief Actuary of the Company, are working in
Bermuda under work permits which expire in 2003, 1999 and 2001, respectively.
Messrs. Atkin and Tucker have not yet been issued work permits. While the
Company is not currently aware of any reason why the work permits for these
officers would not be issued, there can be no assurance to that effect. The
failure of these work permits to be issued could adversely affect the Company.

MARKET FOR ANNUITY AND LIFE REINSURANCE. The market for annuities and many
life insurance products in the United States is based in large part on the
favorable tax treatment such products receive relative to certain other
investment alternatives. Any material change in such tax treatment, including
the imposition of a "flat tax" or a national sales tax in lieu of the current
federal income tax structure in the United States, would have an adverse effect
on the market for such products. The current budget proposal submitted to
Congress by the Clinton Administration includes certain provisions which, if not
modified, would reduce the tax advantages of certain annuity and life insurance
products. These provisions include a tax on exchanges between certain types of
annuity and life insurance products, including exchanges among investment
options within a variable annuity, and increased taxes on the owners of certain
corporate-owned life insurance policies. If these proposed tax changes were
enacted into law, they would adversely affect the Company. Furthermore, a
general economic downturn or a downturn in the equity and other capital markets
could adversely affect the market for many annuity and life insurance products.
If the market for annuities or life insurance were adversely affected, it would
likely depress the demand for reinsurance of annuities or life insurance, which
would have an adverse effect on the Company. In addition, the market for annuity
reinsurance products is currently not well developed and there can be no
assurance that such a market will develop in the future. As the Company is not
aware of any other publicly-traded reinsurance company that focuses on the
annuity reinsurance market to the extent the Company intends, the Company
expects to be more sensitive to adverse conditions in such market than such
other reinsurance companies.

INVESTMENT RISKS. Risk management and the success of the Company's
investment strategy are expected to be crucial to the success of the Company's
business. In particular, the Company's ability to structure its investments to
match its anticipated liabilities under reinsurance policies has not been
tested. Therefore, no assurance can be given that the Company will successfully
match the structure of its investments with its anticipated liabilities under
reinsurance policies. If the Company's calculations with respect to these
reinsurance liabilities are incorrect, or if it improperly structures its
investments to match such liabilities, it could be forced to liquidate
investments prior to maturity at a significant loss.

The Investment Guidelines also permit up to 25% of the portion of Annuity
Reassurance's investment portfolio, if any, in excess of the amounts allocated
to offset liabilities under reinsurance policies to be invested in below
investment grade fixed income securities. While any investment carries some
risk, the risks associated with lower-rated securities are greater than the
risks associated with investment grade securities. The risk of loss of principal
or interest through default is greater because lower-rated securities are
usually unsecured and are often subordinated to an issuer's other obligations.
Additionally, the issuers of these securities frequently have high debt levels
and are thus more sensitive to difficult economic conditions, individual
corporate developments and rising interest rates which could impair an issuer's
capacity or willingness to meet its

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financial commitment on such lower-rated securities. Consequently, the market
price of these securities may be quite volatile, and the risk of loss is
greater.

Annuity Reassurance may also from time to time purchase or sell common
equity securities or equity-based futures and options solely pursuant to
strategies intended to hedge the equity-based investment risk associated with
annuity and life insurance products which it reinsures. The failure of Annuity
Reassurance to match its equity investments accurately with its equity-based
liabilities could expose the Company to the volatility of the equity markets and
potential losses on such equity securities and equity-based futures and options.
In addition, the possible lack of liquidity for certain futures and options
could adversely affect the Company. See "Business -- Investment Strategy."

Annuity Reassurance has entered into an investment advisory agreement with
PIMCO, which firm is anticipated to manage initially approximately 50% of
Annuity Reassurance's investment portfolio. Annuity Reassurance has also
retained Alliance Capital Management L.P. and The Prudential Investment
Corporation. Annuity Reassurance may also retain other investment managers from
time to time. Each Investment Manager will have discretionary authority over the
portion of Annuity Reassurance's investment portfolio allocated to it, subject
to the Investment Guidelines adopted by Annuity Reassurance. The performance of
Annuity Reassurance's investment portfolio, therefore, will depend to a great
extent on the ability of the Investment Managers to select and manage
appropriate investments. There can be no assurance that the Investment Managers
will be successful in meeting the Company's investment objectives. See
"Business -- Investment Managers."

The success of any investment activity is affected by general economic
conditions, which may adversely affect the markets for interest-rate-sensitive
securities and equity securities, including the level and volatility of interest
rates and the extent and timing of investor participation in such markets.
Unexpected volatility or illiquidity in the markets in which Annuity Reassurance
directly or indirectly holds positions could adversely affect the Company.

REGULATION. Annuity Reassurance is a registered Bermuda insurance company
and is subject to regulation and supervision in Bermuda. Generally the Bermudian
statutes and regulations applicable to Annuity Reassurance are less restrictive
than those that would be applicable to Annuity Reassurance were it subject to
the insurance laws of any state in the United States. Among other things, the
Bermuda statutes and regulations require Annuity Reassurance to maintain minimum
levels of capital and surplus; prescribe solvency standards that it must meet;
limit transfers of ownership of its capital shares; and provide for the
performance of certain periodic examinations of Annuity Reassurance and its
financial condition. These statutes and regulations may, in effect, restrict the
ability of Annuity Reassurance to write reinsurance policies and distribute
funds to the Company. See "Business -- Regulation -- Bermuda."

Annuity Reassurance is not licensed or admitted as an insurer in any
jurisdiction except Bermuda. The insurance laws of each state in the United
States and of many other jurisdictions regulate the sale of insurance and
reinsurance within their jurisdiction by insurers, such as Annuity Reassurance,
which are not admitted to do business within such jurisdiction. With some
exceptions, the sale of insurance within a jurisdiction where the insurer is not
admitted to do business is prohibited. The Company expects to conduct its
business through its Bermuda office either directly or through intermediaries,
such as brokers and consultants. The Company does not intend to maintain an
office, and it does not expect its personnel to solicit, advertise, settle
claims or conduct other activities which may constitute the transaction of the
business of insurance, in any jurisdiction in which the Company is not licensed
or otherwise authorized to engage in such activities. However, there can be no
assurance that inquiries or challenges to the Company's insurance activities in
such jurisdictions 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 the Company. Furthermore, 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 appropriate security measures are in place, it is anticipated
that the Company's reinsurance clients will typically require it to post a
letter of credit or other collateral. Although the Company has received
commitments from two commercial banks to provide standby letter of credit
facilities, such commitments are subject to several conditions, including the
negotiation of definitive documentation. If

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<PAGE> 12

the Company is unable to obtain a letter of credit facility from such banks or
from other lenders on commercially acceptable terms, the Company's ability to
operate its business will be severely limited. See
"Business -- Regulation -- United States and Other" and
"Business -- Competition."

Recently, the insurance and reinsurance regulatory framework has become
subject to increased scrutiny in many jurisdictions, including the United
States, various states within the United States and elsewhere. In the past,
there have been Congressional and other initiatives in the United States
regarding increased supervision and regulation of the insurance industry,
including proposals to supervise and regulate reinsurers domiciled outside the
United States ("alien reinsurers"). If the Company were to become subject to any
insurance laws of the United States or any state thereof or of any other
jurisdiction at any time in the future, there can be no assurance that it would
be in compliance with such laws or that coming into compliance with such laws
would not have an adverse effect on the Company.

It is not possible to predict the future impact of changing law or
regulation on the operations of the Company. Such changes, if any, could have an
adverse effect on the Company.

HOLDING COMPANY STRUCTURE. The Company is a holding company and will not
conduct reinsurance operations of its own. The Company, at least initially, will
have no significant operations or assets other than its ownership of the capital
stock of Annuity Reassurance. Dividends and other permitted payments from
Annuity Reassurance are expected to be the Company's sole source of funds to pay
expenses and dividends, if any. The payment of dividends by Annuity Reassurance
to the Company is limited under Bermuda law and regulations, including Bermuda
insurance law. Under the Insurance Act 1978 of Bermuda, as amended, and related
regulations (the "Insurance Act"), Annuity Reassurance must maintain long-term
business assets with a value at least $250,000 greater than its long-term
business liabilities and is prohibited from declaring or paying dividends that
would result in non-compliance with such requirement. In addition, under the
Bermuda Companies Act 1981, the Company and Annuity Reassurance may only declare
or pay a dividend if there are reasonable grounds for believing that they are,
or would after the payment be, able to pay their respective liabilities as they
become due. Accordingly, there is no assurance that dividends will be declared
or paid by the Company in the future. See "Dividend Policy," "Management's
Discussion and Analysis of Financial Condition and Plan of
Operations -- Liquidity and Capital Resources" and "Business -- Regulation --
Bermuda."

FOREIGN CORPORATION, SERVICE OF PROCESS AND ENFORCEMENT OF JUDGMENTS. The
Company is organized pursuant to the laws of Bermuda. In addition, certain of
the directors and officers 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 and the assets of the Company are or may be located in
jurisdictions outside the United States. Although the Company has irrevocably
appointed an agent in the City of New York to receive service of process with
respect to actions against it arising out of or in connection with violations of
United States federal securities laws relating to offers and sales of Common
Shares in the Offering, it may be difficult for investors to effect service of
process within the United States upon such persons or to recover against them or
the Company on judgments of United States courts, including judgments predicated
upon civil liability provisions of the United States federal securities laws.
See "Enforceability of Civil Liabilities Under United States Federal Securities
Laws."

INCOME TAX RISKS

Taxation of the Company and Annuity Reassurance. The Company and Annuity
Reassurance are Bermuda corporations and neither intends to file United States
tax returns. The Company and Annuity Reassurance plan to operate in such a
manner that they will not be subject to United States tax (other than United
States excise tax on reinsurance premiums and withholding tax on certain
investment income from United States sources) because they do not intend to
engage in business in the United States. However, because definitive
identification of activities which constitute being engaged in trade or business
in the United States is not provided by the Internal Revenue Code of 1986, as
amended (the "Code"), or regulations or court decisions, there can be no
assurance that the Internal Revenue Service ("IRS") will not contend that

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<PAGE> 13

the Company and/or Annuity Reassurance is engaged in trade or business in the
United States. If the Company or Annuity Reasurrance were considered to be
engaged in business in the United States (and, if such company were to qualify
for benefits under the income tax treaty between the United States and Bermuda,
such business were attributable to a "permanent establishment" in the United
States), it would be subject to United States tax at regular corporate rates on
its taxable income that is effectively connected with its United States business
plus an additional 30% "branch profits" tax on such income remaining after the
regular tax, in which case there could be an adverse affect on the Company. See
"Certain Tax Considerations."

The United States currently imposes an excise tax on insurance and
reinsurance premiums paid to foreign insurers or reinsurers with respect to
risks located in the United States. In addition, the Company may be subject to
withholding tax on certain investment income from United States sources. There
can be no assurance that such taxes will not be increased or that other taxes
will not be imposed on the Company's business.

Controlled Foreign Corporation Rules. United States persons who may,
directly or through certain attribution rules, acquire 10% or more of the Common
Shares of the Company, should consider the possible application of the
"controlled foreign corporation" ("CFC") rules. (Such persons also should see
"Limitations on Ownership, Transfers and Voting Rights," below.) Each "United
States shareholder" of a CFC who owns shares in the CFC on the last day of the
CFC's taxable year generally must include in his gross income for United States
federal income tax purposes his pro-rata share of the CFC's "subpart F income,"
even if the subpart F income has not been distributed. For these purposes, any
United States person who owns directly or indirectly 10% or more of the voting
stock of a foreign corporation will be considered to be a "United States
shareholder." In general, a foreign insurance company such as Annuity
Reassurance is treated as a CFC only if such "United States shareholders"
collectively own more than 25% of the total combined voting power or total value
of the company's stock for an uninterrupted period of 30 days or more during any
year. The Company believes that, because of the anticipated dispersion of the
Company's share ownership among holders and because of the restrictions in the
Company's Bye-Laws on transfer, issuance or repurchase of the voting shares of
the Company, shareholders who acquire Common Shares in the Offering will not be
subject to treatment as "United States shareholders" of a CFC. In addition,
because under the Bye-Laws no single shareholder will be permitted to exercise
10% or more of the total combined voting power of the Company, shareholders of
the Company should not be viewed as "United States shareholders" of a CFC for
purposes of these rules. There can be no assurance, however, that these rules
will not apply to shareholders of the Company. See "Certain Tax Considerations."

Related Person Insurance Income Risks. If Annuity Reassurance's related
person insurance income ("RPII") determined on a gross basis were to equal or
exceed 20% of its gross insurance income in any taxable year and direct or
indirect insureds and persons related to such insureds were directly or
indirectly to own more than 20% of the voting power or value of Annuity
Reassurance's capital stock, a United States person who owns Common Shares in
the Company directly or indirectly on the last day of the taxable year may be
required to include in income for United States federal income tax purposes the
shareholder's pro-rata share of Annuity Reassurance's RPII for the taxable year,
determined as if such RPII were distributed proportionately to such United
States persons at that date. RPII is generally underwriting premium and related
investment income attributable to insurance or reinsurance policies where the
direct or indirect insureds are United States shareholders or are related to
United States shareholders of the insurance or reinsurance company issuing such
policies. Annuity Reassurance does not expect that it will knowingly enter into
reinsurance agreements in which, in the aggregate, the direct or indirect
insureds are, or are related to, owners of 20% or more of the Common Shares.
Furthermore, Annuity Reassurance does not currently believe that the 20% gross
insurance income threshold will be met in 1998 and subsequent years. However,
there can be no assurance that this will be the case. Consequently, there can be
no assurance that a United States person will not be required to include amounts
in its income in respect of RPII in any taxable year. See "Certain Tax
Considerations."

If a shareholder who is a United States person disposes of shares in a
foreign insurance corporation that has RPII (even if the amount of RPII is less
than 20% of the corporation's gross insurance income) and in

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<PAGE> 14

which United States persons own 25% or more of the voting power or value of the
corporation's shares, any gain from the disposition will generally be treated as
ordinary income to the extent of the shareholder's portion of the corporation's
undistributed earnings and profits that were accumulated during the period that
the shareholder owned the shares (potentially whether or not such earnings and
profits are attributable to RPII). In addition, such a shareholder will be
required to comply with certain reporting requirements, regardless of the amount
of shares owned by the shareholder. These rules should not apply to dispositions
of Common Shares because the Company is not itself directly engaged in the
insurance business and because proposed United States Treasury regulations
applicable to this situation appear to apply only in the case of shares of
corporations that are directly engaged in the insurance business. There can be
no assurance, however, that the IRS will interpret the proposed regulations in
this manner or that the proposed regulations will not be promulgated in final
form in a manner that would cause these rules to apply to dispositions of Common
Shares. See "Certain Tax Considerations."

Passive Foreign Investment Company Risks. To avoid significant potential
adverse United States federal income tax consequences for any United States
person who owns Common Shares of the Company, it is important that the Company
not constitute a "passive foreign investment company" (a "PFIC") in any year in
which such person is a shareholder. In general, a foreign corporation is a PFIC
for a taxable year if 75% or more of its income constitutes "passive income" or
50% or more of its assets produce passive income. "Passive income" generally
includes interest, dividends and other investment income. However, "passive
income" does not include 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. Because the Company, through Annuity
Reassurance, intends to be predominantly engaged in an insurance business and
does not intend to have financial reserves in excess of the reasonable needs of
its insurance business, the Company does not expect to meet the requirements for
a PFIC. There can be no assurance, however, that the IRS or a court will concur
in this view. See "Certain Tax Considerations."

Bermuda Taxes. The Company and Annuity Reassurance have each received an
assurance from the Bermuda Minister of Finance under The Exempted Undertakings
Tax Protection Act 1966 of Bermuda to the effect that if there is 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, Annuity Reassurance or to any of their operations or
the shares, debentures or other obligations of the Company or Annuity
Reassurance until March 2016. There can be no assurance that after such date the
Company or Annuity Reassurance would not be subject to any such tax.

LIMITATIONS ON OWNERSHIP, TRANSFERS AND VOTING RIGHTS. Except as described
below with respect to transfers of Common Shares executed on the Nasdaq National
Market, under the Company's Bye-Laws, the Company's directors (or their
designee) are required to decline to register any transfer of shares of the
Company, including Common Shares, if they have any reason to believe that such
transfer would result in a person (or any group of which such person is a
member) beneficially owning, directly or indirectly, 10% or more of any class of
shares of the Company. Similar restrictions apply to issuances and repurchases
of shares by the Company. The directors (or their designee) also may, in their
absolute discretion, decline to register the transfer of any shares if they have
reason to believe that such transfer may expose the Company, any subsidiary or
shareholder thereof or any person purchasing reinsurance from the Company to
adverse tax or regulatory treatment in any jurisdiction or if they have reason
to believe that registration of such transfer under the Securities Act of 1933,
as amended (the "Securities Act"), or under any blue sky or other United States
securities laws or under the laws of any other jurisdiction is required and such
registration has not been duly effected. A transferor of Common Shares will be
deemed to own such shares for dividend, voting and reporting purposes until a
transfer of such Common Shares has been registered on the Register of Members of
the Company. The Company is authorized to request information from any holder or
prospective acquiror of Common Shares as necessary to effect registration of any
such transaction, and may decline to register any such transaction if complete
and accurate information is not received as requested.

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<PAGE> 15

The Company's directors will not decline to register any transfer of Common
Shares executed on the Nasdaq National Market for the reasons described above.
However, if any transfer results in the transferee (or any group of which such
transferee is a member) beneficially owning, directly or indirectly, 10% or more
of any class of the Company's shares or causes the Company's directors (or their
designee) to have reason to believe that such transfer may expose the Company,
any subsidiary or shareholder thereof or any person purchasing reinsurance from
the Company to adverse tax or regulatory treatment in any jurisdiction, under
the Company's Bye-Laws, the directors (or their designee) are empowered to
deliver a notice to the transferee demanding that such transferee surrender to
an agent designated by the directors (the "Agent") certificates representing the
shares and any dividends or distributions that the transferee has received as a
result of owning the shares. A transferee who has resold the shares before
receiving such notice will be required to transfer to the Agent the proceeds of
the sale, to the extent such proceeds exceed the amount that the transferee paid
for the shares, together with any dividends or distributions that the transferee
received from the Company. As soon as practicable after receiving the shares and
any dividends or distributions that the transferee received, the Agent will use
its best efforts to sell such shares and any non-cash dividends or distributions
in an arm's-length transaction on the Nasdaq National Market. After applying the
proceeds from such sale toward reimbursing the transferee for the price paid for
the shares, the Agent will pay any remaining proceeds and any cash dividends and
distributions to organizations described in Section 501(c)(3) of the Code that
the directors designate. The proceeds of any such sale by the Agent or the
surrender of dividends or distributions will not inure to the benefit of the
Company or the Agent, but such amounts may be used to reimburse expenses
incurred by the Agent in performing its duties.

In addition, the Bye-Laws generally provide that any person (or any group
of which such person is a member) holding directly, or by attribution, or
otherwise beneficially owning voting shares of the Company carrying 10% or more
of the total voting rights attached to all of the Company's outstanding capital
shares, will have the voting rights attached to its voting shares reduced so
that it may not exercise more than approximately 9.9% of such total voting
rights. Because of the attribution provisions of the Code and the rules of the
Securities and Exchange Commission (the "Commission") regarding determination of
beneficial ownership, this requirement may have the effect of reducing the
voting rights of a shareholder whether or not such shareholder directly holds of
record 10% or more of the voting shares of the Company. Further, the directors
(or their designee) have the authority to request from any shareholder certain
information for the purpose of determining whether such shareholder's voting
rights are to be reduced. Failure to respond to such a notice, or submitting
incomplete or inaccurate information, gives the directors (or their designee)
discretion to disregard all votes attached to such shareholder's Common Shares.
See "Description of Capital Stock -- Common Shares."

NO PRIOR PUBLIC MARKET. Before the Offering there has been no public
market for the Common Shares. There can be no assurance that an active trading
market for the Common Shares will develop or be sustained following the
completion of the Offering or that the market price of the Common Shares will
not decline from the initial public offering price. The initial public offering
price for the Common Shares offered hereby was established by the Company and
the representatives of the Underwriters and may not be indicative of the market
price of the Common Shares after the Offering.

SHARES ELIGIBLE FOR FUTURE SALE. Upon completion of the Offering and the
Direct Sales, the Company will have outstanding 22,938,185 Common Shares, Class
A Warrants to purchase an aggregate of 2,752,573 Common Shares, Class B Warrants
to purchase an aggregate of 397,500 Common Shares and options to purchase an
aggregate of 1,250,461 Common Shares. If the Underwriters' over-allotment option
is exercised in full, 25,499,999 Common Shares will be outstanding, the number
of Common Shares issuable upon exercise of outstanding Class A Warrants will
increase to an aggregate of 3,059,990 Common Shares and the number of Common
Shares issuable upon exercise of outstanding options will increase to an
aggregate of 1,370,865 Common Shares. The number of Common Shares issuable upon
exercise of the Class B Warrants will not change if the Underwriters'
over-allotment option is exercised. The Class A Warrants, Class B Warrants and
options are not currently exercisable. See "Management -- Stock Option Plan,"
"Description of Capital Stock -- Warrants" and "Direct Sales." Except as
disclosed in "Description of Capital Stock -- Restrictions on Transfer" and as
discussed below with respect to the lock-up agreements, the Common Shares sold
in the Offering and any Common Shares sold in the Direct Sales to the Company's
directors and officers

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<PAGE> 16

will be freely transferable without restriction or further registration under
the Securities Act, except for any of those Common Shares owned by an
"affiliate" of the Company within the meaning of Rule 144 under the Securities
Act (which sales will be subject to volume limitations and certain other
restrictions). The Common Shares to be sold to the Strategic Investors in the
Direct Sales and the Common Shares underlying the Class A Warrants, the Class B
Warrants and the options are "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 registration. The
Strategic Investors, the holders of Class A Warrants and the holders of the
Class B Warrants have been granted rights to require the Company to register the
Common Shares purchased by the Strategic Investors in the Direct Sales and the
Common Shares underlying the Class A Warrants and the Class B Warrants, which
rights are not exercisable prior to the first anniversary of the consummation of
the Offering. The Company has agreed not to permit the acceleration of the
exercisability of such rights without the prior written consent of Prudential
Securities Incorporated and Merrill Lynch & Co. on behalf of the Underwriters.
The Company does intend to register the resale of the Common Shares underlying
the outstanding options promptly following the first anniversary of the
consummation of the Offering. The Company, its directors and officers, the
holders of Class A Warrants and the Strategic Investors have executed agreements
(the "lock-up agreements") under which they have agreed that they will not,
without the prior written consent of Prudential Securities Incorporated and
Merrill Lynch & Co. on behalf of the Underwriters and, in addition, in the case
of the Strategic Investors, the Company, directly or indirectly offer, sell,
offer to sell, contract to sell, transfer, assign, pledge, hypothecate, grant
any option to purchase, or otherwise sell or dispose (or announce any offer,
sale, offer of sale, contract of sale, transfer, assignment, pledge,
hypothecation, grant of any option to purchase or other sale or disposition) of
any Common Shares or other capital stock of the Company or any other securities
convertible into, or exercisable or exchangeable for, any Common Shares or other
capital stock of the Company for a period of one year after the date of this
Prospectus, except for Prudential Insurance, which has agreed to such
restrictions for a period of 180 days after the date of this Prospectus. Such
agreements do not prevent the Company from granting options under the Stock
Option Plan so long as such options are not exercisable until one year from the
date of this Prospectus. Prudential Securities Incorporated, Merrill Lynch & Co.
and the Company may, in their discretion at any time and without notice, jointly
release all or any portion of the securities subject to such lock-up agreements.
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 Common Shares in the public market following the
Offering, 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 at a price
which it deems appropriate. If the persons holding the Class A Warrants, Class B
Warrants or options cause a large number of the Common Shares underlying such
securities to be sold in the market, such sales could have an adverse effect on
the market price for the Common Shares. See "Shares Eligible for Future Sale."

IMPACT OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 115. Annuity
Reassurance's investment portfolio is expected to consist primarily of
securities considered available for sale within the meaning of Financial
Accounting Standards No. 115. Securities available for sale may be disposed of
to meet liquidity requirements, or for any other reason, and are carried in the
balance sheet at fair (or market) value. Changes in the market value of these
securities are accounted for through adjustments to shareholders' equity.
Although not currently planned, Annuity Reassurance's investment portfolio may
in the future consist of securities to be held to maturity within the meaning of
Financial Accounting Standards No. 115. Securities held to maturity may be
disposed of only under certain specific circumstances and are carried in the
balance sheet at amortized cost. If Annuity Reassurance's investment portfolio
contained one or more securities classified as held to maturity and Annuity
Reassurance had to sell any of those securities, then all such securities
remaining in the held to maturity portfolio would have to be transferred to the
available for sale portfolio. This would result in those securities immediately
being valued on the balance sheet at market value, and any difference between
the market value and amortized cost at the date of transfer would then be
recognized as an adjustment to shareholders' equity at that date. Depending on
the market conditions for such

16
<PAGE> 17

securities at the date of transfer, this could decrease the Company's reported
shareholders' equity and adversely affect the market price for the Common
Shares.

FOREIGN CURRENCY FLUCTUATIONS. The Company's functional currency is the
United States dollar. However, because the Company expects that it may write a
portion of its business and receive premiums in currencies other than United
States dollars and may maintain a small portion of its investment portfolio in
investments denominated in currencies other than United States dollars, the
Company may experience exchange losses to the extent its foreign currency
exposure is not properly managed or otherwise hedged, which in turn would
adversely affect the Company's statement of operations and financial condition.

17
<PAGE> 18

USE OF PROCEEDS

The net proceeds from the sale of the 17,078,765 Common Shares offered in
the Offering will be approximately $236.6 million (after deducting underwriting
discounts and commissions, certain advisory fees and other estimated expenses,
including payments to Inter-Atlantic Securities Corporation for its services and
reimbursement for certain expenses related to the Offering). See "Certain
Relationships and Related Party Transactions." The net proceeds from the Direct
Sales will be approximately $82.6 million. Substantially all of the net proceeds
of the Offering and the Direct Sales will be contributed to the capital of
Annuity Reassurance to support its reinsurance underwriting capacity and will be
invested in accordance with the Investment Guidelines. See
"Business -- Investment Strategy." Until so invested, such proceeds will be
invested in short-term, investment grade, interest-bearing securities.

18
<PAGE> 19

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company as of December 31, 1997, as adjusted for amounts payable upon
consummation of the Offering and as adjusted to give effect to the Offering and
the Direct Sales and the receipt of the proceeds therefrom. See "Use of
Proceeds."

<TABLE>
<CAPTION>
AS ADJUSTED FOR
AMOUNTS PAYABLE AS ADJUSTED FOR
UPON CONSUMMATION THE OFFERING AND THE
ACTUAL OF THE OFFERING DIRECT SALES(d)
------ ----------------- --------------------------
($ IN THOUSANDS)
<S> <C> <C> <C>
Preferred Shares, par value $1.00 per share
(50,000,000 shares authorized; no shares
outstanding; no shares outstanding as
adjusted).................................. $ -- $ -- $ --
Common Shares, par value $1.00 per share
(100,000,000 shares authorized; 12,000
shares outstanding; 22,938,185 shares
outstanding as adjusted for the Offering
and the Direct Sales)(a)................... 12 12 22,938
Additional paid-in capital................... 238 (3,962)(b) 296,528
Accumulated deficit.......................... -- (350)(c) (350)
---- ------- --------
Total shareholders' equity................. $250 $(4,300) $319,116
---- ------- --------
Total capitalization......................... $250 $(4,300) $319,116
==== ======= ========
</TABLE>

- ---------------
(a) The Purpose Trust owns 12,000 Common Shares, which constitute all of the
currently outstanding Common Shares. Upon consummation of the Offering, the
Purpose Trust has agreed to sell such Common Shares to the Company for an
aggregate price of $12,000 and such Common Shares will be cancelled. Common
Shares outstanding excludes 2,752,573 Common Shares issuable upon exercise
of outstanding Class A Warrants, 397,500 Common Shares issuable upon
exercise of the Class B Warrants to be included in the Direct Sales,
1,250,461 Common Shares issuable upon exercise of options to be granted to
management and certain directors upon consummation of the Offering and
161,139 Common Shares reserved for future issuance pursuant to the Stock
Option Plan. If the Underwriters' over-allotment option is exercised in
full, 25,499,999 Common Shares will be outstanding, the number of Common
Shares issuable upon exercise of outstanding Class A Warrants will increase
to 3,059,990 Common Shares, the number of Common Shares issuable upon
exercise of options to be granted to management and certain directors upon
consummation of the Offering will increase to 1,370,865 Common Shares and
the number of Common Shares reserved for future issuance pursuant to the
Stock Option Plan will increase to 181,635 Common Shares. The number of
Common Shares issuable upon exercise of the Class B Warrants will not change
if the Underwriters' over-allotment option is exercised. The Class A
Warrants, Class B Warrants and options are not currently exercisable. See
"Management -- Stock Option Plan," "Description of Capital Stock --
Warrants" and "Direct Sales."

(b)Reflects amounts payable upon consummation of the Offering of $2.0 million to
Inter-Atlantic Securities Corporation for certain advisory services related
to the Offering; $1.0 million to Prudential Securities Incorporated for
investment banking and financial advisory services related to the Offering;
and $1.2 million for estimated out-of-pocket expenses consisting of legal,
accounting and printing expenses as well as filing fees and other costs
related to the Offering.

(c)Reflects estimated expenses incurred by Inter-Atlantic Securities Corporation
in connection with the Company's operations in the period subsequent to
December 31, 1997 for which Inter-Atlantic Securities Corporation is entitled
to be reimbursed by the Company.

(d)Reflects 22,938,185 Common Shares sold in the Offering and the Direct Sales
and the receipt of the proceeds therefrom. Does not give effect to any
exercise of the Underwriters' over-allotment option and excludes the 12,000
Common Shares currently held by the Purpose Trust.

19
<PAGE> 20

DIVIDEND POLICY

The Company is a newly formed corporation and has not declared or paid any
cash dividends on its Common Shares. The Board of Directors of the Company
intends to declare and pay out of earnings a quarterly dividend of $.04 per
Common Share beginning at the end of the first full fiscal quarter following the
consummation of the Offering. It is the Company's policy to retain all earnings
in excess of such quarterly dividend to support the growth of its business. If
the Company's current and retained earnings do not support the payment of such
quarterly dividend, the dividend may be reduced or eliminated. In the event that
the Company makes a payment to shareholders in excess of its current and
retained earnings, such payment would be treated as a return of capital to
holders of the Common Shares. The declaration and payment of dividends by the
Company will be at the discretion of its Board of Directors and will depend upon
the Company's results of operations and cash flows, the financial position and
capital requirements of Annuity Reassurance, general business conditions, legal,
tax, regulatory and any contractual restrictions on the payment of dividends and
other factors the Board of Directors of the Company deems relevant. The
Company's ability to pay dividends depends on the ability of Annuity Reassurance
to pay dividends to the Company. While the Company is not itself subject to any
significant legal prohibitions on the payment of dividends, Annuity Reassurance
is subject to Bermuda regulatory constraints which affect its ability to pay
dividends to the Company. Accordingly, there is no assurance that dividends will
be declared or paid in the future. See "Management's Discussion and Analysis of
Financial Condition and Plan of Operations -- Liquidity and Capital Resources"
and "Business -- Regulation."

20
<PAGE> 21

DILUTION

Purchasers of the Common Shares offered in the Offering will experience an
immediate dilution in net tangible book value of their Common Shares from the
initial public offering price. After giving effect to the Offering and the
Direct Sales, the pro forma net tangible book value of the Common Shares (after
deducting underwriting discounts and commissions, certain advisory fees and
other estimated expenses of the Offering, including fees payable to
Inter-Atlantic Securities Corporation, as well as certain operating expenses
incurred since December 31, 1997) will be approximately $319.1 million, or
approximately $13.91 per outstanding share. This represents an immediate
dilution in net tangible book value to investors purchasing shares in the
Offering of approximately $1.09 per share, without taking into account any
Common Shares issuable upon exercise of Class A Warrants, Class B Warrants and
options. Pro forma "net tangible book value" per outstanding share represents
shareholders' equity divided by the number of outstanding Common Shares,
including the Common Shares issued in the Offering and the Direct Sales. The
following table illustrates this per share dilution:

<TABLE>
<S> <C>
Initial public offering price............................... $15.00
Pro forma net tangible book value per outstanding share upon
completion of the Offering and the Direct Sales(1)........ 13.91
------
Dilution to new investors in the Offering................... $ 1.09
======
</TABLE>

- ---------------
(1) Does not include 2,752,573 Common Shares issuable upon exercise of
outstanding Class A Warrants (3,059,990 Common Shares if the Underwriters'
over-allotment option is exercised in full), 397,500 Common Shares issuable
upon exercise of the Class B Warrants to be included in the Direct Sales,
1,250,461 Common Shares issuable upon exercise of options to be granted to
management and certain directors upon consummation of the Offering
(1,370,865 Common Shares if the Underwriters' over-allotment option is
exercised in full) and 161,139 Common Shares reserved for future issuance
under the Stock Option Plan (181,635 Common Shares if the Underwriters'
over-allotment option is exercised in full). The number of Common Shares
issuable upon exercise of the Class B Warrants will not change if the
Underwriters' over-allotment option is exercised. The Class A Warrants,
Class B Warrants and options are not currently exercisable. The exercise of
the Class A Warrants, Class B Warrants and the options to be granted to
management and certain directors upon consummation of the Offering are not
expected to be dilutive to purchasers of the Common Shares in the Offering
because the exercise price per share of such warrants and options is equal
to the initial public offering price per share. See "Management -- Stock
Option Plan," "Description of Capital Stock -- Warrants" and "Direct Sales."

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 Direct Sales and the Offering:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
AMOUNT PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Direct Sales................ 5,859,420 25.54% $ 82,617,822(a) 24.39% $14.10(b)
Offering.................... 17,078,765 74.46% $256,181,475 75.61% $15.00
---------- ------ ------------ ------ ------
Total....................... 22,938,185 100.00% $338,799,297 100.00% $14.77
========== ====== ============ ======
</TABLE>

- ---------------
(a) Represents amount paid in the aggregate for Common Shares and Class B
Warrants in the Direct Sales, of which approximately $1.6 million has been
estimated by the Company as the purchase price of the Class B Warrants.

(b) The average price per share is based on the number of Common Shares
purchased in the Direct Sales and does not take into account the Common
Shares underlying the Class B Warrants.

The calculations of net tangible book value and other computations above
assume no exercise of the Underwriters' over-allotment option.

21
<PAGE> 22

UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
The following unaudited pro forma consolidated balance sheet has been based
on the historical consolidated balance sheet of the Company as of December 31,
1997, and gives effect to the amounts payable upon consummation of the Offering
and to the receipt of the net proceeds of the Offering and the Direct Sales as
if they were consummated on December 31, 1997. The unaudited pro forma balance
sheet is based on assumptions management believes are reasonable. The unaudited
pro forma balance sheet is presented for informational purposes only and does
not purport to be indicative of the balance sheet data as of any future date.
The pro forma unaudited balance sheet should be read in conjunction with the
Company's historical consolidated balance sheet and notes thereto and other
information contained herein. As the Company had no operations on or prior to
December 31, 1997, pro forma consolidated statements of income and cash flows
are not presented.

PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997

(UNAUDITED)

<TABLE>
<CAPTION>
AS ADJUSTED AS ADJUSTED FOR
FOR AMOUNTS THE RECEIPT OF THE
PAYABLE UPON NET PROCEEDS OF
HISTORICAL CONSUMMATION OFFERING AND
INFORMATION OF THE OFFERING THE DIRECT SALES
----------- --------------- ------------------
<S> <C> <C> <C>
ASSETS
Cash.................................................. $250,000 $ 250,000 $319,466,393(f)
Deferred equity offering costs........................ 233,000 --(a) --
Capitalized organization costs........................ -- 75,000(b) 75,000
-------- ------------ ------------
Total Assets................................. $483,000 $ 325,000 $319,541,393
======== ============ ============
LIABILITIES
Accounts payable...................................... $233,000 $ 4,625,000(c) $ 425,000(g)
-------- ------------ ------------
Total Liabilities............................ $233,000 $ 4,625,000 $ 425,000
-------- ------------ ------------
STOCKHOLDERS' EQUITY
Preferred Shares (par value $1.00;
50,000,000 shares authorized;
no shares outstanding).............................. $ -- $ -- $ --
Common Shares (par value $1.00;
100,000,000 shares authorized; 12,000 shares
outstanding; 22,938,185 shares outstanding as
adjusted for the receipt of the net proceeds of the
Offering and the Direct Sales)...................... 12,000 12,000 22,938,185(h)
Additional paid-in capital............................ 238,000 (3,962,000)(d) 296,528,208(i)
Accumulated deficit................................... -- (350,000)(e) (350,000)
-------- ------------ ------------
Total stockholders' equity................... $250,000 $ (4,300,000) $319,116,393
======== ============ ============
Total liabilities and stockholders' equity............ $483,000 $ 325,000 $319,541,393
======== ============ ============
</TABLE>

- ---------------
(a) Reflects recognition of deferred equity offering costs upon consummation of
the Offering.
(b) Reflects estimated capitalized organization costs of $75,000 incurred in
forming and organizing the Company. It is the Company's policy to
capitalize those costs that have been incurred in the Company's formation
and organization and to amortize such costs to income over a period of five
years.
(c) Reflects amounts payable upon consummation of the Offering of $2.0 million
to Inter-Atlantic Securities Corporation for certain advisory services
related to the Offering; $1.0 million to Prudential Securities Incorporated
for investment banking and financial advisory services related to the
Offering; and $1.2 million for estimated out-of-pocket expenses consisting
of legal, accounting and printing expenses as well as filing fees and other
costs related to the Offering. Also reflects $75,000 of organization costs
and $350,000 of operating expenses incurred since December 31, 1997, both
of which are payable to Inter-Atlantic Securities Corporation as
reimbursement for costs incurred on the Company's behalf.

22
<PAGE> 23

(d) Reflects the estimated Offering costs described in footnote (c).
(e) Reflects the estimated operating expenses described in footnote (c).
(f) Reflects the proceeds of the Offering and the Direct Sales, less $12,000
which will be paid to the Purpose Trust in exchange for the Common Shares
it currently holds, net of the estimated Offering costs described in
footnote(c).
(g) Reflects payment of the estimated Offering costs described in footnote (c).
(h) Reflects 22,938,185 Common Shares sold in the Offering and the Direct
Sales, less the 12,000 Common Shares to be repurchased by the Company from
the Purpose Trust.
(i) Reflects additional paid-in capital received in the Offering and the Direct
Sales, net of the estimated Offering costs described in footnote (c).

23
<PAGE> 24

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

GENERAL

The Company and Annuity Reassurance were formed on December 2, 1997 under
the laws of Bermuda, and neither has any operating history. Annuity Reassurance
has been licensed in Bermuda as a long-term insurer, which license authorizes it
to write reinsurance on annuity and life insurance-related risks. Their fiscal
years end on December 31. The Company's financial statements are prepared in
accordance with GAAP.

LIQUIDITY AND CAPITAL RESOURCES

The Company will rely primarily on cash dividends from Annuity Reassurance
to pay its operating expenses and dividends, if any. The Board of Directors of
the Company intends to declare and pay out of earnings a quarterly dividend of
$.04 per Common Share beginning at the end of the first full fiscal quarter
following the consummation of the Offering. It is the Company's policy to retain
all earnings in excess of such quarterly dividend to support the growth of its
business. If the Company's current and retained earnings do not support the
payment of such quarterly dividend, the dividend may be reduced or eliminated.
In the event that the Company makes a payment to shareholders in excess of its
current and retained earnings, such payment would be treated as a return of
capital to holders of the Common Shares. The declaration and payment of
dividends by the Company will be at the discretion of its Board of Directors and
will depend upon the Company's results of operations and cash flows, the
financial position and capital requirements of Annuity Reassurance, general
business conditions, legal, tax, regulatory and any contractual restrictions on
the payment of dividends and other factors the Board of Directors of the Company
deems relevant. While the Company is not itself subject to any significant legal
prohibitions on the payment of dividends, Annuity Reassurance is subject to
Bermuda regulatory constraints which affect its ability to pay dividends to the
Company. Accordingly, there is no assurance that dividends will be declared or
paid in the future. See "Dividend Policy" and
"Business -- Regulation -- Bermuda."

The principal sources of funds for Annuity Reassurance's operations are
expected to be substantially all of the net proceeds of the Offering and the
Direct Sales, premiums, fees and net investment income, as well as maturities
and sales of invested assets. These funds are expected to be used primarily to
pay policy benefits, claims, operating expenses and commissions, as well as to
purchase new investments and, subject to Bermuda law, to make dividend payments
to the Company.

The principal risks associated with the reinsurance of both annuity and
life insurance products are mortality risk and investment risk. Mortality risk
is actuarially quantifiable when spread across large numbers of insureds. The
Company will be exposed to investment risk when the products it reinsures
guarantee an investment return or fixed benefit. The Company intends to manage
these risks by using modeling techniques to structure its investments in an
effort to match its anticipated liabilities under reinsurance policies. No
assurance can be given, however, that the Company will successfully match the
structure of its investments with its liabilities under reinsurance policies. If
the Company's calculations with respect to these reinsurance liabilities are
incorrect, or if it improperly structures its investments to match such
liabilities, it could be forced to liquidate investments prior to maturity at a
significant loss. Annuity Reassurance may also from time to time purchase or
sell common equity securities or equity-based futures and options solely
pursuant to strategies intended to hedge the equity-based investment risk
associated with the annuity and life insurance products which it reinsures. The
failure of Annuity Reassurance to match its equity investments accurately with
its equity-based liabilities could expose the Company to the volatility of the
equity markets and potential losses on such equity securities and equity-based
futures and options. In addition, the possible lack of liquidity for certain
futures and options could adversely affect the Company.

24
<PAGE> 25

post a letter of credit or other collateral. In the event that the Company
should default under the letter of credit facility, it may be required to
liquidate prematurely all or a substantial portion of its investment portfolio
and/or its other assets which have been pledged as security for the facility or
otherwise secure its obligations to its reinsureds, which would likely have a
material adverse effect on the Company. Although the Company has received
commitments from two commercial banks to provide standby letter of credit
facilities, such commitments are subject to several conditions, including the
negotiation of definitive documentation. If the Company is unable to obtain a
letter of credit facility from such banks or from different lenders on
commercially acceptable terms, the Company's ability to operate its business
will be severely limited.

The Company does not currently have any material commitments for any
capital expenditures over the next twelve months. Its principal expenditures are
expected to consist of settlement of claims, compensation expenses and payments
to third-party service providers.

Marsh & McLennan has informed the Company that the information systems it
will use on the Company's behalf are Year 2000 compliant. Although the Company
has not independently tested such compliance, the Company does not believe that
it will have to commit any material resources to address any deficiencies in its
information systems related to Year 2000 issues.

Pursuant to an agreement between Inter-Atlantic Securities Corporation and
the Company, Inter-Atlantic Securities Corporation has agreed to provide certain
services in connection with the formation of the Company, including assistance
in recruiting senior management and obtaining necessary governmental permits.
Furthermore, in return for certain services related to the Offering, including
assistance in preparing a registration statement for the Common Shares,
retaining underwriters in connection with the Offering and such other services
as the Company or Inter-Atlantic Securities Corporation deems appropriate, the
Company has agreed to pay Inter-Atlantic Securities Corporation a fee of $2.0
million upon consummation of the Offering. Pursuant to such agreement,
Inter-Atlantic Securities Corporation is also entitled to receive an annual fee
of $600,000 for services provided after the consummation of the Offering, which
is payable in quarterly installments commencing on the first anniversary of the
consummation of the Offering through the fifth anniversary of the consummation
of the Offering. In exchange for such annual fee, Inter-Atlantic Securities
Corporation will assist the Company in the development of products, financial
planning, management of assets and liabilities, international marketing efforts
and such other services as the Company may request.

The Company is also obligated to reimburse Inter-Atlantic Securities
Corporation for expenses it incurs in connection with performing services
related to the formation of the Company, the Offering and the Company's ongoing
operations. At December 31, 1997, Inter-Atlantic Securities Corporation had
incurred expenses in connection with the Company's organization of approximately
$75,000 and costs in connection with the Offering of approximately $633,000. The
Company has recorded as a deferred cost $233,000 of such expenses related to the
Offering on its December 31, 1997 balance sheet because such portion of the
expenses related to the Offering are reimbursable to Inter-Atlantic Securities
Corporation regardless of whether the Offering is successfully consummated. The
remaining $400,000 of expenses related to the Offering are not reimbursable to
Inter-Atlantic Securities Corporation unless the Offering is successfully
completed prior to June 30, 1998. If the Offering is successfully completed
prior to June 30, 1998, certain of these incurred but not currently payable
expenses may be paid directly by the Company rather than paid to Inter-Atlantic
Securities Corporation as a reimbursement. If the Offering is not successfully
completed prior to June 30, 1998, Inter-Atlantic Securities Corporation will
only be entitled to reimbursement of expenses incurred by it on or after
December 23, 1997. Upon consummation of the Offering, expenses incurred by
Inter-Atlantic Securities Corporation are currently estimated to be
approximately $1,625,000, of which approximately $75,000 relates to services
provided in connection with the formation of the Company, approximately $1.2
million relates to the Offering and approximately $350,000 relates to operating
expenses incurred on the Company's behalf. The expenses payable to
Inter-Atlantic Securities Corporation that relate to the formation of the
Company will be capitalized and amortized to income evenly over five years. The
fees and expenses payable to Inter-Atlantic Securities Corporation that relate
to services provided to the Company in connection with the Offering, including
the $2.0 million fee payable to Inter-Atlantic Securities Corporation, will be
deducted from the gross proceeds of the Offering. The annual fee of $600,000 and
the expenses payable to

25
<PAGE> 26

Inter-Atlantic Securities Corporation as reimbursement of operating expenses
incurred on the Company's behalf will be expensed by the Company when incurred.

Upon consummation of the Offering, the Company has agreed to pay Prudential
Securities Incorporated an advisory fee equal to $1.0 million (plus
reimbursement of related out-of-pocket expenses) for investment banking and
financial advisory services in connection with the Offering.

The Company expects that the proceeds of the Offering and Direct Sales will
permit it to begin implementation of its business strategy. Over time,
internally generated funds plus a working capital line of credit and the capital
base established by the Offering and Direct Sales are expected to be sufficient
to operate the Company's business, although no such working capital line has yet
been established and no assurance can be given that such a facility will be
obtained on terms acceptable to the Company. Consequently, the Company does not
presently anticipate that it will incur any material indebtedness in the
ordinary course of its business other than obtaining letters of credit as
security for its reinsurance agreements and a working capital line of credit.
However, there can be no assurance that the Company will not be required to
incur other indebtedness in order to implement its business strategy.

CURRENCY

The Company's functional currency is the United States dollar. However,
because the Company expects that it may write a portion of its business and
receive premiums in currencies other than United States dollars and may maintain
a small portion of its investment portfolio in investments denominated in
currencies other than United States dollars, the Company may experience exchange
losses to the extent its foreign currency exposure is not properly managed or
otherwise hedged, which in turn would adversely affect the Company's statement
of operations and financial condition. The Company will attempt to manage its
foreign currency risk by seeking to match its liabilities under reinsurance
policies that are payable in foreign currencies with investments that are
denominated in such currencies. Furthermore, the Company may use forward foreign
currency exchange contracts in an effort to hedge against movements in the value
of foreign currencies relative to the United States dollar. A forward foreign
currency exchange contract involves an obligation to purchase or sell a
specified currency at a future date at a price set at the time of the contract.
Foreign currency exchange contracts will not eliminate fluctuations in the value
of the Company's assets and liabilities denominated in foreign currencies but
rather allow the Company to establish a rate of exchange for a future point in
time. The Company does not expect that it will enter into such contracts with
respect to a material amount of its assets.

TAXATION

Bermuda does not currently impose a corporate level tax on the profits or
income of the Company, although it may do so in the future. The Company and
Annuity Reassurance have each received an assurance from the Bermuda Minister of
Finance under The Exempted Undertakings Tax Protection Act 1966 of Bermuda to
the effect that if there is 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, Annuity
Reassurance or to any of their operations or shares, debentures or other
obligations of the Company or Annuity Reassurance until March 2016. There can be
no assurance that after such date the Company or Annuity Reassurance would not
be subject to any such tax. See "Certain Tax Considerations -- Taxation of the
Company and Annuity Reassurance -- Bermuda." Because the Company and Annuity
Reassurance are not expected to conduct business in the United States, and
Annuity Reassurance will not be licensed to do business in the United States or
any other jurisdiction except Bermuda, and because Annuity Reassurance expects
to qualify for the benefits of the tax treaty between the United States and
Bermuda, it is not expected that the Company or Annuity Reassurance will be
subject to United States federal income taxes or any other corporate level tax.

The United States does impose 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 to be paid
to Annuity Reassurance is currently 1%. In addition, the Company may be

26
<PAGE> 27

subject to withholding tax on certain investment income from United States
sources, but the Company does not expect to incur such withholding taxes in any
material amounts. See "Certain Tax Considerations."

EFFECTS OF INFLATION

The effects of inflation on the Company will be implicitly considered in
pricing and estimating reserves for unpaid losses. The actual effects of
inflation on the results of the Company cannot be accurately known until claims
are ultimately settled.

27
<PAGE> 28

BUSINESS

By focusing on annuity and life reinsurance, the Company will seek to
participate in what it believes to be a market with significant growth
potential. As of year end 1996, according to LIMRA, United States annuity assets
under management totaled approximately $919 billion, and, according to A.M.
Best, approximately $17.6 trillion of life insurance was in force in the United
States. Management believes that annuity reinsurance presents an attractive
opportunity because of the large potential size of the market coupled with the
limited number of companies currently providing such reinsurance on a
third-party basis. Furthermore, management believes that the demand for the
Company's life reinsurance products should be aided by growth in new life
reinsurance business production which management estimates, based on industry
surveys, grew at a compounded annual rate of approximately 28% from 1993 to
1996, excluding retrocessional and group life reinsurance.

- Increasing risk-based capital and reserve requirements being applied to
annuity issuers and life insurers by regulatory bodies and rating
agencies;

- Continuing consolidation in the annuity and life insurance industry,
including strategic decisions to divest large blocks of business through
the use of reinsurance;

- Increasing demutualization activity by mutual life insurers leading to
increasing demand for reinsurance;

- Growing use of multiple reinsurance partners by annuity issuers and life
insurers; and

- Expanding price sensitivity among purchasers of reinsurance.

Upon consummation of the Offering and the Direct Sales, the Company will
have an equity capitalization of approximately $319.1 million. Management
believes that this level of capitalization will demonstrate a strong financial
position and a high level of commitment to the annuity and life reinsurance
market and will enable the Company to compete for desirable business and
establish long-term relationships with a select group of primary insurers and
reinsurers. As a newly-formed entity, the Company's capital is presently
unencumbered by issues of loss reserve adequacy, unrealized losses in its
investment portfolio and uncollectible reinsurance. In addition, although the
Company does expect that it may seek a working capital line of credit to finance
its operations, the Company does not presently have any indebtedness. In part
because of the Company's expected capitalization following the Offering and the
Direct Sales, A.M. Best has assigned Annuity Reassurance a preliminary Best
Rating of "A-" (Excellent), and Standard & Poor's and Duff & Phelps have
assigned Annuity Reassurance preliminary claims paying ability ratings of "A-"
and "A," respectively. The A.M. Best and Duff & Phelps ratings are contingent on
the Company raising gross proceeds of $250 million in the Offering. The Standard
& Poor's rating is contingent on the Company raising gross proceeds of $200
million in the Offering. A.M. Best assigns an "A-" (Excellent) rating to
companies that have, in its opinion on balance, excellent financial strength,
operating performance and market profile, as well as strong abilities to meet
their ongoing obligations to policy holders. Standard & Poor's assigns an "A-"
rating to companies that have, in its opinion, good financial security, but
their capacity to meet policyholder

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obligations is somewhat susceptible to adverse economic and underwriting
conditions. Duff & Phelps assigns an "A" rating to companies that it
characterizes as having high claims paying ability, average protection factors
and an expectation of variability in risk over time due to economic or
underwriting conditions. Each rating represents the respective rating agency's
opinion of the Company's ability to meet its obligations to its policyholders.

The Company's principal executive office is located at Victoria Hall,
Victoria Street, P.O. Box HM1262, Hamilton, HM FX, Bermuda, and its telephone
number is (441) 296-7667.

BUSINESS STRATEGY

- - Maintain Low Cost Structure

Management believes that the price of reinsurance is the primary determinant
used by its potential clients in selecting an annuity or life reinsurer.
Consequently, a key component of the Company's business strategy is to
maintain a low cost structure. The Company intends to focus on writing
primarily treaty reinsurance and reinsuring large blocks of business where the
underlying policies meet the underwriting criteria of the primary insurer. The
Company anticipates that this focus will permit it to make fewer underwriting
assessments than would typically be required with respect to the underwriting
of a large number of individual policies. As a consequence, the Company
expects to limit its number of employees initially to approximately ten and to
use third-party service providers to perform certain functions. As a part of
this strategy, the Company has contracted with Marsh & McLennan to provide
claims processing and other administrative services. By minimizing its
personnel and overhead costs, the Company expects to be better able to control
expense levels as market conditions for writing reinsurance fluctuate. In
addition, the Company also expects to benefit from the absence of a corporate
level tax in Bermuda on the Company's revenues and earnings. As a result of
these factors, the Company expects to have one of the lowest cost structures
in the annuity and life reinsurance industry.

- - Utilize a Disciplined Underwriting Approach

The Company's reinsurance underwriting strategy is to utilize an experienced
underwriting team to select opportunities with acceptable risk/return profiles
based on sophisticated actuarial and investment modeling techniques. The
principal risks associated with the reinsurance of both annuity and life
insurance products are mortality risk and investment risk. Mortality risk is
actuarially quantifiable when spread across large numbers of insureds. The
Company will be exposed to investment risk when the products it reinsures
guarantee an investment return or fixed benefit. The Company intends to manage
these risks by using modeling techniques to structure its investments in an
effort to match its anticipated liabilities under reinsurance policies. In
addition, the Company's underwriting guidelines limit the maximum aggregate
net risk on any one life to $1.0 million and require any purchaser of
reinsurance from the Company to retain at least 10% of the total risk being
reinsured. Waivers of the Company's underwriting guidelines, including waivers
of the 10% retention requirement, must be approved by the Company's Board of
Directors. Initially, the Company intends to supplement its underwriting
analyses with commercially available actuarial models and may retain
consultants to assist in the analysis of the risks that it reinsures, while it
develops its own proprietary models. The Company believes that its focus on
annuity and life reinsurance will enable it to structure its reinsurance
products to meet the specific requirements of its clients while managing its
exposure to the risks being assumed. Furthermore, the reinsurance of annuity
and life insurance products will not expose the Company to the catastrophic
risks normally associated with property/casualty reinsurance, which the
Company does not intend to write.

- - Employ Professional Investment Management

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investment portfolio. Annuity Reassurance has also retained Alliance Capital
Management L.P. and The Prudential Investment Corporation. Annuity Reassurance
may also retain other investment managers from time to time. Each Investment
Manager will have discretionary authority over the portion of Annuity
Reassurance's investment portfolio allocated to it, subject to Annuity
Reassurance's Investment Guidelines. Annuity Reassurance's investment
portfolio will principally consist of investment grade fixed income securities
and will be invested in an effort to match Annuity Reassurance's anticipated
liabilities under the reinsurance policies it writes. Assets held in the
investment portfolio that Annuity Reassurance believes exceed such anticipated
liabilities, if any, will be invested in an attempt to maximize total return
as well as to provide for diversification of risk and maintenance of
liquidity, and up to 25% of such assets may be invested in fixed income
securities that are rated below investment grade. The Investment Guidelines
require Annuity Reassurance's overall fixed income portfolio to maintain a
minimum weighted average rating of "A". The Investment Guidelines prohibit any
investment in common equity securities or equity-based futures and options
other than pursuant to strategies intended to hedge the equity-based
investment risk associated with annuity and life insurance products which
Annuity Reassurance reinsures.

- - Capitalize on Skill and Experience of Management and Board of Directors

The Company has assembled a senior management team of experienced insurance
and reinsurance professionals to implement its strategy. The Company's
President and Chief Executive Officer, Lawrence S. Doyle, has over 32 years of
experience in the insurance and reinsurance industries and was formerly the
President and Chief Executive Officer of a Bermuda-based start up reinsurance
Company, GCR. Mr. Doyle founded GCR in 1993 as a reinsurer specializing in
catastrophe risk and was largely responsible for the development of a new
client base, the hiring of marketing, underwriting and administrative
personnel and the overall development of the business. In 1997, GCR was
acquired by EXEL, and Mr. Doyle became an Executive Vice President of EXEL.
Before founding GCR, Mr. Doyle was Senior Vice President of Hartford Insurance
Group in charge of international operations, where he was employed for 27
years, the last six of which he was also the President of Hartford Fire
International. Robert J. Reale, a Senior Vice President and the Chief
Underwriter of the Company has over 19 years of experience in the insurance
and reinsurance industries and was formerly a Vice President of Swiss Re. Mr.
Reale also served as the President of Swiss-Am Reassurance Company and
Atlantic International Reinsurance Company (Barbados), both affiliates of
Swiss Re. While employed by Swiss Re, Mr. Reale was assigned overall pricing
responsibility for that company's United States life and annuity reinsurance
market. William W. Atkin, the Chief Financial Officer and Treasurer of the
Company, has over 24 years experience in the insurance industry. Mr. Atkin
served as an Executive Vice President, the Chief Financial Officer and a
director of Security Mutual Life Insurance Company of New York. While employed
by Security Mutual Life Insurance Company of New York, Mr. Atkin was
responsible for that company's operating plans, annuity product line and
relationships with credit rating agencies, investment advisors, banks and
independent accountants. Richard Tucker, a Vice President of the Company, has
over 18 years of experience in the insurance and reinsurance industries and
was formerly a Senior Vice President and a director of PaineWebber Life
Insurance Company. While employed by PaineWebber Life Insurance Company, Mr.
Tucker was responsible for that company's financial and administrative
operations, development of variable annuity products and negotiation of
annuity reinsurance agreements. Robert P. Mills, Jr., a Vice President and the
Chief Actuary of the Company, has over 26 years of experience in the insurance
and reinsurance industries. Mr. Mills was formerly an Assistant Vice President
and Actuary for Allmerica Financial where he was responsible for reinsurance
administration and pricing. The Company's Board of Directors consists of
several individuals with extensive experience in the insurance and financial
services industries. Management believes that the reputation and expertise
possessed by the Company's officers and directors should provide the Company
with a marketing advantage.

INDUSTRY TRENDS

The Company's business strategy has been developed to respond to a number
of trends in the insurance and reinsurance industries, which management believes
are increasing the demand for annuity and life reinsurance.

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As of year end 1996, according to LIMRA, United States annuity assets under
management totaled approximately $919 billion, and, according to A.M. Best,
approximately $17.6 trillion of life insurance was in force in the United
States. Management believes that annuity reinsurance presents an attractive
opportunity because of the large potential size of the market coupled with the
limited number of companies currently providing such reinsurance on a
third-party basis. Furthermore, management believes that the demand for the
Company's life reinsurance products should be aided by the growth in new life
reinsurance business production which management estimates, based on industry
surveys, grew at a compounded annual rate of approximately 28% from 1993 to
1996, excluding retrocessional and group life reinsurance.

In recent years, state insurance regulators in the United States have
established increasingly stringent reserve and capital requirements applicable
to outstanding insurance policies, which management believes has created
additional demand for reinsurance. For example, certain regulations have
recently been approved by individual states that are expected to increase
reserve requirements for many annuity and life insurance products, the most
prominent being the adoption by New York of Regulation 147, which sets higher
capital standards for certain products, including guaranteed renewable term life
insurance. Other states have adopted a version of the National Association of
Insurance Commissioners' Valuation of Life Insurance Policies Model Regulation,
which is similar to Regulation 147. Management believes that this trend towards
higher risk-based capital and reserve requirements will continue in the future
and that the Company will benefit from an associated increased demand for
reinsurance. In addition, rating agencies are emphasizing quality of capital, as
well as scale of core operations, efficiency and cost structure in determining
the financial strength of primary life insurers. Management believes that these
trends will also increase the demand for reinsurance as primary insurers seek to
improve their return on equity, level of efficiency and accessibility to
available capital.

Management expects that there will be continuing consolidation in the
annuity and life insurance industry. This trend is likely to increase the need
for reinsurance of annuity and life insurance products as acquirers seek to
restructure the resulting entities, focus on core markets and achieve better
leveraging of existing capital to improve financial performance. In addition,
primary insurers are expected to continue to seek reinsurance for large blocks
of business as part of an effort towards greater strategic focus on well-defined
product markets.

Furthermore, some mutual life insurers have announced plans to
"demutualize" during the upcoming years. Demutualization is a process by which a
mutual life insurer, a non-stock corporation owned by its policyholders, becomes
a shareholder-owned insurance company. As part of the demutualization process,
mutual life insurers will be subject to close examination by regulatory
authorities and the investing public. Once demutualized, such insurers will
generally be required to report public financial results on a quarterly basis.
Management believes that these factors will cause many such companies to
restructure their lines of business, to improve the quality of their reinsurance
as well as to generate higher levels of earnings by accelerating the reporting
of the results of profitable blocks of business through reinsurance.

Management also believes that the growing use of multiple reinsurance
partners by annuity issuers and life insurers will present opportunities for the
Company to market its reinsurance products. Primary insurers often prefer to
diversify their risk among multiple reinsurers so as to reduce their dependence
upon any one reinsurer.

Management further believes that expanding price sensitivity among
purchasers of reinsurance will favor the Company's reinsurance products. The
Company, because of its anticipated control of overhead costs and the absence of
a corporate level tax in Bermuda, is expected to have one of the lowest cost
structures in the annuity and life reinsurance industry. This anticipated low
cost structure is expected to enable the Company to offer its products at
attractive prices and to take advantage of this increasing price sensitivity
among purchasers of reinsurance.

OVERVIEW OF REINSURANCE

Reinsurance is an arrangement under which an insurance company (the
"reinsurer") agrees to indemnify or assume the obligations of another insurance
company (the "ceding company" or "cedent") for all or a portion of the insurance
risks underwritten by the ceding company. It is standard industry practice for
primary

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insurers to reinsure portions of their insurance risks with other insurance
companies under indemnity reinsurance agreements. Such practice permits primary
insurers to write policies in amounts larger than the risks they are willing to
retain. Reinsurance is generally designed to (i) reduce the net liability of the
ceding company on individual risks, thereby assisting the ceding company in
increasing the volume of business it can underwrite, as well as increasing the
maximum risk it can underwrite on a single life or risk; (ii) assist in
stabilizing operating results by leveling fluctuations in the ceding company's
loss experience; (iii) assist the ceding company in meeting applicable
regulatory capital requirements; (iv) assist in reducing the short-term
financial impact of sales and other acquisition costs; and (v) enhance the
ceding company's financial strength and statutory capital. Ceding companies
typically contract with more than one reinsurer to reinsure their business.

Reinsurance may be written on an indemnity or an assumption basis. However,
the Company presently expects to write only indemnity reinsurance. Indemnity
reinsurance does not discharge a ceding company from liability to the
policyholder; a ceding company is required to pay the full amount of its
insurance obligations regardless of whether it is entitled or able to receive
payments from its reinsurers. By contrast, reinsurance written on an assumption
basis effectively transfers the ceding company's obligations to the reinsurer
and, in some cases, eliminates the ceding company's further liability to the
insured. Reinsurers also may themselves purchase reinsurance, known as
retrocession reinsurance, to limit their own risk exposure. Reinsurance
companies enter into retrocession agreements with other reinsurers
("retrocessionaires") for reasons similar to those that cause primary insurers
to purchase reinsurance.

ANNUITY AND LIFE INSURANCE PRODUCTS TO BE REINSURED

The Company's primary business will be the reinsurance of the obligations
of insurers under annuity and life insurance contracts. The Company expects to
enter into reinsurance agreements with respect to cedents' obligations on one or
more of their individual and group annuity products, including fixed annuities,
variable annuities, equity-linked annuities, guaranteed investment contracts and
structured settlements, and individual life insurance products, including term
life insurance, universal life insurance, variable life insurance and whole life
insurance. The Company expects to write reinsurance both on a direct and
brokered basis with both primary annuity issuers and life insurers as well as
reinsurers.

When the Company enters into a reinsurance contract it will generally
receive periodic premium payments from the ceding company and will agree to
indemnify the ceding company for certain risks. Generally, the Company expects
to agree to indemnify the ceding company for a stated percentage of the ceding
company's risks associated with the reinsured business (often called "quota
share" or "proportional reinsurance"). The risks reinsured by the Company may
include mortality and investment risks and, to a lesser extent, early surrender
and lapse risks. Generally, most life reinsurance is written on a yearly
renewable term basis, where the predominant risk is the mortality of the
insured. However, most other types of fixed annuity and life reinsurance
typically contain a certain level of investment risk, with the reinsurer often
reinsuring a stated percentage of the ceding company's investment risk. The
Company's underwriting guidelines limit the maximum aggregate net risk on any
one life to $1.0 million and require any purchaser of reinsurance from the
Company to retain at least 10% of the total risk being reinsured. Waivers of the
Company's underwriting guidelines, including waivers of the 10% requirement,
must be approved by the Company's Board of Directors.

Annuity Products to be Reinsured

The Company expects to reinsure primarily "fixed" annuities, but may also
reinsure "variable" annuities from time to time. Fixed annuities are a type of
"general account" product because the assets backing fixed annuities are
recorded as part of the insurer's general funds and are subject to the claims of
its general creditors. In contrast, variable annuities are a type of "separate
account" product because the assets backing the variable annuities are placed in
segregated accounts and are generally not subject to the claims of the insurer's
general creditors. Annuities are long-term savings vehicles that generally are
marketed to customers over the age of 45 who are planning for retirement and
seeking secure, tax-deferred savings products. United States annuity products
generally enjoy an advantage over certain other retirement savings products
because the payment of United States federal income taxes on income credited on
annuity policies is deferred during

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the investment accumulation period. The current budget proposal submitted to
Congress by the Clinton Administration includes certain provisions which, if not
modified, would reduce the tax advantages of certain annuity products. These
provisions include a tax on exchanges between certain types of annuity products,
including exchanges among investment options within a variable annuity. These
tax changes would not affect holders of annuities that do not make such
exchanges. If these proposed tax changes are enacted into law, they would
adversely affect the Company. See "Risk Factors -- Market for Annuity and Life
Reinsurance."

General account annuities, which include equity-linked annuities, generally
have specified or minimum guaranteed performance levels. Consequently, general
account annuities involve a greater commitment of statutory surplus than
separate account annuities, as a reserve against the investment risk associated
with such policies, and therefore are more frequently reinsured. Separate
account annuities are investment vehicles that are held in segregated accounts
for the benefit of the policyholder and are not commingled with the other assets
of the insurance company. Holders of such annuities themselves generally bear
the risks of the underlying investments. The return on separate account
annuities depends solely on the performance of the assets underlying the
particular separate account and, therefore, require less capital reserves than
fixed annuities.

The Company also may reinsure certain structured settlement contracts and
guaranteed investment contracts. Structured settlement contracts typically
provide for periodic payments arising from the settlement of personal injury and
other legal claims and from lottery payouts. Structured settlement contracts, as
well as guaranteed investment contracts issued by insurance companies, are often
classified as annuities in that they require periodic payments over a specified
period of time.

Insurance companies offer a variety of annuity products including (i)
single premium deferred annuities ("SPDAs"), which, in general, are savings
vehicles in which the policyholder, or annuitant, makes a single premium payment
to an insurance company and the insurance company credits the account of the
annuitant with earnings at a specified interest rate (the "crediting rate")
which may exceed but may not be lower than any contractually guaranteed minimum
crediting rate, and (ii) flexible premium deferred annuities ("FPDAs"), which
are deferred annuities in which the policyholder may elect to make more than one
premium payment. In addition, certain insurance companies in the United States
market a variety of tax-qualified retirement annuities to individuals
participating in tax-qualified plans, including employees of public schools and
certain other tax-exempt organizations. Tax-qualified retirement annuities tend
to be purchased by customers who are younger than purchasers of other annuity
products.

Insurance companies that issue annuities generally incorporate a number of
features in their annuity products designed to reduce the early withdrawal or
surrender of the policies and to partially compensate the company for lost
investment opportunities and costs if policies are withdrawn early. Typically,
the policyholder is permitted to withdraw all or part of the premium paid plus
the amount credited to his or her account, less a penalty or surrender charge
for withdrawals. Often, an insurer's deferred annuity contract provides for
penalty-free partial withdrawals, typically up to 10% of the accumulation value
annually. Annuity policies typically impose some surrender charge during the
period ranging from the first five years to the term of the policy. The initial
surrender charge on annuity policies generally ranges from 5% to 10% of the
premium and decreases over the surrender charge period. Surrender charges are
set at levels intended to protect the issuer from loss caused by early
terminations and to reduce the likelihood of policyholders terminating their
policies during periods of increasing interest rates, thereby lengthening the
effective duration of policy liabilities and improving the issuer's ability to
maintain profitability on such policies.

Life Insurance Products to be Reinsured

The Company expects to reinsure traditional life insurance products, such
as term life and whole life, and also non-traditional products, including
variable life and universal life. A term life insurance policy is a pure
mortality risk insurance product with no investment component. A term life
insurance policy is generally renewable for a fixed number of years, but the
policy expires without value at the end of the stated period. A traditional
whole life insurance policy is permanent life insurance combining an investment
component along with a death benefit. The insurance company credits the
investment component of the whole life policy with

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interest, generally guaranteed, at regular intervals. Term life and whole life
policies are typically obligations of an insurance company's general account.

Variable life insurance provides a return linked to an underlying portfolio
in which policyholders are typically able to allocate their premiums among a
variety of investment funds. Like variable annuities, the assets backing
variable life insurance products are placed in separate accounts. As the total
return on the investment portfolio increases or decreases, as the case may be,
the death benefit or surrender value of the variable life policy may increase or
decrease. Single premium variable life products provide a death benefit to the
policy beneficiary based on a single premium deposit. Universal life and
interest-sensitive whole life insurance policies (which can either be single or
flexible premium policies) provide life insurance with adjustable rates of
return based on current interest rates. These policies provide policyholders
flexibility in the available coverage, timing and amount of premium payments and
the amount of the death benefit, provided there are sufficient policy funds to
cover all applicable policy charges.

The Company may also reinsure corporate owned life insurance ("COLI"). COLI
is life insurance purchased by a company on the life of its employees, with the
company named as the beneficiary under the policy. Through the purchase of COLI,
corporations have been able to use the favorable tax treatment of life insurance
to fund a variety of employee benefit liabilities such as post-retirement health
care and non-qualified benefit programs. The current budget proposal submitted
to Congress by the Clinton Administration includes certain provisions which, if
not modified, would increase taxes on the owners of certain COLI policies. If
these proposed tax changes were enacted into law, they could adversely affect
the Company; however, the Company does not expect the reinsurance of COLI
policies owned by United States persons to be a material portion of its
business. See "Risk Factors -- Market for Annuity and Life Insurance."

Like annuities, life insurance policies are subject to surrender. However,
they are generally less susceptible to surrender than are annuity contracts
because policyholders must generally undergo a new underwriting process and
incur new policy acquisition costs in order to obtain new life insurance
policies.

MARKETING

The Company has devised a marketing plan which calls for the development of
relationships with potential clients which management believes have a perceived
need for reinsurance based on regulatory filings, management's industry
knowledge and market trends. Given the nature of the Company's business, it
expects to target a limited number of potential clients which the Company
expects will be likely purchasers of its reinsurance products. Management
believes that these potential clients focus principally on price and, to a
lesser extent, service when making a decision between two or more reinsurance
companies offering similar products. The Company anticipates that it will be
able to capitalize on the relationships its officers and directors have
established in the insurance industry in the marketing of its products. The
Company also expects that its anticipated low cost structure will enable it to
offer its annuity and life reinsurance products at attractive prices. The
Company will also seek to compete on the basis of service by evaluating each
client's specific reinsurance needs and tailoring its reinsurance programs to
meet those needs, and by being responsive in processing claims. Initially, it is
anticipated that insurers and reinsurers located in North America will comprise
the majority of the Company's customers.

The Company may, from time to time, use intermediaries (reinsurance brokers
and consultants functioning as brokers) to enter into reinsurance treaties and,
to a lesser extent, facultative arrangements with ceding companies.
Intermediaries would generally not have the authority to bind the Company to any
reinsurance agreement, nor would the Company commit in advance to accept any
business generated by an intermediary. Any efforts of the intermediaries engaged
by the Company will be overseen and monitored by the Company's management and
Board of Directors. The Company has held discussions with several of such
intermediaries and has notified them of the Company's intention to write annuity
and life reinsurance upon completion of the Offering.

During its first year of operation, the Company expects to reinsure annuity
and life insurance-related business with a small number of ceding companies, and
five to ten ceding companies may represent a majority of the Company's
reinsurance activities.

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RETROCESSIONAL ARRANGEMENTS

The Company may reinsure, or retrocede, portions of certain risks for which
it has accepted liability. Retrocessional arrangements will allow the Company
greater underwriting capacity while limiting its risk profile. The Company's
current policy is not to retain a net liability on any one life in excess of
$1.0 million. Liability in excess of the established limit, if not approved by
the Board of Directors, will generally be retroceded to retrocessionaires.

UNDERWRITING

The Company's reinsurance underwriting strategy is to utilize an
experienced underwriting team to select opportunities with acceptable
risk/return profiles based on sophisticated actuarial and investment modeling
techniques. The principal risks associated with the reinsurance of both annuity
and life insurance products are mortality risk and investment risk. Mortality
risk is actuarially quantifiable when spread across large numbers of insureds.
The Company will be exposed to investment risk when the products it reinsures
guarantee an investment return or fixed benefit. The Company intends to manage
these risks by using modeling techniques to structure its investments in an
effort to match its anticipated liabilities under reinsurance agreements.
Initially, the Company intends to supplement its underwriting analyses with
commercially available actuarial models and may retain consultants to assist in
the analysis of the risks that it reinsures, while it develops its own
proprietary models. The Company believes that its focus on annuity and life
reinsurance will enable it to structure its reinsurance products to meet the
specific requirements of its clients while managing its exposure to the risks
being assumed. The underwriting process will be designed to specify an adequate
premium for a given exposure that is intended to be commensurate with the amount
of capital the Company estimates it is placing at risk. The Company's Chief
Executive Officer and Chief Underwriter will jointly approve all underwriting
decisions made under the Company's underwriting guidelines.

The Company has developed and its Board of Directors has approved
underwriting guidelines, with the objective of controlling the risks of the
reinsurance policies written as well as to determine appropriate pricing levels.
The Company's current underwriting guidelines include the following policies:
(i) the Company will not assume more than 90% of a risk and will require the
ceding company to retain at least 10% of every reinsured risk; (ii) the Company
will limit its net liability on any one life to no more than $1.0 million; (iii)
the ceding company must, among other things, be domiciled in the United States,
Canada, Western Europe, Australia or Bermuda, and possess underwriting and
claims practices consistent with industry practice; and (iv) the ceding company
may not exercise recapture rights for a period of ten years. The Company's
underwriting guidelines also provide that the Company may not write reinsurance
on, among other things: (i) group conversions, non-contractual conversions,
rollover or policy exchanges, or in cases in which full evidence and selection
criteria are not applied; (ii) policies that do not provide the maximum normal
levels of suicide and contestable periods; or (iii) business issued under an
experimental underwriting program or if the business to be reinsured is
comprised of more than 10% of substandard issues.

Any deviation from the Company's underwriting guidelines, as they may be
amended from time to time, will require the approval of the Board of Directors,
as will the approval of contracts in excess of a certain size or involving a
certain level of risk and contracts involving equity investment risks. In
approving contracts in excess of a certain size, the Board may also waive or
relax the requirement that cedents retain 10% of the reinsured risk. The Company
expects to review regularly its underwriting guidelines in light of changing
industry conditions, market developments and changes in technology. The Company
reserves the right at all times to amend, modify or supplement its underwriting
guidelines in response to such factors or for other reasons, including changing
the approved domiciles for reinsurance clients. The Company also will endeavor
to ensure that the underwriting guidelines of its ceding clients are compatible
with those of the Company. Toward this end, the Company anticipates that it will
periodically retain unaffiliated service providers to conduct reviews of the
Company's ceding clients' underwriting and claims personnel and procedures.

The Company will determine whether to assume any particular reinsurance
business by considering many factors, including the type of risks to be covered,
actuarial evaluations, historical performance data for the cedent and the
industry as a whole, the cedent's retention, the product to be reinsured,
pricing assumptions,

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underwriting standards, reputation and financial strength of the cedent, the
likelihood of establishing a long-term relationship with the cedent and the
market share of the cedent. Pricing of the Company's reinsurance products will
be based on the Company's actuarial models which incorporate a number of
factors, including assumptions for mortality, expenses, demographics,
persistency and investment returns, as well as certain macroeconomic factors,
such as inflation, and certain regulatory factors, such as taxation and minimum
surplus requirements.

REINSURANCE AGREEMENTS

Automatic and Facultative Treaties

Although the Company's reinsurance policies may be written on an automatic
treaty basis or a facultative basis, the Company expects to write policies
primarily on an automatic treaty basis. An automatic reinsurance treaty provides
that the ceding company will cede risks to a reinsurer on specified policies
where the underlying policies meet the ceding company's underwriting criteria.
The reinsurer does not approve each individual risk, but rather analyzes the
risks associated with the entire group of policies covered by the treaty.
Automatic reinsurance treaties generally provide that the reinsurer will be
liable for a stated portion of the risk associated with the specified policies
written by the ceding company and that the cedent will retain a specified
portion of the risk for its own account (the "retention"). Automatic reinsurance
treaties also specify the ceding company's mortality limit on an individual
life, which is the maximum amount of risk on a given life that can be ceded
automatically and that the reinsurer must accept. The mortality limit may be
stated either as a multiple of the ceding company's retention or as a stated
dollar amount. Automatic business tends to be very price-competitive.

The Company will generally require ceding companies to retain at least 10%
of every risk reinsured by the Company, thereby increasing the ceding companies'
incentive to underwrite risks with care and, when appropriate, to contest claims
diligently. The Company's reinsurance agreements may provide for rights of
recapture, which will permit the ceding company to increase the amount of
liability it retains on the reinsured policies after the policies have remained
in force for a designated period of time. Accordingly, an increase in the amount
of liability retained by the ceding company will decrease both the Company's
insurance in force and premiums to be received.

The Company intends to focus on writing primarily treaty reinsurance and on
reinsuring large blocks of business where the underlying policies meet the
underwriting criteria of the primary insurer. The Company anticipates that this
focus will permit it to make fewer underwriting assessments than would typically
be required with respect to the underwriting of a large number of individual
policies. As a consequence, the Company expects to limit its number of employees
initially to approximately ten and to use third-party service providers to
perform certain functions.

To a lesser extent, the Company may also enter into facultative reinsurance
arrangements. Facultative reinsurance is individually underwritten by the
reinsurer for each policy to be reinsured, with the pricing and other terms
established at the time the policy is underwritten based upon rates negotiated
in advance. Facultative reinsurance normally is purchased by insurance companies
for medically impaired lives, unusual risks or liabilities in excess of binding
limits on their automatic treaties. Facultative reinsurance requires
significantly more underwriting staff and other corporate infrastructure than
automatic treaty reinsurance.

Forms of Reinsurance

Annuity and life reinsurance may be written as coinsurance, modified
coinsurance or yearly renewable term insurance, which vary with the type of risk
assumed and the manner of pricing the reinsurance. Once a contract is reinsured,
it typically cannot be unilaterally removed from the reinsurance agreement,
except pursuant to a ceding company's recapture rights. Recapture rights permit
the ceding company to reassume all or a portion of the risk formerly ceded to
the reinsurer after an agreed-upon period of time (generally 10 years) and
subject to certain other conditions, including that the ceding company kept its
full retention.

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Under a coinsurance or modified coinsurance arrangement, the reinsurer
will, depending upon the terms of the contract, share in all material risks
inherent in the underlying policies, including the risk of loss due to
mortality, surrender and lapse, as well as investment performance. Under
modified coinsurance arrangements the ceding company retains ownership of the
assets supporting the reserves, whereas in coinsurance the ceding company
transfers the right to ownership of the assets supporting the reserves to the
reinsurer. Annuity reinsurance is traditionally written on a coinsurance or
modified coinsurance basis. Under coinsurance or modified coinsurance
arrangements, the Company's reinsurance agreements may remain in force for the
life of the underlying policies reinsured. In such cases, it is expected that
the Company would be entitled to renewal premiums absent the death of the
insured, voluntary surrender or lapse of the policy due to nonpayment of premium
or the recapture by the ceding company of the risks reinsured. Both the cedent
and the reinsurer generally have the right to terminate the agreement, with
respect to new policies only, upon reasonable notice. While annuity contracts
underlying coinsurance or modified coinsurance reinsurance are long-term
policies, they may or may not involve long-term investment risk. Management
estimates that a significant amount of annuity contracts currently underlying
reinsurance treaties call for an annual (or more frequent) reset of credited
interest rates to market rates.

Life reinsurance is primarily written on a yearly renewable term basis.
Under a yearly renewable term treaty, the reinsurer assumes only the mortality
risk. At the end of the year, premiums readjust based on the age of the policy
and the age of the insured.

Generally, the amount of life reinsurance ceded under reinsurance
agreements is stated on either an excess or a quota share basis. Reinsurance on
an excess basis covers amounts in excess of an agreed-upon retention limit.
Retention limits vary by ceding company and also vary by age and underwriting
classification of the insured, product and other factors. Under quota share or
"proportional" reinsurance, the ceding company states its retention in terms of
a fixed percentage of the risk that will be retained, with the remainder up to
the maximum binding limit to be ceded to one or more reinsurers. The Company
plans to write reinsurance on both excess and quota share bases.

The Company may occasionally reinsure insurance policies on an experience
rated basis, under which the ceding company receives a refund of a portion of
the profits (through the retention of future premiums) resulting from favorable
claims experience with respect to the underlying policies.

ADMINISTRATION

The Company has entered into a contract with Marsh & McLennan to provide
management, administrative and consulting services to the Company. These
services are anticipated initially to include: (i) policyholder services,
including the issuance, endorsement and cancellation of policies and the
collection of premiums; (ii) claims processing; (iii) analysis of reinsurance
programs; (iv) maintenance of the Company's books and records, the preparation
of periodic reports to the Company and the administration of payroll and
employee benefits; (v) maintenance of bank accounts; and (vi) preparation of
Bermuda governmental reports. The initial term of the contract expires on
December 31, 1998, and the contract is renewable annually thereafter. The
contract is subject to termination by either party at any time upon 90 days'
written notice. Pursuant to the contract, Marsh & McLennan is entitled to
receive fees based on hourly rates with a $15,000 per year minimum. In addition,
the Company has agreed to indemnify Marsh & McLennan with regard to certain
liabilities to which Marsh & McLennan may become subject in connection with
performing services for the Company. As the Company's business grows, management
expects that it may become more cost effective to retain additional employees to
perform some of the functions that will initially be provided by Marsh &
McLennan. Management believes that the contractual relationship with Marsh &
McLennan will provide the Company with the flexibility needed to add such
additional employees in an orderly fashion.

The Company may also employ third-party contractors to conduct periodic
audits of the underlying policies reinsured by the Company.

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RESERVES

In accordance with Bermuda insurance regulations, the Company will
establish and carry as liabilities actuarially determined reserves which will be
calculated to meet the Company's future obligations. Future policy benefits and
policy claims are expected to comprise the majority of the Company's financial
obligations and reserves therefor will be maintained on both a Bermuda
regulatory and GAAP basis. Future policy benefits will be based upon the
Company's best estimates of mortality, persistency and investment income, with
appropriate provision for adverse deviation and other factors. The liabilities
for future policy benefits established by the Company with respect to individual
risks or classes of business may be greater or less than those established by
ceding companies due to the use of different investment, mortality and other
assumptions. The Company's reserves will be computed at amounts that, with
additions from premiums to be received and with interest on such reserves
compounded annually at certain assumed rates, are expected to be sufficient to
meet the Company's policy obligations at their maturities or in the event of an
insured's death. Reserves may include unearned premiums, premium deposits,
claims reported but not yet paid, claims incurred but not reported and claims in
the process of settlement.

Coinsurance agreements regarding variable products will ordinarily require
the Company to establish separate accounts to hold policyholder-controlled
assets and liabilities. Such assets and liabilities will be segregated from the
Company's other assets and liabilities on both the Company's Bermuda regulatory
and GAAP statements. While the Company has legal responsibility for the proper
maintenance of such segregated accounts, the books and records of such accounts
initially will be maintained by Marsh & McLennan as part of its insurance
services contract with the Company.

The stability of the Company's annuity and interest-sensitive life
reinsurance reserves is expected to be enhanced by policy restrictions on
withdrawal of funds by policyholders. Withdrawals in excess of allowable
penalty-free amounts are generally assessed a surrender charge during a penalty
period, ranging from the first five years to the term of the policy.

INVESTMENT STRATEGY

Investments made by Annuity Reassurance will be governed by the Investment
Guidelines and by accounting regulations prescribed by Bermuda insurance laws
and regulations. Annuity Reassurance's investment portfolio will principally
consist of investment grade fixed income securities and will be invested in an
effort to match Annuity Reassurance's anticipated liabilities under the
reinsurance policies it writes. Assets held in the investment portfolio that
Annuity Reassurance believes exceed such anticipated liabilities, if any, will
be invested in an attempt to maximize total return as well as to provide for
diversification of risk and maintenance of liquidity, and up to 25% of such
assets may be invested in fixed income securities that are rated below
investment grade. While any investment carries some risk, the risks associated
with lower-rated securities are greater than the risks associated with
investment grade securities. The risk of loss of principal or interest through
default is greater because lower-rated securities are usually unsecured and are
often subordinated to an issuer's other obligations. Additionally, the issuers
of these securities frequently have high debt levels and are thus more sensitive
to difficult economic conditions, individual corporate developments and rising
interest rates which could impair an issuer's capacity or willingness to meet
its financial commitment on such lower-rated securities. Consequently, the
market price of these securities may be quite volatile, and the risk of loss is
greater. The Investment Guidelines require Annuity Reassurance's overall fixed
income investment portfolio to maintain a minimum weighted average rating of
"A." A fixed income security rated "A" by Standard & Poor's is somewhat
susceptible to the adverse effects of changes in circumstances and economic
conditions, however, the issuer's capacity to meet its financial commitment on
the security is still strong. The Company will not invest in any fixed income
securities in emerging markets or which are not rated by a major rating agency.

The Investment Guidelines also provide that Annuity Reassurance may
purchase, among other things, securities issued by the United States government
and its agencies and instrumentalities, securities issued by foreign governments
if rated "A" or better by at least one major rating agency, asset backed
securities,

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preferred stocks, mortgage backed securities and corporate debt securities
(including convertible debt securities), but may not include payment-in-kind
corporate securities.

Furthermore, the Investment Guidelines prohibit investments in (i) direct
real estate; (ii) oil and gas limited partnerships; (iii) commodities; (iv)
venture capital investments, including private equity or its equivalent; and (v)
United States investments consisting of (a) partnership interests, (b) residual
interests in Real Estate Mortgage Investment Conduits, (c) any "pass through"
certificate unless all underlying debt was issued on or after July 18, 1984, (d)
cash settlement options and forwards if no United States exchange traded future
on the same property exists, (e) options and forwards on indices which are not
traded on United States exchanges, (f) collateralized mortgage obligations,
unless issued with an opinion of counsel stating that such obligations will be
considered debt for tax purposes, (g) real property interests, including equity
in and convertible debt obligations of real property holding corporations the
sale of which would be subject to tax, (h) any tangible property, (i) any debt
obligation the interest on which does not qualify as "portfolio interest" or is
otherwise subject to United States withholding tax and (j) any investment that
does not qualify as a stock or security for purposes of Section 864(b)(2) of the
Code.

The Company will be exposed to two primary sources of investment risk on
its fixed income investments: credit risk, relating to the uncertainty
associated with the continued ability of a given obligor to make timely payments
of principal and interest, and interest rate risk, relating to the market price
and/or cash flow variability associated with changes in market interest rates.
The Company will seek to manage credit risk through industry and issuer
diversification and asset allocation. The Company will seek to manage interest
rate risk by structuring its investments to match its anticipated liabilities
under reinsurance agreements, and through the use of hedging techniques. The
reinsurance of certain products may obligate the Company to credit a return with
respect to a reinsured policy which is derived from a market or other benchmark
rate. In order to manage the investment risks associated with these products,
the Company may enter into interest rate hedges or other similar transactions.
The Company may also enter into hedges to reduce potential mismatch between
durations of assets and liabilities and offset the potential cash flow impact
caused by interest rate changes. The Investment Guidelines provide that the
fixed income investment portfolio may not be leveraged and that purchases of
securities on margin and short sales may not be made without approval from the
Finance and Investment Committee of the Company's Board of Directors.

The Finance and Investment Committee of the Company's Board of Directors
will periodically review Annuity Reassurance's investment portfolio and the
performance of the Investment Managers. The Finance and Investment Committee can
approve exceptions to the Investment Guidelines and will periodically review the
Investment Guidelines in light of prevailing market conditions. The Investment
Managers and the Investment Guidelines may change from time to time as a result
of such reviews.

INVESTMENT MANAGERS

Annuity Reassurance has entered into an investment advisory agreement with
PIMCO, which is anticipated to manage initially approximately 50% of Annuity
Reassurance's investment portfolio. Annuity Reassurance has also retained
Alliance Capital Management L.P. and The Prudential Investment Corporation. The
Company conducted extensive interviews with several investment management firms
before selecting the Investment Managers. The Investment Managers were selected
primarily based on their expertise in managing fixed-income investments. Each
Investment Manager will have discretionary authority over the portion of Annuity
Reassurance's investment portfolio allocated to it, subject to the Investment
Guidelines.

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PIMCO is one of the largest fixed income money managers in the United
States. PIMCO is a subsidiary of PIMCO Advisors L.P. According to information
supplied by PIMCO, as of December 31, 1997, PIMCO had aggregate assets under
management of approximately $118.0 billion, of which approximately 90% consisted
of fixed-income assets and approximately 10% consisted of equity-related assets.
The agreement with PIMCO will continue until December 31, 1999, although PIMCO
may terminate the agreement at any time upon 30 days' advance notice, and the
Company may terminate PIMCO's authority to manage the Company's investment
portfolio at any time, effective immediately upon notice, although PIMCO would
be entitled to its fees for 30 days after such notice is given. PIMCO is
entitled to receive a fee for its services at an annual rate between 0.50% and
0.20% of the value of the assets it manages on behalf of the Company.

Alliance Capital Management L.P. will receive a fee for its services at an
annual rate between 0.25% and 0.17% of the value of the assets it manages on
behalf of the Company and The Prudential Investment Corporation will receive a
fee for its services at an annual rate between 0.20% and 0.15% of the value of
the assets it manages on behalf of the Company. The exact fee rate charged by
each Investment Manager is dependent upon the amount of assets it manages on
behalf of the Company. The agreement with Alliance Capital Management L.P. may
be terminated by either party upon 30 days' prior written notice. The agreement
with The Prudential Investment Corporation may be terminated by the Company
without advance notice and by The Prudential Investment Corporation upon 45
days' prior written notice.

COMPETITION

The reinsurance industry is highly competitive, and the Company expects to
compete with the major reinsurers. The Company's initial target market will be
North America. According to management's estimates, there are approximately 25
reinsurers of annuity or life insurance products located in the United States.
There are also numerous foreign reinsurers which compete for reinsurance
business in the United States and abroad. These competitors primarily reinsure
life insurance and health insurance risks and, to a lesser degree, annuity
risks. Upon consummation of the Offering, the Company expects to be the first
publicly-traded Bermuda based reinsurance company that focuses principally on
writing annuity and life reinsurance. Most, if not all, of these competitors are
expected to compete for annuity and life reinsurance business in the future.
Most of these competitors are well established, have significant operating
histories and strong claims paying ability ratings, and have developed
long-standing client relationships through existing treaties with cedents.

Reinsurers compete on the basis of many factors, including premium charges,
the general reputation and perceived financial strength of the reinsurers, other
terms and conditions of the products offered, ratings assigned by independent
rating agencies, speed of claims payment and reputation and experience in the
particular line of reinsurance to be written. The Company believes that the
reinsurers with the largest market share in the United States annuity and life
reinsurance market include Lincoln National Corporation, Transamerica Occidental
Life Insurance Company, Reinsurance Group of America Inc., General Re Corp.,
Life Re Corp. and Employers Reassurance Corporation, and on a global basis also
include Swiss Reinsurance and Munich Reinsurance. The Company has no experience
in competing with such other companies and there can be no assurance that it
will be successful.

Insurance ratings are used by insurers and reinsurance intermediaries as an
important means of assessing the financial strength and quality of reinsurers.
In addition, a ceding company's own rating may be adversely affected by an
unfavorable rating or the lack of a rating of its reinsurer. A.M. Best has
assigned Annuity Reassurance a preliminary Best Rating of "A-" (Excellent), and
Standard & Poor's and Duff & Phelps have assigned Annuity Reassurance
preliminary claims paying ability ratings of "A-" and "A," respectively. The
A.M. Best and Duff & Phelps ratings are contingent on the Company raising gross
proceeds of $250 million in the Offering. The Standard & Poor's rating is
contingent on the Company raising gross proceeds of $200 million in the
Offering. A.M. Best assigns an "A-" (Excellent) rating to companies that have,
in its opinion, on balance, excellent financial strength, operating performance
and market profile, as well as strong abilities to meet their ongoing
obligations to policyholders. Standard & Poor's assigns an "A-" rating to
companies that have, in its opinion, good financial security, but their capacity
to meet policyholder obligations is somewhat susceptible to adverse economic and
underwriting conditions. Duff & Phelps assigns an "A" rating to

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companies that it characterizes as having high claims paying ability, average
protection factors and an expectation of variability in risk over time due to
economic or underwriting conditions. Each rating represents the respective
rating agency's opinion of the Company's ability to meet its obligations to its
policyholders.

Annuity Reassurance is not licensed or admitted as an insurer in any
jurisdiction other than Bermuda. 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 appropriate
security measures are in place, it is anticipated that the Company's reinsurance
clients will typically require it to post a letter of credit or other
collateral. Although the Company has received commitments from two commercial
banks to provide standby letter of credit facilities, such commitments are
subject to several conditions, including the negotiation of definitive
documentation. If the Company is unable to obtain a letter of credit facility
from such banks or from other lenders on commercially acceptable terms, the
Company's ability to operate its business will be severely limited.

PROPERTY

The Company has subleased office space in Hamilton, Bermuda from Marsh &
McLennan at which the principal offices of the Company and Annuity Reassurance
are located. The subleased office space consists of offices and work stations
for eight employees. The $5,000 monthly rent payable to Marsh & McLennan
includes utilities and certain office furnishings and equipment. The sublease is
scheduled to expire on December 31, 1998, and is renewable annually thereafter
by agreement of the parties, but it may be terminated at any time by either
party on 90 days' written notice.

LEGAL PROCEEDINGS

The Company is not currently involved in any litigation or arbitration. The
Company anticipates that it will be subject to litigation and arbitration in the
ordinary course of business.

REGULATION

Bermuda

The Insurance Act 1978, as amended, and Related Regulations. As a holding
company, the Company is not subject to Bermuda insurance regulations. The
Insurance Act, which regulates the insurance business of Annuity Reassurance,
provides that no person shall carry on an insurance business in or from within
Bermuda unless registered as an insurer under the Insurance Act by the Minister
of Finance (the "Minister"). The Minister, in deciding whether to grant
registration, has broad discretion to act as the Minister thinks fit in the
public interest. The Minister is required by the Insurance Act to determine
whether the applicant is a fit and proper body to be engaged in the insurance
business and, in particular, whether it has, or has available to it, adequate
knowledge and expertise. The registration of an applicant as an insurer is
subject to its complying with the terms of its registration and such other
conditions as the Minister may impose at any time.

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

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

Classification of Insurers. The Insurance Act distinguishes between
insurers carrying on long-term business and insurers carrying on general
business. As Annuity Reassurance has been incorporated to provide reinsurance of
annuity and life insurance-related risks, it has been registered as a long-term
insurer in Bermuda and will be regulated as such under the Insurance Act.

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An insurer carrying on long-term business is required to keep its accounts
in respect of its long-term business separate from any accounts kept in respect
of any other business and all receipts of its long-term business form part of
its long-term business fund. No payment may be made from an insurer's long-term
business fund for any purpose other than a purpose related to the insurer's
long-term business, except insofar as such payment can be made out of any
surplus certified by the insurer's approved actuary to be available for
distribution otherwise than to policyholders. No insurer carrying on long-term
business may declare or pay a dividend to any person other than a policyholder
unless the value of the assets in its long-term business fund as certified by
the insurer's approved actuary exceeds the liabilities of the insurer's
long-term business by at least the $250,000 margin prescribed by the Insurance
Act, and the amount of any such dividend may not exceed the aggregate of (i)
that excess, and (ii) any other funds properly available for payment of
dividends, such as funds arising out of business of the insurer other than
long-term business. See "Risk Factors -- Holding Company Structure."

Annuity Reassurance may not carry on general business (e.g., property
casualty, aviation and marine) without first being registered as a general
business insurer by the Minister under the Insurance Act. The Company has no
current intention to do so.

Cancellation of Insurer's Registration. An insurer's registration may be
cancelled by the Minister on certain grounds specified in the Insurance Act,
including failure of the insurer to comply with its obligations under the
Insurance Act or, if in the opinion of the Minister 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 in Bermuda.
The independent auditor of the insurer must be approved by the Minister and may
be the same person or firm which audits the insurer's financial statements and
reports for presentation to its shareholders. Annuity Reassurance's independent
auditor is KPMG Peat Marwick.

Approved Actuary. Annuity Reassurance, as a registered long-term insurer,
is required to submit an annual actuary's certificate when filing its Statutory
Financial Return. The actuary's certificate shall state whether or not, in the
opinion of the insurer's approved actuary, the aggregate amount of the
liabilities of the insurer in relation to long-term business as at the end of
the relevant year exceeded the aggregate amount of those liabilities as shown in
the insurer's statutory balance sheet. The approved actuary, who will normally
be a qualified life actuary, must be approved by the Minister. Annuity
Reassurance's approved actuary is John W. Rayner of Abbott Associates Limited.

Statutory Financial Statements. An insurer must prepare annual Statutory
Financial Statements. The Insurance Act prescribes rules for the preparation and
substance of such Statutory Financial Statements (which include, in statutory
form, a balance sheet, income statement, a statement of capital and surplus and
notes thereto). 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 United States 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 United States GAAP. An insurer is
required to submit the annual Statutory Financial Statements as part of the
annual Statutory Financial Return.

Minimum Solvency Margin. The Insurance Act provides that the value of the
long-term business assets of an insurer carrying on long-term business must
exceed the amount of its long-term business liabilities by at least $250,000.
The minimum statutory capital and surplus requirement of $250,000 was met at the
balance sheet date.

Annual Statutory Financial Return. Annuity Reassurance is required to file
with the Registrar of Companies in Bermuda a Statutory Financial Return no later
than four months after its financial year end (unless specifically extended).
Annuity Reassurance has been granted an exemption from such requirement

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for its financial year ended December 31, 1997 because it had not commenced
operations by such date. The Statutory Financial Return includes, among other
matters, a report of the approved independent auditor on the Statutory Financial
Statements of the insurer, a solvency certificate, the Statutory Financial
Statements themselves and a certificate of the approved actuary. The solvency
certificate must be signed by the principal representative and at least two
directors of the insurer who are required to certify whether the Minimum
Solvency Margin has been met, and the independent approved auditor is required
to state whether in its opinion it was reasonable for the directors to so
certify. Where an insurer's accounts have been audited for any purpose other
than compliance with the Insurance Act, a statement to that effect must be filed
with the Statutory Financial Return.

Supervision, Investigation and Intervention. The Minister may appoint an
inspector with extensive powers to investigate the affairs of an insurer if the
Minister 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 the Minister, the
Minister may direct an insurer to produce documents or information relating to
matters connected with the insurer's business.

If it appears to the Minister that there is a risk of the insurer becoming
insolvent, or that it is in breach of the Insurance Act or any conditions
imposed upon its registration, the Minister may, among other things, direct the
insurer (i) not to take on any new insurance business, (ii) not to vary any
insurance contract if the effect would be to increase the insurer's liabilities,
(iii) not to make certain investments, (iv) to realize certain investments, (v)
to maintain, or transfer to the custody of a specified bank, certain assets,
(vi) not to declare or pay any dividends or other distributions or to restrict
the making of such payments, and/or (vii) to limit its premium income.

An insurer is required to maintain a principal office in Bermuda and to
appoint and maintain a principal representative in Bermuda. For the purpose of
the Insurance Act, the principal office of Annuity Reassurance is at the
Company's offices in Hamilton, Bermuda, and Lawrence S. Doyle, the Company's
President and Chief Executive Officer, is the principal representative of
Annuity Reassurance. Without a reason acceptable to the Minister, an insurer may
not terminate the appointment of its principal representative, and the principal
representative may not cease to act as such, unless 30 days' notice in writing
to the Minister is given of the intention to do so. It is the duty of the
principal representative, within 30 days of reaching the view that there is a
likelihood of the insurer for which the principal representative acts becoming
insolvent or that a reportable "event" has, to the principal representative's
knowledge, occurred or is believed to have occurred, to make a report in writing
to the Minister setting out all the particulars of the case that are available
to the principal representative. Examples of such a reportable "event" include
failure by the insurer to comply substantially with a condition imposed upon the
insurer by the Minister relating to a solvency margin or a liquidity or other
ratio.

Certain Bermuda Law Considerations. The Company and Annuity Reassurance
have been designated as non-resident for exchange control purposes by the
Bermuda Monetary Authority whose permission for the issue and transfer of the
Common Shares has been obtained. This designation allows the Company and Annuity
Reassurance to engage in transactions, or to pay dividends to non-residents of
Bermuda who are holders of the Common Shares, in currencies other than the
Bermuda Dollar.

The transfer of the Common Shares between persons regarded as non-resident
in Bermuda for exchange control purposes and the issue of the Common Shares
after the completion of the Offering to such persons may be effected without
specific consent under the Exchange Control Act 1972 and regulations thereunder.
Issues and transfers of the Common Shares to any person regarded as resident in
Bermuda for exchange control purposes requires specific prior approval under the
Exchange Control Act 1972. The common shares of Annuity Reassurance cannot be
transferred without the consent of the Bermuda Monetary Authority.

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.
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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 "exempted companies," the Company and Annuity Reassurance are exempt
from Bermuda laws restricting the percentage of share capital that may be held
by non-Bermudians, but as exempted companies they may not participate in certain
business transactions, including (i) the acquisition or holding of land in
Bermuda (except that required for their 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, (iii)
the acquisition of any bonds or debentures secured by any land in Bermuda, other
than certain types of Bermuda government securities, or (iv) the carrying on of
business of any kind in Bermuda, including insuring domestic risks, except in
furtherance of their business carried on outside Bermuda, and, in the case of
Annuity Reassurance, reinsuring any long-term business risks undertaken by any
company incorporated in Bermuda and permitted to engage in the insurance and
reinsurance business, or under a license granted by the Minister.

United States and Other

In addition to the regulatory requirements imposed by the jurisdictions in
which a reinsurer is licensed, a reinsurer's business operations are affected by
regulatory requirements in other jurisdictions in which its ceding companies are
located governing "credit for reinsurance" which are imposed on its ceding
companies. In general, a ceding company which obtains reinsurance from a
reinsurer that is licensed, accredited or approved by the jurisdiction in which
the ceding company files statutory financial statements is permitted to reflect
in its statutory financial statements a credit in an aggregate amount equal to
the liability for unearned premiums and loss reserves and loss expense reserves
ceded to the reinsurers. Many jurisdictions also permit ceding companies to take
credit on their statutory financial statements for reinsurance obtained from
unlicensed or non-admitted reinsurers if adequate security is posted. Because
Annuity Reassurance is not licensed, accredited or approved in any jurisdiction
except Bermuda, Annuity Reassurance expects that its reinsurance contracts will
typically require it to post a letter of credit or other security.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The table below sets forth the names, ages and titles of the directors and
executive officers of the Company and Annuity Reassurance.

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY AND ANNUITY REASSURANCE
---- --- -------------------------------------------------
<S> <C> <C>
Lawrence S. Doyle.......... 54 President, Chief Executive Officer and Director
Robert J. Reale............ 41 Senior Vice President and Chief Underwriter
William W. Atkin........... 50 Chief Financial Officer and Treasurer
Richard Tucker(1).......... 41 Vice President
Robert P. Mills, Jr. ...... 48 Vice President and Chief Actuary
Charles G. Collis.......... 36 Secretary
Frederick S. Hammer........ 61 Chairman and Director
Robert M. Lichten.......... 57 Deputy Chairman and Director
Robert Clements............ 65 Director
Albert R. Dowden........... 56 Director
Michael P. Esposito,
Jr. ..................... 58 Director
Lee M. Gammill, Jr. ....... 63 Director
Donald J. Matthews......... 64 Director
Brian M. O'Hara............ 49 Director
Jerry S. Rosenbloom........ 58 Director
Walter A. Scott............ 60 Director
Paul H. Warren............. 42 Director
Jon W. Yoskin, II.......... 58 Director
</TABLE>

- ---------------
(1) Mr. Tucker is a Senior Vice President of Annuity Reassurance.

Lawrence S. Doyle, age 54, was elected President, Chief Executive Officer
and a director of the Company upon its formation. Mr. Doyle, who has over 32
years of experience in the insurance and reinsurance industries, was the
President and Chief Executive Officer of GCR Holdings Limited, a Bermuda-based
start up reinsurer specializing in catastrophe risk, and its subsidiary Global
Capital Reinsurance Limited from 1993 until their acquisition by EXEL Limited in
1997, whereupon Mr. Doyle became an Executive Vice President of EXEL Limited.
Mr. Doyle founded GCR in 1993 and was largely responsible for the development of
a new client base, the hiring of marketing, underwriting and administrative
personnel and the overall development of the business. Prior thereto, Mr. Doyle
was Senior Vice President of the Hartford Insurance Group in charge of
international operations, where he was employed for 27 years, the last six of
which he was also the President of Hartford Fire International.

Robert J. Reale, age 41, became a Senior Vice President and the Chief
Underwriter of the Company on February 1, 1998. Prior thereto, Mr. Reale, who
has over 19 years of experience in the insurance and reinsurance industries, was
a consultant at Tillinghast-Towers Perrin, a consulting and actuarial company,
from 1997 to 1998. He served as a Vice President of Swiss Re Life & Health
America, Inc. from 1989 to 1997 and as the President of Swiss-Am Reassurance
Company and Atlantic International Reinsurance Company (Barbados), two companies
affiliated with Swiss Re, from 1995 to 1996. While employed by Swiss Re, Mr.
Reale was assigned overall pricing responsibility for that company's United
States life and annuity reinsurance market. Mr. Reale has been a Fellow of the
Society of Actuaries since 1986.

William W. Atkin, age 50, became Chief Financial Officer and Treasurer of
the Company on March 15, 1998. Prior thereto, Mr. Atkin served from 1987 to 1998
as an Executive Vice President and the Chief Financial Officer of Security
Mutual Life Insurance Company of New York, where he was employed for 24 years.
Mr. Atkin also served as a director of such company from 1990 to 1998. While
employed by Security Mutual Life Insurance Company of New York, Mr. Atkin was
responsible for that company's operating plans,

45
<PAGE> 46

annuity product line and relationships with credit rating agencies, investment
advisors, banks and independent accountants.

Richard Tucker, age 41, became a Vice President of the Company and a Senior
Vice President of Annuity Reassurance on March 15, 1998. Prior thereto, Mr.
Tucker, who has over 18 years experience in the insurance and reinsurance
industries, served from 1992 to 1998 as a Senior Vice President and a director
of PaineWebber Life Insurance Company. While employed by PaineWebber Life
Insurance Company, Mr. Tucker was responsible for that company's financial and
administrative operations, development of variable annuity products and
negotiation of annuity reinsurance agreements. Mr. Tucker has been a Fellow of
the Society of Actuaries since 1984.

Robert P. Mills, Jr., age 48, became a Vice President and the Chief Actuary
of the Company on January 15, 1998. Prior thereto, Mr. Mills served as Assistant
Vice President and Actuary for Allmerica Financial, a life insurance provider,
where he was employed for 26 years. Mr. Mills spent 15 years working in
reinsurance administration and pricing while at Allmerica Financial. Mr. Mills
has been a Fellow of the Society of Actuaries since 1975.

Charles G. Collis, age 36, is a partner in the law firm of Conyers Dill &
Pearman, the Company's Bermuda counsel, where he has worked since 1990.

Frederick S. Hammer, age 61, was elected Chairman of the Board and a
director of the Company upon its formation. Mr. Hammer has been Vice Chairman of
Inter-Atlantic Capital Partners, Inc. since 1994. He is non-executive Chairman
of the Board of National Media Corporation and serves as a director of IKON
Office Solutions, Inc., Provident American Corporation and Medallion Financial
Corporation. Mr. Hammer served as Chairman and Chief Executive Officer of Mutual
of America Capital Management Corporation from 1993 to 1994 and as President of
SEI Asset Management Group from 1989 to 1993. From 1985 to 1989, Mr. Hammer was
Chairman and Chief Executive Officer of Meritor Savings Bank, and prior thereto
he was an Executive Vice President of The Chase Manhattan Corporation, where he
was responsible for its global consumer activities.

Robert M. Lichten, age 57, was elected Deputy Chairman of the Board and a
director of the Company upon its formation. Mr. Lichten has been Vice Chairman
of Inter-Atlantic Capital Partners, Inc. since 1994. Mr. Lichten served as a
Managing Director of Smith Barney Inc. from 1990 to 1994 and as a Managing
Director of Lehman Brothers Inc. from 1988 to 1990. Prior thereto, he served as
an Executive Vice President of The Chase Manhattan Corporation, where he was
responsible for asset liability management and was President of The Chase
Investment Bank.

Robert Clements, age 65, was elected a director of the Company on February
19, 1998. Mr. Clements has been Chairman and a director of Risk Capital
Holdings, Inc., a global reinsurance company, since its formation in 1995. He
also currently serves as an advisor to Marsh & McClennan Risk Capital Corp., a
subsidiary of J&H Marsh & McClennan Companies, Inc., and he served as Chairman
of the Board and Chief Executive Officer of Marsh & McClennan Risk Capital Corp.
from 1994 to 1996. Prior thereto, he served as President of Marsh & McClennan
Companies, Inc. since 1992, having been Vice Chairman of the Board in 1991. Mr.
Clements was Chairman of Marsh & McClennan, Incorporated, a subsidiary of Marsh
& McClennan Companies, Inc., from 1988 to 1992. Mr. Clements presently serves as
a director of EXEL Limited and Hiscox plc. and serves as Chairman of the Board
of the College of Insurance. Mr. Clements is serving as a director of the
Company as the nominee of Risk Capital.

Albert R. Dowden, age 56, was elected a director of the Company on February
19, 1998. Mr. Dowden has been President and Chief Executive Officer of Volvo
Group North America, Inc. and Senior Vice President of AB Volvo since 1991.
Prior to 1991, Mr. Dowden served as Executive Vice President of Volvo Group
North America, Inc., having previously served as Executive Vice President and
Deputy Managing Director of Volvo Cars North America, Inc. He currently serves
as a director of National Media Corporation.

Michael P. Esposito, Jr., age 58, was elected a director of the Company
upon its formation. Mr. Esposito has been Vice Chairman of Inter-Atlantic
Capital Partners, Inc. since 1995. He has been non-executive Chairman of the
Board of EXEL Limited since 1995 and a director since 1986. He also serves as a
director of

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<PAGE> 47

Mid Ocean Limited, Risk Capital Holdings, Inc. and Forest City Enterprises, Inc.
Mr. Esposito served as Executive Vice President and Chief Corporate Compliance,
Control and Administration Officer of The Chase Manhattan Corporation from 1992
to 1995, having previously served as Executive Vice President and Chief
Financial Officer from 1987 to 1992.

Lee M. Gammill, Jr., age 63, was elected a director of the Company on
February 19, 1998. Mr. Gammill currently serves as Chairman of the Gammill
Group, a provider of financial and consulting services to the insurance
industry. From 1994 to 1997, Mr. Gammill served as Vice Chairman of the Board of
New York Life Insurance Company, where he was employed for more than 40 years.
He currently serves as a director of Guarantee Life Insurance Company and
National Affiliated Corporation.

Donald J. Matthews, age 64, was elected a director of the Company on
February 19, 1998. Mr. Matthews has been President and Chief Operating Officer
of American Capital Access, a financial guarantee company, since 1997. From 1992
to 1997, he served as Senior Vice President and a Principal of Johnson and
Higgins where he was employed for 23 years and where he also most recently
served as Chairman of the Global Financial Group.

Brian M. O'Hara, age 49, was elected a director of the Company on February
19, 1998. Mr. O'Hara has been Chairman of the Board, President and Chief
Executive Officer of X.L. Insurance Company, Ltd. and President and Chief
Executive Officer of EXEL Limited since 1994. Mr. O'Hara served as President and
Chief Operating Officer of X.L. Insurance Company, Ltd. and as Vice Chairman of
the Board of EXEL Limited from 1986 to 1994. Prior thereto, he served as a
director and Senior Vice President and Chief Underwriting Officer of Trenwick
America Group from 1979 to 1986. Mr. O'Hara currently serves as a director of
EXEL Limited and Mid Ocean Limited.

Jerry S. Rosenbloom, age 58, was elected a director of the Company on
February 19, 1998. Mr. Rosenbloom has been the Frederick H. Ecker Professor of
Insurance and Risk Management at the Wharton School of the University of
Pennsylvania since 1974. He currently serves as a director of Mutual Risk
Management Ltd. and Harleysville Insurance Company and has been nominated to
serve as a director of Terra Nova Bermuda Holdings.

Walter A. Scott, age 60, was elected a director of the Company on February
19, 1998. Mr. Scott has been a director of ACE Ltd., a Bermuda property casualty
insurance company, since 1989. He served as a consultant to ACE Ltd. from 1994
to 1996 and was Chairman of the Board, President and Chief Executive Officer of
ACE Ltd. from 1991 to 1994 and was President and Chief Executive Officer of ACE
Ltd. from 1989 to 1991. Mr. Scott currently serves as a director of Overseas
Partners Limited.

Paul H. Warren, age 42, was elected a director of the Company on April 2,
1998. Mr. Warren has been Managing Partner of International Managed Care
Advisors, L.P., an investment fund and management company that focuses on the
health industry in the developing world, since 1996. He has been a partner of
Insurance Partners Advisors, L.P., the manager of Insurance Partners, L.P. and
Insurance Partners Offshore (Bermuda), L.P., since its formation in 1994. Mr.
Warren was a Managing Director of International Insurance Advisors, L.P. from
1992 to 1994. Prior thereto, he served as a Vice President in the Insurance
Group of J.P. Morgan & Co. from 1986 to 1992. He currently serves as a director
of Tarquin plc, Fidelity Life Assurance Company, Corporate Health Dimensions,
Provincia Salud and Provincia Aseguradora Riesgos Trabajo. Mr. Warren is serving
as a director of the Company as the nominee of Insurance Partners and Insurance
Partners Offshore.

Jon W. Yoskin, II, age 58, was elected a director of the Company on
February 19, 1998. Mr. Yoskin has been Chairman of the Board and Chief Executive
Officer of Tri-Arc Financial Services, Inc., an insurance broker, since 1988 and
has served as Chairman of the Board and Chief Executive Officer of Magellan
Insurance Company, Ltd. since 1996. He currently serves as a director of
National Media Corporation.

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<PAGE> 48

PROVISIONS GOVERNING THE COMPANY'S BOARD OF DIRECTORS

Number and Terms of Directors

The Company's Bye-Laws provide that the Board of Directors shall be divided
into three classes. The first class, whose initial term expires at the first
annual meeting of the Company's shareholders following completion of the
Offering, is comprised of Messrs. Hammer, Clements, Collis, Gammill and Yoskin;
the second class, whose initial term expires at the second annual meeting of the
Company's shareholders following completion of the Offering, is comprised of
Messrs. Lichten, Dowden, O'Hara, Scott and Warren; and the third class, whose
initial term expires at the third annual meeting of the Company's shareholders
following completion of the Offering, is comprised of Messrs. Doyle, Esposito,
Matthews and Rosenbloom. Following their initial terms, all classes of directors
shall be elected to three-year terms.

In connection with the Direct Sale to Risk Capital, and, for so long as
Risk Capital owns at least 500,000 Common Shares, the Company has agreed to
nominate for election as a director of the Company one person selected by Risk
Capital. Similarly, in connection with the Direct Sales to Insurance Partners
and Insurance Partners Offshore, and, for so long as such firms collectively own
at least 500,000 Common Shares, the Company has agreed to nominate for election
as a director of the Company one person jointly selected by Insurance Partners
and Insurance Partners Offshore. In exchange for such right, and, for so long as
any person selected by Risk Capital or Insurance Partners and Insurance Partners
Offshore, respectively, is a director (and during any period after such person's
designation but before his or her election), such Strategic Investors will not
vote or permit any of the Common Shares beneficially owned by them to be voted
for the election of any director of the Company, other than the nominee they
selected. Each such Strategic Investor is permitted to assign its right to
select one person to be nominated for election as a director of the Company only
upon the prior written consent of the Company, which may not be unreasonably
withheld. Robert Clements is serving as a director of the Company as the nominee
of Risk Capital and Paul H. Warren is serving as a director of the Company as
the nominee of Insurance Partners and Insurance Partners Offshore.

Committees of the Board

The Board has established Executive, Finance and Investment, Audit and
Compensation committees. Each committee reports to the Board.

Executive Committee. The Board has appointed an Executive Committee to
exercise all of the authority of the Board between meetings of the full Board.
The Executive Committee does not, however, have authority to take any action on
matters committed or reserved by Bermuda law, the Company's Bye-Laws or
resolution of the Board of Directors to the full Board or another committee of
the Board. The Executive Committee will regularly review the Company's business
and report or make recommendations to the Board thereon. The Executive Committee
presently consists of five directors of the Company (presently Messrs. Hammer
(Chairman), Doyle, Esposito, Lichten and Scott).

Finance and Investment Committee. The Board has appointed a Finance and
Investment Committee to establish and monitor the Company's investment policies
and the performance of the Investment Managers. The Finance and Investment
Committee presently consists of seven members (presently Messrs. Lichten
(Chairman), Hammer, Esposito, Gammill, O'Hara, Warren and Doyle, who serves as
an ex officio member).

Audit Committee. The Board has appointed an Audit Committee to review the
Company's internal administrative and accounting controls and to recommend to
the Board the appointment of independent auditors. The Audit Committee presently
consists of four directors of the Company (presently Messrs. Scott (Chairman),
Dowden, Matthews and Rosenbloom), none of whom is an officer or employee of the
Company or Annuity Reassurance.

Compensation Committee. The Board has appointed a Compensation Committee
to review the performance of corporate officers and the Company's compensation
policies and procedures and to make recommendations to the Board with respect to
such policies and procedures. The Compensation Committee also administers any
stock option plans and incentive compensation plans of the Company. The
Compensation Committee presently consists of four directors of the Company
(presently Messrs. Esposito (Chairman),

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<PAGE> 49

Clements, Matthews and Yoskin), none of whom is an officer or employee of the
Company or Annuity Reassurance.

Compensation of Directors

Directors who are employees of the Company will not be paid any fees or
additional compensation for services as members of the Company's Board of
Directors or any committee thereof. Non-employee directors will receive cash in
the amount of $20,000 per annum and $1,000 per board or committee meeting
attended. The Chairman of the Board and Committee Chairmen will receive an
additional $1,000 per annum. Non-employee directors who are not directors,
officers or employees of Inter-Atlantic Capital Partners, Inc. or its affiliates
will also receive options to acquire 15,000 Common Shares upon the later of (i)
their election to the Company's Board of Directors and (ii) the consummation of
the Offering. Such options become exercisable in three equal annual installments
commencing on the first anniversary of the date of grant and will have an
exercise price equal to the fair market value of the Common Shares on the date
of grant. On the date of each annual meeting of the Company's shareholders, each
non-employee director whose term as a director has not ended as of the date of
such annual meeting will receive options to acquire 2,000 Common Shares. Such
options will be immediately exercisable if granted after the first anniversary
of the consummation of the Offering and will have an exercise price equal to the
fair market value of the Common Shares on the date of grant. If any such options
are granted before the first anniversary of the consummation of the Offering,
they will not become exercisable until such first anniversary. All directors
will be reimbursed for travel and other expenses incurred in attending meetings
of the Board or committees thereof.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee is currently composed of Messrs. Esposito
(Chairman), Clements, Matthews and Yoskin. No member of the Compensation
Committee is or was an officer or employee of the Company or Annuity
Reassurance, nor has any executive officer of the Company served as a director
or a member of the compensation committee of any other company, one of whose
executive officers serves as a member of the Company's Board or Compensation
Committee.

Messrs. Clements, Matthews and Yoskin have expressed their non-binding
intentions to purchase $423,000, $70,500 and $28,200 of Common Shares,
respectively, directly from the Company as part of the Direct Sales. Because
such Common Shares will not be sold through the Underwriters as part of the
Offering, the purchase price per share will be equal to the initial public
offering price per share, less the per share underwriting discounts and
commissions. Based on the initial public offering price of $15.00 per share, the
number of Common Shares that Messrs. Clements, Matthews and Yoskin are expected
to purchase would be approximately 30,000, 5,000 and 2,000 Common Shares,
respectively. Mr. Esposito purchased on December 9, 1997 for $50,575 a Class A
Warrant to purchase an aggregate number of Common Shares equal to 2.575% of the
sum of (i) the Common Shares outstanding immediately following the consummation
of the Offering (including the Direct Sales, but excluding any Common Shares
held by the Purpose Trust) and (ii) the Common Shares issuable upon exercise or
conversion of any security outstanding immediately following the consummation of
the Offering except for the Class A Warrants, the Class B Warrants and any
options granted by the Company under its Stock Option Plan. Mr. Esposito has
since transferred a portion of his Class A Warrant to each of his three sons.
Mr. Esposito is also a shareholder, director and officer of Inter-Atlantic
Capital Partners, Inc., a subsidiary of which is entitled to certain payments
from the Company for services provided in connection with the Company's
formation, the Offering and the Company's operations following the Offering. See
"Certain Relationships and Related Party Transactions."

EXECUTIVE COMPENSATION

The Company did not pay any compensation to its executive officers during
the fiscal period ended December 31, 1997. Messrs. Doyle, Reale, Atkin, Tucker
and Mills are currently receiving compensation from the Company pursuant to the
terms of their respective employment agreements.

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<PAGE> 50

EMPLOYMENT AGREEMENTS

The Company, Annuity Reassurance and Mr. Doyle have entered into an
Employment Agreement that became effective on January 1, 1998. The Employment
Agreement provides that Mr. Doyle will serve as Chief Executive Officer and
President of the Company and Annuity Reassurance for an initial term ending on
the third anniversary of the consummation of the Offering and for consecutive
one year terms thereafter, subject to three months' advance notice by either the
Company or Mr. Doyle of a decision not to renew. Pursuant to the terms of his
Employment Agreement, Mr. Doyle began receiving an annual salary of $240,000 on
January 1, 1998. Upon consummation of the Offering, Mr. Doyle's salary will
increase to $350,000 per year, he will be eligible to participate in all
employee benefit programs maintained by the Company, and he will receive a
monthly housing and travel allowance of $8,333.

The Company, Annuity Reassurance and Mr. Reale have entered into an
Employment Agreement that became effective on February 1, 1998. The Employment
Agreement provides that Mr. Reale will serve as a Senior Vice President and the
Chief Underwriter of the Company and Annuity Reassurance for an initial term
ending on the third anniversary of the consummation of the Offering and for
consecutive one year terms thereafter, subject to three months' advance notice
by either the Company or Mr. Reale of a decision not to renew. Pursuant to the
terms of his Employment Agreement, Mr. Reale is entitled to receive an annual
salary of $200,000. Upon consummation of the Offering, the Company will
contribute monthly ten percent of Mr. Reale's base monthly salary to a
retirement plan for his benefit, he will be eligible to participate in all
employee benefit programs maintained by the Company and will receive a monthly
housing and travel allowance of $8,333. At that time, Mr. Reale will also
receive a one-time cash bonus of $25,000, which will be treated as an advance of
and deducted from any cash bonus that may be awarded for the Company's initial
fiscal year.

The Company, Annuity Reassurance and Mr. Atkin have entered into an
Employment Agreement that became effective on March 15, 1998. The Employment
Agreement provides that Mr. Atkin will serve as Chief Financial Officer and
Treasurer of the Company and Annuity Reassurance for an initial term ending on
the third anniversary of the consummation of the Offering and for consecutive
one year terms thereafter, subject to three months' advance notice by either the
Company or Mr. Atkin of a decision not to renew. Pursuant to the terms of his
Employment Agreement, Mr. Atkin is entitled to receive an annual salary of
$180,000. Upon consummation of the Offering, Mr. Atkin will be eligible to
participate in all employee benefit programs maintained by the Company, and he
will receive a monthly housing and travel allowance of $8,333.

The Company, Annuity Reassurance and Mr. Tucker have entered into an
Employment Agreement that became effective on March 15, 1998. The Employment
Agreement provides that Mr. Tucker will serve as a Vice President of the Company
and a Senior Vice President of Annuity Reassurance for an initial term ending on
the third anniversary of the consummation of the Offering and for consecutive
one year terms thereafter, subject to three months' advance notice by either the
Company or Mr. Tucker of a decision not to renew. Pursuant to the terms of his
Employment Agreement, Mr. Tucker is entitled to receive an annual salary of
$165,000. Upon consummation of the Offering, Mr. Tucker will be eligible to
participate in all employee benefit programs maintained by the Company, and he
will receive a monthly travel and housing allowance of $9,667.

The Company, Annuity Reassurance and Mr. Mills have entered into an
Employment Agreement that became effective on January 15, 1998. The Employment
Agreement provides that Mr. Mills will serve as a Vice President and the Chief
Actuary of the Company and Annuity Reassurance for an initial term ending on the
third anniversary of the consummation of the Offering and for consecutive one
year terms thereafter, subject to three months' advance notice by either the
Company or Mr. Mills of a decision not to renew. Pursuant to the terms of his
Employment Agreement, Mr. Mills is entitled to receive an annual salary of
$125,000. Upon consummation of the Offering, Mr. Mills will be eligible to
participate in all employee benefit programs maintained by the Company and he
will receive a monthly housing and travel allowance of $10,416.

The Employment Agreements of Messrs. Doyle, Reale, Atkin, Tucker and Mills
provide that they will be eligible for an annual cash bonus based on performance
targets established by the Compensation Committee of the Company's Board of
Directors. Mr. Doyle's bonus will be equal to 60% of the total amount available
for

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<PAGE> 51

bonuses to senior management based on the performance targets established by the
Compensation Committee, up to a maximum of $2.0 million per year. Messrs. Reale,
Atkin, Tucker and Mills will each be eligible to receive a bonus of up to two
times his annual salary based on performance targets established by the
Compensation Committee. The Compensation Committee has not yet set such
performance targets for the Company's initial fiscal year.

The Employment Agreements of Messrs. Doyle, Reale, Atkin, Tucker and Mills
provide that each of them will receive, subject to the consummation of the
Offering, options to purchase Common Shares under the Company's Stock Option
Plan. Mr. Doyle will receive options to purchase Common Shares equal to three
percent of the Common Shares outstanding immediately following the consummation
of the Offering and the Direct Sales. Mr. Reale will receive options to purchase
Common Shares equal to seven-tenths of one percent of the Common Shares
outstanding immediately following the consummation of the Offering and the
Direct Sales. Mr. Atkin will receive options to purchase Common Shares equal to
one-half of one percent of the Common Shares outstanding immediately following
the consummation of the Offering and the Direct Sales. Mr. Tucker will receive
options to purchase 66,666 Common Shares. Mr. Mills will receive options to
purchase Common Shares equal to one-half of one percent of the Common Shares
issued in the Offering. The exercise price of the options to be awarded under
the Employment Agreements is equal to the initial public offering price per
share. The options become exercisable in three equal annual installments
beginning on the first anniversary of the consummation of the Offering.

Each Employment Agreement provides that if the officer is terminated by the
Company for serious cause or the officer resigns without good reason, the
officer will forfeit all bonus amounts for the then current fiscal year, and the
Company will be liable to the officer only for accrued but unpaid salary,
accrued but unpaid bonuses from a prior fiscal year and reimbursable business
expenses incurred prior to the termination. If the employment of Mr. Doyle is
terminated by the Company without serious cause or by Mr. Doyle with good
reason, the Company will continue to pay Mr. Doyle's base salary for a period of
18 months from such termination. If the employment of Messrs. Reale, Tucker or
Mills is terminated by the Company without serious cause or by Messrs. Reale,
Tucker or Mills with good reason, the Company will continue to pay Messrs.
Reale's, Tucker's or Mills' base salary, as the case may be, for a period of one
year from such termination. If the employment of Mr. Atkin is terminated by the
Company without serious cause or by Mr. Atkin with good reason, the Company will
pay Mr. Atkin not less than $15,000 per month for a period of one year from such
termination. Additionally, in each such case, Messrs. Doyle, Reale, Atkin,
Tucker and Mills shall be entitled to any accrued but unpaid salary, any earned
but unpaid bonuses from a prior fiscal year, reimbursement of business expenses
incurred prior to the termination, travel and housing allowances for six months
after the date of termination and reasonable relocation expenses from Bermuda to
the United States.

The Employment Agreements of Messrs. Doyle and Mills provide that neither
will, for a period of (i) one year following the termination of his employment
by the Company without serious cause or by such officer for good reason or (ii)
two years following the termination of his employment with the Company for any
other reason, acquire any financial or beneficial interest (unless such interest
is less than one percent in a publicly traded corporation) in, provide
consulting or other services to, be employed by, or own, manage, operate or
control any entity engaged in any business similar to that of the Company at the
time of the termination of his employment. Mr. Reale's Employment Agreement
provides that he will not, for the same time periods, acquire any financial or
beneficial interest (unless such interest is less than one percent in a publicly
traded corporation) in any entity engaged in any business similar to that of the
Company at the time of the termination of his employment or become employed by
any such entity that does not have its headquarters in the United States.
Furthermore, Mr. Reale is prohibited from soliciting business from any clients
of the Company or Annuity Reassurance for a period of two years following the
termination of his employment. Mr. Atkin's Employment Agreement provides that he
will not, for the same time periods, acquire any financial or beneficial
interest (unless such interest is less than one percent in a publicly traded
corporation) in, provide consulting or other services to, be employed by, or
own, manage, operate or control any entity engaged in any business similar to
that of the Company at the time of the termination of his employment.
Notwithstanding the preceding restrictions, Mr. Atkin's Employment Agreement
provides that he is not prohibited, following the termination of his employment
with the Company, from obtaining employment with an employer in the

51
<PAGE> 52

life insurance industry that does not have reinsurance operations. Mr. Tucker's
Employment Agreement provides that he will not, for the same time periods,
acquire any financial or beneficial interest (unless such interest is less than
one percent in a publicly traded corporation) in any entity engaged in any
business directly competitive to the business engaged in by the Company at the
time of the termination of his employment or become employed by any such entity
that does not have its headquarters in the United States. Furthermore, Mr.
Tucker is prohibited from soliciting business from any clients of the Company or
Annuity Reassurance for a period of two years following the termination of his
employment.

The Employment Agreements of Messrs. Doyle, Reale, Atkin, Tucker and Mills
also provide that they will keep secret and retain in the strictest confidence
all confidential matters that relate to the Company or any affiliate of the
Company. In addition, pursuant to each of the Employment Agreements, upon a
change in control of the Company, Messrs. Doyle's, Reale's, Atkin's, Tucker's
and Mills' respective options to purchase Common Shares will become exercisable
immediately, and if their employment with the Company is terminated without
serious cause, or if they terminate their employment with the Company for good
reason within one year following a change in control, they will be entitled to
receive a lump sum payment equal to two times their respective annual base
salaries as of the date of termination, travel and housing allowances for one
year from the date of termination, reasonable relocation expenses from Bermuda
to the United States plus an amount equal to any income taxes payable by them by
reason of such payments occurring in connection with a change of control.

STOCK OPTION PLAN

The Company's Board of Directors adopted the Annuity and Life Re
(Holdings), Ltd. Initial Stock Option Plan on December 3, 1997 and amended it on
February 19, 1998. The Stock Option Plan is intended to attract and retain
selected employees, directors and consultants (collectively, the "Eligible
Individuals") and to motivate them to exercise their best efforts on behalf of
the Company and any subsidiary or parent of the Company (a "Related
Corporation"). Options granted under the Stock Option Plan may be "incentive
stock options" ("ISOs") within the meaning of Section 422 of the Code, or may be
options not intended to be ISOs ("Non-Qualified Stock Options"). The aggregate
maximum number of Common Shares for which options may be granted under the Stock
Option Plan will be equal to the lesser of (i) 5.5% of the Common Shares
outstanding immediately following the consummation of the Offering and the
Direct Sales plus 150,000 Common Shares or (ii) 1,700,000 Common Shares. No
option may be granted under the Stock Option Plan after December 2, 2007,
although options outstanding on December 2, 2007 may extend beyond that date.

Administration. The Stock Option Plan is administered by the Compensation
Committee, whose members are designated by the Company's Board of Directors.
Under the terms of the Stock Option Plan, the Compensation Committee must
consist of at least two directors. It is intended (although not required) that
each member of the Compensation Committee administering the Plan be a
"non-employee" director within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and an "outside director"
within the meaning of Treasury Regulation sec.1.162-27(e)(3) or any successor
provision. If the Compensation Committee does not consist solely of two or more
non-employee directors (within the meaning of Rule 16b-3), each option must be
approved by the full Board. The Compensation Committee has the authority to (i)
select the Eligible Individuals to be granted ISOs and Non-Qualified Stock
Options under the Stock Option Plan, (ii) grant options on behalf of the Company
and (iii) set the date of grant and other terms of the options, including the
times and the price at which options will be granted. Unless otherwise specified
in the Option Agreement, options under the Stock Option Plan are exercisable in
three equal annual installments, commencing with the first anniversary of the
grant date. The Compensation Committee may, in its discretion, accelerate the
date on which an option may be exercised.

Eligibility. Only employees of the Company and/or a Related Corporation
are eligible to receive ISOs under the Stock Option Plan. Non-Qualified Stock
Options may be granted to all Eligible Individuals. (An Eligible Individual who
receives an option grant is hereinafter be referred to as an "Optionee.") As of
April 2, 1998, there were six employees of the Company eligible to receive ISOs
and eighteen Eligible Individuals (including employees) eligible to receive
non-qualified stock options.

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<PAGE> 53

Terms and Conditions of Option. All options terminate on the earliest of:
(i) the expiration of the term specified in the option document, which may not
exceed ten years (five years, in the case of an ISO if the Optionee on the date
of grant owns, directly or by attribution, shares possessing more than 10% of
the total combined voting power of all classes of shares of the Company); or
(ii) an accelerated expiration date if the Optionee's employment or service as a
director terminates before the expiration of the term specified in the option
document, unless otherwise provided in the stock option agreement related to the
option. However, if the Optionee's employment or service as a director
terminates for "cause" (as defined in the Stock Option Plan) prior to the
expiration date of the option, such option will terminate immediately.

The option price for an ISO may not be less than 100% of the fair market
value of the shares subject to the option on the date that the option is
granted. If an ISO is granted to an employee who then owns, directly or by
attribution under the Code, Common Shares possessing more than 10% of the total
combined voting power of all classes of shares of the Company, the option price
must be at least 110% of the fair market value of the shares on the date that
the option is granted. The aggregate fair market value of the Common Shares
(determined on the date the ISOs are granted) with respect to which ISOs are
exercisable for the first time by any one employee during any calendar year will
not exceed $100,000.

An Optionee may, in the discretion of the Committee, pay for Common Shares
covered by his or her option (i) in cash or its equivalent, (ii) in Common
Shares previously acquired by the Optionee (subject, in the discretion of the
Compensation Committee, to certain holding period requirements), (iii) in whole
or in part, in Common Shares newly acquired by the Optionee upon exercise of the
option (which will be a "disqualifying disposition" in the case of an ISO),
determined at the Compensation Committee's discretion, (iv) through a
combination of (i), (ii) or (iii), above, or (v) in the case of options granted
to an employee or consultant, by delivering a properly executed notice of
exercise of the option to the Company and a broker, with irrevocable
instructions to the broker promptly to deliver to the Company the amount of sale
or loan proceeds necessary to pay the exercise price of the option.

If an Optionee's employment or service with the Company (or a Related
Corporation in case of an employee or consultant) is terminated prior to the
expiration date fixed for his or her option for any reason other than death,
disability or cause, the Optionee may exercise such options that would have been
exercisable as of the termination date, or in the case of an employee or
consultant, to such other extent permitted by the Compensation Committee, at any
time prior to the earlier of the expiration date of such option or (i) in the
case of a director, three months after the date of such termination of service
as a director, and (ii) in the case of an employee or consultant, an accelerated
termination date determined by the Compensation Committee, which, unless
otherwise determined by the Compensation Committee, may not be later than three
months after the date of such termination of employment or service.

If an Optionee's employment or service with the Company (or a Related
Corporation in the case of an employee or consultant) is terminated by reason of
death or disability, or if an Optionee dies after termination of the Optionee's
employment or service but before expiration of the Optionee's option, such
option may be exercised to the extent of the number of Common Shares with
respect to which the Optionee could have exercised it on the date of such
termination or death, or in the case of an employee or consultant, to any
greater extent determined by the Compensation Committee, prior to the earlier of
the expiration date of the option or (i) in the case of a director, one year
after the date of such termination of service or death, and (ii) in the case of
an employee or consultant, an accelerated termination date determined by the
Compensation Committee, which, in the case of disability, unless otherwise
determined by the Compensation Committee, may not be later than one year after
the termination of employment, and in the case of death, may not be later than
one year after the date of death.

In the event of a corporate transaction such as a merger, consolidation,
acquisition of property or stock, separation, reorganization or liquidation,
each outstanding option will be assumed by the surviving corporation or by a
parent or subsidiary of such corporation if such corporation is the employer
corporation; provided, however, the Compensation Committee has the discretion to
terminate all or a portion of the outstanding options if it determines it is in
the best interests of the Company. Additionally, upon a "change in control" of
the Company, all outstanding options shall become fully vested and exercisable.
In the event of a change in

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<PAGE> 54

control in which outstanding options are not assumed by the surviving entity,
the Compensation Committee will terminate all outstanding options on at least
seven days' notice.

Option Document; Restriction on Transferability. All options will be
evidenced by a written option document containing provisions consistent with the
Stock Option Plan and such other provisions as the Compensation Committee deems
appropriate. Except as may be provided in an option agreement with regard to
Non-Qualified Stock Options, no option granted under the Stock Option Plan may
be transferred, except by will or the laws of descent and distribution. If the
Optionee is married at the time of exercise and if the Optionee requests at the
time of exercise, the certificate will be registered in the name of the Optionee
and his or her spouse, jointly, with right of survivorship.

Amendments to Options and the Stock Option Plan; Discontinuance of the
Stock Option Plan. Subject to the provisions of the Stock Option Plan, the
Compensation Committee may not amend an option document without an Optionee's
consent if the amendment is unfavorable to the Optionee. The Board of Directors
may suspend or discontinue the Stock Option Plan or amend it in any respect
whatsoever, except that, without the approval of the holders of a majority of
the shares of the Company present, in person or by proxy, and entitled to vote
at a duly called meeting, no such action may be taken, with respect to ISOs, to
change the class of employees eligible to participate in the Stock Option Plan,
increase the maximum number of Common Shares with respect to which ISOs may be
granted under the Stock Option Plan (except as permitted under the Stock Option
Plan with respect to capital adjustments) or extend the duration of the Stock
Option Plan. Shareholder approval is also required for any amendment that
requires shareholder approval to comply with Rule 16b-3 or any successor
thereto, if such compliance is intended.

Registration Statement on Form S-8. The Company intends to file with the
Commission a Registration Statement on Form S-8 relating to the Stock Option
Plan promptly following the first anniversary of the consummation of the
Offering.

Stock Option Grants. The following table sets forth information concerning
the stock options to be granted upon consummation of the Offering by the Company
to its executive officers under the Stock Option Plan.

INITIAL OPTION GRANTS

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL RATE OF
---------------------------------------------------------------- COMMON SHARE PRICE
NUMBER OF APPRECIATION FOR OPTION
COMMON SHARES PERCENT OF TOTAL EXERCISE TERM(2)
UNDERLYING OPTIONS GRANTED TO PRICE EXPIRATION ------------------------------
NAME OPTIONS GRANTED(1) EMPLOYEES PER SHARE DATE 5% 10%
---- ------------------ ------------------ --------- ---------- -- ---
<S> <C> <C> <C> <C> <C> <C>
Lawrence S. Doyle 688,145 61.69% $15.00 (3) $6,491,560 $16,450,889
Robert J. Reale 160,567 14.39% $15.00 (3) $1,514,696 $ 3,838,537
William W. Atkin 114,690 10.28% $15.00 (3) $1,081,919 $ 2,741,795
Richard Tucker 66,666 5.98% $15.00 (3) $ 628,888 $ 1,593,727
Robert P. Mills, Jr. 85,393 7.66% $15.00 (3) $ 805,548 $ 2,041,417
</TABLE>

- ---------------
(1) If the Underwriters' over-allotment option is exercised in full, the number
of Common Shares underlying Mr. Doyle's options will increase to 764,999
Common Shares, the Common Shares underlying Mr. Reale's options will
increase to 178,499 Common Shares, the Common Shares underlying Mr. Atkin's
options will increase to 127,499 Common Shares and the Common Shares
underlying Mr. Mills' options will increase to 98,202 Common Shares. The
number of Common Shares underlying Mr. Tucker's options will not change if
the Underwriters' overallotment option is exercised.

(2) The assumed annual rates of Common Share price appreciation have been
provided for illustrative purposes only in accordance with the rules and
regulations of the Commission and should not be construed as projected
appreciation rates for price of the Common Shares.

(3) The options expire on the tenth anniversary of the consummation of the
Offering.

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<PAGE> 55

PRINCIPAL STOCKHOLDERS

The table below sets forth the expected beneficial ownership of Common
Shares, after giving effect to the Offering and the Direct Sales, by all persons
who are expected to beneficially own 5% or more of the Common Shares and by each
director and executive officer of the Company and by the directors and executive
officers of the Company as a group (assuming no exercise of the Underwriters'
over-allotment option). Certain directors of the Company (Messrs. Esposito,
Hammer & Lichten) are restricted in their ability to purchase Common Shares in
the Offering or in the Direct Sales because of their affiliation with
Inter-Atlantic Securities Corporation, which is a member of the National
Association of Securities Dealers, Inc. ("NASD"). Certain directors and officers
of the Company have expressed their intention to purchase the Common Shares
indicated in the table below in the Direct Sales, but are under no obligation to
purchase such Common Shares.

<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNERS(1) NUMBER OF SHARES PERCENT OF CLASS
---------------------------------------- ---------------- ----------------
<S> <C> <C>
EXEL Limited(2)............................................. 1,418,440 6.18%
Risk Capital Reinsurance Company(3)......................... 1,418,440 6.18
Insurance Partners, L.P.(4)(6).............................. 1,143,065 4.98
Insurance Partners Offshore (Bermuda), L.P.(5)(6)........... 629,985 2.75
Lawrence S. Doyle(7)........................................ 70,922 *
Richard Tucker(8)........................................... 35,461 *
Robert Clements(9).......................................... 30,000 *
William W. Atkin(10)........................................ 21,277 *
Robert J. Reale(11)......................................... 21,277 *
Robert P. Mills, Jr.(12).................................... 14,184 *
Jerry S. Rosenbloom(13)..................................... 10,000 *
Donald J. Matthews(13)...................................... 5,000 *
Walter A. Scott(13)......................................... 5,000 *
Albert R. Dowden(13)........................................ 2,000 *
Lee M. Gammill, Jr.(13)..................................... 2,000 *
Brian M. O'Hara(13)......................................... 2,000 *
Jon W. Yoskin, II(13)....................................... 2,000 *
Charles G. Collis........................................... -- --
Michael P. Esposito, Jr.(14)................................ -- --
Frederick S. Hammer(15)..................................... -- --
Robert M. Lichten(16)....................................... -- --
Paul H. Warren(13).......................................... -- --
All directors and executive officers as a group (eighteen
persons).................................................. 221,121 *%
</TABLE>

- ---------------
* Less than 1%.

(1) The address for Insurance Partners, L.P. is 201 Main Street, Fort Worth,
Texas 76012 and the address for Insurance Partners Offshore (Bermuda), L.P.
is 41 Cedar Avenue, P.O. Box HM 1179, Hamilton, HM EX, Bermuda. The address
for EXEL is Cumberland House, One Victoria Street, P.O. Box HM2245,
Hamilton HM JX, Bermuda. The address of Risk Capital is 20 Horseneck Lane,
Greenwich, Connecticut 06830. The address for each other beneficial owner
is c/o Annuity and Life Re (Holdings), Ltd., Victoria Hall, Victoria
Street, P.O. Box HM1262, Hamilton, HM FX, Bermuda.

(2) Does not include 100,000 Common Shares issuable upon exercise of Class B
Warrants which are not currently exercisable.

(3) Does not include 100,000 Common Shares issuable upon exercise of Class B
Warrants which are not currently exercisable. For so long as Risk Capital
owns at least 500,000 Common Shares, the Company has agreed to nominate for
election as a director of the Company one person selected by Risk Capital.
In exchange for such right and for so long as any person selected by Risk
Capital is a director (and during

55
<PAGE> 56

any period after such person's designation but before his or her election)
Risk Capital will not vote or permit any of the Common Shares beneficially
owned by it to be voted for the election of any director of the Company,
other than the nominee selected by Risk Capital.

(4) Each of Insurance GenPar, L.P., the general partner of Insurance Partners
("IGP"), Insurance GenPar MGP, L.P., the general partner of IGP ("IMGP")
and Insurance GenPar MGP, Inc., the general partner of IMGP (the "IP
General Partner") may be deemed to beneficially own such Common Shares.
Robert A. Spass owns 40% of capital stock of the IP General Partner and
Daniel L. Doctoroff and Steven B. Gruber each own 30% of the capital stock
of the IP General Partner. Each of Messrs. Spass, Doctoroff and Gruber
disclaim beneficial ownership of the Common Shares owned by Insurance
Partners that he may be deemed to have. Does not include 80,586 Common
Shares issuable upon exercise of Class B Warrants which are not currently
exercisable.

(5) Each of Insurance GenPar (Bermuda), L.P., the general partner of Insurance
Partners Offshore ("IGPB"), Insurance GenPar (Bermuda) MGP, L.P., the
general partner of IGPB ("IMGPB"), and Insurance GenPar (Bermuda) MGP,
Ltd., the general partner of IMGPB (the "IPB General Partner"), may be
deemed to beneficially own such Common Shares. Mr. Spass owns 40% of the
capital stock of the IPB General Partner and Messrs. Doctoroff and Gruber
each own 30% of the capital stock of the IPB General Partner. Each of
Messrs. Spass, Doctoroff and Gruber disclaims beneficial ownership of the
Common Shares owned by Insurance Partners Offshore that he may be deemed to
have. Does not include 44,414 Common Shares issuable upon exercise of Class
B Warrants which are not currently exercisable.

(6) For so long as Insurance Partners and Insurance Partners Offshore
collectively own at least 500,000 Common Shares, the Company has agreed to
nominate for election as a director of the Company one person jointly
selected by Insurance Partners and Insurance Partners Offshore. In exchange
for such right and for so long as any person selected by Insurance Partners
and Insurance Partners Offshore is a director (and during any period after
such person's designation but before his or her election) Insurance
Partners and Insurance Partners Offshore will not vote or permit any of the
Common Shares beneficially owned by them to be voted for the election of
any director of the Company, other than the nominee selected by Insurance
Partners and Insurance Partners Offshore.

(7) Does not include 688,145 Common Shares (764,999 Common Shares if the
Underwriters' over-allotment option is exercised in full) issuable upon
exercise of options which are not currently exercisable.

(8) Does not include 66,666 Common Shares issuable upon exercise of options
which are not currently exercisable.

(9) Does not include 15,000 Common Shares issuable upon exercise of options
which are not currently exercisable. Mr. Clements intends to transfer
certain shares that he intends to purchase in the Direct Sales to a
family-owned entity, subject to such entity executing a lock-up agreement
for a period of one year from the date of this Prospectus. See
"Underwriting."

(10) Does not include 114,690 Common Shares (127,499 Common Shares if the
Underwriters' over-allotment option is exercised in full) issuable upon
exercise of options which are not currently exercisable.

(11) Does not include 160,567 Common Shares (178,499 Common Shares if the
Underwriters' over-allotment option is exercised in full) issuable upon
exercise of options which are not currently exercisable.

(12) Does not include 85,393 Common Shares (98,202 Common Shares if the
Underwriters' over-allotment option is exercised in full) issuable upon
exercise of options which are not currently exercisable.

(13) Does not include 15,000 Common Shares issuable upon exercise of options
which are not currently exercisable.

(14) Does not include 440,658 Common Shares (506,624 Common Shares if the
Underwriters' over-allotment option is exercised in full) issuable upon
exercise of Class A Warrants which are not currently exercisable. Also does
not include 150,000 Common Shares issuable upon exercise of Class A
Warrants

56
<PAGE> 57

initially acquired by Mr. Esposito and subsequently transferred to his
three sons, as to which he disclaims beneficial ownership. Each of Mr.
Esposito's sons have executed lock-up agreements for a period of one year
after the date of this Prospectus. See "Underwriting."

(15) Does not include 393,673 Common Shares (437,640 Common Shares if the
Underwriters' over-allotment option is exercised in full) issuable upon
exercise of Class A Warrants which are not currently exercisable. Also does
not include 196,982 Common Shares (218,983 Common Shares if the
Underwriters' over-allotment option is exercised in full) issuable upon
exercise of Class A Warrants initially acquired by Mr. Hammer and
subsequently transferred to certain trusts for the benefit of his children
and grandchildren, as to which he disclaims beneficial ownership. The
trustees of such trusts have executed lock-up agreements for a period of
one year after the date of this Prospectus. See "Underwriting."

(16) Does not include 407,790 Common Shares (453,333 Common Shares if the
Underwriters' over-allotment option is exercised in full) issuable upon
exercise of Class A Warrants which are not currently exercisable. Also does
not include 182,864 Common Shares (203,288 Common Shares if the
Underwriters' over-allotment option is exercised in full) issuable upon
exercise of Class A Warrants initially acquired by Mr. Lichten and
subsequently transferred to certain trusts for the benefit of his children
and grandchildren, as to which he disclaims beneficial ownership. The
trustees of such trusts have executed lock-up agreements for a period of
one year after the date of this Prospectus. See "Underwriting."

The Purpose Trust currently owns 12,000 Common Shares, which constitute all
of the currently outstanding Common Shares. Upon consummation of the Offering,
the Purpose Trust has agreed to sell such Common Shares to the Company for an
aggregate price of $12,000 and such Common Shares will be cancelled.

57
<PAGE> 58

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

The following descriptions summarize certain relationships and the terms of
certain agreements of the Company. Such summaries of agreements do not purport
to be complete and are subject to, and are qualified in their entirety by
reference to, all of the provisions of the relevant agreements. A copy of each
such agreement is filed as an exhibit to the Registration Statement of which
this Prospectus is a part.

INTER-ATLANTIC RELATIONSHIPS

Certain directors of the Company (Messrs. Esposito, Hammer and Lichten) are
owners, directors and/or officers of Inter-Atlantic Capital Partners, Inc.
and/or its subsidiary, Inter-Atlantic Securities Corporation. Inter-Atlantic
Capital Partners, Inc. is a United States domiciled corporation and
Inter-Atlantic Securities Corporation is a registered broker-dealer which
provides investment banking services for insurance companies and other financial
services firms. Inter-Atlantic Capital Partners, Inc. has loaned $12,000 to the
Purpose Trust which will be repaid upon consummation of the Offering. Pursuant
to an agreement between Inter-Atlantic Securities Corporation and the Company,
Inter-Atlantic Securities Corporation has agreed to provide certain services in
connection with the formation of the Company, including assistance in recruiting
senior management and obtaining necessary governmental permits. Furthermore, in
return for certain services related to the Offering, including assistance in
preparing a registration statement for the Common Shares, retaining underwriters
in connection with the Offering and such other services as the Company or Inter-
Atlantic Securities Corporation deems appropriate, the Company has agreed to pay
Inter-Atlantic Securities Corporation a fee of $2.0 million upon consummation of
the Offering. Pursuant to such agreement, Inter-Atlantic Securities Corporation
is also entitled to receive an annual fee of $600,000 for services provided
after the consummation of the Offering, which is payable in quarterly
installments commencing on the first anniversary of the consummation of the
Offering through the fifth anniversary of the consummation of the Offering. In
exchange for such annual fee, Inter-Atlantic Securities Corporation will assist
the Company in the development of products, financial planning, management of
assets and liabilities, international marketing efforts and such other services
as the Company may request.

The Company is also obligated to reimburse Inter-Atlantic Securities
Corporation for expenses it incurs in connection with performing services
related to the formation of the Company, the Offering and the Company's ongoing
operations. At December 22, 1997, Inter-Atlantic Securities Corporation had
incurred expenses in connection with the Company's organization of approximately
$75,000 and costs in connection with the Offering of approximately $400,000. If
the Offering is successfully completed prior to June 30, 1998, certain of these
incurred but not currently payable expenses may be paid directly by the Company
rather than paid to Inter-Atlantic Securities Corporation as a reimbursement. If
the Offering is not successfully consummated prior to June 30, 1998,
Inter-Atlantic Securities Corporation will only be entitled to reimbursement of
expenses incurred by it on or after December 23, 1997. Upon consummation of the
Offering, expenses incurred by Inter-Atlantic Securities Corporation are
currently estimated to be approximately $1,625,000, of which approximately
$75,000 relates to services provided in connection with the formation of the
Company, approximately $1.2 million relates to the Offering and approximately
$350,000 relates to operating expenses incurred on the Company's behalf. The
expenses payable to Inter-Atlantic Securities Corporation that relate to the
formation of the Company will be capitalized and amortized to income evenly over
five years. The fees and expenses payable to Inter-Atlantic Securities
Corporation that relate to services provided to the Company in connection with
the Offering will be deducted from the gross proceeds of the Offering. The
annual fee of $600,000 and the expenses payable to Inter-Atlantic Securities
Corporation as reimbursement of operating expenses incurred on the Company's
behalf will be expensed by the Company when incurred.

In connection with the formation of the Company, six individuals employed
by Inter-Atlantic Capital Partners, Inc. and/or Inter-Atlantic Securities
Corporation (Messrs. Esposito, Hammer, Andrew S. Lerner, Lichten, William S.
Ogden, Jr. and Arnold Welles) purchased for $238,000 in the aggregate Class A
Warrants to purchase up to an aggregate number of Common Shares equal to 12% of
the sum of (i) the Common Shares outstanding immediately following the
consummation of the Offering (including the Direct Sales, but excluding any
Common Shares held by the Purpose Trust) and (ii) the Common Shares issuable

58
<PAGE> 59

upon exercise or conversion of any security outstanding immediately following
the consummation of the Offering except for the Class A Warrants, the Class B
Warrants and any options granted by the Company under its Stock Option Plan.
Messrs. Esposito, Hammer, Lichten and Ogden have each transferred a portion of
their Class A Warrants to certain family members or trusts that have been
established for the benefit of certain family members. The exercise price of the
Class A Warrants will be equal to the initial public offering price per share,
subject to customary anti-dilution adjustments for certain events, including
stock splits and the issuance of Common Shares at a price below the initial
public offering price per share. The Class A Warrants become exercisable in
three equal annual installments commencing on the first anniversary of the
consummation of the Offering. In the event of a change of control of the
Company, the Class A Warrants then outstanding will become immediately
exercisable. The Class A Warrants will expire on January 15, 2008. The holders
of the Class A Warrants have also been granted rights to require the Company to
register the Common Shares underlying the Class A Warrants, which rights become
exercisable on the first anniversary of the consummation of the Offering. See
"Description of Capital Stock -- Warrants."

STRATEGIC INVESTOR RELATIONSHIPS

Prudential Insurance has agreed to purchase Common Shares and Class B
Warrants to purchase Common Shares in connection with the Direct Sales. See
"Direct Sales." Prudential Securities Incorporated, a representative of the
Underwriters, and The Prudential Investment Corporation, one of the Investment
Managers, are wholly-owned subsidiaries of Prudential Insurance. See
"Underwriting."

EXEL has agreed to purchase Common Shares and Class B Warrants to purchase
Common Shares in connection with the Direct Sales. See "Direct Sales." Brian M.
O'Hara, a director of the Company, currently serves as the President and Chief
Executive Officer of EXEL. In addition, Michael P. Esposito, Jr., a director of
the Company, currently serves as a non-executive Chairman of the Board of EXEL,
and Robert Clements, a director of the Company, currently serves as a director
of EXEL. Robert M. Lichten, a director of the Company, has agreed to serve as a
director of a United States-based subsidiary of EXEL.

Risk Capital has agreed to purchase Common Shares and Class B Warrants to
purchase Common Shares as part of the Direct Sales. See "Direct Sales." Michael
P. Esposito, Jr., a director of the Company, is a director of Risk Capital and
Risk Capital Holdings, Inc., the parent company of Risk Capital. Robert
Clements, a director of the Company, currently serves as Chairman and a director
of Risk Capital and Risk Capital Holdings, Inc. Furthermore, an affiliate of
Marsh & McLennan was a sponsor of Risk Capital Holdings, Inc. and, based on
filings with the Commission, currently holds approximately a 13% ownership
interest in Risk Capital Holdings, Inc. The Company has contracted with Marsh &
McLennan to provide office space and certain administrative services. See
"Business -- Administration" and "Business -- Property." EXEL was also an
initial investor in Risk Capital Holdings, Inc. and, based on filings with the
Commission, currently holds approximately a 28% ownership interest in such
company and has the right to designate two of its directors.

Insurance Partners and Insurance Partners Offshore have agreed to purchase
Common Shares and Class B Warrants to purchase Common Shares in connection with
the Direct Sales. See "Direct Sales." Paul H. Warren, a director of the Company,
is currently a partner of Insurance Partners Advisors, L.P., which is the
manager of Insurance Partners and Insurance Partners Offshore.

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<PAGE> 60

permitted to assign its right to select one person to be nominated for election
as a director of the Company only upon the prior written consent of the Company,
which may not be unreasonably withheld. Robert Clements is serving as a director
of the Company as the nominee of Risk Capital and Paul H. Warren is serving as a
director of the Company as the nominee of Insurance Partners and Insurance
Partners Offshore.

MANAGEMENT RELATIONSHIPS

The Company's officers, Messrs. Doyle, Reale, Atkin, Tucker and Mills, have
expressed their non-binding intention to purchase approximately $1,000,000,
$300,000, $300,000, $500,000 and $200,000 of Common Shares, respectively,
directly from the Company as part of the Direct Sales. Based on the initial
public offering price of $15.00 per share, the number of Common Shares that
Messrs. Doyle, Reale, Atkin, Tucker and Mills are expected to purchase would be
70,922, 21,277, 21,277, 35,461 and 14,184 Common Shares, respectively, and,
collectively, such purchases are expected to total 163,121 Common Shares.
Similarly, certain directors of the Company have expressed their intention to
purchase an aggregate of 58,000 Common Shares directly from the Company as part
of the Direct Sales. Because such Common Shares will not be sold through the
Underwriters as part of the Offering, the purchase price per share will be equal
to the initial public offering price per share, less the per share underwriting
discounts and commissions. The Company intends to make loans to Messrs. Doyle,
Reale, Atkin, Tucker and Mills in the amounts of $500,000, $225,000, $225,000,
$250,000 and $125,000, respectively, to partially finance such purchases in the
event such purchases are completed. Such loans will bear interest at 7% per
annum and must be repaid within five years of the consummation of the Direct
Sales, except that $75,000 of the loans made to Messrs. Reale and Atkin and
$25,000 of the loan made to Mr. Mills must be repaid within 14 months of the
consummation of the Direct Sales. Any such purchases will be completed
simultaneously with the consummation of the Offering and the other Direct Sales.

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DESCRIPTION OF CAPITAL STOCK

The following description of the Company's capital stock summarizes certain
provisions of the Company's Memorandum of Association and Bye-Laws. Such
summaries do not purport to be complete and are subject to, and are qualified in
their entirely by reference to, all of the provisions of the Memorandum of
Association and Bye-Laws. A copy of the Memorandum of Association and Bye-Laws
are filed as exhibits to the Registration Statement of which this Prospectus is
a part.

GENERAL

The Company's authorized share capital upon consummation of the Offering
and the Direct Sales will consist of: (i) 100,000,000 Common Shares, of which
22,938,185 Common Shares will be outstanding and (ii) 50,000,000 preferred
shares, par value $1.00 per share (the "Preferred Shares"), none of which will
be outstanding. In addition an aggregate of 2,752,573 Common Shares will be
issuable upon exercise of outstanding Class A Warrants, an aggregate of 397,500
Common Shares will be issuable upon exercise of Class B Warrants to be included
in the Direct Sales and an aggregate of 1,250,461 Common Shares will be issuable
upon exercise of options to be granted to management and certain directors upon
consummation of the Offering, in each case, subject to adjustment as provided
therein. If the Underwriters' over-allotment option is exercised in full,
25,499,999 Common Shares will be outstanding, the number of Common Shares
issuable upon exercise of outstanding Class A Warrants will increase to an
aggregate of 3,059,990 Common Shares and the number of Common Shares issuable
upon exercise of options to be granted to management and certain directors upon
consummation of the Offering will increase to an aggregate of 1,370,865 Common
Shares. The number of Common Shares issuable upon exercise of the Class B
Warrants will not change if the Underwriters' over-allotment option is
exercised. The outstanding Class A Warrants, Class B Warrants and options are
not currently exercisable. The Purpose Trust currently owns 12,000 Common
Shares, which constitute all of the currently outstanding Common Shares. Upon
consummation of the Offering, the Purpose Trust has agreed to sell such Common
Shares to the Company for an aggregate price of $12,000, and such Common Shares
will be cancelled.

COMMON SHARES

Holders of the Common Shares have no pre-emptive, redemption, conversion or
sinking fund rights. The quorum required for a general meeting of shareholders
is two or more persons present in person and representing in person or by proxy
more than 50% of the Common Shares (without giving effect to the limitation on
voting rights described below). Subject to the limitation on voting rights
described below, holders of Common Shares are entitled to one vote per share on
all matters submitted to a vote of holders of Common Shares. Most matters to be
approved by holders of Common Shares require approval by a simple majority of
the votes cast at a meeting at which a quorum is present. Furthermore, a
resolution to remove the Company's auditor before the expiration of the
auditor's term of office must be approved by the holders of at least two-thirds
of the Common Shares present in person or by proxy and voting thereon (after
giving effect to the limitation on voting rights) at a meeting at which a quorum
is present.

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 remain after the payment of all debts and
liabilities of the Company and the liquidation preference of any outstanding
Preferred Shares.

Limitation on Voting Rights. Each Common Share has one vote on a poll of
the shareholders, except that, if and for as long as the number of issued
Controlled Shares (as defined below) of any person would constitute 10% or more
of the combined voting power of the issued voting shares of the Company (after
giving effect to any prior reduction in voting power as described below), each
such issued Controlled Share,

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regardless of the identity of the registered holder thereof, will confer only a
fraction of a vote as determined by the following formula (the "Formula"):

(T - C) / (9.1 X C)

Where: "T" is the aggregate number of votes conferred by all the issued shares
immediately prior to that application of the Formula with respect to any
particular shareholder, adjusted to take into account any prior reduction
taken with respect to any other shareholder pursuant to the "sequencing
provision" described below; and

"C" is the number of issued Controlled Shares attributable to such
person. "Controlled Shares" of any person refers to all Common Shares or
voting Preferred Shares owned by such person, whether (i) directly, (ii)
with respect to persons who are United States persons, by application of
the attribution and constructive ownership rules of Sections 958(a) and
958(b) of the Code or (iii) beneficially, directly or indirectly, within
the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the rules and regulations
thereunder.

The Formula will be applied successively as many times as may be necessary
to ensure that no person will be a 10% Shareholder (as defined below) at any
time (the "sequencing provision"). For the purposes of determining the votes
exercisable by shareholders as of any date, the Formula will be applied to the
shares of each shareholder in declining order based on the respective numbers of
total Controlled Shares attributable to each shareholder. Thus, the Formula will
be applied first to the votes of shares held by the shareholder to whom the
largest number of total Controlled Shares is attributable and thereafter
sequentially with respect to the shareholder with the next largest number of
total Controlled Shares. In each case, calculations are made on the basis of the
aggregate number of votes conferred by the issued voting shares as of such date,
as reduced by the application of the Formula to any issued voting shares of any
shareholder with a larger number of total Controlled Shares as of such date.
"10% Shareholder" means a person who owns, in aggregate, (i) directly, (ii) with
respect to persons who are United States persons, by application of the
attribution and constructive ownership rules of Sections 958(a) and 958(b) of
the Code or (iii) beneficially, directly or indirectly, within the meaning of
Section 13(d)(3) of the Exchange Act, issued voting shares of the Company
carrying 10% or more of the total combined voting rights attaching to all issued
shares.

The directors are empowered to require any shareholder to provide
information as to that shareholder's beneficial share ownership, the names of
persons having beneficial ownership of the shareholder's shares, relationships
with other shareholders or any other facts the directors may deem relevant to a
determination of the number of Controlled Shares attributable to any person. The
directors may disregard the votes attached to shares of any holder failing to
respond to such a request or submitting incomplete or untrue information.

The directors retain certain discretion to make such final adjustments to
the aggregate number of votes attaching to the voting shares of any shareholder
that they consider fair and reasonable in all the circumstances to ensure that
no person will be a 10% Shareholder at any time.

Restrictions on Transfer. The Bye-Laws contain several provisions
restricting the transferability of Common Shares. Except as described below with
respect to transfers of Common Shares executed on the Nasdaq National Market,
the directors (or their designee) are required to decline to register a transfer
of shares if they have reason to believe that the result of such transfer would
be to increase the number of total Controlled Shares of any person to 10% or
more of a class of the Company's shares. Similarly, the Company is restricted
from issuing or repurchasing Common Shares if such issuance or repurchase would
increase the number of total Controlled Shares of any person to 10% or more of a
class of the Company's shares.

The directors (or their designee) also may, in their absolute discretion,
decline to register the transfer of any Common Shares, except for transfers
executed on the Nasdaq National Market, if they have reason to believe (i) that
such transfer may expose the Company, any subsidiary or shareholder thereof or
any person ceding insurance to the Company or any such subsidiary to adverse tax
or regulatory treatment in any jurisdiction or (ii) that registration of such
transfer under the Securities Act or under any United States state securities
laws or under the laws of any other jurisdiction is required and such
registration has not been duly effected.

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The Company's directors will not decline to register any transfer of Common
Shares executed on the Nasdaq National Market for the reasons described above.
However, if any such transfer results in the transferee (or any group of which
such transferee is a member) beneficially owning, directly or indirectly, 10% or
more of any class of the Company's shares or causes the Company's directors (or
their designee) to have reason to believe that such transfer may expose the
Company, any subsidiary or shareholder thereof or any person purchasing
reinsurance from the Company to adverse tax or regulatory treatment in any
jurisdiction, under the Company's Bye-Laws, the directors (or their designee)
are empowered to deliver a notice to the transferee demanding that such
transferee surrender to an agent designated by the directors (the "Agent")
certificates representing the shares and any dividends or distributions that the
transferee has received as a result of owning the shares. A transferee who has
resold the shares before receiving such notice will be required to transfer to
the Agent the proceeds of the sale, to the extent such proceeds exceed the
amount that the transferee paid for the shares, together with any dividends or
distributions that the transferee received from the Company. As soon as
practicable after receiving the shares and any dividends or distributions that
the transferee received, the Agent will use its best efforts to sell such shares
and any non-cash dividends or distributions in an arm's-length transaction on
the Nasdaq National Market. After applying the proceeds from such sale toward
reimbursing the transferee for the price paid for the shares, the Agent will pay
any remaining proceeds and any cash dividends and distributions to organizations
described in Section 501(c)(3) of the Code that the directors designate. The
proceeds of any such sale by the Agent or the surrender of dividends or
distributions will not inure to the benefit of the Company or the Agent, but
such amounts may be used to reimburse expenses incurred by the Agent in
performing its duties.

The Company is authorized to request information from any holder or
prospective acquiror of Common Shares as necessary to give effect to the
transfer, issuance and repurchase restrictions described above, and may decline
to effect any such transaction if complete and accurate information is not
received as requested.

Conyers Dill & Pearman, Bermuda counsel to the Company, have advised the
Company that while the precise form of the restrictions on transfer contained in
the Bye-Laws is untested, as a matter of general principle, restrictions on
transfers are enforceable under Bermuda law and are not uncommon. A proposed
transferee will be permitted to dispose of any Common Shares purchased that
violate the restrictions and as to the transfer of which registration is
refused. The transferor of such Common Shares will be deemed to own such Common
Shares for dividend, voting and reporting purposes until a transfer of such
Common Shares has been registered on the Register of Members of the Company.

If the directors refuse to register a transfer for any reason, they must
notify the proposed transferor and transferee within thirty days of such
refusal. The Bye-Laws also provide that the Board may suspend the registration
of transfers at such time and for such periods as the Board may determine,
provided that they may not suspend the registration of transfers for more than
45 days in any period of 365 consecutive days.

The directors have designated the Company's Chief Executive Officer to
exercise their authority to decline to register transfers or to limit voting
rights as described above, or to take any other action, for as long as such
officer is also a director.

PREFERRED SHARES

Pursuant to the Bye-Laws and Bermuda law, the Board by resolution may
establish one or more series of Preferred Shares having such number of shares,
designations, relative voting rights, dividend rates, liquidation and other
rights, preferences and limitations as may be fixed by the Board without any
further shareholder approval, which, if any such Preferred Shares are issued,
will include restrictions on voting and transfer intended to avoid having the
Company constitute a "controlled foreign corporation" for United States federal
income tax purposes. Such rights, preferences, powers and limitations as may be
established could have the effect of discouraging an attempt to obtain control
of the Company. The issuance of Preferred Shares could also adversely affect the
voting power of the holders of Common Shares, deny shareholders the receipt of a
premium on their Common Shares in the event of a tender or other offer for the
Common Shares and have a depressive effect on the market price of the Common
Shares. The Company has no present plan to issue any Preferred Shares.

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WARRANTS

Class A Warrants. Upon completion of the Offering and the Direct Sales,
Class A Warrants to purchase an aggregate of 2,752,573 Common Shares, subject to
adjustment as provided in the warrants, will be outstanding. If the
Underwriters' over-allotment option is exercised in full, the number of Common
Shares issuable upon exercise of the Class A Warrants will increase to 3,059,990
Common Shares. The exercise price of the Class A Warrants is equal to the
initial public offering price per share, subject to customary anti-dilution
adjustments for certain events, including stock splits and the issuance of
Common Shares at a price below the initial public offering price per share. The
Class A Warrants become exercisable in three equal annual installments
commencing on the first anniversary of the consummation of the Offering. In the
event of a change of control of the Company, the Class A Warrants then
outstanding will become immediately exercisable. The Class A Warrants expire on
January 15, 2008.

The Class A Warrant holders have been granted certain registration rights
with respect to the sale of the Common Shares underlying the warrants, and have
entered into agreements with the Underwriters under which they have agreed not
to dispose of such shares or the warrants for a one-year period from the date of
this Prospectus without the prior written consent of Prudential Securities
Incorporated and Merrill Lynch & Co. on behalf of the Underwriters. See "Shares
Eligible for Future Sale" and "Underwriting."

Class B Warrants. Upon completion of the Offering and the Direct Sales,
Class B Warrants to purchase an aggregate of 397,500 Common Shares will be
outstanding. The exercise price of the Class B Warrants is $15.00 per share,
subject to customary anti-dilution adjustments for certain events, including
stock splits and the issuance of Common Shares below the exercise price for the
Class B Warrants or below the then current fair market value of the Common
Shares. The Class B Warrants become exercisable in three equal annual
installments commencing on the first anniversary of the consummation of the
Direct Sales. In the event of a change of control of the Company, the Class B
Warrants then outstanding will become immediately exercisable. The Class B
Warrants will expire on the tenth anniversary of the consummation of the Direct
Sales.

The Class B Warrant holders have been granted certain registration rights
with respect to the sale of the Common Shares underlying the Warrants, and have
entered into agreements with the Underwriters under which they have agreed not
to dispose of such shares or warrants for a one-year period from the date of
this Prospectus without the prior written consent of Prudential Securities
Incorporated and Merrill Lynch & Co. on behalf of the Underwriters and the
Company, except for Prudential Insurance, which has agreed to such restriction
for a period of 180 days from the date of this Prospectus. See "Shares Eligible
for Future Sale," "Direct Sales" and "Underwriting."

OPTIONS

Upon consummation of the Offering, the Company will grant options to
purchase an aggregate of 1,250,461 Common Shares pursuant to its Stock Option
Plan. An additional 161,139 Common Shares are reserved for future issuance under
the Stock Option Plan. If the Underwriters' over-allotment option is exercised
in full, the number of Common Shares issuable upon exercise of the options to be
issued upon consummation of the Offering will increase to 1,370,865 Common
Shares, and the number of Common Shares reserved for future issuance under the
Stock Option Plan will increase to 181,635 Common Shares. See
"Management -- Stock Option Plan."

The Company intends to file with the Commission a Registration Statement on
Form S-8 relating to the Stock Option Plan promptly following the first
anniversary of the consummation of the Offering. The individuals who will be
granted options upon consummation of the Offering have entered into agreements
with the Underwriters under which they have agreed not to dispose of such
options for a one-year period from the date of this Prospectus without the prior
written consent of Prudential Securities Incorporated and Merrill Lynch & Co. on
behalf of the Underwriters. See "Shares Eligible for Future Sale" and
"Underwriting."

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
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respect of unpaid amounts on those shares and other debts or liabilities of a
shareholder to the Company, calls on shares which are not fully paid, 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, the payment of dividends, the appointment of an auditor and the
winding-up of the Company.

The Bye-Laws provide that the Board shall be elected annually and shall
consist of three approximately equal classes, each class to be elected to serve
for a three year term. Shareholders may only remove a director prior to the
expiration of such director's term at a special meeting of shareholders at which
a majority of the votes cast thereon is cast in favor of such action. A special
meeting of shareholders may be convened by the Chairman or any two directors or
any director and the Secretary or on the request of shareholders holding not
less than 10% of the paid-up share capital of the Company as carries the right
to vote at general shareholders' meetings.

The Bye-Laws also provide that if the Board in its absolute discretion
determines that share ownership by any shareholder may result in adverse tax,
regulatory or legal consequences to the Company, any of its subsidiaries or any
other shareholder, then the Company will have the option, but not the
obligation, to repurchase all or part of the shares held by such shareholder to
the extent the Board determines it is necessary or advisable to avoid or cure
such adverse or potential adverse consequences. The Company will also be
entitled to assign this repurchase right to one or more third parties, including
other shareholders. The price to be paid for such Common Shares will be the fair
market value of such shares.

The Bye-Laws provide that each director may appoint an alternate director,
who shall have the power to attend and vote at any meeting of the Board at which
such director is not personally present and generally to perform at such meeting
all the functions of such director. In addition, the Board may delegate any of
its powers to a committee appointed by the Board, which may consist partly or
entirely of non-directors.

TRANSFER AGENT

The Company's registrar and transfer agent for the Common Shares is First
Chicago Trust Company of New York.

DIFFERENCES IN CORPORATE LAW

The Companies Act 1981 of Bermuda (the "Act"), which applies to the
Company, differs in certain material respects from laws generally applicable to
United States corporations and their shareholders. Set forth below is a summary
of certain significant provisions of the Act (including modifications adopted
pursuant to the Bye-Laws) applicable to the Company which differ in certain
respects from provisions of Delaware corporate law. The following statements are
summaries and do not purport to deal with all aspects of Bermuda law that may be
relevant to the Company and its shareholders.

Interested Directors. Bermuda law and the Bye-Laws provide that any
transaction entered into by the Company in which a director has an interest is
not voidable by the Company nor can such director be liable to the Company for
any profit realized pursuant to such transaction provided the nature of the
interest is disclosed at the first opportunity at a meeting of directors, or in
writing to the directors. Under Delaware law such transaction would not be
voidable if (i) the material facts as to such interested director's relationship
or interests are disclosed or are known to the board of directors and the board
in good faith authorizes the transaction by the affirmative vote of a majority
of the disinterested directors, (ii) such material facts are disclosed or are
known to the stockholders entitled to vote on such transaction and the
transaction is specifically approved in good faith by vote of the stockholders
or (iii) the transaction is fair as to the corporation as of the time it is
authorized, approved or ratified. Under Delaware law, such interested director
could be held liable for a transaction in which such director derived an
improper personal benefit.

Mergers and Similar Arrangements. The Company may acquire the business of
another Bermuda exempted company or a company incorporated outside Bermuda when
such business is within its business purpose as set forth in its Memorandum of
Association. The Company may, with the approval of a majority of votes cast at a
general meeting of the shareholders at which a quorum is present, amalgamate
with another Bermuda company or with a body incorporated outside Bermuda. In the
case of an amalgamation, a

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shareholder may apply to a Bermuda court for a proper valuation of such
shareholder's shares if such shareholder is not satisfied that fair value has
been paid for such shares. The court ordinarily would not disapprove the
transaction on that ground absent evidence of fraud or bad faith. Under Delaware
law, with certain exceptions, a merger, consolidation or sale of all or
substantially all the assets of a corporation must be approved by the board of
directors and a majority of the outstanding shares entitled to vote thereon.
Under Delaware law, a stockholder of a corporation participating in certain
major corporate transactions may, under certain circumstances, be entitled to
appraisal rights pursuant to which such stockholder may receive cash in the
amount of the fair value of the shares held by such stockholder (as determined
by a court) in lieu of the consideration such stockholder would otherwise
receive in the transaction.

Takeovers. Bermuda law provides that where an offer is made for shares of
a company and, within four months of the offer, the holders of not less than 90%
of the shares which are the subject of the offer accept, the offeror may by
notice require the nontendering shareholders to transfer their shares on the
terms of the offer. Dissenting shareholders may apply to the court within one
month of the notice objecting to the transfer. The burden is on the dissenting
shareholders to show that the court should exercise its direction to enjoin the
required transfer, which the court will be unlikely to do unless there is
evidence of fraud or bad faith or collusion between the offeror and the holders
of the shares who have accepted the offer as a means of unfairly forcing out
minority shareholders. Delaware law provides that a parent corporation, by
resolution of its board of directors and without any shareholder vote, may merge
with any subsidiary of which it owns at least 90% of each class of capital
stock. Upon any such merger, dissenting stockholders of the subsidiary would
have appraisal rights.

Shareholder's Suit. The rights of shareholders under Bermuda law are not
as extensive as the rights of shareholders under legislation or judicial
precedent in many United States jurisdictions. Class actions and derivative
actions are generally not available to shareholders under the laws of Bermuda.
However, the Bermuda courts ordinarily would be expected to follow English case
law precedent, which would permit a shareholder to commence an action in the
name of the Company to remedy a wrong done to the Company where the act
complained of is alleged to be beyond the corporate power of the Company or is
illegal or would result in the violation of the Memorandum of Association or
Bye-Laws. Furthermore, consideration would be given by the court to acts that
are alleged to constitute a fraud against the minority shareholders or where an
act requires the approval of a greater percentage of the Company's shareholders
than actually approved it. The winning party in such an action generally would
be able to recover a portion of attorneys' fees incurred in connection with such
action. The Bye-Laws provide that shareholders waive all claims or rights of
action that they might have, individually or in the right of the Company,
against any director or officer for any act or failure to act in the performance
of such director's or officer's duties, except with respect to any fraud or
dishonesty of such director or officer. Class actions and derivative actions
generally are available to stockholders under Delaware law for, among other
things, breach of fiduciary duty, corporate waste and actions not taken in
accordance with applicable law. In such actions, the court has discretion to
permit the winning party to recover attorneys' fees incurred in connection with
such action.

Indemnification of Directors. The Company may indemnify its directors or
officers in their capacity as such in respect of any loss arising or liability
attaching to them by virtue of any rule of law in respect of any negligence,
default, breach of duty or breach of trust of which a director or officer may be
guilty in relation to the Company other than in respect of his own fraud or
dishonesty. Under Delaware law, a corporation may indemnify a director or
officer of the corporation against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
in defense of an action, suit or proceeding by reason of such position if (i)
such director or officer acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation and
(ii), with respect to any criminal action or proceeding, such director or
officer had no reasonable cause to believe his conduct was unlawful.

Inspection of Corporate Records. Members of the general public have the
right to inspect the public documents of the Company available at the office of
the Registrar of Companies in Bermuda, which will include the Memorandum of
Association (including its objects and powers) and any alteration to the
Memorandum of Association and documents relating to any increase or reduction of
authorized capital. The shareholders have the additional right to inspect the
Bye-Laws, minutes of general meetings and audited

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financial statements of the Company, which must be presented to the annual
general meeting of shareholders. The register of shareholders of the Company is
also open to inspection by shareholders without charge, and to members of the
public for a fee. The Company is required to maintain its share register in
Bermuda but may establish a branch register outside Bermuda. The Company is
required to keep at its registered office a register of its directors and
officers which is open for inspection by members of the public without charge.
Bermuda law does not, however, provide a general right for shareholders to
inspect or obtain copies of any other corporate records. Delaware law permits
any shareholder to inspect or obtain copies of a corporation's shareholder list
and its other books and records for any purpose reasonably related to such
person's interest as a shareholder.

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SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering and the Direct Sales, the Company will have
outstanding 22,938,185 Common Shares, Class A Warrants to purchase an aggregate
of 2,752,573 Common Shares, Class B Warrants to purchase an aggregate of 397,500
Common Shares and options to purchase an aggregate of 1,250,461 Common Shares.
If the Underwriters' over-allotment option is exercised in full, 25,499,999
Common Shares will be outstanding, the number of Common Shares issuable upon
exercise of outstanding Class A Warrants will increase to an aggregate of
3,059,990 Common Shares and the number of Common Shares issuable upon exercise
of outstanding options will increase to an aggregate of 1,370,865 Common Shares.
The number of Common Shares issuable upon exercise of the Class B Warrants will
not change if the Underwriters' over-allotment option is exercised. The Class A
Warrants, Class B Warrants and options are not currently exercisable. See
"Management -- Stock Option Plan," "Description of Capital Stock -- Warrants"
and "Direct Sales." Except as disclosed in "Description of Capital
Stock -- Restrictions on Transfer" and as discussed below with respect to the
lock-up agreements, the Common Shares sold in the Offering and any Common Shares
sold in the Direct Sales to the Company's directors and officers 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 within the meaning of Rule 144 under the Securities Act (which
sales will be subject to the volume limitations and certain other restrictions).
The Common Shares to be sold to the Strategic Investors in the Direct Sales and
the Common Shares underlying the Class A Warrants, the Class B Warrants and the
options are "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 registration.

The Company, its directors and officers, the holders of Class A Warrants
and the Strategic Investors have executed agreements (the "lock-up agreements")
under which they have agreed that they will not, without the prior written
consent of Prudential Securities Incorporated and Merrill Lynch & Co. on behalf
of the Underwriters and, in addition, in the case of the Strategic Investors,
the Company, directly or indirectly offer, sell, offer to sell, contract to
sell, transfer, assign, pledge, hypothecate, grant any option to purchase, or
otherwise sell or dispose (or announce any offer, sale, offer of sale, contract
of sale, transfer, assignment, pledge, hypothecation, grant of any option to
purchase or other sale or disposition) of any Common Shares or other capital
stock of the Company or any other securities convertible into, or exercisable or
exchangeable for, any Common Shares or other capital stock of the Company for a
period of one year after the date of this Prospectus, except for Prudential
Insurance, which has agreed to such restrictions for a period of 180 days after
the date of this Prospectus. Such agreements do not prevent the Company from
granting options under the Stock Option Plan so long as such options are not
exercisable until one year from the date of this Prospectus. Prudential
Securities Incorporated, Merrill Lynch & Co. and the Company may, in their
discretion at any time and without notice, jointly release all or any portion of
the securities subject to such lock-up agreements.

The Strategic Investors, the holders of the Class A Warrants and the
holders of the Class B Warrants have been granted rights to require the Company
to register the Common Shares purchased by the Strategic Investors in the Direct
Sales and the Common Shares underlying the Class A Warrants and the Class B
Warrants, which rights are not exercisable prior to the first anniversary of the
consummation of the Offering. The Company has agreed not to permit the
acceleration of the vesting of such rights without the prior written consent of
Prudential Securities Incorporated and Merrill Lynch & Co. on behalf of the
Underwriters.

The holders of the Class A Warrants have the right to require the
registration under the Securities Act of all or a portion of the Common Shares
underlying such warrants for sale in an underwritten public offering if, at any
time on or after the first anniversary of the consummation of the Offering and
before the tenth anniversary thereof, holders of 10% or more of such shares give
written notice to the Company requesting such registration. Holders of Class A
Warrants also have the right to require the registration under the Securities
Act of all or a portion of the Common Shares underlying such Warrants for sale
in open market transactions or negotiated block trades if, at any time on or
after the first anniversary of the consummation of the Offering and before the
tenth anniversary thereof, holders of 5% or more of such shares give written
notice to the Company requesting such registration. In addition, if the Company
proposes, other than pursuant to the two methods

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mentioned immediately above, to file a registration statement under the
Securities Act to register any of its Common Shares for public sale under the
Securities Act (including pursuant to requests of the holders of Class B
Warrants or the Common Shares sold to the Strategic Investors in the Direct
Sales), the holders of the Class A Warrants have the right to request the
inclusion of all or a portion of their Common Shares underlying the Class A
Warrants in the registration statement, and the Company is required to use
commercially reasonable efforts to include such shares in the registration
statement.

The holders of the Class B Warrants and the Common Shares sold to the
Strategic Investors in the Direct Sales each have the right to require the
registration under the Securities Act for sale in an underwritten public
offering of all or a portion of the Common Shares underlying such warrants or
sold to the Strategic Investors in the Direct Sales if, at any time on or after
the first anniversary of the consummation of the Direct Sales and before the
tenth anniversary thereof, such holder gives written notice to the Company
requesting such registration. Holders of Class B Warrants and the Common Shares
sold to the Strategic Investors in the Direct Sales also each have the right to
require the registration under the Securities Act for sale in open market
transactions or negotiated block trades of all or a portion of the Common Shares
underlying such warrants or sold in the Direct Sales if, at any time on or after
the first anniversary of the consummation of the Direct Sales and before the
tenth anniversary thereof, such holder gives written notice to the Company
requesting such registration. In addition, if the Company proposes, other than
pursuant to the two methods mentioned immediately above, to file a registration
statement under the Securities Act to register any of its Common Shares for
public sale under the Securities Act (including pursuant to requests of the
holders of Class A Warrants, other Class B Warrants or other Common Shares sold
to Strategic Investors in the Direct Sales), the holders of the Class B Warrants
and the Common Shares sold to the Strategic Investors in the Direct Sales have
the right to request the inclusion of all or a portion of the Common Shares
underlying the Class B Warrants or sold in the Direct Sales in the registration
statement, and the Company is required to use commercially reasonable efforts to
include such shares in the registration statement.

Each of the registration rights agreements entered into by the Company
provides that at any time when a registration statement covering Common Shares
sold to the Strategic Investors in the Direct Sales and the Common Shares
underlying the warrants is effective, if the Company determines after a good
faith inquiry that a sale of such Common Shares would require disclosure of
non-public material information, the disclosure of which would have a material
adverse effect on the Company, sales of such Common Shares will be suspended
until the earlier of (i) 20 days after the Company makes notification of its
good faith determination or (ii) such time as the Company makes notification
that the material information has been disclosed to the public, or ceases to be
material or that sales pursuant to the registration statement can resume.

In connection with such registrations, the Company is required to bear all
registration and selling expenses, including underwriters' discounts and
compensation, brokers' commissions or similar selling expenses. The registration
rights may be transferred to any assignee or transferee of the Common Shares,
the Class A Warrants, the Class B Warrants or the Common Shares underlying such
warrants. The Company also intends to file a registration statement on Form S-8
covering the resale of the Common Shares issuable upon exercise of options
issued under the Stock Option Plan promptly following the first anniversary of
the consummation of the Offering.

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 Common Shares in the public market following the
Offering, 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 at a price
which it deems appropriate. If the persons holding the outstanding Class A
Warrants, Class B Warrants or options cause a large number of the Common Shares
underlying such securities to be sold in the market, such sales could have an
adverse effect on the market price for the Common Shares.

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DIRECT SALES

The Company has entered into a securities purchase agreement with each of
the Strategic Investors for the purchase of Common Shares and Class B Warrants
as part of the Direct Sales. Prudential Insurance has agreed to purchase
1,028,369 Common Shares and Class B Warrants to purchase an additional 72,500
Common Shares for an aggregate purchase price of $14.5 million. EXEL and Risk
Capital have each agreed to purchase 1,418,440 Common Shares and Class B
Warrants to purchase an additional 100,000 Common Shares for an aggregate
purchase price for each such purchaser of $20.0 million. Insurance Partners has
agreed to purchase 1,143,065 Common Shares and Class B Warrants to purchase an
additional 80,586 Common Shares for an aggregate purchase price of $16.1
million. Insurance Partners Offshore has agreed to purchase 629,985 Common
Shares and Class B Warrants to purchase an additional 44,414 Common Shares for
an aggregate purchase price of $8.9 million. The Company did not separately
negotiate a price for the Common Shares and the Class B Warrants issued to the
Strategic Investors. The aggregate purchase price is based on a price of $14.10
for (i) one Common Share and (ii) the right to purchase approximately seven
one-hundredths of a Common Share under the Class B Warrants. The Company has
estimated the aggregate value of the Class B Warrants at $1.6 million as of the
date the Strategic Investors agreed to purchase such warrants. The Class B
Warrants will be exercisable at $15.00 per share.

The issuance of the Common Shares and Class B Warrants in the Direct Sales
is subject to a number of conditions precedent customary in transactions of this
nature, including the accuracy of the parties' respective representations and
warranties, delivery of legal opinions and compliance with the parties'
respective covenants set forth in the securities purchase agreement. In
addition, such issuances are further subject to (i) the consummation of a public
offering of the Common Shares in which the Company will have received not less
than $150 million in net proceeds (after deducting underwriting discounts and
commissions), (ii) the amount of such net proceeds from the public offering must
exceed the net proceeds to the Company from the Direct Sales to the Strategic
Investors and to the Company's directors and officers by a ratio of at least 2.5
to 1.0, and (iii) the total number of Common Shares outstanding immediately
following the Offering and the Direct Sales will not exceed 25,500,000 Common
Shares.

In addition to the sales being made to the Strategic Investors, the Company
is offering by a separate prospectus up to 221,121 Common Shares directly to its
directors and officers at the initial public offering price per share, less the
per share underwriting discounts and commissions, for an aggregate purchase
price if all such purchases are made of approximately $3.1 million. All such
purchases are expected to be consummated simultaneously with the consummation of
the Offering.

In connection with the Direct Sale to Risk Capital, and, for so long as
Risk Capital owns at least 500,000 Common Shares, the Company has agreed to
nominate for election as a director of the Company one person selected by Risk
Capital. Similarly, in connection with the Direct Sales to Insurance Partners
and Insurance Partners Offshore, and, for so long as such firms collectively own
at least 500,000 Common Shares, the Company has agreed to nominate for election
as a director of the Company one person jointly selected by Insurance Partners
and Insurance Partners Offshore. In exchange for such right and for so long as
any person selected by Risk Capital or Insurance Partners and Insurance Partners
Offshore, respectively, is a director (and during any period after such person's
designation but before his or her election), such Strategic Investors will not
vote or permit any of the Common Shares beneficially owned by them to be voted
for the election of any director of the Company, other than the nominee they
select. Each such Strategic Investor is permitted to assign its right to select
one person to be nominated for election as a director of the Company only upon
the prior written consent of the Company, which may not be unreasonably
withheld. Robert Clements is serving as a director of the Company as the nominee
of Risk Capital and Paul H. Warren is serving as a director of the Company as
the nominee of Insurance Partners and Insurance Partners Offshore.

Each of the Strategic Investors and the individuals that are expected to
purchase Common Shares as part of the Direct Sales has executed an agreement
under which they have agreed that they will not, without the prior written
consent of Prudential Securities Incorporated and Merrill Lynch & Co. on behalf
of the Underwriters and, in addition, in the case of the Strategic Investors,
the Company, directly or indirectly offer, sell, offer to sell, contract to
sell, transfer, assign, pledge, hypothecate, grant any option to purchase or

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otherwise sell or dispose (or announce any offer, sale, offer of sale, contract
of sale, transfer, assignment, pledge, hypothecation, grant of any option to
purchase or other sale or disposition) of any Common Shares or other capital
stock of the Company or any other securities convertible into, or exercisable or
exchangeable for, any Common Shares or other capital stock of the Company for a
period of one year after the date of this Prospectus, except for Prudential
Insurance, which has agreed to such restrictions for a period of 180 days after
the date of this Prospectus. Prudential Securities Incorporated, Merrill Lynch &
Co. and the Company may, in their discretion at any time and without notice,
jointly release all or any portion of the securities subject to such lock-up
agreements. The Company has granted the Strategic Investors rights to require
the Company to register the Common Shares they purchase in the Direct Sales and
the Common Shares underlying the Class B Warrants issued in the Direct Sales.
Such rights become exercisable on the first anniversary of the consummation of
the Offering. The Company has agreed not to permit the acceleration of the
vesting of such rights without the prior written consent of Prudential
Securities Incorporated and Merrill Lynch & Co. on behalf of the Underwriters.
See "Shares Eligible for Future Sales" and "Underwriting."

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CERTAIN TAX CONSIDERATIONS

The following summary of the taxation of the Company and Annuity
Reassurance and the taxation of the Company's shareholders is based upon current
law. Legislative, judicial or administrative changes may be forthcoming that
could affect this summary. The statements as to United States federal income tax
law set forth below represent the opinion of Drinker Biddle & Reath LLP, United
States counsel to the Company, subject to the qualifications and assumptions set
forth in such statements. The statements as to Bermuda tax law set forth below
represent the opinion of Conyers Dill & Pearman, Bermuda counsel to the Company,
subject to the qualifications and assumptions set forth in such statements. The
statements as to the Company's beliefs and intentions as to factual matters
represent the views of the Company's management and do not represent legal
opinions of its counsel.

TAXATION OF THE COMPANY AND ANNUITY REASSURANCE

Bermuda

Under current Bermuda law, there is no income tax or capital gains tax
payable by the Company or Annuity Reassurance. The Company and Annuity
Reassurance have each received an assurance from the Bermuda Minister of Finance
under The Exempted Undertakings Tax Protection Act 1966 of Bermuda to the effect
that if there is 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, Annuity Reassurance or to
any of their operations or the shares, debentures or other obligations of the
Company or Annuity Reassurance until March 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 (the Company
and Annuity Reassurance are not so currently designated) or to prevent the
application of any tax payable in accordance with the provisions of The Land Tax
Act 1967 of Bermuda or otherwise payable in relation to the property leased to
the Company or Annuity Reassurance. The Company and Annuity Reassurance, under
current rates, will pay annual Bermuda government fees of $25,000 and $3,360,
respectively, and Annuity Reassurance will pay annual insurance fees of $2,500.

United States

The Company's Board of Directors has adopted operating guidelines,
developed in consultation with its United States counsel, that prescribe how the
Company and Annuity Reassurance are to conduct their businesses in a manner
consistent with their intent not to be engaged in a trade or business within the
United States. Accordingly, the Company and Annuity Reassurance do not currently
plan to file United States income tax returns. However, because definitive
identification of activities that constitute being engaged in a trade or
business in the United States is not provided by the Code or regulations or
court decisions, there can be no assurance that the IRS will not contend that
the Company and/or Annuity Reassurance is engaged in a trade or business in the
United States. A foreign corporation deemed to be so engaged would be subject to
United States income tax, as well as branch profits tax, on its income that is
treated as effectively connected with the conduct of that trade or business
unless the corporation is entitled to relief under the permanent establishment
provision of a tax treaty, as discussed below. Section 842 of the Code requires
that foreign insurance companies carrying on an insurance business within the
United States have a certain minimum amount of effectively connected net
investment income even if they have no United States source investment income.
Otherwise, the 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 anticipate an
allowance of deductions and credits only if it files a United States income tax
return. Under regulations, the foreign corporation would be entitled to
deductions and credits for the taxable year only if the return for that year is
timely filed under rules set forth therein. Penalties may be assessed for
failure to file tax returns. The federal income tax rates currently are a
maximum of 35% for a corporation's effectively connected income and 30% for
branch profits tax. The branch profits tax is imposed on net income after
subtracting the regular corporate tax and making certain other adjustments.

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Under the income tax treaty between Bermuda and the United States (the
"Treaty"), provided that the predominant business activity of Annuity
Reassurance is acting as the reinsurer of risks underwritten by other insurance
companies (together with the investing or reinvesting of assets held in respect
of insurance reserves, capital and surplus incident to the carrying on of its
insurance business), Annuity Reassurance will be subject to United States income
tax on any income found to be effectively connected with a United States trade
or business only if that trade or business is conducted through a permanent
establishment in the United States. No regulations interpreting the Treaty have
been issued. While there can be no assurance, the operating guidelines adopted
by the Company's Board of Directors and described in the preceding paragraph are
similarly intended to prescribe how Annuity Reassurance will conduct its
business without establishing a permanent establishment in the United States.
Annuity Reassurance would not be entitled to the benefits of the Treaty if (i)
less than 50% of Annuity Reassurance's stock were beneficially owned, directly
or indirectly, by Bermuda residents or United States citizens or residents, or
(ii) Annuity Reassurance'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 United States citizens or residents. While
there can be no assurance, it is not expected that either of those factual
situations will exist after the sale of Common Shares offered hereby. The treaty
may not, however, provide relief from United States branch profits tax.

Foreign corporations not engaged in a trade or business in the United
States are nonetheless subject to United States income tax at a rate of 30% of
the gross amount of certain "fixed or determinable annual or periodical gains,
profits, and income" derived from sources within the United States as enumerated
in Section 881(a) of the Code (such as dividends and interest on certain
investments). Annuity Reassurance will be subject to such taxes on dividends
from United States companies in which it makes portfolio 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
Annuity Reassurance is currently 1%.

Other Countries

Annuity Reassurance may be subject to taxes imposed by other countries on
dividends or interest received from payors located in those countries.

TAXATION OF SHAREHOLDERS

Bermuda Taxation

Currently, there is no Bermuda withholding tax on dividends paid by the
Company or Annuity Reassurance.

United States Taxation

UNITED STATES SHAREHOLDERS

General. The following discussion summarizes certain United States federal
income tax consequences relating to the acquisition, ownership and disposition
of Common Shares by a beneficial owner who is (i) a citizen or resident of the
United States, (ii) a United States domestic corporation or (iii) otherwise
subject to United States federal income taxation on a net income basis in
respect of the Common Shares. This summary deals only with Common Shares
acquired by purchasers in the Offering and held as capital assets and does not
deal with the tax consequences applicable to all categories of investors, some
of which (such as broker-dealers who hold Common Shares as part of hedging or
conversion transactions and investors whose functional currency is not the
United States dollar) may be subject to special rules. Prospective purchasers of
the Common Shares are advised to consult their own tax advisers with respect to
their particular circumstances and with respect to the effects of United States
federal, state, local or other laws to which they may be subject.

Dividends. Distributions with respect to the Common Shares will be treated
as ordinary dividend income to the extent of the Company's current or
accumulated earnings and profits as determined for United States federal income
tax purposes, subject to the discussion below relating to the potential
application of the
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"controlled foreign corporation" or "passive foreign investment company" rules.
Such dividends will not be eligible for the dividends-received deduction allowed
to United States corporations under Section 243 of the Code. The amount of any
distribution in excess of the Company's current and accumulated earnings and
profits will first be applied to reduce the holder's tax basis in the Common
Shares, and any amount in excess of tax basis will be treated as gain from the
sale or exchange of the Common Shares.

Classification of the Company and Annuity Reassurance as Controlled Foreign
Corporations. Under Section 951(a) of the Code, each "United States
shareholder" of a foreign corporation that is a "controlled foreign corporation"
(a "CFC") for an uninterrupted period of 30 days or more during a taxable year
who owns shares in the CFC directly or indirectly through foreign entities on
the last day during such taxable year on which the corporation is a CFC must
include in its gross income for United States federal income tax purposes his
pro-rata share of the CFC's "subpart F income," even if the subpart F income is
not distributed. Subpart F income includes, among other things, "insurance
income," which is generally defined as income (including premium and investment
income) attributable to the issuing (or reinsuring) of any insurance or annuity
contract in connection with risks located in, or 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 insurance company is organized. Accordingly,
it is anticipated that substantially all of the income of Annuity Reassurance
will be subpart F income. Under Section 951(b) of the Code, any United States
corporation, citizen, resident or other United States person who owns, directly
or indirectly through foreign entities, or is considered to own (by application
of the rules of constructive ownership set forth in Section 958(b) of the Code,
generally applying to family members, partnerships, estates, trusts, controlled
corporations or holders of certain options), 10% or more of the total combined
voting power of all classes of stock of the foreign corporation will be
considered to be a "United States shareholder." In general, a foreign insurance
company such as Annuity Reassurance is treated as a CFC only if such "United
States shareholders" collectively own more than 25% of the total combined voting
power or total value of the corporation's stock. Because of the expected
dispersion of the Company's share ownership following the Offering and the
restrictions on transfer, issuance or repurchase of Common Shares, and because
the Company's Bye-Laws provide that no single shareholder is permitted to hold
10% or more of the total combined voting power of the Company, shareholders of
the Company should not be viewed as United States shareholders of a CFC for
purposes of these rules. However, there can be no assurance that the IRS will
not successfully take a contrary position.

RPII Companies. Different definitions of "United States shareholder" and
"controlled foreign corporation" are applicable in the case of a foreign
corporation which earns "related person insurance income" ("RPII"). RPII is
defined in Section 953(c)(2) of the Code as any "insurance income" of a foreign
corporation attributable to policies of insurance or reinsurance with respect to
which the person (directly or indirectly) insured is a "United States
shareholder" of such corporation or a "related person" to such a shareholder. In
general, "insurance income" is income (including underwriting premium and
investment income) attributable to the issuing of any insurance or reinsurance
contract in connection with risks located in a country other than the country
under the laws of which the CFC is created or 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 company.

Generally, the term "related person" for this purpose means someone who
controls or is controlled by the United States shareholder or someone who is
controlled by the same person or persons who control the United States
shareholder. "Control" is measured by either more than 50% in value or more than
50% in voting power of stock, applying constructive ownership principles similar
to the rules of Section 958 of the Code. For purposes of inclusion of Annuity
Reassurance's RPII in the income of United States shareholders, unless an
exception applies, the term "United States shareholder" includes all United
States persons who own, directly or indirectly, any amount (rather than 10% or
more) of Annuity Reassurance's stock. Annuity Reassurance will be subject to the
CFC provisions for RPII purposes if such persons collectively own directly,
indirectly or constructively 25% or more of the stock of Annuity Reassurance by
vote or value for an uninterrupted period of at least 30 days during any taxable
year. The Company anticipates that United States persons will own directly,
indirectly or constructively 25% or more of the stock of Annuity Reassurance by
vote or value for the

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requisite period; accordingly, the RPII rules of the Code will apply to Annuity
Reassurance unless one of several exceptions (discussed below) applies to
Annuity Reassurance.

RPII Exceptions. The special RPII rules do not apply if (i) direct or
indirect insureds and persons related to such insureds, whether or not United
States persons, are treated at all times during the taxable year as owning less
than 20% of the voting power and less than 20% of the value of the stock of
Annuity Reassurance, (ii) RPII, determined on a gross basis, is less than 20% of
Annuity Reassurance's gross insurance income for the taxable year, (iii) Annuity
Reassurance elects to be taxed on its RPII as if the RPII were effectively
connected with the conduct of a United States trade or business and to waive all
treaty benefits with respect to RPII or (iv) Annuity Reassurance elects to be
treated as a United States corporation. Annuity Reassurance does not intend to
make either of the described elections. Thus, only exceptions (i) and (ii) may
be available.

The Company does not expect that Annuity Reassurance will knowingly enter
into reinsurance arrangements in which, in the aggregate, the direct or indirect
insureds are, or are related to, owners of 20% or more of the Common Shares. If
this expectation is correct, exception (i) will, and exception (ii) may, apply
to Annuity Reassurance. There can be no assurance, however, that this will be
the case. If neither of these exceptions were to apply, each United States
person owning, directly or indirectly, stock in the Company (and therefore,
indirectly in Annuity Reassurance) at the end of any taxable year would
generally be required to include in its gross income for United States federal
income tax purposes its share of the RPII for the entire taxable year,
determined as if such RPII were distributed proportionately only to such United
States shareholders at that date, but limited to Annuity Reassurance's
current-year earnings and profits reduced by the shareholder's pro-rata share,
if any, of certain prior-year deficits in earnings and profits.

Computation of RPII. In order to determine how much RPII Annuity
Reassurance has earned in each taxable year, the Company intends to obtain and
rely upon information from its insureds to determine whether any of the insureds
or persons related to such insureds own shares of the Company and are United
States persons. Annuity Reassurance intends to include in its insurance
application and renewal forms, or related documents, a provision requesting
information as to whether the policyholders (or a related person) are or have
been, and a notice if they should become, a shareholder of the Company. In
addition, Annuity Reassurance will send a letter after each taxable year to each
person who was a policyholder requesting such policyholder to represent whether
it was a shareholder of the Company or related to a shareholder during the year.
For any taxable year in which Annuity Reassurance's gross RPII is 20% or more of
its gross insurance income for the year, the Company may also seek information
from its shareholders as to whether direct or indirect owners of its shares at
the end of the year are United States persons so that the RPII may be determined
and apportioned among such persons. To the extent the Company is unable to
determine whether a direct or indirect owner of shares is a United States
person, the Company may assume that such owner is not a United States person,
thereby increasing the per share RPII amount for all United States shareholders.
Although Annuity Reassurance intends to operate in a manner that would minimize
RPII, there can be no assurance that an investor will not be required to include
amounts in its income in respect of RPII in any taxable year.

Apportionment of RPII to United States Shareholders. If direct or indirect
insureds and persons related to such insureds were to own more than 20% of the
voting power or value of Annuity Reassurance's common shares and Annuity
Reassurance's RPII determined on a gross basis for any future taxable year were
to be 20% or more of its gross insurance income, every United States person who
owns directly or indirectly Common Shares on the last day of that year would be
required to include in its gross income its share of Annuity Reassurance's RPII
for such year, whether or not distributed. A United States person who owns
Common Shares during the Company's taxable year but not on the last day of the
taxable year on which Annuity Reassurance is a controlled foreign corporation
within the meaning of the RPII provision of the Code, which would normally be
December 31, would not be required to include in its gross income any part of
Annuity Reassurance's RPII. Correspondingly, a United States person who owns
directly or indirectly, Common Shares on the last day of the taxable year on
which Annuity Reassurance is a controlled foreign corporation for purposes of
those provisions would be required to include in its income its share of the
RPII for the entire year even though such holder does not own the Common Shares
for the entire year.

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Uncertainty as to Application of RPII. Regulations interpreting the RPII
provisions of the Code exist only in proposed form. It is not certain whether
these regulations will be adopted in their proposed form or what changes might
ultimately be made thereto or whether any such changes, as well as any
interpretation or application of the RPII rules by the IRS, the courts or
otherwise, might have retroactive effect. The description of RPII herein is
therefore qualified. Accordingly, the meaning of the RPII provisions and the
application thereof to the Company and Annuity Reassurance is uncertain. These
provisions include the grant of authority to the United States Treasury
Department to prescribe "such regulations as may be necessary to carry out the
purpose of this subsection including . . . regulations preventing the avoidance
of this subsection through cross insurance arrangements or otherwise." In
addition, there can be no assurance that the IRS will not challenge any
determinations by the Company or Annuity Reassurance as to the amount, if any,
of RPII that should be includable in the income of a holder of Common Shares or
that the amounts of the RPII inclusions will not be subject to adjustment based
upon subsequent IRS examination. Each United States person who is considering an
investment in Common Shares should consult his tax advisor as to the effects of
these uncertainties.

Information Reporting. Each United States person who is a direct or
indirect shareholder of the Company on the last day of the Company's taxable
year would be required to attach to the income tax or information return such
holder would normally file for the period which includes that date a Form 5471
if Annuity Reassurance were a CFC for RPII purposes for any continuous
thirty-day period during its taxable year whether or not any net RPII income is
required to be reported. Annuity Reassurance will not be considered to be a CFC
for this purpose and, therefore, Form 5471 will not be required, for any taxable
year in which (i) Annuity Reassurances's gross RPII constitutes less than 20% of
its gross insurance income or (ii) less than 20% of the voting power or value of
Annuity Reassurance's common shares is owned by direct or indirect insureds and
persons related to such insureds. For any year in which Annuity Reassurance's
gross RPII constitutes 20% or more of its gross insurance income and its direct
or indirect insureds and persons related to such insureds own more than 20% of
the voting power or value of Annuity Reassurance's common shares, the Company
intends to provide Form 5471 to its direct or indirect United States
shareholders for attachment to the returns of shareholders. The amounts of the
RPII inclusions may be subject to adjustment based upon subsequent IRS
examination. A tax-exempt organization would be required to attach Form 5471 to
its information return in the circumstances described above. Failure to file
Form 5471 may result in penalties. In addition, United States persons who at any
time own 10% or more of the shares of the Company may have an independent
obligation to file certain information returns.

Tax-Exempt Shareholders. United States tax-exempt organizations would
generally be required to treat subpart F insurance income, including RPII, that
is includable in income by the tax-exempt entity, as unrelated business taxable
income within the meaning of Section 512 of the Code.

Dividend; Basis; Exclusion of Dividends from Gross Income. A United States
shareholder's tax basis in his Common Shares would be increased by the amount of
any RPII that the shareholder includes in his income. The shareholder could
exclude from income the amount of any distribution by the Company to the extent
of the RPII included in such shareholder's income for the year in which the
distribution was paid or for any prior year. A shareholder's tax basis in his
Common Shares would be reduced by the amount of such distributions that are
excluded from his income. Although, in certain circumstances, a United States
shareholder might be able to exclude from his income distributions with respect
to RPII that a prior shareholder included in his income, that exclusion would
not generally be available to holders who purchase Common Shares in the public
trading markets and are therefore unable to identify the previous shareholder
and demonstrate that such shareholder had previously included the RPII in his
income.

Dispositions of Common Shares. Subject to the discussion below relating to
the potential application of Section 1248 of the Code or the passive foreign
investment company rules, a United States shareholder will, upon the sale or
exchange of any Common Shares, recognize a gain or loss for United States income
tax purposes equal to the difference between the amount realized upon such sale
or exchange and the shareholder's basis in the Common Shares. If the
shareholder's holding period for such Common Shares is more than eighteen
months, any gain will be subject to tax at a current maximum marginal tax rate
of 20% for individuals and 35% for corporations.

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Section 1248 of the Code provides that if a United States person disposes
of stock in a foreign corporation and such person owned directly, indirectly or
constructively 10% or more of the voting shares of the corporation at any time
during the five-year period ending on the date of disposition when the
corporation was a CFC, any gain from the sale or exchange of the shares may be
treated as ordinary income to the extent of the CFC's previously untaxed
earnings and profits during the period that the shareholder held the shares
(with certain adjustments). A 10% United States shareholder may in certain
circumstances be required to report a disposition of shares of a CFC by
attaching IRS Form 5471 to the United States income tax or information return
that the shareholder would normally file for the taxable year in which the
disposition occurs.

Section 953(c)(7) of the Code generally provides that Section 1248 will
also apply to any sale or exchange of shares in a foreign corporation that earns
RPII if the foreign corporation would be taxed as an insurance company if it
were a domestic corporation, regardless of whether the selling shareholder is or
was a 10% shareholder or whether RPII constitutes 20% or more of the
corporation's gross insurance income. Existing Treasury regulations do not
address whether Section 1248 of the Code and the requirement to file Form 5471
would apply if the foreign corporation is not a CFC but the foreign corporation
has a subsidiary that is a CFC or that would be taxed as an insurance company if
it were a domestic corporation (although, as discussed above, shareholders of
10% or more of the shares of the Company may have an independent obligation to
file Form 5471).

Section 1248 of the Code and the requirement to file Form 5471 should not
apply to dispositions of Common Shares because the Company does not intend to
directly engage in the insurance business and, under proposed regulations, these
provisions appear to be applicable only in the case of shares of corporations
that are directly engaged in the insurance business. There can be no assurance,
however, that the IRS will interpret the proposed regulations in this manner or
that the proposed regulations will not be amended or promulgated in final form
so as to provide that Section 1248 of the Code and the requirement to file Form
5471 will apply to dispositions of Common Shares. In that event, 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 would 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 would attach to this notice a copy of Form 5471 completed
with all Company information and instructions for completing the shareholder
information.

Foreign Tax Credit. Because it is anticipated that United States persons
will own a majority of the Company's shares, only a portion of the current
income inclusions under the CFC, RPII and passive foreign investment company
rules, if any, and of dividends paid by the Company (including any gain from the
sale of Common Shares that is treated as a dividend under Section 1248 of the
Code) will be treated as foreign source income for purposes of computing a
shareholder's United States foreign tax credit limitations. The Company will
consider providing shareholders with information regarding the portion of such
amounts constituting foreign source income to the extent such information is
reasonably available. It is also 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 United States shareholders to utilize excess
foreign tax credits to reduce United States tax on such income.

Passive Foreign Investment Companies. Sections 1291 through 1298 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, their Common Shares, unless such shareholders (i) elected from
the outset to be taxed on their pro-rata share of the Company's earnings whether
or not such earnings were distributed or (ii) elected to mark their Common
Shares to market as of the end of each taxable year and to treat as ordinary
income (or loss) the annual appreciation (or depreciation) in the value of such
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 stock during the three preceding taxable years (or shorter period
during which the taxpayer held the stock). In general, the penalty tax is
computed by assuming that the excess distribution or gain (in the

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case of a sale) with respect to the shares was taxed in equal annual portions at
the highest applicable ordinary income tax rate throughout the holder's period
of ownership, and that interest accrued on each tax amount for each prior year
from the due date of such prior year's return. The interest charge is equal to
the applicable rate imposed on underpayments of United States federal income tax
for such period.

For the above purposes, passive income is defined to include income of the
kind which would be foreign personal holding company income under Section 954(c)
of the Code, and generally includes interest, dividends, annuities and other
investment income. However, 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. Annuity Reassurance expects to be exclusively engaged in an
insurance business and does not expect to have financial reserves in excess of
the reasonable needs of its insurance business. The PFIC statutory provisions
(unlike the RPII provisions of the Code) 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% by value
of the stock. While no explicit guidance is provided by the statutory language,
under the look-through rule the Company should be deemed to own the assets and
to have received the income of Annuity Reassurance directly for purposes of
determining whether the Company qualifies for the aforementioned insurance
exception. This 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 be no assurance, however, as to
what positions the IRS or a court might take in the future on whether the
Company or Annuity Reassurance is predominantly engaged in an insurance business
and does not have financial reserves in excess of the reasonable needs of such
business. United States persons who are considering an investment in Common
Shares should consult their tax advisors as to the effects of the PFIC rules.

Other. 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 United States persons. Thus, a holder of
Common Shares may be subject to backup withholding at the rate of 31% with
respect to dividends paid to such persons, unless such holder (a) is a
corporation or comes within certain other exempt categories and, when required,
demonstrates this fact, or (b) 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. Backup
withholding is not an additional tax and may be credited against a holder's
regular federal income tax liability.

NON-UNITED STATES SHAREHOLDERS

Subject to certain exceptions, non-United States 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. Nonresident alien individuals will not be subject to
United States estate tax with respect to Common Shares of the Company.

* * *

The foregoing discussion is based upon current law. The tax treatment of an
owner of Common Shares, or a person treated as an owner of Common Shares for
United States federal income, state, local or non-United States tax purposes,
may vary depending on the owner'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 owners of Common
Shares. PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING
THE FEDERAL, STATE, LOCAL AND NON-UNITED STATES TAX CONSEQUENCES OF OWNERSHIP
AND DISPOSITION OF THE COMMON SHARES.

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UNDERWRITING

The underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated, BT
Alex. Brown Incorporated, CIBC Oppenheimer Corp. and Schroder & Co. Inc. are
acting as representatives (the "Representatives"), have severally agreed,
subject to the terms and conditions contained in the underwriting agreement (the
"Underwriting Agreement"), to purchase from the Company the number of Common
Shares set forth below opposite their respective names:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------- ----------
<S> <C>
Prudential Securities Incorporated.......................... 2,836,053
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... 2,836,053
BT Alex. Brown Incorporated................................. 2,836,053
CIBC Oppenheimer Corp. ..................................... 2,836,053
Schroder & Co. Inc. ........................................ 2,836,053
A.G. Edwards & Sons, Inc. .................................. 341,000
Lehman Brothers Inc. ....................................... 341,000
PaineWebber Incorporated ................................... 341,000
Waserstein Perella Securities, Inc. ........................ 341,000
Sanford C. Bernstein & Co., Inc. ........................... 170,500
Conning & Company .......................................... 170,500
First International Securities Ltd. ........................ 170,500
Fox-Pitt, Kelton Inc. ...................................... 170,500
Janney Montgomery Scott Inc. ............................... 170,500
Keefe, Bruyette & Woods, Inc. .............................. 170,500
Neuberger & Berman LLC ..................................... 170,500
Piper Jaffray Inc. ......................................... 170,500
Stephens Inc. .............................................. 170,500
----------
Total....................................................... 17,078,765
==========
</TABLE>

The Company is obligated to sell, and the Underwriters are obligated to
purchase, all of the Common Shares set forth above if any are purchased. The
closing of the Offering made hereby is conditioned upon the simultaneous closing
of sales by the Company to the Strategic Investors in the Direct Sales of Common
Shares and related Class B Warrants with an aggregate purchase price of at least
$50.0 million.

The Underwriters, through the Representatives, have advised the Company
that they propose to offer the Common Shares set forth above initially at the
public offering price set forth on the cover page of this Prospectus; that the
Underwriters may allow to selected dealers a concession of $0.54 per share; and
that such dealers may reallow a concession of $0.10 per share to certain other
dealers. After the Offering, the initial public offering price and the
concessions may be changed by the Representatives.

The Company has granted to the Underwriters an over-allotment option,
exercisable for 30 days from the date of this Prospectus, to purchase up to
2,561,814 additional Common Shares at the initial public offering price per
share, less underwriting discounts and commissions, as set forth on the cover
page of this Prospectus. The Underwriters may exercise such option solely for
the purpose of covering any over-allotments incurred in the sale of the Common
Shares offered hereby. To the extent such option is exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional Common Shares as the number set forth
next to such Underwriter's name in the preceding table bears to 17,078,765.

The Company, its directors and officers, the holders of the Class A
Warrants and the Strategic Investors have executed agreements pursuant to which
they have agreed, except for certain limited exceptions, that they will not
directly or indirectly, without the prior written consent of Prudential
Securities Incorporated and

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<PAGE> 80

Merrill Lynch & Co. on behalf of the Underwriters and, in addition, in the case
of the Strategic Investors, the Company, offer, sell, offer to sell, contract to
sell, transfer, assign, pledge, hypothecate, grant any option to purchase, or
otherwise sell or dispose (or announce any offer, sale, offer to sell, contract
of sale, transfer, assignment, pledge, hypothecation, grant of any option to
purchase or other sale or disposition) of any Common Shares or other capital
stock of the Company or any other securities convertible into, or exercisable or
exchangeable for, any Common Shares or other capital stock of the Company for a
period of one year after the date of this Prospectus, except for Prudential
Insurance, which has agreed to such restrictions for a period of 180 days after
the date of this Prospectus. Such agreements do not prevent the Company from
granting options under the Stock Option Plan so long as such options are not
exercisable until one year from the date of this Prospectus. Prudential
Securities Incorporated, Merrill Lynch & Co. and the Company may, in their
discretion, at any time and without notice, jointly release all or any portion
of the securities subject to such lock-up agreements. The Company also has
agreed not to accelerate the exercisability of the registration rights granted
to the Strategic Investors, the Class A Warrant holders and the Class B Warrant
holders and not to file any registration statement on Form S-8 with respect to,
or otherwise register for resale with the Commission, Common Shares underlying
stock options or warrants for a period of one year from the date of this
Prospectus, in each case, without the prior written consent of Prudential
Securities Incorporated and Merrill Lynch and Co. on behalf of the Underwriters.

The Company has agreed to indemnify the several Underwriters and contribute
to losses arising out of certain liabilities, including liabilities under the
Securities Act.

The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.

Prior to the Offering, there has been no public market for the Common
Shares. The initial public offering price was determined by the Company and the
Representatives as an appropriate per share price in light of the Company's
desired capitalization.

Upon consummation of the Offering, the Company will pay Prudential
Securities Incorporated an advisory fee equal to $1.0 million (plus
reimbursement of related out-of-pocket expenses) for investment banking and
financial advisory services in connection with the Offering.

The Company has entered into an investment advisory agreement with The
Prudential Investment Corporation, as one of the Investment Managers. See
"Business -- Investment Managers." Prudential Securities Incorporated and The
Prudential Investment Corporation are wholly-owned subsidiaries of Prudential
Insurance. Prudential Insurance, one of the Strategic Investors, has agreed to
purchase 1,028,369 Common Shares and Class B Warrants to purchase an additional
72,500 Common Shares for an aggregate purchase price of $14.5 million. See
"Direct Sales."

In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Shares.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Shares for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Common Shares in connection with the Offering than
they are committed to purchase from the Company, and in such case may purchase
Common Shares in the open market following completion of the Offering to cover
all or a portion of such short position. The Underwriters may also cover all or
a portion of such short position, up to 2,561,814 Common Shares, by exercising
the Underwriters' over-allotment option referred to above. In addition,
Prudential Securities Incorporated and Merrill Lynch & Co., on behalf of the
Underwriters, may impose "penalty bids" under contractual arrangements with the
Underwriters whereby they may reclaim from an Underwriter (or any selling group
member participating in the Offering) for the account of the other Underwriters,
the selling concession with respect to Common Shares that are distributed in the
Offering but subsequently purchased by Prudential Securities Incorporated for
the account of the Underwriters in the open market. Any of the transactions
described in this paragraph may result in the maintenance of the price of the
Common Shares at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required and, if
they are undertaken, they may be discontinued at any time.

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LEGAL MATTERS

The validity of the Common Shares under Bermuda law will be passed upon for
the Company by Conyers Dill & Pearman, Hamilton, Bermuda. Certain matters as to
United States law in connection with the Offering will be passed upon for the
Company by Drinker Biddle & Reath LLP, Philadelphia, Pennsylvania. Certain
matters as to United States law in connection with the Offering will be passed
upon for the Underwriters by Cleary, Gottlieb, Steen & Hamilton, New York, New
York. Drinker Biddle & Reath LLP, who serve as United States counsel to the
Company, also served as United States counsel to Inter-Atlantic Capital
Partners, Inc. in connection with the establishment of the Company and Annuity
Reassurance in 1997 and continues to represent Inter-Atlantic Capital Partners,
Inc. on an ongoing basis.

EXPERTS

The consolidated balance sheet of the Company as of December 31, 1997
included in this Prospectus and in the Registration Statement has been audited
by KPMG Peat Marwick, independent auditors, as indicated in their report with
respect thereto, and is included herein in reliance on the authority of said
firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Commission a registration statement on Form
S-1 (together with all amendments, exhibits and schedules thereto, the
"Registration Statement") 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 the information set forth in the
Registration Statement, certain items of which are omitted as permitted by the
rules and regulations of the Commission. For further information with respect to
the Company and the Common Shares offered hereby, reference is made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of any contract, agreement or other document are not necessarily
complete. With respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference.

Upon completion of the Offering, the Company will be subject to the
informational reporting requirements of the Exchange Act and, in accordance
therewith, will file reports, proxy and information statements and other
information with the Commission. The Registration Statement, the exhibits and
schedules forming a part thereof, as well as such reports, proxy and information
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549-1004 and at the following regional offices of the
Commission: Seven World Trade Center, Suite 1300, New York, New York 10048, and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained from the public reference
section of the Commission at its Washington address at prescribed rates. The
Commission also maintains an Internet web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding issuers, such as the Company, that file electronically with the
Commission.

After giving effect to the Offering, the Company will be treated as a
domestic corporation for purposes of certain requirements of the Exchange Act,
including the proxy rules. Pursuant to Rule 3b-4 under the Exchange Act, a
"foreign private issuer" is a non-United States issuer other than an issuer that
meets the following conditions: (1) more than 50% of the outstanding voting
securities of the issuer are held of record by residents of the United States
and (2) any of the following: (i) the majority of the executive officers or
directors of the issuer are United States citizens or residents, (ii) more than
50% of the assets of the issuer are located in the United States or (iii) the
business of the issuer is administered principally in the United States. By
virtue of (1) and (2)(i), the Company does not expect that it will be a "foreign
private issuer," although

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there is no assurance of such. If the Company were to be treated as a "foreign
private issuer," it would be exempted from the proxy and short-swing profit
rules under Sections 14 and 16 of the Exchange Act and, for reporting purposes
under the Exchange Act, would be subject to rules applicable to "foreign private
issuers."

The Company intends to furnish its shareholders with annual reports
containing financial statements audited by an independent accounting firm and
quarterly reports containing unaudited financial statements for the first three
quarters of each fiscal year.

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GLOSSARY OF SELECTED ANNUITY AND LIFE INSURANCE TERMS

A.M. Best rating........... A.M. Best Company, Inc.'s Best Ratings provide an
overall opinion of an insurance company's ability
to meet its obligations to policyholders based on
a quantitative and qualitative evaluation of a
company's financial strength, operating
performance and market profile. A.M. Best
maintains a letter scale rating system consisting
of 14 different ratings ranging from "A++"
(superior) to "F" (in liquidation). An "A-"
(excellent) rating is assigned by A.M. Best to
companies which have, on balance, excellent
financial strength, operating performance and
market profile when compared to the standards
established by the A.M. Best Company and which in
A.M. Best's opinion have a strong ability to meet
their ongoing obligations to policyholders.

Acquisition costs.......... Commission and brokerage fees paid for the
production of premiums written and certain other
acquisition and underwriting expenses.

Alien insurer or
reinsurer.................. An insurer or reinsurer organized under the laws of
a non-United States jurisdiction.

Annuitant.................. The person on whose life or life expectancy the
annuity payouts are based.

Annuity.................... A form of contract sold by an insurer that
guarantees a fixed or variable payment to the
annuitant over time. Annuity payments can
commence immediately or be deferred.

Annuity payouts............ An amount paid at regular intervals under one of
several plans typically available to the annuity
owner and/or any other payee. This amount may be
paid on a variable or fixed basis or a
combination of both.

Approved actuary........... A person approved by the Minister of Finance of
Bermuda that certifies whether or not, in his
opinion, the aggregate amount of the long-term
business liabilities of an insurer in relation to
its long-term business assets at the end of the
relevant year exceeded the aggregate amount of
those liabilities as shown in the insurer's
statutory balance sheet.

Assumption Reinsurance..... An arrangement under which an insurance company
(the "reinsurer") agrees to assume the
obligations of another insurance company (the
"ceding company" or "cedent") for all or a
portion of the insurance risks underwritten by
the ceding company. Reinsurance written on an
assumption basis effectively transfers the ceding
company's obligations to the reinsurer and, in
some cases, eliminates the ceding company's
further liability to the insured.

Automatic reinsurance...... Reinsurance of a specified type or category of risk
defined in a reinsurance agreement (often called
a "treaty") between a ceding company and a
reinsurer. Typically, in automatic reinsurance
the ceding company is obligated to offer and the
reinsurer is obligated to accept a specified
portion of all such type or category of risks
originally insured or reinsured by the ceding
company.

Beneficiary................ The person designated to receive life or annuity
benefits in case of the policy owner's or
annuitant's death.

Broker..................... One who negotiates contracts of insurance or
reinsurance, receiving a commission for placement
and other services rendered, between (i) a
policyholder and a primary insurer, on behalf of
the insured party,

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(ii) a primary insurer and reinsurer, on behalf
of the primary insurer, or (iii) a reinsurer and
a retrocessionaire, on behalf of the reinsurer.

Cedent; Ceding company..... See "Reinsurance; Reinsurer."

Coinsurance................ A form of reinsurance with respect to which the
risk generally is reinsured on the same plan as
that of the original policy. The reinsurer
receives the gross premium charged to the
policyholder on the reinsured part of the policy
less expense allowances granted the ceding
company by the reinsurer. The reinsurer maintains
policy reserves and is liable for its share of
policy benefits.

Corporate owned life
insurance ("COLI")......... An individual or group life insurance policy owned
by a company or a trust sponsored by a company.
The proceeds from such a policy may be used to
help fund general corporate liabilities, such as
the cost of employee benefit programs.

Credited rates............. Interest rates applied to annuity and life
insurance policies, whether contractually
guaranteed or currently declared for a specified
period, as outlined in the policy or contract.
Minimum crediting rates are often set by laws or
regulations.

Duff & Phelps rating....... Duff & Phelps Credit Rating Co.'s claims paying
ability ratings provide an overall opinion of an
insurance company's ability to meet its
obligations to policyholders. Duff & Phelps
maintains a letter scale rating system consisting
of 18 different ratings ranging from "AAA" to
"DD." An "A" rating is assigned by Duff & Phelps
to companies that have, in Duff & Phelps'
opinion, high claims paying ability, average
protection factors and a variability to risk over
time due to economic and/or underwriting
conditions.

Duration................... A measure, expressed in years, of the price
sensitivity of a financial instrument to changes
in interest rates.

Facultative reinsurance.... A type of reinsurance whereby the ceding company is
not obligated to offer, and the reinsurer is not
obligated automatically to accept, all or a
portion of each risk originally insured by the
ceding company. Facultative risks are typically
underwritten on a case-by-case basis.

Fixed annuity.............. An annuity which guarantees an annuitant that a
specific sum of money will be paid in the future,
either as a lump sum or as periodic income.
Assets supporting fixed annuities are subject to
claims of general creditors of the issuer of the
annuity and are sometimes referred to as "general
account" annuities.

United States generally
accepted accounting
principles ("GAAP")...... United States accounting principles as set forth in
opinions of the Accounting Principles Board of
the American Institute of Certified Public
Accountants and/or statements of the Financial
Accounting Standards Board and/or their
respective successors and which are applicable in
the circumstances as of the date in question.

Guaranteed investment
contracts.................. Insurance contracts that guarantee a specified rate
of return.

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Indemnity reinsurance...... An arrangement under which an insurance company
(the "reinsurer") agrees to indemnify another
insurance company (the "ceding company" or
"cedent") for all or a portion of the insurance
risks underwritten by the ceding company.
Reinsurance written on an indemnity basis does
not legally discharge the primary insurer from
its liability with respect to its obligations to
the insured.

Long term insurer.......... Under Bermuda law, a long term insurer means an
insurer carrying on long-term business, which
includes effecting and carrying out contracts of
insurance on human life or contracts to pay
annuities on human life.

Modified coinsurance....... A form of reinsurance that differs from coinsurance
only in that reserves are retained by the ceding
company while the risk remains with the
reinsurer. The ceding company normally pays
interest to replace the interest the reinsurer
would have earned if it had held the assets
corresponding to the reserves in its own
investment portfolio.

Mortality.................. The relative incidence of death.

Persistency................ The rate which insurance policies or annuity
contracts remain in force, expressed as a
percentage of the number of policies remaining in
force over the previous year.

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

Quota share reinsurance.... A term describing all forms of reinsurance in which
the reinsurer receives a pro-rata part of the
premiums and pays a pro-rata part of the losses
arising in connection with the policies reinsured
(sometimes known as "proportional" reinsurance,
"pro-rata" reinsurance or "participating"
reinsurance).

Recapture right............ The ceding company's right to cancel reinsurance
under certain conditions. A recapture occurs when
a ceding company cancels an in force reinsurance
cession to increase the risk it retains.

Reinsurance; Reinsurer..... An arrangement under which an insurance company
(the"reinsurer") agrees to indemnify or assume
the obligations of another insurance company (the
"ceding company" or "cedent") for all or a
portion of the insurance risks underwritten by
the ceding company.

Reserves................... Liabilities established by insurers that generally
represent the estimated discounted present value
of the net cost of claims, repayments or contract
liabilities and the related expenses that the
insurer will ultimately be required to pay in
respect of insurance or annuities it has written.

Retention.................. The amount or portion of insurance risk that a
ceding company retains for its own account. In
quota share reinsurance, the retention may be a
percentage of the original policy's limit. In
excess of loss business, the retention typically
is a dollar amount of loss, a loss ratio or a
percentage.

Retrocessional reinsurance;
Retrocessionaire......... An arrangement under which a reinsurer cedes to
another reinsurer (the "retrocessionaire") all or
a portion of the insurance risks underwritten

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<PAGE> 86

by the first reinsurer. Retrocessional
reinsurance does not legally discharge the ceding
reinsurer from its liability with respect to its
obligations to the original ceding company.

Standard & Poor's rating... Standard & Poor's insurance claims paying ability
rating is the opinion of Standard & Poor's of an
operating insurance company's financial capacity
to meet the obligations of its insurance policies
in accordance with their terms. Standard & Poor's
ratings range from "AAA" to "CCC". An "A-" rating
is assigned by Standard & Poor's to companies
which in its opinion have good financial
security, but their capacity to meet policyholder
obligations is somewhat susceptible to adverse
economic and underwriting conditions.

Separate account........... A segregated account established by an insurance
company to hold customer assets and liabilities
on behalf of a customer in connection with
variable life and variable annuity products. The
funds in a separate account are maintained
separately from those in other separate accounts
and other assets of the insurer, and are not
subject to claims of the insurer's general
creditors.

Structured settlement
contracts.................. Contracts providing for periodic payments to a
person for a determinable number of years or for
life, typically in settlement of an injury claim
or a lottery award.

Surplus relief reinsurance;
Financial reinsurance.... A type of reinsurance which is primarily designed
to increase temporarily a ceding company's
statutory capital.

Surrender charge........... A charge applied if an annuity or life insurance
policy is surrendered for its cash value prior to
a specified date. Such a charge is usually
intended to recover all or a portion of the
policy acquisition costs and act as a deterrent
to early surrender.

Term life insurance........ A form of life insurance which provides mortality
protection during a stated period of time, but
expires without policy cash value in the event
the policy owner survives the stated period.

Treaty reinsurance......... See "Automatic reinsurance."

Underwriting............... The insurer's or reinsurer's process of reviewing
contracts submitted for insurance or reinsurance
coverage, deciding whether to accept all or part
of the coverage requested and determining the
applicable premiums.

Underwriting capacity...... The maximum amount of insurance that an insurance
or reinsurance company can underwrite, which is
limited by its existing surplus. Reinsurance
serves to increase an insurer's underwriting
capacity by reducing its exposure from particular
risks and thereby increasing available surplus.

Underwriting expenses...... The aggregate of policy acquisition costs,
including commissions, and the portion of
administrative, general and other expenses
attributable to underwriting operations.

Unearned premiums.......... Premiums written but not yet earned, as they are
attributable to the unexpired portion of the
related contract term.

Universal life insurance... A form of life insurance that combines term
insurance and a cash value savings component.
Premium payments and coverage usually can vary

86
<PAGE> 87

at the option of the policyholder. This coverage
can be fixed or variable. Premiums are credited
to the account as is interest on the underlying
assets. Specific charges are made against the
account for the cost of insurance protection and
for the insurer's expenses. This form of life
insurance allows considerable flexibility as to
the amount and timing of premium payments and for
the level of death benefits provided.

Variable annuity........... An annuity which includes a provision for benefit
payments to vary according to the investment
experience of the separate account in which the
premiums paid for the annuity are allocated.

Variable life insurance.... An investment-oriented form of life insurance that
offers fixed premiums and a minimum death benefit
as well as providing a return linked to an
underlying portfolio of securities that may be in
either a separate or general account of the
insurer.

Whole life insurance....... A form of life insurance which provides guaranteed
death benefits and guaranteed cash values to
policyholders.

87
<PAGE> 88

INDEX TO CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Balance Sheet as of December 31, 1997....................... F-3
Notes to Consolidated Balance Sheet......................... F-4
</TABLE>

F-1
<PAGE> 89

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Annuity and Life Re (Holdings), Ltd.

We have audited the accompanying consolidated balance sheet of Annuity and
Life Re (Holdings), Ltd. as at December 31, 1997. 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 United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. 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 our audit provides a reasonable basis for our opinion.

In our opinion, the financial statement referred to above presents fairly,
in all material respects, the financial position of the company as at December
31, 1997 in conformity with United States generally accepted accounting
principles.

KPMG PEAT MARWICK
Chartered Accountants

Hamilton, Bermuda
March 19, 1998

F-2
<PAGE> 90

ANNUITY AND LIFE RE (HOLDINGS), LTD.

CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(EXPRESSED IN UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
UNAUDITED
PRO FORMA(a)
------------
<S> <C> <C>
ASSETS
Cash........................................................ $250,000 $ 250,000
Deferred equity offering costs.............................. 233,000 --
Capitalized organization costs.............................. -- 75,000
-------- -----------
Total Assets...................................... $483,000 $ 325,000
======== ===========
LIABILITIES (NOTE 3)
Accounts payable............................................ $233,000 $ 4,625,000
======== ===========
Total Liabilities................................. $233,000 $ 4,625,000
======== ===========
STOCKHOLDERS' EQUITY (NOTE 4)

Preferred Shares -- (par value $1.00; 50,000,000 shares
authorized; no shares outstanding)........................ $ -- $ --
Common Shares -- (par value $1.00; 100,000,000 shares
authorized; 12,000 shares outstanding).................... 12,000 12,000
Additional paid-in capital.................................. 238,000 (3,962,000)
Accumulated deficit......................................... -- (350,000)(b)
-------- -----------
Total stockholders' equity........................ $250,000 $(4,300,000)
======== ===========
Total liabilities and stockholders' equity.................. $483,000 $ 325,000
======== ===========
</TABLE>

- ---------------
(a)A pro forma balance sheet has been presented for information purposes only
and does not form part of the audited consolidated balance sheet. The pro
forma gives effect to the amounts payable to Inter-Atlantic Securities
Corporation, Prudential Securities Incorporated and other Offering expenses
that will be paid out of the Offering proceeds, as if the Offering had taken
place on December 31, 1997. The pro forma does not give effect to the
proceeds that would be received from the Offering.

(b)Represents estimated expenses incurred by Inter-Atlantic Securities
Corporation in connection with the Company's operations in the period
subsequent to December 31, 1997 for which Inter-Atlantic Securities
Corporation is entitled to be reimbursed by the Company.

The accompanying notes are an integral part of this consolidated balance
sheet.
F-3
<PAGE> 91

ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO CONSOLIDATED BALANCE SHEET

1. ORGANIZATION

Annuity and Life Re (Holdings), Ltd. ("Holdings") was incorporated on
December 2, 1997 under the laws of Bermuda to provide annuity and life
reinsurance to insurers and reinsurers. Holdings will operate through a
wholly-owned subsidiary, Annuity and Life Reassurance, Ltd. ("Annuity
Reassurance," and together with Holdings, the "Company"). Annuity Reassurance is
licensed under the insurance laws of Bermuda. The Company's initial
capitalization of $250,000, as reflected on the Balance Sheet, was provided by
Frederick S. Hammer, Robert M. Lichten, Michael P. Esposito, Jr., Andrew S.
Lerner, William S. Ogden, Jr. and Arnold Welles (referred to as the "Class A
Warrant Holders") (see notes 3 and 4) and the Annuity Re Purpose Trust, which
was lent $12,000 by Inter-Atlantic Capital Partners, Inc. See note 3. The
Company's fiscal year end is December 31.

During the period from its inception date to the balance sheet date, the
Company did not incur any income or expenses that are required to be reported in
a statement of income or a statement of cash flows under United States generally
accepted accounting principles. Therefore, consolidated statements of income and
cash flows have not been presented.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying financial statement is prepared in accordance with United
States generally accepted accounting principles which require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statement. Actual results could differ from those estimates. The
following are the significant accounting policies adopted by the Company:

(a) Premium income and related expenses

Reinsurance premiums from traditional life and annuity policies with life
contingencies will be recognized generally as revenue when due from
policyholders. Traditional life policies include those contracts with fixed and
guaranteed premiums and benefits, and consist principally of whole life and term
insurance policies. Benefits and expenses are matched with such income so as to
result in the recognition of profits over the life of the contracts. This is
achieved by means of the provision for liabilities for future policy benefits
and deferral and subsequent amortization of policy acquisition costs.

For contracts with a single premium or a limited number of premium payments
due over a significantly shorter period than the total period over which
benefits are provided ("limited payment contracts"), reinsurance premiums will
be recorded as income when due with any excess profit deferred and recognized in
income in a constant relationship to the insurance in force or, for annuities,
in relation to the amount of expected future benefit payments.

Premiums from universal life and investment-type contracts will be reported
as deposits to policy holders' account balances. Revenues from these contracts
will consist of amounts assessed during the period against policyholders'
account balances for mortality charges, policy administration charges and
surrender charges. Policy benefits and claims that are charged to expense will
include benefit claims incurred in the period in excess of related
policyholders' account balances.

(b) Deferred policy acquisition costs

The costs of acquiring new business, principally commissions, underwriting,
agency and policy issue expenses, all of which vary with and are primarily
related to the production of new business, will be deferred. Deferred policy
acquisition costs will be subject to recoverability testing at the time of the
policy issuance and loss recognition testing at the end of each accounting
period.

F-4
<PAGE> 92
ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)

For traditional life and annuity policies with life contingencies, deferred
policy acquisition costs will be charged to expense using assumptions consistent
with those used in computing policy reserves. Assumptions as to anticipated
premiums will be estimated at the date of the policy issuance and will be
consistently applied during the life of the contracts. Deviations from estimated
experience will be reflected in earnings in the period such deviations occur.
For these contracts, the amortization periods generally will be for the
estimated life of the policy.

For universal life and investment-type products, deferred acquisition costs
will be amortized over the expected average life of the contracts as a constant
percentage of the present value of estimated gross profits arising principally
from investment results, mortality and expense margins and surrender charges
based on historical and anticipated future experience, which is updated at the
end of each accounting period. In computing amortization, interest shall accrue
to the unamortized balance of capitalized acquisition costs at the rate used to
discount expected gross profit. The effect on the amortization of deferred
policy acquisition costs of revisions to estimated gross profits will be
reflected in earnings in the period such estimated gross profits are revised.

The development of policy reserves for the Company's products will require
management to make estimates and assumptions regarding mortality, lapse, expense
and investment experience. Such estimates will be primarily based on historical
experience and information provided by ceding companies. Actual results could
differ materially from those estimates. Management will monitor actual
experience, and where circumstances warrant, will revise its assumptions and the
related reserve estimates.

For traditional life policies, future benefit and dividend liabilities will
be estimated using a net level premium method on the basis of actuarial
assumptions as to mortality, persistency and interest established at policy
issue. Assumptions established at policy issue as to mortality and persistency
are based on anticipated experience which, together with interest and expense
assumptions, provide a margin for adverse deviation. When the liabilities for
future policy benefits plus the present value of expected future gross premiums
for a product are insufficient to provide for expected future benefits and
expenses for that product, deferred acquisition costs will be written off and
thereafter, if required, a premium deficiency reserve will be established by a
charge to income. Benefit liabilities for traditional annuities during the
accumulation period are equal to the accumulated present value of expected
future payments.

Premiums for universal life and investment-type contracts will be reported
as deposits to clients' account balances. Revenues from these contracts will
consist of amounts assessed during the period against clients' account balances
for mortality charges, policy administration and surrender charges. Policy
benefits and claims that are charged to expense will include benefit claims
incurred in the period in excess of related clients' account balances and
interest credited to clients' account balances.

(d) Investments

The Company will classify its investments in fixed income and equity
securities as available for sale and, accordingly, such securities will be
carried at fair value. The cost of fixed income securities will be adjusted for
amortization of premiums and discounts. The cost of fixed income and equity
securities will be adjusted for declines in value that are considered other than
temporary.

Realized gains and losses on investments will be recognized in net income,
net of related amortization of deferred acquisition costs, using the specific
identification method. Changes in fair values of securities carried at fair
value are reflected directly in shareholders' equity, after deductions for
related adjustments for deferred acquisition expenses and amounts required to
satisfy policyholder commitments that would have been recorded had these
securities been sold at their fair value.

F-5
<PAGE> 93
ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)

(e) Translation of foreign currencies

The Company's functional currency is the United States dollar. Premiums
written and receivable in foreign currencies will be recorded at exchange rates
prevailing on the date the contract attaches and liabilities for future benefits
payable in foreign currencies at the time such liabilities are first recorded.
Exchange gains or losses resulting from the periodic revaluation and settlement
of such assets and liabilities will be recorded in the Company's statement of
operations.

(f) Organizational expenses

Organization expenses consist of legal, accounting and incorporation
expenses incurred in connection with the formation and organization of the
Company and include certain expense reimbursements to Inter-Atlantic Securities
Corporation ("Inter-Atlantic"). Such costs will be capitalized and amortized to
income evenly over five years.

Certain equity offering costs incurred in connection with the Company's
planned initial public offering, including certain amounts payable for
investment banking and financial advisory services, will be deducted from the
gross proceeds of the offering.

(g) Earnings per Common Share

The Company will calculate earnings per common share based upon the
guidance provided in Financial Accounting Standards Board Statement No. 128
"Earnings per Share." This statement requires the presentation of two amounts of
earnings per share when the company has a complex capital structure. These
amounts are earnings per common share and earnings per common share-assuming
dilution.

Basic earnings per common share will be calculated by dividing net income
attributable to common shareholders by the weighted average number of common
shares outstanding during the period.

Diluted earnings per common share will be calculated by dividing the net
income attributable to common shareholders by the weighted average number of
common shares outstanding during the period, plus dilutive potential common
shares. Options and warrants issued by the Company will be considered dilutive
potential common shares and will be included in the calculation using the
treasury stock method.

3. AGREEMENTS WITH RELATED PARTIES

Formation and Initial Public Offering

The Company has entered into an agreement with Inter-Atlantic, whereby
Inter-Atlantic has agreed to provide financial advisory services to the Company
in connection with its organization and planned initial public offering. Such
services include, among other things, assistance in recruiting senior
management, obtaining necessary governmental permits, preparing a registration
statement, retaining underwriters and such other services as the Company or
Inter-Atlantic deems appropriate. Certain officers and directors of the Company
are also beneficial owners, directors or officers of Inter-Atlantic and/or its
parent company, Inter-Atlantic Capital Partners, Inc.

The Company will reimburse Inter-Atlantic for expenses incurred in
connection with the organization of the Company and the planned initial public
offering provided that such offering is successfully consummated prior to June
30, 1998. Subsequent to the successful consummation of the planned initial
public offering, Inter-Atlantic will also receive a fee equal to $2.0 million as
compensation for financial advisory services provided to the Company in
connection with its planned initial public offering. If such offering is not
successfully consummated prior to June 30, 1998, Inter-Atlantic will only be
entitled to reimbursement of expenses incurred on or after December 23, 1997.
Prior to this date, Inter-Atlantic incurred expenses in connection with the
Company's organization of approximately $75,000 and costs in connection with the

F-6
<PAGE> 94
ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)

planned initial public offering of approximately $400,000. The Company has
accrued offering expenses of $233,000 incurred by Inter-Atlantic during the
period December 23 to 31, 1997. In addition, Inter-Atlantic will provide
financial advisory and other services to the Company for a term of five years in
exchange for four annual payments of $600,000 beginning on the first anniversary
of the consummation of the planned initial public offering. Such services
include, among other things, assistance in the development of products,
financial planning, management of assets and liabilities, international
marketing efforts and such other services as the Company may request.

In connection with the formation of the Company, the Class A Warrant
Holders purchased Class A Warrants to purchase up to an aggregate number of
common shares equal to 12% of the sum of (i) the common shares outstanding
immediately following the consummation of the planned initial public offering
(but excluding any shares held by the Annuity Re Purpose Trust) and (ii) the
common shares issuable upon exercise or conversion of any security outstanding
immediately following the consummation of the planned initial public offering,
except for certain warrants issued by the Company and any options granted by the
Company under its Initial Stock Option Plan.

4. STOCKHOLDERS' EQUITY

Preferred Stock

The Company is authorized to issue 50,000,000 preferred shares of par value
$1.00 each. At the balance sheet date there were no preferred shares issued or
outstanding.

Common Stock

The Company is authorized to issue 100,000,000 common shares of par value
$1.00 each. At the balance sheet date 12,000 common shares were outstanding.

Warrants

In connection with its initial capitalization, the Company has issued Class
A Warrants to the Class A Warrant Holders to purchase up to an aggregate number
of common shares equal to 12% of the sum of (i) the common shares outstanding
immediately following the consummation of the planned initial public offering
(but excluding any shares held by the Annuity Re Purpose Trust) and (ii) the
Common Shares issuable upon exercise or conversion of any security outstanding
immediately following the consummation of the planned initial public offering,
except for certain warrants issued by the Company and any options granted by the
Company under its Initial Stock Option Plan. The consideration paid for these
warrants of $238,000 has been recorded as additional paid in capital. The
exercise price of the warrants will be equal to the initial public offering
price per share of the Company's common shares. The Class A Warrants become
exercisable over three years commencing on the first anniversary of the
consummation of the Company's initial public offering. The Class A Warrants will
expire on January 15, 2008.

5. STOCK PLANS

Stock Option Plan

The Board of Directors has adopted a Stock Option Plan (the "plan") under
which it may grant, subject to certain restrictions, Incentive Stock Options
(ISO's) and Non-Qualified Stock Options (NQSO's). The aggregate number of common
shares for which options may be granted under the plan is limited to the lessor
of (i) 5.5 percent of the common shares outstanding immediately following the
consummation of the Company's initial public offering, plus 150,000 shares or
(ii) 1,700,000 common shares. Only eligible employees of the Company are
entitled to ISO's, while NQSO's may be granted to eligible employees, non-
employee Directors and consultants.

F-7
<PAGE> 95
ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)

The plan will be administered by the Compensation Committee of the Board of
Directors. The Compensation Committee has the authority to select the parties to
be granted ISO's and NQSO's, to set the date of grant and other terms of the
options granted under the plan.

The minimum exercise price of the ISO's will be equal to the fair market
value, as defined in the plan, of the Company's optioned common shares at the
date of grant. The term of the ISO's is not more than ten years from the date of
grant. Unless otherwise provided in the option agreement, the ISO's shall be
exercisable in three equal annual installments, commencing on the first
anniversary of the grant date.

Subject to the consummation of the offering, options will be granted to the
President and Chief Executive Officer and other senior executives of the Company
to purchase common shares. The exercise price of such options will be equal to
the public offering price per share.

Each person who becomes an eligible non-employee Director, as defined in
the plan, shall be granted an option to purchase 15,000 common shares on the
later of (i) the date he or she becomes an eligible non-employee Director or
(ii) the date the planned initial public offering is consummated. The options
shall have an exercise price equal to the fair market value of the optioned
common shares on the date the options are granted and shall be exercisable in
three equal installments commencing with the first anniversary of the grant
date. In addition, subject to certain conditions, each non-employee Director
shall be granted an option to purchase 2,000 common shares at each successive
annual general meeting after December 31, 1998. These options shall have an
exercise price equal to the fair market value of the optioned common shares on
the date the options are granted and shall be immediately exercisable if granted
after the first anniversary of the consummation of the planned initial public
offering. If such options are granted prior to the first anniversary of the
consummation of the planned initial public offering, such options shall become
exercisable on such anniversary.

In addition, Directors shall receive cash of $20,000 per annum plus $1,000
per board or committee meeting attended. Committee Chairmen shall receive an
additional $1,000 per annum.

6. TAXATION

Under current Bermuda law neither the Company nor Annuity Reassurance is
required to pay any taxes in Bermuda on either income or capital gains. The
Company and Annuity Reassurance have each received an assurance from the
Minister of Finance in Bermuda that in the event of any such taxes being imposed
the Company will be exempted from taxation until the year 2016. The Company
intends to operate in a manner such that it will owe no United States tax other
than premium excise taxes and withholding taxes on certain investments.

7. STATUTORY REQUIREMENTS AND DIVIDEND RESTRICTIONS

Under The Bermuda Insurance Act, 1978, and related regulations, Annuity
Reassurance is required to maintain certain levels of solvency and liquidity.
The minimum statutory capital and surplus requirement of $250,000 was met at the
balance sheet date.

The Company's ability to pay dividends depends on the ability of Annuity
Reassurance to pay dividends to the Company. While the Company itself is not
subject to any significant legal prohibitions on the payment of dividends,
Annuity Reassurance will be subject to Bermuda regulatory constraints which
affect its ability to pay dividends to the Company. Annuity Reassurance is
prohibited from declaring or paying a dividend if such payment would reduce its
statutory surplus below $250,000.

8. SUBSEQUENT EVENTS

The Company has entered into Securities Purchase Agreements with five
investors ("the strategic investors") whereby the strategic investors agreed to
purchase an aggregate of 5,638,299 common shares and Class B Warrants to
purchase an aggregate of 397,500 common shares for an aggregate purchase price
of $79.5 million. The exercise price of the Class B Warrants is $15.00 per
share, and they are exercisable in equal

F-8
<PAGE> 96
ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)

amounts over a three year period commencing one year after the closing of the
sales to the strategic investors and expire ten years after the closing of such
sales. Certain sales restrictions apply to the common shares purchased by the
strategic investors directly from the Company and to the common shares issuable
upon the exercise of the Class B Warrants.

One of the strategic investors is affiliated with Prudential Securities
Incorporated, one of the underwriters of the Company's planned initial public
offering, and with The Prudential Investment Corporation, which serves as one of
the Company's investment managers. The Company has agreed to pay a fee of $1.0
million (plus reimbursement of related out-of-pocket expenses) to Prudential
Securities Incorporated for investment banking and financial advisory services
in connection with the Company's planned initial public offering. Marsh &
McLennan Management Services (Bermuda) Limited, which has contracted to provide
office space and administrative services to the Company, is affiliated with a
significant shareholder of one of the other strategic investors.

F-9
<PAGE> 97

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

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THE COMMON SHARES OFFERED BY THIS PROSPECTUS, NOR DOES IT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE COMMON
SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS
NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.

UNTIL MAY 3, 1998, ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Enforceability of Civil Liabilities under
United States Federal Securities Laws.... 3
Prospectus Summary......................... 4
Risk Factors............................... 9
Use of Proceeds............................ 18
Capitalization............................. 19
Dividend Policy............................ 20
Dilution................................... 21
Unaudited Pro Forma Consolidated Balance
Sheet.................................... 22
Management's Discussion and Analysis of
Financial Condition and Plan of
Operations............................... 24
Business................................... 28
Management................................. 45
Principal Stockholders..................... 55
Certain Relationships and Related Party
Transactions............................. 58
Description of Capital Stock............... 61
Shares Eligible for Future Sale............ 68
Direct Sales............................... 70
Certain Tax Considerations................. 72
Underwriting............................... 79
Legal Matters.............................. 81
Experts.................................... 81
Additional Information..................... 81
Glossary of Selected Annuity and Life
Insurance Terms.......................... 83
Index to Consolidated Balance Sheet........ F-1
</TABLE>

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

17,078,765 Shares

ANNUITY AND

LIFE RE (HOLDINGS), LTD.

Common Shares

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

PROSPECTUS

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

Joint Lead Managers
and Joint Bookrunners

PRUDENTIAL SECURITIES INCORPORATED

MERRILL LYNCH & CO.

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

BT ALEX. BROWN

CIBC OPPENHEIMER

SCHRODER & CO. INC.
April 8, 1998

======================================================
<PAGE> 98

PROSPECTUS
- --------------------------------------------------------------------------------

221,121 SHARES

ANNUITY AND LIFE RE (HOLDINGS), LTD.
COMMON SHARES

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

All of the 221,121 common shares, par value $1.00 per share (the "Common
Shares"), offered hereby are being sold by Annuity and Life Re (Holdings), Ltd.
(the "Company"). The Company is offering such Common Shares directly to certain
of its directors and officers at a price per share equal to $14.10 per share,
which is the initial public offering price per share in the Offering (as defined
below) less the per share underwriting discounts and commissions therein, for an
aggregate purchase price if all such Common Shares are sold of approximately
$3.1 million. This Prospectus, other than this page and the section entitled
"Plan of Distribution," was also used in the Company's underwritten initial
public offering of 17,078,765 Common Shares, and unless the context otherwise
requires, references herein to the "Offering" are to such underwritten offering.
The offering made hereby will be consummated simultaneously with the
consummation of the Offering. Prior to the Offering, the Company has not
conducted any business and there has been no public market for the Common
Shares.

In connection with the formation of the Company and the establishment of a core
group of strategic investors, The Prudential Insurance Company of America, EXEL
Limited, Risk Capital Reinsurance Company, Insurance Partners, L.P. and
Insurance Partners Offshore (Bermuda), L.P. (collectively, the "Strategic
Investors") have severally agreed to purchase for investment directly from the
Company an aggregate of 5,638,299 Common Shares and Class B Warrants to purchase
an aggregate of 397,500 Common Shares. Such purchases will be consummated
simultaneously with the consummation of the Offering for an aggregate purchase
price for the Common Shares and the Class B Warrants of $79.5 million. The
aggregate purchase price to be paid by the Strategic Investors is based on a
price of $14.10 for (i) one Common Share and (ii) the right to purchase
approximately seven one-hundredths of a Common Share under the Class B Warrants.
The exercise price for the Class B Warrants will be $15.00 per share. Such
purchases by the Strategic Investors, together with the Common Shares being
offered hereby, are collectively referred to in this Prospectus as the "Direct
Sales." See "Direct Sales."

The Common Shares have been approved for quotation in The Nasdaq Stock Market's
National Market (the "Nasdaq National Market") under the symbol "ALREF," subject
to final notice of issuance.

The Common Shares offered hereby are subject to limitations on ownership,
transfers and voting rights which, among other things, generally prevent
transfers to holders beneficially owning 10% or more of the Common shares of the
Company (other than as described herein), require divestiture of Common Shares
to reduce the beneficial ownership of any holder to less than 10% of the Common
Shares of the Company and reduce the voting power of any holder beneficially
owning 10% or more of the Common shares of the Company to less than 10% of the
total voting power of the Company's capital stock. See "Description of Capital
Stock."

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.

April 8, 1998
<PAGE> 99

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

2
<PAGE> 100

ENFORCEABILITY OF CIVIL LIABILITIES
UNDER UNITED STATES FEDERAL SECURITIES LAWS

3
<PAGE> 101

PROSPECTUS SUMMARY

THE COMPANY

- Increasing risk-based capital and reserve requirements being applied to
annuity issuers and life insurers by regulatory bodies and rating
agencies;

- Continuing consolidation in the annuity and life insurance industry,
including strategic decisions to divest large blocks of business through
the use of reinsurance;

- Increasing demutualization activity by mutual life insurers leading to
increasing demand for reinsurance;

- Growing use of multiple reinsurance partners by annuity issuers and life
insurers; and

- Expanding price sensitivity among purchasers of reinsurance.

4
<PAGE> 102

The Company's principal executive office is located at Victoria Hall,
Victoria Street, P.O. Box HM1262, Hamilton, HM FX, Bermuda, and its telephone
number is (441) 296-7667.

BUSINESS STRATEGY

- - Maintain Low Cost Structure

- - Utilize a Disciplined Underwriting Approach

- - Employ Professional Investment Management

- - Capitalize on Skill and Experience of Management and Board of Directors

6
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STRATEGIC INVESTORS

7
<PAGE> 105

THE OFFERING

RISK FACTORS

8
<PAGE> 106

RISK FACTORS

DEPENDENCE ON KEY EMPLOYEES. The Company will be substantially dependent
in the implementation of its business strategy on Lawrence S. Doyle, the
President and Chief Executive Officer of the Company,

9
<PAGE> 107

10
<PAGE> 108

financial commitment on such lower-rated securities. Consequently, the market
price of these securities may be quite volatile, and the risk of loss is
greater.

11
<PAGE> 109

It is not possible to predict the future impact of changing law or
regulation on the operations of the Company. Such changes, if any, could have an
adverse effect on the Company.

INCOME TAX RISKS

12
<PAGE> 110

13
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14
<PAGE> 112

15
<PAGE> 113

16
<PAGE> 114

securities at the date of transfer, this could decrease the Company's reported
shareholders' equity and adversely affect the market price for the Common
Shares.

17
<PAGE> 115

USE OF PROCEEDS

18
<PAGE> 116

CAPITALIZATION

19
<PAGE> 117

DIVIDEND POLICY

20
<PAGE> 118

DILUTION

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 Direct Sales and the Offering:

(b) The average price per share is based on the number of Common Shares
purchased in the Direct Sales and does not take into account the Common
Shares underlying the Class B Warrants.

The calculations of net tangible book value and other computations above
assume no exercise of the Underwriters' over-allotment option.

21
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PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997

(UNAUDITED)

22
<PAGE> 120

23
<PAGE> 121

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

GENERAL

LIQUIDITY AND CAPITAL RESOURCES

24
<PAGE> 122

25
<PAGE> 123

Inter-Atlantic Securities Corporation as reimbursement of operating expenses
incurred on the Company's behalf will be expensed by the Company when incurred.

CURRENCY

TAXATION

26
<PAGE> 124

EFFECTS OF INFLATION

27
<PAGE> 125

BUSINESS

By focusing on annuity and life reinsurance, the Company will seek to
participate in what it believes to be a market with significant growth
potential. As of year end 1996, according to LIMRA, United States annuity assets
under management totaled approximately $919 billion, and, according to A.M.
Best, approximately $17.6 trillion of life insurance was in force in the United
States. Management believes that annuity reinsurance presents an attractive
opportunity because of the large potential size of the market coupled with the
limited number of companies currently providing such reinsurance on a
third-party basis. Furthermore, management believes that the demand for the
Company's life reinsurance products should be aided by growth in new life
reinsurance business production which management estimates, based on industry
surveys, grew at a compounded annual rate of approximately 28% from 1993 to
1996, excluding retrocessional and group life reinsurance.

- Increasing risk-based capital and reserve requirements being applied to
annuity issuers and life insurers by regulatory bodies and rating
agencies;

- Continuing consolidation in the annuity and life insurance industry,
including strategic decisions to divest large blocks of business through
the use of reinsurance;

- Increasing demutualization activity by mutual life insurers leading to
increasing demand for reinsurance;

- Growing use of multiple reinsurance partners by annuity issuers and life
insurers; and

- Expanding price sensitivity among purchasers of reinsurance.

Upon consummation of the Offering and the Direct Sales, the Company will
have an equity capitalization of approximately $319.1 million. Management
believes that this level of capitalization will demonstrate a strong financial
position and a high level of commitment to the annuity and life reinsurance
market and will enable the Company to compete for desirable business and
establish long-term relationships with a select group of primary insurers and
reinsurers. As a newly-formed entity, the Company's capital is presently
unencumbered by issues of loss reserve adequacy, unrealized losses in its
investment portfolio and uncollectible reinsurance. In addition, although the
Company does expect that it may seek a working capital line of credit to finance
its operations, the Company does not presently have any indebtedness. In part
because of the Company's expected capitalization following the Offering and the
Direct Sales, A.M. Best has assigned Annuity Reassurance a preliminary Best
Rating of "A-" (Excellent), and Standard & Poor's and Duff & Phelps have
assigned Annuity Reassurance preliminary claims paying ability ratings of "A-"
and "A," respectively. The A.M. Best and Duff & Phelps ratings are contingent on
the Company raising gross proceeds of $250 million in the Offering. The Standard
& Poor's rating is contingent on the Company raising gross proceeds of $200
million in the Offering. A.M. Best assigns an "A-" (Excellent) rating to
companies that have, in its opinion on balance, excellent financial strength,
operating performance and market profile, as well as strong abilities to meet
their ongoing obligations to policy holders. Standard & Poor's assigns an "A-"
rating to companies that have, in its opinion, good financial security, but
their capacity to meet policyholder

28
<PAGE> 126

The Company's principal executive office is located at Victoria Hall,
Victoria Street, P.O. Box HM1262, Hamilton, HM FX, Bermuda, and its telephone
number is (441) 296-7667.

BUSINESS STRATEGY

- - Maintain Low Cost Structure

Management believes that the price of reinsurance is the primary determinant
used by its potential clients in selecting an annuity or life reinsurer.
Consequently, a key component of the Company's business strategy is to
maintain a low cost structure. The Company intends to focus on writing
primarily treaty reinsurance and reinsuring large blocks of business where the
underlying policies meet the underwriting criteria of the primary insurer. The
Company anticipates that this focus will permit it to make fewer underwriting
assessments than would typically be required with respect to the underwriting
of a large number of individual policies. As a consequence, the Company
expects to limit its number of employees initially to approximately ten and to
use third-party service providers to perform certain functions. As a part of
this strategy, the Company has contracted with Marsh & McLennan to provide
claims processing and other administrative services. By minimizing its
personnel and overhead costs, the Company expects to be better able to control
expense levels as market conditions for writing reinsurance fluctuate. In
addition, the Company also expects to benefit from the absence of a corporate
level tax in Bermuda on the Company's revenues and earnings. As a result of
these factors, the Company expects to have one of the lowest cost structures
in the annuity and life reinsurance industry.

- - Utilize a Disciplined Underwriting Approach

- - Employ Professional Investment Management

29
<PAGE> 127

- - Capitalize on Skill and Experience of Management and Board of Directors

INDUSTRY TRENDS

30
<PAGE> 128

OVERVIEW OF REINSURANCE

31
<PAGE> 129

ANNUITY AND LIFE INSURANCE PRODUCTS TO BE REINSURED

Annuity Products to be Reinsured

32
<PAGE> 130

Life Insurance Products to be Reinsured

33
<PAGE> 131

interest, generally guaranteed, at regular intervals. Term life and whole life
policies are typically obligations of an insurance company's general account.

MARKETING

34
<PAGE> 132

RETROCESSIONAL ARRANGEMENTS

UNDERWRITING

The Company's reinsurance underwriting strategy is to utilize an
experienced underwriting team to select opportunities with acceptable
risk/return profiles based on sophisticated actuarial and investment modeling
techniques. The principal risks associated with the reinsurance of both annuity
and life insurance products are mortality risk and investment risk. Mortality
risk is actuarially quantifiable when spread across large numbers of insureds.
The Company will be exposed to investment risk when the products it reinsures
guarantee an investment return or fixed benefit. The Company intends to manage
these risks by using modeling techniques to structure its investments in an
effort to match its anticipated liabilities under reinsurance agreements.
Initially, the Company intends to supplement its underwriting analyses with
commercially available actuarial models and may retain consultants to assist in
the analysis of the risks that it reinsures, while it develops its own
proprietary models. The Company believes that its focus on annuity and life
reinsurance will enable it to structure its reinsurance products to meet the
specific requirements of its clients while managing its exposure to the risks
being assumed. The underwriting process will be designed to specify an adequate
premium for a given exposure that is intended to be commensurate with the amount
of capital the Company estimates it is placing at risk. The Company's Chief
Executive Officer and Chief Underwriter will jointly approve all underwriting
decisions made under the Company's underwriting guidelines.

35
<PAGE> 133

REINSURANCE AGREEMENTS

Automatic and Facultative Treaties

Forms of Reinsurance

36
<PAGE> 134

ADMINISTRATION

The Company may also employ third-party contractors to conduct periodic
audits of the underlying policies reinsured by the Company.

37
<PAGE> 135

RESERVES

INVESTMENT STRATEGY

38
<PAGE> 136

preferred stocks, mortgage backed securities and corporate debt securities
(including convertible debt securities), but may not include payment-in-kind
corporate securities.

INVESTMENT MANAGERS

39
<PAGE> 137

COMPETITION

40
<PAGE> 138

PROPERTY

LEGAL PROCEEDINGS

The Company is not currently involved in any litigation or arbitration. The
Company anticipates that it will be subject to litigation and arbitration in the
ordinary course of business.

REGULATION

Bermuda

41
<PAGE> 139

42
<PAGE> 140

United States and Other

44
<PAGE> 142

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The table below sets forth the names, ages and titles of the directors and
executive officers of the Company and Annuity Reassurance.

- ---------------
(1) Mr. Tucker is a Senior Vice President of Annuity Reassurance.

45
<PAGE> 143

annuity product line and relationships with credit rating agencies, investment
advisors, banks and independent accountants.

Charles G. Collis, age 36, is a partner in the law firm of Conyers Dill &
Pearman, the Company's Bermuda counsel, where he has worked since 1990.

46
<PAGE> 144

47
<PAGE> 145

PROVISIONS GOVERNING THE COMPANY'S BOARD OF DIRECTORS

Number and Terms of Directors

Committees of the Board

The Board has established Executive, Finance and Investment, Audit and
Compensation committees. Each committee reports to the Board.

48
<PAGE> 146

Clements, Matthews and Yoskin), none of whom is an officer or employee of the
Company or Annuity Reassurance.

Compensation of Directors

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

EXECUTIVE COMPENSATION

49
<PAGE> 147

EMPLOYMENT AGREEMENTS

50
<PAGE> 148

51
<PAGE> 149

STOCK OPTION PLAN

52
<PAGE> 150

53
<PAGE> 151

control in which outstanding options are not assumed by the surviving entity,
the Compensation Committee will terminate all outstanding options on at least
seven days' notice.

INITIAL OPTION GRANTS

(3) The options expire on the tenth anniversary of the consummation of the
Offering.

54
<PAGE> 152

PRINCIPAL STOCKHOLDERS

- ---------------
* Less than 1%.

(2) Does not include 100,000 Common Shares issuable upon exercise of Class B
Warrants which are not currently exercisable.

55
<PAGE> 153

(8) Does not include 66,666 Common Shares issuable upon exercise of options
which are not currently exercisable.

(13) Does not include 15,000 Common Shares issuable upon exercise of options
which are not currently exercisable.

56
<PAGE> 154

57
<PAGE> 155

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

INTER-ATLANTIC RELATIONSHIPS

The Company is also obligated to reimburse Inter-Atlantic Securities
Corporation for expenses it incurs in connection with performing services
related to the formation of the Company, the Offering and the Company's ongoing
operations. At December 22, 1997, Inter-Atlantic Securities Corporation had
incurred expenses in connection with the Company's organization of approximately
$75,000 and costs in connection with the Offering of approximately $400,000. If
the Offering is successfully completed prior to June 30, 1998, certain of these
incurred but not currently payable expenses may be paid directly by the Company
rather than paid to Inter-Atlantic Securities Corporation as a reimbursement. If
the Offering is not successfully consummated prior to June 30, 1998,
Inter-Atlantic Securities Corporation will only be entitled to reimbursement of
expenses incurred by it on or after December 23, 1997. Upon consummation of the
Offering, expenses incurred by Inter-Atlantic Securities Corporation are
currently estimated to be approximately $1,625,000, of which approximately
$75,000 relates to services provided in connection with the formation of the
Company, approximately $1.2 million relates to the Offering and approximately
$350,000 relates to operating expenses incurred on the Company's behalf. The
expenses payable to Inter-Atlantic Securities Corporation that relate to the
formation of the Company will be capitalized and amortized to income evenly over
five years. The fees and expenses payable to Inter-Atlantic Securities
Corporation that relate to services provided to the Company in connection with
the Offering will be deducted from the gross proceeds of the Offering. The
annual fee of $600,000 and the expenses payable to Inter-Atlantic Securities
Corporation as reimbursement of operating expenses incurred on the Company's
behalf will be expensed by the Company when incurred.

58
<PAGE> 156

STRATEGIC INVESTOR RELATIONSHIPS

59
<PAGE> 157

MANAGEMENT RELATIONSHIPS

60
<PAGE> 158

DESCRIPTION OF CAPITAL STOCK

GENERAL

COMMON SHARES

61
<PAGE> 159

regardless of the identity of the registered holder thereof, will confer only a
fraction of a vote as determined by the following formula (the "Formula"):

(T - C) / (9.1 X C)

62
<PAGE> 160

PREFERRED SHARES

63
<PAGE> 161

WARRANTS

OPTIONS

BYE-LAWS

TRANSFER AGENT

The Company's registrar and transfer agent for the Common Shares is First
Chicago Trust Company of New York.

DIFFERENCES IN CORPORATE LAW

65
<PAGE> 163

66
<PAGE> 164

67
<PAGE> 165

SHARES ELIGIBLE FOR FUTURE SALE

68
<PAGE> 166

69
<PAGE> 167

DIRECT SALES

In connection with the Direct Sale to Risk Capital, and, for so long as
Risk Capital owns at least 500,000 Common Shares, the Company has agreed to
nominate for election as a director of the Company one person selected by Risk
Capital. Similarly, in connection with the Direct Sales to Insurance Partners
and Insurance Partners Offshore, and, for so long as such firms collectively own
at least 500,000 Common Shares, the Company has agreed to nominate for election
as a director of the Company one person jointly selected by Insurance Partners
and Insurance Partners Offshore. In exchange for such right and for so long as
any person selected by Risk Capital or Insurance Partners and Insurance Partners
Offshore, respectively, is a director (and during any period after such person's
designation but before his or her election), such Strategic Investors will not
vote or permit any of the Common Shares beneficially owned by them to be voted
for the election of any director of the Company, other than the nominee they
select. Each such Strategic Investor is permitted to assign its right to select
one person to be nominated for election as a director of the Company only upon
the prior written consent of the Company, which may not be unreasonably
withheld. Robert Clements is serving as a director of the Company as the nominee
of Risk Capital and Paul H. Warren is serving as a director of the Company as
the nominee of Insurance Partners and Insurance Partners Offshore.

70
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71
<PAGE> 169

CERTAIN TAX CONSIDERATIONS

TAXATION OF THE COMPANY AND ANNUITY REASSURANCE

Bermuda

United States

72
<PAGE> 170

Other Countries

Annuity Reassurance may be subject to taxes imposed by other countries on
dividends or interest received from payors located in those countries.

TAXATION OF SHAREHOLDERS

Bermuda Taxation

Currently, there is no Bermuda withholding tax on dividends paid by the
Company or Annuity Reassurance.

United States Taxation

UNITED STATES SHAREHOLDERS

74
<PAGE> 172

requisite period; accordingly, the RPII rules of the Code will apply to Annuity
Reassurance unless one of several exceptions (discussed below) applies to
Annuity Reassurance.

75
<PAGE> 173

76
<PAGE> 174

77
<PAGE> 175

NON-UNITED STATES SHAREHOLDERS

* * *

78
<PAGE> 176

UNDERWRITING

79
<PAGE> 177

The Company has agreed to indemnify the several Underwriters and contribute
to losses arising out of certain liabilities, including liabilities under the
Securities Act.

The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.

80
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LEGAL MATTERS

EXPERTS

ADDITIONAL INFORMATION

81
<PAGE> 179

82
<PAGE> 180

GLOSSARY OF SELECTED ANNUITY AND LIFE INSURANCE TERMS

Acquisition costs.......... Commission and brokerage fees paid for the
production of premiums written and certain other
acquisition and underwriting expenses.

Alien insurer or
reinsurer.................. An insurer or reinsurer organized under the laws of
a non-United States jurisdiction.

Annuitant.................. The person on whose life or life expectancy the
annuity payouts are based.

Annuity.................... A form of contract sold by an insurer that
guarantees a fixed or variable payment to the
annuitant over time. Annuity payments can
commence immediately or be deferred.

Beneficiary................ The person designated to receive life or annuity
benefits in case of the policy owner's or
annuitant's death.

83
<PAGE> 181

(ii) a primary insurer and reinsurer, on behalf
of the primary insurer, or (iii) a reinsurer and
a retrocessionaire, on behalf of the reinsurer.

Cedent; Ceding company..... See "Reinsurance; Reinsurer."

Duration................... A measure, expressed in years, of the price
sensitivity of a financial instrument to changes
in interest rates.

Guaranteed investment
contracts.................. Insurance contracts that guarantee a specified rate
of return.

84
<PAGE> 182

Mortality.................. The relative incidence of death.

Persistency................ The rate which insurance policies or annuity
contracts remain in force, expressed as a
percentage of the number of policies remaining in
force over the previous year.

Retrocessional reinsurance;
Retrocessionaire......... An arrangement under which a reinsurer cedes to
another reinsurer (the "retrocessionaire") all or
a portion of the insurance risks underwritten

85
<PAGE> 183

by the first reinsurer. Retrocessional
reinsurance does not legally discharge the ceding
reinsurer from its liability with respect to its
obligations to the original ceding company.

Surplus relief reinsurance;
Financial reinsurance.... A type of reinsurance which is primarily designed
to increase temporarily a ceding company's
statutory capital.

Treaty reinsurance......... See "Automatic reinsurance."

Underwriting expenses...... The aggregate of policy acquisition costs,
including commissions, and the portion of
administrative, general and other expenses
attributable to underwriting operations.

Unearned premiums.......... Premiums written but not yet earned, as they are
attributable to the unexpired portion of the
related contract term.

Universal life insurance... A form of life insurance that combines term
insurance and a cash value savings component.
Premium payments and coverage usually can vary

86
<PAGE> 184

Whole life insurance....... A form of life insurance which provides guaranteed
death benefits and guaranteed cash values to
policyholders.

87
<PAGE> 185

INDEX TO CONSOLIDATED BALANCE SHEET

F-1
<PAGE> 186

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Annuity and Life Re (Holdings), Ltd.

KPMG PEAT MARWICK
Chartered Accountants

Hamilton, Bermuda
March 19, 1998

F-2
<PAGE> 187

ANNUITY AND LIFE RE (HOLDINGS), LTD.

CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(EXPRESSED IN UNITED STATES DOLLARS)

The accompanying notes are an integral part of this consolidated balance
sheet.
F-3
<PAGE> 188

ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO CONSOLIDATED BALANCE SHEET

1. ORGANIZATION

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Premium income and related expenses

(b) Deferred policy acquisition costs

F-4
<PAGE> 189
ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)

(d) Investments

F-5
<PAGE> 190

PLAN OF DISTRIBUTION

The Company is offering directly the Common Shares offered hereby to
certain of its directors and officers at a per share price equal to the initial
public offering price per Common Share in the Offering, less the per share
underwriting discounts and commissions. Such sales are to be consummated
simultaneously with the other Direct Sales and the Offering.

79
<PAGE> 191

LEGAL MATTERS

EXPERTS

ADDITIONAL INFORMATION

80
<PAGE> 192

81
<PAGE> 193

GLOSSARY OF SELECTED ANNUITY AND LIFE INSURANCE TERMS

Acquisition costs.......... Commission and brokerage fees paid for the
production of premiums written and certain other
acquisition and underwriting expenses.

Alien insurer or
reinsurer.................. An insurer or reinsurer organized under the laws of
a non-United States jurisdiction.

Annuitant.................. The person on whose life or life expectancy the
annuity payouts are based.

Annuity.................... A form of contract sold by an insurer that
guarantees a fixed or variable payment to the
annuitant over time. Annuity payments can
commence immediately or be deferred.

Beneficiary................ The person designated to receive life or annuity
benefits in case of the policy owner's or
annuitant's death.

82
<PAGE> 194

(ii) a primary insurer and reinsurer, on behalf
of the primary insurer, or (iii) a reinsurer and
a retrocessionaire, on behalf of the reinsurer.

Cedent; Ceding company..... See "Reinsurance; Reinsurer."

Duration................... A measure, expressed in years, of the price
sensitivity of a financial instrument to changes
in interest rates.

Guaranteed investment
contracts.................. Insurance contracts that guarantee a specified rate
of return.

83
<PAGE> 195

Mortality.................. The relative incidence of death.

Persistency................ The rate which insurance policies or annuity
contracts remain in force, expressed as a
percentage of the number of policies remaining in
force over the previous year.

Retrocessional reinsurance;
Retrocessionaire......... An arrangement under which a reinsurer cedes to
another reinsurer (the "retrocessionaire") all or
a portion of the insurance risks underwritten

84
<PAGE> 196

by the first reinsurer. Retrocessional
reinsurance does not legally discharge the ceding
reinsurer from its liability with respect to its
obligations to the original ceding company.

Surplus relief reinsurance;
Financial reinsurance.... A type of reinsurance which is primarily designed
to increase temporarily a ceding company's
statutory capital.

Treaty reinsurance......... See "Automatic reinsurance."

Underwriting expenses...... The aggregate of policy acquisition costs,
including commissions, and the portion of
administrative, general and other expenses
attributable to underwriting operations.

Unearned premiums.......... Premiums written but not yet earned, as they are
attributable to the unexpired portion of the
related contract term.

Universal life insurance... A form of life insurance that combines term
insurance and a cash value savings component.
Premium payments and coverage usually can vary

85
<PAGE> 197

Whole life insurance....... A form of life insurance which provides guaranteed
death benefits and guaranteed cash values to
policyholders.

86
<PAGE> 198

INDEX TO CONSOLIDATED BALANCE SHEET

F-1
<PAGE> 199

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Annuity and Life Re (Holdings), Ltd.

KPMG PEAT MARWICK
Chartered Accountants

Hamilton, Bermuda
March 19, 1998

F-2
<PAGE> 200

ANNUITY AND LIFE RE (HOLDINGS), LTD.

CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(EXPRESSED IN UNITED STATES DOLLARS)

The accompanying notes are an integral part of this consolidated balance
sheet.
F-3
<PAGE> 201

ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO CONSOLIDATED BALANCE SHEET

1. ORGANIZATION

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Premium income and related expenses

(b) Deferred policy acquisition costs

F-4
<PAGE> 202
ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)

(d) Investments

F-5
<PAGE> 203
ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)

(e) Translation of foreign currencies

(f) Organizational expenses

(g) Earnings per Common Share

Basic earnings per common share will be calculated by dividing net income
attributable to common shareholders by the weighted average number of common
shares outstanding during the period.

3. AGREEMENTS WITH RELATED PARTIES

Formation and Initial Public Offering

F-6
<PAGE> 204
ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)

4. STOCKHOLDERS' EQUITY

Preferred Stock

The Company is authorized to issue 50,000,000 preferred shares of par value
$1.00 each. At the balance sheet date there were no preferred shares issued or
outstanding.

Common Stock

The Company is authorized to issue 100,000,000 common shares of par value
$1.00 each. At the balance sheet date 12,000 common shares were outstanding.

Warrants

5. STOCK PLANS

Stock Option Plan

F-7
<PAGE> 205
ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)

In addition, Directors shall receive cash of $20,000 per annum plus $1,000
per board or committee meeting attended. Committee Chairmen shall receive an
additional $1,000 per annum.

6. TAXATION

7. STATUTORY REQUIREMENTS AND DIVIDEND RESTRICTIONS

8. SUBSEQUENT EVENTS

F-8
<PAGE> 206
ANNUITY AND LIFE RE (HOLDINGS), LTD.

NOTES TO CONSOLIDATED BALANCE SHEET -- (CONTINUED)

F-9
<PAGE> 207

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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON
SHARES OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY THE COMMON SHARES BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Enforceability of Civil Liabilities under
United States Federal Securities Laws... 3
Prospectus Summary........................ 4
Risk Factors.............................. 9
Use of Proceeds........................... 18
Capitalization............................ 19
Dividend Policy........................... 20
Dilution.................................. 21
Unaudited Pro Forma Consolidated Balance
Sheet................................... 22
Management's Discussion and Analysis of
Financial Condition and Plan of
Operations.............................. 24
Business.................................. 28
Management................................ 45
Principal Stockholders.................... 55
Certain Relationships and Related Party
Transactions............................ 58
Description of Capital Stock.............. 61
Shares Eligible for Future Sale........... 68
Direct Sales.............................. 70
Certain Tax Considerations................ 72
Plan of Distribution...................... 79
Legal Matters............................. 80
Experts................................... 80
Additional Information.................... 80
Glossary of Selected Annuity and Life
Insurance Terms......................... 82
Index to Consolidated Balance Sheet....... F-1
</TABLE>

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221,121 Shares

ANNUITY AND
LIFE RE (HOLDINGS), LTD.

Common Shares

----------------------
PROSPECTUS
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April 8, 1998

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