SCOTTISH ANNUITY & LIFE HOLDINGS LTD - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-29788

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SCOTTISH ANNUITY & LIFE HOLDINGS, LTD
(Exact name of registrant as specified in its charter)

CAYMAN ISLANDS 98-0362785
(State or Other Jurisdiction of Incorporation (I.R.S. Employer Identification No.)
or Organization)
CROWN HOUSE, THIRD FLOOR
4 PAR-LA-VILLE ROAD NOT APPLICABLE
HAMILTON HM12, BERMUDA (Zip Code)
(Address of Principal Executive Office)

Registrant's telephone number, including area code: (441) 295 4451

Securities Registered Pursuant to Section 12(b) of the Act:

TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Ordinary Shares, par value $0.01 per share New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act:
None

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

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

Indicate by checkmark whether the registrant is an accelerated filer (as
defined in Rule 12b 2 of the Exchange Act). Yes /X/ No / /

The aggregate market value of the voting stock held by non affiliates of the
Registrant as of June 28, 2002 was $426,964,150.

As of March 17, 2003, Registrant had 26,944,290 ordinary shares outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information required by Items 10, 11, 12 and 13 of Form 10 K is
incorporated by reference into Part III hereof from the registrant's proxy
statement for its 2003 Annual Meeting of Shareholders, which is expected to be
filed with the Securities and Exchange Commission (the "SEC") within 120 days of
the close of the registrant's fiscal year ended December 31, 2002.

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TABLE OF CONTENTS

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PART I

ITEM 1: BUSINESS

OVERVIEW

Scottish Annuity & Life Holdings, Ltd., which we call Scottish Annuity &
Life, is a holding company organized under the laws of the Cayman Islands with
its principal executive office in Bermuda. Through our operating subsidiaries,
we are engaged in the reinsurance of life insurance, annuities and annuity-type
products. These products are written by life insurance companies and other
financial institutions located principally in the United States, as well as
around the world. We refer to this portion of our business as life reinsurance.
To a lesser extent, we directly issue variable life insurance and variable
annuities and similar products to high net worth individuals and families for
insurance, investment and estate planning purposes. We refer to this portion of
our business as wealth management.

We have operating companies in Bermuda, the Cayman Islands, Ireland,
Luxembourg, the United Kingdom and the United States. Our flagship subsidiaries
are Scottish Annuity & Life Insurance Company (Cayman) Ltd., Scottish Re
(U.S.), Inc. and World Wide Reassurance Company Limited. Scottish Annuity & Life
Insurance Company (Cayman) Ltd. and Scottish Re (U.S.), Inc. are each rated "A-
(excellent)" for financial strength by A.M. Best Company, which is fourth
highest of fifteen rating levels, "A (strong)" for financial strength by Fitch
Ratings, which is third highest of twelve rating levels, "A3 (good)" for
financial strength by Moody's, which is seventh highest of twenty-one rating
levels, and "A- (strong)" for financial strength by Standard & Poor's, which is
seventh highest of twenty-one rating levels. World-Wide Reassurance is rated "A-
(excellent)" for financial strength by A.M. Best, which is fourth highest of
fifteen rating levels, "A (strong)" for financial strength by Fitch, which is
third highest of twelve rating levels and "A- (strong)" for financial strength
by Standard & Poor's, which is sixth highest of twenty-one rating levels. These
ratings are based upon factors of concern to policyholders, agents and
intermediaries and are not directed toward the protection of investors.

We have grown to be one of the 11 largest life reinsurers serving the U.S.
market (based on the amount of new life reinsurance business assumed in 2001)
since our formation in 1998. On December 31, 2001, we expanded our business
outside of North America by acquiring World-Wide Holdings Limited, which we call
"World-Wide Holdings," and its subsidiary, World-Wide Reassurance Company
Limited, which we call "World-Wide Reassurance," from Pacific Life Insurance
Company in exchange for 4,532,380 of our ordinary shares. World-Wide
Reassurance, formed in 1964, is a U.K.-based reinsurer of group life insurance,
individual life insurance, airline pilot "loss of license" insurance and certain
dread disease insurance business in Asia, Europe, Latin America, the Middle East
and North Africa.

As of December 31, 2002, we had consolidated assets of $3.3 billion and
consolidated shareholders' equity of $491.1 million.

Our website address is www.scottishannuity.com. Forms 10-K, Forms 10-Q,
Forms 8-K and all amendments to those reports are available free of charge on
our website. These reports are posted to the website as soon as reasonably
practical after they have been filed with the SEC. We will also provide
electronic or paper copies of these reports on request. Information contained on
our website does not constitute part of this Annual Report on Form 10-K.

OUR BUSINESS

LIFE REINSURANCE

Reinsurance is an arrangement under which an insurance company known as the
reinsurer agrees in a contract called a treaty to assume specified risks of
another insurance company known as the ceding company. The reinsurer may assume
all or a portion of the insurance underwritten by the ceding company. In
exchange for assuming the risks of the ceding company, the reinsurer receives
some or all of the premium and, in certain cases, investment income derived from
the assets supporting the

reserves of the reinsured policies. Reinsurance permits primary insurers to
diversify their risks over larger pools of risks, and to write insurance
policies in amounts larger than they are willing or able to retain. Also,
reinsurers have the ability to structure treaties that allow the ceding
companies to achieve other business and financial objectives such as:

- decreasing the volatility of their earnings,

- improving their capital position by reducing the financial strain
associated with new business production or by increasing their risk-based
capital ratio,

- entering new lines of business and offering new products, and

- exiting discontinued lines of business.

In addition, reinsurers may also purchase reinsurance, or "retrocession"
coverage, to limit their own risk exposure.

We have three categories of life reinsurance products, which we call
Traditional Solutions, Financial Solutions and Acquired Solutions:

- TRADITIONAL SOLUTIONS. In our Traditional Solutions business, we reinsure
the mortality risk on life insurance policies written by primary insurers.
This business is often referred to as traditional life reinsurance. We
write our Traditional Solutions business predominantly on an automatic
basis with respect to newly written life insurance policies. This means
that we automatically reinsure all policies written by a ceding company
that meet the underwriting criteria specified in the treaty. In the North
American market, our direct sales force targets the top 60 life insurance
companies. These companies are responsible for originating the majority of
all term life insurance written in that market. World-Wide Reassurance
offers traditional life reinsurance products outside of North America,
focusing primarily on the reinsurance of short-term, group life policies
in niche market sectors.

- FINANCIAL SOLUTIONS. In our Financial Solutions business, we offer
reinsurance solutions that improve the financial position of our clients
by increasing their capital availability and statutory surplus. This
business is often referred to as financial reinsurance. These solutions
include contracts under which we assume the investment and persistency
risks of existing, as well as newly written, blocks of business. The
products reinsured include annuities and annuity-type products, cash value
life insurance and, to a lesser extent, disability products that are in a
pay-out phase.

- ACQUIRED SOLUTIONS. In our Acquired Solutions business, we provide our
clients with exit strategies for discontinued lines, closed blocks, or
lines not providing a good fit for a company's growth strategies. With our
assuming full responsibility and management of these contracts, our
clients can focus and concentrate their full efforts and resources on core
strategies.

The traditional life reinsurance industry has experienced significant growth
over the past several years. According to an industry survey, the face amount of
traditional life reinsurance assumed in the United States has grown from
approximately $261 billion in 1995 to approximately $933 billion in 2001, a 24%
compounded annual growth rate. During the same period, the face amount of life
insurance written in the United States has grown from approximately $1.1
trillion in 1995 to approximately $1.6 trillion in 2001, a 6% compounded annual
growth rate.

We believe that the following trends have contributed and will continue to
contribute to the increasing demand for life reinsurance and increased business
opportunities for us:

- CONSOLIDATION IN THE LIFE INSURANCE INDUSTRY. Consolidation in the life
insurance industry may create opportunities for life reinsurers. Life
reinsurers provide financial reinsurance to help acquirers finance the
cash portion of an acquisition, and we expect that any additional

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consolidation in the life insurance business may result in incremental
opportunities for life reinsurers. In addition, in the context of an
acquisition, an acquirer may focus on the most promising lines of business
and divest non-core lines of business through reinsurance.

- CONSOLIDATION IN THE LIFE REINSURANCE INDUSTRY. There have been a number
of merger and acquisition transactions within the U.S. life reinsurance
industry in recent years. The consolidation of the life reinsurance
industry has reduced the amount of life reinsurance capacity available and
caused primary insurers to be exposed to concentrated counter-party risk
with the large consolidating reinsurers. We believe that consolidation
will continue and ceding companies will reinsure a portion of their
business with newer but well rated reinsurers like us in order to reduce
counter-party risk.

- INCREASED CAPITAL SENSITIVITY. We believe that insurance companies are
now more focused on capital efficiency and return on capital than in the
past. As a result, primary insurers are increasingly utilizing the outside
capital provided by reinsurance to help finance growth and to free up
capital to pursue new businesses. We believe that the demutualization of
life insurance companies contributes to this trend as these newly publicly
traded companies are motivated to improve their operating performance for
their investor attention.

- FLIGHT TO QUALITY. Particularly in the wake of the terrorist attacks in
the United States on September 11, 2001, we believe that ceding companies
are increasingly focused on the financial strength ratings of their
reinsurers, as well as the aggregate amount of capital maintained by their
reinsurers.

- EXPANDING INTERNATIONAL MARKETS. We believe that the trends described
above in the North American market are also influencing the reinsurance
industry throughout the world. In addition, we believe there are
increasing opportunities in markets such as Asia, Europe, Latin America,
the Middle East, and North Africa, where the life reinsurance industry is
either developing or expanding.

- CHANGING DEMOGRAPHICS. We expect that the increasing number of "baby
boomers" reaching middle and late middle age will increase the demand for
products which address retirement planning, estate planning and
survivorship issues. In addition, we believe that longer life expectancies
and the reduction in government and employer sponsored benefit programs
will increase the demand for life insurance and annuities. We expect this
increased demand for insurance to increase demand for our reinsurance
products.

WEALTH MANAGEMENT

Our variable life insurance and variable annuity products offer high net
worth clients the benefits of investment-oriented insurance products for use in
tax and estate planning. Offering our products from companies based in Bermuda,
the Cayman Islands and Luxembourg provides us greater flexibility in structuring
these products. We receive fee income based on the assets associated with our
products. Our products are targeted towards high net worth individuals and
families who generally have a liquid net worth of more than $10 million. The
wealth management business requires relatively little capital and we believe
that it generates a stable source of fee income. We expect that the market for
products aimed at high net worth individuals and families will expand as the
number of high net worth individuals needing tax and estate planning services
and expertise grows.

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OUR STRATEGY

Our strategy is to use our experience and structural advantages to focus on
life reinsurance and insurance products where we can deliver specialized advice
and products to our customers. We plan to increase the value of our franchise by
focusing on the following:

- EXPANDING THE SIZE AND DEPTH OF OUR REINSURANCE CLIENT BASE. We will
continue to expand our core U.S. business by attempting to gain a larger
share of the U.S. life reinsurance market both by adding new clients and
expanding the business relationships with existing clients. In addition,
we may pursue selected strategic acquisitions of other life reinsurance
businesses.

- BUILDING OUR WEALTH MANAGEMENT BUSINESS. We will continue to increase our
separate account assets by increasing the number of wealth management
clients and expanding our business into select European markets.

- INCREASING OUR FEE INCOME. We will continue to increase our fee income
from both life reinsurance transactions and our wealth management
business.

- ENHANCING OUR FINANCIAL STRENGTH. We will continue to enhance our capital
position and financial strength to meet the security needs of our
customers and the capital requirements of rating agencies. Also, by
enhancing our financial strength and capital resources, we would expect to
have opportunities to participate in reinsurance transactions in which we
might not be currently eligible to participate. We also expect that
enhancing our financial position will allow us to reduce our cost of, and
improve our access to, capital.

- CAPITALIZING ON OUR REINSURANCE EXPERIENCE. We will continue to focus our
marketing efforts on products that allow us to capitalize on the extensive
experience of our management and key employees.

- LEVERAGING EFFICIENT OPERATING STRUCTURE AND ORGANIZATIONAL
FLEXIBILITY. We will continue to leverage our ability to conduct business
in multiple jurisdictions, which provides us with a flexible and efficient
operating platform. Moreover, as we grow our businesses and leverage the
capabilities of our corporate infrastructure, we expect to improve our
operating margins.

- GROWING OUR OVERSEAS BUSINESS. We will leverage the specialized knowledge
and established relationships of World-Wide Reassurance to continue our
growth in the less competitive life reinsurance markets outside of North
America.

PRODUCTS OFFERED

LIFE REINSURANCE

We reinsure a broad range of life insurance and annuity products. Life
insurance products that we reinsure include yearly renewable term, term with
multi-year guarantees, ordinary life and variable life. Retail annuity products
that we reinsure include fixed immediate annuities and fixed deferred annuities.
In addition, we reinsure and may issue directly institutional annuity-type
products such as funding agreements, guaranteed investment contracts, and
pension termination and structured settlement annuities. We do not accept
mortality or longevity guarantees associated with variable annuity products.

For these products, we write reinsurance generally in the form of yearly
renewable term, coinsurance or modified coinsurance. Under yearly renewable
term, we share only in the mortality risk for which we receive a premium. In a
coinsurance or modified coinsurance arrangement, we generally share
proportionately in all material risks inherent in the underlying policies
including mortality, lapses and fluctuations in investments. Under such
agreements, we agree to indemnify the primary insurer for all or a portion of
the risks associated with the underlying insurance policy in exchange for a
proportionate share of premiums. Coinsurance differs from modified coinsurance
with respect to

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ownership of the assets supporting the reserves. Under our coinsurance
arrangements, ownership of these assets is transferred to us, whereas, in
modified coinsurance arrangements, the ceding company retains ownership of these
assets, but we share in the investment income and risk associated with the
assets.

Our reinsurance treaties are written predominantly on an automatic basis. An
automatic treaty provides for a ceding company to cede contractually agreed-upon
risks on specific blocks of business to us. The reinsurance may be solicited
directly by us or through reinsurance intermediaries and may be written on
either:

- a proportional basis under which a specified percentage of each risk in
the reinsured class of risk is assumed by us from the ceding company,
along with our portion of the underlying premiums in proportion to such
assumed risk; or

- an excess of loss basis under which we indemnify the ceding company, up to
a contractually specified amount, for a portion of claims exceeding a
specified retention amount, in consideration of non-proportional premiums
being paid.

In order to diversify our mortality exposure, we seek to limit our
consolidated enterprise wide retained exposure under life policies to no more
than $500,000 per life.

Our reinsurance treaties may provide for recapture rights, permitting the
ceding company to reassume all or a portion of the risk ceded to us after an
agreed-upon period of time (generally 10 years), subject to certain other
conditions. Some of our reinsurance treaties allow the ceding company to
recapture the ceded risk if we fail to maintain a specified rating or if other
financial conditions relating to us are not satisfied. Recapture of business
previously ceded does not affect premiums ceded prior to the recapture of such
business and typically involves the payment of a recapture fee to us.
Nevertheless, we may need to liquidate substantial assets in order to return the
assets supporting the reserves to the ceding company, and we may also have to
accelerate the amortization of unamortized deferred acquisition costs associated
with the recaptured business, which would reduce our earnings.

The potential adverse effects of recapture rights are mitigated by the
following factors:

- By recapturing reinsurance, ceding companies increase the amount of risk
they retain.

- Ceding companies generally must recapture the same amount of risk on each
policy reinsured under a treaty once a retention increase is made after
the treaty stated non-recapture period expires and a recapture program is
undertaken.

- We price our treaties with the goal of achieving our target return before
the recapture date.

WEALTH MANAGEMENT

Our wealth management business consists of the issuance of variable life
insurance policies and variable annuities and similar products to high net worth
individuals and families. Variable insurance products are often used in
connection with estate and investment planning strategies. Premiums, net of
expenses, paid by the policyholder with respect to our variable products are
placed in a separate account for the benefit of the policyholder. We invest
premiums in each separate account with one or more investment managers, some of
whom the policyholder may recommend and all of whom are appointed by us in our
sole discretion. The policyholder retains the benefits of favorable investment
performance, as well as the risk of adverse investment results. Assets held in
the separate accounts are generally not subject to the claims of our general
creditors. We do not provide any investment management or advisory services
directly to any individual variable life or variable annuity policyholder.

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Variable life insurance policies provide tax-deferred appreciation of the
assets in the separate account. These policies also provide a death benefit and,
if properly structured, may also permit loans against the value of the policy's
assets. Death benefit payments are generally not subject to U.S. income tax. Our
minimum initial premium for a variable life insurance policy is $2 million.

Variable annuities provide tax-deferred appreciation of the assets in the
separate account until funds are withdrawn or annuity payments begin. There is
no additional death benefit provided by a variable annuity. Our minimum initial
premium deposit for a variable annuity is $1 million and additional premium
deposits may be made.

Our revenues earned from these policies consist of insurance and
administrative fees assessed against the assets in each separate account.

Our variable products do not guarantee investment returns.

WORLD-WIDE REASSURANCE

World-Wide Reassurance specializes in the reinsurance of risks such as group
life insurance, individual life insurance, airline pilot "loss of license"
insurance, and to a lesser extent certain dread disease insurance. Group life
reinsurance represents the majority of World-Wide Reassurance's portfolio of
business. Most of the business underwritten by World-Wide Reassurance is
short-term business.

World-Wide Reassurance's strategy is to target customers in developing
markets as well as selected developed markets. These developing markets include
Asia, Latin America, the Middle East, North Africa and Southern and Eastern
Europe. In more developed markets, World-Wide Reassurance targets "niche" market
sectors that require a high degree of knowledge and experience. World-Wide
Reassurance's customers typically do not have the ability to analyze and price
the risk assumed and, therefore, rely on World-Wide Reassurance's reinsurance
experience. We believe that the strategies of World-Wide Reassurance allow it to
obtain reinsurance business on more favorable terms than are available in the
large, mature markets of North America and Western Europe.

World-Wide Reassurance's core market is the Middle East, where it has been
active since the early 1990s. In 2002, World-Wide Reassurance's fiscal year end
was September 30th. For subsequent reporting periods World-Wide Reassurance's
fiscal year end has been changed to December 31st. For the year ended
September 30, 2002, approximately 22% of World-Wide Reassurance's total premiums
earned originated from Bahrain, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi
Arabia and the United Arab Emirates. World-Wide Reassurance writes a majority of
its business in the Middle East on a facultative basis, meaning that it
reinsures specifically identified risks or pools of risks as opposed to all
risks of a specified type. This business is generally renewable every year,
although a small number of contracts cover a period of three years.

In Latin America, World-Wide Reassurance does business primarily in
Argentina, Columbia and Peru, and to a lesser extent in Chile and Ecuador. In
Asia, World-Wide Reassurance's target niche market is in Japan, which is
experiencing the development of small affinity group mutual organizations known
as kyosai, as a parallel sector to large insurance companies.

World-Wide Reassurance also reinsures airline pilot "loss of license"
coverage, which entails the payment of lump sum benefits if a pilot loses his
license for medical reasons, as well as temporary benefits for the period of
time during which the pilot is grounded and waiting for the results of the
medical examination. World-Wide Reassurance is also one of the largest
reinsurers of life insurance coverage for police forces in the United Kingdom.

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MARKETING

LIFE REINSURANCE NORTH AMERICA

In our life Reinsurance North American business, we market to North American
life insurance and life reinsurance companies. We also target institutions, such
as pension plans, that have life insurance-related risks and that we believe
would benefit from our reinsurance products based on our analysis of publicly
available information and other industry data. Where permitted by law, we
actively market our reinsurance products primarily on a direct basis. We also
seek to capitalize on the relationships developed by our executive officers and
marketing staff with members of the actuarial profession and senior insurance
company executives, at both primary insurers and other reinsurers. Finally, we
work with reinsurance intermediaries, brokers and consultants who are engaged in
obtaining reinsurance on behalf of their clients.

LIFE REINSURANCE INTERNATIONAL

World-Wide Reassurance markets its products through international brokers
and its own marketing staff to international life insurance and life reinsurance
companies. Approximately 50% of its business is transacted through brokers.
World-Wide Reassurance's marketing staff maintains relationships with
reinsurance clients through regular visits to clients throughout its
territories.

WEALTH MANAGEMENT

In our wealth management business, we seek to write variable life insurance
and variable annuity products for high net worth individuals and families with
at least $10 million of liquid net worth. We believe our variable products
comply with European Union requirements for insurance products and we actively
seek to market our variable products in the relevant jurisdictions of the
European Union. Because we also offer variable products that we believe comply
with U.S. Internal Revenue Code requirements for insurance products, we
typically insure U.S. persons, individuals with U.S. beneficiaries or non-U.S.
persons with a U.S. tax presence. Because our wealth management subsidiaries are
not licensed to conduct insurance business in any jurisdiction in the United
States, we cannot utilize traditional life insurance marketing channels such as
agents, nor can we use mail-order or other direct-marketing channels to conduct
business with persons in the United States or certain other jurisdictions.
Accordingly, we rely primarily on referrals by financial advisors, investment
managers, private bankers, attorneys and other intermediaries in Europe and the
United States to generate wealth management business. None of these
intermediaries represents us as agent or in any other capacity, nor do they
receive any commissions or other remuneration from us for activities undertaken
on our behalf in the United States.

RISK MANAGEMENT

LIFE REINSURANCE

We bear five principal classes of risk in our life reinsurance products:

- mortality risk,

- investment risk,

- persistency risk,

- expense risk, and

- counter-party risk.

Mortality risk is the risk that death claims exceed what we expect. A
greater frequency or higher average size of death benefits than we expected can
cause us to pay greater death benefits, adversely

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affecting our profitability. Even if the total death benefits paid over the life
of our contracts do not exceed the expected amount, sporadic timing of deaths
can cause us to pay more death benefits in a given time period than expected,
adversely impacting our profitability in that period. We address these risks
through selection, diversification and retrocession. We analyze each block of
business based on an evaluation of the ceding company's history, management,
target market, products and underwriting criteria relative to the industry. We
target primarily first dollar quota share pools of top producing direct writing
companies so that we participate proportionately with other reinsurers on all of
the ceded risks. In addition, we diversify our risks by participating in annuity
and disability products in the payout stage where the mortality risk is the risk
of later, rather than earlier, deaths than expected. A mix of these products
with life products can help offset general trends in population mortality. We
mitigate our risk of exposure to any one block of business or any one individual
life by limiting our share to generally 20-25% in any one pool. We further
address the risk of any one large claim by utilizing retrocession above our
retention of $500,000 per life.

Our investments, which primarily consist of fixed income securities, are
subject to market value, reinvestment and liquidity risk. Our invested assets
are funded not only by capital but also by the proceeds of reinsurance
transactions, some of which entail substantial deposits of funds or assets. The
policies that we reinsure contain provisions that tend to increase benefits to
customers depending on movements in interest rates.

We analyze the potential results of a transaction, including the cash flows
of the liabilities and of the related assets and any risk mitigation measures,
and we price transactions to cover our costs, including estimated credit losses,
and earn a desirable risk-adjusted return under various scenarios. Although we
have not done so in the past, we may use interest rate swaps and other hedging
instruments as tools to mitigate these risks. We may also retrocede some risks
to other reinsurers.

Persistency risk is the risk that policyholders maintain their policies for
either longer or shorter periods than expected. Persistency can be affected by
surrenders and policy lapses. Surrenders are the voluntary termination of a
policy by the policyholder and lapses are the termination of the policy due to
non-payment of the premium. Surrenders usually involve the return of the
policy's cash surrender value to the policyholder. The risk is that actual
persistency is significantly different from the persistency we assumed in
pricing. Persistency significantly higher than priced for can cause us to pay
greater than expected death benefits in future years, adversely impacting our
profitability. Persistency significantly lower than priced for can cause our
deferred acquisition costs to be unrecoverable, possibly causing loss
recognition that would adversely impact our profitability. For policies with
cash surrender benefits, surrenders significantly greater from expected will
also cause increased liquidity risk. We address these risks through
diversification and surrender charges.

Expense risk is the risk that actual expenses will be higher than those
covered in pricing. The risk is that expenses per policy reinsured are higher as
a result of a lower number of policies than anticipated, or that our operations
are less efficient than anticipated. We address this risk through the use of
automation, bulk reporting and management of general expenses.

Counter-party risk is the risk that retrocessionaires will be unable to pay
claims as they become due. We limit and diversify our counter-party risk by
spreading our retrocession over a pool comprised of highly rated
retrocessionaires. Our underwriting guidelines provide that any retrocessionaire
to whom we cede business must have a financial strength rating of at least "A-"
or higher from A.M. Best or an equivalent rating by another major rating agency.
However, even if a retrocessionaire does not pay a claim submitted by us, we are
still responsible for paying that claim to the ceding company.

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WEALTH MANAGEMENT

The four principal risks associated with our wealth management business are:

- mortality risk,

- counter-party risk,

- persistency risk, and

- expense risk.

Since we do not have the direct investment risks associated with our wealth
management products, the principal risk in our variable life insurance business
is mortality risk. The death benefits provided by our variable life insurance
policies vary based on the investment return of the underlying separate account
assets invested by the investment managers. The difference between the value of
the assets in the underlying separate account and the policy's stated death
benefit, known as the "net amount at risk," represents a general liability of
the insurance subsidiary. Mortality risk tends to be more stable when spread
across large numbers of insureds. We expect that our variable life insurance
policies will have relatively large face amounts and will be held by a
relatively small number of policyholders. Consequently, our associated mortality
risk exposure will be greater in the aggregate, and our probability of loss less
predictable, than an insurer with a broader risk pool. Therefore, pursuant to
our underwriting guidelines, we reinsure substantially all of the mortality risk
associated with our variable life insurance business with highly rated
reinsurers and accordingly rely upon our reinsurers' obligation and ability to
pay death claims. The counter-party risk is that one or more of our reinsurers
may fail to pay a reinsured death claim under a variable life insurance policy.

INVESTMENT PORTFOLIO

GENERAL

Our general account investment portfolio consists of investments and cash
and cash equivalents, which we control, and funds withheld at interest, which
are associated with modified coinsurance agreements. In modified coinsurance
transactions, the ceding insurance company retains the assets supporting the
ceded business and manages them for our account. Although the ceding company
must adhere to general standards agreed to by us for the management of these
assets, we do not control the selection of the specific investments or the
timing of the purchase or sale of investments made by the ceding company.

The portfolio that we control consists primarily of investment-grade fixed
income securities and cash. We seek to generate attractive levels of investment
income while limiting exposure to risks of changing interest rates, excess
default experience and adverse changes in asset values. Third party investment
managers manage the portfolio. Although we retain control over asset-liability
management, investment policy and strategy, compliance and evaluation of
results, we may not be able to effectively manage investment results and risks
in an asset-liability context, which could adversely affect our ability to
support our businesses, our results of operations and our financial condition.

INVESTMENT OVERSIGHT

Our Finance and Investment Committee reviews our investment portfolio and
the performance of our investment managers. In addition, our Finance and
Investment Committee approves changes in the investment policy proposed by
management and oversees compliance with the investment policy. Our Finance and
Investment Committee can approve exceptions to our investment policy and
periodically reviews our investment policy in light of prevailing market
conditions. The investment managers and our investment policy may be changed
from time to time as a result of such reviews.

9

INVESTMENT POLICY

Our investment policy includes limits requiring diversification by asset
class, fixed income sector and single issuers and limits exposure to lower-rated
securities. It also limits reinvestment risk and requires effective
asset-liability management processes including the maintenance of adequate
liquidity to meet potential cash outflows.

We are exposed to three primary sources of investment risk on fixed income
investments: market value, reinvestment and liquidity risk. Market value risk is
the risk that our invested assets will decrease in value due to a change in the
yields realized on our assets, a change in the prevailing market yields for
similar assets, an unfavorable change in the liquidity of the investment or an
unfavorable change in the financial prospects or a downgrade in the credit
rating of the issuer of the investment. Reinvestment risk is the risk that
interest rates will decline and funds reinvested will earn less than expected.
Liquidity risk is the risk that liabilities are surrendered or mature sooner
than anticipated, requiring us to sell assets at an undesirable time to provide
for policyholder surrenders or withdrawals.

We manage these risks through industry and issuer diversification, overall
limits on the amounts of credit risk taken and asset-liability management, which
we refer to as ALM. Our primary ALM practices include:

- modeling the cash flows necessary to service each existing and newly
written reinsurance liability by considering various interest rate
scenarios;

- targeting new investments with cash flows suitable for new and existing
liabilities;

- evaluating and quantifying the risks to earnings and the economic value of
shareholders' equity created by gaps between the projected cash flows from
existing assets and those required by in-force liabilities;

- reducing the risks caused by mismatches by opportunistically buying
matching new investments; and

- using interest rate swaps, futures, and other financial instruments to
hedge significant risks that occur during the investment origination
process and that may remain in our in-force asset-liability configuration.

We may use foreign denominated securities to manage currency risk if the
related reinsurance transaction has a foreign currency component. We do not
currently invest in any derivative securities, but we may enter into interest
rate swaps, futures, forwards and other hedging transactions to manage our
risks. We will use derivatives only to manage interest rate risk rather than as
a speculative investment.

INVESTMENT MANAGERS

As of December 31, 2002, we utilized two asset managers to manage the
portion of our investment portfolio that we control. General Re-New England
Asset Management, which we refer to as NEAM, managed 83% and Principal Capital
Management managed 17% of our investment portfolio that we control. We may
engage other asset managers to manage some or all of our controlled investment
portfolio in the future. In the instances where we enter modified coinsurance
transactions we do not directly control the underlying investment portfolio.
Instead, the investments are held and managed by the ceding company for our
account in accordance with contractually agreed upon standards.

COMPETITION AND RATINGS

Competition in the life reinsurance industry is based on price, financial
strength ratings, reputation, experience, relationships and service. Because we
currently rely on a small but growing number of

10

clients in both our life reinsurance and wealth management businesses and expect
to continue to do so for the near future, we are more susceptible to the adverse
effects of competition than life reinsurers with larger client bases.

Our wealth management products primarily compete with those issued by U.S.
and European life insurance companies. We believe that the most important
competitive factor affecting the marketability of our products is the degree to
which these products meet customer expectations, in terms of low expenses,
returns (after fees and expenses), flexibility and customer service. Many
companies offering these products are significantly larger, have longer
operating histories, have more extensive distribution capability and have access
to greater financial and other resources than we do.

Insurance ratings are used by prospective purchasers of insurance policies,
insurers and reinsurance intermediaries in assessing the financial strength and
quality of insurers and reinsurers. Rating organizations periodically review the
financial performance and condition of insurers, including our insurance
subsidiaries. Rating organizations assign ratings based upon several factors.
While most of the factors considered relate to the rated company, some of the
factors take into account general economic conditions and circumstances outside
the rated company's control. Scottish Annuity & Life Insurance Company
(Cayman) Ltd. and Scottish Re (U.S.), Inc. are each rated "A- (excellent)" for
financial strength by A.M. Best Company, which is fourth highest of fifteen
rating levels, "A (strong)" for financial strength by Fitch Ratings, which is
third highest of twelve rating levels, "A3 (good)" for financial strength by
Moody's, which is seventh highest of twenty-one rating levels, and "A- (strong)"
for financial strength by Standard & Poor's, which is seventh highest of
twenty-one rating levels. World-Wide Reassurance is rated "A- (excellent)" for
financial strength by A.M. Best, which is fourth highest of fifteen rating
levels, "A (strong)" for financial strength by Fitch, which is third highest of
twelve rating levels and "A- (strong)" for financial strength by Standard &
Poor's, which is sixth highest of twenty-one rating levels. Our Bermuda, Dublin
and Luxembourg insurance companies are unrated. A downgrade in the ratings of
our insurance subsidiaries could adversely affect their ability to sell
products, retain existing business, and compete for attractive acquisition
opportunities. Ratings for an insurance company are based on its ability to pay
policyholder obligations and are not directed toward the protection of
investors.

A.M. Best assigns an "A- (excellent)" rating to companies that have, in its
opinion, on balance, excellent balance sheet strength, operating performance and
business profile, as well as a strong ability to meet their ongoing obligations
to policyholders. A.M. Best maintains a letter scale rating system ranging from
"A++ (superior)" to "F (in liquidation)." "A- (excellent)" is the fourth highest
designation of A.M. Best's 16 rating levels. Fitch assigns an "A (strong)" or
"A- (strong)" rating to companies that it characterizes as having, in its
opinion, strong capacity to meet policyholder and contract obligations and
moderate risk factors and where the impact of any adverse business and economic
factors is expected to be small. Fitch's insurer financial strength ratings
range from "AAA (exceptionally strong)" to "D (distressed)." "A (strong)" is the
third highest of Fitch's 12 rating levels. Moody's assigns an "A3 (good)" rating
to companies that offer, in its opinion, good financial security, but possess
elements that suggest a susceptibility to impairment sometime in the future.
Moody's long term insurance financial strength ratings range from "Aaa
(exceptional)" to "C (lowest)." "A3 (good)" is the ninth highest designation of
Moody's 27 rating levels. Standard & Poor's assigns an "A- (strong)" rating to
companies that have, in its opinion, a strong capacity to meet financial
commitments, but are somewhat more susceptible to the adverse effects of changes
in circumstances and economic conditions than insurers with higher ratings.
Standard & Poor's insurer financial strength ratings range from "AAA (extremely
strong)" to "R (under regulatory supervision)." "A- (strong)" is the seventh
highest designation of Standard & Poor's 23 rating levels.

EMPLOYEES

As of March 17, 2003, we employed approximately 135 full time employees.

11

REGULATION

GENERAL U.S. STATE SUPERVISION

Various state insurance departments enforce insurance and reinsurance
regulation. The extent and nature of regulation varies from state to state.
Scottish Re (U.S.), Inc. is a Delaware-domiciled reinsurer, which is licensed,
accredited, approved or authorized to write reinsurance in 47 states and the
District of Columbia.

INSURANCE HOLDING COMPANY REGULATION

Scottish Annuity & Life and Scottish Re (U.S.), Inc. are subject to
regulation under the insurance holding company laws of Delaware and, as a result
of Pacific Life's share ownership, California. The insurance holding company
laws and regulations vary from state to state, but generally require insurers
and reinsurers that are subsidiaries of insurance holding companies to register
and file with state regulatory authorities certain reports including information
concerning their capital structure, ownership, financial condition and general
business operations. Generally, all transactions between Scottish Re
(U.S.), Inc. and its affiliates must be fair and, if material, require prior
notice and approval or non-disapproval by the Delaware and/or California state
insurance departments. Further, state insurance holding company laws typically
place limitations on the amounts of dividends or other distributions payable by
insurers and reinsurers. Delaware, the jurisdiction in which Scottish Re
(U.S.), Inc. is domiciled, provides that, unless the prior approval of the state
insurance commissioner has been obtained, dividends may be paid only from earned
surplus and the maximum annual amount payable is limited to the greater of 10%
of policyholder surplus at the end of the prior year or 100% of statutory net
gain from operations for the prior year.

State insurance holding company laws also require prior notice or state
insurance department approval of changes in control of an insurer or reinsurer
or its holding company. The insurance laws of Delaware provide that no
corporation or other person may acquire control of a domestic insurance or
reinsurance company unless it has given notice to such company and obtained
prior written approval of the state insurance commissioner. Any purchaser of 10%
or more of the outstanding voting securities of an insurance or reinsurance
company or its holding company is presumed to have acquired control, unless this
presumption is rebutted. Therefore, an investor who intends to acquire 10% or
more of our outstanding voting securities may need to comply with these laws and
would be required to file notices and reports with the Delaware insurance
commissioner prior to such acquisition.

In addition, many state insurance laws require prior notification to the
state insurance department of a change in control of a non-domiciliary insurance
company licensed to transact insurance business in that state. While these
pre-notification statutes do not authorize the state insurance departments to
disapprove the change in control, they authorize regulatory action in the
affected state if particular conditions exist such as undue market
concentration. Any future transactions that would constitute a change in control
of Scottish Re (U.S.), Inc. or any of its U.S. insurance subsidiaries may
require prior notification in the states that have adopted pre-acquisition
notification laws.

U.S. REINSURANCE REGULATION

Scottish Re (U.S.), Inc. is subject to insurance regulation and supervision
that in many respects is similar to the regulation of licensed primary insurers.
Generally, state regulatory authorities monitor compliance with, and
periodically conduct examinations regarding, state mandated standards of
solvency, licensing requirements, investment limitations, restrictions on the
size of risks which may be reinsured, deposits of securities for the benefit of
reinsureds, methods of accounting, and reserves for unearned premiums, losses
and other purposes. However, in contrast with primary insurance policies, which
are regulated as to rate, form, and content, the terms and conditions of
reinsurance agreements are generally not subject to regulation by state
insurance regulators.

12

Scottish Re (U.S.), Inc. is licensed, accredited, approved or authorized to
write reinsurance in 47 states and the District of Columbia. The ability of any
primary insurer to take credit for the reinsurance placed with reinsurers is a
significant component of reinsurance regulation. Typically, a primary insurer
will only enter into a reinsurance agreement if it can obtain credit on its
statutory financial statements for the reinsurance ceded to the reinsurer.
Credit is usually granted when the reinsurer is licensed, accredited, approved
or authorized to write reinsurance in the state where the primary insurer is
domiciled. In addition, many states allow credit for reinsurance ceded to a
reinsurer if the reinsurer is licensed in another jurisdiction and meets certain
financial requirements, or if the primary insurer is provided with collateral in
the form of letters of credit, trusts, "funds withheld" or modified coinsurance
contracts, to secure the reinsurer's obligations.

U.S. REINSURANCE REGULATION OF OUR NON-U.S. REINSURANCE SUBSIDIARIES

Our non-U.S. reinsurance subsidiaries also assume reinsurance from primary
U.S. insurers. In order for primary U.S. insurers to obtain financial statement
credit for the reinsurance obligations of our non-U.S. reinsurers, our non-U.S.
reinsurance subsidiaries must satisfy reinsurance requirements. Non-U.S.
reinsurers that are not licensed in a state generally may become accredited by
filing certain financial information with the relevant state commissioner and
maintaining a U.S. trust fund for the payment of valid reinsurance claims. In
addition, unlicensed and unaccredited reinsurers may secure the primary U.S.
insurer with funds equal to its reinsurance obligations in the form of cash,
securities, letters of credit or reinsurance trusts.

U.S. INSURANCE REGULATION OF OUR NON-U.S. INSURANCE SUBSIDIARIES

Our non-U.S. insurance subsidiaries are not licensed to conduct insurance
business in any jurisdiction in the United States. Therefore, they cannot
utilize traditional life insurance marketing channels such as agents, nor can we
use mail-order or other direct marketing channels to conduct business with
persons in the United States or certain other jurisdictions. Accordingly, they
rely primarily on referrals by financial advisors, investment managers, private
bankers, attorneys and other intermediaries in the United States and Europe to
generate wealth management business. None of these intermediaries represents us
as agent or in any other capacity, nor do they receive any commissions or other
remuneration from us for activities undertaken in the United States. In
addition, policy solicitation, issuance and servicing must occur outside of the
United States.

NAIC RATIOS

The National Association of Insurance Commissioners, which we refer to as
the NAIC, has developed a set of financial relationships or tests known as the
NAIC Insurance Regulatory Information System to assist state regulators in
monitoring the financial condition of insurance companies and identifying
companies that require special attention or action by insurance regulatory
authorities. A second set of confidential ratios, called Financial Analysis
Solvency Tracking System, "FAST," are also used for monitoring. Insurance
companies generally submit data quarterly to the NAIC, which in turn analyzes
the data using prescribed financial data ratios, each with defined "usual
ranges." If an insurance company's results vary significantly from expected
ranges, regulators may make further inquiries. Regulators have the authority to
impose remedies ranging from increased monitoring to certain business
limitations to various degrees of supervision. Our U.S. reinsurance subsidiary
is not currently subject to increased regulatory scrutiny based on these ratios.

RISK-BASED CAPITAL

The Risk-Based Capital for Insurers Model Act, or the Model Act, as it
applies to non-life insurers and reinsurers, was adopted by the NAIC on
December 5, 1993. The main purpose of the Model Act is to provide a tool for
insurance regulators to evaluate the capital of insurers relative to the risks

13

assumed by them and determine whether there is a need for possible corrective
action. U.S. insurers and reinsurers are required to report the results of their
risk-based capital calculations as part of the statutory annual statements filed
with state insurance regulatory authorities.

The Model Act provides for four different levels of regulatory actions based
on annual statements, each of which may be triggered if an insurer's Total
Adjusted Capital, as defined in the Model Act, is less than a corresponding
level of risk-based capital, which we call RBC.

- The Company Action Level is triggered if an insurer's Total Adjusted
Capital is less than 200% of its Authorized Control Level RBC, as defined
in the Model Act. At the Company Action Level, the insurer must submit a
plan to the regulatory authority that discusses proposed corrective
actions to improve its capital position.

- The Regulatory Action Level is triggered if an insurer's Total Adjusted
Capital is less than 150% of its Authorized Control Level RBC. At the
Regulatory Action Level, the regulatory authority will perform a special
examination of the insurer and issue an order specifying corrective
actions that must be followed.

- The Authorized Control Level is triggered if an insurer's Total Adjusted
Capital is less than 100% of its Authorized Control Level RBC, and at that
level the regulatory authority is authorized (although not mandated) to
take regulatory control of the insurer.

- The Mandatory Control Level is triggered if an insurer's Total Adjusted
Capital is less than 70% of its Authorized Control Level RBC, and at that
level the regulatory authority must take regulatory control of the
insurer. Regulatory control may lead to rehabilitation or liquidation of
an insurer.

As of December 31, 2002, the Total Adjusted Capital of Scottish Re
(U.S.), Inc. exceeded applicable minimum RBC levels.

THE GRAMM-LEACH-BLILEY ACT

In November 1999, the Gramm-Leach-Bliley Act of 1999, or the GLBA, was
enacted, implementing fundamental changes in the regulation of the financial
services industry in the United States. The GLBA permits the transformation of
the already converging banking, insurance and securities industries by
permitting mergers that combine commercial banks, insurers and securities firms
under one holding company, a "financial holding company." Bank holding companies
and other entities that qualify and elect to be treated as financial holding
companies may engage in activities, and acquire companies engaged in activities,
that are "financial" in nature or "incidental" or "complementary" to such
financial activities. Such financial activities include acting as principal,
agent or broker in the underwriting and sale of life, property, casualty and
other forms of insurance and annuities. However, although a bank cannot act as
an insurer nor can it own an insurer as a subsidiary in most circumstances, a
financial holding company can own any kind of insurer, insurance broker or
agent. Under the GLBA, national banks retain their existing ability to sell
insurance products in some circumstances.

Under state law, the financial holding company must apply to the insurance
commissioner in the insurer's state of domicile for prior approval of the
acquisition of the insurer. Under the GLBA, no state may prevent or restrict
affiliations between banks and insurers, insurance agents or brokers. Further,
states cannot prevent or significantly interfere with bank or bank subsidiary
sales activities. Finally, both bank and bank affiliates can obtain licenses as
producers.

Until the passage of the GLBA, the Glass-Steagall Act had limited the
ability of banks to engage in securities-related businesses, and the Bank
Holding Company Act had restricted banks from being affiliated with insurers.
With the passage of the GLBA, among other things, bank holding companies

14

may acquire insurers, and insurance holding companies may acquire banks. The
ability of banks to affiliate with insurers may materially affect our U.S.
reinsurance subsidiary's product lines by substantially increasing the number,
size and financial strength of potential competitors.

POSSIBLE INITIATIVES RELATING TO THE SEPTEMBER 11TH EVENTS

The terrorist attacks in the United States on September 11, 2001 have
resulted in significant losses for the insurance and reinsurance industries. In
response to the attacks and a resulting decline in the availability of terrorism
insurance, Congress enacted the Terrorism Risk Insurance Act of 2002. The Act,
commonly referred to as TRIA, provides U.S. Federal reinsurance of "commercial
property and casualty" coverage written to protect against losses which result
from a specified category of foreign terrorist acts. At present, the protections
of TRIA are available only to defined "commercial property and casualty"
insurers. However, should the Secretary of the Treasury determine that "adequate
and affordable catastrophe reinsurance" is not currently available to life
insurers that issue group life insurance, TRIA instructs the Secretary of the
Treasury to extend U.S. Federal reinsurance protection to group life insurance.
In order to make this determination, the Secretary of the Treasury solicited
public comment through January 10, 2003. The Secretary of the Treasury is
expected to make a determination regarding the extension of TRIA protections to
group life insurance at any time.

By its own terms, all reinsurance is specifically excluded from the
protections available through TRIA. Therefore, absent the possible extension of
TRIA protections to group life insurance, TRIA is not expected to provide any
protection for providers of life reinsurance. To the extent that TRIA
protections are extended to group life insurance, the availability of U.S.
Federal reinsurance for terrorism losses would relieve some of the economic
pressure to reinsure terrorism losses that life reinsurers may currently
experience. We have no information regarding other proposed or enacted federal
or state legislation that would restrict insurers' ability to exclude or limit
coverage for terrorism risks.

BERMUDA

Our Bermuda subsidiaries are subject to regulation under the Bermuda
Companies Act of 1981, and our Bermuda insurance subsidiaries are subject to
regulation under the Bermuda Insurance Act of 1978, as amended by the Insurance
Amendment Act 1995 (which we refer to as the Bermuda Insurance Act), and the
regulations promulgated thereunder. They are required, among other things, to
meet and maintain certain standards of solvency, to file periodic reports in
accordance with Bermuda statutory accounting rules, to produce annual audited
financial statements and to maintain a minimum level of statutory capital and
surplus. In general, the regulation of insurers in Bermuda relies heavily upon
the auditors, directors and managers of the Bermuda insurer, each of which must
certify that the insurer meets the solvency and capital requirements of the
Bermuda Insurance Act of 1978.

Under the Bermuda Insurance Act, a Bermuda insurance company carrying on
long-term business (which includes the writing of annuity contracts and life
insurance policies with respect to human life) must hold all receipts in respect
of its long-term business and earnings thereon in a separate long-term business
fund. Payments from such long-term business fund may not be made directly or
indirectly for any purpose other than those of the insurer's long-term business,
except in so far as such payment is made out of surplus certified by the
insurer's approved actuary to be available for distribution other than to
policyholders. In addition, our Bermuda subsidiaries are authorized by private
acts of the Bermuda Legislature (the Scottish Annuity & Life International
Insurance Company (Bermuda) Ltd. Consolidation and Amendment Act 2001 and the
Scottish Annuity & Life Insurance Company (Bermuda) Limited Consolidation and
Amendment Act 2001, which we refer to as the private acts) to establish separate
accounts in respect of one or more life insurance policies or annuity contracts.
In the event of an inconsistency between the Insurance Act and the private acts,
the terms of the private acts control subject, however, to later amendments of
the Insurance Act or other relevant laws. Under the

15

private acts, each insurance subsidiary is permitted to credit to relevant
separate accounts such portion of the premiums and other receipts from the
related policy or contract, and any property of the insurance subsidiary derived
from or purchased with such premiums, as the related policies or contracts
stipulate. To the extent provided in the relevant policies or contracts, income,
interest or other gains earned from, and any property acquired by, the investing
or dealing in the assets of the separate account are credited to the separate
account, and all expenses, fees or losses relating to the separate account are
charged against the separate account. The assets and property held in the
separate account are to be used for the sole purpose of paying any and all
claims arising from or under the related policies or contracts, and no other
person has any right or interest in such assets. Upon the termination of
policies or contracts related to a separate account, and the discharge of
obligations under the policies or contracts, the insurance subsidiary may
terminate the separate account, and credit any remaining assets or property to
its general account. In the event of insolvency of one of our Bermuda
subsidiaries, the liquidator is bound to recognize the separate nature of each
separate account, and is not empowered to apply property identified as the
property of any one separate account to pay the claims of creditors of the
insurance company or policyholders other than the policyholder to whom the
separate account relates. The private acts also permit the insurance
subsidiaries to issue certain securities based on separate accounts that are
subject to similar provisions.

CAYMAN ISLANDS

Our Cayman Islands subsidiaries are subject to regulation as licensed
insurance companies under Cayman Islands law. These subsidiaries hold
unrestricted Class B insurance licenses under Cayman Islands Insurance Law and
may therefore carry on an insurance business from the Cayman Islands, but may
not engage in any Cayman Islands domestic insurance business. Unless
specifically exempted, a Cayman Islands insurance company must engage a licensed
insurance manager operating in the Cayman Islands to provide insurance expertise
and oversight. Our subsidiaries are exempt from this requirement. In addition,
under the Cayman Islands Insurance Law, a Cayman Islands insurance company
carrying on long-term business (which includes the writing of life insurance
policies) must hold all receipts in respect of its long-term business and
earnings thereon in a separate long-term business fund. Payments from such
long-term business fund may not be made directly or indirectly for any purpose
other than those of the insurer's long-term business. Except in so far as such
payments can be made out of any surplus disclosed on an actuarial valuation and
certified by an actuary to be distributable otherwise than to policyholders.
Every Cayman Islands insurance company carrying on long-term business may
establish any number of separate accounts in respect of premiums paid to it to
provide (i) annuities on human life and (ii) contracts of insurance on human
life, and such respective premiums shall be kept segregated one from the other
and independent of all other funds of the Cayman Islands insurer, and,
notwithstanding the provisions of any other written law to the contrary, are not
chargeable with any liability arising from any other business of the insurer.
The scope and the validity of the Cayman Islands law regarding separate accounts
has not been tested in the courts of the Cayman Islands.

IRELAND

Scottish Re (Dublin) Limited has been entitled to carry on insurance
business in Ireland since December 2000 and is subject to regulation under the
Insurance Act 2000 of Ireland, which requires companies registered in Ireland,
other than authorized Insurance companies, to obtain official authorization
before they can engage in reinsurance business. Reinsurance companies are not at
present subject to a formal solvency supervision; however, the Department of
Enterprise, Trade and Employment has the power to order a reinsurance company to
cease writing business if it is not satisfied with the manner in which it is
conducting its business.

16

The principal legislation and regulations governing the insurance activities
of Irish insurance companies are the Insurance Acts 1909 to 1990 and a
comprehensive network of regulations and statutory provisions empowering the
making of regulations.

LUXEMBOURG

World-Wide Life Assurance S.A. has been entitled to carry on insurance
business in Luxembourg since 2002 and is subject to Law of December 6, 1991 on
the Insurance Sector, as amended (the "Law of 1991"), which sets forth the
requirements for the licensing and prudential supervision of insurance
companies. The Law of 1991 also indicates that licensed insurers fall under the
supervision of the Commissariat aux Assurances, which is the appointed insurance
supervisory authority in Luxembourg.

The relevant legislation governing the activities of insurance companies is
essentially set forth in Law of 1991 and the Grand Ducal regulations of
December 14, 1994 and of December 30, 2000.

UNITED KINGDOM

World-Wide Reassurance is a U.K. insurance company incorporated and
registered in England and Wales and subject to regulation and supervision in the
United Kingdom under English domestic and European Community law. The Insurance
Companies Act of 1982 of the United Kingdom, as amended, imposes solvency and
liquidity standards and auditing and reporting requirements on insurance and
reinsurance companies organized under English law, and on companies that own
such insurance companies, and further grants to the U.K. Financial Services
Authority powers to supervise, investigate and intervene in the affairs of
insurance companies. The company is authorized to carry on long-term business
and certain classes of general business. An insurance company carrying on
long-term business (which includes the writing of life insurance policies) must
hold all receipts in respect of its long-term business and earnings thereon in a
separate long-term business fund. Payments from such long-term business funds
may not be made directly or indirectly for any purpose other than those of the
insurer's long-term business. An exception exists wherein payments may be made
from a surplus in the long-term business fund. In such instance the insurer must
disclosed the surplus on an actuarial valuation and have the valuation certified
by its appointed actuary in order to distribute the surplus.

NEW JURISDICTIONS

If Scottish Annuity & Life or any of our subsidiaries were to become subject
to the laws of a new jurisdiction where Scottish Annuity & Life or that
subsidiary is not presently admitted, they may not be in compliance with the
laws of the new jurisdiction. Any failure to comply with applicable laws could
result in the imposition of significant restrictions on our ability to do
business, and could also result in fines and other sanctions, any or all of
which could adversely affect our financial results and operations.

17

RISK FACTORS

Investing in our ordinary shares involves a high degree of risk. Potential
investors should consider carefully the following risk factors, in addition to
the other information set forth in this Form 10-K, prior to investing in our
ordinary shares.

RISKS RELATED TO OUR BUSINESS

A DOWNGRADE IN THE FINANCIAL RATINGS OF OUR INSURANCE SUBSIDIARIES COULD MAKE US
LESS COMPETITIVE

Ratings are an important factor in attracting business in both our life
reinsurance and wealth management businesses. Rating organizations periodically
review the financial performance and condition of insurers, including our
insurance subsidiaries. Rating organizations assign ratings based upon several
factors. Although most of the factors considered relate to the rated company,
some of the factors take into account general economic conditions and
circumstances outside the rated company's control. Scottish Annuity & Life
Insurance Company (Cayman) Ltd. and Scottish Re (U.S.), Inc. are each rated "A-
(excellent)" for financial strength by A.M. Best Company, which is fourth
highest of fifteen rating levels, "A (strong)" for financial strength by Fitch
Ratings, which is third highest of twelve rating levels, "A3 (good)" for
financial strength by Moody's, which is seventh highest of twenty-one rating
levels, and "A- (strong)" for financial strength by Standard & Poor's, which is
seventh highest of twenty-one rating levels. World-Wide Reassurance is rated "A-
(excellent)" for financial strength by A.M. Best, which is fourth highest of
fifteen rating levels, "A (strong)" for financial strength by Fitch, which is
third highest of twelve rating levels and "A- (strong)" for financial strength
by Standard & Poor's, which is sixth highest of twenty-one rating levels. The
objective of ratings organizations is to provide an opinion of an insurer's
financial strength and ability to meet ongoing obligations to its policyholders.
These ratings are subject to periodic review by the relevant rating agency and
may be revised downward or withdrawn at the sole discretion of the rating
agency. In addition, these ratings are not an evaluation directed to investors
in our ordinary shares and are not recommendations to buy, sell or hold our
ordinary shares. Although since our formation in 1998, none of our operating
subsidiaries has been downgraded, a downgrade in or withdrawal of one or more
ratings of any one of our insurance subsidiaries could adversely affect its
ability to sell products, retain existing business, and compete for attractive
acquisition opportunities.

INADEQUATE RISK ANALYSIS AND UNDERWRITING MAY RESULT IN A DECLINE IN OUR PROFITS

Our success depends on our ability to accurately assess and manage the risks
associated with the business that we reinsure. We have developed risk analysis
and underwriting guidelines, policies, and procedures with the objective of
controlling the quality of the business as well as the pricing of the risk we
are assuming. Among other things, these processes rely heavily on our
underwriting, our analysis of mortality trends and lapse rates, and our
understanding of medical improvements and their impact on mortality. If these
processes are inadequate or are based on inadequate information, we may not
establish appropriate premium rates and our reserves may not be adequate to
cover our losses. In addition, we are dependent on the original underwriting
decisions made by, and information provided to us by, ceding companies. We are
subject to the risk that the ceding clients may not have adequately evaluated
the risks to be reinsured and that the premiums ceded may not adequately
compensate us for the risks we assume. To the extent actual claims exceed our
underlying assumptions, we will be required to increase our liabilities, which
will reduce our profits in the period in which we identify the deficiency. We
are also subject to similar risks relating to World-Wide Reassurance's business
because information provided to World-Wide Reassurance by ceding companies in
certain non-U.S. jurisdictions may be less comprehensive than information
provided by ceding companies in the United States.

Reserves are estimates based on actuarial and statistical projections at a
given point in time of what we ultimately expect to pay out on claims and
benefits, based on facts and circumstances then

18

known, predictions of future events, estimates of future trends in mortality,
morbidity and other variable factors such as persistency, inflation and
interests rates. Because of the many assumptions and estimates involved in
establishing reserves, the reserving process is inherently uncertain.

Our estimation of reserves may be less reliable than the reserve estimations
of a reinsurer with a greater volume of business and more established loss
history. Actual losses and benefits may deviate, perhaps substantially, from
estimates of reserves contained in our financial statements and could at times
exceed our reserves If our losses and benefits exceed our reserves, our earnings
may significantly decline.

OUR LIFE REINSURANCE CONTRACTS AND VARIABLE LIFE INSURANCE POLICIES EXPOSE US TO
MORTALITY RISK.

Adverse mortality risk is the risk that death claims may differ from the
amount we assumed in pricing our reinsurance contracts and our variable life
insurance policies. Mortality experience that is less favorable than the
mortality rates that we assumed will negatively affect our net income.

Our variable life insurance policies, which provide a death benefit, are
purchased by a relatively small group of high net worth individuals. Our risk
exposure is greater with a narrow risk pool having a small number of high net
worth individuals because this group is a subset of the general population.
Additionally, our risk exposure is higher because we retain an average coverage
per life of $168,728 on these policies, as opposed to an average coverage per
life in our life reinsurance contracts of $35,000.

Additionally, we are a relatively new company and many of our competitors
for reinsurance contracts and variable life insurance policies are significantly
larger, have larger operating histories and a broader risk pool. As a
consequence, our associated mortality risk exposure is likely to be greater in
the aggregate, and its probability of loss less predictable, than that of a
competitor with a broader risk pool. Furthermore, with mortality exposure, even
if the total benefits paid over the life of the contract do not exceed the
expected amount, sporadic timing of deaths can cause us to pay more benefits in
a given accounting period than expected, adversely impacting short-term
profitability in any particular quarter or year.

IF OUR INVESTMENT STRATEGY IS NOT SUCCESSFUL, WE COULD SUFFER UNEXPECTED LOSSES.

The success of our investment strategy is crucial to the success of our
business. Specifically, we are subject to:

- market value risk, which is the risk that our invested assets will
decrease in value. This decrease in value may be due to a change in the
yields realized on our assets and prevailing market yields for similar
assets, an unfavorable change in the liquidity of the investment or an
unfavorable change in the financial prospects or a downgrade in the credit
rating of the issuer of the investment;

- reinvestment risk, which is the risk that interest rates will decline and
funds reinvested will earn less than expected; and

- liquidity risk, which is the risk that liabilities are surrendered or
mature sooner than anticipated and that we may have to sell assets at an
undesirable time to provide for policyholder surrenders or withdrawals.

We attempt to address such risks in product pricing and in establishing
policy reserves. If our assets do not properly match our anticipated liabilities
or our investments do not provide sufficient returns to enable us to satisfy our
guaranteed fixed benefit obligations then our profits and financial condition
would deteriorate.

19

In addition, our investment portfolio includes mortgage-backed securities,
known as MBSs, and collateralized mortgage obligations, known as CMOs. As of
December 31, 2002, MBSs and CMOs constituted approximately 15.6% of our invested
assets. As with other fixed income investments, the fair value of these
securities fluctuates depending on market and other general economic conditions
and the interest rate environment. Changes in interest rates can expose us to
prepayment risks on these investments. In periods of declining interest rates,
mortgage prepayments generally increase and MBSs and CMOs are prepaid more
quickly, requiring us to reinvest the proceeds at the then current market rates.

Although we have not done so in the past, we may also enter into foreign
currency, interest rate and credit derivatives and other hedging transactions in
an effort to manage risks. Structuring these derivatives and hedges so as to
effectively manage these risks is an inherently uncertain process. If our
calculations are incorrect, or if we do not properly structure our derivatives
or hedges, we may have unexpected losses and our assets may not be adequate to
meet our needed reserves, which could adversely affect our business, earnings
and financial condition.

General economic conditions affect the markets for interest-rate-sensitive
securities, including the level and volatility of interest rates and the extent
and timing of investor participation in such markets. Unexpected changes in
general economic conditions could create volatility or illiquidity in these
markets in which we hold positions and harm our investment return.

IN CERTAIN REINSURANCE CONTRACTS WE DO NOT MAINTAIN CONTROL OF THE INVESTED
ASSETS, WHICH MAY LIMIT OUR ABILITY TO CONTROL INVESTMENT RISKS ON THESE ASSETS
AND MAY EXPOSE US TO CREDIT RISK OF THE CEDING COMPANY.

As part of our business we enter into reinsurance agreements on a modified
coinsurance basis. In these transactions, the ceding insurance company retains
the assets supporting the ceded business and manages them for our account. As of
December 31, 2002, $1.1 billion of assets were held by ceding companies under
modified coinsurance agreements and were recorded under "funds withheld at
interest" on our balance sheet. Although the ceding company must adhere to
general standards agreed to by us for the management of these assets, we do not
control the selection of the specific investments or the timing of the purchase
or sale of investments made by the ceding company. Accordingly, we may be at
risk if the ceding company selects investments that deviate from our agreed
standards or if the ceding company performs poorly in the purchase, sale and
management of those assets. In addition, these assets are not segregated from
the ceding company's other assets, and we may not be able to recover all of
these assets in the event of the insolvency of the ceding insurer. In certain
other reinsurance arrangements, we may place assets in a trust in order to
provide the ceding company with credit for reinsurance on its financial
statements. Although we generally have the right to direct the investment of
assets in these trusts, in the event of the insolvency of the ceding company,
its receiver may attempt to take control of those assets.

INTEREST RATE FLUCTUATIONS COULD LOWER THE INCOME WE DERIVE FROM THE DIFFERENCE
BETWEEN THE INTEREST RATES WE EARN ON OUR INVESTMENTS AND INTEREST WE PAY UNDER
OUR REINSURANCE CONTRACTS.

Significant changes in interest rates expose us to the risk of not earning
income or experiencing losses based on the difference between the interest rates
earned on investments and the credited interest rates paid on outstanding
reinsurance contracts.

Both rising and declining interest rates can negatively affect the income we
derive from these interest rate spreads. During periods of falling interest
rates, our investment earnings will be lower because new investments in fixed
maturity securities will likely bear lower interest rates. We may not be able to
fully offset the decline in investment earnings with lower crediting rates on
our contracts that reinsure life insurance policies or annuities with cash value
components. During periods of rising

20

interest rates, we may be contractually obligated to increase the crediting
rates on our contracts that reinsure life insurance policies or annuities with
cash value components. We may not, however, have the ability to immediately
acquire investments with interest rates sufficient to offset the increased
crediting rates under our reinsurance contracts. Although we develop and
maintain asset/liability management programs and procedures designed to reduce
the volatility of our income when interest rates are rising or falling,
significant changes in interest rates caused by factors beyond our control such
as changes in governmental monetary policy or political conditions may
negatively affect our interest rate spreads.

Changes in interest rates may also affect our business in other ways. Lower
interest rates may result in lower sales of certain insurance and investment
products of our customers, which would reduce the demand for our reinsurance of
these products.

THE FEE INCOME WE EARN FROM OUR VARIABLE LIFE INSURANCE AND VARIABLE ANNUITY
BUSINESS CAN BE REDUCED BY DECREASES IN THE LEVEL OF ASSETS MAINTAINED IN
SEPARATE ACCOUNTS.

In our variable life insurance and variable annuity business, we generate
revenues from fees that are charged as a percentage of the assets in the
separate accounts supporting these policies. The level of assets in the separate
accounts depends, in part, on the performance of the underlying investments,
early withdrawals and death claims. If the asset values in these accounts
decline, our fee income from this business will be reduced. Fee income on
variable annuity business represented 1.1%, 2.6% and 2.6% of total revenues in
2002, 2001 and 2000, respectively.

A PROLONGED ECONOMIC DOWNTURN COULD REDUCE THE DEMAND FOR ANNUITY AND LIFE
INSURANCE PRODUCTS, WHICH COULD SUBSTANTIALLY REDUCE OUR REVENUES.

A prolonged general economic downturn or poor performance of the equity and
other capital markets, such as the U.S. economy has recently experienced, or
similar conditions in the future, could lower the demand for many annuity and
life insurance products. Because we obtain substantially all of our revenues
through reinsurance arrangements that cover a portfolio of life insurance
products, as well as annuities, our business would be harmed if the demand for
annuities or life insurance decreased.

POLICYHOLDER WITHDRAWALS OR RECAPTURES OF REINSURANCE TREATIES COULD FORCE US TO
SELL INVESTMENTS AT A LOSS AND TAKE A LARGER THAN ANTICIPATED CHARGE FOR
AMORTIZATION OF DEFERRED ACQUISITION COSTS.

Some of the products offered by our insurance subsidiaries and some of the
products offered by primary insurance companies that we reinsure allow
policyholders and contract holders to withdraw their funds under defined
circumstances. In addition, our reinsurance agreements may provide for recapture
rights on the part of our insurance company customers. Recapture rights permit
these customers to reassume all or a portion of the risk formerly ceded to us
after an agreed upon time, usually 10 years, subject to various conditions or
upon a downgrade of any of our financial strength ratings or our failure to
satisfy other financial conditions. Recapture of business previously ceded does
not affect premiums ceded prior to the recapture, but may result in immediate
payments to our insurance company customers.

In addition, when we issue a new insurance policy or annuity contract or
write a reinsurance contract, we defer a portion of the related acquisition
costs by establishing a deferred acquisition cost asset on the balance sheet.
This asset is amortized over the expected term of the acquired business based on
certain assumptions about the performance and persistency of that business and
investment experience. To the extent surrender, withdrawal or recapture activity
is greater than we assumed, or investment experience is worse than we assumed we
may incur a non-cash charge to write down the deferred acquisition cost asset.
Any such charge may be partially offset by recapture and surrender fees.

21

One of our customers exercised a right of recapture in April 2001, requiring
us to pay $185.7 million to the customer. Because we had expected the recapture,
we did not have to dispose of assets at a loss and we had already fully
amortized the deferred acquisition costs. In December 2002, another of our
customers exercised a right of recapture requiring us to pay $49.3 million to
the customer. We did not have to dispose of assets at a loss and we recovered
all the unamortized deferred acquisition costs relating to the transaction.
However, because recapture rights can be triggered by circumstances which may be
unforeseeable, such as rating decreases or production shortfalls, we may not be
able to anticipate future recaptures and make adequate preparations to reduce
their impact on us. If recaptures occur and we do not make adequate
preparations, our earnings and financial condition could decline.

WE TAKE COUNTER-PARTY RISK WITH RESPECT TO OUR RETROCESSIONAIRES.

We cede some of the business that we reinsure to other reinsurance
companies, known as retrocessionaires. We assume the risk that the
retrocessionaire will be unable to pay amounts due to us because of its own
financial difficulties. The failure of our retrocessionaires to pay amounts due
to us will not absolve us of our responsibility to pay ceding companies for
risks that we reinsure. Failure of retrocessionaires to pay us could materially
harm our business, results of operations and financial condition.

RECENT TERRORIST ATTACKS AND RELATED EVENTS MAY ADVERSELY AFFECT OUR BUSINESS
AND RESULTS OF OPERATIONS.

The recent terrorist attacks on the United States and ensuing events, or any
future attacks, may have a negative impact on our business and results of
operations due to the loss of lives that we insure or reinsure and the impact on
the U.S. and global economies and the demand for our products. We believe that
our reinsurance programs, including our catastrophe coverage, will limit our net
losses in individual life claims relating to the September 11, 2001 terrorist
attacks to approximately $750,000. We cannot assure you, however, as to the
extent of claims development or recoverability of any such claims, particularly
in light of the magnitude and unprecedented nature of the terrorist attacks of
September 11, 2001. If there are any future terrorist attacks, we cannot assure
you that our business, financial condition or results of operations will not be
adversely affected.

ECONOMIC AND POLITICAL INSTABILITY IN DEVELOPING COUNTRIES COULD HARM OUR
BUSINESS PROSPECTS.

We conduct our business in various developing countries within Asia, Latin
America, the Middle East, North Africa and Southern and Eastern Europe. We plan
to continue to expand our business in these locations. Political and economic
instability as well as armed conflict in these countries could adversely impact
our ability to write new business originating in these countries. Such adverse
impact, if significant, could reduce our earned premiums and, accordingly, could
reduce our net income.

THE LOSS OF ANY OF OUR KEY EMPLOYEES OR OUR INABILITY TO RETAIN THEM COULD
NEGATIVELY IMPACT OUR BUSINESS.

Our success substantially depends upon our ability to attract and retain
qualified employees and upon the ability of our senior management and other key
employees to implement our business strategy. We believe there are only a
limited number of available qualified executives in the business lines in which
we compete. We rely substantially upon the services of Michael C. French, our
Chief Executive Officer, Scott E. Willkomm, our President, Elizabeth A. Murphy,
our Chief Financial Officer, Oscar R. Scofield, the Chief Executive Officer of
Scottish Re (U.S.), Inc., Thomas A. McAvity, Jr., our Chief Investment Officer,
J. Clay Moye, the President of Scottish Re (U.S.), Inc. and Clifford J. Wagner,
our Chief Actuary. Each of the foregoing members of senior management have
employment agreements and we maintain $5,000,000 key man life insurance policies
for each of Mr. French, Mr. Willkomm, Ms. Murphy and Mr. Scofield. We are not
aware of any planned departures of any of

22

our senior management. We believe we have been successful in attracting and
retaining key personnel since our inception. The loss of the services of members
of our senior management, or our inability to hire and retain other talented
personnel from the very limited pool of qualified insurance professionals, could
delay or prevent us from fully implementing our business strategy which could
harm our financial performance.

WE ARE EXPOSED TO FOREIGN CURRENCY RISK.

Our functional currency is the United States dollar. However, our U.K.
subsidiaries, World-Wide Holdings and World-Wide Reassurance, maintain a part of
their investment portfolio and operating expense accounts in British pounds and
receive other currencies in payment of premiums. All of World-Wide Reassurance's
original U.S. business is settled in United States dollars, all Canadian and
certain Asia and Middle East business is converted and settled in United States
dollars, and all other currencies are converted and settled in British pounds.
The results of the business in British pounds are then translated to United
States dollars. World-Wide Reassurance attempts to limit substantial exposures
to foreign currency risk, but does not actively manage currency risks. To the
extent our foreign currency exposure is not properly managed or otherwise
hedged, we may experience exchange losses, which in turn would lower our results
of operations and harm our financial condition.

OUR INSURANCE SUBSIDIARIES ARE HIGHLY REGULATED, AND CHANGES IN THESE
REGULATIONS COULD HARM OUR BUSINESS.

Our insurance and reinsurance subsidiaries are subject to government
regulation in each of the jurisdictions in which they are licensed or authorized
to do business. Governmental agencies have broad administrative power to
regulate many aspects of the insurance business, which may include trade and
claim practices, accounting methods, premium rates, marketing practices,
advertising, policy forms, and capital adequacy. These agencies are concerned
primarily with the protection of policyholders rather than shareholders.
Moreover, insurance laws and regulations, among other things:

- establish solvency requirements, including minimum reserves and capital
and surplus requirements;

- limit the amount of dividends, tax distributions, intercompany loans and
other payments our insurance subsidiaries can make without prior
regulatory approval;

- impose restrictions on the amount and type of investments we may hold; and

- require assessments to pay claims of insolvent insurance companies.

The National Association of Insurance Commissioners, which we call the NAIC,
continuously examines existing laws and regulations. We cannot predict the
effect that any NAIC recommendations or proposed or future legislation or rule
making in the United States or elsewhere may have on our financial condition or
operations.

If Scottish Annuity & Life or any of our subsidiaries were to become subject
to the laws of a new jurisdiction where Scottish Annuity & Life or that
subsidiary is not presently admitted, they may not be in compliance with the
laws of the new jurisdiction. Any failure to comply with applicable laws could
result in the imposition of significant restrictions on our ability to do
business, and could also result in fines and other sanctions, any or all of
which could harm our financial results and operations.

LIFE REINSURANCE AND WEALTH MANAGEMENT ARE HIGHLY COMPETITIVE INDUSTRIES, WHICH
COULD LIMIT OUR ABILITY TO GAIN OR MAINTAIN OUR COMPETITIVE POSITION.

The life reinsurance industry is highly competitive, and we encounter
significant competition from other reinsurance companies, as well as competition
from other providers of financial services.

23

Competition in the reinsurance business is based on price, financial strength
ratings, reputation, experience, relationships and service. Many of our
competitors are significantly larger, have greater financial resources and have
longer operating histories than we do. Competition from other reinsurers could
adversely affect our competitive position. We consider our major competitors to
include Swiss Re, Reinsurance Group of America Inc., Munich American Reassurance
Company, ING Reinsurance, Transamerica Reinsurance and Employers Reinsurance
Corporation.

The wealth management business is also highly competitive. Our wealth
management products primarily compete with those issued by insurance companies.
To the extent that our products provide for management of the underlying
separate accounts by independent investment managers, our products compete with
mutual funds and other investment or savings vehicles. Many companies offering
these products are significantly larger, have longer operating histories, have
more extensive distribution capability and have access to greater financial and
other resources than we do.

OUR ABILITY TO PAY DIVIDENDS IS LIMITED.

We are a holding company, with our principal assets consisting of the stock
of our insurance company subsidiaries. Our ability to pay dividends on the
ordinary shares depends significantly on the ability of our insurance company
subsidiaries, our principal sources of cash flow, to declare and distribute
dividends or to advance money to us in the form of intercompany loans. Our
insurance company subsidiaries are subject to various state and foreign
government statutory and regulatory restrictions, applicable to insurance
companies generally, that limit the amount of cash dividends, loans and advances
that those subsidiaries may pay to us. If insurance regulators at any time
determine that payment of a dividend or any other payment to an affiliate would
be detrimental to an insurance subsidiary's policyholders or creditors, because
of the financial condition of the insurance subsidiary or otherwise, the
regulators may block dividends or other payments to affiliates that would
otherwise be permitted without prior approval.

OUR ORDINARY SHARES ARE SUBJECT TO VOTING AND TRANSFER LIMITATIONS.

Under our articles of association, our board of directors (or its designee)
is required to decline to register any transfer of shares, including ordinary
shares, if our directors 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 our shares, except
that Pacific Life, Pacific Mutual Holding Company, Pacific Life Corp and/or any
direct or indirect wholly-owned subsidiary of Pacific Mutual Holding Company,
each of which we call a Pacific Life Entity, are permitted to transfer ordinary
shares to other Pacific Life Entities, so long as the number of shares
beneficially owned directly or indirectly by the Pacific Life Entities in the
aggregate does not exceed 24.9% of the ordinary shares. Similar restrictions
apply to issuances and repurchases of shares by us. Our 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 us, our subsidiaries or shareholders or any person insured or reinsured
or proposing to be insured or reinsured by us 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, under any state "blue
sky" or other U.S. securities laws or under the laws of any other jurisdiction
is required and such registration has not been duly effected. A transferor of
ordinary shares will be deemed to own such shares for dividend, voting and
reporting purposes until a transfer of such ordinary shares has been registered
on our register of members. We are authorized to request information from any
holder or prospective acquiror of ordinary 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.

In addition, our articles of association generally provide that any person
(or any group of which such person is a member) other than the Pacific Life
Entities, holding directly, or by attribution, or

24

otherwise beneficially owning our voting shares carrying 10% or more of the
total voting rights attached to all of our outstanding voting 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. In addition,
in the event the Pacific Life Entities hold directly or by attribution or
otherwise beneficially own voting shares with more than 24.9% of the total
voting rights of our voting shares, the voting rights of the Pacific Life
Entities will be reduced so that they may not exercise in the aggregate more
than approximately 24.9% of the total voting rights of our voting shares at any
given time. Because of the attribution provisions of the Code and the rules of
the SEC 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 our voting shares.
Further, our board of directors (or its designee) has 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 our board of
directors (or its designee) discretion to disregard all votes attached to such
shareholder's ordinary shares.

OUR ARTICLES OF ASSOCIATION MAKE IT DIFFICULT TO REPLACE DIRECTORS AND TO EFFECT
A CHANGE OF CONTROL; A LARGE SHAREHOLDER MAY HAVE SIGNIFICANT INFLUENCE OVER
POTENTIAL CHANGE IN CONTROL TRANSACTIONS.

Our articles of association contain certain provisions that make it more
difficult for the shareholders to replace directors even if the shareholders
consider it beneficial to do so. In addition, these provisions may make more
difficult the acquisition of control of Scottish Annuity & Life by means of a
tender offer, open market purchase, a proxy fight or otherwise, including by
reason of the limitation on transfers of ordinary shares and voting rights
described above. While these provisions are designed to encourage persons
seeking to acquire control to negotiate with our board of directors, they could
have the effect of discouraging a prospective purchaser from making a tender
offer or otherwise attempting to obtain control and may prevent a shareholder
from receiving the benefit from any premium over the market price of our
ordinary shares offered by a bidder in a potential takeover.

Examples of provisions in our articles of association that could have such
an effect include:

- election of our directors is staggered, meaning that the members of only
one of three classes of our directors are elected each year;

- the total voting power of any shareholder owning 10% or more of the total
voting rights attached to our ordinary shares will be reduced to
approximately 9.9% of the total voting rights of our ordinary shares;

- our directors must decline to register the transfer of ordinary shares on
our share register that would result in a person owning 10% or more of any
class of our shares and may decline certain transfers that they believe
may have adverse tax or regulatory consequences;

- shareholders do not have the right to act by written consent; and

- our directors have the ability to change the size of the board of
directors.

Pacific Life owns approximately 16.8% of our outstanding ordinary shares. In
addition, pursuant to a stockholder agreement, Pacific Life has the right to
nominate two persons for election to our board of directors so long as Pacific
Life and its affiliates own at least 15% of our outstanding ordinary shares and
one such person so long as they own at least 10%. Pacific Life's share ownership
and ability to nominate persons for election to our board of directors might
provide Pacific Life with significant influence over potential change in control
transactions.

Even in the absence of an attempt to effect a change in management or a
takeover attempt, these provisions may adversely affect the prevailing market
price of our ordinary shares if they are viewed as discouraging changes in
management and takeover attempts in the future.

25

APPLICABLE INSURANCE LAWS MAKE IT DIFFICULT TO AFFECT A CHANGE OF CONTROL.

Under applicable Delaware insurance laws and regulations, no person may
acquire control of Scottish Annuity & Life or Scottish Re (U.S.), Inc., our
Delaware insurance subsidiary, unless that person has filed a statement
containing specified information with the Delaware Insurance Commissioner and
approval for such acquisition is obtained. Under applicable laws and
regulations, any person acquiring, directly by stock ownership or indirectly (by
revocable proxy or otherwise), 10% or more of the voting stock of any other
person is presumed to have acquired control of such person, and a person who
beneficially acquires 10% or more of our ordinary shares without obtaining the
approval of the Delaware Insurance Commissioner would be in violation of
Delaware's insurance holding company act and would be subject to injunctive
action requiring disposition or seizure of the shares and prohibiting the voting
of such shares, as well as other action determined by the Delaware Insurance
Commissioner.

In addition, many state insurance laws require prior notification to the
state insurance department of a change in control of a non-domiciliary insurance
company licensed to transact insurance in that state. While these
pre-notification statutes do not authorize the state insurance departments to
disapprove the change in control, they authorize regulatory action in the
affected state if particular conditions exist such as undue market
concentration. Any future transactions that would constitute a change in control
of us or Scottish Re (U.S.), Inc. may require prior notification in the states
that have pre-acquisition notification laws.

Any change in control of World-Wide Reassurance would need the approval of
the UK Financial Services Authority which is the body responsible for the
regulation and supervision of the UK insurance and reinsurance industry.

THE MARKET PRICE OF OUR ORDINARY SHARES COULD DECREASE DUE TO THE SIGNIFICANT
NUMBER OF SHARES ELIGIBLE FOR FUTURE SALE.

As of March 17, 2003, we had 26,944,290 ordinary shares outstanding,
4,532,380 of which were held by Pacific Life and not registered under the
Securities Act. In addition, we had options outstanding to purchase an aggregate
of 3,366,269 ordinary shares, Class A and Class B warrants to purchase an
aggregate of 3,050,000 ordinary shares and 5,297,098 ordinary shares are
issuable upon conversion of the Senior Convertible Notes. Both Pacific Life and
the holders of our Class A and Class B warrants have the right to demand
registration of their ordinary shares for sale under the Securities Act of 1933,
which we refer to as the Securities Act, and to piggyback onto any registration
initiated by us or another holder. Pacific Life and all of the holders of the
Class A and Class B warrants have exercised their piggyback registration rights
with respect to a shelf registration statement which was filed on January 31,
2003.

As of December 31, 2002, we had outstanding $115.0 million of 4.50% Senior
Convertible Notes due December 1, 2022. The notes were privately offered to
qualified institutional buyers and are convertible, at the option of the
holders, upon the occurrence of certain specified events, into our ordinary
shares at an initial conversion price of $21.71 per ordinary share, subject to
adjustment in certain circumstances.

As part of the note offering we agreed to file a registration statement to
register the underlying ordinary shares. As part of this registration, the
holders of the Class A and Class B warrants, Pacific Life and certain other
shareholders demanded piggyback registration rights. On January 31, 2003 we
filed the registration statement, as amended by Amendment No. 1 which was filed
on March 12, 2003, registering the ordinary shares underlying the convertible
notes, Class A and Class B warrants and the ordinary shares held by Pacific
Life.

26

We cannot predict the effect, if any, that future sales of our ordinary
shares, or the availability of ordinary shares for future sale, will have on the
market price of the ordinary shares prevailing from time to time. Sales of
substantial amounts of ordinary shares in the public market following the
offering, or the perception that such sales could occur, could lower the market
price of our ordinary shares and may make it more difficult for us to sell our
equity securities in the future at a time and at a price which we deem
appropriate. If the persons holding the Class A warrants, Class B warrants or
options cause a large number of the ordinary shares underlying such securities
to be sold in the market, or if Pacific Life were to sell a large number of
their ordinary shares, or if the convertible holders were able to convert to our
ordinary shares and then sell those ordinary shares, such sales could cause a
decline in the market price for the ordinary shares.

INVESTORS MAY HAVE DIFFICULTIES IN SUING OR ENFORCING JUDGMENTS AGAINST US IN
THE UNITED STATES.

Scottish Annuity & Life is a holding company organized under the laws of the
Cayman Islands with its principal executive office in Bermuda. Certain of our
directors and officers are residents of various jurisdictions outside the United
States. All or a substantial portion of our assets and those of such directors
and officers, at any one time, are or may be located in jurisdictions outside
the United States. Although we have irrevocably agreed that we may be served
with process in New York, New York with respect to actions arising out of or in
connection with violations of United States Federal securities laws relating to
offers and sales of ordinary shares made hereby, it could be difficult for
investors to effect service of process within the United States on our directors
and officers who reside outside the United States or to recover against us or
such directors and officers on judgments of United States courts predicated upon
the civil liability provisions of the United States federal securities laws.

RISKS RELATED TO TAXATION

IF THE CURRENT U.S. TAX TREATMENT OF LIFE INSURANCE AND ANNUITY PRODUCTS IS
SIGNIFICANTLY CHANGED, OR IF OTHER INVESTMENTS ARE AFFORDED MORE FAVORABLE TAX
TREATMENT THAN UNDER CURRENT LAW, THE MARKET FOR OUR LIFE INSURANCE, ANNUITY OR
REINSURANCE PRODUCTS COULD SUFFER AS A RESULT.

The market for many annuity and variable life insurance products for persons
subject to U.S. federal income tax is based in large part on the favorable tax
treatment these products receive relative to certain other financial products.
Any material change in such tax treatment, such as the imposition of a "flat
tax" or a national sales tax in lieu of the current U.S. federal income tax
structure, the repeal of the estate tax, or the taxation of the "inside
build-up" of life insurance or annuity contracts, could significantly reduce the
market for our annuity, life insurance, and reinsurance products.

IF WE ARE DETERMINED TO BE CONDUCTING BUSINESS IN THE UNITED STATES, WE COULD BE
LIABLE FOR U.S FEDERAL INCOME TAXES.

Scottish Annuity & Life is a holding company organized under the laws of the
Cayman Islands with its principal executive office in Bermuda. Scottish
Annuity & Life and its non-U.S. subsidiaries believe they have operated and
intend to continue operating in a manner such that neither Scottish Annuity &
Life nor any of its non-U.S. subsidiaries will be treated as engaging in a trade
or business in the United States and thus will not be subject to U.S. federal
income taxation on net income. Because there are no definitive standards
provided by the Code, regulations or court decisions as to which activities
constitute being engaged in the conduct of a trade or business within the United
States and as the determination is essentially factual in nature, the United
States Internal Revenue Service (which we refer to as the IRS) could contend
that Scottish Annuity & Life or one or more of its non-U.S. subsidiaries, are
engaged in a trade or business in the United States for U.S. federal income tax
purposes, and thus may be subject to U.S. federal income tax and "branch
profits" tax on net income.

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The highest marginal federal income tax rates currently are 35% for a
corporation's income that is effectively connected with a U.S. trade or business
and 30% for the "branch profits" tax.

IF WE ARE TREATED AS A CONTROLLED FOREIGN CORPORATION, A PASSIVE FOREIGN
INVESTMENT COMPANY OR IF WE GENERATE MORE THAN A PERMISSIBLE AMOUNT OF RELATED
PERSON INSURANCE INCOME, US PERSONS WHO OWN OUR ORDINARY SHARES MAY BE SUBJECT
TO U.S. FEDERAL INCOME TAXATION ON OUR UNDISTRIBUTED EARNINGS AND MAY RECOGNIZE
ORDINARY INCOME UPON DISPOSITION OF OUR ORDINARY SHARES.

We believe that we were not a controlled foreign corporation, passive
foreign investment company nor have we generated an impermissible amount of
related person insurance income for the year ended December 31, 2002, nor do we
expect to be a controlled foreign corporation, passive foreign investment
company or generate an impermissible amount of related person insurance income
for the current year. Our shareholders who are U.S. persons may be required to
include in gross income for U.S. federal income tax purposes our undistributed
earnings if we are treated as a controlled foreign corporation, a passive
foreign investment company, or if we have generated more than a permissible
amount of related person insurance income. In addition, in certain cases gain on
the disposition of our ordinary shares may be treated as ordinary income.

CONTROLLED FOREIGN CORPORATION. Each U.S. 10% shareholder of a controlled
foreign corporation on the last day of the controlled foreign corporation's
taxable year generally must include in gross income for U.S. federal income tax
purposes such shareholder's pro-rata share of the controlled foreign
corporation's subpart F income, even if the subpart F income has not been
distributed. For purposes of this discussion, the term "U.S. 10% shareholder"
includes only persons who, directly or indirectly (or through the application of
certain "constructive" ownership rules), own 10% or more of the total combined
voting power of all class of stock of the foreign corporation. In general, a
non-U.S. insurance company is treated as a controlled foreign corporation only
if such U.S. 10% shareholders collectively own more than 25% of the total
combined voting power or total value of the company's capital stock for an
uninterrupted period of 30 days or more during any year. At the present time,
the Pacific Life Entities own approximately 16.8% (and are permitted to own up
to 24.9%) of our ordinary shares and, as such, are U.S. 10% shareholders. If any
other U.S. person acquires 10% or more of our ordinary shares, Scottish
Annuity & Life would be treated as a controlled foreign corporation. In order to
prevent Scottish Annuity & Life or any of its non-U.S. subsidiaries from being
treated as a controlled foreign corporation, our articles of association
prohibit the ownership by any person of shares that would equal or exceed 10%
(or that would exceed 24.9% in the case of the Pacific Life Entities) of any
class of the issued and outstanding Scottish Annuity & Life shares and provide a
"voting cutback" that would, in certain circumstances, reduce the voting power
with respect to Scottish Annuity & Life shares to the extent necessary to
prevent the Pacific Life Entities from owning more than 24.9% of the voting
power of Scottish Annuity & Life, and any other shareholder owning more than
9.9% of the voting power of Scottish Annuity & Life. We believe, based upon
information made available to us and to LeBoeuf, Lamb, Greene & MacRae, L.L.P.
regarding our existing shareholder base and upon the advice of LeBoeuf, Lamb,
Greene & MacRae, L.L.P., that the dispersion of our share ownership (other than
with respect to the Pacific Life Entities) and the provisions of our articles of
association restricting the transfer, issuance and voting power of our ordinary
shares should prevent any person (other than the Pacific Life Entities) from
becoming a U.S. 10% shareholder of Scottish Annuity & Life and/or its non-U.S.
subsidiaries, however, some of these provisions have not been directly passed on
by the IRS, or by any court, in this context. If, in addition to the Pacific
Life Entities, a U.S. person were to become a U.S. 10% shareholder of Scottish
Annuity & Life and/or its non-U.S. subsidiaries in the future the share
ownership of such person together with that of the Pacific Life Entities would
cause Scottish Annuity & Life and/or its non-U.S. subsidiaries to be treated as
controlled foreign corporations and such U.S. 10% shareholder would be required
to include in gross income its allocable share of Subpart F income of Scottish
Annuity & Life and/or its non-U.S. insurance subsidiaries.

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RELATED PERSON INSURANCE INCOME. If Scottish Annuity & Life's related
person insurance income determined on a gross basis were to equal or exceed 20%
of its gross insurance income in any taxable year, direct or indirect insureds
and persons related to such insureds were directly or indirectly to own 20% or
more of the voting power or value of Scottish Annuity & Life's capital stock,
and U.S. persons directly or indirectly own collectively 25% or more of our
ordinary shares (without regard to whether any U.S. person is a U.S. 10%
shareholder), such U.S. persons who own our ordinary shares on the last day of
the taxable year would be required to include the U.S. person's pro-rata share
of Scottish Annuity & Life's related person insurance income for the taxable
year in his or her gross income for U.S. federal income tax purposes, determined
as if such related person insurance income were distributed proportionately to
such U.S. person at that date. Related person insurance income is generally
underwriting premium and related investment income attributable to insurance or
reinsurance policies when the direct or indirect insureds are direct or indirect
U.S. shareholders or are related to such direct or indirect U.S. shareholders.
Although Pacific Life is currently a U.S. person that is considered to own
indirectly more than 20% of the voting power and value of one of two companies
that provide it with reinsurance, World-Wide Holdings Reassurance, a wholly
owned indirect subsidiary of Scottish Annuity & Life, we do not believe that the
20% gross insurance income threshold has been met. We cannot assure you,
however, that If this is not, or will not continue to be, the case, a person who
is a direct or indirect U.S. shareholder would be required to include such
person's pro rata share of Scottish Annuity & Life's related person insurance
income for this taxable year.

DISPOSITIONS OF OUR ORDINARY SHARES. If we are considered to be a
controlled foreign corporation, any gain from the sale or exchange by a U.S. 10%
shareholder of our ordinary shares may be treated as ordinary income to the
extent of our earnings and profits during the period that such shareholder held
our shares (with certain adjustments).

If we are considered to have related person insurance income and U.S.
persons in the aggregate (without regard to whether any such shareholder is a
U.S. 10% shareholder) own 25% or more of the voting power or value of our
ordinary shares, any gain from the disposition by a U.S. shareholder of our
ordinary shares will generally be treated as ordinary income to the extent of
such U.S. shareholder's portion of the corporation's undistributed earnings and
profits that were accumulated during the period that the U.S. shareholder owned
the shares. In addition, such U.S. shareholder will be required to comply with
certain reporting requirements, regardless of the amount of shares owned
directly or indirectly. However, because Scottish Annuity & Life is not itself
directly engaged in the insurance business and because proposed U.S. Treasury
regulations applicable to this situation appear to apply only to sales of shares
of corporations that are directly engaged in the insurance business, we do not
believe that sale of Scottish Annuity & Life shares will be subject to these
rules. The IRS, however, could interpret the proposed regulations or the
proposed regulations could be promulgated in final form, in a manner that would
cause these rules to apply to dispositions of our ordinary shares.

PASSIVE FOREIGN INVESTMENT COMPANY. In order to avoid significant potential
adverse U.S. federal income tax consequences for any U.S. person who owns our
ordinary shares, we must not be subject to treatment as a passive foreign
investment company, referred to as a PFIC, in any year in which such U.S. person
is a shareholder. In general, a non-U.S. 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. Passive income does not, however, include
income derived in the active conduct of an insurance business by a corporation
that 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.
Although we believe that Scottish Annuity & Life and its non-U.S. subsidiaries,
taken as a whole, are engaged predominantly in insurance and reinsurance
activities that involve significant risk transfer and that are otherwise
activities of a type normally undertaken by insurance or reinsurance

29

companies, and do not expect to have financial reserves in excess of the
reasonable needs of their insurance businesses, it is possible that the IRS
could take the position that we are a PFIC. Although we do not believe that we
are or will be a passive foreign investment company, the IRS or a court could
concur that we are a passive foreign investment company with respect to any
given year.

IF WE ARE A CONTROLLED FOREIGN CORPORATION OR IF WE GENERATE RELATED PERSON
INSURANCE INCOME, U.S. TAX-EXEMPT ORGANIZATIONS WHO OWN OUR ORDINARY SHARES MAY
RECOGNIZE UNRELATED BUSINESS TAXABLE INCOME.

A U.S. tax-exempt organization may recognize unrelated business taxable
income if a portion of our insurance income is allocated to the organization. In
general, insurance income will be allocated to a U.S. tax-exempt organization if
either we are a controlled foreign corporation and the tax-exempt shareholder is
a U.S. 10% shareholder or there is related person insurance income and certain
exceptions do not apply. Although we do not believe that any U.S. persons will
be allocated subpart F insurance income, potential U.S. tax-exempt investors are
advised to consult their own tax advisors.

IF CHANGES IN U.S. TAX LAWS ARE RETROACTIVE, WE AND/OR U.S. PERSONS WHO OWN OUR
ORDINARY SHARES COULD BE SUBJECT TO U.S. INCOME TAXATION ON OUR UNDISTRIBUTED
EARNINGS.

The tax laws and interpretations regarding whether a company is engaged in a
U.S. trade or business, is a controlled foreign corporation, has related party
insurance income or is a passive foreign investment company are subject to
change, possibly on a retroactive basis. There are currently no regulations
regarding the application of the passive foreign investment company rules to an
insurance company and the regulations regarding related party insurance income
are still in proposed form. New regulations or pronouncements interpreting or
clarifying such rules will likely be forthcoming from the IRS. We are not able
to predict if, when or in what form such guidance will be provided and whether
such guidance will have a retroactive effect.

IF WE DO NOT RECEIVE FURTHER UNDERTAKINGS FROM THE CAYMAN ISLANDS, WE MAY BECOME
SUBJECT TO TAXES IN THE CAYMAN ISLANDS IN THE FUTURE.

Scottish Annuity & Life and our Cayman Islands subsidiaries have received
undertakings from the Governor-in-Council of the Cayman Islands pursuant to the
provisions of the Tax Concessions Law, as amended (1999 Revision), that until
the year 2018 with respect to Scottish Annuity & Life and Scottish Annuity &
Life Insurance Company (Cayman) Ltd., and until the year 2014 with respect to
The Scottish Annuity Company (Cayman) Ltd., (1) no subsequently enacted law
imposing any tax on profits, income, gains or appreciation shall apply to
Scottish Annuity & Life and its Cayman Islands subsidiaries and (2) no such tax
and no tax in the nature of an estate duty or an inheritance tax shall be
payable on any shares, debentures or other obligations of Scottish Annuity &
Life and its Cayman Islands subsidiaries We could be subject to Cayman Islands
taxes after the applicable dates.

IF BERMUDA LAW CHANGES, WE MAY BECOME SUBJECT TO TAXES IN BERMUDA IN THE FUTURE.

Bermuda currently imposes no income tax on corporations. The Bermuda
Minister of Finance, under The Exempted Undertakings Tax Protection Act 1966 of
Bermuda, has assured us that if any legislation is enacted in Bermuda that would
impose 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 will not be applicable to our Bermuda
subsidiaries until March 28, 2016. Our Bermuda subsidiaries could be subject to
Bermuda taxes after that date.

Scottish Annuity & Life recently moved its principal place of business to
Bermuda. In connection with this move, Scottish Annuity & Life received an
assurance from the Bermuda Minister of Finance

30

similar to that described above with respect to our Bermuda subsidiaries. We
could be subject to Bermuda taxes after March 28, 2016.

THE IMPACT OF LETTERS OF COMMITMENT FROM BERMUDA AND THE CAYMAN ISLANDS TO THE
ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT TO ELIMINATE HARMFUL TAX
PRACTICES MAY IMPACT US.

The Organization for Economic Cooperation and Development, which is commonly
referred to as the OECD, has published reports and launched a global dialogue
among member and non-member countries on measures to limit harmful tax
competition. These measures are largely directed at counteracting the effects of
tax havens and preferential tax regimes in countries around the world. In the
OECD's report dated June 26, 2000, Bermuda and the Cayman Islands were not
listed as tax haven jurisdictions because they had previously signed a letter
committing themselves to eliminate harmful tax practices by the end of 2005 and
to embrace international tax standards for transparency, exchange of information
and the elimination of any aspects of the regimes for financial and other
services that attract business with no substantial domestic activity. We are not
able to predict what changes will arise from the commitment or what effect such
changes will have on us.

ITEM 2: PROPERTY

We currently lease office space in Hamilton, Bermuda where our executive and
principal offices are located and in Charlotte, North Carolina, George Town,
Grand Cayman, Luxembourg, Dallas, Texas and Windsor, England. Our life
reinsurance business operates out of the Bermuda, Charlotte and Windsor offices
while our wealth management business operates out of the Grand Cayman, Dallas
and Luxembourg offices. The Luxembourg lease expires in 2003 and we are
currently seeking new office space. The Bermuda and Dallas leases expire in
2005, the Grand Cayman lease expires in 2006, the Charlotte lease expires in
2012 and the Windsor lease expires in 2023.

We believe that these properties are adequate to meet our needs for the
foreseeable future.

ITEM 3: LEGAL PROCEEDINGS

In the normal course of our business, we and our subsidiaries are
occasionally involved in litigation. The ultimate disposition of such litigation
is not expected to have a material adverse effect on our financial condition,
liquidity or results of operations.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

Scottish Annuity & Life did not submit any matter to the vote of
shareholders during the fourth quarter of 2002.

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PART II

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

MARKET FOR THE ORDINARY SHARES

The ordinary shares, par value $0.01 per share, of Scottish Annuity & Life
have been traded on the New York Stock Exchange under the symbol "SCT" since
January 23, 2002. Prior to our listing on the New York Stock Exchange our
ordinary shares were listed and traded on the Nasdaq National Market under the
symbol "SCOT" since November 24, 1998. As of December 31, 2002 our ordinary
shares were held at record by approximately 30 persons. This table shows for the
indicated periods the high and low closing sales prices per share for our
ordinary shares, as reported in The Wall Street Journal, and dividend declared
per share.

As of December 31, 2002, Scottish Annuity & Life had thirty record holders
of its ordinary shares.

Scottish Annuity & Life paid cash dividends of $0.20 per ordinary share in
each of 2002, 2001 and 2000.

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EQUITY COMPENSATION PLAN INFORMATION

RECENT SALES OF UNREGISTERED SECURITIES

On December 31, 2001, Scottish Annuity & Life completed the acquisition of
all of the issued and outstanding shares of World-Wide Holdings from Pacific
Life. As a result of the acquisition, World-Wide Holdings became a wholly owned
subsidiary of Scottish Annuity & Life, and Pacific Life received 4,532,380
ordinary shares of Scottish Annuity & Life. These shares were not registered at
that time under the Securities Act and were issued in reliance on the exemption
from registration contained in Section 4(2) of the Securities Act. Pacific Life
had the right to demand registration of their ordinary shares for sale under the
Securities Act of 1933, which we refer to as the Securities Act, and to
piggyback onto any registration initiated by us or another holder. Pacific Life
has exercised its piggyback registration rights with respect to a shelf
registration statement which was filed on January 31, 2003.

On November 22, 2002, we completed the private offering of $115.0 million of
4.5% Senior Convertible Notes due 2022 (which included the over allotment option
of $15.0 million) in which we raised aggregate net proceeds of approximately
$110.9 million. The notes were not registered at the time under the Securities
Act and were issued to qualified institutional buyers in reliance on the
exemption from registration contained in Rule 144A of the Securities Act. Under
a registration rights agreement entered into by us in connection with the
issuance of the notes, we agreed to file with the Securities and Exchange
Commission, a registration statement, for resale of the notes and our ordinary
shares issuable upon conversion of the notes. This registration statement has
been filed. We have agreed to use our reasonable best efforts to cause the shelf
registration statement to become effective within 180 days after the original
issuance of the notes.

ITEM 6: SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with the
Consolidated Financial Statements, including the related Notes, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Consolidated balance sheet data as of December 31, 2001 reflect the
acquisition of World-Wide Holdings, but consolidated statements of income data
for

33

the periods ended December 31, 2001, 2000, 1999 and 1998 do not reflect the
results of World-Wide Holdings, as the transaction was completed at the close of
business on December 31, 2001.

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

* The period from May 12, 1998 (date of incorporation) to December 31, 1998.

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

OVERVIEW

Scottish Annuity & Life is a holding company organized under the laws of the
Cayman Islands with its principal executive office in Bermuda. We are a
reinsurer of life insurance, annuities and annuity-type products. These products
are written by life insurance companies and other financial institutions located
principally in the United States, as well as around the world. We refer to this
portion of our business as Life Reinsurance North America. On December 31, 2001,
we completed the purchase of World-Wide Holdings Limited and its subsidiary
World-Wide Reassurance Company Limited. World-Wide Reassurance specializes in
niche markets in developed countries and broader life insurance markets in the
developing world. We refer to this portion of our business as Life Reinsurance
International. Life Reinsurance North America and Life Reinsurance International
together are a reportable operating segment. To a lesser extent, we directly
issue variable life insurance and variable annuities and similar products to
high net worth individuals and families for insurance, investment and estate
planning purposes. We refer to this portion of our business as Wealth
Management, which is another reportable operating segment. Other revenues and
expenses not related to Life Reinsurance or Wealth Management are reported in
the "Other" segment.

REVENUES

We derive revenue from four principal sources:

- premiums from reinsurance assumed on life business;

- fee income from our variable life insurance and variable annuity products
and from financial reinsurance transactions;

- investment income from our investment portfolio; and

- realized gains and losses from our investment portfolio.

Premiums from reinsurance assumed on life business are included in revenues
over the premium paying period of the underlying policies. When we acquire
blocks of in-force business, we account for these transactions as purchases, and
our results of operations include the net income from these blocks as of their
respective dates of acquisition. Reinsurance assumed on annuity business does
not generate premium income but generates investment income over time on the
assets we receive from the ceding company. We also earn fees in our financial
reinsurance transactions with U.S. insurance company clients. Because some of
these transactions do not satisfy the risk transfer rules for reinsurance
accounting, the premiums and benefits are not reported in the consolidated
statements of income. A deposit received on a funding agreement also does not
generate premium income but does create income to the extent we earn an
investment return in excess of our interest payment obligations thereon.

In our Wealth Management business, when we sell a variable life insurance
policy or a variable annuity contract, we charge mortality, expense and
distribution risk fees that are based on total assets in each policyholder's
separate account. In the case of variable life insurance policies, we also
charge a cost of insurance fee based on the amount necessary to cover the death
benefit under the policy.

Our investment income includes interest earned on our fixed income
investments and income from funds withheld at interest under modified
coinsurance agreements. Under GAAP, because our fixed income investments are
held as available for sale, these securities are carried at fair value, and
unrealized appreciation and depreciation on these securities is not included in
investment income on our statements of income, but is included in comprehensive
income as a separate component of shareholders' equity. Realized gains and
losses include gains and losses on investment securities that we sell during a
period and write downs of securities deemed to be other than temporarily
impaired.

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EXPENSES

We have five principal types of expenses:

- claims and policy benefits under our reinsurance contracts;

- interest credited to interest sensitive contract liabilities;

- acquisition costs and other insurance expenses;

- operating expenses; and

- interest expense.

When we issue a life reinsurance contract, we establish reserves for
benefits. These reserves are our estimates of what we expect to pay in claims
and policy benefits and related expenses under the contract or policy. From time
to time, we may change the reserves if our experience leads us to believe that
benefit claims and expenses will ultimately be greater than the existing
reserve. We report the change in these reserves as an expense during the period
when the reserve or additional reserve is established.

In connection with reinsurance of annuity and annuity-type products, we
record a liability for interest sensitive contract liabilities, which represents
the amount ultimately due to the policyholder. We credit interest to these
contracts each period at the rates determined in the underlying contract, and
the amount is reported as interest credited to interest sensitive contract
liabilities on our consolidated statements of income.

A portion of the costs of acquiring new business, such as commissions,
certain internal expenses related to our policy issuance and underwriting
departments and some variable selling expenses are capitalized. The resulting
deferred acquisition costs asset is amortized over future periods based on our
expectations as to the emergence of future gross profits from the underlying
contracts. These costs are dependent on the structure, size and type of business
written. For certain products, we may retrospectively adjust our amortization
when we revise our estimate of current or future gross profits to be realized.
The effects of this adjustment are reflected in earnings in the period in which
we revise our estimate. Operating expenses consist of salary and salary related
expenses, legal and professional fees, rent and office expenses, travel and
entertainment, directors' expenses, insurance and other similar expenses, except
to the extent capitalized in deferred acquisition costs.

Interest expense consists of interest charges on our borrowings.

FACTORS AFFECTING PROFITABILITY

We seek to generate profits from three principal sources. First, in our Life
Reinsurance business, we seek to receive reinsurance premiums and financial
reinsurance fees that, together with income from the assets in which those
premiums are invested, exceed the amounts we ultimately pay as claims and policy
benefits, acquisition costs and ceding commissions. Second, in our Wealth
Management business, we seek to generate fee income that will exceed the
expenses of maintaining and administering our variable life insurance and
variable annuity products. Third, within our investment guidelines, we seek to
maximize the return on our unallocated capital.

The following factors affect our profitability:

- the volume of business we write;

- our ability to assess and price adequately for the risks we assume;

- the mix of different types of business that we reinsure, because profits
on some kinds of business emerge later than on other types;

- our ability to manage our assets and liabilities to manage investment and
liquidity risk;

36

- the level of fees that we charge on our Wealth Management contracts; and

- our ability to control expenses.

In addition, our profits can be affected by a number of factors that are not
within our control. For example, movements in interest rates can affect the
volume of business that we write, the income earned from our investments, the
interest we credit on interest sensitive contracts, the level of surrender
activity on contracts that we reinsure and the rate at which we amortize
deferred acquisition costs. Other external factors that can affect profitability
include mortality experience that varies from our assumed mortality, changes in
regulation or tax laws which may affect the attractiveness of our products or
the costs of doing business and changes in foreign currency exchange rates.

CRITICAL ACCOUNTING POLICIES

Financial Accounting Standard 60 applies to traditional life policies with
continuing premiums. For these policies, future benefits are 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. Acquisition costs are deferred and recognized as
expense in a constant percentage of the gross premiums using these assumptions
established at issue. Should the liabilities for future policy benefits plus the
present value of expected future gross premiums for a product be 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. Changes in the
assumptions for mortality, persistency and interest could result in material
changes to the financial statements.

Financial Accounting Standard 97 applies to investment contracts, limited
premium contracts, and universal life-type contracts. For investment and
universal life-type contracts, future benefit liabilities are held using the
retrospective deposit method, increased for amounts representing unearned
revenue or refundable policy charges. Acquisition costs are deferred and
recognized as expense as a constant percentage of gross margins using
assumptions as to mortality, persistency, and expense established at policy
issue without provision for adverse deviation and are revised periodically to
reflect emerging actual experience and any material changes in expected future
experience. Liabilities and the deferral of acquisition costs are established
for limited premium policies under the same practices as used for traditional
life policies with the exception that any gross premium in excess of the net
premium is deferred and recognized into income as a constant percentage of
insurance in force. Should the liabilities for future policy benefits plus the
present value of expected future gross premiums for a product be 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. Changes in the
assumptions for mortality, persistency, maintenance expense and interest could
result in material changes to the financial statements.

The development of policy reserves and amortization of deferred acquisition
costs for our products requires management to make estimates and assumptions
regarding mortality, lapse, expense and investment experience. Such estimates
are primarily based on historical experience and information provided by ceding
companies. Actual results could differ materially from those estimates.
Management monitors actual experience, and should circumstances warrant, will
revise its assumptions and the related reserve estimates.

In 2002, we completed the acquisition of an in-force block of business. The
determination of the fair value of the assets acquired and the liabilities
assumed required management to make estimates and assumptions regarding
mortality, lapse and expenses. These estimates were based on historical
experience, actuarial studies and information provided by the ceding company.
Actual results could differ materially from these estimates.

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Present value of in-force business is established upon the acquisition of a
subsidiary and is amortized over the expected life of the business at the time
of acquisition. The amortization each year will be a function of the gross
profits or revenues each year in relation to the total gross profits or revenues
expected over the life of business, discounted at the assumed net credit rate.
The determination of the initial value and the subsequent amortization require
management to make estimates and assumptions regarding the future business
results that could differ materially from actual results. Estimates and
assumptions involved in the present value of in-force business and subsequent
amortization are similar to those necessary in the establishment of reserves and
amortization of deferred acquisition costs.

Goodwill is established upon the acquisition of a subsidiary. Goodwill is
calculated as the difference between the price paid and the value of individual
assets and liabilities on the date of acquisition. In June 2001, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets," effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives are no longer amortized but are subject
to annual impairment tests in accordance with the Statement. We applied the new
rules on accounting for goodwill during 2002. Goodwill recognized in the
consolidated balance sheet was assigned to reporting units and tested for
impairment. There was no impairment in goodwill recognized on initial adoption.
During the year we finalized the goodwill arising on the acquisition of
World-Wide Holdings. Goodwill arising on this acquisition amounts to
$35.5 million in comparison with $30.6 million at December 31, 2001. The
increase has arisen from additional legal, professional and other costs relating
to the acquisition and finalization of the deferred tax balance existing at the
date of the acquisition.

Fixed maturity investments are evaluated for other than temporary
impairments in accordance with SFAS 115 and EITF 99-20 as described in Note 2 to
the consolidated financial statements. Under these pronouncements, realized
losses are recognized on securities if the securities are determined to be other
than temporarily impaired. Factors involved in the determination of potential
impairment include fair value as compared to cost, length of time the value has
been below cost, credit worthiness of the issuer, forecasted financial
performance of the issuer, position of the security in the issuer's capital
structure, the presence and estimated value of collateral or other credit
enhancement, length of time to maturity, interest rates and our intent and
ability to hold the security until the market value recovers.

Our accounting policies addressing reserves, deferred acquisition costs,
value of business acquired, goodwill and investment impairment involve
significant assumptions, judgments and estimates. Changes in these assumptions,
judgments and estimates could create material changes in our consolidated
financial statements.

RESULTS OF OPERATIONS

Our results of operations for each of the years ended December 31, 2001 and
2000 do not include the results of operations of World-Wide Holdings, which we
acquired at the close of business on December 31, 2001.

38

EARNINGS PER SHARE

Our net income for the year ended December 31, 2002 increased 93% to
$32.5 million from $16.8 million in 2001, which was an increase of 5% from
$16.0 million in 1999. The increase in 2002 is attributable to the inclusion of
World-Wide Holdings for the first time since its acquisition, continued growth
in our Life Reinsurance North America operations, and an increase in investment
income primarily due to the increase in average invested assets. The
contribution to net income by World-Wide Holdings amounted to $12.7 million for
the year ended December 31, 2002. The increase in net income was offset in part
by an increase in realized losses on fixed maturity investments and unit-linked
securities, and by losses incurred in our Wealth Management and Other segments.
Realized losses were $11.2 million for the year ended December 31, 2002,
compared to realized losses of $3.9 million in the year ended December 31, 2001.
The losses in our Wealth Management operations arose principally from increased
commission costs, costs of establishing our Luxembourg office and severance
payments. The losses in our Other segment arose because of reductions in
investment income as we deployed more capital in the Life Reinsurance North
America segment and increased costs in the first full year of our operations in
Bermuda.

The increase in earnings in 2001 is primarily due to increased income from
Life Reinsurance and Wealth Management operations and an increase in investment
income due to the increase in average invested assets, offset in part in 2001 by
an increase in realized losses on fixed maturity investments.

Diluted earnings per share for the year ended December 31, 2002 increased
21% to $1.23 from $1.02 in 2001, and increased 2% in 2001 from $1.00 in 2000.
Diluted earnings per share increased as a result of the growth in net income
described above. This increase has occurred despite the increase in the number
of ordinary shares outstanding. The increase in the number of ordinary shares
outstanding is a result of shares issued in the acquisition of World-Wide
Holdings and the equity offering discussed in Note 15 to the consolidated
financial statements. The underlying shares of the convertible debt offering do
not increase the number of shares outstanding until the price of our ordinary
shares reaches $26.05 during specified trading periods. This did not occur in
2002. The increase in diluted earnings per share in 2001 was due to the
increased earnings plus the repurchase of 432,500 shares in

39

2000 and 100,000 shares in 2001, offset in part by the increase in the dilutive
effect of options and warrants.

Net operating earnings is a non-GAAP measurement. We determine net operating
earnings by adjusting GAAP net income for net realized capital gains and losses,
as adjusted for the related effects upon the amortization of deferred
acquisition costs, and non-recurring items that we believe are not indicative of
overall operating trends. Non-recurring items in the year ended December 31,
2002 include a charge of $904,000 relating to severance arrangements with
certain employees and in 2001 a charge of $406,000 due to the cumulative effect
of a change in accounting principle. While these items may be significant
components in understanding and assessing our consolidated financial
performance, we believe the presentation of net operating earnings enhances the
understanding of our results of operations by highlighting earnings attributable
to the normal, recurring operations of our business. However, net operating
earnings are not a substitute for net income determined in accordance with GAAP.

Net operating earnings for the year ended December 31, 2002 increased 94% to
$41.8 million from $21.6 million in the same period in 2001. The increase in net
operating earnings is primarily attributable to the inclusion of World-Wide
Holdings for the first time since its acquisition, continued growth in our Life
Reinsurance North America operations and an increase in investment income
primarily due to the increase in average invested assets. The increases have
been offset by increased costs in our Wealth Management and Other segments as
described above. Net operating earnings increased 34% to $21.6 million in 2001
from $16.2 million in 2000.

REVENUES

During the year ended December 31, 2002 revenues increased by
$184.9 million or 153% to $305.9 million in comparison with the same period in
2001. The increase is primarily due to the acquisition of World-Wide Holdings,
the growth in our Life Reinsurance North America operations and an increase in
investment income primarily due to the growth in our invested assets. The growth
in our invested assets is due to the new business and the equity and debt
offerings discussed in "Liquidity and Capital Resources". Revenues increased by
$37.1 million or 44% to $121.0 million in 2001 from $83.9 million in 2000. The
increases are primarily due to growth in our Life Reinsurance North America
operations and an increase in investment income due to the increase in our
invested assets resulting from new business, offset in part by an increase in
realized losses.

40

Revenue consists of the following:

PREMIUMS EARNED

Premiums earned during the year ended December 31, 2002 increased 196% to
$202.5 million compared with the same period in 2001. Premiums earned in 2002
have increased due to the acquisition of World-Wide Holdings and the growth in
the number of clients in our Life Reinsurance North America operations.
World-Wide Holdings' premiums earned during the year amounted to $79.7 million.
Premiums earned on Life Reinsurance North America operations during the year
ended December 31, 2002 increased 80% to $122.8 million from the same period in
2001 and were in respect of 73 treaties. Premiums earned in 2001 increased 84%
to $68.3 million and were from 39 treaties. Premiums earned in 2000 of
$37.1 million were from 11 life reinsurance clients. Premiums earned in 2001
increased over 2000 due to the increase in the number of clients and the
increase in business from those clients in our Life Reinsurance North America
operations.

As of December 31, 2002, in our Life Reinsurance North America operations we
reinsured approximately $66.8 billion of life coverage on 1.3 million lives. The
average benefit coverage per life is $49,000 and our maximum corporate retention
on any one life is $500,000. As of December 31, 2001, we reinsured approximately
$34.9 billion of life coverage on 993,000 lives. The average benefit coverage
per life was $35,000.

FEE INCOME

Both Life Reinsurance and Wealth Management operations generate fee income.
We earn fees in Life Reinsurance on certain of our financial reinsurance
treaties that do not qualify under risk transfer rules for reinsurance
accounting.

Life reinsurance fees increased by 87% to $3.1 million during the year ended
December 31, 2002 compared to the same period in 2001. The increase is due to
the growth in the number of clients. Wealth Management fees increased by 10% to
$3.4 million during the year ended December 31, 2002 compared to 2001. The
growth in fees is principally due to the growth in segregated account balances
which is due to an increase in the number of clients offset in part by negative
investment performance. Wealth Management fees increased in 2001 by 43% to
$3.1 million from $2.2 million in 2000. The growth has been primarily due to
increases in variable account balances on which we earn fees and the increase in
the number of clients.

Fee income is as follows:

41

Wealth Management fees are earned from both life and annuity clients. The
following table summarizes our client base with the associated segregated assets
and policy face amounts.

The change in the segregated assets is as follows:

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

(1) Investment performance for the year is determined using actual asset
valuations where available and estimates where actual data is not available.

INVESTMENT INCOME

Net investment income increased by 109% to $108.0 million during the year
ended December 31, 2002 compared to $51.7 million in the same period in 2001.
The increase is due to the growth in our average invested assets offset in part
by decreases in realized yields in the current year. Our total invested assets
have increased significantly because of growth in our Life Reinsurance North
America operations, assets acquired through the acquisition of World-Wide
Holdings, investment of the proceeds of our equity offering in April 2002 and
our convertible debt and capital securities offerings in November 2002. Total
invested assets have increased from $1.3 billion at December 31, 2001 to
$2.3 billion at December 31, 2002. Funds withheld at interest grew from
$562.4 million to $1.1 billion during 2002.

During the year ended December 31, 2002, average book yields were lower than
in 2001, particularly on floating rate assets and cash. On the $1.1 billion
portfolio managed by our external investment managers the yields on fixed rate
assets were 5.84% and 7.09% at December 31, 2002 and 2001, respectively. The
reduction in yield was due primarily to the much lower market yields at which
new cash flows were invested and proceeds of maturities and sales were
reinvested. Yields on floating rate assets are indexed to LIBOR. The yield on
our floating rate assets decreased to 3.11% from 4.43%, and the yield on our
cash and cash equivalents decreased to 1.48% from 2.20%. The volume of

42

floating rate assets increased in 2002 as a result of our investing the proceeds
of a $100 million floating rate funding agreement to earn a spread over the cost
of funds.

Net investment income increased by $6.9 million or 15% to $51.7 million in
2001 from $44.8 million in 2000 primarily as a result of an increase in average
invested assets. Funds withheld at interest grew from $46.3 million to
$562.4 million. Since most of this growth occurred in the second half of 2001,
its contribution to income was for only part of 2001. Excluding funds withheld
at interest and the World-Wide Holdings portfolio, which was added at
December 31, 2001, our general account portfolio declined during 2001. This
decline resulted from the recapture by a ceding company of $185.7 million of
assets on April 30, 2001, offset in part by the addition of investments funded
by new transactions and borrowings. During 2001, as compared to 2000, average
book yields were lower, particularly on floating rate assets and cash. Yields on
floating rate assets decreased significantly during 2001. On the $581.1 million
portfolio managed by external investment managers, the yields on fixed rate
assets were 7.09% and 7.12% at December 31, 2001 and 2000, respectively. Between
those dates, however, LIBOR decreased to 1.88% from 6.40%, causing the yield on
floating-rate assets to decrease to 4.43% from 7.82% and the yield on cash and
cash equivalents to decrease to 2.20% from 5.70%. Since the floating-rate assets
were funded by floating-rate liabilities, the decrease in yield on floating-rate
assets had no material effect on earned margins.

The analysis of investment income by segment is as follows:

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

(1) Other includes investment income on unallocated capital.

REALIZED LOSSES

During the year ended December 31, 2002, realized losses amounted to
$11.2 million in comparison with $3.9 million in 2001. Realized losses are
stated net of associated amortization of deferred acquisition costs. The losses
in 2002 consist of realized investment losses on unit linked securities held by
World-Wide Holdings of $5.6 million, impairment losses recognized under EITF
99-20 of $6.7 million "and other than temporary impairments" on fixed maturity
investments of $3.3 million. The "other than temporary impairments" were
recognized due to credit deterioration on various securities. These losses were
partially offset by net realized gains on the sales of fixed maturity
investments of $5.2 million. During the year ended December 31, 2001 realized
losses included amounts recognized as "other than temporary impairments" on
fixed maturity investments of $6.9 million. The "other than temporary
impairments" were recognized due to credit deterioration on various securities.
The realization of losses in 2001 was due to the sale and write down of carrying
values of securities, predominately securities issued by Enron and its
affiliate, Osprey. These losses were offset in part by gains realized primarily
for tax purposes on bonds in the portfolio of Scottish Re (U.S.), Inc. and gains
of $529,000 on assets sold to fund part of the recapture of a block of business
by one client on April 30, 2001. During 2001, we also recognized in income

43

unrealized losses of $0.4 million on certain structured securities in accordance
with the requirements of EITF 99-20. See discussion of EITF 99-20 below.

Management reviews securities with material unrealized losses and tests for
"other than temporary impairments" on a quarterly basis. Factors involved in the
determination of impairment include fair value as compared to amortized cost,
length of time the value has been below amortized cost, credit worthiness of the
issuer, forecasted financial performance of the issuer, position of the security
in the issuer's capital structure, the presence and estimated value of
collateral or other credit enhancement, length of time to maturity, interest
rates and our intent and ability to hold the security until the market value
recovers. We review all investments with fair values less than amortized cost,
and pay particular attention to those that have traded continuously at less than
80% of amortized cost for at least six months or 90% of amortized cost for at
least 12 months and other assets with material differences between amortized
cost and fair value. Investments meeting those criteria are analyzed in detail
for "other than temporary impairment." When a decline is considered to be "other
than temporary" a realized loss is incurred and the cost basis of the impaired
asset is adjusted to its fair value.

The following tables provide details of the sales proceeds, realized loss,
the length of time the security had been in an unrealized loss position and
reason for sale for securities sold during 2002 and 2001.

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

The proceeds on sale represent fair value at the sales date

Credit Concern: transaction initiated due to a concern based on financial
condition of issuer or industry

Relative Value: transaction initiated to improve characteristics of the
portfolio income

Under EITF 99-20, "Recognition of Interest Income and Impairment on
Purchased and Retained Beneficial Interest in Securitized Assets," a decline in
fair value below "amortized cost" basis is considered to be an "other than
temporary impairment" whenever there is an adverse change in the amount or
timing of cash flow to be received, regardless of the resulting yield, unless
the decrease is solely a result of changes in market interest rates.

Unit-linked securities are comprised of investments in a unit trust
denominated in British pounds. These investments were acquired as part of the
purchase of World-Wide Holdings and are recorded at quoted market value. Changes
in market value are recorded as net realized gains or losses.

44

BENEFITS AND EXPENSES

CLAIMS AND OTHER POLICY BENEFITS

Claims and other policy benefits increased by 177% to $141.9 million in the
year ended December 31, 2002 from $51.2 million in the same period of 2001. The
increase is a result of the acquisition of World-Wide Holdings, the increased
number of clients and the increase in our traditional solutions business from
these clients in our Life Reinsurance North America operations. World-Wide
Holdings claims and other policy benefits were $50.1 million for the year ended
December 31, 2002.

Claims and other policy benefits increased by 117% to $51.2 million in 2001
from $23.6 million in 2000, as a result of the increased number of clients and
the increase in business from these clients in our Life Reinsurance North
America operations. In 2001, we recorded net claims totaling $750,000 in
relation to the World Trade Center and Pentagon attacks on September 11, 2001.
Gross claims in relation to these attacks were $816,000 of which $66,000 was
recoverable under our catastrophe insurance coverage.

INTEREST CREDITED TO INTEREST SENSITIVE CONTRACT LIABILITIES

For the year ended December 31, 2002 interest credited to interest sensitive
contract liabilities increased by $30.8 million or 176% to $48.4 million from
$17.6 million in 2001. Interest credited includes interest in respect of a
funding agreement for $100.0 million that we wrote on June 28, 2002. The amount
due on this funding agreement is included in interest sensitive contract
liabilities on our balance sheet. The increase was due to interest credited on
new 2002 reinsurance treaties and the funding agreement and increases in
interest credited on treaties which commenced in prior years due to increasing
average liability balances. Interest credited to interest sensitive contract
liabilities increased by $0.2 million or 1% to $17.6 million in 2001 from
$17.4 million in 2000. The movement in 2001 was due to the interest credited on
new 2001 reinsurance treaties and increases in interest credited on treaties
which commenced in prior years due to increasing average liability balances.
These increases were offset by the $8.5 million effect of the recapture of a
block of business by one client on April 30, 2001.

ACQUISITION COSTS AND OTHER INSURANCE EXPENSES

During the year ended December 31, 2002 acquisition costs and other
insurance expenses increased by $35.8 million or 147% to $60.1 million from
$24.3 million in 2001. The increase was a result of the acquisition of
World-Wide Holdings and the increased number of reinsurance clients in our Life
Reinsurance North America business.

Acquisition costs and other insurance expenses increased by $7.1 million or
42% to $24.3 million in 2001 from $17.2 million in 2000. The increases were the
result of the increased number of reinsurance clients in our Life Reinsurance
North America business.

45

The components of these expenses are as follows:

Commissions and excise taxes vary with premiums earned. Other insurance
expenses include direct and indirect expenses of those departments involved in
the marketing, underwriting and issuing of reinsurance treaties. In 2002, we
have allocated less of these expenses to acquisition costs than in 2001. They
are now included in operating expenses. Of these total expenses a portion is
deferred and amortized over the life of the reinsurance treaty or, in the case
of interest sensitive contracts, in relation to the estimated gross profit in
respect of the contracts.

The split of these expenses between segments is as follows:

OPERATING EXPENSES

Operating expenses increased to $23.8 million in the year ended
December 31, 2002 compared to $9.1 million in 2001. The increase is a result of
the acquisition of World-Wide Holdings, a smaller portion of costs being
allocated to acquisition expenses and increased personnel costs and other
operating costs as we continued to grow our business. During the year we
continued to set up our principal office in Bermuda and opened an office in
Luxembourg. In addition, as a result of our acquisition of World-Wide Holdings
on December 31, 2001, we have incurred increased operating expenses and
additional travel costs. As we continue to grow our operations we have
experienced increased personnel costs in all segments. Total employees in our
operations, excluding World-Wide Holdings has grown from 66 employees at
December 31, 2001 to 75 at December 31, 2002. Operating expenses in the year
ended December 31, 2002 included $1.4 million of non-recurring expenses relating
to severance arrangements with certain employees.

Operating expenses decreased to $9.1 million in 2001 from $9.9 million in
2000 due to the inclusion in 2000 of $0.9 million of non-recurring employee
expenses relating to four employees including severance, recruiting and
relocation expenses.

46

The split of these expenses between segments is as follows:

Life Reinsurance North America operating costs have increased principally
because of growth in personnel. Wealth Management operating costs have increased
due to costs incurred in setting up our Luxembourg office. Other operating
expenses include executive salaries, head office expenses, legal and
professional fees and other expenses not related to either our Life Reinsurance
or Wealth Management lines of business. Other operating expenses increased
significantly in 2002 and 2001 due to the cost of setting up and running our
principal executive office in Bermuda, an increase in the number of executive
staff including a full year of the salaries of those staff who joined us in 2000
and 2001 and recruitment costs.

INTEREST EXPENSE

Interest expense amounted to $1.4 million in both 2002 and 2001. Interest
expense in 2002 includes interest on $115.0 million of convertible debt issued
on November 22, 2002, $17.5 million of capital securities issued on December 4,
2002 and borrowings under our credit facilities and reverse repurchase
agreement. These borrowings are more fully described under "Liquidity and
Capital Resources".

We incurred interest expense for the first time in the year ended
December 31, 2001 amounting to $1.4 million, reflecting the use of borrowings in
2001 under the credit facilities as described in "Liquidity and Capital
Resources".

INCOME TAXES

The 2002 income tax benefit includes taxes on the earnings of World-Wide
Reassurance Company Limited and Scottish Re (Dublin) Limited offset by the tax
benefits of net operating losses in Scottish Re (U.S.) Inc., and Scottish
Annuity & Life International Insurance Company (Bermuda) Ltd.,. The 2001 income
tax expense includes taxes on the earnings of Scottish Re (U.S.) Inc., Scottish
Annuity & Life International Insurance Company (Bermuda) Ltd. and Scottish Re
(Dublin) Limited, which are offset by a release of capital loss carry-forwards.
The tax benefit in 2000 is related to the earnings of Scottish Re (U.S.), Inc.
only, offset by a release of valuation allowances related to capital loss carry-
forwards. An analysis of income taxes and movements in deferred taxes appears in
Note 17 to the consolidated financial statements.

FINANCIAL CONDITION

INVESTMENTS

At December 31, 2002 the portfolio controlled by us consisted of
$1.1 billion of traded fixed income securities and cash. Of this total
$1.0 billion represented the fixed income portfolio managed by external
investment managers and $131.0 million represented other cash balances. The
average Standard & Poor's rating of that portfolio was "AA-," the average
effective duration was 3.03 years and

47

the average book yield was 4.93% as compared with an average rating of "A+," an
average effective duration 3.5 years and an average book yield of 6.14% at
December 31, 2001. At December 31, 2002 the unrealized appreciation on
investments, net of tax, was $8.9 million as compared with depreciation of
$3.6 million at December 31, 2001. The unrealized appreciation on investments is
included in our consolidated balance sheet as part of shareholders' equity.

At December 31, 2001, the portfolio controlled by us consisted of
$678.5 million of traded fixed income securities and cash. Of this total,
$581.1 million represented the fixed income portfolio managed by external
investment managers, $93.4 million represented investments of World-Wide
Holdings, and $4.0 million represented other cash balances. At December 31,
2001, the portion of the portfolio managed externally had an average Standard &
Poor's rating of "A+," an average effective duration of 3.5 years, and an
average book yield of 6.14%, as compared with an average rating of "AA-," an
average effective duration of 2.6 years and an average book yield of 7.24% at
December 31, 2000. At December 31, 2001, the portion of the investment portfolio
managed by World-Wide Holdings had an average rating of "AA-," an average
effective duration of 1.9 years and an average book yield of 5.22%. At
December 31, 2001, the unrealized depreciation on investments, net of tax was
$3.6 million as compared to $3.8 million at December 31, 2000.

In the table below are the total returns earned by our portfolio for the
year ended December 31, 2002, compared to the returns earned by three indices:
the Lehman Brothers Global Bond Index, the S&P 500, and a customized index that
we developed with New England Asset Management ("NEAM"), an external investment
manager, to take into account our investment guidelines. We believe that this
customized index is a more relevant benchmark for our portfolio's performance.

The following table presents the fixed income investment portfolio (market
value) credit exposure by category as assigned by Standard & Poor's.

48

The following table illustrates the fixed income investment portfolio
(market value) sector exposure.

The data in the tables above excludes unit-linked securities, which are
discussed more fully in Note 2 to the consolidated financial statements. All the
data excludes the assets held by ceding insurers under modified coinsurance
agreements.

At December 31, 2002 our fixed maturity portfolio had 930 positions and
$16.1 million of gross unrealized losses. No single position had an unrealized
loss greater than $1.3 million. There were $28.8 million of unrealized gains on
the remainder of the portfolio. At December 31, 2001 there were 193 securities
in an unrealized loss position which totaled $11.0 million. Two individual
losses exceeded $1.0 million.

The composition by category of securities that have an unrealized loss at
December 31, 2002 and December 31, 2001 are presented in the tables below.

49

The following tables provide information on the length of time securities
have been continuously in an unrealized loss position:

Unrealized losses on securities that have been in an unrealized loss
position for periods greater than two years amounted to $478,000 and
$1.5 million at December 31, 2002 and 2001, respectively.

Unrealized losses on non-investment grade securities amounted to
$3.8 million and $894,000 at December 31, 2002 and 2001, respectively. Of these
amounts non-investment grade securities with unrealized losses of $1.6 million
at December 31, 2002 and $229,000 at December 31, 2001 had been in an unrealized
loss position for a period greater than one year and $30,000 at December 31,
2002 and $229,000 at December 31, 2001 had been in an unrealized loss position
for periods greater than two years.

The following tables illustrate the industry analysis of the unrealized
losses at December 31, 2002 and 2001.

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

Other industries each represent less than 2% of estimated fair value

The expected maturity dates of securities that have an unrealized loss at
December 31, 2002 and 2001 are presented in the table below.

At December 31, 2002 there were 154 securities with unrealized loss
positions. There was one security with a loss greater than $1 million. This is a
securitized asset and is tested for impairment under EITF Issue No. 99-20. At
December 31, 2002 this security satisfied the impairment tests of EITF 99-20. At
December 31, 2001 there were 193 securities with unrealized loss positions.
There were two securities with unrealized losses greater than $1 million. These
were also securitized assets and were tested for impairment under EITF Issue
No. 99-20. At December 31, 2001 these securities satisfied the impairment tests
of EITF 99-20.

51

At December 31, 2002 there were 5 securities with fair values that traded
continuously at less than 80% of amortized cost for at least six months or 90%
of amortized cost for at least 12 months. The total unrealized loss on these
securities amounted to $1.1 million and the largest unrealized loss position was
$0.5 million.

At December 31, 2001, there were seven securities with fair values that
traded continuously at less than 80% of amortized cost for at least six months
or 90% of amortized cost for at least 12 months. The total unrealized loss on
these securities amounted to $1.0 million and the largest unrealized loss
position was $0.4 million.

FUNDS WITHHELD AT INTEREST

Funds withheld at interest arise on contracts written under modified
coinsurance agreements. In each case, the business reinsured consists of fixed
deferred annuities. In substance, these agreements are identical to coinsurance
treaties except that the ceding company retains control of and title to the
assets. The deposits paid to the ceding company by the underlying policyholders
are held in a segregated portfolio and managed by the ceding company or by
investment managers appointed by the ceding company. These treaties transfer a
quota share of the risks. The funds withheld at interest represent our share of
the ceding companies' statutory reserves. The cash flows exchanged with each
monthly settlement are netted and include, among other items, our quota share of
investment income on our proportionate share of the portfolio, realized losses,
realized gains (amortized to reflect the statutory rules relating to interest
maintenance reserve), interest credited and expense allowances.

At December 31, 2002, we had four modified coinsurance fixed annuity
reinsurance contracts with two ceding companies. We had three contracts with
Lincoln National Insurance Company that account for $1.1 billion (98%) of the
funds withheld balances. The other contract is with Illinois Mutual Insurance
Company. At December 31, 2001, we had three modified coinsurance fixed annuity
reinsurance contracts with two ceding companies. We had two contracts with
Lincoln National Insurance Company that account for $500.0 million (95%) of the
funds withheld balances at December 31, 2001. The other contract is with
Illinois Mutual Insurance Company. Lincoln National Insurance Company has
financial strength ratings of "A+" from A.M. Best, "AA-" from Standard & Poor's,
"Aa3" from Moody's and "AA" from Fitch. In the event of insolvency of the ceding
companies on our modified coinsurance arrangements we would need to exert a
claim on the assets supporting the contract liabilities. However, the risk of
loss is mitigated by our ability to offset amounts owed to the ceding company,
which are included in interest sensitive contract liabilities, with the amounts
owed to us by the ceding company. Interest sensitive contract liabilities
relating to the Lincoln National Insurance Company contracts amounted to
$1.1 billion and $540.7 million at December 31, 2002 and 2001, respectively.

At December 31, 2002, funds withheld at interest totaled $1.1 billion with
an average rating of "A", an average effective duration of 5.4 years and an
average book yield of 6.49% as compared with an average rating of "A-", an
average effective duration of 6.0 years and an average book yield of 6.80% at
December 31, 2001. These are fixed income investments associated with modified
coinsurance transactions; they include marketable securities, commercial
mortgages, private placements and cash. The market value of the funds withheld
amounted to $1.2 billion at December 31, 2002.

At December 31, 2001, funds withheld at interest totaled $562.4 million with
an average rating of "A-," an average effective duration of 6.0 years and an
average book yield of 6.80%.

The investment objectives for our modified coinsurance arrangements are
included in the agreements. The primary objective is to maximize current income,
consistent with the long-term preservation of capital. The overall investment
strategy is executed within the context of prudent asset/liability management.
The investment guidelines permit investments in fixed maturity securities, and
include marketable securities, commercial mortgages, private placements and
cash. The maximum

52

percentage of below investment grade securities is 10% and other guidelines
limit risk, ensure issuer and industry diversification as well as maintain
liquidity and overall portfolio credit quality.

According to data provided by our ceding companies, the following table
reflects the market value of assets backing the funds withheld at interest
portfolio using the lowest rating assigned by the three major rating agencies.

According to data provided by our ceding companies, the following table
reflects the market value of assets backing the funds withheld at interest
portfolio by sector.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOW

We used operating cash flow of $9.2 million in 2002 in comparison with
operating cash flow generated of $31.3 million in 2001 and $81.8 million in
2000. Operating cash flow includes cash inflows from premiums, fees and
investment income, and cash outflows for benefits and expenses paid. In periods
of growth of new business our operating cash flow may decrease due to first year
commissions paid on new business generated. For income recognition purposes
these commissions are deferred and amortized over the life of the business. In
addition, operating cash flow includes $26.0 million, $107.4 million, and
$79.5 million of funds received in connection with the acquisition of blocks of
reinsurance during 2002, 2001 and 2000, which are not reflected in the
consolidated statements of income. These acquisitions are explained in more
detail in Note 11 to the consolidated financial statements.

The decrease in operating cash flow from 2001 to 2002 was primarily due to
increases in benefits and expenses paid greater than increases in premiums,
fees, and investment income. In addition there was a decrease in the cash flows
from the acquisition of blocks of reinsurance. Reinsurance premiums

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and fees received increased by $199.0 million due to the acquisition of
World-Wide and the increase in the number of clients in our Life Reinsurance
North America segment. Investment income received increased by $55.9 million due
to the growth in our invested asset base. The acquisition of blocks of
reinsurance business generated $81.3 million less in cash flows in 2002 compared
to 2001. Benefits paid increased by $180.0 million due to the acquisition of
World-Wide and the increase in the number of clients in our Life Reinsurance
North America segment. Acquisition and other costs, including commissions,
increased by $34.0 million. This increase related principally to new business
written in our Life Reinsurance North America segment. These costs include
commissions on first year business that are deferred when paid and therefore do
not impact net income until later years.

The decrease in operating cash flow from 2000 to 2001 was primarily due to
increases in benefits and acquisition costs that were greater than the increases
in premiums, fees, investment income and the cash flows received from the
acquisition of blocks of reinsurance. Reinsurance premiums and fees received
increased by $18.0 million due to the increase in the number of clients in our
Life Reinsurance North America and Wealth Management segments. Investment income
received increased by $7.2 million due to the growth in our invested asset base.
The increase in investment income was not as great as in prior years because of
a reduction in the asset base due to the recapture by a ceding company of
$185.7 million of assets on April 30, 2001. The acquisition of blocks of
reinsurance business generated $27.9 million more in cash flows in 2001 compared
to 2000. Benefits paid increased by $9.8 million due to the increase in the
number of clients in our Life Reinsurance North America segment. Acquisition
costs, including commissions, increased by $93.8 million. This increase related
principally to new business written in our Life Reinsurance North America
segment. These costs include commissions on first year business that are
deferred when paid and therefore do not impact net income until later years.

Our cash flow from operations may be positive or negative in any period
depending on the amount of new life reinsurance business written, the level of
ceding commissions paid in connection with writing that business and the level
of renewal premiums earned in the period.

CAPITAL AND COLLATERAL

At December 31, 2002 total capitalization was $623.6 million compared to
$331.3 million at December 31, 2001. Total capitalization includes long-term
debt and is analyzed as follows:

The $292.3 million increase in capitalization is due primarily to the net
proceeds of the equity offering of $114.3 million, the net proceeds of the
convertible debt and capital securities offerings of $127.8 million and net
income for the year of $32.5 million less dividends paid of $5.0 million and
increases in comprehensive income. Other comprehensive income consists of the
cumulative translation adjustment arising from the translation of World-Wide
Holdings' balance sheet at exchange rates as of December 31, 2002 and a minimum
pension liability adjustment.

At December 31, 2001, total capitalization was $331.3 million compared to
$239.6 million in 2000. The $91.7 million increase in capitalization at
December 31, 2001 is a result of net income for the year of $16.8 million less
dividends paid of $3.1 million plus the issuance of 4,532,380 ordinary shares
with a value of $78.0 million in respect of the acquisition of World-Wide
Holdings on December 31, 2001, less the repurchase of 100,000 ordinary shares
for a total of $1.5 million during the year.

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Pursuant to stock repurchase programs approved by our Board of Directors, we
repurchased 432,500 ordinary shares for $3.8 million in 2000 and 100,000
ordinary shares for $1.5 million in 2001. Since our initial public offering in
November 1998, we have repurchased a total of 3,062,200 ordinary shares at a
cost of $30.3 million. There were no repurchases in the year ended December 31,
2002.

On April 4, 2002 we completed a public offering of 6,750,000 ordinary shares
(which included the over-allotment option of 750,000 ordinary shares) in which
we raised aggregate net proceeds of approximately $114.3 million. We used the
net proceeds of the offering to repay short-term borrowings of $40.0 million,
which we had borrowed under a credit facility with a U.S. bank, and for general
corporate purposes.

On November 22, 2002 we completed the private offering of $115.0 million of
4.5% Senior Convertible Notes due 2022 (which included the over allotment option
of $15.0 million) in which we raised aggregate net proceeds of approximately
$110.9 million. We used the net proceeds of the offering to repay short term
borrowings of $23.5 million, under reverse repurchase agreements, and for
general corporate purposes.

On December 4, 2002 we privately placed $17.5 million of capital securities
which were issued by a trust subsidiary holding a thirty year $17.5 million
aggregate principal amount subordinated note of Scottish Holdings, Inc. which is
guaranteed by Scottish Annuity & Life Insurance Company (Cayman) Ltd. Net
proceeds were $16.9 million. Scottish Holdings, Inc. provided a $15.0 million
capital infusion to its direct subsidiary, Scottish Re (U.S.), Inc. and used the
remainder of the net proceeds for general corporate purposes.

During 2002 we paid quarterly dividends totaling $5.0 million or $0.20 per
share. During 2001, we paid quarterly dividends totaling $3.1 million or $0.20
per share.

During 2002, we arranged two secured credit facilities with U.S. banks
totaling $100.0 million. Each of the credit facilities provides for a
combination of borrowing and letters of credit of $50.0 million. These
facilities expire in September 2003 but are renewable with the agreement of both
parties. One of the facilities requires that Scottish Annuity & Life Insurance
Company (Cayman) Ltd., which we refer to as SALIC, and World-Wide Reassurance
maintain Standard & Poor's ratings of at least "A-" and that SALIC maintains
shareholder's equity of at least $210.0 million. At December 31, 2002, SALIC and
World-Wide Reassurance each had a Standard & Poor's rating of "A-" and SALIC's
shareholder's equity was $464.0 million. The other facility requires that
Scottish Annuity & Life maintain consolidated net worth of $375.0 million and a
maximum debt to total capitalization ratio of 25%. At December 31, 2002,
Scottish Annuity & Life's net worth was $492.1 million and the ratio of debt to
total capitalization was 21%. Our failure to comply with the requirements of the
credit facilities would, subject to grace periods, result in an event of
default, and we could be required to repay any outstanding borrowings. At
December 31, 2002, there were no borrowings under the facilities. Outstanding
letters of credit under these facilities amounted to $9.1 million.

At December 31, 2001 we had borrowed $25.1 million under a reverse
repurchase agreement with a major broker/dealer. In November 2002, borrowings of
$23.5 million remained outstanding under this agreement and were repaid from the
proceeds of the convertible debt offering.

We must have sufficient assets available for use as collateral to support
borrowings, letters of credit, and certain reinsurance transactions. With these
reinsurance transactions, the need for collateral or letters of credit arises in
four ways:

- when Scottish Annuity & Life Insurance Company (Cayman) Ltd., Scottish Re
(Dublin) Limited or World-Wide Reassurance enters into a reinsurance
treaty with a U.S. customer, we must contribute assets into a reserve
credit trust with a U.S. bank or issue a letter of credit in order that
the ceding company may obtain reserve credit for the reinsurance
transaction;

55

- when Scottish Re (U.S.), Inc. enters into a reinsurance transaction, it
typically incurs a need for additional statutory capital This need can be
met by its own capital surplus, an infusion of cash or assets from
Scottish Annuity & Life or an affiliate or by ceding a portion of the
transaction to another company within the group or an unrelated
reinsurance company, in which case that reinsurer must provide reserve
credit by contributing assets in a reserve credit trust or a letter of
credit;

- Scottish Re (U.S.), Inc. is licensed, accredited, approved or authorized
to write reinsurance in 47 states and the District of Columbia. When
Scottish Re (U.S.), Inc. enters into a reinsurance transaction with a
customer domiciled in a state in which it is not a licensed, accredited,
authorized or approved reinsurer, it likewise must provide a reserve
credit trust or letter of credit; and

- even when Scottish Re (U.S.), Inc. is licensed, accredited, approved or
authorized to write reinsurance in a state, it may agree with a customer
to provide a reserve credit trust or letter of credit voluntarily to
mitigate the counter-party risk from the customer's perspective, thereby
doing transactions that would be otherwise unavailable or would be
available only on significantly less attractive terms.

Scottish Annuity & Life Insurance Company (Cayman) Ltd. has agreed with
Scottish Re (U.S.), Inc. that it will (1) cause Scottish Re (U.S.), Inc. to
maintain capital and surplus equal to the greater of $20.0 million or such
amount necessary to prevent the occurrence of a Company Action Level Event under
the risk-based capital laws of the state of Delaware and (2) provide Scottish Re
(U.S.), Inc. with enough liquidity to meet its obligations in a timely manner.

In addition, Scottish Annuity & Life Insurance Company (Cayman) Ltd. and
Scottish Annuity & Life have agreed with World-Wide Reassurance that in the
event World-Wide Reassurance is unable to meet its obligations under its
insurance or reinsurance agreements, Scottish Annuity & Life Insurance Company
(Cayman) Ltd. (or if Scottish Annuity & Life Insurance Company (Cayman) Ltd.
cannot fulfill such obligations, then Scottish Annuity & Life) will assume all
of World-Wide Reassurance's obligations under such agreements.

Scottish Annuity & Life and Scottish Annuity & Life Insurance Company
(Cayman) Ltd. have executed similar agreements for Scottish Re (Dublin) Limited
and World-Wide Life Assurance S.A. and may, from time to time, execute
additional agreements guaranteeing the performance and/or obligations of their
subsidiaries.

Our business is capital intensive. We expect that our cash and investments,
together with cash generated from our businesses, will be sufficient to meet our
current liquidity and letter of credit needs. However, if our business continues
to grow significantly, we will need to raise additional capital.

OFF BALANCE SHEET ARRANGEMENTS

We have no obligations, assets or liabilities other than those disclosed in
the financial statements forming part of this Form 10-K; no trading activities
involving non-exchange traded contracts accounted for at fair value; and no
relationships and transactions with persons or entities that derive benefits
from their non-independent relationship with us or our related parties.

CHANGES IN ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 142, "Goodwill and Other Intangible Assets,"
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to annual impairment tests in accordance
with the Statement. Other intangible assets will continue to be amortized over
their useful lives.

56

We applied the new rules on accounting for goodwill and other intangible
assets during 2002. Goodwill of $35.8 million arose on the acquisition of
World-Wide Holdings. We have performed the required impairment tests of goodwill
and have determined that there is no impairment. Our reported earnings and
financial position for 2001 do not reflect significant amounts of amortization
of goodwill.

The Derivative Implementation Group has recently released Statement 133
Implementation Issue No. 36, "Embedded Derivatives: Bifurcation of a Debt
Instrument that Incorporates Both Interest Rate Risk and Credit Rate Risk
Exposures that are Unrelated or Only Partially Related to the Creditworthiness
of the Issuer of that Instrument" ("DIG B36"). DIG B36 addresses whether
Statement of Financial Accounting Standard No. 133 "Accounting for Derivative
Instruments and Hedging Activities" requires bifurcation of a debt instrument
into a debt host contract and an embedded derivative if the debt instrument
incorporates both interest rate risk and credit risk exposures that are
unrelated or only partially related to the creditworthiness of the issuer of
that instrument. Under DIG B36 modified coinsurance reinsurance agreements where
interest is determined by reference to a pool of fixed maturity assets are
arrangements containing embedded derivatives requiring bifurcation. DIG B36 has
been issued for comment by the Financial Accounting Standards Board. It is not
expected to be finalized until the second quarter of 2003. If DIG B36 is
finalized in its current form, we have determined that our funds withheld at
interest which arise under modified coinsurance agreements will be considered to
contain embedded derivatives requiring bifurcation. These funds withheld at
interest have a carrying value of $1.1 billion at December 31, 2002. We have not
yet determined the value of the related embedded derivatives in these products.
The market value of funds withheld at interest was $1.2 billion at December 31,
2002.

FORWARD-LOOKING STATEMENTS

Some of the statements contained in this report are not historical facts and
are forward-looking within the meaning of the Private Securities Litigation
Reform Act of 1995. Forward looking statements include information with respect
to our known and unknown risks, uncertainties and other factors, which may cause
the actual results to differ materially from the forward-looking statements.
Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates," "may," "will," "continue," "project" and similar expressions, as
well as statements in the future tense, identify forward-looking statements.

These forward-looking statements are not guarantees of our future
performance and are subject to risks and uncertainties that could cause actual
results to differ materially from the results contemplated by the
forward-looking statements. These risks and uncertainties include:

- uncertainties relating to the ratings accorded to our insurance
subsidiaries;

- the risk that our risk analysis and underwriting may be inadequate;

- exposure to mortality experience which differs from our assumptions;

- risks arising from our investment strategy, including risks related to the
market value of our investments, fluctuations in interest rates and our
need for liquidity;

- uncertainties arising from control of our invested assets by third
parties;

- developments in global financial markets that could affect our investment
portfolio and fee income;

- changes in the rate of policyholder withdrawals or recapture of
reinsurance treaties;

- the risk that our retrocessionaires may not honor their obligations to us;

- terrorist attacks on the United States and the impact of such attacks on
the economy in general and on our business in particular;

57

- political and economic risks in developing countries;

- the impact of acquisitions, including the ability to successfully
integrate acquired businesses, the competing demands for our capital and
the risk of undisclosed liabilities;

- loss of the services of any of our key employees;

- losses due to foreign currency exchange rate fluctuations;

- uncertainties relating to government and regulatory policies (such as
subjecting us to insurance regulation or taxation in additional
jurisdictions);

- the competitive environment in which we operate and associated pricing
pressures; and

- changes in accounting principles.

The effects of these factors are difficult to predict. New factors emerge
from time to time and we cannot assess the potential impact of any such factor
on the business or the extent to which any factor, or combination of factors,
may cause results to differ materially from those contained in any forward-
looking statement. Any forward-looking statement speaks only as of the date of
this report and we do not undertake any obligation, other than as may be
required under the Federal securities laws, to update any forward-looking
statement to reflect events or circumstances after the date of such statement or
to reflect the occurrence of unanticipated events.

ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We measure and manage market risks and other risks as part of an
enterprise-wide risk management process. The market risks described in this
section relate to financial instruments, primarily in our investment portfolio,
that are sensitive to changes in interest rates, credit risk premiums or
spreads, foreign exchange rates and equity prices.

Our investments, which are primarily fixed income securities, are subject to
market value, reinvestment, and liquidity risk. Our invested assets are funded
not only by capital but also by the proceeds of reinsurance transactions, some
of which entail substantial deposits of funds or assets. The cash flows required
to pay future benefits are subject to actuarial uncertainties and, in some
cases, the policies that we reinsure contain provisions that tend to increase
benefits to customers depending on movements in interest rates. We analyze the
potential results of a transaction, including the cash flows of the liabilities
and of the related assets, and any risk mitigation measures, and we price
transactions to cover our costs, including estimated credit losses, and earn a
desirable risk-adjusted return under various scenarios. Although we have not
done so in the past, we may use interest rate swaps and other hedging
instruments as tools to mitigate these risks. We may also retrocede some risks
to other reinsurers.

INTEREST RATE RISK

Interest rate risk consists of two components: (1) in a falling rate
scenario, we have reinvestment risk, which is the risk that interest rates will
decline and funds reinvested will earn less than is necessary to match
anticipated liabilities; and (2) in a rising rate scenario, we have the risk
that cash outflows will have to be funded by selling assets, which will then be
trading at depreciated values. With some annuity liabilities, these risks are
compounded by variability in liability cash flows arising from adverse
experience in withdrawals, surrenders, mortality, and election of early
retirement.

We mitigate both components of risk through asset-liability management,
including the technique of simulating future results under a variety of interest
rate scenarios and modifying the investment and hedging strategy to mitigate
downside risk to earnings. Our investment portfolio is composed of fixed-
maturity bond investments, of which the majority are at fixed interest rates.
For fixed-rate investments

58

backing reinsurance liabilities, the maturity structure has been designed to
have approximately the same exposure to changes in interest rates as the related
liabilities. Floating-rate liabilities, including borrowings, are backed
primarily by floating-rate assets. In the capital account, however, we own
investments that are also sensitive to interest rate changes and this
sensitivity is not offset by liabilities. Our overall objective is to limit
interest rate exposure.

CREDIT RISK

Credit risk relates to the uncertainty associated with the continued ability
of a given obligor to make timely payments of principal and interest. We measure
and manage credit risk not only of bond issuers but also of counter-parties in
reinsurance, retrocession and hedging transactions.

In our investment portfolio, credit risk is manifested in three ways:

- actual and anticipated deterioration in the creditworthiness of an issue,
as may be reflected in downgrades in its ratings, tend to reduce its
market value;

- our managers might react to the actual or expected deterioration and/or
downgrade of an issuer by selling some or all of our positions, realizing
a loss (or a profit smaller than would have been realized if the
deterioration or downgrade had not occurred); and

- the issuer may go into default, ultimately causing us to realize a loss.

One of our key objectives in managing credit risk is to keep actual credit
losses below both the amounts that we have assumed and allowed for in pricing
reinsurance transactions and the amounts we would have lost, given the general
level of experience for comparably rated securities of the same type in the
general market. We seek to prevent credit risk, in the aggregate, from becoming
the dominant source of risk in our overall book of retained risks as a
reinsurer.

We mitigate credit risk by adopting an investment policy, approved by our
board of directors, which limits overall exposure to credit risk and requires
diversification by limiting exposure to any single issuer. We also use outside
professional money management firms and monitor their capabilities, performance
and compliance with our investment and risk management policies.

EQUITY RISK

World-Wide Reassurance assumed an interest in a unit investment trust that
is classified as a trading security and is recorded at fair value. The equity
risk in connection with this security is substantially passed on to the holders
of the investment type products, because the value of policyholder benefits is
determined based on the value of the investment. World-Wide Reassurance retains
the investment income on the investment in the unit investment trust, and bears
the risk that investment income derived from this security will be less than
anticipated.

FOREIGN CURRENCY RISK

Our functional currency is the United States dollar. However, our U.K.
subsidiaries, World-Wide Holdings and World-Wide Reassurance, maintain a part of
their investment portfolio and operating expense accounts in British pounds and
receive other currencies in payment of premiums. All of World-Wide Reassurance's
original U.S. business is settled in United States dollars, all Canadian and
certain Asia and Middle East business is converted and settled in United States
dollars, and all other currencies are converted and settled in British pounds.
The results of the business in British pounds are then translated to United
States dollars. World-Wide Reassurance attempts to limit substantial exposures
to foreign currency risk, but does not actively manage currency risks. To the
extent our foreign currency exposure is not properly managed or otherwise
hedged, we may experience exchange losses, which in turn would adversely affect
our results of operations and financial condition.

59

We may enter into investment, insurance and reinsurance transactions in the
future in currencies other than United States dollars. Our objective is to avoid
substantial exposures to foreign currency risk. We will manage these risks using
policy limits, asset-liability management techniques and hedging transactions.

SENSITIVITY ANALYSIS--CHANGE IN INTEREST RATES

We regularly conduct analyses to gauge the financial impact of changes in
interest rates on our financial condition. Techniques include, but are not
limited to, comparison of option-adjusted duration of assets and liabilities and
simulation of future asset and liability cash flows under multiple interest rate
scenarios. Financial simulations are also used to evaluate exposure to credit
spreads and will be used as we consider investments and liabilities denominated
in foreign currencies. On a monthly basis, we measure the gap between the
effective duration of the investments and the target duration. For assets
supporting liabilities, we set the target duration to minimize interest rate
risk for each liability transaction. Our investment policy limits the duration
gap to 0.75 years. For floating-rate borrowings and liabilities, we target
floating-rate assets, which have a duration near zero. For capital account
assets, we target a duration of 3.0 years.

QUANTITATIVE DISCLOSURE OF INTEREST RATE RISK

The following tables provide information as of December 31, 2002 about the
interest rate sensitivity of the portion of our investment portfolio managed by
external managers. The tables do not include other cash balances of
$18.7 million, or modified coinsurance assets of $1.1 billion. The tables show
the aggregate amount, by book value and fair value, of the securities that are
expected to mature in each of the next five years and thereafter, as well as the
weighted average book yield of those securities. The expected maturity is the
weighted average life of a security and takes into consideration par
amortization (for mortgage-backed securities), call features and sinking fund
features.

60

December 31, 2002 market interest rates were used as discounting rates in
the estimation of fair value.

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

* Includes $131.0 million of cash and cash equivalents with a book yield of
1.5%.

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

* Includes $131.0 million of cash and cash equivalents with a book yield of
1.5%.

ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information called for by this item is set forth in "Item 15: Exhibits,
Financial Statement Schedules and Reports on Form 8-K.

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

There are no changes in or disagreements with accountants on accounting and
financial disclosure for the fiscal year ended December 31, 2002.

PART III

ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

The information required by this Item 10 will be set forth in our Proxy
Statement for 2003 Annual Meeting of Shareholders (the "2003 Proxy Statement")
under the captions "Proposal for Election of Directors," "Principal Shareholders
and Management Ownership" and "Section 16(a) Beneficial Ownership Reporting
Compliance" and is incorporated herein by reference.

61

ITEM 11: EXECUTIVE COMPENSATION

The information required by this Item 11 will be set forth in the 2003 Proxy
Statement under the captions "Management Compensation" and "Report on Executive
Compensation" and is incorporated herein by reference.

ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item 12 will be set forth in the 2003 Proxy
Statement under the caption "Principal Shareholders and Management Ownership"
and is incorporated herein by reference.

ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item 13 will be set forth in the 2003 Proxy
Statement under the caption "Certain Transactions" and is incorporated herein by
reference.

ITEM 14: DISCLOSURE CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures. Based on their
evaluation as of a date within 90 days of the filing date of this Annual Report
on Form 10-K, our principal executive officers and principal financial officer
have concluded that Scottish Annuity & Life's disclosure controls and procedures
(as defined in Rules 13a-14(c) and 15d-14(c) under the Securities and Exchange
Act of 1934 (the "Exchange Act")) are effective to ensure that information
required to be disclosed by Scottish Annuity & Life in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.

(b) Changes in internal controls. There were no significant changes in the
Scottish Annuity & Life's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.

62

PART IV

ITEM 15: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

A. EXHIBITS

Except as otherwise indicated, the following Exhibits are filed herewith and
made a part hereof:

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

(1) Scottish Annuity & Life's Registration Statement on Form S-1 was filed with
the SEC on June 19, 1998, as amended.

(2) Scottish Annuity & Life's 1999 Annual Report on Form 10-K was filed with the
SEC on April 3, 2000.

(3) Scottish Annuity & Life's 2000 Annual Report on Form 10-K was filed with the
SEC on March 30, 2001.

(4) Scottish Annuity & Life's 2001 Annual Report on Form 10-K was filed with the
SEC on March 5, 2002.

65

(5) Scottish Annuity & Life's Current Report on Form 8-K was filed with the SEC
on December 31, 2001.

(6) Scottish Annuity & Life's Current Report on Form 8-K/A was filed with the
SEC on January 11, 2002.

(7) Scottish Annuity & Life's Current Report on Form 8-K was filed with the SEC
on August 9, 2001.

(8) Scottish Annuity & Life's Amended Quarterly Report on Form 10-Q/A was filed
with the SEC on August 8, 2002.

(9) Scottish Annuity & Life's Registration Statement on Form S-3 was filed with
the SEC on January 31, 2003, as amended.

(10) This exhibit is a management contract or compensatory plan or arrangement.

B. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES

Report of Independent Auditors.............................. 67
Consolidated Balance Sheets................................. 68
Consolidated Statements of Income........................... 69
Consolidated Statements of Comprehensive Income............. 70
Consolidated Statements of Shareholders' Equity............. 71
Consolidated Statements of Cash Flows....................... 72
Notes to Consolidated Financial Statements.................. 73

All other schedules are omitted because they are either not applicable or
the required information is included in the Management's Discussion and Analysis
of Financial Condition and Results of Operations, Financial Statements or Notes
thereto appearing elsewhere in this Form 10-K.

C. REPORTS ON FORM 8-K

The following reports on Form 8-K were filed with the SEC during the three
months ended December 31, 2002:

Scottish Annuity & Life filed a report on Form 8-K on November 18, 2002 to
report under Item 5 (Other Events and Required FD Disclosure) which attached as
Exhibits 99.1 and 99.2 and incorporated by reference (i) the Historical
Consolidated Financial Statements of World-Wide Holdings, including its
Consolidated Balance Sheet at September 30, 2001 and 2000 and the Consolidated
Statements of Income, Comprehensive Income, Shareholders' Equity and Cash Flows
for each of the two years in the period ended September 30, 2001 and (ii) the
Unaudited Pro Forma Condensed Combined Statement of Income of Scottish
Annuity & Life for the period ended December 31, 2001. Such report on Form 8-K
also reported that Scottish Annuity & Life had issued a press release announcing
the offering of 4.50% Senior Convertible Notes due 2022. A copy of the press
release was filed as Exhibit 99.3 thereto.

Scottish Annuity & Life filed a report on Form 8-K on November 19, 2002 to
report under Item 5 (Other Events and Required FD Disclosure) that it had issued
a press release announcing the pricing of a private offering of convertible
notes. A copy of the press release was filed as Exhibit 99.1 thereto.

Scottish Annuity & Life filed a report on Form 8-K on November 27, 2002 to
report under Item 5 (Other Events and Required FD Disclosure) that it had issued
a press release announcing the closing of the exercise of the over-allotment
option in connection with its previously announced offering of 4.50% Senior
Convertible Notes due 2022, which offering closed on November 22, 2002. A copy
of the press release was filed as Exhibit 99.1 thereto.

66

REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Directors
Scottish Annuity & Life Holdings, Ltd.

We have audited the accompanying consolidated balance sheets of Scottish
Annuity & Life Holdings, Ltd. and subsidiaries as of December 31, 2002 and 2001,
and the related consolidated statements of income, comprehensive income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 2002. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Scottish Annuity & Life Holdings, Ltd. and subsidiaries at December 31, 2002 and
2001, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 2002, in conformity
with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the financial statements, in 2002 the Company
changed its accounting for goodwill and in 2001 the Company changed its
accounting for certain investments.

/s/ ERNST & YOUNG LLP

Philadelphia, Pennsylvania
February 11, 2003

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SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

CONSOLIDATED BALANCE SHEETS

(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

See Accompanying Notes to Consolidated Financial Statements

68

SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

CONSOLIDATED STATEMENTS OF INCOME

(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE DATA)

See Accompanying Notes to Consolidated Financial Statements

69

SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

See Accompanying Notes to Consolidated Financial Statements

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SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT FOR NUMBER OF SHARES)

See Accompanying Notes to Consolidated Financial Statements

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SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

See Accompanying Notes to Consolidated Financial Statements

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SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(DECEMBER 31, 2002)

1. ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION

ORGANIZATION

Scottish Annuity & Life Holdings, Ltd. is a holding company organized under
the laws of the Cayman Islands with its principal executive office in Bermuda.
We are a reinsurer of life insurance, annuities and annuity-type products. These
products are written by life insurance companies and other financial
institutions located principally in the United States, as well as around the
world. We refer to this portion of our business as Life Reinsurance. To a lesser
extent, we directly issue variable life insurance and variable annuities and
similar products to high net worth individuals and families for insurance,
investment and estate planning purposes. We refer to this portion of our
business as Wealth Management. We have operating companies in Bermuda, the
Cayman Islands, Ireland, Luxembourg the United Kingdom and the United States.

BUSINESS

LIFE REINSURANCE

In our Life Reinsurance North America business, we provide solutions to
insurance companies seeking reinsurance of life insurance, annuities and
annuity-type products. We reinsure lines of business that may be subject to
significant reserve or capital requirements by regulatory and rating agencies.

We assume risks associated with primary life insurance policies and
annuities, both in force and new business. We reinsure: (i) mortality,
(ii) investment, (iii) persistency, and (iv) expense risks. Scottish Re
(U.S.), Inc. originates reinsurance business predominantly by marketing its
products and services directly to U.S. life insurance and reinsurance companies.
Scottish Annuity & Life Insurance Company (Cayman) Ltd. originates reinsurance
business predominantly through reinsurance brokers and intermediaries. In our
Life Reinsurance International business we specialize in the reinsurance of
risks associated with group life insurance, individual life insurance, airline
pilot "loss of license" insurance, and to a lesser extent certain dread disease
insurance. World-Wide Reassurance primarily targets customers in developing
markets as well as selected developed markets. The developing markets include
Asia, Latin America, the Middle East, North Africa and Southern and Eastern
Europe. In the more developed markets, World-Wide Reassurance targets "niche"
market sectors that require a high degree of knowledge and experience.
World-Wide Reassurance markets its products through international brokers and
its own marketing staff.

WEALTH MANAGEMENT

In our Wealth Management business, we directly issue variable life insurance
and variable annuities and similar products to high net worth individuals and
families, for insurance, investment and estate planning purposes. For us, high
net worth generally means individuals and families with a liquid net worth in
excess of $10 million. Variable life insurance and variable annuities have a
cash value component that is placed in a separate account and invested by us on
behalf of the policyholder with a money manager. Through our Bermuda, Cayman
Islands and Luxembourg insurance companies, we have the flexibility to offer
products that permit the use of private independent money managers to manage the
separate accounts. The money managers can utilize investment strategies not
typically available in variable insurance products issued to the general public.

73

SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

1. ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION (CONTINUED)
BASIS OF PRESENTATION

ACCOUNTING PRINCIPLES--Our consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States of
America ("GAAP") and all amounts are reported in thousands of United States
dollars (except per share amounts). Certain items in the prior year financial
statements have been reclassified to conform with the current year presentation.

CONSOLIDATION--We consolidate the results of all our subsidiaries. All
significant intercompany transactions and balances have been eliminated on
consolidation. Prior period amounts have been reclassified to conform to the
current year presentation. The acquisition of World-Wide Holdings is reflected
in our consolidated balance sheet at December 31, 2001. No impact from the
World-Wide Holdings acquisition has been reflected in our consolidated
statements of income in 2000 and 2001 as the transaction was completed at the
close of business on December 31, 2001.

ESTIMATES, RISKS AND UNCERTAINTIES--The preparation of consolidated
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported on the consolidated
financial statements and accompanying notes. Actual results could differ from
those estimates. Our most significant assumptions are for assumed reinsurance
liabilities and deferred acquisition costs. We review and revise these estimates
as appropriate. Any adjustments made to these estimates are reflected in the
period the estimates are revised.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following are the significant accounting policies adopted by the
Company:

A. Fixed maturity investments

Fixed maturities are classified as available for sale, and accordingly, we
carry these investments at fair values on our consolidated balance sheets. The
fair value of fixed maturities is calculated using quoted market prices provided
by independent pricing services. The cost of fixed maturities is adjusted for
prepayments and the amortization of premiums and discounts. The unrealized
appreciation (depreciation) is the difference between fair value and amortized
cost and is recorded directly to equity with no impact to net income. The change
in unrealized appreciation (depreciation) is included in accumulated other
comprehensive income (loss) in shareholders' equity. Investment transactions are
recorded on the trade date with balances pending settlement reflected in the
balance sheet as a component of other assets or other liabilities. Interest is
recorded on the accrual basis.

Short-term investments are carried at cost, which approximates fair value.

Realized gains (losses) on securities are determined on a specific
identification method. We track the cost of each security purchased so that we
are able to identify and record a gain or loss when it is subsequently sold. In
addition, declines in fair value that are determined to be other than temporary
are included in realized gains (losses) in the consolidated statements of
income. Realized gains and losses are stated net of associated amortization of
deferred acquisition costs. EITF Issue No. 99-20, "Recognition of Interest
Income and Impairment on Purchased and Retained Beneficial Interests in
Securitized Financial Assets," ("EITF 99-20") applies to all securities,
purchased or retained, which represent beneficial interests in securitized
assets, unless they meet certain exception criteria. Such securities include
many collateralized mortgage, bond, debt and loan obligations (CMO, CBO, CDO,

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SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and CLO), mortgage-backed securities and asset-backed securities. EITF 99-20
significantly changes the method of assessing "other than temporary impairments"
and for recognizing interest income. A decline in fair value below the
"amortized cost" basis is considered to be an other than temporary impairment
whenever there is an adverse change in the amount or timing of cash flows to be
received, regardless of the resulting yield, unless the decrease is solely a
result of changes in market interest rates. Interest income is based on
prospective estimates of future cash flows.

EITF 99-20 is effective for fiscal quarters beginning after March 15, 2001.
We reviewed all applicable securities held at June 30, 2001 and identified a
required write down in the amount of $406,000. This is shown in the consolidated
statements of income as a cumulative effect of change in accounting principle.

Management reviews securities with material unrealized losses and tests for
other than temporary impairments on a quarterly basis. Factors involved in the
determination of potential impairment include fair value as compared to cost,
length of time the value has been below cost, credit worthiness of the issuer,
forecasted financial performance of the issuer, position of the security in the
issuer's capital structure, the presence and estimated value of collateral or
other credit enhancement, length of time to maturity, interest rates and our
intent and ability to hold the security until the market value recovers.

When a decline is considered to be "other than temporary" a realized loss is
incurred and the cost basis of the impaired asset is adjusted to its fair value.

B. Investment in unit-linked securities

Unit-linked securities are comprised of investments in a unit trust
denominated in British pounds. These investments were acquired as part of the
purchase of World-Wide Holdings on December 31, 2001 and are recorded at quoted
market value. Changes in market value are recorded as realized gains or losses
in total revenue. Investment income is recorded as revenue. The investment
results of the unit-linked securities are generally passed on to the
policyholder (See Note 2L).

C. Cash and cash equivalents

Cash and cash equivalents include fixed deposits with an original maturity,
when purchased, of three months or less. Cash and cash equivalents are recorded
at face value, which approximates fair value.

D. Funds withheld at interest

Funds withheld at interest are funds held by ceding companies under modified
coinsurance agreements whereby we receive the interest income earned on the
funds. The balance of funds held represents the statutory reserves of the ceding
companies.

E. Revenue recognition

(i) Reinsurance premiums from traditional life policies and annuity
policies with life contingencies are generally recognized 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

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SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
by means of the provision for liabilities for future policy benefits and
deferral and subsequent amortization of policy acquisition costs.

From time to time we acquire blocks of in-force business and account for
these transactions as purchases. Results of operations only include the revenues
and expenses from the respective dates of acquisition of these blocks of
in-force business. The initial transfer of assets and liabilities is recorded on
the balance sheet.

Reinsurance assumed on annuity business does not generate premium insurance
but generates investment income over time on the assets we receive from ceding
companies.

(ii) Fee income is earned as follows:

a) Wealth management, separate account transactions: A one-time set-up
fee is charged upon receipt of the initial payment, a fixed annual
administration fee is collected quarterly and mortality, expense and
distribution risk fees are charged quarterly based on total assets in each
contract holder's separate account. When a variable life insurance policy is
issued, a cost of insurance fee is charged quarterly based on the amount
necessary to cover the death benefit. In addition, a contract holder may be
charged a fee upon a partial or total surrender of the policy.

b) Reinsurance: Revenue received on financial reinsurance treaties that
do not qualify under risk transfer rules for reinsurance accounting.

(iii) Investment income is reported on an accrual basis after deducting the
related investment manager's fees.

(iv) Realized capital gains and losses include gains and losses on the sale
of investments available for sale and fixed assets and amounts recognized for
other than temporary impairments on fixed maturities. Realized capital gains and
losses are stated net of associated amortization of deferred acquisition costs.

F. Deferred acquisition costs

Costs of acquiring new business, which vary with and are primarily related
to the production of new business, have been deferred to the extent that such
costs are deemed recoverable from future premiums or gross profits. Such costs
include commissions and allowances as well as certain costs of policy issuance
and underwriting. We perform periodic tests to determine that the cost of
business acquired remains recoverable, and the cumulative amortization is
re-estimated and adjusted by a cumulative charge or credit to current
operations.

Deferred acquisition costs related to traditional life insurance contracts,
substantially all of which relate to long-duration contracts, are amortized over
the premium-paying period of the related policies in proportion to the ratio of
individual period premium revenues to total anticipated premium revenues over
the life of the policy. Such anticipated premium revenues are estimated using
the same assumptions used for computing liabilities for future policy benefits.

Deferred acquisition costs related to interest-sensitive life and
investment-type policies are amortized over the lives of the policies, in
relation to the present value of estimated gross profits from mortality,
investment income, and expense margins.

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SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The development of and amortization of deferred acquisition costs for our
products requires management to make estimates and assumptions. Actual results
could differ materially from those estimates. Management monitors actual
experience, and should circumstances warrant, will revise its assumptions and
the related estimates.

G. Present value of in-force business

The present value of the in-force business is established upon the
acquisition of a company and will be amortized over the expected life of the
business as determined at acquisition. The amortization each year will be a
function of the gross profits or revenues each year in relation to the total
gross profits or revenues expected over the life of the business, discounted at
the assumed net credit rate.

H. Goodwill

Goodwill is established upon the acquisition of a subsidiary. Goodwill is
calculated as the difference between the price paid and the value of individual
assets and liabilities on the date of acquisition. In June 2001, the Financial
Accounting Standards Board issued SFAS 142, "Goodwill and Other Intangible
Assets", effective for fiscal years beginning after December 15, 2001. Under the
new rules, goodwill and intangible assets deemed to have indefinite lives are no
longer amortized but are subject to annual impairment tests in accordance with
the Statements. Other intangible assets will continue to be amortized over their
useful lives.

We applied the new rules on accounting for goodwill and other intangible
assets during 2002. Goodwill recognized in the consolidated balance sheet was
assigned to reporting units. Goodwill was tested for impairment in 2002. There
was no impairment in goodwill recognized on initial adoption. Our reported
earnings and financial position for 2001 do not reflect significant amounts of
amortization of goodwill. During the year we finalized the goodwill arising on
the acquisition of World-Wide Holdings. Goodwill arising on this acquisition
amounts to $35.5 million in comparison with $30.6 million at December 31, 2001.
The increase has arisen from additional legal, professional and other costs
relating to the acquisition and finalization of the deferred tax balance
existing at the date of the acquisition.

I. Fixed assets and leasehold improvements

Fixed assets include leasehold improvements, furniture and fittings and
computer equipment. They are recorded at cost and are depreciated over their
estimated useful lives ranging between 1 and 5 years on a straight-line basis.
Accumulated depreciation at December 31, 2002 and 2001 amounted to $2.9 million
and $1.8 million, respectively.

J. Reserves for future policy benefits

The development of policy reserves for our products requires management to
make estimates and assumptions regarding mortality, lapse, expense and
investment experience. Interest rate assumptions for individual life reinsurance
reserves range from 2.5 to 7.0%. The interest assumptions for immediate and
deferred annuities range from 4.0 to 6.5%.

These estimates are based primarily on historical experience and information
provided by ceding companies. Actual results could differ materially from those
estimates. Management monitors actual experience, and where circumstances
warrant, revises the assumptions and the related reserve estimates.

77

SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
For traditional life policies, future benefits are 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. If 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.

K. Interest sensitive contract liabilities

The liabilities for interest sensitive contract liabilities equal the
accumulated account values of the policies or contracts as of the valuation date
and include funds received plus interest credited less funds withdrawn and
interest paid. Benefit liabilities for fixed annuities during the accumulation
period equal their account values; after annuitization, they equal the
discounted present value of expected future payments.

L. Unit-linked contract liabilities

Unit-linked contract liabilities assumed by World-Wide Reassurance are
recorded at account value and represent contracts in which the investment
results attained are generally passed through to the policyholder. The
investment results are capital gains and losses, net of tax. Amounts are
credited to these products based on the underlying investment results of the
unit-linked securities (see Note 2B).

M. Income taxes

Income tax liability and deferred tax assets are recorded in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109. In accordance with
this statement we record deferred income taxes that reflect the net tax effect
of the temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes. A valuation allowance is applied to deferred tax assets where the
recoverability is uncertain.

N. Stock-based compensation

We apply the intrinsic value method as detailed in Accounting Principles
Board ("APB") Opinion No. 25 and related interpretations in accounting for stock
option plans. We do not recognize compensation cost because our options are
issued with an exercise price equal to the market price of the stock on the date
of issue. Note 16 contains a summary of the pro forma effects to reported net
income and earnings per share for 2002, 2001 and 2000 had we elected to
recognize compensation cost based on the fair value of the options granted at
grant date as prescribed by SFAS No. 123.

O. Earnings per share

In accordance with SFAS No. 128, basic earnings per share is calculated
based on weighted average ordinary shares outstanding and excludes any dilutive
effects of options and warrants. Diluted earnings per share assume the exercise
of all dilutive stock options and warrants using the treasury stock method.

78

SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
P. Segregated assets

Separate account investments are in respect of wealth management clients and
include the net asset values of the underlying funds plus separate cash and cash
equivalent balances less separate account fees payable to us. The funds in the
separate accounts are not part of our general funds and are not available to
meet our general obligations. The assets and liabilities of these transactions
move in tandem. The client bears the investment risk on the account and we
receive an asset-based fee for providing this service that is recorded as fee
income. Included in these accounts is a total return swap transaction totaling
approximately $26.7 million on behalf of a wealth management client.

Q. Segregated liabilities

Separate account liabilities include amounts set aside to pay the deferred
variable annuities and the cash values associated with life insurance policies.
These balances consist of the initial premiums paid after consideration of the
net investment gains/losses attributable to each separate account, less fees and
withdrawals. These liabilities also include an amount in respect of a total
return swap transaction totaling approximately $26.7 million.

R. Fair value of financial instruments

The fair value of assets and liabilities included on the consolidated
balance sheets which qualify as financial instruments under SFAS No. 107,
"Disclosure About Fair Value of Financial Instruments," approximate the carrying
amount presented in the consolidated financial statements.

3. BUSINESS ACQUISITIONS

On December 31, 2001, we completed the purchase of World-Wide Holdings and
its wholly owned subsidiary World-Wide Reassurance. We issued 4,532,380 ordinary
shares with a value of $78.0 million to Pacific Life in exchange for all of the
outstanding shares of World-Wide Holdings. The excess of the purchase price over
net assets acquired was $35.5 million, which is recorded as goodwill and
included in other intangible assets on the balance sheet at December 31, 2002.

79

SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

3. BUSINESS ACQUISITIONS (CONTINUED)
Pro forma information related to our acquisition of World-Wide Holdings is
prepared for the years ended 2001 and 2000, and illustrates the effects of the
acquisition as if it had occurred at the beginning of the periods presented.

80

SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

3. BUSINESS ACQUISITIONS (CONTINUED)

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

(1) World-Wide Holdings results are for the year ended September 30, 2001 and
2000.

(2) Combined amounts include pro forma adjustments.

(3) Combined amounts are calculated using historical weighted average number of
shares plus 4,532,380 ordinary shares issued to acquire World-Wide Holdings.

The acquisition described above was accounted for by the purchase method of
accounting. In accordance with APB Opinion No. 16, "Business Combinations," the
accompanying consolidated statements of income do not include any revenues or
expenses related to this acquisition prior to the closing date.

4. BUSINESS SEGMENTS

We report segments in accordance with SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Our main lines of business
are Life Reinsurance and Wealth Management.

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SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

4. BUSINESS SEGMENTS (CONTINUED)
The segment reporting for the lines of business is as follows:

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SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

4. BUSINESS SEGMENTS (CONTINUED)

5. FOREIGN SALES AND OPERATIONS

Our operations include Bermuda, the Cayman Islands, Ireland, Luxembourg, the
United Kingdom and the United States.

Financial information relating to geographic areas:

83

SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

6. EARNINGS PER ORDINARY SHARE

The following table sets forth the computation of basic and diluted earnings
per ordinary share:

7. INVESTMENTS

The amortized cost, gross unrealized appreciation and depreciation and
estimated fair values of our fixed maturity investments at December 31, 2002 and
2001 are as follows:

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SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

7. INVESTMENTS (CONTINUED)

The contractual maturities of the fixed maturities are as follows (actual
maturities may differ as a result of calls and prepayments):

85

SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

7. INVESTMENTS (CONTINUED)

Gross realized gains and losses are as follows:

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

(1) Includes $10.0 million in 2002 and $4.0 million in 2001 in respect of fixed
maturity investments written down to estimated realizable values and
$2.5 million in 2002 and $2.9 million in 2001 in respect of modified
coinsurance receivables written down due to estimated realizable values.

At December 31, 2002 and 2001, we did not have a material concentration of
investments in fixed income securities in a single issuer, industry or
geographic location.

8. FUNDS WITHHELD AT INTEREST

At December 31, 2002, we had four modified coinsurance arrangements with two
ceding companies. We had three contracts with Lincoln National Insurance Company
that account for $1.1 billion (98%) of the funds withheld balances. The other
contract is with Illinois Mutual Insurance Company. At December 31, 2001, we had
three modified coinsurance arrangements with two ceding companies. We had two
contracts with Lincoln National Insurance Company that account for
$500.0 million (95%) of the funds withheld balances at December 31, 2001. The
other contract is with Illinois Mutual Insurance Company.

Investment income on modified coinsurance arrangements amounted to
$54.5 million and $13.8 million in the years ended December 31, 2002 and 2001,
respectively.

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SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

8. FUNDS WITHHELD AT INTEREST (CONTINUED)
According to data provided by our ceding companies, the amortized cost,
gross unrealized appreciation and depreciation and estimated fair values of
assets, excluding cash, backing our funds withheld at interest at December 31,
2002 and 2001 are as follows:

According to data provided by our ceding companies, the contractual
maturities (excluding cash) of the assets backing our funds withheld fixed
maturities are as follows (actual maturities may differ as a result of calls and
prepayments):

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SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

9. REINSURANCE CEDED

Premiums earned are analyzed as follows:

Reinsurance contracts do not relieve us from our obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to us. We evaluate the financial condition of our reinsurers to minimize
our exposure to losses from reinsurer insolvencies. Claims and other policy
benefits are net of reinsurance recoveries of $8.5 million and $0.1 million
during the years ended December 31, 2002 and 2001. At December 31, 2002 and
2001, benefits recoverable of $22.6 million and $19.2 million, respectively,
were ceded to reinsurers.

10. PRESENT VALUE OF IN-FORCE BUSINESS

A reconciliation of the present value of in-force business is as follows:

Future estimated amortization of the present value of in-force business is
as follows:

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SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

11. REINSURANCE TRANSACTIONS

The following table summarizes the acquisitions of in-force reinsurance
transactions completed by us during 2002, 2001 and 2000. These transactions are
accounted for as purchases. Our results of operations include the effects of
these purchases only from the respective acquisition dates.

12. DEFERRED ACQUISITION COSTS

Movement in deferred acquisition costs is as follows:

13. DUE FROM RELATED PARTIES

The amount due from related parties represents premiums less expense
allowances and benefits due from Pacific Life to World-Wide Reassurance as of
December 31, 2002 and 2001.

14. LONG-TERM DEBT

Long-term debt consists of:

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SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

14. LONG-TERM DEBT (CONTINUED)
4.5% SENIOR CONVERTIBLE NOTES

On November 22, 2002 and November 27, 2002 we issued $115.0 million (which
includes an over allotment option of $15.0 million) of 4.5% senior convertible
notes, which are due December 1, 2022, to qualified institutional buyers. The
notes are general unsecured obligations, ranking on a parity in right of payment
with all our existing and future unsecured senior indebtedness, and senior in
right of payment with all our future subordinated indebtedness. Interest on the
notes is payable on June 1 and December 1 of each year, beginning on June 1,
2003. The notes are rated Baa2 by Moody's and BBB- by Standard & Poor's.

The notes are convertible into our ordinary shares initially at a conversion
rate of 46.0617 ordinary shares per $1,000 principal amount of notes (equivalent
to an initial conversion price of $21.71 per ordinary share), subject to our
right to deliver, in lieu of our ordinary shares, cash or a combination of cash
and our ordinary shares. The notes are redeemable at our option in whole or in
part beginning on December 6, 2006, at a redemption price equal to 100% of the
principal amount of the notes plus accrued and unpaid interest. The notes are
subject to repurchase by us upon a change of control of Scottish Annuity & Life
or at a holder's option on December 6, 2006, December 1, 2010, December 1, 2012
and December 1, 2017, at a repurchase price equal to 100% of the principal
amount of the notes plus accrued and unpaid interest. The notes are due on
December 1, 2022 unless earlier converted, redeemed by us at our option or
repurchased by us at a holder's option.

A holder may surrender notes for conversion prior to the stated maturity
only under the following circumstances:

- during any conversion period if the sale price of our ordinary shares for
at least 20 trading days in the period of 30 consecutive trading days
ending on the first day of the conversion period exceeds 120% of the
conversion price in effect on that 30th trading day;

- during any period in which the notes are rated by either Moody's Investors
Service, Inc. or Standard & Poor's Rating Group and the credit rating
assigned to the notes by either rating agency is downgraded by two levels
or more, suspended or withdrawn;

- if we have called those notes for redemption; or

- upon the occurrence of the certain specified corporate transactions. Under
a registration rights agreement, we agreed to file with the Securities and
Exchange Commission, a shelf registration statement, for resale of the
notes and our ordinary shares issuable upon conversion of the notes. This
registration statement has been filed. We have agreed to use our
reasonable best efforts to cause the shelf registration statement to
become effective within 180 days after the original issuance of the notes.

CAPITAL SECURITIES

On December 4, 2002, Scottish Holdings Statutory Trust I, a Connecticut
statutory business trust ("Capital Trust") issued and sold in a public offering
$17.5 million Capital Floating Rate Capital Securities ("the capital
securities"). All of the common shares of the Trust are owned by Scottish
Holdings, Inc., our wholly owned subsidiary.

90

SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

14. LONG-TERM DEBT (CONTINUED)
The capital securities mature on December 4, 2032. They are redeemable in
whole or in part at any time after December 4, 2007. Interest is payable
quarterly at a rate equivalent to 3 month LIBOR plus 4%. At December 31, 2002
the interest rate was 5.42375%. Prior to December 4, 2007 interest cannot exceed
12.5%. The Capital Trust may defer payment of the interest for up to 20
consecutive quarterly periods, but no later than December 4, 2032. Any deferred
payments would accrue interest quarterly on a compounded basis if Scottish
Holdings, Inc. defers interest on the Debentures due December 4, 2032 (as
defined below).

The sole assets of the Trust consist of $18.0 million principal amount of
Floating Rate Debentures (the "Debentures") issued by Scottish Holdings, Inc.
The Debentures mature on December 4, 2032 and interest is payable quarterly at a
rate equivalent to 3 month LIBOR plus 4%. At December 31, 2002 the interest rate
was 5.42375%. Prior to December 4, 2007 interest cannot exceed 12.5%. Scottish
Holdings, Inc. may defer payment of the interest for up to 20 consecutive
quarterly periods, but no later than December 4, 2032. Any deferred payments
would accrue interest quarterly on a compounded basis. Scottish Holdings, Inc.
may redeem the Debentures at any time after December 4, 2007 in the event of
certain changes in tax or investment company law.

SALIC has guaranteed Scottish Holdings, Inc.'s obligations under the
Debentures, and distributions and other payments due on the capital securities.

15. SHAREHOLDERS' EQUITY

ORDINARY SHARES

We are authorized to issue 100,000,000 ordinary shares of par value $0.01
each.

On April 6, 2000 our Board of Directors approved a plan to repurchase up to
$20.0 million of outstanding ordinary shares. During the period May 31, 2000 to
November 30, 2000 a total of 432,500 ordinary shares were repurchased for
$3.8 million. As at December 31, 2000, 15,614,240 ordinary shares were
outstanding.

During 2001 we issued 98,336 ordinary shares to employees upon the exercise
of stock options. In September 2001, 100,000 ordinary shares were repurchased
for $1.5 million. On December 31, 2001 we issued 4,532,380 ordinary shares to
Pacific Life to acquire World-Wide Holdings, resulting in 20,144,956 outstanding
ordinary shares.

On April 4, 2002, we completed a public offering of 6,750,000 ordinary
shares (which included the over-allotment option of 750,000 ordinary shares) in
which we raised aggregate net proceeds of $114.3 million. We used

91

SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

15. SHAREHOLDERS' EQUITY (CONTINUED)

the proceeds of the equity offering to repay short-term borrowings of
$40 million and the remainder for general corporate purposes. During 2002, we
issued 32,500 shares to employees upon the exercise of stock options. At
December 31, 2002, there were 26,927,456 outstanding ordinary shares.

PREFERRED SHARES

We are authorized to issue 50,000,000 preferred shares of par value $0.01
each. At the balance sheet dates there were no preferred shares issued or
outstanding.

WARRANTS

As at December 31, 2002 and 2001 there are 2,850,000 Class A warrants and
200,000 Class B warrants outstanding, each class with an exercise price of
$15.00. As at December 31, 2002 no Class A or Class B warrants have been
exercised.

In connection with our initial capitalization, we issued Class A warrants to
purchase an aggregate of 1,550,000 ordinary shares to related parties. The
aggregate consideration of $0.1 million paid for these warrants is reflected as
additional paid-in capital. In connection with our initial public offering, we
issued an aggregate of 1,300,000 Class A warrants. All Class A warrants are
exercisable at $15.00 per ordinary share, in equal amounts over a three-year
period commencing November 1999 and expire in November 2008.

In connection with our initial public offering, we issued an aggregate of
200,000 Class B warrants for an aggregate purchase price of $0.3 million that is
reflected as additional paid-in capital. Class B warrants are exercisable at
$15.00 per ordinary share, in equal amounts over a three-year period commencing
November 1999 and expire in November 2008.

16. EMPLOYEE BENEFIT PLANS

PENSION PLANS

We provide retirement benefits to all employees, other than World-Wide
Holdings' employees, under defined contribution plans. Defined contribution plan
expenses totaled $878,000, $414,000 and $225,000 for the years ended
December 31, 2002, 2001 and 2000, respectively.

92

SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

16. EMPLOYEE BENEFIT PLANS (CONTINUED)
We provide pension benefits to World-Wide Holdings' employees under a
defined benefit pension plan. The defined benefit plan asset activity and
movement on the defined benefit plan obligation is as follows:

Amounts recognized in the statement of financial position consist of:

Prepaid benefit cost........................................ $ 750
Accumulated other comprehensive income...................... (1,959)
-------
Net amount recognized....................................... $(1,209)
=======
WEIGHTED AVERAGE ASSUMPTIONS AS OF DECEMBER 31, 2002
Weighted average discount rate............................ 5.5%
Expected return on plan assets............................ 6.5%
Rate of salary increases.................................. 4.25%
Rate of inflation......................................... 2.25%

Plan assets are invested in third party investment funds that are managed
externally. The assets consist of equities, fixed maturities and cash.

93

SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

16. EMPLOYEE BENEFIT PLANS (CONTINUED)
The components of net defined benefit pension costs are as follows:

As a result of the accumulated benefit obligation being in excess of plan
assets at December 31, 2002 a minimum pension liability adjustment, net of tax,
of $1.4 million net was recorded in other accumulated comprehensive income.

401(K) PLAN

We sponsor a 401(k) plan in the U.S. in which employee contributions on a
pre-tax basis are supplemented by matching contributions. These contributions
are invested, at the election of the employee, in one or more investment
portfolios. Expenses for the plan amounted to $390,000, $269,000 and $72,000,
respectively, in the years ended December 31, 2002, 2001 and 2000.

STOCK OPTION PLANS

We have four stock option plans (the "1998 Plan," the "1999 Plan," the
"Harbourton Plan" and the "2001 Plan," collectively the "Plans") which allow us
to grant non-statutory options, subject to certain restrictions, to certain
eligible employees, non-employee directors, advisors and consultants. The
minimum exercise price of the options will be equal to the fair market value, as
defined in the Plans, of our ordinary shares at the date of grant. The term of
the options is between seven and ten years from the date of grant. Unless
otherwise provided in each option agreement, all granted options issued prior to
December 31, 2001 become exercisable in three equal annual installments.
Commencing January 1, 2002 all granted options will become exercisable in five
equal installments commencing on the first anniversary of the grant date, except
for annual grants of 2,000 to each director, which are fully exercisable on the
date of grant. Total options authorized under the Plans are 3,750,000.

94

SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

16. EMPLOYEE BENEFIT PLANS (CONTINUED)
Option activity under all Plans is as follows:

Summary of options outstanding at December 31, 2002:

We have adopted the disclosure provisions of APB Opinion No. 25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
employee stock options. Since the exercise price of the stock options equals or
exceeds the market price of the underlying stock on the date of grant, no
compensation expense is recognized.

Pro forma information regarding net income and earnings per share is
required by SFAS No. 148, and has been determined as if we accounted for the
employee stock options under the fair value method of that Statement.

95

SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

16. EMPLOYEE BENEFIT PLANS (CONTINUED)
The Black-Scholes and Binomial option-pricing models were developed for use
in estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected price volatility.
Because our employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of our employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period using the
Black-Scholes model. Our pro forma information is as follows:

The weighted average fair value of options granted in each year is as
follows:

96

SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

16. EMPLOYEE BENEFIT PLANS (CONTINUED)
The fair value for the options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following assumptions:

As of December 31, 2002, 89,001 options were outstanding in respect of
non-employees (2001--Nil; 2000-- 66,667). In 2002 we modified the awards of
certain employees on their termination of employment. The expense recorded in
respect of this modification was $422,000. We apply the fair value method of
SFAS No. 123 in accounting for stock options granted to non-employees who
provide services to us. The expenses recorded were $30,000 in 2000.

17. TAXATION

There is presently no taxation imposed on income or capital gains by the
Governments of Bermuda and the Cayman Islands. Our Bermuda companies have been
granted an exemption from taxation in Bermuda until 2016. If any taxation were
to be enacted in the Cayman Islands, Scottish Annuity & Life Holdings, Ltd. and
Scottish Annuity & Life Insurance Company (Cayman) Ltd. have been granted
exemptions therefrom until 2018; and The Scottish Annuity Company (Cayman) Ltd.
has been granted exemptions therefrom until 2014. These companies operate in a
manner such that they will owe no United States tax other than premium excise
taxes and withholding taxes on certain investment income.

Undistributed earnings of our foreign subsidiaries are considered to be
indefinitely reinvested and, accordingly, no provision for U.S. federal
withholding taxes has been provided thereon. Upon distribution of current or
accumulated earnings and profits in the form of dividends or otherwise, we would
be subject to U.S. withholding taxes at a 5% rate.

97

SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

17. TAXATION (CONTINUED)

At December 31, 2002, we had net operating loss carryforwards of
approximately $83.8 million (2001-$27.6 million) for income tax purposes that
expire in years 2012 through 2014. These carryforwards resulted primarily from
our 1999 acquisition of Scottish Re (U.S.), Inc. and from current operations of
Scottish Re (U.S.), Inc. In 2001, we also had capital loss carryforwards of
approximately $1.0 million. These were utilized in 2002.

Significant components of our deferred tax assets and liabilities are as
follows:

For the years ended December 31, 2002, 2001 and 2000 we have income tax
expense (benefit) from operations as follows:

The income tax benefit in 2001 included $0.6 million related to a change in
valuation allowance on capital loss carryforwards related to the purchase of
Scottish Re (U.S.), Inc. that was due to management's ability to implement
certain tax planning strategies to preserve the tax benefit of the losses.

98

SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

17. TAXATION (CONTINUED)
Income tax expense (benefit) attributable to continuing operations differ
from the amount of income tax expense (benefit) that would result from applying
the federal statutory rates to pretax income from operating due to the
following:

18. STATUTORY REQUIREMENTS AND DIVIDEND RESTRICTIONS

Our Bermuda insurance companies are required to maintain a minimum capital
of $0.25 million. Under The Insurance Law of the Cayman Islands, Scottish
Annuity & Life Insurance Company (Cayman) Ltd. and The Scottish Annuity Company
(Cayman) Ltd. must each maintain a minimum net capital worth of $0.24 million.

Our ability to pay dividends depends significantly on the ability of
Scottish Annuity & Life Insurance Company (Cayman) Ltd., The Scottish Annuity
Company (Cayman) Ltd. and World-Wide Holdings Limited to pay dividends to
Scottish Annuity & Life. While we are not subject to any significant legal
prohibitions on the payment of dividends, Scottish Annuity & Life Insurance
Company (Cayman) Ltd. and The Scottish Annuity Company (Cayman) Ltd. are subject
to the Cayman Islands regulatory constraints, which affect their ability to pay
dividends. Scottish Annuity & Life Insurance Company (Cayman) Ltd. and The
Scottish Annuity Company (Cayman) Ltd. are prohibited from declaring or paying a
dividend if such payment would reduce their net capital worth below $0.24
million.

The maximum amount of dividends that can be paid by Scottish Re (U.S.), Inc.
(a Delaware domiciled insurance company) without prior approval of the Insurance
Commissioner is subject to restrictions relating to statutory surplus and
operating earnings. The maximum dividend payment that may be made without prior
approval is limited to the greater of the net gain from operations for the
preceding year or 10% of statutory capital and surplus as of December 31 of the
preceding year. The statutory surplus of Scottish Re (U.S.), Inc. at December
31, 2002 was $52.1 million (2001-$35.8 million). The maximum dividend that could
be paid in 2003 without prior approval is $5.2 million (2002-$3.6 million).
Scottish Re (U.S.), Inc.'s net assets which are restricted by the above are
$119.2 million (2001-$81.1million).

The NAIC prescribes risk-based capital ("RBC") requirements for U.S.
domiciled life and health insurance companies. As of December 31, 2002 and 2001,
Scottish Re (U.S.), Inc. exceeded all minimum RBC requirements.

99

SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

18. STATUTORY REQUIREMENTS AND DIVIDEND RESTRICTIONS (CONTINUED)
In connection with the Insurance Companies Act 1982 of the United Kingdom,
World-Wide Reassurance is required to maintain statutory minimum net capital of
$22.4 million at September 30, 2002 (2001--$14.9 million). World-Wide
Reassurance had statutory capital of $34.9 million at September 30, 2002
(2001--$44.2 million).

19. COMMITMENTS AND CONTINGENCIES

CREDIT FACILITIES

During the year we arranged two secured credit facilities with U.S. banks
totaling $100 million. Each of the credit facilities provides a combination of
borrowings and letters of credit of up to $50 million. Interest rates on amounts
borrowed under these facilities are LIBOR plus 45-50 basis points. These
facilities expire in September 2003 but are renewable with the agreement of both
parties. At December 31, 2002 there were no borrowings under these facilities.
Outstanding letters of credit at December 31, 2002 amounted to $9.1 million.
Each facility has covenants, including a consolidated net worth covenant and a
maximum leverage covenant.

At December 31, 2001 we had in place a credit facility with a U.S. bank
totaling $50 million. The credit facility provided a combination of borrowings
and letters of credit. At December 31, 2001 borrowings totaled $40 million under
this facility.

We also have a reverse repurchase agreement with a major broker/dealer.
Under this agreement, we have the ability to sell agency mortgage backed
securities with the agreement to repurchase them at a fixed price, providing the
dealer with a spread that equates to an effective borrowing cost linked to
one-month LIBOR. This agreement is renewable monthly at the discretion of the
broker/dealer. At December 31, 2001 the borrowings under this agreement were
$25.1 million. There were no borrowings at December 31, 2002.

LEASE COMMITMENTS

Scottish Annuity & Life and its subsidiaries lease office space in the
countries in which they conduct business under operating leases that expire at
various dates through 2012. Total rent expense with respect to these operating
leases for the years ended December 31, 2002, 2001 and 2000, were approximately
$939,000, $743,000 and $574,000, respectively.

Future minimum lease payments under the leases, are expected to be:

100

SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(DECEMBER 31, 2002)

19. COMMITMENTS AND CONTINGENCIES (CONTINUED)

LEGAL PROCEEDINGS

In the normal course of our business, we and our subsidiaries are
occasionally involved in litigation. The ultimate disposition of such litigation
is not expected to have a material adverse effect on our financial condition,
liquidity or results of operations.

20. QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly financial data for the year ended December 31, 2002 is as follows:

Quarterly financial data for the year ended December 31, 2001 is as follows:

Computations of results per share for each quarter are made independently of
results per share for the year. Due to rounding and transactions affecting the
weighted average number of shares outstanding in each quarter, the sum of
quarterly results per share does not equal results per share for the year.

101

SIGNATURES

Date: March 31, 2003

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

* The undersigned, by signing his name hereto, does hereby sign this Annual
Report on Form 10-K pursuant to the Powers of Attorney executed on behalf of
the above named officers and directors of the Registrant and
contemporaneously filed herewith with the Securities and Exchange
Commission.

/s/ MICHAEL C. FRENCH
- --------------------------------------
Michael C. French
Attorney-in-Fact

102

CERTIFICATION

I, Michael C. French, Chief Executive Officer of Scottish Annuity & Life
Holdings, Ltd. certify that:

1. I have reviewed this annual report on Form 10-K of Scottish Annuity &
Life Holdings, Ltd. ("the registrant");

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 31, 2003

/s/ Michael C. French

Michael C. French
Chief Executive Officer

CERTIFICATION

I, Scott E. Willkomm, President of Scottish Annuity & Life Holdings, Ltd.
certify that:

1. I have reviewed this annual report on Form 10-K of Scottish Annuity &
Life Holdings, Ltd. (the "registrant");

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: March 31, 2003

/s/ Scott E. Willkomm

Scott E. Willkomm
President

CERTIFICATION

I, Elizabeth A. Murphy, Chief Financial Officer of Scottish Annuity & Life
Holdings, Ltd. certify that:

1. I have reviewed this annual report on Form 10-K of Scottish Annuity &
Life Holdings, Ltd. (the "registrant");

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 31, 2003

/s/ Elizabeth A. Murphy

Elizabeth A. Murphy
Chief Financial Officer