1064122--7/11/2008--SCOTTISH_RE_GROUP

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{capital, credit, financial}

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Our statutory capital position and our ability to continue to take reserve credit for the reinsurance ceded to Ballantyne Re and Orkney Re II has been significantly reduced as a result of fair value declines in our sub-prime and Alt-A securities. Our inability to comply with the terms of our forbearance agreements, or renew or replace the forbearance agreements prior to December 15, 2008 could result in us having to seek bankruptcy protection. Our inability to successfully sell our Life Reinsurance North America Segment in a timely manner could result in us having to seek bankruptcy protection. Additional adverse impact from our annual asset adequacy analysis could materially impact our business. Our inability to successfully close the sales of our Life Reinsurance International Segment and Wealth Management business could materially impact our business. Our inability to attract and retain qualified executives and employees or the loss of any of these personnel could negatively impact our business. Our ability to pay dividends depends on our subsidiaries ability to distribute funds to us. Our investment portfolio has significant exposure to sub-prime and Alt-A securities; in recent periods, we have suffered substantial realized and unrealized investment losses related to this exposure, which has adversely affected our financial condition, and we could suffer additional losses in future periods. We face the risk of continued declines in the estimated fair values of our invested assets which could adversely affect our earnings, liquidity position and financial condition. In certain reinsurance contracts and in our collateral finance facilities 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. 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. Inadequate risk analysis and underwriting may result in a decline in our profits. Our life reinsurance contracts and variable life insurance policies expose us to mortality risk which could negatively affect our net income. Several class action securities lawsuits have been filed against us and certain of our current and former officers and directors, and we cannot predict the outcome of these lawsuits. The adjustment of the conversion ratio of the Convertible Cumulative Participating Preferred Shares as a result of a successful indemnification claim by the Investors could significantly dilute the interests of our existing ordinary shareholders. The Investors are our majority shareholders and their interests may differ from our interests and those of our other security holders. Natural disasters, catastrophes and disasters caused by humans, including the threat of terrorist attacks and related events, epidemics, and pandemics may adversely affect our business and results of operations. Our insurance subsidiaries are highly regulated and changes in these regulations could harm our business. Our ordinary shares are subject to voting and transfer limitations. Our articles of association make it difficult to replace directors and to effect a change in control. Applicable insurance laws make it difficult to effect a change in control. It may be difficult to sue or enforce judgments against us in the United States. We cede some of the business that we reinsure to other reinsurance companies who may not pay amounts due to us, which could materially harm our business. The declines in our ratings have increased our cost of capital and forced us to cease pursuing new business. The market price for our ordinary shares has been and may continue to be highly volatile, and there is limited liquidity for our ordinary shares. We are exposed to foreign currency risk which could negatively affect our business. If we or any of our non-U.S. subsidiaries are determined to be conducting business in the United States, we could be liable for U.S. federal income taxes which could negatively affect our net income. The potential application of the Federal Insurance Excise Tax to transactions between non-U.S. entities could cause us to incur additional tax liabilities. Holders of 10% or more of our shares may be subject to U.S. income taxation under the controlled foreign corporation rules. U.S. Persons who hold our shares may be subject to U.S. federal income taxation at ordinary income rates on their proportionate share of our non-U.S. insurance subsidiaries related person insurance income. U.S. Persons who dispose of our shares may be subject to U.S. federal income taxation at the rates applicable to dividends on a portion of their gains, if any. U.S. tax-exempt organizations that own our shares may recognize unrelated business taxable income. U.S. Persons who hold our shares will be subject to adverse U.S. federal income tax consequences if we are considered to be a passive foreign investment company. Changes in U.S. federal income tax law could materially adversely affect an investment in our shares. If we do not receive further undertakings from the Cayman Islands, we may become subject to taxes in the Cayman Islands in the future. If Bermuda law changes, we may become subject to taxes in Bermuda in the future.

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1064122--7/11/2008--SCOTTISH_RE_GROUP_LTD