Troubled Bermuda life reinsurer Annuity and Life Re (Holdings), Ltd. is transferring blocks of life reinsurance business to XL under a deal announced yesterday.

The transaction will allow Annuity and Life to "stabilise its business" and satisfy collateral requirements under its reinsurance contracts, board chairman Frederick S. Hammer said.

The agreement is between ANR's subsidiary, Annuity and Life Reassurance, Ltd., and a subsidiary of XL Capital Ltd, according to a statement.

Under the agreement with XL, Annuity and Life has transferred five blocks of life reinsurance business to XL, which has in turn entered into a 50 percent quota share reinsurance contract with ANR with respect to four of those blocks of business. In addition to certain expenses associated with completing this transaction, ANR expects to record a non-cash charge in the fourth quarter of 2002 of at least $20 million in connection with the write down of deferred acquisition costs associated with the contracts transferred to XL.

Following the transfer of these blocks of life reinsurance to XL, ANR expects to have approximately $125 billion of in-force life reinsurance as of December 31, 2002.

In an effort to further reduce the company's year-end collateral requirements, the company and XL have also discussed the assumption by XL of certain additional small blocks of life reinsurance subject to the completion of due diligence by XL and other conditions. The agreement with XL provides that XL will receive an additional payment of $5 million if, during the next 18 months, the company receives new capital funding of at least $35 million and the company's stock price trades at or above $5.00 per share for a period of 20 out of any 30 consecutive trading days. In connection with the transaction, the company's collateral funding facility has been terminated and the company has repaid the amounts it owed under that arrangement.

The transaction was reviewed and approved by a special committee of disinterested directors.

Mr. Hammer, non-executive chairman of the board of directors of the company and co-chairman of its Transition Committee, commented: "This transaction, together with other actions taken by the company in the fourth quarter, is an important first step in our continuing efforts to stabilise our business and address the challenges that confront us.

"The transaction with XL will allow the company to meet a substantial portion of its year-end collateral obligations and to reduce those obligations in future periods on satisfactory terms.

"In addition to the collateral requirements associated with the additional blocks of life reinsurance the company has discussed transferring to XL, we continue to negotiate with one of our ceding companies regarding the satisfaction of its year-end collateral requirements, which such ceding company has indicated are approximately $50 million.

"During 2003, the company will continue its efforts to raise capital and otherwise address the ongoing collateral requirements of its business."