Condensed Consolidated Balance Sheets (U.S. Dollars in Thousands Except Share and Per Share Data) December December 31, 31, 2003 2002 --------- --------- ASSETS Investments $76,876 $82,325 Cash and cash equivalents 14,735 13,653 Other investments 5,637 7,446 --------- --------- Total investments and cash 97,248 103,424 Accrued investment income 1,264 826 Management fees receivable 317 697 Reinsurance balances receivable 82,328 180,173 Reinsurance recoverable on incurred losses 8,338 36,685 Funds retained by ceding companies 23,464 27,661 Prepaid reinsurance premiums -- 26 Deferred acquisition costs 31,033 35,723 Fair value of Foreign currency forward contracts 14 1,796 Other assets 8,500 8,567 Cash and cash equivalents held in a fiduciary capacity 545 1,320 --------- --------- TOTAL ASSETS $253,051 $396,898 ========= ========= LIABILITIES Unpaid losses and loss expenses $109,562 $162,676 Unearned premiums 56,481 78,371 Acquisition costs payable 12,218 37,065 Reinsurance balances payable 35,321 51,434 Payable for Securities purchased -- 4,367 Accrued expenses, accounts payable, and other liabilities 5,862 14,991 Fiduciary liabilities 545 1,320 --------- --------- Total liabilities 219,989 350,224 --------- --------- SHAREHOLDERS' EQUITY Common shares, par value $1 per share; 100,000,000 shares authorized; 11,060,848 shares issued and outstanding for 2003 and 11,100,678 shares issued and outstanding for 2002 11,061 11,101 Additional paid-in capital 208,895 208,721 Accumulated other comprehensive income: Foreign currency translation adjustments, net of tax (3,287) (2,305) Unrealized gains on securities, net of tax 2,308 3,255 --------- --------- Accumulated other comprehensive income (979) 950 --------- --------- Retained deficit (185,915) (174,098) --------- --------- Total shareholders' equity 33,062 46,674 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $253,051 $396,898 ========= ========= Book Value per share $2.99 $4.20 ========= ========= Esg Re Limited Condensed Consolidated Statements of Operations (U.S. Dollars in Thousands Except Share and Per Share Data) Three Months Ended Twelve Months Ended December 31, December 31, December 31, December 31, 2003 2002 2003 2002 ------------ ------------ ------------ ------------ REVENUES Net premiums written $17,130 $25,934 $53,540 $112,084 Change in unearned premiums 838 6,863 23,782 22,648 ------------ ------------ ------------ ------------ Net premiums earned 17,968 32,797 77,322 134,732 Management fee revenue 147 438 546 2,269 Net investment income 304 1,589 3,256 7,052 Gain (loss) on equity investments -- -- -- -- Net realized investment gain (loss) (17) 657 3,338 (498) ------------ ------------ ------------ ------------ 18,402 35,481 84,462 143,555 ------------ ------------ ------------ ------------ EXPENSES Losses and loss expenses 14,719 25,365 38,765 101,350 Acquisition costs 7,964 16,407 31,708 49,804 Administrative expenses 1,454 16,919 26,342 42,084 ------------ ------------ ------------ ------------ 24,137 58,691 96,815 193,238 ------------ ------------ ------------ ------------ NET INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES (5,735) (23,210) (12,353) (49,683) Income tax expense 631 (1,492) 536 (1,492) ------------ ------------ ------------ ------------ NET LOSS $(5,104) $(24,702) $(11,817) $(51,175) ============ ============ ============ ============ PER SHARE DATA Basic net income (loss) per share $(0.46) $(2.09) $(1.07) $(4.32) Diluted net income (loss) per share $(0.46) (2.09) $(1.07) (4.32) ============ ============ ============ ============ Weighted average shares outstanding Basic 11,061,743 11,794,579 11,071,536 11,837,747 Diluted 11,061,743 11,794,579 11,071,536 11,837,747 ============ ============ ============ ============ Esg Re Limited Product Mix (Gross Written Premium) Esg Reinsurance Segment The distribution of gross premiums written by line of business for the three months ended December 31, 2003 and 2002 and for the years ended December 31, 2003 and 2002 were as follows: Three months Year ended ended December December December December 31, 31, 31, 31, 2003 2002 2003 2002 --------------------------------- -------- -------- -------- --------- Medical 84.4% 82.1% 24.5% 82.5% Personal Accident 19.7% 17.2% 68.7% 15.9% Credit (0.1)% (1.5)% 1.4% (1.4)% Life (4.3)% 1.9% 2.1% 0.7% Other 0.3% 0.3% 3.3% 2.3% --------------------------------- -------- -------- -------- --------- Total 100.0% 100.0% 100.0% 100.0 % --------------------------------- -------- -------- -------- --------- ESG Direct Segment The distribution of gross premiums written by line of business for the three months ended December 31, 2003 and 2002 and for the years ended December 31, 2003 and 2002 were as follows: Three months ended Year ended December December December December 31, 31, 31, 31, 2003 2002 2003 2002 -------------------------- -------- -------- -------- -------- Personal Accident 99.6% 85.3% 81.3% 83.3% Credit 0.4% 14.7% 18.7% 16.7% -------------------------- -------- -------- -------- -------- Total 100.0% 100.0% 100.0% 100.0% -------------------------- -------- -------- -------- -------- Geographic Mix (Gross Written Premium) The distribution of gross premiums written by geographic region for the three months ended December 31, 2003 and 2002 and for the years ended December 31, 2003 and 2002 were as follows: ESG Reinsurance Three months ended Year ended December December December December 31, 31, 31, 31, 2003 2002 2003 2002 -------------------------- -------- -------- -------- --------- Western Europe 8.4% 36.2% 49.2% 4.2% North America 53.2% 90.5% 2.9% 62.4% Latin America 27.8% (28.4)% 35.1% 4.9% Asia 0.6% 1.7% - - Other 10.0% 0.0% 12.8% 28.5% -------------------------- -------- -------- -------- --------- Total 100.0% 100.0 % 100.0% 100.0 % -------------------------- -------- -------- -------- --------- ESG Direct Three months ended Year ended December December December December 31, 31, 31, 31, 2003 2002 2003 2002 -------------------------- -------- -------- -------- --------- Western Europe 1.5% 14.7% 19.1% 16.7% Asia 98.5% 85.3% 80.9% 83.3% -------------------------- -------- -------- -------- --------- Total 100.00% 100.0 % 100.0% 100.0 % -------------------------- -------- -------- -------- --------- Historic Development of the Portfolio; Technical Result by Business Segment by Underwriting Year The technical profit by business segment underwriting year for the financial years ended December 31, 1998 through 2003 are as follows; Reinsurance Segment Technical Underwriting Year Results ($'m) Financial Total Year ended 1997 1998 1999 2000 2001 2002 2003 ----- ------ ------ ----- ----- ----- ----- ------ 1998 n/a 10.8 - - - - - 10.8 1999 n/a (11.2) (5.0) - - - - (16.2) 2000 n/a (18.1) (6.6) (6.8) - - - (31.5) 2001 n/a 0.3 (7.9) 3.5 2.1 - - (2.0) 2002 (1.7) (9.3) (12.8) 0.2 1.9 4.6 - (17.1) 2003 0.0 0.5 3.4 1.7 (4.9) (0.3) 5.6 6.0 ----- ------ ------ ----- ----- ----- ----- ------ Total (1.7) (27.0) (28.9) (1.4) (0.9) 4.3 5.6 (50.0) Direct Segment Technical Results Underwriting Year ($'m) Financial Year ended 1999 2000 2001 2002 2003 Total ----- ----- ----- ----- ----- ----- 1999 0.0 - - - - - 2000 0.2 2.1 - - - 2.3 2001 0.1 0.3 4.4 - - 4.8 2002 (0.2) 0.3 0.5 0.1 - 0.7 2003 0.0 0.1 (1.0) (0.6) 2.3 0.8 ----- ----- ----- ----- ----- ----- Total 0.1 2.8 3.9 (0.5) 2.3 8.6 Loss & Acquisition Ratios by Underwriting Year The loss and acquisition cost ratios by underwriting year for the financial years ended December 31, 1998 through 2003 are as follows: Total Company L&A Ratio (%) Underwriting Year 1998 1999 2000 2001 2002 2003 ----- ----- ----- ----- ----- ----- L&A at 31 Dec. 1998 89% - - - - - L&A at 31 Dec. 1999 102% 102% - - - - L&A at 31 Dec. 2000 110% 104% 104% - - - L&A at 31 Dec. 2001 112% 107% 100% 76% - - L&A at 31 Dec. 2002 120% 112% 101% 88% 72% - L&A at 31 Dec. 2003 119% 112% 100% 91% 82% 79% Reinsurance Segment L&A Ratio (%) Underwriting Year 1998 1999 2000 2001 2002 2003 ----- ----- ----- ----- ----- ----- L&A at 31 Dec. 1998 89% - - - - - L&A at 31 Dec. 1999 102% 102% - - - - L&A at 31 Dec. 2000 110% 104% 107% - - - L&A at 31 Dec. 2001 112% 107% 102% 92% - - L&A at 31 Dec. 2002 120% 112% 102% 95% 90% - L&A at 31 Dec. 2003 119% 113% 102% 100% 93% 79% Direct Segment L&A Ratio (%) Underwriting Year 1999 2000 2001 2002 2003 ----- ----- ----- ----- ----- L&A at 31 Dec. 1999 86% - - - - L&A at 31 Dec. 2000 46% 58% - - - L&A at 31 Dec. 2001 42% 53% 74% - - L&A at 31 Dec. 2002 37% 43% 52% 49% - L&A at 31 Dec. 2003 38% 43% 59% 56% 79% The L&A ratio for the Direct segment does not include telemarketing costs ESG RE LIMITED Reinsurance Operating Ratios (Net Earned Premium) The key operating ratios for the Reinsurance Segment for the three months and year ended December 31, 2003 and 2002 are as follows; Three months Personal ended Medical Accident Credit Life Other Total December 31, 2003 ------------ ------- -------- -------- -------- ----- ------- Loss ratio 51.6% 235.3% 445.2% (77.5)% n/m 123.2% Acquisition expense ratio 24.9% 41.8% (183.9)% 17.3% n/m 32.6% ------------ ------- -------- -------- -------- ----- ------- Loss and Acquisition Expense Ratio 76.5% 277.1% 261.3% (60.2)% n/m 155.8% ------------ ------- -------- -------- -------- ----- ------- Operating expense ratio (35.9)% ------- Combined ratio 119.9% ======= Three months Personal ended Medical Accident Credit Life Other Total December 31, 2002 ------------ ------- -------- --------- ------ ------- ------- Loss Ratio 78.8% 113.7% (527.9)% 10.4% 114.6% 88.9% Acquisition expense Ratio 29.3% 21.0% 350.0% 18.1% 42.2% 25.8% ------------ ------- -------- --------- ------ ------- ------- Loss and Acquisition Expense Ratio 108.1% 134.7% (177.9)% 28.5% 156.8% 114.7% ------------ ------- -------- --------- ------ ------- ------- Operating expense Ratio 52.6% ------- Combined Ratio 167.3% ======= Year ended Personal December 31, Medical Accident Credit Life Other Total 2003 ------------- ------- -------- ------- ------ ----- ------ Loss Ratio 93.3% 33.2% 291.0% 99.7% n/m 66.2% Acquisition expense Ratio 21.9% 37.1% (11.0)% 28.8% n/m 27.6% ------------- ------- -------- ------- ------ ----- ------ Loss and Acquisition Expense Ratio 115.2% 70.3% 280.0% 128.5% n/m 93.8% ------------- ------- -------- ------- ------ ----- ------ Operating expense Ratio 25.4% ------ Combined Ratio 119.2% ====== -0- Year ended Personal December 31, Medical Accident Credit Life Other Total 2002 ------------ ------- -------- -------- ------ ------ ------ Loss Ratio 73.7% 156.7% (137.0)% 492.6% 91.3% 89.2% Acquisition expense Ratio 25.9% 26.3% 68.2% 49.4% 40.9% 26.2% ------------ ------- -------- -------- ------ ------ ------ Loss and Acquisition Expense Ratio 99.6% 183.0% (68.8)% 542.0% 132.2% 115.4% ------------ ------- -------- -------- ------ ------ ------ Operating expense Ratio 29.3% ------ Combined Ratio 144.7% ====== ESG RE LIMITED Direct Marketing Operating Ratios (Net Earned Premium) The key operating ratios for the Direct Marketing segment for the three months and year ended December 31, 2003 and 2002 are as follows; Three months ended Personal December 31, 2003 Accident Credit Total ----------------------------------------- -------- ------ ------ Loss Ratio 33.7% 43.2% 35.6% Acquisition expense Ratio 53.7% 73.4% 57.6% ----------------------------------------- -------- ------ ------ Loss and Acquisition Expense Ratio 87.4% 116.6% 93.2% ----------------------------------------- -------- ------ ------ Operating expense Ratio 56.2% ------ Combined Ratio 149.4% ====== -0- Three months ended Personal December 31, 2002 Accident Credit Total ----------------------------------------- -------- ------ ------ Loss Ratio 22.8% 46.3% 25.3% Acquisition expense Ratio 153.5% 70.5% 144.8% ----------------------------------------- -------- ------ ------ Loss and Acquisition Expense Ratio 176.3% 116.8% 170.1% ----------------------------------------- -------- ------ ------ Operating expense Ratio 51.7% ------ Combined Ratio 221.8% ====== -0- Year ended Personal December 31, 2003 Accident Credit Total ----------------------------------------- -------- ------ ------ Loss Ratio 22.8% 45.0% 27.0% Acquisition expense Ratio 57.8% 70.8% 60.3% ----------------------------------------- -------- ------ ------ Loss and Acquisition Expense Ratio 80.6% 115.8% 87.3% ----------------------------------------- -------- ------ ------ Operating expense Ratio 45.7% ------ Combined Ratio 133.0% ====== -0- Year ended Personal December 31, 2002 Accident Credit Total ----------------------------------------- -------- ------ ------ Loss Ratio 7.7% 37.1% 10.6% Acquisition expense Ratio 88.9% 63.5% 86.4% ----------------------------------------- -------- ------ ------ Loss and Acquisition Expense Ratio 96.6% 100.6% 97.0% ----------------------------------------- -------- ------ ------ Operating expense Ratio 40.1% ------ Combined Ratio 137.1% ====== ESG RE LIMITED Fixed Maturity Investment Portfolio at December 31, 2003 Average U.S. dollars in thousands Fair Duration Market Credit Value (Years) Yield Rating --------------------------- ---------- -------- ------ ------- Corporate securities $17,408 2.7 2.9 % AA+ U.S. treasury securities and obligations of U.S. AAA government corporations and agencies 22,951 1.2 1.4 % Mortgage & Asset backed AAA securities 4,534 1.6 6.2 % Obligations of states and AA+ political subdivisions 5,715 2.3 3.3 % Foreign currency debt AA+ securities 26,268 2.6 3.3 % --------------------------- ---------- -------- ------ ------- Total $76,876 2.1 2.8 % AA+ --------------------------- ---------- -------- ------ -------