UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2001

Commission file number 000-23481

ESG RE LIMITED

(Exact name of Registrant as specified in its charter)

Bermuda		Not Applicable
(State or other jurisdiction of incorporation of organization)		(I.R.S. Employer Identification No.)

16 Church Street Hamilton HM11, Bermuda
(Address of executive offices, zip code)

Telephone (441) 295-2185
(Registrant’s telephone number, including area code)

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 ý No o

The number of the Registrant’s common shares (par value $1.00 per share) outstanding as of November 8, 2001, was 11,787,725.

EXPLANATORY STATEMENT:

We are filing this Form 10-Q/A (Amendment No. 1) to restate in their entirety Items 1 and 2 of Part 1 of our quarterly report of Form 10-Q for the quarter ended September 30, 2001. For completeness purposes, the full Form 10-Q is filed herein, however, no other parts have been amended.

As previously disclosed, Deloitte & Touche resigned as independent auditors effective November 22, 2002 and subsequently withdrew its audit report related to the year ended December 31, 2001 and review reports for the quarters ended September 30, 2001, March 31, 2002 and June 30, 2002. We subsequently retained BDO International as our new auditors.

We have restated our financial statements for the three and nine months ended September 30, 2001 and our financial statements for the year ended December 31, 2001 to reflect the correct accounting treatment of the co-reinsurance contract with ACE INA Overseas Insurance Company Ltd (“ACE”). We have also restated our financial statements for the years ended December 31, 2001, 2000 and 1999 and our financial statements for the three and nine months ended September 30, 2000 to correct an error in our Foreign Currency Translation Account. For further discussion of these restatements, please refer to Managements Discussion and Analysis of Financial Condition and Results of Operations and Notes 7 and 8 of the Condensed Consolidated Financial Statements.

The restated number for the years ended December 31, 2000 and 1999, resulting from the correction to the Foreign Currency Translation Account have not been audited. As a result the Consolidated Balance Sheet as at December 31, 2000 is presented herein on an unaudited basis, however management believes that the unaudited financial statements include all adjustments necessary for a fair presentation of our financial position as at December 31, 2000.

Unless otherwise noted, all of the information in this Form 10-Q/A is as of September 30, 2001 and does not reflect any subsequent information on events other than this restatement.

For a discussion of our recent deregistration of our common stock under the Securities Exchange Act of 1934, and the related delisting of our common stock by The Nasdaq Stock Market, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Recent Developments”.

We have also provided, in the Management’s Discussion and Analysis of Financial Condition and Results of Operations” a breakdown of our results between our two segments: ESG Reinsurance and ESG Direct. This information was not included in our original Form 10-Q for the quarter ended September 30, 2001.

ESG RE LIMITED

INDEX

Part I. Financial Information

Item 1	Financial Statements and Supplementary Data

	Condensed Consolidated Balance Sheets	4

	Condensed Consolidated Statements of Operations	5

	Condensed Consolidated Statements of Cash Flows	6

	Condensed Consolidated Statements of Comprehensive Income (Loss)	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3	Quantitative and Qualitative Disclosures About Market Risk	29

Part II. Other Information

Item 1	Legal Proceedings	31

Item 2	Changes in Securities and Use of Proceeds	31

Item 3	Defaults Upon Senior Securities	31

Item 4	Submission of Matters to a Vote of Security Holders	31

Item 5	Other Information	31

Item 6	Exhibits and Reports on Form 8-K	31

	Signatures	32

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ESG RE LIMITED

Condensed Consolidated Balance Sheets (as restated)

	September 30, 2001			December 31, 2000
	(Unaudited)			(Unaudited)
ASSETS
Investments – available for sale, at fair value (cost: $157,958 and $166,513)	$	165,008		$	168,478
Cash and cash equivalents	5,842			26,032
Other investments	14,499			17,736
Total investments and cash	185,349			212,246

Accrued investment income	2,794			3,240
Management fees receivable	43			713
Reinsurance balances receivable	182,456			241,587
Reinsurance recoverable on incurred losses	20,645			15,633
Funds retained by ceding companies	14,424			18,432
Prepaid reinsurance premiums	2,051			5,432
Deferred acquisition costs	38,117			46,611
Other assets	6,979			6,281
Cash and cash equivalents held in a fiduciary capacity	2,223			4,619

TOTAL ASSETS	$	455,081		$	554,794
LIABILITIES
Unpaid losses and loss expenses	$	153,998		$	179,614
Unearned premiums	110,062			148,124
Acquisition costs payable	39,639			64,604
Reinsurance balances payable	23,461			30,511
Accrued expenses, accounts payable, and other liabilities ($80 and $85 due to related parties)	15,656			13,756
Fiduciary liabilities	2,223			4,619
Total liabilities	345,039			441,228

SHAREHOLDERS’ EQUITY
Preference shares, 50,000,000 shares authorized; no shares issued and outstanding for 2001 and 2000	—			—
Class B common shares, 100,000,000 shares authorized; no shares issued and outstanding for 2001 and 2000	—			—
Common shares, par value $1 per share; 100,000,000 shares authorized; 11,787,725 shares issued and outstanding for 2001 and 11,777,086 shares issued and outstanding for 2000	11,788			11,777
Additional paid-in capital	207,991			207,642
Accumulated other comprehensive income:
Foreign currency translation adjustments	(131		)	(768		)
Unrealized gains on securities, net of tax	7,206			1,965
Accumulated other comprehensive income	7,075			1,197
Retained (deficit)	(116,812		)	(107,050		)
Total shareholders’ equity	110,042			113,566
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	455,081		$	554,794

The accompanying notes are an integral part of the condensed consolidated financial statements.

ESG RE LIMITED

Condensed Consolidated Statements of Operations (as restated)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30, 2001			September 30, 2000			September 30, 2001			September 30, 2000
REVENUES
Net premiums written	$	8,898		$	16,010		$	75,763		$	165,164
Change in unearned premiums	19,861			23,746			33,787			8,849

Net premiums earned	28,759			39,756			109,550			174,013
Management fee revenue	(132		)	224			288			1,180
Net investment income	2,512			3,600			9,247			9,691
Gain/(loss) on equity investments	—			23			(29		)	309
Net realized investment gain/(loss)	215			472			(2,517		)	(599		)
	31,354			44,075			116,539			184,594
EXPENSES
Losses and loss expenses	15,870			44,477			72,093			144,395
Acquisition costs	8,980			18,264			33,983			56,387
Administrative expenses	6,407			20,453			20,225			36,550
	31,257			83,194			126,301			237,332

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES	97			(39,119		)	(9,762		)	(52,738		)
Income tax expense	—			—			—			—

INCOME (LOSS) FROM CONTINUING OPERATIONS	97			(39,119		)	(9,762		)	(52,738		)

Net Income (Loss) from discontinued operations (Note 4)	—			750			—			(5,178		)

NET INCOME (LOSS)	$	97		$	(38,369	)	$	(9,762	)	$	(57,916	)

PER SHARE DATA
Basic net income (loss) per share from continuing operations	$	0.01		$	(3.31	)	$	(0.83	)	$	(4.49	)

Diluted net income (loss) per share from continuing operations	0.01			(3.31		)	(0.83		)	(4.49		)

Basic net income (loss) per share	$	0.01		$	(3.25	)	$	(0.83	)	$	(4.93	)
Diluted net income (loss) per share	0.01			(3.25		)	(0.83		)	(4.93		)

WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	11,787,725			11,817,349			11,786,000			11,746,066
Diluted	11,787,725			11,817,349			11,786,000			11,746,066
Dividends declared per share	—			$	0.08		—			$	0.16

The accompanying notes are an integral part of the condensed consolidated financial statements.

ESG RE LIMITED

Condensed Consolidated Statements of Cash Flows (as restated)

(U.S. dollars in thousands)

(Unaudited)

	Nine Months Ended
	September 30, 2001			September 30, 2000

CASH FLOWS FROM OPERATING ACTIVITIES
Net cash used by operating activities	$	(23,924	)	$	(44	)

CASH FLOWS FROM INVESTING ACTIVITIES
Cost of fixed maturity investments acquired – available for sale	(183,557		)	(157,716		)
Proceeds from sale of fixed maturity investments – available for sale	189,465			162,580
Funding of other investments	(854		)	(8,740		)
Proceeds from other investments	—			800
Purchases of fixed assets	(1,262		)	(476		)
Net cash provided/(used) by investing activities	3,792			(3,552		)

CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid	(58		)	(2,859		)
Repurchase of common shares	—			(2,234		)
Net cash used in financing activities	(58		)	(5,093		)

Net (decrease) in cash	(20,190		)	(8,689		)
Cash and cash equivalents at January 1	26,032			28,278

Cash and cash equivalents at September 30	$	5,842		$	19,589

The accompanying notes are an integral part of the condensed consolidated financial statements.

ESG RE LIMITED

Condensed Consolidated Statements of Comprehensive Income (Loss) (as restated)

(U.S. dollars in thousands)

(Unaudited)

	Three Months Ended					Nine Months Ended
	September 30, 2001		September 30, 2000			September 30, 2001			September 30, 2000

Net income (loss)	$	97	$	(38,369	)	$	(9,762	)	$	(57,916	)
Other comprehensive income, net of tax:
Foreign currency translation adjustments	305		1,671			638			929
Net unrealized holding (losses)/gains on securities	3,838		1,055			5,241			914
Other comprehensive income (loss)	4,143		2,726			5,879			1,843

Comprehensive income (loss)	$	4,240	$	(35,643	)	$	(3,883	)	$	(56,073	)

The accompanying notes are an integral part of the condensed consolidated financial statements.

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of ESG Re Limited (together with its subsidiaries, the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) except pursuant to the rules and regulations of the Securities and Exchange Commission which do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, these unaudited financial statements reflect all adjustments considered necessary for a fair presentation of financial position, results of operations and comprehensive income as of and for the periods presented. The results of operations for any interim period are not necessarily indicative of the results for a full year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, and related notes thereto, included in the Company’s 2000 Annual Report on Form 10-K.

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period as well as the disclosure of such amounts. Actual results could materially differ from those estimates and assumptions.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s condensed consolidated financial statements have been prepared in accordance with U.S. GAAP. The Company’s significant accounting policies include the following:

(A) PREMIUM REVENUES

Premiums written are estimated and recognized at the inception of the reinsurance contract, based upon information received from intermediaries and ceding companies. The Company compares estimated written premiums to actual premiums as reported by ceding companies on a periodic basis. The timeliness and frequency of ceding company reports vary considerably by ceding company, line of business and geographic area, which means that the actual ultimate premium written may not be known with certainty for prolonged periods. Differences between such estimates and actual amounts as reported by ceding companies are recorded in the period in which the actual amounts are determined.

The reinsurance contracts entered into by the Company are primarily of short duration. Retrospective reinsurance contracts are accounted for in accordance with SFAS No. 113. Premiums written are recognized as earned over the coverage period in proportion to the amount of protection provided. Unearned premium reserves are established to cover the unexpired contract period.

(B) RESERVE FOR LOSSES AND LOSS EXPENSES

The reserve for unpaid losses and loss adjustment expenses includes an estimate of reported case reserves and an estimate for losses incurred but not reported. Case reserves are estimated based on ceding company reports and other data considered relevant to the estimation process. The liability for losses incurred but not reported is based to a large extent on the expectations of ceding companies about ultimate loss ratios at the inception of the contracts, supplemented by industry experience and the Company’s specific historical experience where available. As the Company has limited specific historical experience on a significant number of its programs on which to base its estimate of losses incurred but not reported, its reliance on ceding company expectations and industry experience is necessarily increased, which increases the uncertainty involved in the loss estimation process.

The reserves as established by management are reviewed periodically, and adjustments are made in the periods in which they become known. Although management believes that an adequate provision has been made for the liability for losses and loss expenses, based on all available information, there can be no assurance that the ultimate losses will not differ significantly from the amounts provided.

(C) INVESTMENTS

Fixed maturity securities are classified as available for sale and are reported at estimated fair value. Investments that are available for sale are expected to be held for an indefinite period but may be sold depending on interest rates and other considerations. Other investments are accounted for at the lower of cost or estimated realizable value. Unrealized investment gains and losses on investments available for sale, net of applicable deferred income tax, are

reported as a separate component of “accumulated other comprehensive income”. Realized gains or losses on sale of investments are determined on the basis of average cost. The carrying values of investments available for sale and other investments are adjusted for impairments in value that are considered to be other than temporary.

(D) DEFERRED ACQUISITION COSTS

Costs relating to the production of the new business (primarily commissions and certain costs of marketing) are deferred and included in the deferred acquisition cost asset to the extent that such costs are recoverable from future related policy revenues. The deferred acquisition costs are being amortized over the periods in which the related premiums are earned. Such deferred costs are reviewed to determine if they are recoverable from future income, including investment income and, if not considered recoverable, are charged to expense.

(E) REINSURANCE PREMIUMS CEDED

Reinsurance premiums ceded are reported as prepaid reinsurance premiums and amortized over the respective contract or policy periods in proportion to the amount of insurance protection provided. Commissions on reinsurance ceded are deferred over the terms of the contracts of reinsurance to which they relate and amortized in proportion to the amount of insurance protection provided.

(F) FOREIGN CURRENCY TRANSLATION

The functional and reporting currency of the Company is U.S. dollars. Foreign currency receivables or payables that are denominated in a currency other than U.S. dollars are translated into U.S. dollars at the rates of exchange in effect at the balance sheet date. The resulting exchange gains or losses are included in the results of operations. Exchange gains and losses related to the translation of investments available for sale are included in the net unrealized appreciation (depreciation) of investments, net of deferred income taxes, as a separate component of “accumulated other comprehensive income”. Assets and liabilities related to foreign operations are translated into U.S. dollars at the exchange rate in effect at the balance sheet date; revenues and expenses are translated into U.S. dollars using weighted average rates for the period. Gains and losses resulting from translating foreign currency financial statements, net of deferred income taxes, are excluded from income and included as a separate component of “accumulated other comprehensive income”.

(G) USE OF ESTIMATES

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period as well as the disclosure of such amounts. Actual results, particularly for premiums written, premiums earned and loss reserves could materially differ from those estimates and assumptions.

(H) FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of the Company’s investments approximates their fair value and is based on quoted market prices. Due to the uncertainty with respect to both the timing and amount of the proceeds to be realized from the Company’s other investments, it is not practicable to determine the fair value of these other investments. The carrying value of other financial instruments, including cash and cash equivalents, accrued investment income, and other receivables and payables approximate their estimated fair value due to the short-term nature of the balances.

3. COMMITMENTS AND CONTINGENCIES

(A) EMPLOYMENT CONTRACTS

The Company has entered into employment contracts with several employees for terms of one to five years, which have total minimum commitments of $0.9 million, excluding any performance bonuses, that are determined by the Board of Directors of the Company as at September 30, 2001. The contracts include various non-compete clauses following termination of employment.

(B) LEASE COMMITMENTS

The Company and its subsidiaries have various obligations under operating leases.

The future minimum commitments under lease and employment agreements are as follows:

U.S. dollars in thousands	Lease Commitment		Less Sublease Income		Net		Employment Contracts		Total
Years Ending December 31,
2001	320		73		247		265		512
2002	1,058		212		846		508		1,354
2003	793		38		755		77		832
2004	558		—		558		—		558
2005	353		—		353		—		353
Over Five Years	654		—		654		—		654

Total	$	3,736	$	323	$	3,413	$	850	$	4,263

(C) LETTERS OF CREDIT

As of September 30, 2001, Secured Letters of Credit and Trust Accounts in the aggregate amount of $106.2 million have been issued in favor of ceding companies with $57.6 million related to Letters of Credit issued and $48.6 million related to Trust Accounts in force. The Letters of Credit and Trust Accounts are secured by a lien on the Company’s fixed maturities investment portfolio, equal to 110% of the amount of the outstanding Letters of Credit, and 102% of the amount of the outstanding Trust Accounts. As of December 31, 2000, Secured Letters of Credit and Trust Accounts in the amount of $95.8 million were issued in favor of ceding companies.

The Company’s current Letter of Credit facility will expire on December 31, 2001. The Company is in discussions with its bankers with respect to renewing this facility for another year.

(D) PENSION OBLIGATIONS

Certain subsidiaries of the Company are obligated to make defined contributions to pension plans for their employees. As of September 30, 2001, there were outstanding liabilities for pension contributions of $556 thousand.

(E) CONTINGENCIES

ESG and its subsidiaries, in common with the insurance industry in general, are subject to litigation, including claims for punitive damages, in the normal course of their business. ESG does not believe that such litigation will have a material adverse effect on its financial condition, future operating results or liquidity.

In February 2000, Odyssey Re instituted an action in England against a broker, Stirling Cooke Brown, alleging fraud and conspiracy on the reinsurance placement of 1997 and 1998 personal accident and workers compensation “carve out” business with Odyssey Re. These proceedings mirror earlier proceedings commenced in New York, which were dismissed on jurisdictional grounds. During 1998, ESG accepted a 25% quota share reinsurance treaty with Odyssey Re (UK) retroactive to January 1, 1998. This treaty covers various insurance companies involved in the litigation Odyssey Re instituted in New York over 1997 and 1998 business. This treaty terminated as of December 31, 1998 but ESG renewed its participation for 1999 directly to one of those ceding companies. In December 1999, the Company gave notice to rescind its contract with Odyssey Re (UK) for misrepresentation and failure to disclose material facts. On November 29, 2000 the company filed suit in the High Court to seek judicial confirmation of its rescission. On February 5, 2001 Odyssey Re filed a response. On March 21, 2001, the Company filed a motion for summary judgment. The motion was substantially based on an admission by Odyssey Re (UK) that a misrepresentation had been made to the Company in connection with the quota share agreement, and was supported by evidence from fact and expert witnesses. The Company’s intention was to re-evaluate the motion if Odyssey Re (UK) served any evidence. Subsequently, Odyssey Re (UK) withdrew their admission, and, less than a week before the date scheduled for the hearing, and in violation of the applicable rules of court, they served their evidence, in which they made it clear, for the first time, that they intended to plead a positive case that the representation was true. Odyssey Re’s evidence also raised other factual issues by way of defence, which had not been contained in their initial pleading.

The Company has now recognized that the court would be very unlikely to give a summary judgment on the evidence as it stands, and has accordingly withdrawn its motion. This withdrawal is in no way an acknowledgement that the company’s prospects of success in its litigation with Odyssey Re (UK) are any less good than they were, but simply an acceptance that the issues, which have been raised, require a trial. Indeed, the Company remains confident that it will prevail in that litigation, and intends to pursue the litigation aggressively. The Company may reissue its motion for summary judgment at any time if justified by the state of the evidence and the pleadings. This matter will be heard no earlier than late 2002.

The Company has also given notice to rescind the 1999 account. This matter is now set for arbitration in late 2002.

At this time, the Company is unable to determine the amount of its exposure and the possible effect upon the Company’s business, financial condition or results of operation from these two contracts.

4. DISCONTINUED OPERATIONS

On August 10, 2000, the Board of Directors approved a plan for the divestiture of its Health Care Division. Implementation of that plan resulted in the divestiture of 4Sigma (formerly VVB Bermuda Limited) effective June 30, 2000, to affiliates of the Chairman and senior management of the Health Care Division. The investors in 4Sigma include the Company, affiliates of the Chairman of the Company (“Chairman”), Dr. Gerald Moeller, previously a member of the board of ESG Re Limited and Chief Executive-Healthcare Division and former management of the Health Care Division. Terms comparable to those offered to the affiliates of the Chairman were offered to non-related parties. The Company owns 8,000,000 convertible preference shares in 4Sigma.

4Sigma delivers disease and demand management services to health plans in Germany. It currently has a 4% share of a 60 million-person market with only three significant competitors. Recent changes in German law to be effective July 1, 2002 require all German health insurers to provide disease and demand management services to their members.

4Sigma has been successful in writing new business, however, the volume of business needed to cover operating costs has currently not been achieved. To support immediate cash needs and to preserve its equity participation in 4Sigma, in the second quarter, the Company participated in a rights offering by 4Sigma for convertible preferred debt totaling $0.8 million. Subsequently, 4Sigma re-evaluated its business model and has effected several changes including reducing its management expense and consolidating its operations from Hamburg to Munich.

In November 2001, the Company agreed to participate in an additional rights offering to further support projected cash needs through December 2002. That participation is in the form of a commitment for up to $1.8 million, in $100,000 increments, as funds are needed. Future funding requests will be evaluated on a monthly basis and a complete re-assessment will be effected before April 1^st next year.

For the three months ended September 30, 2000, the Healthcare Division recovered expenses of $750 thousand and consequentially reported net income of $750 thousand, or $0.07 per share. For the nine months ended September 30, 2000, operating results included revenues of $343 thousand and an operating loss of $4,985 thousand, or $0.44 per share, respectively.

Additionally on August 10, 2000 the Board of Directors approved a plan to liquidate it majority-owned subsidiary in Indonesia. This operation reported a net loss of $0.2 million on revenues of $0.4 million in the first half of 2000.

5. RELATED PARTIES

Included in net investment income for the three months and nine months ended September 30, 2001 were related party investment expenses of $85 thousand and $214 thousand, respectively.

6. NEW ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued Statement of Financial Accounting Standard (SFAS) No. 141, Business Combinations. SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. Management does not expect the adoption of SFAS No. 141 to have an impact on the financial position, results of operations or cash flows of the Company.

In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS No. 142 provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives not be amortized, but rather be tested at least annually for impairment. Management does not expect the adoption of SFAS No. 142 to have an impact on the financial position, results of operations, or cash flows of the company.

In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144 supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and some provisions of Accounting Principles Board Opinion 30. SFAS No. 144 sets new criteria for determining when an asset can be classified as held-for-sale as well as modifying the financial statement presentation requirements of operating losses from discontinued operations. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. We are currently evaluating the provisions of SFAS No. 144.

7. RESTATEMENT OF FINANCIAL STATEMENTS – Co-reinsurance Agreements with ACE INA Overseas Insurance Company Ltd (“ACE”).

We signed a co-reinsurance contract with ACE in November 2001 that became effective retroactively as of January 1, 2001. Under SFAS 113, the premiums written during the retroactive period were deemed to be written on our own account with the co-reinsurance to ACE treated as a retroactive retrocession arrangement. However, we did not show premiums earned, losses and loss adjustment expenses and acquisition costs in our reported revenues and expenses, in respect of the retroactive period, in the third and fourth quarters of 2001 and the first and second quarters of 2002. During the quarter ended September 30, 2002, we realized this error in our treatment of the ACE contract and restated our figures for the correct accounting treatment of this contract. In accordance with SFAS 113, we did not recognize any of the profits of the ACE share of the reinsurance contract in our statement of operations and hence, there was no impact on our reported net income or net loss in any affected period. The following table shows the impact that the correct accounting for this contract had on our consolidated balance sheet as of September 30, 2001. It had no impact on our Consolidated Balance Sheet as at December 31, 2000.

	As Restated	As previously reported
	U.S. dollars in thousands
Deferred Acquisition Costs	38,117	39,134
Unpaid loss & loss Expenses	153,998	152,890
Unearned Premiums	110,062	111,589
Acquisition Costs Payable	39,639	40,237
Shareholders Equity	110,042	110,042

The following statement shows the impact that the correct accounting for this contract had on our consolidated statement of operations for the three and nine months ended September 30, 2001. It had no impact on the consolidated statement of operations for the three and nine months ended September 30, 2000.

	Three Months Ended September 30, 2001		Nine Months Ended September 30, 2001
	As Restated	As previously reported	As Restated		As previously reported
	U.S. dollars in thousands
Net premiums earned	28,759	27,232	109,550		108,023
Loss & loss Expenses	15,870	14,762	72,093		70,985
Acquisition Costs	8,980	8,561	33,983		33,564
Net Income/(loss)	97	97	(9,762	)	(9,762	)

8. RESTATEMENT OF FINANCIAL STATEMENTS – Foreign Currency Translation

During the second quarter of 2002, we determined that foreign currency translation adjustments, included in dated other comprehensive income and other expenses, had been misstated by $3,992 thousand due to an error in the system that consolidates the financial results of our subsidiaries. At the same time we were unable to determine the periods in which the original errors occurred and therefore to correct this error, we restated our financial statements for the year December 31, 2001 in order to reflect a fourth quarter adjustment to foreign currency translation adjustments, and in accumulated other comprehensive income, other expenses, and consolidates statements of changes in shareholders’ equity of $3,992 thousand. The restated accounts were filed in our 10-K/A (Amendment No. 3) filing of August 22, 2002, which has been further amended by our 10-K/A (Amendment No. 4) filing of May 30, 2003.

Following further investigation we have subsequently determined that the error of $3,992 thousand occurred in the following years:

	U.S. dollars in thousands

1999	$	488
2000	4,071
2001	(567		)
Total	$	3,992

We have further restated our financial statements for the fiscal year December 31, 2001, 2000 and 1999 and for the three and nine months ended September 30, 2000 in order to reflect the correct foreign currency translation adjustments included in accumulated other comprehensive income, other expenses, and consolidated statements of changes in shareholders’ equity. The restatement has had the following impact on our consolidated balance sheets as at September 30, 2001 and December 31, 2000:

	September 30, 2001				December 31, 2000
	U.S. dollars in thousands				U.S. dollars in thousands
	As Restated		As previously restated		As Restated		As previously restated
Foreign currency Translation adjustments, in accumulated other comprehensive income	(131	)	(4,694	)	(768	)	(5,331	)
Retained deficit	(116,812	)	(112,253	)	107,050		102,491

The restatement has had no impact on our statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2001 and the following impact on our statements of operations and comprehensive income (loss) for the three and nine months ended September 30, 2000.

	Three Months Ended September 30, 2000				Nine Months Ended September 30, 2000
	U.S. dollars in thousands				U.S. dollars in thousands
	As Restated		As previously reported		As Restated		As previously reported
Other expenses	20,453		16,382		36,550		32,479
Net Loss	(38,369	)	(34,298	)	(57,916	)	(53,845	)
Foreign currency translation adjustments, in consolidated statements of comprehensive income	1,671		(2,400	)	929		(3,142	)

The foreign currency translation account includes adjustments arising from the process of translating the financial statements of non U.S. dollar subsidiaries into U.S. dollars. Assets and liabilities of these subsidiaries are translated into U.S. dollars at the exchange rate in effect at the balance sheet date. Revenues and expenses (“statement of operations”) for these subsidiaries are translated into U.S. dollars using weighted average exchange rates for the period. Retained earnings, share capital and investments in subsidiaries are translated at historic rates. Translation adjustments arising are included in the equity section of the balance sheet.

9. SEGMENT INFORMATION

We operate two complementary business segments, ESG Reinsurance and ESG Direct. Our larger segment ESG Reinsurance, provides medical, personal accident, credit life, disability and special risks reinsurance to selected insurers and reinsurers. Our smaller but growing segment ESG Direct provides direct marketing services, expertise in the development of reinsurance and insurance products and supporting technology to financial institutions in Asia,

Europe and Australia. We do not maintain separate balance sheet data for our operating segments. Accordingly, we do not review and evaluate the financial results of the operating segments based upon balance sheet data.

Underwriting results for three and nine months ended September 30, 2001 and 2000, by line of business and in total for the ESG Reinsurance segment were as follows:

Three months ended September 30, 2001	Medical		Accident			Credit			Life			Other			Total
	U.S. dollars in thousands
Gross premiums written	$	21,218	$	1,495		$	(202	)	$	(1,746	)	$	455		$	21,220
Net premiums written	9,430		967			(221		)	(1,714		)	442			8,904
Net premiums earned	18,215		5,734			317			(383		)	558			24,441
Losses and loss expenses	3,839		10,452			171			(252		)	761			14,971
Acquisition costs	5,473		1,145			591			4			(534		)	6,679
Technical profit/(loss)	8,903		(5,863		)	(445		)	(135		)	331			2,791
Operating costs	4,029		640			73			(83		)	121			4,780

Net underwriting income (loss)	$	4,874	$	(6,503	)	$	(518	)	$	(52	)	$	210		$	(1,989	)

Three months ended September 30, 2000	Medical			Accident			Credit			Life			Other			Total
	U.S. dollars in thousands
Gross premiums written	$	28,314		$	3,692		$	(2,039	)	$	735		$	(698	)	$	30,004
Net premiums written	13,987			2,473			(1,906		)	559			(931		)	14,182
Net premiums earned	26,647			11,273			(306		)	1,288			219			39,121
Losses and loss expenses	26,589			15,762			(510		)	1,862			470			44,173
Acquisition costs	11,772			4,609			732			534			226			17,873
Technical Profit/(Loss)	(11,714		)	(9,098		)	(528		)	(1,108		)	(477		)	(22,925		)
Operating costs	12,810			4,286			69			630			107			17,902

Net underwriting income (loss)	$	(24,824	)	$	(13,384	)	$	(597	)	$	(1,738	)	$	(584	)	$	(40,827	)

Nine months ended September 30, 2001	Medical			Accident			Credit			Life			Other			Total
	U.S. dollars in thousands
Gross premiums written	$	67,271		$	12,052		$	(3,349	)	$	(3,139	)	$	2,412		$	75,247
Net premiums written	50,867			8,858			(3,144		)	(4,000		)	2,241			54,822
Net premiums earned	62,879			32,700			(1,143		)	(898		)	2,455			95,993
Losses and loss expenses	37,473			33,281			(1,726		)	(1,628		)	1,924			69,324
Acquisition costs	19,650			7,574			673			110			(953		)	27,054
Technical profit/(loss)	5,756			(8,155		)	(90		)	620			1,484			(385		)
Operating costs	11,664			3,364			(480		)	(180		)	448			14,816

Net underwriting income (loss)	$	(5,908	)	$	(11,519	)	$	390		$	800		$	1,036		$	(15,201	)

Nine months ended September 30, 2000	Medical			Accident			Credit			Life			Other			Total
	U.S. dollars in thousands
Gross premiums written	$	129,557		$	49,913		$	1,982		$	5,356		$	3,131		$	189,939
Net premiums written	109,341			45,016			1,950			4,822			2,207			163,336
Net premiums earned	118,080			42,193			5,910			4,593			2,602			173,378
Losses and loss expenses	97,138			38,806			2,032			3,505			2,610			144,091
Acquisition costs	36,435			13,020			3,626			1,571			1,344			55,996
Technical Profit/(loss)	(15,493		)	(9,633		)	252			(483		)	(1,352		)	(26,709		)
Operating costs	22,367			7,671			736			1,001			730			32,505

Net underwriting income (loss)	$	(37,860	)	$	(17,304	)	$	(484	)	$	(1,484	)	$	(2,082	)	$	(59,214	)

Underwriting results for the three and nine months ended September 30, 2001 and 2000, by line of business and in total, for the ESG Direct segment, were as follows:

Three months ended September 30, 2001	Accident		Credit		Total
	U.S. dollars in thousands
Gross premiums written	4,132		(4,138	)	(6	)
Net premiums written	4,132		(4,138	)	(6	)
Net premiums earned	4,122		196		4,318
Losses and loss expenses	849		50		899
Acquisition costs	2,423		(122	)	2,301
Technical profit/(loss)	850		268		1,118
Operating costs	1,489		38		1,527
Net underwriting income/(loss)	(639	)	230		(409	)

Three months ended September 30, 2000	Accident		Credit	Total
	U.S. dollars in thousands
Gross premiums written	1,828		0	1,828
Net premiums written	1,828		0	1,828
Net premiums earned	635		0	635
Losses and loss expenses	304		0	304
Acquisition costs	391		0	391
Technical profit/(loss)	(60	)	0	(60	)
Operating costs	1,536		0	1,536
Net underwriting income/(loss)	(1,596	)	0	(1,596	)

Nine months ended September 30, 2001	Accident		Credit		Total
	U.S. dollars in thousands
Gross premiums written	12,709		8,232		20,941
Net premiums written	12,709		8,232		20,941
Net premiums earned	12,665		892		13,557
Losses and loss expenses	2,520		249		2,769
Acquisition costs	7,105		(176	)	6,929
Technical profit/(loss)	3,040		819		3,859
Operating costs	4,671		458		5,129
Net underwriting income/(loss)	(1,631	)	361		(1,270	)

Nine months ended September 30, 2000	Accident		Credit	Total
	U.S. dollars in thousands
Gross premiums written	1,828		0	1,828
Net premiums written	1,828		0	1,828
Net premiums earned	635		0	635
Losses and loss expenses	304		0	304
Acquisition costs	391		0	391
Technical profit/(loss)	(60	)	0	(60	)
Operating costs	1,536		0	1,536
Net underwriting income/(loss)	(1,596	)	0	(1,596	)

Report of Independent Accountants

To the Board of Directors and Shareholders

ESG Re Limited

We have reviewed the condensed consolidated balance sheet of ESG Re Limited and subsidiaries as of September 30, 2001, and the related condensed consolidated statements of operations and comprehensive income/loss for the three-month and nine-month periods ended September 30, 2001, and cash flows for the nine-month periods ended September 30, 2001 included in the accompanying Securities and Exchange Commission Form 10-Q for the period ended September 30, 2001. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

The condensed consolidated balance sheets as of September 30, 2001 and December 31, 2000 and the condensed consolidated statements of operations and comprehensive income/loss for the three-month and nine-month periods ended September 30, 2001 and September 30, 2000 and cash flows for the nine-month period ended September 30, 2001 and 2000 have been restated. The effects of the restatements are set out in Notes 7 and 8 to the unaudited condensed consolidated financial statements.

BDO International

Dublin Ireland

Date: May 30, 2003

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following is a discussion and analysis addresses the financial condition of ESG as of September 30, 2001compared with December 31, 2000 and our results of operation for the three and nine months ended September 30, 2001 compared with the same periods last year. You should read this discussion and analysis with our unaudited condensed consolidated financial statements and related notes included in Item 1 of this Form 10-Q, and our audited financial statements and related notes contained in our 2000 Annual Report on Form 10-K. Our independent accountants have reviewed our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2001 and 2000 in accordance with auditing standards generally accepted in the United States of America. The results of our operations for the period ended September 30, 2001 are not necessarily indicative of our results for the full year.

Certain statements and information included in this Form 10-Q constitute “forward-looking statements” within the meaning of the Private Litigation Reform Act of 1995. These statements express our intentions, strategies, or predictions for the future. Actual results may differ from ESG’s predictions. For more information regarding forward-looking statements, please see “Cautionary Statement Regarding Forward-Looking Statements,” below.

Recent Developments

Market Information

From December 12, 1997 to November 20, 2002, our common stock was traded on NASDAQ under the symbol ESREF. On November 20, 2002, the trading symbol was changed to ESREE to reflect the unfiled status of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2002.

On November 25, 2002, we received a Nasdaq Staff Determination letter indicating that, as a result of our failure to timely file its Report on Form 10-Q for the period ended September 30, 2002, our securities would be delisted from the Nasdaq Stock Market, effective at the opening of business on December 3, 2002. We requested an oral hearing before a Nasdaq Listing Qualifications Panel (the “Panel”) to review the Staff Determination, which request stayed the delisting of our securities. Thereafter, on December 17, 2002, we were notified that we failed to maintain a closing bid price of at least $1.00 per share for 30 consecutive trading days, and that we should discuss our plan to remedy that additional deficiency at the hearing. The hearing was held on December 20, 2002. By letter dated January 31, 2003, we were was advised that the Panel had determined that our securities would be delisted from The Nasdaq Stock Market effective with the opening of business on Tuesday, February 4, 2003. The reason given for the decision was the failure to timely file our quarterly report on Form 10-Q for the quarter ended September 30, 2002. In addition, the Panel cited as a reason for its delisting decision, our failure to file any of the amendments to previously filed reports under the Securities Exchange Act of 1934, as amended, for any of the anticipated restatements of certain information in our financial statements. Nasdaq’s delisting decision will not be appealed.

On March 17, 2003 we filed with the SEC our certification on Form 15 to deregister our common stock under the Securities Exchange Act of 1934, as amended (“the Exchange Act”). Upon filing, our obligations to file reports Form 10-K, Form 10-Q and other periodic reports that were not yet due were immediately suspended. Our certification to deregister is expected to become final within 90 days of filing. If the SEC determines to deny our certification within such 90 day period, we would have 60 days to bring all periodic reports due current.

We intend to continue to make available to our shareholders quarterly and annual financial information in substantially the same form as presently made available. We also intend to generally comply with the corporate governance regulations and guidelines that would be applicable if our common stock was still registered under the Exchange Act and listed on Nasdaq.

The Company’s securities are being quoted through the Pink Sheets stock quotation service. We anticipate (although there is no assurance), that Carr Securities Corp., Port Washington, NY, and Morgan Keegan & Co., Inc., Birmingham, AL, will continue to quote our common stock. There is no assurance that a trading market will develop.

Legal Proceedings

We and our subsidiaries, in common with the insurance industry in general, are subject to litigation, including claims for punitive damages, in the normal course of business. We do not believe that such litigation will have a material adverse effect on our financial condition, future operating results, or liquidity.

In February 2000, Odyssey Re (Sphere Drake) instituted an action in England against a broker, Stirling Cooke Brown and others, alleging fraud and conspiracy on the reinsurance placement of 1997 and 1998 Personal Accident and Workers Compensation “carve out” business with Odyssey Re (Sphere Drake). During 1998, ESG accepted a 25% quota share reinsurance treaty with Odyssey Re (Sphere Drake). This treaty terminated as of December 31, 1998, but we renewed our participation for 1999 directly with the underwriting agent involved in the 1998 year. In December 1999, we gave notice to rescind our contract with Odyssey Re (UK) for misrepresentation and failure to disclose material facts. On November 29, 2000, we filed suit in the High Court to seek a judicial confirmation of our rescission. On February 5, 2001, Odyssey Re (Sphere Drake) filed a response. In December 2002, Odyssey Re (Sphere Drake) accepted our rescission of this treaty in return for a contribution to its legal fees.

We have also given notice we intend to rescind the 1999 account. This matter is in discovery and is now set for arbitration in late 2003. We believe the outcome of the pending litigation between Odyssey Re (Sphere Drake) and Stirling Cooke Brown and others will have an impact on this arbitration.

Events of September 11, 2001

After an initial portfolio analysis of exposures and liabilities as a result of the September 11^thevent in the United States, the Company again reviewed its exposure as of 3^rd Quarter 2001. The Company believes that its total exposure will be approximately US$250,000 (split US$100,000 from the London operation and US$150,000 from the Toronto operation) gross before reinsurance.

The resultant impact from this event has been a decrease in the capacity in the Accident and Health reinsurance market. This affects the Company positively as premium rates are hardening dramatically, but negatively as it makes outwards reinsurance more expensive.

RESTATEMENT OF FINANCIAL STATEMENTS

Co-reinsurance Agreements with ACE INA Overseas Insurance Company Ltd

	As Restated	As previously reported
	U.S. dollars in thousands
Deferred Acquisition Costs	38,117	39,134
Unpaid loss & loss Expenses	153,998	152,890
Unearned Premiums	110,062	111,589
Acquisition Costs Payable	39,639	40,237
Shareholders Equity	110,042	110,042

	Three Months Ended September 30, 2001		Nine Months Ended September 30, 2000
	As Restated	As previously reported	As Restated		As previously reported
	U.S. dollars in thousands
Net premiums earned	28,759	27,232	109,550		108,023
Loss & loss Expenses	15,870	14,762	72,093		70,985
Acquisition Costs	8,980	8,561	33,983		33,564
Net Income/(loss)	97	97	(9,762	)	(9,762	)

Foreign Currency Translation

During the second quarter of 2002, we determined that foreign currency translation adjustments, included in dated other comprehensive income and other expenses, had been misstated by $3,992 thousand due to an error in the system that consolidates the financial results of our subsidiaries. At the same time we were unable to determine the periods in which the original errors occurred and therefore to correct this error, we restated our financial statements for the year December 31, 2001 in order to reflect a fourth quarter adjustment to foreign currency translation adjustments, and in accumulated other comprehensive income, other expenses, and consolidates statements of changes in shareholders’ equity of $3,992 thousand. The restated accounts were filed in our 10-K/A (Amendment No. 3) filing of August 22, 2002, which was further amended in our 10K/A (Amendment No. 4) filing of May 30, 2003.

Following further investigation we have subsequently determined that the error of $3,992 thousand occurred in the following years:

	U.S. dollars in thousands

1999	$	488
2000	4,071
2001	(567		)
Total	$	3,992

	September 30, 2001				December 31, 2000
	U.S. dollars in thousands				U.S. dollars in thousands
	As Restated		As previously restated*		As Restated		As previously restated*
Foreign currency Translation adjustments, in accumulated other comprehensive income	(131	)	(4,694	)	(768	)	(5,331	)
Retained deficit	(116,812	)	(112,253	)	107,050		102,491

	Three Months Ended September 30, 2000				Nine Months Ended September 30, 2000
	U.S. dollars in thousands				U.S. dollars in thousands
	As Restated		As previously reported		As Restated		As previously reported
Other expenses	20,453		16,382		36,550		32,479
Net Loss	(38,369	)	(34,298	)	(57,916	)	(53,845	)
Foreign currency translation adjustments, in consolidated statements of comprehensive income	1,671		(2,400	)	929		(3,142	)

*The previous restatement was reflected in our Form 10-K/A filed August, 22, 2002.

Principal Activities and Sources of Revenue

Our principal activities include providing accident, health, credit, life and special risk reinsurance and related product marketing and development services. We also manage premiums on behalf of co-reinsurers on North American business written in 2001 and 2002. We report the results of our business activities under two segments: ESG Reinsurance and ESG Direct. We evaluate the results of these segments based on business writings out of each of our producing offices. ESG Reinsurance provides traditional reinsurance products, primarily in the U.S. medical insurance market, and ESG Direct provides direct marketing services, bancassurance services, and supporting technologies as well as targeted reinsurance products for credit life and other special risks.

We derive our revenues principally from:

• Premiums for reinsurance products,

• Fees for direct marketing services,

• Management fees, and

• Investment income.

RESULTS OF OPERATIONS

For the three months ended September 30, 2001, the Company had net income of $0.1 million compared to a net loss of $38.4 million for the third quarter of 2000. Net income per share for the three months ended September 30, 2001 was $0.01 compared with a net loss per share of $3.25 for the third quarter 2000. Included in last year’s results was income from discontinued operations of $0.8 million or $0.06 per shares representing the recovering of expenses relating to the divested non-core health care operations. The net operating loss for third quarter 2001, which excluded realized investment gains and losses, was $0.01 per share. Net operating loss for the third quarter 2000, which excludes realized investment gains and losses and loss investments, was $3.29 per share.

An underwriting profit (before operating expenses) of $3.9 million for the quarter and investment income of $2.7 million offset operating expenses of $6.4 million and management fee losses of $0.1 million.

For the nine months ended September 30, 2001, the Company had a net loss of $9.8 million, compared to a net loss of $57.9 million for the same period in 2000. Net loss per share for the nine months ended September 30, 2001 was

$0.83 compared to net loss per share of $4.93 for the nine months ended September 30, 2000.

Total revenues for the three months ended September 30, 2001 were $31.4 million, consisting of net premiums earned of $28.8 million, net investment income of $2.5 million, realized investment gains of $0.2 million, and management fee revenue of $(0.1) million. For the three months ended September 30, 2000 total revenues were $44.1 million consisting of net premiums earned of $39.8 million, net investment income of $3.6 million, realized

investment gains of $0.5 million, gain on equity investments of under $0.1 million and management fee revenue of $0.2 million.

Total revenues for the nine months ended September 30, 2001 were $116.5 million, consisting of net earned premiums of $109.5 million, net investment income of $9.2 million, realized investments losses of $2.5 million, and management fee revenue of $0.3 million. For the nine months ended September 30, 2000 total revenues were $184.6 million consisting of net premiums earned of $174.0 million, net investment income of $9.7 million, realized investment losses of $0.6 million, gain on equity investments of $0.3 million and management fee revenue of $1.2 million.

For the three months ended September 30,2001, expenses were $31.3 million, consisting of $15.9 million of losses and loss expenses, $9.0 million of acquisition costs, and $6.4 million of operating expenses. Total expenses for the three months ended September 30, 2000 were $83.2 million, consisting of $44.5 million of losses and loss expenses, $18.2 million of acquisition costs, and $20.5 million of operating expenses (including a provision to legal reserve of $8.4 million).

Total expenses for the nine months ended September 30, 2001 were $126.3 million, consisting of $72.1 million of losses and loss expense, $34.0 million of acquisition costs, and $20.2 million of operating expenses. For the nine months ended September 30, 2000, total expenses were $237.3 million, consisting of $144.4 million of losses and loss expense, $56.4 million of acquisition costs, and $36.5 million of operating expenses.

NET UNDERWRITING INCOME

Gross premiums written declined by $10.6 million, or 33.4%, for the three months ended September 30, 2001, compared to the corresponding prior year period. For the nine months ended September 30, 2001, gross premiums written decreased by $95.6 million, or 49.8% when compared with the same prior year period. The reduction, for the most part, is a reflection of the Company’s stated objective to reduce premium writings, concentrating on those markets that offer the best profit opportunities. In addition, the Company rescinded one medical treaty underwritten in 1999 in the first quarter of this year, which resulted in a reduction in Gross Written and Net Earned Premium of $9.5 million, respectively.

An underwriting profit (before operating costs) of $3.9 million and $3.5 million was posted in the quarter and nine months ended September 30, 2001, respectively. Business underwritten in 2001 contributed approximately one-half of this result as premiums written this year are now beginning to earn through. Also, we are seeing positive development on business written last year. The year to date results were negatively impacted by the cost of $2.2 million incurred in the first quarter to exit certain unprofitable books of business that automatically would have renewed. Rate increases being effected on premiums written in respect of the 2001 underwriting year are now having an effect on underwriting results, and are expected to contribute significantly more in ensuing quarters as that premium is earned. It is important to note that the significant reserving done in the third quarter of last year continues to prove adequate in connection with the Company’s efforts to close out the 1998 and the 1999 underwriting years.

Underwriting results for the three months ended September 30, 2001 and 2000, by line of business and in total, for the ESG Reinsurance segment were as follows:

Three months ended September 30, 2001	Medical		Accident			Credit			Life			Other			Total
	U.S. dollars in thousands
Gross premiums written	$	21,218	$	1,495		$	(202	)	$	(1,746	)	$	455		$	21,220
Net premiums written	9,430		967			(221		)	(1,714		)	442			8,904
Net premiums earned	18,215		5,734			317			(383		)	558			24,441
Losses and loss expenses	3,839		10,452			171			(252		)	761			14,971
Acquisition costs	5,473		1,145			591			4			(534		)	6,679
Technical profit/(loss)	8,903		(5,863		)	(445		)	(135		)	331			2,791
Operating costs	4,029		640			73			(83		)	121			4,780

Net underwriting income (loss)	$	4,874	$	(6,503	)	$	(518	)	$	(52	)	$	210		$	(1,989	)

Three months ended September 30, 2000	Medical			Accident			Credit			Life			Other			Total
	U.S. dollars in thousands
Gross premiums written	$	28,314		$	3,692		$	(2,039	)	$	735		$	(698	)	$	30,004
Net premiums written	13,987			2,473			(1,906		)	559			(931		)	14,182
Net premiums earned	26,647			11,273			(306		)	1,288			219			39,121
Losses and loss expenses	26,589			15,762			(510		)	1,862			470			44,173
Acquisition costs	11,772			4,609			732			534			226			17,873
Technical Profit/(Loss)	(11,714		)	(9,098		)	(528		)	(1,108		)	(477		)	(22,925		)
Operating costs	12,810			4,286			69			630			107			17,902

Net underwriting income (loss)	$	(24,824	)	$	(13,384	)	$	(597	)	$	(1,738	)	$	(584	)	$	(40,827	)

For the quarter ended September 30, 2001, as mentioned previously, overall gross written premiums declined from prior year levels. The majority of the decline is in medical writings. The third quarter includes the effect of a 50/50 co-reinsurance management agreement between ESG Re North America Ltd., a subsidiary of the Company, and Ace Capital Re Overseas Ltd., entered into on November 1, 2001, with effect from January 1, 2001. ESG Re North America Ltd. writes primarily North American medical coverage.

The negative amounts reported for the Life and Credit books of business in the third quarter is a function of adjusting estimated written premium to actual as current information is received from cedants. Also, the Company continues to experience negative development on its Norwegian personal accident book from prior underwriting years.

Underwriting results for the nine months ended September 30, 2001 and 2000, by line of business and in total for the ESG Reinsurance segment were as follows:

Nine months ended September 30, 2001	Medical			Accident			Credit			Life			Other			Total
	U.S. dollars in thousands
Gross premiums written	$	67,271		$	12,052		$	(3,349	)	$	(3,139	)	$	2,412		$	75,247
Net premiums written	50,867			8,858			(3,144		)	(4,000		)	2,241			54,822
Net premiums earned	62,879			32,700			(1,143		)	(898		)	2,455			95,993
Losses and loss expenses	37,473			33,281			(1,726		)	(1,628		)	1,924			69,324
Acquisition costs	19,650			7,574			673			110			(953		)	27,054
Technical profit/(loss)	5,756			(8,155		)	(90		)	620			1,484			(385		)
Operating costs	11,664			3,364			(480		)	(180		)	448			14,816

Net underwriting income (loss)	$	(5,908	)	$	(11,519	)	$	390		$	800		$	1,036		$	(15,201	)

Nine months ended September 30, 2000	Medical			Accident			Credit			Life			Other			Total
	U.S. dollars in thousands
Gross premiums written	$	129,557		$	49,913		$	1,982		$	5,356		$	3,131		$	189,939
Net premiums written	109,341			45,016			1,950			4,822			2,207			163,336
Net premiums earned	118,080			42,193			5,910			4,593			2,602			173,378
Losses and loss expenses	97,138			38,806			2,032			3,505			2,610			144,091
Acquisition costs	36,435			13,020			3,626			1,571			1,344			55,996
Technical Profit/(loss)	(15,493		)	(9,633		)	252			(483		)	(1,352		)	(26,709		)
Operating costs	22,367			7,671			736			1,001			730			32,505

Net underwriting income (loss)	$	(37,860	)	$	(17,304	)	$	(484	)	$	(1,484	)	$	(2,082	)	$	(59,214	)

For the nine months ended September 30, 2001, gross written premiums are approximately half last year’s level, again, in line with the company’s stated objectives. The net underwriting loss was a function of total operating costs as the majority of earned premium from prior underwriting years is contributing little in the way of underwriting profits, again in line with expectations. Improvement in net underwriting income will be a function of operating results from the 2001 underwriting year, as those premiums are earned, and management of operating costs in line with reduced premium writings.

Underwriting results for the three and nine months ended September 30, 2001 and 2000, by line of business and in total, for the ESG Direct segment, were as follows:

Three months ended September 30, 2001	Accident		Credit		Total
	U.S. dollars in thousands
Gross premiums written	4,132		(4,138	)	(6	)
Net premiums written	4,132		(4,138	)	(6	)
Net premiums earned	4,122		196		4,318
Losses and loss expenses	849		50		899
Acquisition costs	2,423		(122	)	2,301
Technical profit/(loss)	850		268		1,118
Operating costs	1,489		38		1,527
Net underwriting income/(loss)	(639	)	230		(409	)

Three months ended September 30, 2000	Accident		Credit	Total
	U.S. dollars in thousands
Gross premiums written	1,828		0	1,828
Net premiums written	1,828		0	1,828
Net premiums earned	635		0	635
Losses and loss expenses	304		0	304
Acquisition costs	391		0	391
Technical profit/(loss)	(60	)	0	(60	)
Operating costs	1,536		0	1,536
Net underwriting income/(loss)	(1,596	)	0	(1,596	)

Nine months ended September 30, 2001	Accident		Credit		Total
	U.S. dollars in thousands
Gross premiums written	12,709		8,232		20,941
Net premiums written	12,709		8,232		20,941
Net premiums earned	12,665		892		13,557
Losses and loss expenses	2,520		249		2,769
Acquisition costs	7,105		(176	)	6,929
Technical profit/(loss)	3,040		819		3,859
Operating costs	4,671		458		5,129
Net underwriting income/(loss)	(1,631	)	361		(1,270	)

Nine months ended September 30, 2000	Accident		Credit	Total
	U.S. dollars in thousands
Gross premiums written	1,828		0	1,828
Net premiums written	1,828		0	1,828
Net premiums earned	635		0	635
Losses and loss expenses	304		0	304
Acquisition costs	391		0	391
Technical profit/(loss)	(60	)	0	(60	)
Operating costs	1,536		0	1,536
Net underwriting income/(loss)	(1,596	)	0	(1,596	)

We commenced the Direct business for the Accident line of business in Quarter 3 of 2000 and for the Credit line of business in Quarter 1 of 2001.

Operating Ratios

The operating ratios for the three months ended September 30, 2001 and 2000, by line of business for the reinsurance segment and in total were as follows:

Three months ended September 30, 2001	Medical		Accident		Credit		Life		Other		Total
Loss ratio	21.1	%	182.3	%	53.9	%	65.8	%	136.4	%	61.3	%
Acquisition expense ratio	30.0	%	20.0	%	186.4	%	(1.0	)%	(95.7	)%	27.3	%
Loss and acquisition expense ratio	51.1	%	202.3	%	240.3	%	64.8	%	40.7	%	88.6	%
Operating expense ratio											19.6	%
Combined ratio											108.2	%

Three months ended September 30, 2000	Medical		Accident		Credit		Life		Other		Total
Loss ratio	99.8	%	139.8	%	166.7	%	144.6	%	214.6	%	112.9	%
Acquisition expense ratio	44.2	%	40.9	%	(239.2	)%	41.5	%	103.2	%	45.7	%
Loss and acquisition expense ratio	144.0	%	180.7	%	(72.5	)%	186.1	%	317.8	%	158.6	%
Operating expense ratio											45.8	%
Combined ratio											204.4	%

The positive development on the North American medical book in the three months ended September 30, 2001 contributed significantly to the 21.1% loss ratio reported above. The nine months’ result for this book is more reflective of the expected loss ratio on the overall book.

The operating ratios for the nine months ended September 30, 2001 and 2000, by line of business for the reinsurance segment and in total were as follows:

Nine months ended September 30, 2001	Medical		Accident		Credit		Life		Other		Total
Loss ratio	59.6	%	101.8	%	151.1	%	181.3	%	78.4	%	72.2	%
Acquisition expense ratio	31.3	%	23.2	%	(58.9	)%	(12.3	)%	(38.8	)%	28.2	%
Loss and acquisition expense ratio	90.9	%	125.0	%	92.2	%	169.0	%	39.6	%	100.4	%
Operating expense ratio											15.4	%
Combined ratio											115.8	%

Nine months ended September 30, 2000	Medical		Accident		Credit		Life		Other		Total
Loss ratio	82.3	%	92.0	%	34.4	%	76.3	%	100.3	%	83.1	%
Acquisition expense ratio	30.9	%	30.9	%	61.4	%	34.2	%	51.7	%	32.3	%
Loss and acquisition expense ratio	113.1	%	122.9	%	95.8	%	110.5	%	152.0	%	115.4	%
Operating expense ratio											18.7	%
Combined ratio											134.1	%

The operating expense ratios for the three months and nine months ended September 30, 2001 and 2000, respectively, were calculated by expressing total administrative expenses net of corporate office expenses as a percentage of net premiums earned. Total operating expenses for the three months ended September 30, 2001 represent 53.7% of net premiums written and 19.6% of net premiums earned, compared to 126.5% and 45.8%, respectively, for the prior year. Total operating expenses for the nine months ended September 30, 2001 represent 27.0% of net premiums written and 15.4% of net premiums earned, compared to 19.9% and 18.7%, respectively, for the prior year. Savings currently being generated from the rationalization of the company’s traditional reinsurance business are being invested in the expansion of its ESG-Direct division. The Company has a stated objective to further rationalize its expense base to bring it more in line with industry norms for the premium volume now being written.

The operating ratios for the three and nine months ended September 30, 2001 and 2000, by line of business, for the Direct Segment and in total, were as follows:

Three months ended September 30, 2001	Accident		Credit		Total
Loss ratio	20.6	%	25.5	%	20.8	%
Acquisition expense ratio	58.8	%	(62.2	)%	53.3	%
Loss and acquisition expense ratio	79.4	%	(36.7	)%	74.1	%
Operating expense ratio					35.4	%
Combined ratio					109.5	%

Three months ended September 30, 2000	Accident		Credit		Total
Loss ratio	47.9	%	0	%	47.9	%
Acquisition expense ratio	61.6	%	0	%	61.6	%
Loss and acquisition expense ratio	109.5	%	0	%	109.5	%
Operating expense ratio					241.9	%
Combined ratio					351.4	%

Nine months ended September 30, 2001	Accident		Credit		Total
Loss ratio	19.9	%	27.9	%	20.4	%
Acquisition expense ratio	56.1	%	(19.7	)%	51.1	%
Loss and acquisition expense ratio	76.0	%	8.2	%	71.5	%
Operating expense ratio					37.8	%
Combined ratio					109.3	%

Nine months ended September 30, 2000	Accident		Credit		Total
Loss ratio	47.9	%	0	%	47.9	%
Acquisition expense ratio	61.6	%	0	%	61.6	%
Loss and acquisition expense ratio	109.5	%	0	%	109.5	%
Operating expense ratio					241.9	%
Combined ratio					351.4	%

We commenced the Direct business for the Accident line of business in Quarter 3 of 2000 and for the Credit line of business in Quarter 1 of 2001.

Geographical Distribution

The distribution of gross written premiums for the three months ended September 30, 2001 and 2000 and for the year ended December 31, 2000, is as follows:

	Three Months Ended September 30, 2001		Three Months Ended September 30, 2000		Year Ended December 31, 2000
Western Europe	(19.0	)%	1.8	%	18.4	%
North America	83.7	%	95.7	%	53.8	%
Latin America	6.2	%	(9.4	)%	15.7	%
Asia	15.2	%	7.9	%	5.6	%
Other	13.9	%	4.0	%	6.5	%

Total	100.0	%	100.0	%	100.0	%

The Company expects to continue writing North American business given the current favorable market conditions.

The distribution of gross written premiums for the nine months ended September 30, 2001 and 2000 and for the year ended December 31, 2000, is as follows:

	Nine Months Ended September 30, 2001		Nine Months Ended September 30, 2000		Year Ended December 31, 2000
Western Europe	26.7	%	20.1	%	18.4	%
North America	48.7	%	56.6	%	53.8	%
Latin America	4.9	%	18.7	%	15.7	%
Asia	13.5	%	2.5	%	5.6	%
Other	6.2	%	2.1	%	6.5	%

Total	100.0	%	100.0	%	100.0	%

Product Mix

The distribution of gross premiums written by line of business for the three months ended September 30, 2001 and 2000, and for the year ended December 31, 2000 was as follows:

	Three Months Ended September 30, 2001		Three Months Ended September 30, 2000		Year Ended December 31, 2000
Medical	100.0	%	88.9	%	71.0	%
Personal Accident	26.5	%	17.4	%	22.0	%
Credit	(20.5	)%	(6.4	)%	1.4	%
Life	(8.2	)%	2.3	%	3.7	%
Other	2.2	%	(2.2	)%	1.9	%

Total	100.0	%	100.0	%	100.0	%

The distribution of gross premiums written by line of business for the nine months ended September 30, 2001 and 2000, and for the year ended December 31, 2000 was as follows:

	Nine Months Ended September 30, 2001		Nine Months Ended September 30, 2000		Year Ended December 31, 2000
Medical	69.9	%	67.6	%	71.0	%
Personal Accident	25.7	%	27.0	%	22.0	%
Credit	5.1	%	1.0	%	1.4	%
Life	(3.3	)%	2.8	%	3.7	%
Other	2.6	%	1.6	%	1.9	%

Total	100.0	%	100.0	%	100.0	%

Through co-reinsurance of the North American medical portfolio and the expansion of credit and life programs, the Company expects to continue to reduce the proportion of medical business in the portfolio going forward.

Exposure Management

The Company manages its underwriting risk exposures through geographic distribution, an excess of loss reinsurance program, and co-reinsurance. The Company’s excess liability insurance policy generally provides limits up to a maximum of $30 million per occurrence, with a minimum attachment point generally of $1 million.

Management Fee Revenue

Management fee revenue for the quarter was negative $132 thousand representing a downward adjustment of estimated commissions due to the Company from overrider arrangements with retrocessionaires. The reduction of $356 thousand from the corresponding prior period is due to the company retaining more business for its own account.

For the nine months ended September 30, 2001, management fee revenue was $288 thousand, a reduction of $892 thousand from the corresponding period in 2000, due to the company retaining more business for its own account.

Operating Expenses

Total administrative expenses for the three months ended September 30, 2001 were $6.4 million, compared to $20.5 million for the three months ended September 30, 2000 and $7.1 million for the three months ended June 30, 2001. The decrease in the quarter when compared to the second quarter of this year was the result of adding $0.9 million to the company’s legal reserve in the second quarter to cover estimated costs associated with resolving disputes in respect of certain reinsurance contracts. Otherwise, savings generated from various actions being taken to right size the traditional reinsurance division are being invested in the ESG Direct segment as the Company effects its strategy to expand those operations into Southern Europe.

Net Realized Investment Losses

Following the work done late last year to fully address the underwriting issues of the past, the Company initiated a full review and audit of all entities where it holds a minority shareholding interest. Based on the initial results of this exercise, it adjusted its carrying value of these investments by $4.2 million in the second quarter. This provision is included in Net Realized Investment Losses. The current realizable value for these investments is reported at $14.8 million at September 30, 2001. In October 2001, the Company concluded the sale of its shareholding in Atlanticare, Inc for $1.25 million. The loss of approximately $3.4 million was covered by the second quarter provision.

INVESTMENT RESULTS

The investment results for the three months ended September 30, 2001 and 2000 were as follows:

Three Months ended September 30, 2001 U.S dollars in thousands	Average Investments		Net Investment Income(1)		Annualized Effective Yield		Net Realized Investment Gains
Investments – available for sale	$	164,483	$	2,305	5.6	%	$	215
Other investments	14,375		107		3.0	%	—
Cash and cash equivalents	6,641		100		6.0	%	—
Total	$	185,499	$	2,512	4.9	%	$	215

Three Months ended September 30, 2000 U.S dollars in thousands	Average Investments		Net Investment Income(1)		Annualized Effective Yield		Net Realized Investment Gains
Investments – available for sale	$	176,938	$	3,255	7.4	%	$	472
Other investments	14,724		89		2.4	%	—
Cash and cash equivalents	18,006		256		5.7	%	—
Total	$	209,668	$	3,600	6.9	%	$	472

(1) Net investment income is net of investment-related expenses

The investment results for the nine months ended September 30, 2001 and 2000 were as follows:

Nine Months ended September 30, 2001 U.S dollars in thousands	Average Investments		Net Investment Income(1)		Annualized Effective Yield		Net Realized Investment Losses
Investments – available for sale	$	168,350	$	8,082	6.4	%	$	1,683
Other investments	16,426		469		3.8	%	(4,200		)
Cash and cash equivalents	18,032		696		5.1	%	—
Total	$	202,808	$	9,247	5.1	%	$	(2,517	)

Nine Months ended September 30, 2000 U.S dollars in thousands	Average Investments		Net Investment Income(1)		Annualized Effective Yield		Net Realized Investment Losses
Fixed maturity investments	$	177,432	$	8,760	6.6	%	$	(599	)
Other investments	13,287		345		3.5	%	—
Cash and cash equivalents	22,490		586		3.5	%	—
Total	$	213,209	$	9,691	6.1	%	$	(599	)

(1)Net investment income is net of investment-related expenses

Liquidity and Capital Resources

As of September 30, 2001, total investments and cash were $185.3 million compared to $212.2 million at December 31, 2000. Cash flow from operating activities for the nine months ended September 30, 2001 was a negative $23.9 million. All fixed maturity securities in the Company’s investment portfolio are classified as available for sale and are carried at fair value. The fixed maturity investment portfolio as of September 30, 2001 and December 31, 2000, were as follows:

As at September 30, 2001 U.S. dollars in thousands	Fair Value		Duration (Years)	Market Yield		Average Credit Rating
Corporate securities	$	64,415	3.2	5.4	%	AA
U.S. treasury securities and obligations of U.S. government corporations and agencies	45,603		3.7	4.8	%	AAA
Mortgage & Asset backed securities	27,035		2.8	7.1	%	AAA
Obligations of states and political subdivisions	22,326		2.5	5.0	%	AAA
Foreign currency debt securities	5,629		1.1	4.2	%	AAA

Total	$	165,008	2.7	5.3	%	AA

As at December 31, 2000 U.S. dollars in thousands	Fair Value		Duration (Years)	Market Yield		Average Credit Rating
Corporate securities	$	71,382	3.0	6.6	%	A+
U.S. treasury securities and obligations of U.S. government corporations and agencies	38,127		2.4	6.1	%	AAA
Mortgage & Asset backed securities	33,771		3.0	8.1	%	AAA
Obligations of states and political subdivisions	18,753		3.0	7.3	%	AA+
Foreign currency debt securities	6,445		1.6	4.5	%	AAA

Total	$	168,478	2.6	6.5	%	AA

The Company’s investment policy objective is to maximize long-term investment returns while maintaining a liquid, high-quality portfolio. To this end, the investment policy requires that the portfolio have an average credit quality rating of AA, no more than 3% of the portfolio invested in the securities of a single issuer (other than issues of sovereign governments with a rating of AA or better), and a target duration of 2.75 years. The Company’s investment portfolio reflects its investment policy and guidelines.

The Company expects that its financial and operational needs for the foreseeable future will be met by funds generated from operations and from liquidating a small percentage of its investment portfolio. The Company expects to remain highly capitalized after any near-term investment portfolio liquidation.

Shareholders’ equity as of September 30, 2001 was $110.1 million compared to $113.6 million at December 31, 2000. Book value per common share decreased to $9.34 as of September 30, 2001 from $9.64 as of December 31, 2000.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

INTEREST RATE RISK

The largest source of market risk for the Company is interest rate risk on its portfolio of fixed maturity investments, especially fixed rate instruments. In addition, the credit worthiness of the issuer, relative values of alternative investments, liquidity and general market conditions may affect fair values of interest rate sensitive instruments.

The Company’s general strategy with respect to fixed maturity securities is to invest in high quality securities while maintaining diversification and to avoid significant concentrations in individual issuers’ industry segments or countries.

FOREIGN CURRENCY RISK

The Company’s functional currency is the U.S. dollar. However, the Company writes reinsurance business in numerous geographic regions and currencies, giving rise to the risk that the ultimate settlement of receivables and payables on reinsurance transactions will differ from the amounts currently recorded as assets and liabilities in the financial statements. The Company intends to hold investments in currencies in which it will collect premiums and pay claims, thus creating a partial natural hedge against exchange rate fluctuations. The Company believes that its exposure to foreign currency risk is not material.

INFLATION

Inflation has not had a material impact on the Company’s operations for the periods presented. The Company writes reinsurance business in Latin America, which has experienced periods of high inflation. However, it is possible that future inflationary conditions may impact subsequent accounting periods.

THE EURO

On January 1, 1999, a single currency, the “euro” was adopted as the national currency of the 11 participating countries in the European Monetary Union, including Ireland and Germany, two of the countries in which the Company operates and in which the Company maintains a significant presence. The Company’s Irish and German subsidiaries will not be required to use the euro for accounting purposes prior to January 1, 2002. Currently, the Company expects that the impact of the conversion will have no material impact on the Company’s operations, accounting systems or financial reporting.

RISK FACTORS

Certain statements and information included in this Form 10Q constitute “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements express our intentions, strategies or predictions for the future. In addition, from time to time, the Company may make forward-looking statements, orally or in writing. Forward-looking statements in the Form 10Q include, among others, statements regarding:

• the impact of rate increases on premiums written over the 2001 underwriting year

• the ongoing adequacy of the Company’s loss reserves

• the Company’s continuing ability to increase premium rates and strengthen terms of trade in the North and Latin American markets without major loss of business, and

• the anticipated growth in direct business in Asia and Europe

These forward-looking statements involve known or unknown risks, uncertainties or other factors which may cause actual results to materially differ from predictions made by the Company. These factors include, among other things:

• incidence of claims at a frequency or severity that exceeds the Company’s estimates

• the Company’s inability to maintain relationships with key clients

• the Company’s inability to anticipate the cyclical changes of the reinsurance market

• change in U.S. or foreign tax laws or interpretations of such laws that are adverse to the Company’s interests

• the inadequacy of the Company’s loss reserves

• fluctuation of foreign currency exchange rates

• the passage of legislation, in any jurisdiction in which the Company does business, that subjects the Company to additional regulation

• loss of key employees

• changes in the application of the current regulatory environment

• major medical technology changes in the US

• negative changes in the rating

• recession in any key markets

• uncertainties and costs associated with litigation and claims asserted or threatened against the Company, including litigation threatened by ESG shareholders

• naïve capacity in the reinsurance market

• significant changes in data protection laws in key markets; and

• inability to continue to develop and maintain systems that support the Direct business in Asia and Europe

We undertake no obligation to update any forward-looking statements, whether as a result of new information or other wise, other than as required by law. All subsequent written or oral forward-looking statements attributable to the Company are qualified by the cautionary statements in this Report on Form 10Q.

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In amendments to their respective Schedules 13D filed with the Securities and Exchange Commission in September and October 2001, Vicuna Advisors LLC and SC Fundamental LLC (and their related entities) (“Investors”) stated that they were considering the possibility of initiating litigation against the Company in Bermuda. The investors stated that they were considering a proceeding alleging that the Company’s affairs had been conducted in a manner that was oppressive to minority shareholders. The Investors indicated that such a proceeding might seek, among other remedies, an order removing ESG’s Chairman of the Board from service as a Company director and cancellation of certain equity-based benefits paid to the Chairman. The Company believes that the potential claims described by Investors are without merit. To date, the Company has received no notice indicating that Investors have initiated the threatened litigation in Bermuda.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not Applicable.

ITEM 5. OTHER INFORMATION

On November 8, 2001, under authority granted by the shareholders in December 1997, the Board increased the number of directors from six to seven and appointed Mr. Tony Hobson to fill the newly-created vacancy. A copy of the press release issued by the Company is attached as Exhibit 99.1.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit 10.1		Subscription Agreement and Bondholders Conversion Agreement relating to an investment in 4Sigma (Bermuda) Ltd.*

Exhibit 11.1		Computation of Earnings Per Share

Exhibit 99.1		Press release dated November 8, 2001 announcing appointment of new director*

Exhibit 99.2		Certification of Chief Executive Officer pursuant to section 906 of The Sarbanes-Oxley Act of 2002.

Exhibit 99.3		Certification of Controller and Chief Accounting Officer pursuant to section 906 of The Sarbanes-Oxley Act of 2002.

* Incorporated by reference to the Company’s Form 10-Q for the quarter ended September 30, 2001, filed with the Securities and Exchange Commission on November 14, 2001.

(b) Reports on Form 8-K

Not Applicable.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

May 30, 2003
	ESG RE LIMITED

	By:	/s/ Aodh O’Murchu
	Name: Aodh O’Murchu
	Title: Controller & Chief Accounting Officer


	ESG RE LIMITED

	By:	/s/Alasdair Davis
	Name: Alasdair Davis
	Title: Chief Executive Officer

CERTIFICATIONS UNDER EXCHANGE ACT RULE 13A-14 AND 15D-14

I, Alasdair P. Davis, hereby certify that:

1. I have reviewed this quarterly report on Form 10-Q of ESG Re Limited;

2. Based on my knowledge, this quarterly 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 quarterly report; and

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report.

Dated this 30^th May, 2003

/s/ Alasdair P. Davis
Alasdair P. Davis
Chief Executive Officer

******************************************

I, Aodh O’Murchu, hereby certify that:

1. I have reviewed this quarterly report on Form 10-Q of ESG Re Limited;

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

Dated this 30^th May, 2003

/s/ Aodh O’Murchu
Aodh O’Murchu
Controller & Chief Accounting Officer

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ESG RE LIMITED

Condensed Consolidated Balance Sheets (as restated)

(U.S. dollars in thousands except share and per share data)

TOTAL ASSETS

$

455,081

$

554,794

ESG RE LIMITED

Condensed Consolidated Statements of Operations (as restated)

(U.S. dollars in thousands except share and per share data)

(Unaudited)

PER SHARE DATA

ESG RE LIMITED

Condensed Consolidated Statements of Cash Flows (as restated)

ESG RE LIMITED

Condensed Consolidated Statements of Comprehensive Income (Loss) (as restated)

Three months ended September 30, 2001

Accident

Credit

Total

U.S. dollars in thousands

Gross premiums written

4,132

(4,138

)

(6

)

Net premiums written

4,132

(4,138

)

(6

)

Net premiums earned

4,122

196

4,318

Losses and loss expenses

849

50

899

Acquisition costs

2,423

(122

)

2,301

Technical profit/(loss)

850

268

1,118

Operating costs

1,489

38

1,527

Net underwriting income/(loss)

(639

)

230

(409

)

Three months ended September 30, 2000

Accident

Credit

Total

U.S. dollars in thousands

Gross premiums written

1,828

0

1,828

Net premiums written

1,828

0

1,828

Net premiums earned

635

0

635

ESG RE LTD 10-Q/A