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SECURITIES AND EXCHANGE COMMISSION
to Sections 13 or 15(d) of the Securities Exchange Act of 1934
þ | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
o | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Cayman Islands | 98-0362785 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) | |
Crown House, Second Floor 4 Par-la-Ville Road | ||
Hamilton HM08, Bermuda | Not Applicable | |
(Address of Principal Executive Office) | (Zip Code) |
None
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• | The continuing deterioration in the U.S. residential housing market in general and the market for sub-prime and Alt-A residential mortgage-backed securities specifically. These conditions have had, and will likely continue to have, a material adverse effect on the value of our consolidated investment portfolio and our capital and liquidity position; | ||
• | The negative outlooks placed on our financial strength ratings by each of the rating agencies in November 2007, followed by the ratings action taken by Standard & Poors (“S&P”) in early 2008 lowering the financial strength ratings of our operating subsidiaries from “BB+” to “BB” (marginal) and placing the ratings on CreditWatch with negative implications, as well as the subsequent ratings downgrades and negative outlooks placed on our financial strength ratings by other rating agencies (which ratings were subsequently lowered further, as described under “Competition and Ratings”), with the resulting material negative impact on our ability to achieve our previous goal of attaining an “A-” or better rating by the middle of 2009; and | ||
• | The material negative impact of ratings declines and negative outlooks by rating agencies on our ability to grow our life reinsurance businesses and maintain our core competitive capabilities. |
• | Dispose of our non-core assets or lines of business, including the Life Reinsurance International Segment and the Wealth Management business; | ||
• | Develop, through strategic alliances or other means, opportunities to maximize the value of our core competitive capabilities within the Life Reinsurance North America Segment, including mortality assessment and treaty administration; and | ||
• | Rationalize our cost structure to preserve capital and liquidity. |
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• | As required by U.S. Generally Accepted Accounting Principles in the United States (“U.S. GAAP”), we reported significant impairment charges of approximately $971.7 million on our invested assets for the year ended December 31, 2007 as a result of, among other factors, (1) the continuing deterioration in the U.S. residential housing market in general and the market for sub-prime and Alt-A residential mortgage-backed securities specifically, (2) our inability to assert our intent and ability to hold certain investment securities over the forecasted recovery period as of December 31, 2007 and (3) other-than-temporary impairments in invested assets. The U.S. residential housing market and the market for sub-prime and Alt-A residential mortgage-backed securities have continued to deteriorate through the first half of 2008 and we have determined that additional impairment charges of approximately $751.7 million will be recognized in our financial statements for the quarter ended March 31, 2008. In addition to causing significant impairment charges and reported losses, the adverse market conditions impact the value of the underlying collateral used to secure our life reinsurance obligations and statutory reserves. A large portion of the impairment charges are primarily held in two of our three securitization structures, Ballantyne Re plc (“Ballantyne Re”) and Orkney Re II plc (“Orkney Re II”). Although these securitization structures are without recourse to us, they are consolidated in our financial statements under U.S. GAAP and changes in the fair value of investments can adversely impact our reported financial results and the statutory reserve credit that Scottish Re (U.S.), Inc., our Delaware subsidiary (“SRUS”), is able to recognize for these transactions. | ||
• | As discussed in more detail below in “Regulation XXX Reserves – Acquired ING Business” and as disclosed in a Form 8-K filed on April 4, 2008, with respect to one of our securitization structures, Ballantyne Re, we executed a letter of intent with ING North America Insurance Corporation (“ING North America”), ING America Insurance Holdings, Inc. (“ING Holdings”), Security Life of Denver Insurance Company (“SLD”) and Security Life of Denver International Limited (“SLDI” and collectively with ING North America, ING Holdings and SLD, “ING”) whereby we had the ability to recapture business from Ballantyne Re and to access up to $375.0 million of letters of credit to support the excess statutory reserves related to the recaptured business. In this regard, and effective March 31, 2008, we recaptured $375.0 million of the $1.2 billion in excess reserves in Ballantyne Re and ING immediately thereafter recaptured the same amount of business from us and, in turn retroceded the business to one of our operating subsidiaries. The effect of this recapture transaction was to reduce the collateral requirements of SRUS related to Ballantyne Re. As part of the letter of intent, we, along with ING, Ballantyne Re and the financial guarantors of certain of the debt securities issued by Ballantyne Re agreed to enter into a novation and assignment of SRUS’s reinsurance agreement with Ballantyne Re to ING, with the aim of permanently relieving SRUS from its requirement to hold reserves with respect to the business in Ballantyne Re. Accordingly, on June 30, 2008 we and those parties executed a binding letter of intent to effect this novation and assignment transaction. In addition, on June 30, 2008 we and ING executed a binding letter of intent whereby we have the ability to recapture up to $200 million of additional excess reserves of the Ballantyne Re business if, prior to completion of the assignment transaction, we deem it necessary to do so in order to allow SRUS to obtain full statutory reserve credit. We expect to execute additional recaptures and complete the assignment transaction during the third quarter of 2008. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations– Liquidity and Capital Resources.” | ||
• | With respect to another of our securitization structures, Orkney Re II, in May 2008 we executed amendments to certain transaction documents that give us flexibility in dealing with additional near term estimated fair value declines in the sub-prime and Alt-A securities held by Orkney Re II. The amendments eliminate certain priority of payment limitations and provide us with the ability to recapture business from Orkney Re II. To the extent that we continue to experience fair value declines in the sub-prime and Alt-A assets, we may need to recapture a pro-rata portion of the underlying business in Orkney Re II and find alternative collateral support for the recaptured business. No assurances can be given that we will be successful in securing alternative collateral support. | ||
• | On May 30, 2008 we received notice from the counterparties to our Clearwater Re collateral finance facility that Clearwater Re was in breach of certain covenants to deliver financial statements in a timely manner. We were required to cure such breach within 30 days of notice or an event of default would have occurred in Clearwater Re. In addition, we project that, due to reported impairment charges in our 2007 year end financial results and anticipated additional impairment charges in 2008, we will not be in compliance with minimum net worth covenants in Clearwater Re and another of our collateral finance facilities, HSBC II. These facilities involve an aggregate of $1.5 billion of financing as of December 31, 2007 and have full recourse to Scottish Annuity & Life Insurance Company (Cayman) Ltd. (“SALIC”). As a result, if we were unable to successfully negotiate a solution with the relevant counterparties, both the |
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Clearwater Re and HSBC II facilities could default with full recourse to SALIC. However, on June 30, 2008 we executed forbearance agreements with the relevant counterparties to the Clearwater Re and HSBC II facilities whereby the relevant counterparties have agreed to forbear taking action until December 15, 2008. In order to achieve forbearance, we agreed to certain economic and non-economic terms which have led to constraints on our available liquidity. We believe the forbearance agreements give us adequate time to execute our revised strategic plan and seek out, if necessary, alternative collateral support for each of these facilities. To the extent we are not successful, by December 15, 2008, in either reaching definitive agreement for the sale of our Life Reinsurance North America Segment (as discussed in more detail below) or finding alternative collateral support for each facility, we will be in default of the forbearance agreements and will need to obtain additional forbearance from the relevant counterparties or consider seeking bankruptcy protection. No assurances can be given that we will succeed in selling our Life Reinsurance North America Segment by December 15, 2008, finding alternative collateral support for the facilities or obtaining additional forbearance from the relevant counterparties. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Forbearance Agreements with Counterparties.” |
• | As a result of an asset adequacy analysis required by the Actuarial Opinion and Memorandum under U.S. Statutory Accounting Rules, formula reserves at SRUS were strengthened by $208 million as of December 31, 2007. The primary factors driving the reserve strengthening were a decrease in the interest rate environment, higher allocated maintenance expenses, lower than expected cash flows from the annuity business and revised lapse assumptions for the life reinsurance business. The reserve strengthening necessitated the infusion of $211 million of capital from SALIC to SRUS and had the effect of significantly reducing available liquidity not contained within our insurance operating subsidiaries. There can be no assurances that these, or other factors, will not require us to further strengthen reserves at SRUS in the future. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Liquidity.” | ||
• | In an effort to preserve capital and to mitigate growing liquidity demands, we have ceased writing new reinsurance treaties and have notified our existing clients that we will not be accepting any new reinsurance risks under existing treaties. We have also taken steps to reduce expenses, including reducing staffing levels. If we are not successful in selling our Life Reinsurance North America Segment (as discussed in more detail below), we will follow a run-off strategy for our Life Reinsurance North America Segment whereby we will continue to receive premiums, pay claims and perform key activities under our existing reinsurance treaties and will be required to record appropriate statutory reserves for the duration of these reinsurance obligations. We have determined it is likely that, during the first quarter of 2009, we will need additional capital and liquidity to support our run-off strategy and other corporate financial obligations. To the extent we are not successful in securing additional sources of capital and liquidity, our insurance operating subsidiaries could become insolvent and we may need to seek bankruptcy protection. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources.” | ||
• | Our ordinary and perpetual preferred shares were delisted from the New York Stock Exchange as of April 7, 2008 and, therefore, we have no further reporting obligations under Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We also had fewer than 300 holders of our securities as of January 1, 2008 and, as a result, our reporting obligations under Sections 13 and 15(d) of the Exchange Act, were suspended. On May 13, 2008 we filed a Form 15 indicating the suspension of our reporting obligations. Our ordinary shares and perpetual preferred shares are no longer registered under Section 12(b) of the Exchange Act. As a result, notwithstanding the occurrence of material developments (either positive or negative), we are not required to, nor do we intend to, make future public filings or issue press releases as we have in the past. These developments may have an adverse impact on the market liquidity in our ordinary and perpetual preferred shares and other securities. | ||
• | As part of our revised business plan, we recently entered into definitive agreements for the sale of our Life Reinsurance International Segment and Wealth Management business, the cash proceeds of which, net of transaction expenses, will supplement our available liquidity. The agreement to sell the Life Reinsurance International Segment is with Pacific Life Insurance Company and was entered into on June 8, 2008 with a sale price of $71.2 million, subject to certain potential downward adjustments. The agreement includes the sale of Scottish Re Limited, Scottish Re Holdings Limited, and all Life Reinsurance International Segment business written by SALIC, together with certain business retroceded within our Company, and the staff |
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and physical assets that we have in Singapore and Japan. The transaction is subject to regulatory approvals and other customary closing conditions. The agreement to sell the Wealth Management business is with Northstar Financial Services Ltd. and was entered into on May 30, 2008. The sale includes the sale of three legal entities: The Scottish Annuity Company (Cayman) Ltd., Scottish Annuity & Life Insurance Company (Bermuda) Ltd. and Scottish Annuity & Life International Insurance Company (Bermuda) Ltd. The combined sale price for all three entities is $6.75 million, subject to certain sale price adjustments. We currently plan to complete these transactions during the third quarter of 2008. No assurances can be given that the conditions to closing these transactions will be satisfied and that we will realize cash proceeds from these sales to address our liquidity needs. |
• | In addition to the non-core assets or line of business sales, and as previously disclosed in a Form 8-K filed on April 4, 2008, we have engaged Merrill Lynch as financial advisor for the sale of our Life Reinsurance North America Segment. Following the announcement of our change in strategic focus in February 2008 we received a number of inquiries and expressions of interest to acquire our Life Reinsurance North America Segment and concluded that a sale may provide the best method for preserving capital and liquidity and maximizing shareholder value. Merrill Lynch has initiated a process to identify and enter into negotiations with prospective qualified buyers. Our objective is to reach a definitive agreement for the sale of our Life Reinsurance North America Segment by December 15, 2008. No assurances can be given that we will be successful in negotiating a sale of our Life Reinsurance North America Segment in a timely manner. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations–Liquidity and Capital Resources.” |
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• | mortality risk, | ||
• | investment risk, | ||
• | persistency risk, | ||
• | expense risk, and | ||
• | counter-party risk. |
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Moody’s | Standard | |||||||
A.M. Best | Fitch | Investors | & | |||||
Company(1) | Ratings(2) | Service(3) | Poor’s(1) | |||||
Insurer Financial Strength Ratings: | ||||||||
Scottish Annuity and Life Insurance Company (Cayman) Ltd. | C+ | CCC+ | B3 | B- | ||||
Scottish Re (U.S.), Inc | C+ | CCC+ | Ba3 | B- | ||||
Scottish Re Limited | B-(2) | BB(4) | — | B-(4) | ||||
Scottish Re Life Corporation | C+ | — | — | B- | ||||
Scottish Re Group Limited Credit Ratings: | ||||||||
Senior unsecured | cc | CCC | Caa1 | CCC- | ||||
Preferred stock | d | C | Caa3 | D |
(1) | Negative | |
(2) | Evolving/Developing | |
(3) | Uncertain | |
(4) | Positive |
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• | market risk, which is the risk that our invested assets will decrease in value due to a change in the yields realized on our assets and prevailing market yields for similar assets, including changes in credit spreads, or an unfavorable change in the liquidity of the investment. Estimated fair value decreases for trust assets used to obtain reserve credit may result in loss of reinsurance reserve credit to the extent the estimated fair value of assets is less than the statutory reserves; | ||
• | credit risk, which is the risk that our invested assets will decrease in value due to a deterioration in the creditworthiness, downgrade in the credit rating, or default of the issuer of the investment; | ||
• | reinvestment risk, which is the risk that interest rates will decline and funds reinvested will earn less interest than expected; and | ||
• | liquidity risk, which is the risk that investments must be liquidated at an undesirable time to satisfy liability cash outflows due to a mismatch of the timing of asset and liability cash flows. |
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• | establish solvency requirements, including minimum reserves and capital and surplus requirements; | ||
• | limit the amount of dividends, tax distributions, inter-company loans and other payments our insurance subsidiaries can make without prior regulatory approval; | ||
• | impose restrictions on the amount and type of investments we may hold; and | ||
• | require assessments to pay claims of insolvent insurance companies. |
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• | election of our directors is staggered, meaning that the members of only one of three classes of our directors are elected each year; | ||
• | the total voting power of any shareholder owning 10% or more of the total voting rights attached to our ordinary shares will be reduced to approximately 9.9% of the total voting rights of our ordinary shares; | ||
• | our directors must decline to register the transfer of ordinary shares on our share register that would result in a person owning 10% or more of any class of our shares and may decline certain transfers that they believe may have adverse tax or regulatory consequences; | ||
• | shareholders do not have the right to act by written consent; and | ||
• | our directors have the ability to change the size of the Board. |
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• | changes in investors’ and analysts’ perceptions of the risks and conditions of our business including our liquidity needs, | ||
• | the size of the public float of our ordinary shares, | ||
• | variations in our anticipated or actual operating results or the results of our competitors, | ||
• | regulatory developments, | ||
• | market conditions, and | ||
• | general economic conditions. |
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Per Share | ||||||||||||
High | Low | Dividend | ||||||||||
Year ended December 31, 2005 | ||||||||||||
First Quarter | $ | 25.50 | $ | 22.10 | $ | 0.05 | ||||||
Second Quarter | 24.24 | 21.92 | 0.05 | |||||||||
Third Quarter | 25.82 | 23.46 | 0.05 | |||||||||
Fourth Quarter | 25.49 | 23.35 | 0.05 | |||||||||
Year ended December 31, 2006 | ||||||||||||
First Quarter | $ | 25.20 | $ | 23.99 | $ | 0.05 | ||||||
Second Quarter | 24.84 | 16.68 | 0.05 | |||||||||
Third Quarter | 16.67 | 3.99 | — | |||||||||
Fourth Quarter | 11.43 | 5.19 | — | |||||||||
Year ended December 31, 2007 | ||||||||||||
First Quarter | $ | 5.41 | $ | 3.38 | $ | — | ||||||
Second Quarter | 5.30 | 3.86 | — | |||||||||
Third Quarter | 4.91 | 2.54 | — | |||||||||
Fourth Quarter | 3.59 | 0.60 | — | |||||||||
Period Ended June 30, 2008 | ||||||||||||
First Quarter | $ | 1.15 | $ | 0.09 | $ | — | ||||||
Second Quarter | 0.19 | 0.08 | — |
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Number of | Weighted- | Number of Securities | ||||||||||
Securities to | Average | Remaining Available | ||||||||||
be Issued Upon | Exercise Price | for | ||||||||||
Exercise | of | Future Issuance Under | ||||||||||
of Outstanding | Outstanding | Equity Compensation | ||||||||||
Options, | Options, | Plans (Excluding | ||||||||||
Warrants and | Warrants and | SecuritiesReflected in | ||||||||||
Plan Category | Rights | Rights | Column (a)) | |||||||||
(a) | (b) | (c) | ||||||||||
Options | ||||||||||||
Equity compensation plans approved by security holders | 8,686,844 | $ | 6.74 | 11,500,130 | ||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
Total | 8,686,844 | $ | 6.74 | 11,500,130 | ||||||||
Warrants | ||||||||||||
Equity compensation plans approved by security holders | 2,650,000 | $ | 15.00 | — | ||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
Total | 2,650,000 | $ | 15.00 | — | ||||||||
Indexed Returns | ||||||||||||||||||||||||
Year Ended Base | ||||||||||||||||||||||||
Base | ||||||||||||||||||||||||
Period | December | December | December | December | December | |||||||||||||||||||
December | 31, | 31, | 31, | 31, | 31, | |||||||||||||||||||
Company / Index | 31, 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | ||||||||||||||||||
Scottish Re Group Limited | $ | 100 | $ | 120.29 | $ | 151.27 | $ | 144.58 | $ | 31.59 | $ | 4.29 | ||||||||||||
S&P 500 Index | $ | 100 | $ | 128.68 | $ | 142.69 | $ | 149.70 | $ | 173.34 | $ | 182.86 | ||||||||||||
S&P 500 Life & Health Insurance | $ | 100 | $ | 127.09 | $ | 155.24 | $ | 190.19 | $ | 221.60 | $ | 245.97 |
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Annual Return Percentage | ||||||||||||||||||||
Year Ended | ||||||||||||||||||||
December | December | December | December | December | ||||||||||||||||
31, | 31, | 31, | 31, | 31, | ||||||||||||||||
Company / Index | 2003 | 2004 | 2005 | 2006 | 2007 | |||||||||||||||
Scottish Re Group Limited | 20.29 | % | 25.75 | % | (4.42 | )% | (78.15 | )% | (86.42 | )% | ||||||||||
S&P 500 Index | 28.68 | % | 10.88 | % | 4.91 | % | 15.79 | % | 5.49 | % | ||||||||||
S&P 500 Life & Health Insurance | 27.09 | % | 22.15 | % | 22.51 | % | 16.51 | % | 11.00 | % |
![](https://capedge.com/proxy/10-K/0000950123-08-007814/y62727y6272701.gif)
Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
December | December | December | December | December | ||||||||||||||||
(U.S. dollars in thousands, except share data) | 31, 2007 | 31, 2006 | 31, 2005 | 31, 2004 | 31, 2003 | |||||||||||||||
Income statement data:(1) | ||||||||||||||||||||
Total revenues | $ | 1,505,373 | $ | 2,429,500 | $ | 2,297,329 | $ | 814,387 | $ | 556,045 | ||||||||||
Total benefits and expenses | 2,558,054 | 2,576,990 | 2,183,705 | 758,936 | 518,299 |
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Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
December | December | December | December | December | ||||||||||||||||
31, 2007 | 31, 2006 | 31, 2005 | 31, 2004 | 31, 2003 | ||||||||||||||||
(Loss) income before income taxes and minority interest | (1,052,681 | ) | (147,490 | ) | 113,624 | 55,451 | 37,746 | |||||||||||||
(Loss) income from continuing operations before cumulative effect of change in accounting principle | (895,742 | ) | (366,714 | ) | 130,197 | 71,599 | 48,789 | |||||||||||||
Net (loss) income | (895,742 | ) | (366,714 | ) | 130,197 | 71,391 | 27,281 | |||||||||||||
Dividend declared on non-cumulative perpetual preferred shares | (9,062 | ) | (9,062 | ) | (4,758 | ) | — | — | ||||||||||||
Deemed dividend on beneficial conversion feature related to convertible cumulative participating preferred shares | (120,750 | ) | — | — | — | — | ||||||||||||||
Imputed dividend on prepaid variable share forward contract | — | (881 | ) | — | — | — | ||||||||||||||
Net (loss) income (attributable) available to ordinary shareholders | $ | (1,025,554 | ) | $ | (376,657 | ) | $ | 125,439 | $ | 71,391 | $ | 27,281 | ||||||||
Per share data:(1) | ||||||||||||||||||||
Basic (loss) earnings per ordinary share: | ||||||||||||||||||||
(Loss) income from continuing operations before cumulative effect of change in accounting principle and discontinued operations(2) | $ | (15.24 | ) | $ | (6.70 | ) | $ | 2.86 | $ | 2.00 | $ | 1.59 | ||||||||
Cumulative effect of change in accounting principle | — | — | — | — | (0.64 | ) | ||||||||||||||
Discontinued operations | — | — | — | (0.01 | ) | (0.06 | ) | |||||||||||||
Net (loss) income (attributable) available to ordinary shareholders | $ | (15.24 | ) | $ | (6.70 | ) | $ | 2.86 | $ | 1.99 | $ | 0.89 | ||||||||
Diluted (loss) earnings per ordinary share: | ||||||||||||||||||||
(Loss) income from continuing operations before cumulative effect of change in accounting principle and discontinued operations(2) | $ | (15.24 | ) | $ | (6.70 | ) | $ | 2.64 | $ | 1.91 | $ | 1.51 | ||||||||
Cumulative effect of change in accounting principle | — | — | — | — | (0.60 | ) | ||||||||||||||
Discontinued operations | — | — | — | (0.01 | ) | (0.06 | ) | |||||||||||||
Net (loss) income available (attributable) to ordinary shareholders | $ | (15.24 | ) | $ | (6.70 | ) | $ | 2.64 | $ | 1.90 | $ | 0.85 | ||||||||
Book value per ordinary share(3) | $ | 3.24 | $ | 15.39 | $ | 21.48 | $ | 21.60 | $ | 18.73 | ||||||||||
Market value per share | $ | 0.73 | $ | 5.34 | $ | 24.55 | $ | 25.90 | $ | 20.78 | ||||||||||
Cash dividends per ordinary share | $ | — | $ | 0.10 | $ | 0.20 | $ | 0.20 | $ | 0.20 |
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Year Ended | Year Ended | Year Ended | Year Ended | Year Ended | ||||||||||||||||
December | December | December | December | December | ||||||||||||||||
31, 2007 | 31, 2006 | 31, 2005 | 31, 2004 | 31, 2003 | ||||||||||||||||
Weighted average number of ordinary shares outstanding: | ||||||||||||||||||||
Basic | 67,303,066 | 56,182,222 | 43,838,261 | 35,732,522 | 30,652,719 | |||||||||||||||
Diluted | 67,303,066 | 56,182,222 | 47,531,116 | 37,508,292 | 32,228,001 | |||||||||||||||
Balance sheet data (at end of year):(1) | ||||||||||||||||||||
Total fixed maturity investments | $ | 7,621,242 | $ | 8,065,524 | $ | 5,292,595 | $ | 3,392,463 | $ | 2,014,719 | ||||||||||
Total assets | 12,821,063 | 13,606,090 | 12,116,303 | 8,952,237 | 6,053,517 | |||||||||||||||
Long-term debt | 129,500 | 129,500 | 244,500 | 244,500 | 162,500 | |||||||||||||||
Total liabilities | 11,909,454 | 12,397,323 | 10,692,229 | 7,937,417 | 5,242,450 | |||||||||||||||
Minority interest | 9,025 | 7,910 | 9,305 | 9,697 | 9,295 | |||||||||||||||
Mezzanine equity | 555,857 | 143,665 | 143,057 | 142,449 | 141,928 | |||||||||||||||
Total shareholders’ equity | $ | 346,727 | $ | 1,057,192 | $ | 1,271,712 | $ | 862,674 | $ | 659,844 | ||||||||||
Actual number of ordinary shares outstanding | 68,383,370 | 60,554,104 | 53,391,939 | 39,931,145 | 35,228,411 |
(1) | Scottish Re Holdings Limited was acquired on December 31, 2001 and is included in balance sheet data for 2002-2006 and income statement data for years 2002-2006. SRLC was acquired on December 22, 2003 and is included in balance sheet data and income statement data for years 2003-2006. Consolidated statement of income data for the year ended December 31, 2003 includes net income of $1.2 million in respect of SRLC. The ING individual life reinsurance business was acquired on December 31, 2004 and is included in balance sheet data for years 2004-2006 and income statement data for years 2005 and 2006. | |
(2) | Reflects reduction for dividends declared on non-cumulative perpetual preferred shares. | |
(3) | Book value per ordinary share is calculated as shareholders’ equity less preferred shares divided by the number of ordinary shares outstanding. |
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• | the risk that available liquidity will be insufficient beyond the short term; | ||
• | uncertainties in our ability to raise new sources of equity or debt capital to support ongoing capital, liquidity and collateral needs; | ||
• | uncertainties in our statutory capital position and ability to continue to take reserve credit for our securitization facilities; | ||
• | uncertainties in our ability to comply with the terms of our forbearance or renew the forbearance agreements prior to December 15, 2008; | ||
• | uncertainties relating to future actions that may be taken by creditors, regulators and ceding insurers relating to our ratings and financial condition; | ||
• | uncertainties in our ability to successfully dispose of our Life Reinsurance North America Segment in a timely manner; | ||
• | Additional negative impact from our annual asset adequacy analysis; | ||
• | changes in expectations regarding future realization of gross deferred tax assets; | ||
• | risks relating to the sale of our Life Reinsurance International Segment or Wealth Management business; | ||
• | our ability to successfully rationalize expenses; | ||
• | loss of the services of any of our key employees; | ||
• | limitations on our ability to pay dividends; | ||
• | risks related to recent negative developments in the residential mortgage market, especially in the sub-prime sector, and our exposure to such market; |
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• | risks arising from our investment strategy, including risks related to the estimated fair value of our investments, fluctuations in interest rates and our need for liquidity; | ||
• | uncertainties arising from control of our invested assets by third parties; | ||
• | interest rate fluctuations; | ||
• | the risk that our risk analysis and underwriting may be inadequate; | ||
• | exposure to mortality experience which differs from our assumptions; | ||
• | risks relating to recent class action litigations; | ||
• | potential indemnification claim by the Investors; | ||
• | conflicts of interest with the Investors, who are our majority shareholders; | ||
• | catastrophes and their impact on the economy in general and on our business in particular; | ||
• | uncertainties relating to government and regulatory policies (such as subjecting us to insurance regulation or taxation in additional jurisdictions); | ||
• | voting and transfer limitations on our voting securities; | ||
• | restrictions in our articles of association to effect a change in control; | ||
• | insurance regulatory restrictions that impact our ability to effect a change in control; | ||
• | the enforceability of judgments against us in the United States; | ||
• | the risk that our retrocessionaires may not honor their obligations to us; | ||
• | uncertainties relating to the ratings accorded to us and our insurance subsidiaries; | ||
• | the volatility of our share price; | ||
• | losses due to foreign currency exchange rate fluctuations; | ||
• | changes in accounting principles; | ||
• | risks that one or more of our non – U.S. subsidiaries may be considered a passive foreign investment company for U.S. federal income tax purposes; and | ||
• | risk that one or more of our non – U.S. subsidiaries may be characterized as engaged in a U.S. trade or business. |
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• | In May 2007, Dean E. Miller resigned from his position as Executive Vice President and Chief Financial Officer. | ||
• | In May 2007, Dan Roth, a former executive officer of Cerberus, was appointed as Chief Restructuring Officer. | ||
• | In June 2007, Hugh T. McCormick, Executive Vice President of Corporate Development, left the Company to return to the New York law office of Dewey & LeBoeuf LLP. |
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• | In July 2007, Duncan Hayward was appointed Chief Accounting Officer. Mr. Hayward also serves as the Chief Financial Officer of our Life Reinsurance International Segment, a position he held since August 2006. He stepped down from the Chief Accounting Officer position effective November 2007 and continues in his role as Chief Financial Officer of the Life Reinsurance International Segment. | ||
• | In August 2007, George Zippel, former President and CEO of Genworth Financial’s Protection segment, joined us to serve as our President and Chief Executive Officer. | ||
• | In August 2007, Paul Goldean, who had been serving as our President and Chief Executive Officer for the past year, assumed the role of Chief Administrative Officer and interim President and Chief Executive Officer—North America. | ||
• | In August 2007, Cliff Wagner resigned from his position as President and Chief Executive Officer—North America | ||
• | In August 2007, Meredith Ratajczak assumed the role of interim Chief Financial Officer, North America. She continues to also serve as our Chief Actuary, North America. | ||
• | In October 2007, Michael Baumstein assumed the role of Executive Vice President, Investments, Treasury and Capital Markets. He previously served as our Senior Vice President, Corporate Finance since March 2004. | ||
• | In October 2007, Terry Eleftheriou, a former executive with XL Capital, joined the Company and assumed responsibility as Chief Financial Officer in November 2007. | ||
• | In December 2007, Chris Shanahan was appointed interim President and Chief Executive Officer – North America. | ||
• | In December 2007, Thomas A. McAvity, Jr. retired from the Company and, as a result, left his position as Chief Investment Strategist. | ||
• | In December 2007, Samir Shah was appointed to the position of Chief Risk Officer. |
• | Our primary business is life reinsurance, which involves reinsuring life insurance policies, with premiums earned over the associated policy period. Each year, however, a portion of the business under existing treaties terminates, principally due to lapses or surrenders of underlying policies, deaths of policyholders and the exercise of recapture options by ceding companies. | ||
• | Premiums from reinsurance assumed on life reinsurance business are included in revenues over the premium paying period of the underlying policies. When we acquire blocks of in-force business, we account for these transactions as purchases, and our results of operations include the net income from these blocks as of their respective dates of acquisition. Premium from reinsurance assumed on annuity business generates investment income over time on the assets we receive from the ceding company. We also earn revenues on funding agreements. A deposit received on a funding agreement creates income to the extent we earn an investment return in excess of our interest payment obligations thereon. |
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• | Our investment income includes interest earned on our fixed income investments and income from funds withheld at interest under modified coinsurance agreements or coinsurance funds withheld agreements. Realized gains and losses include gains and losses on investment securities that we sell during a period, write downs of securities deemed to be other than temporarily impaired and foreign currency exchange gains and losses. |
• | Reserves for claims and future policy benefits are our estimates of what we expect to pay in claims and policy benefits and related expenses under the contract or policy. From time to time, we may change the reserves if our experience leads us to believe that benefit claims and expenses will ultimately be greater than the existing reserve. We report the change in these reserves as an expense during the period when the reserve or additional reserve is established. | ||
• | For our annuity-type reinsurance products, we record a liability for interest sensitive contract liabilities, which represents the amount ultimately due to the policyholder. We credit interest to these contracts each period at the rates determined in the underlying contract, and the amount is reported as interest credited to interest sensitive contract liabilities on our consolidated statements of income (loss). | ||
• | Acquisition costs consist principally of commissions, certain internal expenses related to our policy issuance and underwriting departments and other variable selling expenses. These costs are dependent on the structure, size and type of business written. These costs are deferred and amortized over future periods based on our expectations as to the emergence of premiums or future gross profits from the underlying contracts. | ||
• | Operating expenses consist of salary and salary related expenses, legal and professional fees, rent and office expenses, directors’ expenses, insurance and other similar expenses. | ||
• | Collateral finance facilities expense includes costs incurred on our Regulation XXX funding arrangements and other collateral finance facilities. | ||
• | Interest expense consists of interest charges on our long-term debt. |
• | our ability to manage our assets and liabilities and to control investment and liquidity risk; | ||
• | changes in our assessment of the ability to realize deferred tax assets; | ||
• | the volume and type of new business we write; | ||
• | volume and amount of death claims incurred and lapse experience; | ||
• | our ability to assess and price adequately for the risks we assumed; |
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• | the mix of different types of business that we reinsure, because profits on some lines of business emerge later than on other lines; and | ||
• | our ability to control expenses. |
• | Financial condition: liquidity to ensure adequate resources are available to meet our normal operating cash flow needs and book value per share to maximize returns to shareholders; | ||
• | Operations: premiums, changes in the number of treaties and life insurance in-force, investment results, claim frequency and severity trends, claims and benefit ratio and acquisition and expense ratios and operating earnings per share; and | ||
• | Investments: credit quality/experience, concentration risk, stability of long-term returns, cash flows and asset and liability duration. |
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
Operations | 2007 | 2006 | 2005 | |||||||||
Traditional life reinsurance in-force (U.S. dollars in millions) | $ | 970.3 | $ | 1,022.9 | $ | 1,025.8 | ||||||
Lives covered (in millions) | 13.0 | 14.3 | 13.5 | |||||||||
Average benefit per life | $ | 74,896 | $ | 71,440 | $ | 75,757 | ||||||
Benefit ratio | 77.0 | % | 78.4 | % | 70.5 | % | ||||||
Acquisition expense ratio | 17.7 | % | 18.4 | % | 19.0 | % | ||||||
Financial Condition | ||||||||||||
Liquidity (U.S. dollars in millions)* | $ | 399.6 | $ | 27.8 | $ | 327.9 | ||||||
Return on equity | (36.8 | )% | (32.9 | )% | 13.0 | % | ||||||
Book value per ordinary share | $ | 3.24 | $ | 15.39 | $ | 21.48 |
* | This amount represents liquidity in excess of liquidity held by our insurance operating subsidiaries and includes cash and marketable securities as well as $275.0 million available under the Stingray facility as at December 31, 2007 (2006 — $2.0 million and 2005 — $275.0 million). See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Analysis—Liquidity.” |
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(i) | Mortality Risk – Mortality risk is the primary risk transferred in most of our life reinsurance agreements. While we maintain a significant amount of expertise related to mortality expectations, actual claim results will exhibit a moderate amount of volatility on a period by period basis related to the number and average size of reported deaths during a given accounting period. During 2007, actual claims in our Life Reinsurance North America Segment were approximately 96% of our current best estimate of mortality. The favorable experience during 2007 was driven by consistently favorable results throughout the year on the acquired ING block of business as well as favorable results on the organic block. The favorable mortality in 2007 was a turnaround from 2006 when overall North America claims results ran at about 104% of expectation. Both years results fall within the expected reasonable range of variation for the North America business. | ||
(ii) | Investment Risk – Our asset portfolio consists predominantly of investments in fixed and floating-rate debt securities with stated maturity dates, the fair value of which are sensitive to changes in both the general level of interest rates and credit spreads representing perceived risk of default. In general, we manage our investment portfolio so as to minimize the duration gap between our assets and liabilities, in order to reduce our exposure to changes in interest rates. If the duration of our assets does not properly match that of our liabilities, we risk earning less interest on our assets than expected, thereby preventing us from satisfying our guaranteed fixed benefit obligations, or having to sell assets at an unfavorable time to meet policyholder surrenders or withdrawals. Our investment portfolio includes mortgage-backed securities, known as MBS’s, and collateralized mortgage obligations, known as CMO’s. As of December 31, 2007, MBS’s and CMO’s constituted approximately 19.3% of our invested assets (at December 31, 2006 - 21.4%). As with other fixed income investments, the fair value of these securities will fluctuate depending on market and other general economic conditions and the interest rate environment; however, changes in interest rates can also expose us to prepayment risks on these investments, as during periods of declining interest rates, mortgage prepayments generally increase and MBS’s and CMO’s are prepaid more rapidly, requiring us to reinvest the proceeds at the then-current market rates, which may not be favorable. Recently, the residential mortgage market in the United States has experienced a variety of difficulties and changed economic conditions. We have exposure to the sub-prime market as a result of securities held in our investment portfolio, as described in more detail under “Financial Condition—Structured Securities Backed by Sub-prime and Alt-A Residential Mortgage Loans.” Due to these recent developments, especially in the sub-prime sector, we have suffered significant realized and unrealized investment losses; as the market for these securities continues to be highly volatile and illiquid, there is a risk that these investment values may further decline, which may adversely affect our financial condition. Also, declines in the value of our investments that provide collateral for reinsurance contracts would require us to post additional collateral. | ||
(iii) | Persistency Risk – Persistency risk relates to variation in financial results associated with more or less policyholders choosing to lapse their policies than planned. The impact of lapse rates varies significantly by a number of factors including plan of insurance, treaty, and policy year. As such, one can not generalize that higher lapse rates represent a positive or negative event. During 2006 and 2007 persistency has generally been stronger than previously assumed. Much of this relates to the flattening of direct life insurance rates which has reduced the incentive for replacement activity in the direct market. The stronger persistency is favorable to our long term value, but does also result in higher capital and collateral requirements to back the larger amount of in-force that persists. During the past two years we have also observed differences in the distribution of lapse rates in the acquired ING block of business relative to the assumptions contemplated in the Purchase Generally Accepted Accounting Principles (“PGAAP”) reserves. Effectively business with relatively higher margins is lapsing somewhat faster than planned while lower margin business is exhibiting higher persistency. This results in an erosion in margin on the block of business for which the impact is accelerated by the mechanics of the PGAAP reserve mechanisms. It should be noted that this impact is driven by differences in early policy year lapse rates on level term business by underlying policyholders and does not relate to our ratings or perceived creditworthiness. | ||
(iv) | Counter-party Risk – We take on counterparty risk from external parties with whom we retrocede business to. During 2006 and 2007 we had no losses associated with retrocession counter-party |
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risk on any of our excess retrocession programs. Within the acquired ERC block of business there are several first-dollar retrocession pools which cede a quota share of the business to a pool of external parties. During 2007 we negotiated an extra contractual recapture of the quota share retrocession to one of those external parties. As a result of that recapture we wrote off approximately $4.5 million of outstanding reinsurance recoverables from that external party. The entire amount of that write off was covered by a previously established valuation allowance. |
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Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
(U.S. dollars in thousands, except share data) | 2007 | 2006 | 2005 | |||||||||
Total revenue | $ | 1,505,373 | $ | 2,429,500 | $ | 2,297,329 | ||||||
Operating (loss) income (1) | (49,754 | ) | (103,888 | ) | 118,378 | |||||||
Net (loss) income | (895,742 | ) | (366,714 | ) | 130,197 | |||||||
Net (loss) income(attributable) available to ordinary shareholders | (1,025,554 | ) | (376,657 | ) | 125,439 | |||||||
Net realized losses | (979,343 | ) | (27,405 | ) | 3,738 | |||||||
Loss (earnings) per ordinary share — basic | $ | (15.24 | ) | $ | (6.70 | ) | $ | 2.86 | ||||
Loss (earnings) per ordinary share — diluted | $ | (15.24 | ) | $ | (6.70 | ) | $ | 2.64 | ||||
Book value per ordinary share(2) | $ | 3.24 | $ | 15.39 | $ | 21.48 | ||||||
Fully diluted book value per ordinary share(3) | $ | 3.89 | $ | 15.69 | $ | 20.84 |
(1) | Operating income (loss) is a non-GAAP measure. We define operating income (loss) as income (loss) before income taxes and minority interest before realized gains and losses and the net change in value of embedded derivatives. While these |
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items may be significant components in understanding and assessing our consolidated financial performance, we believe that the presentation of operating income (loss) enhances the understanding of our results of operations by highlighting earnings attributable to the normal, recurring operation of our reinsurance business. However, operating income (loss) is not a substitute for net income determined in accordance with U.S. GAAP. | ||
(2) | Book value per share is calculated as shareholders’ equity less preferred shares divided by the number of ordinary shares outstanding. | |
(3) | Fully diluted book value per ordinary share is a non-GAAP measure, based on total shareholders’ equity less preferred shares plus the assumed proceeds from the exercise of outstanding options, warrants, and other convertible securities, divided by the sum of shares, options and warrants outstanding, and the number of shares required upon the conversion of convertible securities. We believe that fully diluted book value per ordinary share more accurately reflects the book value that is attributable to an ordinary share. |
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Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
(U.S. dollars in thousands) | 2007 | 2006 | 2005 | |||||||||
Revenues | ||||||||||||
Premiums earned, net | $ | 1,773,388 | $ | 1,719,239 | $ | 1,814,875 | ||||||
Investment income, net | 577,256 | 584,359 | 341,539 | |||||||||
Fee income | 14,917 | 11,491 | 9,233 | |||||||||
Net realized (losses) gains | (969,494 | ) | (19,043 | ) | 1,121 | |||||||
Gain on extinguishment of third party debt | 20,043 | — | — | |||||||||
Change in value of embedded derivatives, net | (43,627 | ) | (16,197 | ) | (8,492 | ) | ||||||
Total revenues | 1,372,483 | 2,279,849 | 2,158,276 | |||||||||
Benefits and expenses | ||||||||||||
Claims and other policy benefits | 1,473,563 | 1,468,346 | 1,365,599 | |||||||||
Interest credited to interest sensitive contract liabilities | 135,366 | 172,967 | 132,968 | |||||||||
Acquisition costs and other insurance expenses, net | 354,347 | 360,737 | 400,992 | |||||||||
Operating expenses | 53,358 | 58,133 | 48,849 | |||||||||
Collateral finance facilities expense | 274,734 | 205,210 | 43,113 | |||||||||
Interest expense | 12,726 | 11,613 | 10,823 | |||||||||
Total benefits and expenses | 2,304,094 | 2,277,006 | 2,002,344 | |||||||||
(Loss) income before income taxes and minority interest | $ | (931,611 | ) | $ | 2,843 | $ | 155,932 | |||||
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Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
(U.S. dollars in thousands) | 2007 | 2006 | 2005 | |||||||||
Revenues | ||||||||||||
Premiums earned, net | $ | 116,369 | $ | 122,746 | $ | 119,055 | ||||||
Investment income, net | 12,529 | 24,106 | 11,488 | |||||||||
Fee and other income | 818 | — | — | |||||||||
Net realized (losses) gains | (3,482 | ) | (10,851 | ) | 624 | |||||||
Total revenues | 126,234 | 136,001 | 131,167 | |||||||||
Benefits and expenses | ||||||||||||
Claims and other policy benefits | 84,686 | 101,126 | 76,906 | |||||||||
Acquisition costs and other insurance expenses, net | 26,587 | 37,332 | 20,722 | |||||||||
Operating expenses | 39,450 | 31,236 | 25,276 | |||||||||
Goodwill impairment | — | 33,758 | — | |||||||||
Interest expense | 11 | — | — | |||||||||
Total benefits and expenses | 150,734 | 203,452 | 122,904 | |||||||||
(Loss) income before income taxes | $ | (24,500 | ) | $ | (67,451 | ) | $ | 8,263 | ||||
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Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
(U.S. dollars in thousands) | 2007 | 2006 | 2005 | |||||||||
Revenues | ||||||||||||
Investment income, net | $ | 9,913 | $ | 8,159 | $ | 2,810 | ||||||
Fee income | 3,110 | 3,002 | 3,083 | |||||||||
Net realized (losses) gains | (6,367 | ) | 2,489 | 1,993 | ||||||||
Total revenues | 6,656 | 13,650 | 7,886 | |||||||||
Benefits and expenses | ||||||||||||
Acquisition costs and other insurance expenses, net | 7,319 | 11,116 | 2,061 | |||||||||
Operating expenses | 76,108 | 62,942 | 41,448 | |||||||||
Goodwill impairment | — | 367 | — | |||||||||
Collateral finance facilities expense | 14,364 | 10,581 | 5,033 | |||||||||
Interest expenses | 5,435 | 11,526 | 9,915 | |||||||||
Total benefits and expenses | 103,226 | 96,532 | 58,457 | |||||||||
Loss before income taxes | $ | (96,570 | ) | $ | (82,882 | ) | $ | (50,571 | ) | |||
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• | mitigating interest rate risk through management of asset duration and convexity, and the pattern of asset cash flows relative to those of the respective reinsurance obligations; | ||
• | seeking opportunities to diversify and diminish the overall credit risk of the portfolio; | ||
• | deploying available cash primarily into low-volatility liquid fixed income assets while selectively pursuing strategies to enhance yield; | ||
• | maintaining sufficient liquidity to meet unexpected financial obligations; | ||
• | regularly evaluating our asset class mix and pursuing additional investment classes; and | ||
• | continuously monitoring asset quality. |
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December 31, 2007 | December 31, 2006 | |||||||||||||||
(U.S. dollars in millions) | Estimated Fair | Estimated Fair | ||||||||||||||
Ratings | Value | % | Value | % | ||||||||||||
AAA | $ | 3,797.4 | 45.1 | % | $ | 3,350.5 | 38.5 | % | ||||||||
AA | 1,914.6 | 22.8 | 2,353.1 | 27.0 | ||||||||||||
A | 1,822.8 | 21.7 | 2,050.9 | 23.6 | ||||||||||||
BBB | 802.6 | 9.5 | 918.5 | 10.6 | ||||||||||||
BB or below | 73.5 | 0.9 | 24.9 | 0.3 | ||||||||||||
Total | $ | 8,410.9 | 100.0 | % | $ | 8,697.9 | 100.0 | % | ||||||||
December 31, 2007 | December 31, 2006 | |||||||||||||||
(U.S. dollars in millions) | Estimated Fair | Estimated Fair | ||||||||||||||
Sector | Value | % | Value | % | ||||||||||||
Cash | $ | 700.7 | 8.3 | % | $ | 515.5 | 5.9 | % | ||||||||
Governments and agencies | 89.4 | 1.1 | 68.0 | 0.8 | ||||||||||||
Municipals | 56.2 | 0.7 | 52.2 | 0.6 | ||||||||||||
Corporate obligations | ||||||||||||||||
Corporate bonds | 2,798.3 | 33.3 | 2,700.1 | 31.0 | ||||||||||||
Hybrid preferreds | 41.1 | 0.5 | 71.5 | 0.8 | ||||||||||||
Non hybrid preferreds | 47.9 | 0.6 | 48.9 | 0.6 |
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December 31, 2007 | December 31, 2006 | |||||||||||||||
(U.S. dollars in millions) | Estimated Fair | Estimated Fair | ||||||||||||||
Sector | Value | % | Value | % | ||||||||||||
Structured and pass-through securities | ||||||||||||||||
Agency MBS | ||||||||||||||||
Pass-through | 206.0 | 2.4 | 171.9 | 2.0 | ||||||||||||
CMO’s | 250.8 | 3.0 | 235.7 | 2.7 | ||||||||||||
Non-agency MBS | ||||||||||||||||
Prime | 320.8 | 3.8 | 352.0 | 4.1 | ||||||||||||
Alt-A | 849.3 | 10.1 | 1,093.8 | 12.6 | ||||||||||||
Asset backed securities | ||||||||||||||||
Home equity / sub-prime | 1,282.5 | 15.2 | 1,945.5 | 22.4 | ||||||||||||
Auto | 441.6 | 5.3 | 350.4 | 4.0 | ||||||||||||
Credit card | 445.0 | 5.3 | 251.9 | 2.9 | ||||||||||||
Other | 262.6 | 3.1 | 220.5 | 2.5 | ||||||||||||
CMBS | 604.3 | 7.2 | 602.9 | 6.9 | ||||||||||||
CDO’s | 14.4 | 0.1 | 17.1 | 0.2 | ||||||||||||
Total | $ | 8,410.9 | 100.0 | % | $ | 8,697.9 | 100.0 | % | ||||||||
December 31, 2006 | ||||||||||||||||||||||||
(U.S. dollars in millions) | Amortized | Estimated | Unrealized | |||||||||||||||||||||
Industry | Cost | % | Fair Value | % | Loss | % | ||||||||||||||||||
Mortgage and asset backed securities | $ | 1,827 | 49.3 | % | $ | 1,799 | 49.6 | % | $ | (28 | ) | 35.4 | % | |||||||||||
Banking | 303 | 8.2 | 296 | 8.2 | (7 | ) | 8.9 | |||||||||||||||||
Communications | 201 | 5.4 | 193 | 5.3 | (8 | ) | 10.1 | |||||||||||||||||
Consumer non-cyclical | 154 | 4.1 | 148 | 4.1 | (6 | ) | 7.6 | |||||||||||||||||
Insurance | 134 | 3.6 | 131 | 3.6 | (3 | ) | 3.8 | |||||||||||||||||
Financial companies | 125 | 3.4 | 123 | 3.4 | (2 | ) | 2.5 | |||||||||||||||||
Consumer cyclical | 127 | 3.5 | 123 | 3.4 | (4 | ) | 5.1 | |||||||||||||||||
Other* | 834 | 22.5 | 813 | 22.4 | (21 | ) | 26.6 | |||||||||||||||||
Total | $ | 3,705 | 100.0 | % | $ | 3,626 | 100.0 | % | $ | (79 | ) | 100.0 | % | |||||||||||
* | Other industries each represent less than 3% of estimated fair value |
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December 31, 2006 | ||||||||||||||||||||||||
(U.S. dollars in millions) | Amortized | Estimated | Unrealized | |||||||||||||||||||||
Maturity | Cost | % | Fair Value | % | Loss | % | ||||||||||||||||||
Due in one year or less | $ | 331 | 9.0 | % | $ | 330 | 9.1 | % | $ | (1 | ) | 1.2 | % | |||||||||||
Due in one through five years | 1,397 | 37.7 | 1,373 | 37.9 | (24 | ) | 30.4 | |||||||||||||||||
Due in five through ten years | 1,205 | 32.5 | 1,178 | 32.5 | (27 | ) | 34.2 | |||||||||||||||||
Due after ten years | 772 | 20.8 | 745 | 20.5 | (27 | ) | 34.2 | |||||||||||||||||
Total | $ | 3,705 | 100.0 | % | $ | 3,626 | 100.0 | % | $ | (79 | ) | 100.0 | % | |||||||||||
Year ended December 31, 2007 | ||||||||||||||||||||||||||||||||
(U.S. dollars in thousands) | Credit Concern | Relative Value | Other | Total | ||||||||||||||||||||||||||||
Days | Proceeds | Loss | Proceeds | Loss | Proceeds | Loss | Proceeds | Loss | ||||||||||||||||||||||||
0-90 | $ | 21,256 | $ | (8,093 | ) | $ | 11,040 | $ | (197 | ) | $ | 317,813 | $ | (231 | ) | $ | 350,109 | $ | (8,521 | ) | ||||||||||||
91-180 | 1,681 | (340 | ) | 1,639 | (72 | ) | 2,970 | (21 | ) | 6,290 | (433 | ) | ||||||||||||||||||||
181-270 | 3,060 | (487 | ) | 1,982 | (86 | ) | 3,823 | (20 | ) | 8,865 | (593 | ) | ||||||||||||||||||||
271-360 | 13,390 | (1,946 | ) | — | — | 6,521 | (365 | ) | 19,911 | (2,311 | ) | |||||||||||||||||||||
Greater than 360 | 11,548 | (443 | ) | 11,183 | (226 | ) | 11,109 | (262 | ) | 33,840 | (931 | ) | ||||||||||||||||||||
Total | $ | 50,935 | $ | (11,309 | ) | $ | 25,844 | $ | (581 | ) | $ | 342,236 | $ | (899 | ) | $ | 419,015 | $ | (12,789 | ) | ||||||||||||
Year ended December 31, 2006 | ||||||||||||||||||||||||||||||||
(U.S. dollars in thousands) | Credit Concern | Relative Value | Other | Total | ||||||||||||||||||||||||||||
Days | Proceeds | Loss | Proceeds | Loss | Proceeds | Loss | Proceeds | Loss | ||||||||||||||||||||||||
0-90 | $ | 20,503 | $ | (857 | ) | $ | 193,855 | $ | (3,909 | ) | $ | 457,378 | $ | (955 | ) | $ | 671,736 | $ | (5,721 | ) | ||||||||||||
91-180 | 4,105 | (81 | ) | 11,597 | (331 | ) | 70,781 | (931 | ) | 86,483 | (1,343 | ) | ||||||||||||||||||||
181-270 | 8,072 | (798 | ) | 2,099 | (34 | ) | 8,782 | (245 | ) | 18,953 | (1,077 | ) | ||||||||||||||||||||
271-360 | 2,397 | (206 | ) | 8,886 | (284 | ) | 11,544 | (137 | ) | 22,827 | (627 | ) | ||||||||||||||||||||
Greater than 360 | 9,750 | (983 | ) | 8,507 | (199 | ) | 26,255 | (560 | ) | 44,512 | (1,742 | ) | ||||||||||||||||||||
Total | $ | 44,827 | $ | (2,925 | ) | $ | 224,944 | $ | (4,757 | ) | $ | 574,740 | $ | (2,828 | ) | $ | 844,511 | $ | (10,510 | ) | ||||||||||||
Year ended December 31, 2005 | ||||||||||||||||||||||||||||||||
(U.S. dollars in thousands) | Credit Concern | Relative Value | Other | Total | ||||||||||||||||||||||||||||
Days | Proceeds | Loss | Proceeds | Loss | Proceeds | Loss | Proceeds | Loss | ||||||||||||||||||||||||
0-90 | $ | 43,223 | $ | (1,703 | ) | $ | 44,230 | $ | (356 | ) | $ | 471,886 | $ | (1,440 | ) | $ | 559,339 | $ | (3,499 | ) | ||||||||||||
91-180 | 355 | (83 | ) | 12,456 | (59 | ) | 6,499 | (48 | ) | 19,310 | (190 | ) | ||||||||||||||||||||
181-270 | 5,869 | (1,246 | ) | 2,240 | (7 | ) | 6,361 | (88 | ) | 14,470 | (1,341 | ) | ||||||||||||||||||||
271-360 | 2,581 | (255 | ) | 2,045 | (70 | ) | 4,881 | (29 | ) | 9,507 | (354 | ) | ||||||||||||||||||||
Greater than 360 | 2,670 | (330 | ) | 7 | — | 2,453 | (64 | ) | 5,130 | (394 | ) | |||||||||||||||||||||
Total | $ | 54,698 | $ | (3,617 | ) | $ | 60,978 | $ | (492 | ) | $ | 492,080 | $ | (1,669 | ) | $ | 607,756 | $ | (5,778 | ) | ||||||||||||
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December 31, 2007 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Estimated | |||||||||||||
(U.S. dollars in thousands) | Cost or Cost | Appreciation | Depreciation | Fair Value | ||||||||||||
U.S. Treasury securities and U.S. government agency obligations | $ | 7,356 | $ | 117 | $ | (1 | ) | $ | 7,472 | |||||||
Corporate securities | 1,076,369 | 28,398 | (22,460 | ) | 1,082,307 | |||||||||||
Municipal bonds | 31,925 | 219 | (392 | ) | 31,752 | |||||||||||
Mortgage and asset backed securities | 468,865 | 4,495 | (10,778 | ) | 462,582 | |||||||||||
Preferred stock | 11,384 | 228 | (181 | ) | 11,431 | |||||||||||
Equity | — | 96 | — | 96 | ||||||||||||
1,595,899 | 33,553 | (33,812 | ) | 1,595,640 | ||||||||||||
Commercial mortgage loans | 81,342 | 3,752 | (69 | ) | 85,025 | |||||||||||
Total | $ | 1,677,241 | $ | 37,305 | $ | (33,881 | ) | $ | 1,680,665 | |||||||
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December 31, 2006 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Estimated | |||||||||||||
(U.S. dollars in thousands) | Cost or Cost | Appreciation | Depreciation | Fair Value | ||||||||||||
U.S. Treasury securities and U.S. government agency obligations | $ | 59,049 | $ | 48 | $ | (325 | ) | $ | 58,772 | |||||||
Corporate securities | 1,307,490 | 29,130 | (12,879 | ) | 1,323,741 | |||||||||||
Municipal bonds | 30,706 | 68 | (837 | ) | 29,937 | |||||||||||
Mortgage and asset backed securities | 464,319 | 6,094 | (6,968 | ) | 463,445 | |||||||||||
1,861,564 | 35,340 | (21,009 | ) | 1,875,895 | ||||||||||||
Commercial mortgage loans | 95,397 | 3,672 | (223 | ) | 98,846 | |||||||||||
Total | $ | 1,956,961 | $ | 39,012 | $ | (21,232 | ) | $ | 1,974,741 | |||||||
December 31, 2007 | ||||||||
Amortized | Estimated | |||||||
(U.S. dollars in thousands) | Cost | Fair Value | ||||||
Due in one year or less | $ | 464,809 | $ | 463,679 | ||||
Due in one year through five years | 322,224 | 332,565 | ||||||
Due in five years through ten years | 140,115 | 137,822 | ||||||
Due after ten years | 199,886 | 198,992 | ||||||
1,127,034 | 1,133,058 | |||||||
Mortgage and asset backed securities | 468,865 | 462,582 | ||||||
Commercial mortgage loans | 81,342 | 85,025 | ||||||
Total | $ | 1,677,241 | $ | 1,680,665 | ||||
December 31, 2006 | ||||||||
Amortized | Estimated | |||||||
(U.S. dollars in thousands) | Cost | Fair Value | ||||||
Due in one year or less | $ | 118,040 | $ | 118,040 | ||||
Due in one year through five years | 467,375 | 477,200 | ||||||
Due in five years through ten years | 581,076 | 584,048 | ||||||
Due after ten years | 230,754 | 233,162 | ||||||
1,397,245 | 1,412,450 | |||||||
Mortgage and asset backed securities | 464,319 | 463,445 | ||||||
Commercial mortgage loans | 95,397 | 98,846 | ||||||
Total | $ | 1,956,961 | $ | 1,974,741 | ||||
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December 31, 2007 | December 31, 2006 | |||||||||||||||
(U.S. dollars in millions) | Estimated | Estimated | ||||||||||||||
Ratings | Fair Value | % | Fair Value | % | ||||||||||||
AAA | $ | 410.5 | 24.9 | % | $ | 427.5 | 22.1 | % | ||||||||
AA | 171.5 | 10.4 | 166.6 | 8.6 | ||||||||||||
A | 417.0 | 25.3 | 561.1 | 29.0 | ||||||||||||
BBB | 435.4 | 26.4 | 605.6 | 31.3 | ||||||||||||
BB or below | 131.1 | 7.9 | 75.1 | 3.9 | ||||||||||||
Sub-total | 1,565.5 | 94.9 | 1,835.9 | 94.9 | ||||||||||||
Commercial mortgage loans | 85.0 | 5.1 | 98.8 | 5.1 | ||||||||||||
Total | $ | 1,650.5 | 100.0 | % | $ | 1,934.7 | 100.0 | % | ||||||||
December 31, 2007 | December 31, 2006 | |||||||||||||||
(U.S. dollars in millions) | Estimated | Estimated | ||||||||||||||
Sector | Fair Value | % | Fair Value | % | ||||||||||||
Cash | $ | (30.1 | ) | (1.8 | )% | $ | (40.1 | ) | (2.1 | )% | ||||||
Governments and agencies | 7.5 | 0.4 | 58.8 | 3.1 | ||||||||||||
Municipals | 31.8 | 1.9 | 29.9 | 1.6 | ||||||||||||
Corporate obligations: | ||||||||||||||||
Corporate bonds | 1,082.3 | 65.6 | 1,331.9 | 68.9 | ||||||||||||
Hybrid preferreds | 11.4 | 0.7 | 2.6 | 0.1 | ||||||||||||
Structure and pass-through securities | ||||||||||||||||
Agency MBS | ||||||||||||||||
Pass-throughs | 32.7 | 2.0 | 10.4 | 0.5 | ||||||||||||
CMO’s | 61.2 | 3.7 | 48.5 | 2.5 | ||||||||||||
Non-agency MBS | ||||||||||||||||
Prime | 60.5 | 3.7 | 60.1 | 3.1 | ||||||||||||
Alt-A | 41.5 | 2.5 | 44.1 | 2.3 | ||||||||||||
ABS | ||||||||||||||||
Home equity / sub-prime | 42.8 | 2.6 | 49.7 | 2.6 | ||||||||||||
Auto | 3.6 | 0.2 | 2.5 | 0.1 | ||||||||||||
Credit card | 4.5 | 0.3 | 4.7 | 0.2 | ||||||||||||
Other | 34.4 | 2.1 | 40.9 | 2.1 | ||||||||||||
CMBS | 175.5 | 10.6 | 183.4 | 9.5 | ||||||||||||
CDO’s | 5.9 | 0.4 | 8.5 | 0.4 | ||||||||||||
Commercial mortgage whole loans | 85.0 | 5.1 | 98.8 | 5.1 | ||||||||||||
Total | $ | 1,650.5 | 100.0 | % | $ | 1,934.7 | 100.0 | % | ||||||||
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December 31, 2007 | ||||||||||||||||||||||||
Non-securitization | Securitization | |||||||||||||||||||||||
Structures Portfolio | Structures Portfolio | Total | ||||||||||||||||||||||
Sub- | Sub- | |||||||||||||||||||||||
(U.S. dollars in millions) | prime | Alt-A | Sub-prime | Alt-A | prime | Alt-A | ||||||||||||||||||
Book Value by Rating | ||||||||||||||||||||||||
AAA | $ | 120.6 | $ | 118.0 | $ | 242.6 | $ | 67.6 | $ | 363.2 | $ | 185.6 | ||||||||||||
AA | 117.5 | 52.3 | 514.1 | 520.9 | 631.6 | 573.2 | ||||||||||||||||||
A+ | 4.3 | 1.8 | 108.7 | 20.9 | 113.0 | 22.7 | ||||||||||||||||||
A | 26.5 | 15.6 | 29.8 | 19.7 | 56.3 | 35.3 | ||||||||||||||||||
A- | 18.0 | 1.5 | 22.1 | 7.4 | 40.1 | 8.9 | ||||||||||||||||||
BBB+ or lower | 19.3 | 7.2 | 58.3 | 15.8 | 77.6 | 23.0 | ||||||||||||||||||
Total | $ | 306.2 | $ | 196.4 | $ | 975.6 | $ | 652.3 | $ | 1,281.8 | $ | 848.7 | ||||||||||||
Estimated Fair Value by Rating | ||||||||||||||||||||||||
AAA | $ | 120.6 | $ | 118.0 | $ | 242.6 | $ | 67.6 | $ | 363.2 | $ | 185.6 | ||||||||||||
AA | 117.5 | 52.3 | 514.1 | 520.9 | 631.6 | 573.2 | ||||||||||||||||||
A+ | 4.3 | 1.8 | 108.7 | 20.9 | 113.0 | 22.7 | ||||||||||||||||||
A | 26.5 | 15.6 | 29.8 | 19.7 | 56.3 | 35.3 | ||||||||||||||||||
A- | 18.0 | 1.5 | 22.1 | 7.4 | 40.1 | 8.9 | ||||||||||||||||||
BBB+ or lower | 19.3 | 7.2 | 58.3 | 15.8 | 77.6 | 23.0 | ||||||||||||||||||
Total | $ | 306.2 | $ | 196.4 | $ | 975.6 | $ | 652.3 | $ | 1,281.8 | $ | 848.7 | ||||||||||||
Realized Loss by Rating | ||||||||||||||||||||||||
AAA | $ | (6.7 | ) | $ | (6.6 | ) | $ | (43.2 | ) | $ | (3.6 | ) | $ | (49.9 | ) | $ | (10.2 | ) | ||||||
AA | (22.0 | ) | (7.4 | ) | (270.0 | ) | (100.9 | ) | (292.0 | ) | (108.3 | ) | ||||||||||||
A+ | (1.3 | ) | (0.5 | ) | (52.0 | ) | (12.0 | ) | (53.3 | ) | (12.5 | ) | ||||||||||||
A | (6.7 | ) | (2.9 | ) | (34.9 | ) | (11.8 | ) | (41.6 | ) | (14.7 | ) | ||||||||||||
A- | (3.8 | ) | (0.5 | ) | (24.6 | ) | (4.8 | ) | (28.4 | ) | (5.3 | ) | ||||||||||||
BBB+ or lower | (16.0 | ) | (9.5 | ) | (77.1 | ) | (21.1 | ) | (93.1 | ) | (30.6 | ) | ||||||||||||
Total | $ | (56.5 | ) | $ | (27.4 | ) | $ | (501.8 | ) | $ | (154.2 | ) | $ | (558.3 | ) | $ | (181.6 | ) | ||||||
• | $363.2 million (5.8% of total investments at amortized cost) were rated AAA/Aaa; | ||
• | $994.8 million (15.8% of total investments at amortized cost) were rated AA-/Aa3 or above; | ||
• | $1,204.2 million (19.2% of total investments at amortized cost) were rated A-/A3 or above; and |
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• | $975.6 million (15.5% of total investments at amortized cost) reside in our collateral finance facilities. |
Consolidated Sub-prime Portfolio as at December 31, 2007 | ||||||||||||||||||||||||||||
Vintage | ||||||||||||||||||||||||||||
Years | ||||||||||||||||||||||||||||
Ended | ||||||||||||||||||||||||||||
December | Year | Six Months | Six Months | |||||||||||||||||||||||||
31, 1997 to | Ended | Ended | Ended | Year Ended | % of | |||||||||||||||||||||||
(U.S. dollars in millions) | December | December | June | December | December | Investment | ||||||||||||||||||||||
Rating | 31, 2004 | 31, 2005 | 30, 2006 | 31, 2006 | 31, 2007 | Total | Portfolio | |||||||||||||||||||||
AAA | $ | 50.6 | $ | 61.7 | $ | 115.8 | $ | 119.5 | $ | 15.6 | $ | 363.2 | 5.8 | % | ||||||||||||||
AA | 110.8 | 166.7 | 253.5 | 99.7 | 0.9 | 631.6 | 10.1 | |||||||||||||||||||||
A+ | 2.8 | 87.6 | 11.1 | 8.9 | 2.6 | 113.0 | 1.8 | |||||||||||||||||||||
A | 23.5 | 11.2 | 11.4 | 5.6 | 4.6 | 56.3 | 0.9 | |||||||||||||||||||||
A- | 14.0 | 8.5 | 12.1 | 4.9 | 0.6 | 40.1 | 0.6 | |||||||||||||||||||||
BBB+ and lower | 13.4 | 3.5 | 24.7 | 29.5 | 6.5 | 77.6 | 1.2 | |||||||||||||||||||||
Total | $ | 215.1 | $ | 339.2 | $ | 428.6 | $ | 268.1 | $ | 30.8 | $ | 1,281.8 | 20.4 | % | ||||||||||||||
% of investment portfolio | 3.4 | % | 5.4 | % | 6.8 | % | 4.3 | % | 0.5 | % | 20.4 | % | ||||||||||||||||
• | $185.6 million (3.0% of total investments at amortized cost) were rated AAA/Aaa; | ||
• | $758.8 million (12.1% of total investments at amortized cost) were rated AA-/Aa3 or above; | ||
• | $825.7 million (13.1% of total investments at amortized cost) were rated A-/A3 or above; and | ||
• | $652.3 million (10.4% of total investments at amortized cost) reside in our collateral finance facilities. |
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Consolidated Alt-A Portfolio as at December 31, 2007 | ||||||||||||||||||||||||||||
Vintage | ||||||||||||||||||||||||||||
Years | ||||||||||||||||||||||||||||
Ended | Six | Six | ||||||||||||||||||||||||||
December | Year | Months | Months | Year | ||||||||||||||||||||||||
31, 1997 to | Ended | Ended | Ended | Ended | % of | |||||||||||||||||||||||
(U.S. dollars in millions) | December | December | June | December | December | Investment | ||||||||||||||||||||||
Rating | 31, 2004 | 31, 2005 | 30, 2006 | 31, 2006 | 31, 2007 | Total | Portfolio | |||||||||||||||||||||
AAA | $ | 33.7 | $ | 62.2 | $ | 56.2 | $ | 33.5 | $ | — | $ | 185.6 | 2.9 | % | ||||||||||||||
AA | 48.9 | 64.3 | 252.8 | 206.1 | 1.1 | 573.2 | 9.1 | |||||||||||||||||||||
A+ | 1.2 | 0.6 | — | 20.9 | — | 22.7 | 0.4 | |||||||||||||||||||||
A | 18.5 | 3.1 | 5.5 | 8.2 | — | 35.3 | 0.6 | |||||||||||||||||||||
A- | — | 1.5 | 0.7 | 6.7 | — | 8.9 | 0.1 | |||||||||||||||||||||
BBB+ and lower | 2.2 | 4.6 | 7.7 | 8.5 | — | 23.0 | 0.4 | |||||||||||||||||||||
Total | $ | 104.5 | $ | 136.3 | $ | 322.9 | $ | 283.9 | $ | 1.1 | $ | 848.7 | 13.5 | % | ||||||||||||||
% of investment portfolio | 1.7 | % | 2.2 | % | 5.1 | % | 4.5 | % | 0.0 | % | 13.5 | % | ||||||||||||||||
Sub-prime Portfolio Excluding Securitization Structures as at December 31, 2007 | ||||||||||||||||||||||||||||
Vintage | ||||||||||||||||||||||||||||
Years | ||||||||||||||||||||||||||||
Ended | Six | Six | ||||||||||||||||||||||||||
December | Year | Months | Months | Year | ||||||||||||||||||||||||
31, 1997 to | Ended | Ended | Ended | Ended | % of | |||||||||||||||||||||||
(U.S. dollars in millions) | December | December | June | December | December | Investment | ||||||||||||||||||||||
Rating | 31, 2004 | 31, 2005 | 30, 2006 | 31, 2006 | 31, 2007 | Total | Portfolio | |||||||||||||||||||||
AAA | $ | 40.3 | $ | 35.2 | $ | 41.7 | $ | 1.5 | $ | 1.9 | $ | 120.6 | 1.9 | % | ||||||||||||||
AA | 64.3 | 27.6 | 25.4 | — | 0.2 | 117.5 | 1.9 | |||||||||||||||||||||
A+ | 2.7 | 1.6 | — | — | — | 4.3 | 0.1 | |||||||||||||||||||||
A | 21.0 | 5.5 | — | — | — | 26.5 | 0.4 | |||||||||||||||||||||
A- | 14.0 | 4.0 | — | — | — | 18.0 | 0.3 | |||||||||||||||||||||
BBB+ and lower | 13.3 | 3.5 | 2.5 | — | — | 19.3 | 0.3 | |||||||||||||||||||||
Total | $ | 155.6 | $ | 77.4 | $ | 69.6 | �� | $ | 1.5 | $ | 2.1 | $ | 306.2 | 4.9 | % | |||||||||||||
% of investment portfolio | 2.6 | % | 1.2 | % | 1.1 | % | 0.0 | % | 0.0 | % | 4.9 | % | ||||||||||||||||
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Alt-A Portfolio Excluding Securitization Structures as at December 31, 2007 | ||||||||||||||||||||||||||||
Vintage | ||||||||||||||||||||||||||||
Years | ||||||||||||||||||||||||||||
Ended | Six | Six | ||||||||||||||||||||||||||
December | Year | Months | Months | Year | ||||||||||||||||||||||||
31, 1997 to | Ended | Ended | Ended | Ended | % of | |||||||||||||||||||||||
(U.S. dollars in millions) | December | December | June | December | December | Investment | ||||||||||||||||||||||
Rating | 31, 2004 | 31, 2005 | 30, 2006 | 31, 2006 | 31, 2007 | Total | Portfolio | |||||||||||||||||||||
AAA | $ | 33.8 | $ | 22.0 | $ | 50.4 | $ | 11.8 | $ | — | $ | 118.0 | 1.9 | % | ||||||||||||||
AA | 29.4 | 9.5 | 12.3 | — | 1.1 | 52.3 | 0.8 | |||||||||||||||||||||
A+ | 1.2 | 0.6 | — | — | — | 1.8 | 0.0 | |||||||||||||||||||||
A | 12.5 | 3.1 | — | — | — | 15.6 | 0.3 | |||||||||||||||||||||
A- | — | 1.5 | — | — | — | 1.5 | 0.0 | |||||||||||||||||||||
BBB+ and lower | 2.2 | 4.6 | 0.4 | — | — | 7.2 | 0.1 | |||||||||||||||||||||
Total | $ | 79.1 | $ | 41.3 | $ | 63.1 | $ | 11.8 | $ | 1.1 | $ | 196.4 | 3.1 | % | ||||||||||||||
% of investment portfolio | 1.2 | % | 0.7 | % | 1.0 | % | 0.2 | % | 0.0 | % | 3.1 | % | ||||||||||||||||
Sub-prime Portfolio in Securitization Structures as at December 31, 2007 | ||||||||||||||||||||||||||||
Vintage | ||||||||||||||||||||||||||||
Years | ||||||||||||||||||||||||||||
Ended | Six | Six | ||||||||||||||||||||||||||
December | Year | Months | Months | Year | ||||||||||||||||||||||||
31, 1997 to | Ended | Ended | Ended | Ended | % of | |||||||||||||||||||||||
(U.S. dollars in millions) | December | December | June | December | December | Investment | ||||||||||||||||||||||
Rating | 31, 2004 | 31, 2005 | 30, 2006 | 31, 2006 | 31, 2007 | Total | Portfolio | |||||||||||||||||||||
AAA | $ | 10.3 | $ | 26.5 | $ | 74.1 | $ | 118.0 | $ | 13.7 | $ | 242.6 | 3.8 | % | ||||||||||||||
AA | 46.4 | 139.2 | 228.1 | 99.7 | 0.7 | �� | 514.1 | 8.2 | ||||||||||||||||||||
A+ | — | 86.1 | 11.1 | 8.9 | 2.6 | 108.7 | 1.7 | |||||||||||||||||||||
A | 2.6 | 5.6 | 11.4 | 5.6 | 4.6 | 29.8 | 0.5 | |||||||||||||||||||||
A- | — | 4.4 | 12.1 | 5.0 | 0.6 | 22.1 | 0.4 | |||||||||||||||||||||
BBB+ and lower | — | — | 22.3 | 29.5 | 6.5 | 58.3 | 0.9 | |||||||||||||||||||||
Total | $ | 59.3 | $ | 261.8 | $ | 359.1 | $ | 266.7 | $ | 28.7 | $ | 975.6 | 15.5 | % | ||||||||||||||
% of investment portfolio | 0.9 | % | 4.2 | % | 5.7 | % | 4.2 | % | 0.5 | % | 15.5 | % | ||||||||||||||||
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Alt-A Portfolio in Securitization Structures as at December 31, 2007 | ||||||||||||||||||||||||||||
Vintage | ||||||||||||||||||||||||||||
Years | ||||||||||||||||||||||||||||
Ended | Six | Six | ||||||||||||||||||||||||||
December | Year | Months | Months | Year | ||||||||||||||||||||||||
31, 1997 to | Ended | Ended | Ended | Ended | % of | |||||||||||||||||||||||
(U.S. dollars in millions) | December | December | June | December | December | Investment | ||||||||||||||||||||||
Rating | 31, 2004 | 31, 2005 | 30, 2006 | 31, 2006 | 31, 2007 | Total | Portfolio | |||||||||||||||||||||
AAA | $ | — | $ | 40.1 | $ | 5.8 | $ | 21.7 | $ | — | $ | 67.6 | 1.1 | % | ||||||||||||||
AA | 19.7 | 54.7 | 240.4 | 206.1 | — | 520.9 | 8.3 | |||||||||||||||||||||
A+ | — | — | — | 20.9 | — | 20.9 | 0.3 | |||||||||||||||||||||
A | 6.0 | — | 5.5 | 8.2 | — | 19.7 | 0.3 | |||||||||||||||||||||
A- | — | — | 0.7 | 6.7 | — | 7.4 | 0.1 | |||||||||||||||||||||
BBB+ and lower | — | — | 7.3 | 8.5 | — | 15.8 | 0.3 | |||||||||||||||||||||
Total | $ | 25.7 | $ | 94.8 | $ | 259.7 | $ | 272.1 | $ | — | $ | 652.3 | 10.4 | % | ||||||||||||||
% of investment portfolio | 0.5 | % | 1.5 | % | 4.1 | % | 4.3 | % | 0.0 | % | 10.4 | % | ||||||||||||||||
• | On March 11, 2008, the $50.0 million previously drawn from Stingray to provide collateral for SRUS was no longer needed for that purpose and was returned to Stingray. As a result, on March 11, 2008, $325.0 million of Stingray was un-utilized, representing a $50.0 million increase to available liquidity. On March 12, 2008, a $275.0 million funding agreement was put to the facility. On April 14, 2008, an additional funding agreement of $50.0 million was put to the facility thus fully utilizing this facility. | ||
• | On March 12, 2008, a $211.0 million capital contribution was made to SRUS due to an increase in its statutory reserve requirements as a result of asset adequacy testing. This is previously described in “Business Overview” of Part I, Item 1 above. | ||
• | The HSBC II collateral finance facility requires us to fund any estimated fair value decline in the assets supporting the Regulation XXX reserves for the underlying business. Estimated fair values |
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in the facility declined by $33.0 million between December 2007 and March 2008 resulting in a corresponding reduction to available liquidity in the first quarter of 2008. |
• | Estimated fair values in the HSBC II collateral finance facility declined by a further $57.2 million between March 2008 and April 2008 resulting in a corresponding reduction to available liquidity in the second quarter of 2008. | ||
• | Our statutory capital position and our ability to continue to take reserve credit have been further reduced as a result of declines in the fair values of sub-prime and Alt-A securities within Orkney Re II. In order to maintain reserve credit in SRUS, we expect approximately $15.0 million in available liquidity will be used to supplement assets inside Orkney Re II. | ||
• | We utilized approximately $28.5 million in available liquidity resources to facilitate the ING and Ballantyne Re Reinsurance Transaction effective March 31, 2008 described in Part I “Business Overview.” | ||
• | Prior to the completion of the sale of our Wealth Management business, cash dividends totaling $14.2 million were received from the three associated regulated entities (The Scottish Annuity Company (Cayman) Ltd, Scottish Annuity & Life Insurance Company (Bermuda) Ltd and Scottish Annuity & Life International Insurance Company (Bermuda) Ltd.). This resulted in a corresponding increase to available liquidity. | ||
• | On June 30, 2008, we agreed to post $22 million in additional collateral to each of our Clearwater Re and HSBC II collateral finance facilities resulting in an aggregate $44 million reduction to our available liquidity as part of the Forbearance Agreements executed with the counterparties to these facilities which are described in more detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Forbearance Agreements with Counterparties.” |
• | As described in Part I “Business Overview” above, we are currently in breach of two covenants under the Clearwater Re facility for failure to deliver our financial statements for the period ended March 31, 2008 within the prescribed deadline. An event of default gives the counterparty banks the ability to accelerate the transaction and request repayment of any amounts currently being used under the facility. As of May 31, 2008, the amount we would have to pay the Clearwater Re banks is $365.9 million. | ||
• | We also believe that after taking into account the impairments on our investment portfolio, we would have been in breach of a minimum net worth covenant under HSBC II. In the event of a breach, HSBC may either (a) accelerate the transaction and require SALIC to purchase |
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outstanding certificates from HSBC equal to the outstanding notional amount less collateral totaling $523.3 million, as of May 31, 2008 or (b) request additional collateral. |
• | On March 12, 2009, we have an obligation to repay $100.0 million as part of an unsecured funding agreement with the Premium Asset Trust that matures on that date. SALIC entered into this agreement (Premium Asset Trust Series 2004-4) on March 12, 2004 and has been paying interest at a rate of three-month LIBOR plus 0.922% payable on a quarterly basis. The amount due under this funding agreement is included under interest sensitive contract liabilities on the consolidated balance sheet. | ||
• | Our three securitizations (Orkney I, Orkney Re II and Ballantyne Re — See Note 7, “Collateral Finance Facilities and Securitization Structures” in the Notes to Consolidated Financial Statements) provide reserve credit to our operating subsidiaries for reinsured Regulation XXX business. Due to declines in the fair value of assets, particularly those investments classified as sub-prime and Alt-A residential mortgage-backed securities, the structures may not be able to provide full reserve credit equal to the statutory reserves associated with each underlying block of business. If the value of assets in the reinsurance trust falls below the statutory reserve requirements, either due to estimated fair value decreases or unfunded reserve increases, then we may have to provide liquidity to the operating subsidiaries or pledge additional assets to the extent of the deficiency in order to secure full reserve credit. Statutory reserves associated with level term life insurance (subject to Regulation XXX) tend to increase during the initial years of the policies, until the peak reserve requirement is met, and then decrease gradually over many years, although the specific composition of the underlying policies and the lapse rates, among other things, will greatly impact the future reserve requirement. The following tables illustrate for each securitization the extent to which the fair value of assets is sufficient to meet current statutory reserve requirements. |
As at December 31, 2007 | ||||||||||||
(U.S. dollars in millions) | Orkney I | Orkney Re II | Ballantyne Re | |||||||||
Assets — Sub-prime + Alt-A | $ | 399.0 | $ | 258.3 | $ | 970.7 | ||||||
Assets — Other | 882.3 | 238.5 | 1,121.2 | |||||||||
Total fair value of assets | 1,281.3 | 496.8 | 2,091.9 | |||||||||
Statutory reserves | (980.9 | ) | (386.9 | ) | (1,849.6 | ) | ||||||
Excess of assets over reserves | $ | 300.4 | $ | 109.9 | $ | 242.3 | ||||||
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As at March 31, 2008 | ||||||||||||
(U.S. dollars in millions) | Orkney I | Orkney Re II | Ballantyne Re | |||||||||
Assets — Sub-prime + Alt-A | $ | 331.7 | $ | 176.4 | $ | 557.4 | ||||||
Assets — Other | 887.4 | 238.6 | 1,127.9 | |||||||||
Total fair value of assets | 1,219.1 | 415.0 | 1,685.3 | |||||||||
Statutory reserves | (1,004.3 | ) | (405.3 | ) | (1,353.1 | ) | ||||||
Excess of assets over reserves | $ | 214.8 | $ | 9.7 | $ | 332.2 | ||||||
As at December 31, 2006 | ||||||||||||
(U.S. dollars in millions) | Orkney I | Orkney Re II | Ballantyne Re | |||||||||
Assets — Sub-prime + Alt-A | $ | 494.9 | $ | 376.8 | $ | 1,489.1 | ||||||
Assets — Other | 802.4 | 206.6 | 1,104.3 | |||||||||
Total fair value of assets | 1,297.3 | 583.4 | 2,593.4 | |||||||||
Statutory reserves | (885.3 | ) | (326.2 | ) | (1,853.5 | ) | ||||||
Excess of assets over reserves | $ | 412.0 | $ | 257.2 | $ | 739.9 | ||||||
• | On May 9, 2008, we executed amendments to certain transaction documents for Orkney Re II to provide greater flexibility in dealing with additional near and long term estimated fair value declines in the sub-prime and Alt-A securities held by Orkney Re II. The amendments eliminate certain priority of payment limitations and provide us with the ability to efficiently and economically recapture business from Orkney Re II. Without these amendments, it was expected that a default would have occurred under the Indenture on May 12, 2008. The table above as at March 31, 2008 includes the impact of the amendments. Notwithstanding these efforts, there continues to be significant exposure to further declines in the fair value of asset, which may have a negative impact on liquidity. | ||
• | For Ballantyne Re, on March 31, 2008, we entered into an LOI with ING which allows us to recapture up to $375.0 million of excess statutory reserves from Ballantyne Re and requires ING to post letters of credit to support the related statutory reserve strain. On May 6, 2008, we completed this transaction and recaptured approximately 30% of the business in Ballantyne Re, effective as of March 31, 2008. This business was in turn recaptured by ING and ultimately ceded to SRD, utilizing the entire amount of the $375.0 million of letters of credit made available by ING. The LOI also required the parties to effect an assignment of the entire Ballantyne Re structure from SRUS to ING. The assignment to ING of SRUS’s interest in the Ballantyne Re structure would permanently remove SRUS’s exposure to the uncertainty of continued asset value fluctuations within Ballantyne Re. Accordingly, on June 30, 2008, we executed a binding letter of intent with ING to effect this novation and assignment transaction. In addition, on June 30, 2008, we and ING executed a binding letter of intent whereby we have the ability to recapture a portion of the Ballantyne Re business if, prior to completion of the assignment agreement, we deemed it necessary to conduct another recapture in order to allow SRUS to obtain full statutory reserve credit. We expect to execute this recapture and complete the assignment agreement during the third quarter of 2008. If certain conditions related to the ING Ballantyne Re Reinsurance Transaction effective March 31, 2008 are not satisfied by December 31, 2008, the LOC Fee will be stepped up and we will pay a $10 million commitment fee for use of the facility. These transactions are described in more detail in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Recapture and Assignment Agreements with Counterparties.” | ||
• | On December 22, 2005, we entered into the Reinsurance Facility with a third-party Bermuda-domiciled reinsurer that provides up to $1.0 billion of collateral support for a portion of the business acquired from ING and subject to Regulation XXX reserve requirements. The Bermuda reinsurer provides reserve credit in the form of letters of credit or assets in trust equal to the |
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statutory reserves. As at December 31, 2007, $904.6 million (2006 — $884.9 million) of collateral support was being provided. To the extent that statutory reserve requirements for this business exceed $1.0 billion, the excess will have to be funded through corporate liquidity. Currently we anticipate reserve requirements exceeding the Reinsurance Facility capacity in the fourth quarter of 2009. |
• | As highlighted in Part I “Business Overview” above, we recently entered into definitive agreements for the sale of our Life Reinsurance International Segment and Wealth Management business for cash, the proceeds of which will benefit our short term liquidity position. We currently expect to complete the sale of these businesses in the third quarter of 2008 and, subject to various closing conditions, we anticipate the net proceeds to increase available liquidity by over $70 million in the third quarter of 2008. | ||
• | As highlighted in Part 1 “Business Overview”, we have ceased writing new reinsurance treaties and have notified our existing clients that we will not be accepting any new reinsurance risks under existing treaties. | ||
• | As highlighted in Part 1 “Business Overview”, given our financial condition and the forbearance agreements reached with the relevant counterparties to the Clearwater Re and HSBC II collateral finance facilities, we suspended the payment of dividends on our perpetual preferred shares effective for the April 15, July 15, and October 15, 2008 declaration dates. | ||
• | We are reducing our cost structure consistent with our change in strategy. In March of 2008, we executed a reduction in force including 26 employees, covering both Corporate and Life Reinsurance North America Segment employees.We expect this reduction in force to lower our annual personnel expenses by approximately $5.0 million. |
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• | When SALIC, SRD or Scottish Re Limited enter into a reinsurance treaty with a U.S. customer, they must contribute assets into a qualifying reserve credit trust and/or provide a letter of credit to enable the U.S. ceding company to obtain a reserve credit for the reinsurance transaction since these companies are not licensed or accredited U.S. reinsurers. | ||
• | When SRUS enters into a reinsurance transaction, it typically incurs a need for additional statutory capital to cover strain from acquisition costs and increases in required risk-based capital. To the degree its own surplus is not sufficient to meet this need, we can make an additional capital contribution into SRUS, or SRUS can cede a portion of the transaction to another company within the group or an unrelated reinsurance company. If that reinsurer is not a licensed or accredited U.S. reinsurer, it must contribute assets to a qualifying reserve credit trust and/or provide a letter of credit in order for SRUS to obtain reserve credit. SRUS has ceded significant amounts of business to SRD, relieving SALIC of the need to contribute substantial amounts of capital to SRUS. In connection with such cessions by SRUS to SRD, SRD must contribute eligible assets to qualifying reserve credit trusts and/or provide letters of credit in order for SRUS to obtain reserve credit. | ||
• | U.S. customers of SRUS and SRLC are able to receive reserve credit from SRUS and SRLC by virtue of their licenses and authorizations to write reinsurance throughout the United States and, as a result, they generally are not required to provide collateral to such U.S. customers. However, SRUS may agree reserving certain circumstances to provide a reserve credit trust, security trust, or letter of credit to mitigate the counter-party risk from the customer’s perspective, thereby enabling transactions that otherwise would be unavailable or would be available only on significantly less attractive terms. |
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As of | As of | |||||||
(U.S. dollars in thousands) | December 31, 2007 | December 31, 2006 | ||||||
Shareholders’ equity | $ | 346,727 | $ | 1,057,192 | ||||
Mezzanine equity | 555,857 | 143,665 | ||||||
Long-term debt | 129,500 | 129,500 | ||||||
Total capitalization | $ | 1,032,084 | $ | 1,330,357 | ||||
As of | As of | |||||||
December 31, | December 31, | |||||||
(U.S. dollars in millions) | 2007 | 2006 | ||||||
Invested assets within securitization portfolios | $ | 3,870.0 | $ | 4,474.1 | ||||
Statutory reserves | (3,217.4 | ) | (3,065.0 | ) | ||||
Amount of invested assets that exceed statutory reserves within securitization portfolios | $ | 652.6 | $ | 1,409.1 | ||||
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Payments Due by Periods | ||||||||||||||||||||
Less Than 1 | 1-3 | 4-5 | More Than 5 | |||||||||||||||||
(U.S. dollars in thousands) | Year | Years | Years | Years | Total | |||||||||||||||
Long term debt | $ | — | $ | — | $ | — | $ | 129,500 | $ | 129,500 | ||||||||||
Operating leases | 4,691 | 8,265 | 8,323 | 13,783 | 35,062 | |||||||||||||||
Funding agreements | 320 | 100,000 | — | — | 100,320 | |||||||||||||||
Collateral financing facility liabilities | 3,130,379 | 850,000 | — | — | 3,980,379 | |||||||||||||||
Interest sensitive contract liabilities | 400,407 | 622,182 | 569,935 | 1,546,987 | 3,139,511 | |||||||||||||||
Reserve for future policy benefits | 779,754 | 337,684 | 460,193 | 2,841,443 | 4,419,074 | |||||||||||||||
$ | 4,315,551 | $ | 1,918,131 | $ | 1,038,451 | $ | 4,531,713 | $ | 11,803,846 | |||||||||||
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(U.S. dollars in millions, | Expected Maturity Date | |||||||||||||||||||||||||||||||
except percentages) | Total Fair | |||||||||||||||||||||||||||||||
Total | 2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | Total | Value | ||||||||||||||||||||||||
Principal amount | $ | 2,147 | $ | 1,443 | $ | 2,042 | $ | 612 | $ | 444 | $ | 3,113 | $ | 9,801 | $ | 8,411 | ||||||||||||||||
Book value | $ | 1,496 | $ | 1,252 | $ | 1,505 | $ | 571 | $ | 440 | $ | 3,108 | $ | 8,372 | ||||||||||||||||||
Weighted average book yield | 4.39 | % | 4.52 | % | 4.43 | % | 4.98 | % | 5.08 | % | 5.57 | % | 4.93 | % |
(U.S. dollars in millions, | Expected Maturity Date | |||||||||||||||||||||||||||||||
except percentages) | Total Fair | |||||||||||||||||||||||||||||||
Fixed Rate Only | 2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | Total | Value | ||||||||||||||||||||||||
Principal amount | $ | 1,718 | $ | 413 | $ | 398 | $ | 351 | $ | 311 | $ | 2,867 | $ | 6,058 | $ | 5,506 | ||||||||||||||||
Book value | $ | 1,106 | $ | 419 | $ | 402 | $ | 360 | $ | 309 | $ | 2,872 | $ | 5,468 | ||||||||||||||||||
Weighted average book yield | 4.36 | % | 5.01 | % | 5.07 | % | 5.23 | % | 5.37 | % | 5.64 | % | 5.25 | % |
(U.S. dollars in millions, | Expected Maturity Date | |||||||||||||||||||||||||||||||
except percentages) | Total Fair | |||||||||||||||||||||||||||||||
Floating Rate Only | 2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | Total | Value | ||||||||||||||||||||||||
Principal amount | $ | 429 | $ | 1,030 | $ | 1,644 | $ | 261 | $ | 133 | $ | 246 | $ | 3,743 | $ | 2,905 | ||||||||||||||||
Book value | $ | 390 | $ | 833 | $ | 1,103 | $ | 211 | $ | 131 | $ | 236 | $ | 2,904 | ||||||||||||||||||
Weighted average book yield | 4.48 | % | 4.27 | % | 4.20 | % | 4.56 | % | 4.39 | % | 4.73 | % | 4.34 | % |
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• | actual and anticipated deterioration in the creditworthiness of an issue, as may be reflected in downgrades in its ratings, tend to reduce its estimated fair value; | ||
• | our managers might react to the actual or expected deterioration and/or downgrade of an issuer by selling some or all of our positions, realizing a loss (or a profit smaller than would have been realized if the deterioration or downgrade had not occurred); and | ||
• | the issuer may go into default, ultimately causing us to realize a loss. |
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1. | Hired additional experienced, senior financial personnel to provide improved oversight of the Company’s accounting activities. Specifically, the Company hired a new Chief Financial Officer, effective November 12, 2007 and a Group Controller, effective January 1, 2008; | ||
2. | During the fourth quarter of 2007, improved the governance process over the Company’s investment activities, including the formation within the Company of a Group Investment Committee separate from the Investment Committee of the Board; and | ||
3. | During the fourth quarter of 2007 and continuing through the first and second quarters of 2008, we have been amending and enhancing our procedures, processes and related controls within our investment accounting function. In addition, in response to our determination in the second quarter of 2008 that we had a material weakness related to our accounting for impairments, we are continuing to amend and enhance our process for analyzing and concluding on other-than-temporary impairments for our investment securities. |
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July 9, 2008
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Current Term | ||||||||||||
Name and Director Class | Age | Position | Expires | |||||||||
Class I | ||||||||||||
Jonathan Bloomer(4) | 54 | Director | 2008 | |||||||||
Thomas Finke(4) | 44 | Director | 2008 | |||||||||
Robert Joyal(1)(3)(4) | 63 | Director | 2008 | |||||||||
Jeffrey Hughes(2) | 67 | Director | 2008 | |||||||||
Class II | ||||||||||||
George Zippel | 49 | Director | 2008 | |||||||||
Raymond Wechsler(2) | 63 | Director | 2010 | |||||||||
James Chapman(1)(3) | 46 | Director | 2009 | |||||||||
Larry Port(2)(3) | 57 | Director | 2009 | |||||||||
Class III | ||||||||||||
Seth Gardner | 40 | Director | 2010 | |||||||||
James Butler(1) | 57 | Director | 2010 | |||||||||
Michael Rollings | 44 | Director | 2010 |
(1) | Member of the Audit Committee. | |
(2) | Member of the Compensation Committee. | |
(3) | Member of the Corporate Governance Committee. | |
(4) | Member of the Investments Committee. |
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Name | Age | Position | ||||
George Zippel | 49 | President, Chief Executive Officer | ||||
Terry Eleftheriou | 48 | Executive Vice President, Chief Financial Officer | ||||
Paul Goldean | 42 | Executive Vice President, Chief Administrative Officer | ||||
Dan Roth | 35 | Executive Vice President, Chief Restructuring Officer | ||||
Jeffrey Delle Fave | 42 | Executive Vice President, Corporate Tax | ||||
Michael Baumstein | 37 | Executive Vice President, Investments and Capital Markets | ||||
Chris Shanahan | 37 | Executive Vice President, Interim Chief Executive Officer, Scottish Re (U.S.), Inc. | ||||
David Howell | 40 | Chief Executive Officer, Scottish Re Holdings Limited | ||||
Meredith Ratajczak | 49 | Executive Vice President, Chief Actuary, Life Reinsurance North America Segment; Interim Chief Financial Officer, North America | ||||
Samir Shah | 45 | Executive Vice President, Chief Risk Officer |
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Number of | ||||||||
Number of Late | Transactions Not | |||||||
Name | Reports | Timely Reported | ||||||
Robert Joyal | 1 | 17 | ||||||
Lehman Brothers Holdings Inc. | 2 | 23 | ||||||
George Zippel | 3 | 3 |
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• | Attract, retain and motivate the key people necessary to assist us through and beyond the 2007 New Capital Transaction period; | ||
• | Provide a direct link between pay and performance; | ||
• | Allocate a larger percentage of executive compensation to pay that is conditional or contingent in order to positively influence behavior and support accountability; | ||
• | Offer total compensation opportunities that are competitive with external markets in design and pay level; and | ||
• | Emphasize the need to focus on shareholder value, in addition to providing competitive value to our customers. |
• | Pursue dispositions of our non-core assets or lines of business, including the Life Reinsurance International Segment and the Wealth Management business; | ||
• | Develop, through strategic alliances or other means, opportunities to maximize the value of our core competitive capabilities within the Life Reinsurance North America Segment, including mortality assessment and treaty administration; and | ||
• | Rationalize our cost structure to preserve capital and liquidity. |
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Total Company | ||||||||||||
Performance | Segment Performance | Individual Performance | ||||||||||
Segment | Weighting | Weighting | Rating | |||||||||
Life Reinsurance North America | 91.4 | % | 117.5 | % | 1 – 0% through 5 – 140% | |||||||
Life Reinsurance International | 91.4 | % | 100.0 | % | 1 – 0% through 5 – 140% | |||||||
Corporate and Other | 91.4 | % | 100.0 | % | 1 – 0% through 5 – 140% |
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Total Company | Segment | |||||||||||
Performance | Performance | |||||||||||
Segment | Weighting | Weighting | Overall Weighting | |||||||||
Life Reinsurance North America | 25 | % | 66.6 | % | 45.7 | % | ||||||
Life Reinsurance International | 25 | % | 33.3 | % | 29.2 | % | ||||||
Corporate and Other | 25 | % | 0 | % | 12.5 | % |
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Stock | Option | All Other | ||||||||||||||||||||||||||
Name and | Salary | Bonus | Awards | Awards | Compensation | |||||||||||||||||||||||
Principal Position | Year | ($) | ($)(2) | ($)(3) | ($)(4) | ($)(5) | Total | |||||||||||||||||||||
George Zippel President and Chief Executive Officer | 2007 | $ | 363,462 | $ | 781,000 | $ | — | $ | 563,343 | (6) | $ | 161,637 | (7) | $ | 1,869,442 | |||||||||||||
Terry Eleftheriou Executive Vice | 2007 | $ | 115,385 | $ | 550,000 | $ | — | $ | 268,851 | (6) | $ | 220,900 | (8) | $ | 1,155,136 | |||||||||||||
President and Chief Financial Officer | ||||||||||||||||||||||||||||
Michael Baumstein | 2007 | $ | 394,731 | $ | 620,000 | $ | 287,502 | $ | 355,263 | (6) | $ | 115,594 | (9) | $ | 1,773,090 | |||||||||||||
Executive Vice President, Investment and Capital Markets | ||||||||||||||||||||||||||||
Jeffrey Delle Fave Executive | 2007 | $ | 359,249 | $ | 1,810,000 | $ | 248,577 | $ | 243,128 | (6) | $ | 251,464 | (10) | $ | 2,912,418 | |||||||||||||
Vice President, Corporate Tax | ||||||||||||||||||||||||||||
Paul Goldean Chief | 2007 | $ | 613,462 | $ | 3,495,000 | $ | 520,140 | $ | 535,567 | (6) | $ | 314,759 | (11) | $ | 5,478,928 | |||||||||||||
Administrative Officer | 2006 | $ | 488,077 | $ | — | $ | — | $ | 103,251 | $ | 111,423 | $ | 702,751 | |||||||||||||||
Duncan Hayward(12) Chief Financial Officer Scottish Re Holdings Limited | 2007 | $ | 357,282 | $ | 502,817 | $ | 40,328 | $ | 88,475 | (6) | $ | 32,580 | (13) | $ | 1,021,482 | |||||||||||||
David Howell(14) | 2007 | $ | 545,848 | $ | 677,210 | $ | 393,692 | $ | 542,739 | (6) | $ | 195,274 | (15) | $ | 2,354,763 | |||||||||||||
Chief Executive Officer – Scottish Re Holdings Limited | 2006 | $ | 432,527 | $ | — | $ | — | $ | 193,240 | $ | 196,436 | $ | 822,203 |
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Stock | Option | All Other | ||||||||||||||||||||||||||
Name and | Salary | Bonus | Awards | Awards | Compensation | |||||||||||||||||||||||
Principal Position | Year | ($) | ($)(2) | ($)(3) | ($)(4) | ($)(5) | Total | |||||||||||||||||||||
Hugh T. McCormick(16) | 2007 | $ | 289,423 | $ | — | $ | 540,731 | $ | 329,875 | $ | 2,710,214 | (17) | $ | 3,870,243 | ||||||||||||||
Former Executive Vice President, Corporate Development | 2006 | $ | 500,000 | $ | 300,000 | $ | — | $ | 191,518 | $ | 100,369 | $ | 1,091,887 | |||||||||||||||
Dean Miller(18) | 2007 | $ | 250,094 | $ | — | $ | 829,223 | $ | 371,557 | $ | 1,048,551 | (19) | $ | 2,499,425 | ||||||||||||||
Former Executive Vice President and Chief Financial Officer | 2006 | $ | 469,615 | $ | 200,000 | $ | — | $ | 187,762 | $ | 106,629 | $ | 964,006 | |||||||||||||||
Cliff Wagner(20) | 2007 | $ | 409,645 | $ | 200,000 | $ | 383,336 | $ | 52,757 | $ | 4,351,765 | (21) | $ | 5,397,503 | ||||||||||||||
Former President and Chief Executive Officer – Scottish Holdings, Inc. | 2006 | $ | 440,192 | $ | — | $ | — | $ | 43,617 | $ | 204,302 | $ | 688,111 |
(1) | For further information regarding the amounts listed for fiscal year 2006, refer to our 2007 Proxy Statement. | |
(2) | The following table shows the components of the Bonus payments for fiscal year 2007, described further below: |
Employment | Senior | |||||||||||||||
Agreement | Annual | Executive | Transaction | |||||||||||||
Name | Bonus | Incentive Bonus | Success Plan | Bonus | ||||||||||||
George Zippel | $ | — | $ | 781,000 | (c) | $ | — | $ | — | |||||||
Terry Eleftheriou | $ | 100,000 | $ | 450,000 | (c) | $ | — | $ | — | |||||||
Michael Baumstein | $ | 70,000 | $ | 375,000 | $ | — | $ | 175,000 | ||||||||
Jeffrey Delle Fave | $ | 1,485,000 | $ | 325,000 | (c) | $ | — | $ | — | |||||||
Paul Goldean | $ | 2,745,000 | (e) | $ | 450,000 | $ | 300,000 | $ | — | |||||||
Duncan Hayward(a) | $ | — | $ | 329,138 | (d) | $ | — | $ | 173,679 | |||||||
David Howell(b) | $ | — | $ | 481,046 | $ | 196,164 | $ | — | ||||||||
Hugh T. McCormick | $ | — | $ | — | $ | — | $ | — | ||||||||
Dean Miller | $ | — | $ | — | $ | — | $ | — | ||||||||
Cliff Wagner | $ | — | $ | — | $ | 200,000 | $ | — |
(a) | Mr. Hayward received an annual incentive bonus in the amount of £102,845, plus a discretionary bonus in the amount of £62,976, and a Transaction bonus in the amount of £87,500, which have been converted into U.S. Dollars using a conversion rate of $1.9849 for every 1£ which, according to Bloomberg’s, is the exchange rate as of December 31, 2007. |
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(b) | Mr. Howell received an annual incentive bonus in the amount of £242,353 and a Senior Executive Success Plan bonus in the amount of £98,828, which have been converted into U.S. Dollars using a conversion rate of $1.9849 for every 1£ which, according to Bloomberg’s, is the exchange rate as of December 31, 2007. | |
(c) | In lieu of the bonus amount calculated under the terms of the annual incentive program, these Named Executive Officers received a guaranteed minimum bonus, pursuant to their employment agreements. | |
(d) | In addition to the amount determined under the terms of the annual incentive bonus program, this amount reflects a $125,000 discretionary bonus awarded by the Compensation Committee in recognition of Mr. Hayward’s increased responsibilities and efforts during the period that he served as our Chief Accounting Officer. | |
(e) | Mr. Goldean’s signing bonus was paid in three equal installments pursuant to his employment agreement, two-thirds was paid in 2007 and one-third was paid in March 2008. |
(3) | Represents the compensation cost of outstanding stock awards for financial reporting purposes for the year under SFAS 123 (R) without regard to forfeiture assumptions. For the amounts listed in this column for fiscal year 2007, refer to Note 13 “Employee Benefit Plans” in the Notes to Consolidated Financial Statements for further detail on Restricted Stock Awards. Upon the closing of the 2007 New Capital Transaction on May 7, 2007, all restricted stock units and 50% of the performance shares of the 2004 Equity Incentive Compensation Plan vested immediately. Under the terms of this plan, the 2007 New Capital Transaction qualified as a change-in-control (as defined in the plan) and, accordingly, previously unrecognized compensation expense was recognized. For the amounts listed in this column for fiscal year 2006, refer to Note 13 “Employee Benefit Plans” in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2006 for the assumptions made in the valuation of our stock awards and refer to note 1 to the Management Compensation Table included in our 2007 Proxy Statement for an explanation of how these values were determined. | |
(4) | Represents the compensation cost of outstanding option awards for financial reporting purposes for the year under SFAS 123 (R) without regard to forfeiture assumptions. For the amounts listed in this column for fiscal year 2007, refer to Note 13 “Employee Benefit Plans” in the Notes to Consolidated Financial Statements for the assumptions made in the valuation of our stock options. Upon closing the 2007 New Capital Transaction on May 7, 2007, all previously unrecognized compensation expense associated with the pre-2007 New Capital Transaction stock-based compensation plans was recognized immediately. For the amounts listed in this column for fiscal year 2006, refer to Note 13 “Employee Benefit Plans” in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2006 for the assumptions made in the valuation of our stock options. | |
(5) | The aggregate incremental costs of the perquisites and personal benefits reflected in this column for fiscal year 2007 are based on the amounts that we paid to third parties for such items and services during the time that they were in use by the Named Executive Officers and, where applicable, the actual reimbursement amount that we paid to the applicable Named Executive Officer. | |
(6) | See note 4 in the Grant of Plan-Based Awards table for information regarding 2007 forfeitures related to performance-based options. | |
(7) | Represents life, health and disability insurance expenses in the amount of $8,479, relocation expenses in the amount of $42,132, housing expenses in the amount of $54,108, cost of purchase of vehicles that will remain the property of the Company and related expenses in the amount of $35,503 , utilities and telephone in the amount of $2,256, airfare expenses in the amount of $7,967, transportation expenses in the amount of $896, club membership dues in the amount of $296 for Mr. Zippel and attorney’s fees related to the negotiation of Mr. Zippel’s employment agreement in the amount of $10,000. | |
(8) | Represents 401(k) matching contributions in the amount of $8,654, life, health and disability insurance expenses in the amount of $4,830, relocation expenses in the amount of $28,455, the purchase of a club membership that is refundable to the Company in the amount of $95,000, housing expenses in the amount of $53,866, transportation services in the amount of $1,616, airfare expenses in the amount of $15,983, meals expenses in the amount of $444, miscellaneous expenses in the amount of $297 and tax gross ups of $642 for relocation expenses for Mr. Eleftheriou and attorney’s fees related to the negotiation of Mr. Eleftheriou’s employment agreement in the amount of $11,113. | |
(9) | Represents 401(k) matching contributions in the amount of $15,500, contributions by us to Mr. Baumstein’s deferred compensation plan account in the amount of $62,524, life, health and disability insurance expenses in the amount of $21,290, club membership dues in the amount of $5,907 and attorney’s fees related to the negotiation of Mr. Baumstein’s employment agreement in the amount of $10,373. |
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(10) | Represents 401(k) matching contributions in the amount of $15,500, contributions by us to Mr. Delle Fave’s deferred compensation plan account in the amount of $185,356, life, health and disability insurance expenses in the amount of $33,193, club membership dues in the amount of $5,820 and attorney’s fees related to the negotiation of Mr. Delle Fave’s employment agreement in the amount of $11,595. | |
(11) | Represents 401(k) matching contributions in the amount of $15,500, contributions by us to Mr. Goldean’s deferred compensation plan account in the amount of $258,846, life, health and disability insurance expenses in the amount of $16,221, signature healthcare of $2,500 club membership dues in the amount of $7,935 and attorney’s fees related to the negotiation of Mr. Goldean’s employment agreement in the amount of $13,757. | |
(12) | Mr. Hayward served as Chief Accounting Officer of the Company from July 6, 2007 until November 12, 2007. All amounts paid to Mr. Hayward were paid in British pounds. Such amounts were converted to U.S. Dollars using a conversion rate of $1.9849 for every 1£ which, according to Bloomberg’s, is the exchange rate as of December 31, 2007. | |
(13) | Represents group life insurance of $893 (£450) and contributions to Mr. Hayward’s U.K. pension account (not managed by or on behalf of us) in the amount of $31,687 (£15,964). | |
(14) | All amounts paid to Mr. Howell were paid in British pounds sterling. The 2007 amounts were converted to U.S. Dollars using a conversion rate of $1.9849 for every 1£ which, according to Bloomberg’s, is the exchange rate as of December 31, 2007. | |
(15) | Represents executive medical insurance of $853 (£430), group life insurance of $893 (£450) and contributions to Mr. Howell’s U.K. pension account (not managed by or on behalf of us) in the amount of $193,528 (£97,500). | |
(16) | Mr. McCormick’s employment with the Company terminated June 9, 2007. | |
(17) | Represents 401(k) matching contributions in the amount of $15,500, contributions by us to Mr. McCormick’s deferred compensation plan account in the amount of $26,587, life, health and disability insurance expenses in the amount of $4,293, club membership dues in the amount of $338 and a severance payment of $2,663,496. | |
(18) | Mr. Miller’s employment with the Company terminated May 19, 2007. | |
(19) | Represents 401(k) matching contributions in the amount of $15,500, contributions by us to Mr. Miller’s deferred compensation plan account in the amount of $17,154 and life, health and disability insurance expenses in the amount of $15,588, club membership dues in the amount of $310 and a severance payment of $1,000,000. | |
(20) | Mr. Wagner’s employment with the Company terminated August 18, 2007. | |
(21) | Represents 401(k) matching contributions in the amount of $15,500, contributions by us to Mr. Wagner’s deferred compensation plan account in the amount of $50,087, life, health and disability insurance expenses in the amount of $18,926 and a severance payment of $2,915,686 and a tax gross-up on the severance payment of $1,351,566. |
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All Other | All Other | |||||||||||||||||||||||||||||||||||
Stock | Option | |||||||||||||||||||||||||||||||||||
Awards: | Awards: | Exercise or | Grant Date | |||||||||||||||||||||||||||||||||
Estimated Future Payouts Under | Number of | Number of | Base Price | Fair Value of | ||||||||||||||||||||||||||||||||
Equity Incentive Plan Awards | Shares of | Securities | of Option | Stock and | ||||||||||||||||||||||||||||||||
Grant | Approval | Threshold | Target | Maximum | Stock or | Underlying | Awards | Options | ||||||||||||||||||||||||||||
Name | Date | Date | (#) | (#) | (#) | Units (#) | Options (#)(2) | ($/sh)(4) | Awards($)(5) | |||||||||||||||||||||||||||
George Zippel | 7/18/2007 | 7/18/2007 | — | — | — | — | 625,000 | $ | 4.76 | $ | 1,502,250 | |||||||||||||||||||||||||
George Zippel | 12/14/2007 | 7/18/2007 | — | 125,000 | (3)(i) | — | — | — | $ | 4.76 | $ | 27,238 | ||||||||||||||||||||||||
George Zippel | —(1) | 7/18/2007 | — | 500,000 | — | — | — | $ | 4.76 | $ | — | (1) | ||||||||||||||||||||||||
George Zippel | 11/12/2007 | 11/2/2007 | — | — | — | — | 125,000 | $ | 2.22 | $ | 166,800 | |||||||||||||||||||||||||
George Zippel | 12/14/2007 | 11/2/2007 | — | 25,000 (3)(ii) | — | — | — | $ | 2.22 | $ | 7,588 | |||||||||||||||||||||||||
George Zippel | —(1) | 11/2/2007 | — | 100,000 | — | — | — | $ | 2.22 | $ | — | (1) | ||||||||||||||||||||||||
Terry Eleftheriou | 10/1/2007 | 7/18/2007 | — | — | — | — | 400,000 | $ | 3.59 | $ | 870,680 | |||||||||||||||||||||||||
Terry Eleftheriou | 12/14/2007 | 7/18/2007 | — | 80,000 (3)(iii) | — | — | — | $ | 3.59 | $ | 19,920 | |||||||||||||||||||||||||
Terry Eleftheriou | —(1) | 7/18/2007 | — | 320,000 | — | — | — | $ | 3.59 | $ | — | (1) | ||||||||||||||||||||||||
Michael Baumstein | 7/18/2007 | 7/18/2007 | — | — | — | — | 112,500 | $ | 4.76 | $ | 325,148 | |||||||||||||||||||||||||
Michael Baumstein | 12/14/2007 | 7/18/2007 | — | 22,500 (3)(iv) | — | — | — | $ | 4.76 | $ | 4,903 | |||||||||||||||||||||||||
Michael Baumstein | —(1) | 7/18/2007 | — | 90,000 | — | — | — | $ | 4.76 | $ | — | (1) | ||||||||||||||||||||||||
Jeffrey Delle Fave | 7/18/2007 | 7/18/2007 | — | — | — | — | 112,500 | $ | 4.76 | $ | 325,148 | |||||||||||||||||||||||||
Jeffrey Delle Fave | 12/14/2007 | 7/18/2007 | — | 22,500 | (3)(v) | — | — | — | $ | 4.76 | $ | 4,903 | ||||||||||||||||||||||||
Jeffrey Delle Fave | —(1) | 7/18/2007 | — | 90,000 | — | — | — | $ | 4.76 | $ | — | (1) | ||||||||||||||||||||||||
Paul Goldean | 7/18/2007 | 7/18/2007 | — | — | — | — | 400,000 | $ | 4.76 | $ | 1,156,080 | |||||||||||||||||||||||||
Paul Goldean | 12/14/2007 | 7/18/2007 | — | 80,000 (3)(vi) | — | — | — | $ | 4.76 | $ | 17,432 | |||||||||||||||||||||||||
Paul Goldean | —(1) | 7/18/2007 | — | 320,000 | — | — | — | $ | 4.76 | $ | — | (1) | ||||||||||||||||||||||||
Duncan Hayward | 7/18/2007 | 7/18/2007 | — | — | — | — | 87,500 | $ | 4.76 | $ | 252,893 | |||||||||||||||||||||||||
Duncan Hayward | 12/14/2007 | 7/18/2007 | — | 17,500 (3)(vii) | — | — | — | $ | 4.76 | $ | 3,813 | |||||||||||||||||||||||||
Duncan Hayward | —(1) | 7/18/2007 | — | 70,000 | — | — | — | $ | 4.76 | $ | — | (1) | ||||||||||||||||||||||||
David Howell | 7/18/2007 | 7/18/2007 | — | — | — | — | 175,000 | $ | 4.76 | $ | 505,785 | |||||||||||||||||||||||||
David Howell | 12/14/2007 | 7/18/2007 | — | 35,000 (3)(viii) | — | — | — | $ | 4.76 | $ | 7,627 | |||||||||||||||||||||||||
David Howell | —(1) | 7/18/2007 | — | 140,000 | — | — | — | $ | 4.76 | $ | — | (1) |
(1) | Under SFAS 123 (R), a grant date has not yet been determined for those Performance Based Options that vest on each of December 31, 2008, December 31, 2009, December 31, 2010 and December 31, 2011 as until there is mutual understanding of the terms and conditions of the options between both employer and employee a grant date and fair value cannot be determined. Annual performance metrics will be set each year that will be applied to the performance based options due to vest in that current year and once these metrics have been communicated to eligible employees, a grant date and fair value will be determined. | |
(2) | These amounts represent the number of Time-Based Options awarded under the 2007 Plan. |
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(3) | Options issued under the 2007 Plan vest, subject to full vesting and exercisability upon a change in control of the Company, as follows: |
• | 50% of an option grant to an employee or consultant vests based on the recipient’s continued employment with the Company (“Time-Based Options”). 20% of the Time-Based Options vest on the grant date and an additional 20% vest in four equal installments on each of the first, second, third and fourth anniversary of the grant date, based on continued employment. The Time-Based Options are exercisable upon vesting. | ||
• | 50% of an option grant to an employee or consultant vests based on the achievement of certain performance targets as established by the Board with respect to each relevant fiscal year (“Performance-Based Options”). 10% of the Performance-Based Options vest following the close of each of the five fiscal years following the approval date, subject to the Company’s attainment of the performance targets established by the Board with respect to the relevant fiscal year. In addition, 10% of the Performance-Based Options vest following the close of each of the five fiscal years following the approval date, subject to the recipient’s respective division’s or segment’s attainment of the performance targets established by the Board with respect to the relevant fiscal year. Although the Performance-Based Options may vest, they will not become exercisable until the end of the fifth fiscal year following May 7, 2007; provided, however, that if the Company achieves an A- rating or better from Standard & Poor’s or AM Best within eighteen (18) months following the closing of the 2007 New Capital Transaction, all Performance-Based Options with regard to fiscal years 2007 and 2008 will fully vest and become exercisable. |
(i) | This includes 109,375 Performance-Based Options that were forfeited at December 31, 2007 as 2007 Performance Targets were not fully attained. | ||
(ii) | This includes 21,875 Performance-Based Options that were forfeited at December 31, 2007 as 2007 Performance Targets were not fully attained. | ||
(iii) | This includes 70,000 Performance-Based Options that were forfeited at December 31, 2007 as 2007 Performance Targets were not fully attained. | ||
(iv) | This includes 19,687 Performance-Based Options that were forfeited at December 31, 2007 as 2007 Performance Targets were not fully attained. | ||
(v) | This includes 19,687 Performance-Based Options that were forfeited at December 31, 2007 as 2007 Performance Targets were not fully attained. | ||
(vi) | This includes 70,000 Performance-Based Options that were forfeited at December 31, 2007 as 2007 Performance Targets were not fully attained. | ||
(vii) | This includes 12,396 Performance-Based Options that were forfeited at December 31, 2007 as 2007 Performance Targets were not fully attained. | ||
(viii) | This includes 24,792 Performance-Based Options that were forfeited at December 31, 2007 as 2007 Performance Targets were not fully attained. |
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(4) | The exercise price is 100% of the market value per share on the grant date. The market value per share is the closing price of an ordinary share of our Company on the grant date on a national securities exchange on which the ordinary shares are listed on the last trading day for which a closing price was reported. | |
(5) | This amount reflects the grant date fair value in accordance with SFAS 123 (R). Refer to Note 13 “Employee Benefit Plans” in the Notes to Consolidated Financial Statements for the assumptions made in the valuation of our stock options. |
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Total Value of | ||||||||||||
Ordinary Shares | ||||||||||||
Issued on May 14, | ||||||||||||
Total Restricted | 2007 Pursuant to | |||||||||||
Shares Vesting on | Restricted Shares | |||||||||||
Outstanding | Change In | Vesting Upon | ||||||||||
Restricted Shares | Control on May 7, | Change in Control | ||||||||||
Name | at May 7, 2007 | 2007(1) | on May 7, 2007(2) | |||||||||
Michael Baumstein | 22,677 | 14,173 | $ | 69,589 | ||||||||
Jeffrey Delle Fave | 20,142 | 12,588 | $ | 61,807 | ||||||||
Paul Goldean | 40,348 | 25,217 | $ | 123,815 | ||||||||
Duncan Hayward | 10,000 | 6,250 | $ | 30,688 | ||||||||
David Howell | 30,212 | 18,882 | $ | 92,711 | ||||||||
Hugh McCormick | 50,679 | 31,674 | $ | 155,519 | ||||||||
Dean Miller | 73,000 | 46,024 | $ | 225,978 | ||||||||
Cliff Wagner | 30,236 | 18,896 | $ | 92,779 |
(1) | The Restricted Share grants were comprised of 25% time based restricted shares and 75% performance based restricted shares. Upon a change in control on May 7, 2007, 100% of the time based restricted shares vested and 50% of the performance based restricted shares vested along with accrued dividends. This was approved by the Compensation Committee | |
(2) | Market value based on a closing per share price of $4.91 at the close of the market on May 14, 2007, the date the ordinary shares were released to the Named Executive Officers. |
Options Exercisable for | ||||||||||||
Ordinary Shares Upon | ||||||||||||
Change in Control at May | Weighted Average | Total Value of Cash | ||||||||||
Name | 7, 2007 (No. of Shares) | Exercise Price | Options Released(1) | |||||||||
Michael Baumstein | 38,000 | $ | 23.48 | $ | — | |||||||
Jeffrey Delle Fave | 20,000 | $ | 24.21 | $ | — | |||||||
Paul Goldean | 55,000 | $ | 20.20 | $ | — | |||||||
Duncan Hayward | — | $ | — | $ | — | |||||||
David Howell | 50,000 | $ | 24.89 | $ | — | |||||||
Hugh McCormick | 60,000 | $ | 25.45 | $ | — | |||||||
Dean Miller | 50,000 | $ | 25.35 | $ | — | |||||||
Cliff Wagner | 35,000 | $ | 18.37 | $ | — |
(1) | Assumes a market value based on a closing per share price of $4.66 on May 7, 2007, the date the change in control occurred and the stock option vesting accelerated. |
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Equity Incentive | ||||||||||||||||||||||||
Plan Awards: | ||||||||||||||||||||||||
Number of | Number of | Number of | ||||||||||||||||||||||
Securities | Securities | Securities | ||||||||||||||||||||||
Underlying | Underlying | Underlying | ||||||||||||||||||||||
Unexercised | Unexercised | Unexercised | Option | Option | ||||||||||||||||||||
Approval | Options (#) | Options (#) | Unearned | Exercise | Expiration | |||||||||||||||||||
Name | Date | Exercisable(1) | Unexercisable | Options | Price($)(2) | Date | ||||||||||||||||||
George Zippel | 7/18/2007 | 125,000 | 515,625 | (4) | 500,000 | (7) | $ | 4.76 | 7/18/2017 | |||||||||||||||
George Zippel | 11/12/2007 | 25,000 | 103,125 | (5) | 100,000 | (7) | $ | 2.22 | 11/12/2017 | |||||||||||||||
Terry Eleftheriou | 10/1/2007 | 80,000 | 330,000 | (6) | 320,000 | (7) | $ | 3.59 | 10/1/2017 | |||||||||||||||
Michael Baumstein | 5/5/2004 | (3) | 18,000 | — | — | $ | 21.70 | 5/5/2014 | ||||||||||||||||
Michael Baumstein | 2/17/2005 | (3) | 5,000 | — | — | $ | 26.10 | 2/16/2015 | ||||||||||||||||
Michael Baumstein | 2/16/2006 | (3) | 15,000 | — | — | $ | 24.75 | 2/15/2016 | ||||||||||||||||
Michael Baumstein | 7/18/2007 | 22,500 | 92,813 | (4) | 90,000 | (7) | $ | 4.76 | 7/18/2017 | |||||||||||||||
Jeffrey Delle Fave | 9/1/2005 | (3) | 20,000 | — | — | $ | 24.21 | 9/1/2015 | ||||||||||||||||
Jeffrey Delle Fave | 7/18/2007 | 22,500 | 92,813 | (4) | 90,000 | (7) | $ | 4.76 | 7/18/2017 | |||||||||||||||
Paul Goldean | 2/11/2002 | (3) | 35,000 | — | — | $ | 17.30 | 2/11/2012 | ||||||||||||||||
Paul Goldean | 2/18/2005 | (3) | 10,000 | — | — | $ | 25.82 | 2/18/2015 | ||||||||||||||||
Paul Goldean | 2/16/2006 | (3) | 10,000 | — | — | $ | 24.75 | 2/16/2016 | ||||||||||||||||
Paul Goldean | 7/18/2007 | 80,000 | 330,000 | (4) | 320,000 | (7) | $ | 4.76 | 7/18/2017 | |||||||||||||||
Duncan Hayward | 7/18/2007 | 17,500 | 75,104 | (4) | 70,000 | (7) | $ | 4.76 | 7/18/2017 | |||||||||||||||
David Howell | 11/1/2005 | (3) | 50,000 | — | — | $ | 24.89 | 11/1/2015 | ||||||||||||||||
David Howell | 7/18/2007 | 35,000 | 150,208 | (4) | 140,000 | (7) | $ | 4.76 | 7/8/2017 |
(1) | This represents the 20% of the Time-Based Options that vested immediately upon grant. | |
(2) | The exercise price is 100% of the market value per share on the grant date. The market value per share is the closing price of an ordinary share of our Company on the grant date on a national securities exchange on which the ordinary shares are listed on the last trading day for which a closing price was reported. | |
(3) | Upon a change in control on May 7, 2007, all stock options under the 2004 Equity Incentive Compensation Plan, 2001 Stock Option Plan, 1999 Stock Option Plan, Harbourton Employee Options and Second Amended and Restated 1998 Stock Option Plan vested. | |
(4) | This represents the unvested portion of the Time-Based Options (20% of which will vest on each of July 18, 2008, July 18, 2009, July 18, 2010 and July 18, 2011) and the Performance-Based Options that vested on December 31, 2007 but are not exercisable before December 31, 2011. For those Performance-Based Options subject to vesting on December 31, 2007, the following percentage of those options were approved for vesting by the Compensation Committee based on attainment of the 2007 Performance Targets: |
(5) | This represents the unvested portion of the Time-Based Options (20% of which will vest on each of November 12, 2008, November 12, 2009, November 12, 2010 and November 12, 2011) and the Performance-Based Options that vested on December 31, 2007 but are not exercisable before December 31, 2011. See note 4 regarding the percentage of the vesting-eligible Performance-Based Options that were approved for vesting on December 31, 2007. | |
(6) | This represents the unvested portion of the Time-Based Options (20% of which will vest on each of October 1, 2008, October 1, 2009, October 1, 2010 and October 1, 2011) and the Performance-Based Options that vested on December 31, 2007 but are not exercisable before December 31, 2011. See note 4 regarding the percentage of the vesting-eligible Performance-Based Options that were approved for vesting on December 31, 2007. | |
(7) | This represents the unvested portion of the Performance-Based Options (20% of which will be eligible to vest on each of December 31, 2008, December 31, 2009, December 31, 2010 and December 31, 2011). |
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Option Awards | Stock Awards | |||||||||||||||
Number of Shares | Number of Shares | Value Realized | ||||||||||||||
Acquired on | Value Realized on | Acquired on | on | |||||||||||||
Name | Exercise | Exercise | Vesting(1) | Vesting(2) | ||||||||||||
George Zippel | — | $ | — | — | $ | — | ||||||||||
Terry Eleftheriou | — | $ | — | — | $ | — | ||||||||||
Michael Baumstein | — | $ | — | 14,173 | $ | 66,046 | ||||||||||
Jeffrey Delle Fave | — | $ | — | 12,588 | $ | 58,660 | ||||||||||
Paul Goldean | — | $ | — | 25,217 | $ | 117,511 | ||||||||||
Duncan Hayward | — | $ | — | 6,250 | $ | 29,125 | ||||||||||
David Howell | — | $ | — | 18,882 | $ | 87,990 | ||||||||||
Hugh McCormick | — | $ | — | 31,674 | $ | 147,601 | ||||||||||
Dean Miller | — | $ | — | 46,024 | $ | 214,472 | ||||||||||
Cliff Wagner | — | $ | — | 18,896 | $ | 88,055 |
(1) | The Restricted Share grants were comprised of 25% time based restricted shares and 75% performance based restricted shares. Upon a change in control on May 7, 2007, 100% of the time based restricted shares vested and 50% of the performance based restricted shares vested along with accrued dividends. This was offset by taxes. This calculation was approved by the Compensation Committee prior to the 2007 New Capital Transaction. | |
(2) | Market value based on a closing per ordinary share price of $4.66 at the close of the market on May 7, 2007, the date the change in control occurred and the restricted awards vested. |
Executive | Registrant | |||||||||||||||||||
Contributions | Contributions | Aggregate | Aggregate | Aggregate | ||||||||||||||||
in | in | Earnings | Withdrawal/ | Balance | ||||||||||||||||
Name | Last FY | Last FY(1) | in Last FY | Distributions | at Last FYE(2) | |||||||||||||||
Michael Baumstein | $ | — | $ | 62,524 | $ | 764 | $ | — | $ | 99,027 | ||||||||||
Jeffrey Delle Fave | $ | — | $ | 185,356 | $ | (2,996 | ) | $ | — | $ | 219,397 | |||||||||
Paul Goldean | $ | — | $ | 258,846 | $ | (4,424 | ) | $ | — | $ | 414,556 | |||||||||
Dean Miller | $ | — | $ | 17,154 | $ | 8,908 | $ | — | $ | 104,336 | ||||||||||
Cliff Wagner | $ | — | $ | 50,087 | $ | (669 | ) | $ | — | $ | 54,528 | |||||||||
Hugh McCormick | $ | — | $ | 26,587 | $ | (53,801 | ) | $ | — | $ | 9,796 |
(1) | All amounts are reflected in the Summary Compensation Table above. | |
(2) | Portions of these amounts were reflected in the Summary Compensation Table under the “All Other Compensation” column in the 2007 Proxy Statement. |
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Years of Participation Service | Percentage Vested | |
Less than 1 | 0% | |
1 | 25% | |
2 | 50% | |
3 or more | 100% |
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Employment | ||||||||||||||||
Terminated by | ||||||||||||||||
Company | ||||||||||||||||
Without Cause | ||||||||||||||||
Employment | or | |||||||||||||||
Terminated by | by Executive for | |||||||||||||||
Employment | Company | Good | ||||||||||||||
Terminated Due | Without Cause or | Reason Upon a | ||||||||||||||
to Death or | by Executive | Change in | Change in | |||||||||||||
Named Executive Officer | Disability | with Good Reason | Control(1) | Control | ||||||||||||
George Zippel | $ | 302,665 | (2) | $ | 3,390,700 | (3) | $ | 4,965,700 | (4) | $ | 1,575,000 | (5) | ||||
Terry Eleftheriou | $ | 171,569 | (6) | $ | 2,000,758 | (7) | $ | 2,875,758 | (8) | $ | 875,000 | (9) | ||||
Michael Baumstein | $ | 39,346 | (10) | $ | 1,676,156 | (11) | n/a | n/a | ||||||||
Jeffrey Delle Fave | $ | 382,692 | (12) | $ | 382,692 | (13) | n/a | n/a | ||||||||
Paul Goldean | $ | 2,832,413 | (14) | $ | 2,832,413 | (15) | $ | 3,495,338 | (16) | n/a | ||||||
Duncan Hayward | n/a | $ | 419,935 | (17) | n/a | n/a | ||||||||||
Dave Howell | n/a | $ | 3,699,008 | (18) | n/a | n/a | ||||||||||
Dean Miller | n/a | $ | 1,060,285 | (19) | n/a | n/a | ||||||||||
Hugh McCormick | n/a | n/a | $ | 2,678,926 | (20) | n/a | ||||||||||
Cliff Wagner | n/a | n/a | $ | 4,280,181 | (21) | n/a |
(1) | Although a change in control would cause the option awards granted under the 2007 Plan to fully vest and become exercisable, the value of the options realized upon exercise upon termination is calculated as $0 as the market value at December 31, 2007 is lower than the exercise price of the options. | |
(2) | Includes $281,096 as a prorated portion of his target bonus for 2007, $12,413 for reimbursement of 12 months of COBRA coverage costs and $9,156 for the full tax gross-up payment on the reimbursement for the COBRA coverage costs. | |
(3) | Includes a $3,282,250 severance payment ($900,000 base salary; $675,000 target bonus; $281,096 as a prorated portion of his target bonus for 2007; and $1,426,154 remaining salary payments for the term ending July 31, 2008), $12,413 for reimbursement of 12 months of COBRA coverage costs, $9,156 for the full tax gross-up payment on the reimbursement for the COBRA coverage costs, $50,000 for relocation expenses and $36,881 for the full tax gross-up payment on the reimbursement of relocation expenses. | |
(4) | Includes a $3,282,250 severance payment ($900,000 base salary; $675,000 target bonus; $281,096 as a prorated portion of his target bonus for 2007; and $1,426,154 remaining payments for the term ending July 31, 2008), $12,413 for reimbursement of 12 months of COBRA coverage costs, $9,156 for the full tax gross-up payment on the reimbursement for the COBRA coverage costs, $50,000 for relocation expenses, $36,881 for the full tax gross-up payment on the reimbursement of relocation expenses and $1,575,000 for termination prior to the first anniversary of the change in control ($900,000 base salary; and $675,000 target bonus). | |
(5) | Includes $900,000 base salary and $675,000 target bonus. | |
(6) | Includes $150,000 as a prorated portion of his target bonus for 2007 and $12,413 for reimbursement of 12 months of COBRA coverage costs and $9,156 for the full tax gross-up payment on the reimbursement for the COBRA coverage costs. | |
(7) | Includes a $1,892,308 severance payment ($500,000 base salary; $375,000 target bonus; $150,000 as a prorated portion of his target bonus for 2007; and $867,308 remaining salary payments for the term ending September 24, 2009), $12,413 for reimbursement of 12 months of COBRA coverage costs, $9,156 for the full tax gross-up payment on the reimbursement for the COBRA coverage costs, $50,000 for relocation expenses and $36,881 for the full tax gross-up payment on the reimbursement of relocation expenses. | |
(8) | Includes a $1,892,308 severance payment ($500,000 base salary; $375,000 target bonus; $150,000 as a prorated portion of his target bonus for 2007; and $867,308 remaining salary payments for the term ending September 24, 2009), $12,413 for reimbursement of 12 months of COBRA coverage costs, $9,156 for the full tax gross-up payment on the reimbursement for the COBRA coverage costs, $50,000 for relocation expenses, $36,881 for the full tax gross-up payment on the reimbursement of relocation expenses and $875,000 for termination prior to the first anniversary of the change in control ($500,000 base salary; and $375,000 target bonus). | |
(9) | Includes $500,000 base salary and $375,000 target bonus. |
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(10) | Reflects $39,346 of accrued and unpaid vacation days. This event would also trigger distribution of Mr. Baumstein’s account under our Deferred Compensation Plan, subject to Code Section 409A, for the related amounts shown in the “Nonqualified Deferred Compensation for 2007” table. | |
(11) | Includes $232,500 as his bonus for 2007, a $1,395,000 severance payment (2 times ($465,000 base salary plus $232,500 bonus), $9,310 for a reimbursement of 9 months of COBRA coverage costs and $39,346 for accrued and unpaid vacation days. This event would also trigger distribution of Mr. Baumstein’s account under our Deferred Compensation Plan, subject to Code Section 409A, for the related amounts shown in the “Nonqualified Deferred Compensation for 2007” table. | |
(12) | Includes $325,000 as his bonus for 2007 and $57,692 for accrued and unused vacation days. Mr. Delle Fave’s employment agreement only requires that the termination of employment be other than for cause to receive this payment. This event would also trigger distribution of Mr. Delle Fave’s account under our Deferred Compensation Plan, subject to Code Section 409A, for the related amounts shown in the “Nonqualified Deferred Compensation for 2007” table. | |
(13) | Includes $325,000 as his bonus for 2007 and $57,692 for accrued and unused vacation days. Mr. Delle Fave’s employment agreement only requires that the termination of employment be other than for cause to receive this payment. This event would also trigger distribution of Mr. Delle Fave’s account under our Deferred Compensation Plan, subject to Code Section 409A, for the related amounts shown in the “Nonqualified Deferred Compensation for 2007” table. | |
(14) | Includes a $1,480,000 severance payment ($650,000 base salary; and $830,000 remaining salary payments for the term ending August 24, 2009), $325,000 as his bonus for 2007, $12,413 for a reimbursement of 12 months of the employer portion of COBRA coverage costs, $915,000 for acceleration of the remaining payment of his signing bonus and $100,000 for accrued and unpaid vacation days. This event would also trigger distribution of Mr. Goldean’s account under our Deferred Compensation Plan, subject to Code Section 409A, for the related amounts shown in the “Nonqualified Deferred Compensation for 2007” table. | |
(15) | Includes a $1,480,000 severance payment ($650,000 base salary; and $830,000 remaining salary payments for the term ending August 24, 2009), $325,000 as his bonus for 2007, $12,413 for a reimbursement of 12 months of the employer portion of COBRA coverage costs, $915,000 for acceleration of the remaining payment of his signing bonus and $100,000 for accrued and unpaid vacation days. This event would also trigger distribution of Mr. Goldean’s account under our Deferred Compensation Plan, subject to Code Section 409A, for the related amounts shown in the “Nonqualified Deferred Compensation for 2007” table. | |
(16) | Includes a $1,480,000 severance payment ($650,000 base salary; and $830,000 remaining salary payments for the term ending August 24, 2009), $325,000 as his bonus for 2007, $12,413 for a reimbursement of 12 months of the employer portion of COBRA coverage costs, $915,000 for acceleration of the remaining payment of his signing bonus, $100,000 for accrued and unpaid vacation days and $662,925 for the tax gross-up payment on excess parachute payments pursuant to Section 4999 of the Code. This event would also trigger distribution of Mr. Goldean’s account under our Deferred Compensation Plan, subject to Code Section 409A, for the related amounts shown in the “Nonqualified Deferred Compensation for 2007” table. | |
(17) | Includes a $357,282 severance payment ($357,282 base salary) and a $62,653 tax gross-up on that payment. This is the maximum amount that may be paid to Mr. Hayward, which would only be paid in connection with a fundamental reduction in Mr. Hayward’s job requirements (as described in the narrative below). Mr. Hayward’s employment agreement does not include the concept of a termination by the employee for good reason. Amounts paid to Mr. Hayward would be paid in British pounds sterling. Such amounts are converted to U.S. Dollars using a conversion rate of $1.9849 for every 1£ which, according to Bloomberg’s, is the exchange rate as of December 31, 2007. | |
(18) | Includes a $3,062,544 severance payment (3 times ($545,848 base salary plus $475,000 bonus), $12,596 for accrued and unpaid vacation days, $475,000 for the annual incentive bonus paid to him on March 14, 2008, and $148,868 for the June 1, 2008 installment of the pension equalization payment. Amounts paid to Mr. Howell would be paid in British pounds sterling. Such amounts are converted to U.S. Dollars using a conversion rate of $1.9849 for every 1£ which, according to Bloomberg’s, is the exchange rate as of December 31, 2007. | |
(19) | Details regarding this payment are provided in the description of Mr. Miller’s separation agreement below. | |
(20) | Details regarding this payment are provided in the description of Mr. McCormick’s separation agreement below. | |
(21) | Details regarding this payment are provided in the description of Mr. Wagner’s separation agreement below. |
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Fees Earned or | Option | All Other | ||||||||||||||
Name | Paid in Cash | Awards(1) | Compensation | Total | ||||||||||||
Jonathan Bloomer(2)(3) | $ | 77,000 | $ | 650,295 | $ | — | $ | 727,295 | ||||||||
Chris Brody(2)(3)(8) | $ | 86,500 | $ | 650,295 | $ | — | $ | 736,795 | ||||||||
James Butler(2)(3) | $ | 89,000 | $ | 650,295 | $ | — | $ | 739,295 | ||||||||
James Chapman(2)(3) | $ | 91,000 | $ | 650,295 | $ | — | $ | 741,295 | ||||||||
Thomas Finke(2)(3) | $ | 72,500 | $ | 650,295 | $ | — | $ | 722,795 | ||||||||
Seth Gardner(4) | $ | — | $ | — | $ | — | $ | — | ||||||||
Jeffrey Hughes(2)(3) | $ | 92,500 | $ | 650,295 | $ | — | $ | 742,795 | ||||||||
Robert Joyal(2)(3) | $ | 98,000 | $ | 650,295 | $ | — | $ | 748,295 | ||||||||
Larry Port(2)(3) | $ | 86,500 | $ | 650,295 | $ | — | $ | 736,795 | ||||||||
Michael Rollings(2)(3) | $ | 70,000 | $ | 650,295 | $ | — | $ | 720,295 | ||||||||
Lenard Tessler(2)(3)(6) | $ | 73,000 | $ | 650,295 | $ | — | $ | 723,295 | ||||||||
Raymond Wechsler (7) | $ | — | $ | — | $ | — | $ | — | ||||||||
Michael Austin(5) | $ | 16,500 | $ | — | $ | — | $ | 16,500 | ||||||||
Bill Caulfeild-Browne(5) | $ | 15,500 | $ | — | $ | — | $ | 15,500 | ||||||||
Robert M. Chmely(5) | $ | 19,500 | $ | — | $ | — | $ | 19,500 | ||||||||
Jean Claude Damerval(5) | $ | 6,000 | $ | — | $ | — | $ | 6,000 | ||||||||
Michael French(5) | $ | 44,000 | $ | — | $ | — | $ | 44,000 | ||||||||
Lord Norman Lamont(5) | $ | 19,500 | $ | — | $ | — | $ | 19,500 | ||||||||
Hazel O’Leary(5) | $ | 15,000 | $ | — | $ | — | $ | 15,000 | ||||||||
Glenn Schafer(5) | $ | 43,000 | $ | — | $ | — | $ | 43,000 |
(1) | Represents the compensation cost of outstanding option awards for financial reporting purposes for the year under SFAS 123(R) without regard to forfeiture assumptions. See Note 13 “Employee Benefit Plans” in the Notes to Consolidated Financial Statements for the assumptions made in the valuation of our option awards. | |
(2) | Options were non-qualified stock options granted on July 18, 2007 under the 2007 Plan. The grant date fair value of each option award was $650,295, calculated by multiplying the 225,000 options awarded by $2.8902. | |
(3) | Elected to the Board effective May 7, 2007. | |
(4) | Elected to the Board effective January 29, 2008. | |
(5) | Resigned from the Board effective May 7, 2007. | |
(6) | Resigned from the Board effective January 29, 2008. | |
(7) | Elected to the Board effective May 30, 2008. |
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(8) | Resigned from the Board effective May 30, 2008. |
Outstanding | ||||||||||||
Options | Weighted | Total Cash | ||||||||||
Exercisable for | Average | Value | ||||||||||
Name | Ordinary Shares | Exercise Price | of Options | |||||||||
Jonathan Bloomer | 225,000 | $ | 4.76 | $ | — | |||||||
Chris Brody | 225,000 | $ | 4.76 | $ | — | |||||||
James Butler | 225,000 | $ | 4.76 | $ | — | |||||||
James Chapman | 225,000 | $ | 4.76 | $ | — | |||||||
Thomas Finke | 225,000 | $ | 4.76 | $ | — | |||||||
Seth Gardner | — | $ | — | $ | — | |||||||
Jeffrey Hughes | 225,000 | $ | 4.76 | $ | — | |||||||
Robert Joyal | 225,000 | $ | 4.76 | $ | — | |||||||
Larry Port | 225,000 | $ | 4.76 | $ | — | |||||||
Michael Rollings | 225,000 | $ | 4.76 | $ | — | |||||||
Lenard Tessler | 225,000 | $ | 4.76 | $ | — | |||||||
Raymond Wechsler | — | $ | — | $ | — | |||||||
Michael Austin | 22,000 | $ | 15.80 | $ | — | |||||||
Bill Caulfeild-Browne | 22,000 | $ | 15.80 | $ | — | |||||||
Robert M. Chmely | 22,000 | $ | 15.80 | $ | — | |||||||
Jean Claude Damerval | 10,000 | $ | 22.55 | $ | — | |||||||
Michael French | 401,667 | $ | 16.52 | $ | — | |||||||
Lord Norman Lamont | 14,750 | $ | 19.29 | $ | — | |||||||
Hazel O’Leary | 18,000 | $ | 16.31 | $ | — | |||||||
Glenn Schafer | 26,000 | $ | 21.36 | $ | — |
Larry Port (Chairman)
Jeffrey Hughes
Raymond Wechsler
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Item 12: | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Amount of | ||||||||
Ordinary Shares | Percent | |||||||
Name and Address of Beneficial Owners(1) | Beneficial Ownership | of Class | ||||||
Investor Group | 150,000,000 | (2) | 68.7 | % | ||||
CMBP II (Cayman) Ltd. | 9,330,510 | (3) | 13.6 | %(4) | ||||
Richard M. Rieder | 8,933,747 | (5) | 13.1 | %(4) | ||||
Brandes Investment Partners, L.P. | 8,457,246 | (6) | 12.4 | %(4) | ||||
Directors | ||||||||
Jonathan Bloomer | 225,000 | (7) | * | |||||
Christopher Brody | 225,000 | (7) | * | |||||
James Butler | 233,000 | (8) | * | |||||
James Chapman | 225,000 | (7) | * | |||||
Thomas Finke | 225,000 | (7) | * | |||||
Seth Gardner | 225,000 | (7) | * | |||||
Jeffrey Hughes | 225,000 | (7) | * | |||||
Robert Joyal | 325,000 | (8) | * | |||||
Larry Port | 225,000 | (7) | * | |||||
Michael Rollings | 225,000 | (7) | * | |||||
George Zippel | 255,000 | (9) | * | |||||
Named Executive Officers | ||||||||
Terry Eleftheriou | 80,000 | * | ||||||
Michael Baumstein | 62,310 | * | ||||||
Jeffrey Delle Fave | 55,088 | * | ||||||
Paul Goldean | 158,640 | * | ||||||
Duncan Hayward | 23,750 | * | ||||||
David Howell | 28,640 | * | ||||||
Hugh McCormick(10) | — | * | ||||||
Dean Miller(11) | — | * | ||||||
Cliff Wagner(12) | — | * | ||||||
All directors, director nominees and executive | ||||||||
officers as a group (nineteen persons) | 3,052,192 | 4.3 | % |
* | Less than 1% | |
(1) | Except as otherwise indicated, the address for each beneficial owner is c/o Scottish Re Group Limited, P.O. Box HM 2939, Crown House, Second Floor, 4 Par-la-Ville Road, Hamilton, HM 08, Bermuda. | |
(2) | The Investors each purchased 500,000 shares of the Company’s newly issued convertible cumulative participating preferred stock (the “Convertible Shares”) pursuant to the terms of the SPA. Such 500,000 Convertible Shares may be converted into 75,000,000 ordinary shares, or an aggregate 150,000,000 ordinary shares between both Investors, at any time, and will automatically convert on the ninth anniversary of the issue date if not previously converted, subject to certain adjustments. On January 4, 2007, SRGL Acquisition, LLC assigned its rights and obligations under the SPA to SRGL LDC, an affiliate of Cerberus. Pursuant to the Assignment and Assumption Agreements dated as of June 5, 2007 between MassMutual Capital and each of the Funds, MassMutual Capital assigned its Convertible Shares to the Funds. |
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The sole general partner of each of the Funds is Benton Street Advisors, Inc., an indirect wholly-owned subsidiary of Massachusetts Mutual Life Insurance Company. On June 5, 2007, the Investors and the Funds entered into the Amended and Restated Investors Agreement in order to reallocate voting and governance rights and obligations of MassMutual Capital to and among the Funds. Pursuant to the Amended and Restated Investors Agreement, the Investors and the Funds agreed, among other things, to: (i) certain restrictions on the transfer of Convertible Shares, (ii) certain voting provisions with respect to the ordinary shares, (iii) the election of a certain number of directors to the Company’s Board and (iv) a third party sale process. Because of the Amended and Restated Investors Agreement, for the purposes of Section 13(d)(3) of the Exchange Act, Massachusetts Mutual Life Insurance Company and the Funds are deemed to be members of a group with SRGL LDC and, therefore, the beneficial owners of the securities of the Company beneficially owned by SRGL LDC. On June 5, 2007, SRGL LDC subscribed for and purchased limited partnership interests in Benton Street Partners III, L.P., pursuant to a Subscription Agreement dated as of June 5, 2007 by and between Benton Street Partners III, L.P. and SRGL LDC. Benton Street Partners III, L.P. holds 134,667 Convertible Shares. Stephen Feinberg, directly or through one or more intermediate entities, possesses the sole power to vote and the sole power to direct the disposition of all securities of the Company held directly by Cerberus. In addition, pursuant to an Amended and Restated Limited Partnership Agreement dated as of June 5, 2007 by and among Benton Street Advisors, Inc., MassMutual Capital and SRGL LDC, SRGL LDC shares certain rights over the voting and disposition of securities of the Company held by Benton Street Partners III, L.P. Mr. Feinberg, directly or through one or more intermediate entities, exercises such rights held by SRGL LDC. Because SRGL LDC holds 500,000 Convertible Shares and exercises certain rights over the voting and disposition of 134,667 Convertible Shares, which Convertible Shares, in the aggregate, may be converted into 95,200,050 ordinary shares, Mr. Feinberg is deemed to beneficially own 95,200,050 ordinary shares, or 58.3% of the ordinary shares deemed issued and outstanding as of June 5, 2007. In addition, because of the Amended and Restated Investors Agreement, Mr. Feinberg is deemed to beneficially own the 365,333 Convertible Shares, which may be converted into 54,799,950 ordinary shares, beneficially owned by Massachusetts Mutual Life Insurance Company. The Investor Group beneficially owns 150,000,000 ordinary shares, or 68.7% of the ordinary shares deemed issued and outstanding as of that date. The address for Massachusetts Mutual Life Insurance Company is 1295 State Street, Springfield, Massachusetts 01111. The address for Stephen Feinberg is 299 Park Avenue, 22nd Floor, New York, New York 10171. | ||
(3) | Based on a Schedule 13D filed by CMBP II (Cayman) Ltd. with the Securities and Exchange Commission on November 26, 2006, as a joint filer with Cypress Associates II (Cayman) L.P., Cypress Merchant B Partners II (Cayman) L.P., Cypress Merchant B II-A C.V., Cypress Side-by-Side (Cayman) L.P. and 55th Street Partners II (Cayman) L.P. The address of the joint filers is Cypress Associates II (Cayman) L.P., c/o The Cypress Group L.L.C., 65 East 55th Street, 28th Floor, New York, New York 10022. | |
(4) | Equals the percentage of the issued and outstanding ordinary shares of the Company. Beneficial ownership would be less than 5% taking into account the conversion of the Convertible Shares. | |
(5) | Based on a Form 4 filed by Richard M. Rieder with the Securities and Exchange Commission on June 9, 2008. R3 Capital Partners Master, L.P. (the “R3 Fund”), an investment fund, R3 Capital GenPar MGP, Ltd. (“R3 MGP”), the general partner of the R3 Master, R3 Capital Principal Investors GenPar, LLC (“R3 Principal”), the sole voting shareholder of R3 MGP, and Richard M. Rieder, the managing member of R3 Principal. The principal business address is 1271 Avenue of the Americas, New York, New York 10020. | |
(6) | Based on a Schedule 13G filed by Brandes Investment Partners, L.P. with the Securities and Exchange Commission on February 14, 2008, as a joint filer with Brandes Investment Partners, Inc., Brandes Worldwide Holdings, L.P., Charles H. Brandes, Glenn R. Carlson and Jeffrey A. Busby. The address of the joint filers is 11988 El Camino Real, Suite 500, San Diego, CA 92130. | |
(7) | Represents ordinary shares of the Company subject to immediately exercisable options. | |
(8) | Includes 225,000 ordinary shares of the Company subject to immediately exercisable options. | |
(9) | Includes 150,000 ordinary shares of the Company subject to immediately exercisable options. 105,000 ordinary shares are held in the Suzanne E. Schuerman Revocable Trust of which Mr. Zippel jointly controls and for which Mr. Zippel is the sole beneficiary. | |
(10) | Mr. McCormick is no longer an employee of the Company. Share ownership is based on the best information available to us. | |
(11) | Mr. Miller is no longer an employee of the Company. Share ownership is based on the best information available to us. | |
(12) | Mr. Wagner is no longer an employee of the Company. Share ownership is based on the best information available to us. |
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1. | Consolidated Financial Statements | |||||
Report of Independent Registered Public Accounting Firm | 156 | |||||
Consolidated Balance Sheets | 157 | |||||
Consolidated Statements of Income (Loss) | 158 | |||||
Consolidated Statements of Comprehensive Income (Loss) | 159 | |||||
Consolidated Statements of Shareholders’ Equity | 160 | |||||
Consolidated Statements of Cash Flows | 162 | |||||
Notes to Consolidated Financial Statements | 164 | |||||
2. | Financial Statement Schedules | |||||
Schedule I — Summary of Investments | 233 | |||||
Schedule II — Condensed Financial Information on Registrant | 233 | |||||
Schedule III — Supplemental Insurance Information | 235 | |||||
Schedule IV — Reinsurance | 237 | |||||
Schedule V — Valuation and Qualifying Accounts | 238 |
3. | Exhibits | |
3.1 | Memorandum of Association of Scottish Re Group Limited. (24) | |
3.2 | Articles of Association of Scottish Re Group Limited. (24) | |
4.1 | Specimen Ordinary Share Certificate (incorporated herein by reference to Exhibit 4.1 to Scottish Re Group Limited’s Registration Statement on Form S-1). (1) | |
4.2 | Form of Amended and Restated Class A Warrant (incorporated herein by reference to Exhibit 4.2 to Scottish Re Group Limited’s Registration Statement on Form S-1). (1) | |
4.3 | Form of Securities Purchase Agreement for the Class A Warrants (incorporated herein by reference to Exhibit 4.4 to Scottish Re Group Limited’s Registration Statement on Form S-1). (1) | |
4.4 | Form of Securities Purchase Agreement between Scottish Re Group Limited and the Shareholder Investors (incorporated herein by reference to Exhibit 4.10 to Scottish Re Group Limited’s Registration Statement on Form S-1). (1) | |
4.5 | Form of Securities Purchase Agreement between Scottish Re Group Limited and the Non-Shareholder Investors (incorporated herein by reference to Exhibit 4.12 to Scottish Re Group Limited’s Registration Statement on Form S-1). (1) | |
4.6 | Certificate of Designations of Convertible Preferred Shares of Scottish Re Group Limited (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (10) | |
4.7 | Certificate of Designations of Scottish Re Group Limited’s Non-Cumulative Perpetual Preferred Shares, dated June 28, 2005 (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (16) |
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4.8 | Specimen Stock Certificate for the Company’s Non-Cumulative Perpetual Preferred Shares (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (16) | |
10.1 | Second Amended and Restated 1998 Stock Option Plan effective October 22, 1998 (incorporated herein by reference to Exhibit 10.3 to Scottish Re Group Limited’s Registration Statement on Form S-1). (1)(25) | |
10.2 | Form of Stock Option Agreement in connection with 1998 Stock Option Plan (incorporated herein by reference to Exhibit 10.4 to Scottish Re Group Limited’s Registration Statement on Form S-1). (1)(25) | |
10.3 | Investment Management Agreement, dated October 22, 1998, between Scottish Re Group Limited and General Re-New England Asset Management, Inc. (incorporated herein by reference to Exhibit 10.14 to Scottish Re Group Limited’s Registration Statement on Form S-1). (1) | |
10.4 | Form of Omnibus Registration Rights Agreement (incorporated herein by reference to Exhibit 10.17 to Scottish Re Group Limited’s Registration Statement on Form S-1). (1) | |
10.5 | 1999 Stock Option Plan (incorporated herein by reference to Exhibit 10.14 to Scottish Re Group Limited’s 1999 Annual Report on Form 10-K). (2)(25) | |
10.6 | Form of Stock Options Agreement in connection with 1999 Stock Option Plan (incorporated herein by reference to Exhibit 10.15 to Scottish Re Group Limited’s 1999 Annual Report on Form 10-K). (2)(25) | |
10.7 | 2001 Stock Option Plan (incorporated herein by reference to Exhibit 10.17 to Scottish Re Group Limited’s 2001 Annual Report on Form 10-K). (4)(25) | |
10.8 | Form of Nonqualified Stock Option Agreement in connection with 2001 Stock Option Plan (incorporated herein by reference to Exhibit 10.17 to Scottish Re Group Limited’s 2001 Annual Report on Form 10-K). (4)(25) | |
10.9 | Form of Indemnification Agreement between Scottish Re Group Limited and each of its directors and officers (incorporated by reference to Scottish Re Group Limited’s Amended Quarterly Report on Form 10-Q/A for the period ended September 30, 2002). (8)(25) | |
10.10 | Employment Agreement dated June 1, 2002 between Scottish Re Group Limited and Paul Goldean (incorporated herein by reference to Scottish Re Group Limited’s Quarterly Report on Form 10-Q for the period ended March 31, 2004). (14)(25) | |
10.11 | Indenture, dated November 22, 2002, between Scottish Re Group Limited and The Bank of New York (incorporated herein by reference to Scottish Re Group Limited’s Registration Statement on Form S-3). (9) | |
10.12 | Registration Rights Agreement, dated November 22, 2002, by and among Scottish Re Group Limited and Bear Stearns & Co. and Putnam Lovell Securities Inc. (incorporated herein by reference to Scottish Re Group Limited’s Registration Statement on Form S-3). (9) | |
10.13 | Stock Purchase Agreement, dated as of October 24, 2003, by and among Scottish Re Group Limited, Scottish Holdings, Inc. and Employers Reinsurance Corporation (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (11) | |
10.14 | Tax Matters Agreement, dated as of January 22, 2003, by and among Scottish Re Group Limited, Scottish Holdings, Inc. and Employers Reinsurance Corporation (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (11) | |
10.15 | Transition Services Agreement, dated as of January 22, 2003, by and among Scottish Holdings, Inc. and Employers Reinsurance Corporation (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (11) |
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10.16 | Asset Purchase Agreement, dated as of October 17, 2004, by and among Security Life of Denver Insurance Company, Security Life of Denver International Limited, ING America Insurance Holdings, Inc. (for purposes of Section 11.11), Scottish Re Group Limited, Scottish Re (U.S.), Inc., Scottish Annuity & Life Insurance Company (Cayman) Ltd. (for purposes of Section 5.26) and Scottish Re Life Corporation (for purposes of Section 5.24) (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (15) | |
10.17 | Securities Purchase Agreement, dated as of October 17, 2004, by and among Scottish Re Group Limited and Cypress Merchant B Partners II (Cayman) L.P., Cypress Merchant Banking II-A C.V., 55th Street Partners II (Cayman) L.P. and Cypress Side-by-Side (Cayman) L.P. (including form of Subordinated Note, Class C Warrant, Shareholders’ Agreement and Amendments to Articles of Association) (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (15) | |
10.18 | Form of Voting Agreement, by and among Cypress Merchant B Partners II (Cayman) L.P., Cypress Merchant Banking II-A C.V., 55th Street Partners II (Cayman) L.P. and Cypress Side-by-Side (Cayman) L.P., Scottish Re Group Limited and, respectively, each director and each officer of Scottish Re Group Limited (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (15) | |
10.19 | Voting Agreement, dated as of October 15, 2004, by and among Scottish Re Group Limited, Cypress Merchant B Partners II (Cayman) L.P., Cypress Merchant Banking II-A C.V., 55th Street Partners II (Cayman) L.P. and Cypress Side-by-Side (Cayman) L.P. and Pacific Life Insurance Company (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (15) | |
10.20 | Letter Agreement, dated as of October 17, 2004, by and among Scottish Re Group Limited and Cypress Merchant B Partners II (Cayman) L.P., Cypress Merchant Banking II-A C.V., 55th Street Partners II (Cayman) L.P. and Cypress Side-by-Side (Cayman) L.P. (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (15) | |
10.21 | First Supplemental Indenture, dated as of October 26, 2004, between Scottish Re Group Limited and The Bank of New York (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 29, 2004). | |
10.22 | Administrative Services Agreement, dated as of December 31, 2004, between Security Life of Denver Insurance Company and Security Life of Denver International Limited and Scottish Re (U.S.), Inc. (incorporated herein by reference to Scottish Re Group Limited’s 2004 Annual Report on Form 10-K). (20) | |
10.23 | Coinsurance Agreement dated December 31, 2004 between Security Life of Denver Insurance Company and Scottish Re (U.S.), Inc. (incorporated herein by reference to Scottish Re Group Limited’s 2004 Annual Report on Form 10-K). (20) | |
10.24 | Coinsurance/Modified Coinsurance Agreement, dated December 31, 2004, between Security Life of Denver Insurance Company and Scottish Re (U.S.), Inc. (incorporated herein by reference to Scottish Re Group Limited’s 2004 Annual Report on Form 10-K). (20) | |
10.25 | Retrocession Agreement, dated December 31, 2004, between Scottish Re (U.S.), Inc. and Security Life of Denver Insurance Company (incorporated herein by reference to Scottish Re Group Limited’s 2004 Annual Report on Form 10-K). (20) | |
10.26 | Retrocession Agreement, dated December 31, 2004, between Scottish Re Life (Bermuda) Limited and Security Life of Denver Insurance Company (incorporated herein by reference to Scottish Re Group Limited’s 2004 Annual Report on Form 10-K). (20) | |
10.27 | Reserve Trust Agreement, dated as of December 31, 2004, between Scottish Re (U.S.) Inc., as Grantor, and Security Life of Denver Insurance Company, as Beneficiary, and The Bank of New York, as Trustee, and |
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The Bank of New York, as Securities Intermediary (incorporated herein by reference to Scottish Re Group Limited’s 2004 Annual Report on Form 10-K). (20) | ||
10.28 | Security Trust Agreement, dated as of December 31, 2004, by and among Scottish Re (U.S.), Inc., as Grantor, Security Life of Denver Insurance Company, as Beneficiary, The Bank of New York, as Trustee, and The Bank of New York, as Securities Intermediary (incorporated herein by reference to Scottish Re Group Limited’s 2004 Annual Report on Form 10-K). (20) | |
10.29 | Coinsurance Agreement, dated December 31, 2004, between Security Life of Denver International Limited and Scottish Re Life (Bermuda) Limited (incorporated herein by reference to Scottish Re Group Limited’s 2004 Annual Report on Form 10-K). (20) | |
10.30 | Coinsurance/Modified Coinsurance Agreement, dated December 31, 2004, between Security Life of Denver International Limited and Scottish Re Life (Bermuda) Limited (incorporated herein by reference to Scottish Re Group Limited’s 2004 Annual Report on Form 10-K). (20) | |
10.31 | Coinsurance Funds Withheld Agreement, dated December 31, 2004, between Security Life of Denver International Limited and Scottish Re Life (Bermuda) Limited (incorporated herein by reference to Scottish Re Group Limited’s 2004 Annual Report on Form 10-K). (20) | |
10.32 | Reserve Trust Agreement, dated December 31, 2004, between Scottish Re Life (Bermuda) Limited, as Grantor, and Security Life of Denver International Limited, as Beneficiary. The Bank of New York, as Trustee, and The Bank of New York, as Securities Intermediary (incorporated herein by reference to Scottish Re Group Limited’s 2004 Annual Report on Form 10-K). (20) | |
10.33 | Security Trust Agreement, dated as of December 31, 2004, by and among Scottish Re Life (Bermuda) Limited, as Grantor, Security Life of Denver International Limited, as Beneficiary, The Bank of New York, as Trustee, and the Bank of New York, as Securities Intermediary (incorporated herein by reference to Scottish Re Group Limited’s 2004 Annual Report on Form 10-K). (20) | |
10.34 | Technology Transfer and License Agreement, dated as of December 31, 2004, between Security Life of Denver Insurance Company, ING North America Insurance Corporation and Scottish Re (U.S.), Inc. (incorporated herein by reference to Scottish Re Group Limited’s 2004 Annual Report on Form 10-K). (20) | |
10.35 | Transition and Integration Services Agreement, dated December 31, 2004, between Security Life of Denver Insurance Company and Scottish Re (U.S.), Inc. (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (19) | |
10.36 | Form of Remarketing Agreement, between the Company and Lehman Brothers, Inc., as Remarketing Agent (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (16) | |
10.37 | Scottish Re Group Limited 2004 Equity Incentive Compensation Plan (incorporated herein by reference to Scottish Re Group Limited’s Proxy Statement filed with the Securities and Exchange Commission on April 1, 2004). (24) | |
10.38 | Amendment No. 1 to Scottish Re Group Limited 2004 Equity Incentive Compensation Plan (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (18) (25) | |
10.39 | Amendment No. 2 to Scottish Re Group Limited 2004 Equity Incentive Compensation Plan (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (18) (25) | |
10.40 | Form of Management Stock Option Agreement under the Scottish Re Group Limited 2004 Equity Incentive Compensation Plan (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (18) (25) |
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10.41 | Form of Management Performance Share Unit Agreement under the Scottish Re Group Limited 2004 Equity Incentive Compensation Plan (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (18) (25) | |
10.42 | Form of Management Restricted Share Unit Agreement under the Scottish Re Group Limited 2004 Equity Incentive Compensation Plan (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (18) (25) | |
10.43 | Letter of Credit Agreement, dated as of August 18, 2005, among Scottish Re (Dublin) Limited, as Borrower, Scottish Annuity & Life Insurance Company (Cayman) Ltd., as Guarantor, Bank of America, N.A., as Administrative Agent and L/C Issuer, and the Other Lenders Party Hereto, and Bank of America Securities LLC, as Sole Lead Arranger and Sole Book Manager (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (21) | |
10.44 | Amendment to Employment Agreement, dated as of October 29, 2006, between Scottish Re Group Limited and Paul Goldean (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K which was filed with the Securities and Exchange Commission on November 2, 2006). (25) | |
10.45 | Securities Purchase Agreement, dated as of November 26, 2006, by and among Scottish Re Group Limited, MassMutual Capital Partners LLC and SRGL Acquisition, LLC (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (22) | |
10.46 | Form of Registration Rights and Shareholders Agreement (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (22) | |
10.47 | Voting Agreement, dated as of November 26, 2006, by and among Scottish Re Group Limited, MassMutual Capital Partners LLC, SRGL Acquisition, LLC, Cypress Merchant B Partners II (Cayman) L.P., Cypress Merchant B II-A C.V., Cypress Side-By-Side (Cayman) L.P. and 55th Street Partners II (Cayman) L.P. (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (22) | |
10.48 | First Amendment to Asset Purchase Agreement, dated as of November 26, 2006, by and among Scottish Re (U.S.), Inc., Scottish Re Life (Bermuda) Limited, Security Life of Denver Insurance Company and Security Life of Denver International Limited (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (22) | |
10.49 | Letter Agreement, dated as of November 30, 2006, by and among Scottish Annuity & Life Insurance Company (Cayman) Ltd., Scottish Re Limited and Comerica Bank (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (23) | |
10.50 | Standby Letter of Credit Application and Agreement, dated as of November 30, 2006, by and between Scottish Annuity & Life Insurance Company (Cayman) Ltd. and Comerica Bank (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (23) | |
10.51 | Standby Letter of Credit Application and Agreement, dated as of November 30, 2006, by and between Scottish Re Limited and Comerica Bank (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K). (23) | |
10.52 | Amendment No. 2 to Securities Purchase Agreement, dated as of February 20, 2007, by and among Scottish Re Group Limited, MassMutual Capital Partners LLC and SRGL Acquisition, LDC (incorporated herein by reference to Scottish Re Group Limited’s Current Report on Form 8-K which was filed with the Securities and Exchange Commission on February 21, 2007). | |
10.53 | Amendment Three to the 2004 Equity Incentive Compensation Plan (incorporated herein by reference to Scottish Re Group Limited’s 2006 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 1, 2007). (25) | |
10.54 | Scottish Re Group Limited 2007 Stock Option Plan (incorporated herein by reference to Scottish Re Group Limited’s Proxy Statement filed with the Securities and Exchange Commission on June 22, 2007). (25) |
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10.55 | Employment Agreement dated May 30, 2006 between Scottish Re Holdings Limited and Duncan Hayward. (24)(25) | |
10.56 | Employment Agreement dated June 28, 2007 between Scottish Holdings, Inc. and Jeffrey M. Delle Fave. (24)(25) | |
10.57 | Employment Agreement dated July 18, 2007 between Scottish Re Group Limited and George R. Zippel. (24)(25) | |
10.58 | Employment Agreement dated July 25, 2007 between Scottish Holdings, Inc. and Michael Baumstein. (24)(25) | |
10.59 | First Amendment to Employment Agreement dated as of July 18, 2007 between Scottish Re Group Limited and George R. Zippel, executed on February 27, 2008. (25) | |
10.60 | Employment Agreement dated July 26, 2007 between Scottish Re (U.S.), Inc. and Meredith Ratajczak. (24)(25) | |
10.61 | Employment Agreement dated September 24, 2007 between Scottish Re Group Limited and Terry Eleftheriou (incorporated herein by reference to Scottish Re Group Limited’s Quarterly Report on Form 10-Q for the period ending September 30, 2007, filed with the Securities and Exchange Commission November 9, 2007). (25) | |
10.62 | First Amendment to Employment Agreement dated as of September 24, 2007 between Scottish Re Group Limited and Terry Eleftheriou, executed on March 1, 2008. (25) | |
10.63 | Employment Agreement dated as of November 16, 2007 between Scottish Re Group Limited and Samir Shah. (25) | |
10.64 | Employment Agreement dated August 24, 2007 between Scottish Re Group Limited and Paul Goldean. (25) | |
10.65 | Employment Agreement dated November 30, 2007 between Scottish Re Holdings Limited and David Howell. (25) | |
10.66 | Employment Agreement dated as of January 8, 2008 between Scottish Re Holdings, Inc. and Dan Roth. (25) | |
10.67 | Second Amended and Restated Forbearance Agreement among HSBC Bank USA, N.A., Scottish Annuity & Life Insurance Company (Cayman) Ltd., Scottish Re Group Limited and Scottish Re (Dublin) Limited, dated June 30, 2008. | |
10.68 | Forbearance Agreement among Clearwater Re Limited, Scottish Annuity & Life Insurance Company (Cayman) Ltd., Scottish Re Group Limited, Citibank and Calyon New York Branch, dated June 30, 2008. | |
10.69 | Letter of Intent entered into on June 30, 2008 among Security Life of Denver Insurance Company, Security Life of Denver International Limited, Scottish Re (U.S.), Inc., Ballantyne Re p.l.c., Ambac Assurance UK Limited, Assured Guaranty (UK) Ltd., and Scottish Re Group Limited. | |
10.70 | Letter of Intent dated June 30, 2008 among Scottish Re Group Limited, ING North America Insurance Corporation, ING America Insurance Holdings, Inc., Security Life of Denver Insurance Company, Security Life of Denver International Ltd., Scottish Re (U.S.), Inc., Scottish Re Life (Bermuda) Limited, Scottish Re (Dublin) Limited, and Scottish Annuity & Life Insurance Company (Cayman) Ltd. | |
21.1 | Subsidiaries of the Company. | |
24.1 | Power of Attorney. | |
31.1 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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(1) | Scottish Re Group Limited’s Registration Statement on Form S-1 was filed with the Securities and Exchange Commission on June 19, 1998, as amended. | ||
(2) | Scottish Re Group Limited’s 1999 Annual Report on Form 10-K was filed with the Securities and Exchange Commission on April 3, 2000. | ||
(3) | Scottish Re Group Limited’s 2000 Annual Report on Form 10-K was filed with the Securities and Exchange Commission on March 30, 2001. | ||
(4) | Scottish Re Group Limited’s 2001 Annual Report on Form 10-K was filed with the Securities and Exchange Commission on March 5, 2002. | ||
(5) | Scottish Re Group Limited’s Current Report on Form 8-K was filed with the Securities and Exchange Commission on December 31, 2001. | ||
(6) | Scottish Re Group Limited’s Current Report on Form 8-K was filed with the Securities and Exchange Commission on June 2, 2005. | ||
(7) | Scottish Re Group Limited’s Current Report on Form 8-K was filed with the Securities and Exchange Commission on August 9, 2001. | ||
(8) | Scottish Re Group Limited’s Amended Quarterly Report on Form 10-Q/A was filed with the Securities and Exchange Commission on August 8, 2002. | ||
(9) | Scottish Re Group Limited’s Registration Statement on Form S-3 was filed with the Securities and Exchange Commission on January 31, 2003, as amended. | ||
(10) | Scottish Re Group Limited’s Current Report on Form 8-K was filed with the Securities and Exchange Commission on December 17, 2003. | ||
(11) | Scottish Re Group Limited’s Current Report on Form 8-K was filed with the Securities and Exchange Commission on January 6, 2004. | ||
(12) | Scottish Re Group Limited’s 2002 Annual Report on Form 10-K was filed with the Securities and Exchange Commission on March 31, 2003. | ||
(13) | Scottish Re Group Limited’s Quarterly Report on Form 10-Q was filed with the Securities and Exchange Commission on August 12, 2003. | ||
(14) | Scottish Re Group Limited’s Quarterly Report on Form 10-Q was filed with the Securities and Exchange Commission on May 10, 2004. | ||
(15) | Scottish Re Group Limited’s Current Report on Form 8-K was filed with the Securities and Exchange Commission on October 21, 2004. | ||
(16) | Scottish Re Group Limited’s Current Report on Form 8-K was filed with the Securities and Exchange Commission on July 1, 2005. | ||
(17) | Scottish Re Group Limited’s Current Report on Form 8-K was filed with the Securities and Exchange Commission on July 18, 2005. | ||
(18) | Scottish Re Group Limited’s Current Report on Form 8-K was filed with the Securities and Exchange Commission on August 8, 2005. | ||
(19) | Scottish Re Group Limited’s Current Report on Form 8-K was filed with the Securities and Exchange Commission on August 4, 2005. |
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(20) | Scottish Re Group Limited’s 2004 Annual Report on Form 10-K was filed with the Securities and Exchange Commission on March 18, 2005. | ||
(21) | Scottish Re Group Limited’s Current Report on Form 8-K was filed with the Securities and Exchange Commission on August 22, 2005. | ||
(22) | Scottish Re Group Limited’s Current Report on Form 8-K as filed with the Securities and Exchange Commission on November 29, 2006. | ||
(23) | Scottish Re Group Limited’s Current Report on Form 8-K was filed with the Securities and Exchange Commission on December 1, 2006. | ||
(24) | Scottish Re Group Limited’s Quarterly Report on Form 10-Q for the period ended June 30, 2007 was filed with the Securities and Exchange Commission on August 11, 2007. | ||
(25) | This exhibit is a management contract or compensatory plan or arrangement. |
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July 9, 2008
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(Expressed in Thousands of United States Dollars, Except Share Data)
December 31, 2007 | December 31, 2006 | |||||||
ASSETS | ||||||||
Fixed maturity investments (Amortized cost $7,582,850; 2006 - $8,102,384) | $ | 7,621,242 | $ | 8,065,524 | ||||
Preferred stock (Cost $88,914; 2006 - $119,667) | 88,973 | 116,933 | ||||||
Cash and cash equivalents | 822,851 | 622,756 | ||||||
Other investments | 62,664 | 65,448 | ||||||
Funds withheld at interest | 1,597,336 | 1,942,079 | ||||||
Total investments | 10,193,066 | 10,812,740 | ||||||
Accrued interest receivable | 57,809 | 57,538 | ||||||
Reinsurance balances and risk fees receivable | 479,094 | 488,063 | ||||||
Deferred acquisition costs | 620,765 | 618,737 | ||||||
Amount recoverable from reinsurers | 562,537 | 707,842 | ||||||
Present value of in-force business | 45,560 | 48,779 | ||||||
Other assets | 140,230 | 182,670 | ||||||
Current income tax receivable | 11,069 | 6,251 | ||||||
Deferred tax asset | 6,988 | — | ||||||
Segregated assets | 703,945 | 683,470 | ||||||
Total assets | $ | 12,821,063 | $ | 13,606,090 | ||||
LIABILITIES | ||||||||
Reserves for future policy benefits | $ | 4,071,901 | $ | 3,882,901 | ||||
Interest sensitive contract liabilities | 2,560,785 | 3,342,410 | ||||||
Collateral finance facilities | 3,980,379 | 3,757,435 | ||||||
Accounts payable and other liabilities | 287,611 | 168,308 | ||||||
Reinsurance balances payable | 175,168 | 257,023 | ||||||
Current income tax payable | — | 6,299 | ||||||
Deferred tax liability | 165 | 169,977 | ||||||
Long term debt | 129,500 | 129,500 | ||||||
Segregated liabilities | 703,945 | 683,470 | ||||||
Total liabilities | 11,909,454 | 12,397,323 | ||||||
MINORITY INTEREST | 9,025 | 7,910 | ||||||
MEZZANINE EQUITY | ||||||||
Convertible cumulative participating preferred shares, (Liquidation preference, $628.8 million) | 555,857 | — | ||||||
Hybrid capital units | — | 143,665 | ||||||
Total mezzanine equity | 555,857 | 143,665 | ||||||
Commitments and contingencies (Note 19) | ||||||||
SHAREHOLDERS’ EQUITY | ||||||||
Ordinary shares, par value $0.01: | ||||||||
Issued 68,383,370 shares (2006 - 60,554,104) | 684 | 606 | ||||||
Non-cumulative perpetual preferred shares, par value $0.01: | ||||||||
Issued: 5,000,000 shares (2006 - 5,000,000) | 125,000 | 125,000 | ||||||
Additional paid-in capital | 1,214,886 | 1,050,860 | ||||||
Accumulated other comprehensive income | 48,556 | 340 | ||||||
Retained deficit | (1,042,399 | ) | (119,614 | ) | ||||
Total shareholders’ equity | 346,727 | 1,057,192 | ||||||
Total liabilities, minority interest, mezzanine equity and shareholders’ equity | $ | 12,821,063 | $ | 13,606,090 | ||||
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(Expressed in Thousands of United States Dollars, Except Share Data)
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2007 | 2006 | 2005 | ||||||||||
Revenues | ||||||||||||
Premiums earned, net | $ | 1,889,757 | $ | 1,841,985 | $ | 1,933,930 | ||||||
Investment income, net | 599,698 | 616,624 | 355,837 | |||||||||
Fee and other income | 18,845 | 14,493 | 12,316 | |||||||||
Net realized (losses) gains | (979,343 | ) | (27,405 | ) | 3,738 | |||||||
Gain on extinguishment of third party debt | 20,043 | — | — | |||||||||
Change in value of embedded derivatives, net | (43,627 | ) | (16,197 | ) | (8,492 | ) | ||||||
Total revenues | 1,505,373 | 2,429,500 | 2,297,329 | |||||||||
Benefits and expenses | ||||||||||||
Claims and other policy benefits | 1,558,249 | 1,569,472 | 1,442,505 | |||||||||
Interest credited to interest sensitive contract liabilities | 135,366 | 172,967 | 132,968 | |||||||||
Acquisition costs and other insurance expenses, net | 388,253 | 409,185 | 423,775 | |||||||||
Operating expenses | 168,916 | 152,311 | 115,573 | |||||||||
Goodwill impairment | — | 34,125 | — | |||||||||
Collateral finance facilities expense | 289,098 | 215,791 | 48,146 | |||||||||
Interest expense | 18,172 | 23,139 | 20,738 | |||||||||
Total benefits and expenses | 2,558,054 | 2,576,990 | 2,183,705 | |||||||||
(Loss) income before income taxes and minority interest | (1,052,681 | ) | (147,490 | ) | 113,624 | |||||||
Income tax benefit (expense) | 157,600 | (220,592 | ) | 16,434 | ||||||||
(Loss) income before minority interest | (895,081 | ) | (368,082 | ) | 130,058 | |||||||
Minority interest | (661 | ) | 1,368 | 139 | ||||||||
Net (loss) income | (895,742 | ) | (366,714 | ) | 130,197 | |||||||
Dividend declared on non-cumulative perpetual preferred shares | (9,062 | ) | (9,062 | ) | (4,758 | ) | ||||||
Deemed dividend on beneficial conversion feature related to convertible cumulative participating preferred shares | (120,750 | ) | — | — | ||||||||
Imputed dividend on prepaid variable share forward contract | — | (881 | ) | — | ||||||||
Net (loss) income (attributable) available to ordinary shareholders | $ | (1,025,554 | ) | $ | (376,657 | ) | $ | 125,439 | ||||
(Loss) earnings per ordinary share — Basic | $ | (15.24 | ) | $ | (6.70 | ) | $ | 2.86 | ||||
(Loss) earnings per ordinary share — Diluted | $ | (15.24 | ) | $ | (6.70 | ) | $ | 2.64 | ||||
Dividends declared per ordinary share | $ | — | $ | 0.10 | $ | 0.20 | ||||||
Weighted average number of ordinary shares outstanding | ||||||||||||
Basic | 67,303,066 | 56,182,222 | 43,838,261 | |||||||||
Diluted | 67,303,066 | 56,182,222 | 47,531,116 | |||||||||
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(Expressed in Thousands of United States Dollars)
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2007 | 2006 | 2005 | ||||||||||
Net (loss) income | $ | (895,742 | ) | $ | (366,714 | ) | $ | 130,197 | ||||
Other comprehensive income (loss) | ||||||||||||
Unrealized depreciation on investments | (739,807 | ) | (18,055 | ) | (30,750 | ) | ||||||
Reclassification adjustment for net realized losses (gains) included in net (loss) income | 785,741 | 16,310 | (790 | ) | ||||||||
Net unrealized appreciation (depreciation) on investments net of income taxes, deferred acquisition costs and minority interest of $(32,111), $4,124, and $32,293 | 45,934 | (1,745 | ) | (31,540 | ) | |||||||
Cumulative translation adjustment | 1,764 | 14,938 | (10,055 | ) | ||||||||
Benefit plans | 518 | — | — | |||||||||
Other comprehensive income (loss) | 48,216 | 13,193 | (41,595 | ) | ||||||||
Comprehensive (loss) income | $ | (847,526 | ) | $ | (353,521 | ) | $ | 88,602 | ||||
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(Expressed in Thousands of United States Dollars)
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2007 | 2006 | 2005 | ||||||||||
Share capital | ||||||||||||
Ordinary shares | ||||||||||||
Beginning of year | $ | 606 | $ | 534 | $ | 399 | ||||||
Issuance to holders of HyCUs on conversion of purchase contracts | 74 | — | — | |||||||||
Issuance to holders of restricted stock awards | 4 | — | — | |||||||||
Issuance on exercise of warrants | — | — | 54 | |||||||||
Issuance to employees on exercise of options | — | 6 | 4 | |||||||||
Ordinary shares issued | — | 66 | 77 | |||||||||
End of year | 684 | 606 | 534 | |||||||||
Non-cumulative perpetual preferred shares | ||||||||||||
Beginning of year | 125,000 | 125,000 | — | |||||||||
Non-cumulative perpetual preferred shares issued | — | — | 125,000 | |||||||||
End of year | 125,000 | 125,000 | 125,000 | |||||||||
Additional paid-in capital | ||||||||||||
Beginning of year | 1,050,860 | 893,767 | 684,719 | |||||||||
Issuance to holders of HyCUs on conversion of purchase contracts | 143,675 | — | — | |||||||||
Beneficial conversion feature related to convertible cumulative participating preferred shares | 120,750 | — | — | |||||||||
Accretion of beneficial conversion feature related to convertible cumulative participating preferred shares | (120,750 | ) | — | — | ||||||||
Option and restricted stock unit expense | 20,067 | 2,586 | 5,377 | |||||||||
Conversion of 7% Convertible Junior Subordinated Notes | — | — | 42,061 | |||||||||
Cost of forward sale agreements | — | — | (13,893 | ) | ||||||||
Costs of issue of non-cumulative perpetual preferred shares | — | — | (4,563 | ) | ||||||||
Ordinary shares issued, net of issuance costs | — | 147,318 | 174,031 | |||||||||
Issuance to employees on exercise of options | — | 6,795 | 5,358 | |||||||||
Other | 284 | 394 | 677 | |||||||||
End of year | 1,214,886 | 1,050,860 | 893,767 | |||||||||
Accumulated other comprehensive loss | ||||||||||||
Unrealized appreciation (depreciation) on investments net of income taxes, deferred acquisition costs and minority interest | ||||||||||||
Beginning of year | (19,624 | ) | (17,879 | ) | 13,661 | |||||||
Change in year | 45,934 | (1,745 | ) | (31,540 | ) | |||||||
End of year | 26,310 | (19,624 | ) | (17,879 | ) | |||||||
Cumulative translation adjustment | ||||||||||||
Beginning of year | 22,826 | 7,888 | 17,943 | |||||||||
Change in year (net of tax) | 1,764 | 14,938 | (10,055 | ) | ||||||||
End of year | 24,590 | 22,826 | 7,888 | |||||||||
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CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (continued)
(Expressed in Thousands of United States Dollars)
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2007 | 2006 | 2005 | ||||||||||
Benefit plans | ||||||||||||
Beginning of year | (2,862 | ) | — | — | ||||||||
Change in year | 518 | (2,862 | ) | — | ||||||||
End of year | (2,344 | ) | (2,862 | ) | — | |||||||
Total accumulated other comprehensive (loss) income | 48,556 | 340 | (9,991 | ) | ||||||||
Retained (deficit) earnings | ||||||||||||
Beginning of year | (119,614 | ) | 262,402 | 145,952 | ||||||||
Adoption of FIN 48 on January 1, 2007 | (17,981 | ) | — | — | ||||||||
Net (loss) income | (895,742 | ) | (366,714 | ) | 130,197 | |||||||
Dividends declared on ordinary shares | — | (5,359 | ) | (8,989 | ) | |||||||
Dividends declared on non-cumulative perpetual preferred shares | (9,062 | ) | (9,062 | ) | (4,758 | ) | ||||||
Imputed dividend on prepaid variable share forward contract | — | (881 | ) | — | ||||||||
End of year | (1,042,399 | ) | (119,614 | ) | 262,402 | |||||||
Total shareholders’ equity | $ | 346,727 | $ | 1,057,192 | $ | 1,271,712 | ||||||
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(Expressed in Thousands of United States Dollars)
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2007 | 2006 | 2005 | ||||||||||
Operating activities | ||||||||||||
Net (loss) income | $ | (895,742 | ) | $ | (366,714 | ) | $ | 130,197 | ||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||||||
Net realized losses (gains) | 979,343 | 27,405 | (3,738 | ) | ||||||||
Gain on extinguishment of third party debt | (20,043 | ) | — | — | ||||||||
Changes in value of embedded derivatives, net | 43,627 | 16,197 | 8,492 | |||||||||
Amortization of discount on fixed maturity investments and preferred stock | 13,021 | 15,903 | 18,253 | |||||||||
Amortization of deferred acquisition costs | 76,493 | 109,473 | 68,906 | |||||||||
Amortization and write-down of present value of in-force business | 3,219 | 5,964 | 7,421 | |||||||||
Amortization of deferred transaction costs | 13,309 | 9,584 | 4,843 | |||||||||
Depreciation of fixed assets | 11,045 | 12,718 | 6,291 | |||||||||
Option and restricted stock unit expense | 20,067 | 2,586 | 5,377 | |||||||||
Minority interest | 661 | (1,368 | ) | (139 | ) | |||||||
Goodwill impairment | — | 34,125 | — | |||||||||
Changes in assets and liabilities: | ||||||||||||
Accrued interest receivable | (101 | ) | (12,129 | ) | (12,317 | ) | ||||||
Reinsurance balances and risk fees receivable | (65,266 | ) | 26,708 | 102,118 | ||||||||
Deferred acquisition costs | (87,214 | ) | (125,937 | ) | (230,053 | ) | ||||||
Deferred tax asset and liability | (192,697 | ) | 228,024 | (22,164 | ) | |||||||
Other assets | 25,941 | (103,806 | ) | (72,600 | ) | |||||||
Current income tax receivable and payable | (10,874 | ) | (9,337 | ) | 17,194 | |||||||
Reserves for future policy benefits, net of amounts recoverable from reinsurers | 325,780 | 199,555 | 356,922 | |||||||||
Funds withheld at interest | 344,743 | 655,337 | (541,136 | ) | ||||||||
Interest sensitive contract liabilities | (231,791 | ) | (325,907 | ) | 480,990 | |||||||
Accounts payable and other liabilities | 57,301 | 85,000 | 43,124 | |||||||||
Net cash provided by operating activities | 410,822 | 483,381 | 367,981 | |||||||||
Investing activities | ||||||||||||
Purchase of fixed maturity investments | (1,331,162 | ) | (4,482,054 | ) | (3,004,780 | ) | ||||||
Proceeds from sales of fixed maturity investments | 270,403 | 1,159,659 | 690,533 | |||||||||
Proceeds from maturity of fixed maturity investments | 596,040 | 512,719 | 517,775 | |||||||||
Purchase of preferred stock | — | (10,298 | ) | (17,028 | ) | |||||||
Proceeds from sale and maturity of preferred stock | 19,878 | 26,431 | 4,174 | |||||||||
Purchase of other investments | (344 | ) | (8,215 | ) | (37,736 | ) | ||||||
Purchase of fixed assets | (2,764 | ) | (18,644 | ) | (13,135 | ) | ||||||
Net cash used in investing activities | (447,949 | ) | (2,820,402 | ) | (1,860,197 | ) | ||||||
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(Expressed in Thousands of United States Dollars)
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2007 | 2006 | 2005 | ||||||||||
Financing activities | ||||||||||||
Deposits to interest sensitive contract liabilities | 2,382 | 154,569 | 312,958 | |||||||||
Withdrawals from interest sensitive contract liabilities | (289,798 | ) | (676,028 | ) | (255,515 | ) | ||||||
Proceeds from issuance of convertible cumulative participating preferred shares | 555,857 | — | — | |||||||||
Proceeds from issuance to holders of HyCUs on conversion of purchase contracts | 7,338 | — | — | |||||||||
Redemption of convertible preferred shares | (7,338 | ) | — | — | ||||||||
Dividends paid on redemption of convertible preferred shares | (222 | ) | — | — | ||||||||
Proceeds from collateral finance facilities | 431,514 | 1,771,754 | 1,785,681 | |||||||||
Repayment of collateral finance facilities | (188,527 | ) | — | — | ||||||||
Repayment from drawdown of Stingray facility | (275,000 | ) | — | — | ||||||||
Proceeds from drawdown of Stingray facility | 10,000 | 265,000 | — | |||||||||
Proceeds from issuance of ordinary shares | 78 | 153,698 | 179,466 | |||||||||
Dividends paid on ordinary shares | — | (5,359 | ) | (8,990 | ) | |||||||
Dividends paid on non-cumulative perpetual preferred shares | (9,062 | ) | (9,062 | ) | (2,492 | ) | ||||||
Net proceeds from issuance of non-cumulative perpetual preferred shares | — | — | 120,436 | |||||||||
Cost of variable share forward contracts | — | — | (13,816 | ) | ||||||||
Repayment of long term debt | — | (115,000 | ) | — | ||||||||
Net proceeds from exercise of Class C warrants | — | — | 54 | |||||||||
Net cash (used in) provided by financing activities | 237,222 | 1,539,572 | 2,117,782 | |||||||||
Net change in cash and cash equivalents | 200,095 | (797,449 | ) | 625,566 | ||||||||
Cash and cash equivalents, beginning of year | 622,756 | 1,420,205 | 794,639 | |||||||||
Cash and cash equivalents, end of year | $ | 822,851 | $ | 622,756 | $ | 1,420,205 | ||||||
Interest paid | $ | 2,998 | $ | 9,908 | $ | 18,232 | ||||||
Taxes paid (refunded) | $ | 16,095 | $ | 1,774 | $ | (1,041 | ) | |||||
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• | investment valuation and impairments; | ||
• | accounting for derivative instruments; | ||
• | assessment of risk transfer for structured insurance and reinsurance contracts; | ||
• | estimates of premiums; | ||
• | valuation of present value of in-force business; | ||
• | establishment of reserves for future policy benefits; | ||
• | capitalization and amortization of deferred acquisition costs; | ||
• | retrocession arrangements and amounts recoverable from reinsurers; | ||
• | interest sensitive contract liabilities; | ||
• | deferred taxes and determination of the valuation allowance; | ||
• | taxation; and | ||
• | stock based compensation. |
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(i) | Reinsurance premiums from traditional life policies and annuity policies with life contingencies are generally recognized as revenue when due from policyholders and are reported net of amounts retroceded. Traditional life policies include those contracts with fixed and guaranteed premiums and benefits, and consist principally of whole life and term insurance policies. | ||
Benefits and expenses, net of amounts retroceded, are matched with net earned premiums so as to result in the recognition of profits over the life of the contracts. This is achieved by means of the provision for liabilities for future policy benefits and deferral and subsequent amortization of deferred acquisition costs. | |||
From time to time, we acquire blocks of in-force business and account for these transactions as purchases. Results of operations only include the revenues and expenses from the respective dates of acquisition of these blocks of in-force business. The initial transfer of assets and liabilities is recorded on the balance sheet. Reinsurance assumed for interest sensitive and investment type products does not generate premium but generates investment income on the assets we receive from ceding companies, policy charges for the cost of insurance, policy administration, and surrenders that have been assessed against policy account balances during the period. | |||
(ii) | Fee income is recorded on an accrual basis. | ||
(iii) | Net investment income includes interest and dividend income together with amortization of market premium and discounts and is net of investment management and custody fees. For mortgage backed securities, and any other holdings for which there is a prepayment risk, prepayment assumptions are evaluated and revised as necessary. Any adjustments required due to the resultant change in effective yields and maturities are recognized prospectively. |
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December 31, 2007 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Estimated | |||||||||||||
(U.S. dollars in thousands) | Cost or Cost | Appreciation | Depreciation | Fair Value | ||||||||||||
U.S. Treasury securities and U.S. government agency obligations | $ | 87,150 | $ | 2,298 | $ | — | $ | 89,448 | ||||||||
Corporate securities | 2,773,880 | 24,424 | — | 2,798,304 | ||||||||||||
Municipal bonds | 55,466 | 732 | — | 56,198 | ||||||||||||
Mortgage and asset backed securities | 4,666,354 | 10,938 | — | 4,677,292 | ||||||||||||
Preferred stock | 88,914 | 59 | — | 88,973 | ||||||||||||
Total | $ | 7,671,764 | $ | 38,451 | $ | — | $ | 7,710,215 | ||||||||
December 31, 2006 | ||||||||||||||||
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Estimated | |||||||||||||
(U.S. dollars in thousands) | Cost or Cost | Appreciation | Depreciation | Fair Value | ||||||||||||
U.S. Treasury securities and U.S. government agency obligations | $ | 69,205 | $ | 183 | $ | (1,367 | ) | $ | 68,021 | |||||||
Corporate securities | 2,722,900 | 22,884 | (45,279 | ) | 2,700,505 | |||||||||||
Municipal bonds | 52,676 | 344 | (827 | ) | 52,193 | |||||||||||
Mortgage and asset backed securities | 5,257,603 | 14,959 | (27,757 | ) | 5,244,805 | |||||||||||
Preferred stock | 119,667 | 552 | (3,286 | ) | 116,933 | |||||||||||
Total | $ | 8,222,051 | $ | 38,922 | $ | (78,516 | ) | $ | 8,182,457 | |||||||
December 31, 2007 | ||||||||
Amortized | Estimated | |||||||
(U.S. dollars in thousands) | Cost or Cost | Fair Value | ||||||
Due in one year or less | $ | 178,085 | $ | 178,225 | ||||
Due after one year through five years | 809,749 | 817,897 | ||||||
Due after five years through ten years | 939,109 | 949,167 | ||||||
Due after ten years | 1,078,467 | 1,087,634 | ||||||
3,005,410 | 3,032,923 | |||||||
Mortgage and asset backed securities | 4,666,354 | 4,677,292 | ||||||
Total | $ | 7,671,764 | $ | 7,710,215 | ||||
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December 31, 2006 | ||||||||
Amortized | Estimated | |||||||
(U.S. dollars in thousands) | Cost or Cost | Fair Value | ||||||
Due in one year or less | $ | 98,600 | $ | 98,281 | ||||
Due after one year through five years | 727,153 | 721,570 | ||||||
Due after five years through ten years | 1,099,979 | 1,091,209 | ||||||
Due after ten years | 1,038,716 | 1,026,592 | ||||||
2,964,448 | 2,937,652 | |||||||
Mortgage and asset backed securities | 5,257,603 | 5,244,805 | ||||||
Total | $ | 8,222,051 | $ | 8,182,457 | ||||
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December 31, 2006 | ||||||||||||||||||||||||
Equal to or Greater Than | ||||||||||||||||||||||||
Less Than 12 Months | 12 Months | Total | ||||||||||||||||||||||
Estimated | Unrealized | Estimated | Unrealized | Estimated | Unrealized | |||||||||||||||||||
(U.S. dollars in thousands) | Fair Value | Loss | Fair Value | Loss | Fair Value | Loss | ||||||||||||||||||
Investment grade securities | ||||||||||||||||||||||||
CMO | $ | 369,457 | $ | (2,365 | ) | $ | 252,252 | $ | (6,327 | ) | $ | 621,709 | $ | (8,692 | ) | |||||||||
Corporates | 752,219 | (15,710 | ) | 867,537 | (29,012 | ) | 1,619,756 | (44,722 | ) | |||||||||||||||
Governments | 35,805 | (615 | ) | 21,072 | (752 | ) | 56,877 | (1,367 | ) | |||||||||||||||
MBS | 12,116 | (136 | ) | 138,992 | (4,674 | ) | 151,108 | (4,810 | ) | |||||||||||||||
Municipal | 19,865 | (187 | ) | 18,013 | (640 | ) | 37,878 | (827 | ) | |||||||||||||||
Other structured securities | 413,269 | (2,509 | ) | 613,172 | (11,730 | ) | 1,026,441 | (14,239 | ) | |||||||||||||||
Preferred stocks | 6,877 | (203 | ) | 88,907 | (3,064 | ) | 95,784 | (3,267 | ) | |||||||||||||||
Total investment grade securities | 1,609,608 | (21,725 | ) | 1,999,945 | (56,199 | ) | 3,609,553 | (77,924 | ) | |||||||||||||||
Below investment grade securities | ||||||||||||||||||||||||
Corporates | 3,416 | (58 | ) | 12,752 | (499 | ) | 16,168 | (557 | ) | |||||||||||||||
Other structured securities | 46 | (12 | ) | 5 | (4 | ) | 51 | (16 | ) | |||||||||||||||
Preferred stock | — | — | 340 | (19 | ) | 340 | (19 | ) | ||||||||||||||||
Total below investment grade securities | 3,462 | (70 | ) | 13,097 | (522 | ) | 16,559 | (592 | ) | |||||||||||||||
Total | $ | 1,613,070 | $ | (21,795 | ) | $ | 2,013,042 | $ | (56,721 | ) | $ | 3,626,112 | $ | (78,516 | ) | |||||||||
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Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
(U.S. dollars in thousands) | 2007 | 2006 | 2005 | |||||||||
Gross realized gains (losses) | ||||||||||||
Fixed maturities | ||||||||||||
Gross realized gains | $ | 3,200 | $ | 7,828 | $ | 8,867 | ||||||
Gross realized losses | (14,216 | ) | (21,796 | ) | (6,561 | ) | ||||||
Other-than-temporary impairments | (971,685 | ) | (4,125 | ) | (2,437 | ) | ||||||
(982,701 | ) | (18,093 | ) | (131 | ) | |||||||
Preferred stock | ||||||||||||
Gross realized gains | 1 | 35 | 23 | |||||||||
Gross realized losses | (1,732 | ) | (1,450 | ) | (238 | ) | ||||||
(1,731 | ) | (1,415 | ) | (215 | ) | |||||||
Other | ||||||||||||
Foreign currency gains | 1,047 | 98 | 402 | |||||||||
Deferred acquisition costs | 5,112 | 3,937 | 439 | |||||||||
Change in fair value interest rate swaps | — | 4,388 | 2,228 | |||||||||
Realized (losses) gains on modco treaties | (2,582 | ) | (17,202 | ) | 1,015 | |||||||
Other | 1,512 | 882 | — | |||||||||
Net realized (losses) gains | (979,343 | ) | (27,405 | ) | 3,738 | |||||||
Change in net unrealized depreciation on investments | ||||||||||||
Fixed maturities | 75,252 | (5,914 | ) | (60,426 | ) | |||||||
Preferred stock | 2,793 | 679 | (4,041 | ) | ||||||||
Other | (454 | ) | (607 | ) | 888 | |||||||
Change in deferred acquisition costs | (14,428 | ) | 3,107 | 16,046 | ||||||||
Change in deferred income taxes | (17,229 | ) | 990 | 15,993 | ||||||||
Change in net unrealized depreciation on investments | 45,934 | (1,745 | ) | (31,540 | ) | |||||||
Total net realized losses and change in net unrealized depreciation on investments and other balances | $ | (933,409 | ) | $ | (29,150 | ) | $ | (27,802 | ) | |||
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
(U.S. dollars in thousands) | 2007 | 2006 | 2005 | |||||||||
Fixed maturities | $ | 453,482 | $ | 389,786 | $ | 225,216 | ||||||
Preferred stock | 6,564 | 8,395 | 8,107 | |||||||||
Funds withheld at interest | 105,794 | 163,618 | 110,523 | |||||||||
Other investments | 45,432 | 69,358 | 21,259 | |||||||||
Investment expenses | (11,574 | ) | (14,533 | ) | (9,268 | ) | ||||||
Net investment income | $ | 599,698 | $ | 616,624 | $ | 355,837 | ||||||
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December 31, | December 31, | |||||||
(U.S. dollars in thousands) | 2007 | 2006 | ||||||
Deposits with U.S. regulatory authorities | $ | 14,375 | $ | 9,843 | ||||
Deposits held with Lloyd’s | 7,190 | 4,960 | ||||||
Trust funds | 7,783,566 | 8,060,912 | ||||||
$ | 7,805,131 | $ | 8,075,715 | |||||
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December 31, | December 31, | |||||||
(U.S. dollars in thousands) | 2007 | 2006 | ||||||
Balance beginning of year | $ | 618,737 | $ | 594,583 | ||||
Expenses deferred | 86,760 | 126,297 | ||||||
Amortization expense | (76,493 | ) | (109,473 | ) | ||||
Deferred acquisition costs on in-force reinsurance transactions purchased | 1,077 | 286 | ||||||
Deferred acquisition costs on unrealized gains and losses | (14,428 | ) | 3,107 | |||||
Deferred acquisition costs on realized losses | 5,112 | 3,937 | ||||||
Balance at end of year | $ | 620,765 | $ | 618,737 | ||||
December 31, | December 31, | |||||||
(U.S. dollars in thousands) | 2007 | 2006 | ||||||
Balance at beginning of year | $ | 48,779 | $ | 54,743 | ||||
Amortization | (3,219 | ) | (4,734 | ) | ||||
Other adjustments and write-offs | — | (1,230 | ) | |||||
Balance at end of year | $ | 45,560 | $ | 48,779 | ||||
(U.S. dollars in thousands) | ||||
Year ending December 31 | ||||
2008 | $ | 5,501 | ||
2009 | 5,785 | |||
2010 | 3,834 | |||
2011 | 3,481 | |||
2012 | 2,899 | |||
Thereafter | 24,060 | |||
$ | 45,560 | |||
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• | $250.0 million of Class A-1 Floating Rate Notes, | ||
• | $500.0 million of Class A-2 Floating Rate Guaranteed Notes Series A, | ||
• | $500.0 million of Class A-2 Floating Rate Guaranteed Notes Series B, | ||
• | $100.0 million of Class A-3 Floating Rate Guaranteed Notes Series A, | ||
• | $100.0 million of Class A-3 Floating Rate Guaranteed Notes Series B, | ||
• | $100.0 million of Class A-3 Floating Rate Guaranteed Notes Series C, | ||
• | $100.0 million of Class A-3 Floating Rate Guaranteed Notes Series D, | ||
• | $10.0 million of Class B-1 7.51244% Subordinated Notes, | ||
• | $40.0 million of Class B-2 Subordinated Floating Rate Notes, and |
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• | $42.0 million of Class C-1 Subordinated Variable Interest Rate Notes. |
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7. | Collateral Finance Facilities and Securitization Structures (continued) |
As at and for the Year Ended December 31, 2007 | ||||||||||||||||||||||||||||
Clearwater | Ballantyne | Orkney Re | ||||||||||||||||||||||||||
(U.S. dollars in millions) | Re | Re | Orkney I | II | HSBC I | HSBC II | Total | |||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Investments | $ | 381.4 | $ | 1,940.0 | $ | 1,158.9 | $ | 461.7 | $ | — | $ | 561.9 | $ | 4,503.9 | ||||||||||||||
Cash and cash equivalents | 144.2 | 151.9 | 122.4 | 35.1 | — | 21.1 | 474.7 | |||||||||||||||||||||
Other assets | 94.7 | 68.3 | 124.9 | 67.2 | — | 11.2 | 366.3 | |||||||||||||||||||||
Total assets | $ | 620.3 | $ | 2,160.2 | $ | 1,406.2 | $ | 564.0 | $ | — | $ | 594.2 | $ | 5,344.9 | ||||||||||||||
Liabilities | ||||||||||||||||||||||||||||
Reserves for future policy benefits | $ | 122.8 | $ | 675.6 | $ | 283.1 | $ | 97.3 | $ | — | $ | — | $ | 1,178.8 | ||||||||||||||
Collateral finance facilities | 365.9 | 1,719.5 | 850.0 | 450.0 | — | 595.0 | 3,980.4 | |||||||||||||||||||||
Other liabilities | 7.7 | 35.9 | 12.2 | 5.1 | — | — | 60.9 | |||||||||||||||||||||
Total liabilities | $ | 496.4 | $ | 2,431.0 | $ | 1,145.3 | $ | 552.4 | $ | — | $ | 595.0 | $ | 5,220.1 | ||||||||||||||
Revenues | ||||||||||||||||||||||||||||
Premiums earned, net | $ | 40.1 | $ | 274.0 | $ | 106.0 | $ | 56.8 | $ | — | $ | — | $ | 476.9 | ||||||||||||||
Investment income, net | 7.8 | 144.2 | 69.2 | 32.6 | 6.5 | 31.1 | 291.4 | |||||||||||||||||||||
Net realized gains (losses) | (1.5 | ) | (604.6 | ) | (63.4 | ) | (115.7 | ) | — | (34.5 | ) | (819.7 | ) | |||||||||||||||
Gain on extinguishment of third party debt | — | 20.0 | — | — | — | — | 20.0 | |||||||||||||||||||||
Total revenues | $ | 46.4 | $ | (166.4 | ) | $ | 111.8 | $ | (26.3 | ) | $ | 6.5 | $ | (3.4 | ) | $ | (31.4 | ) | ||||||||||
Expenses | ||||||||||||||||||||||||||||
Claims and other policy benefits | $ | 31.5 | $ | 209.4 | $ | 92.1 | $ | 40.5 | $ | — | $ | — | $ | 373.5 | ||||||||||||||
Acquisition costs and other insurance expenses, net | 11.1 | 66.0 | 26.5 | 12.3 | — | — | 115.9 | |||||||||||||||||||||
Operating expenses | 0.1 | 0.6 | 0.6 | 0.4 | — | — | 1.7 | |||||||||||||||||||||
Collateral finance facilities expense | 8.8 | 114.5 | 57.4 | 31.0 | 7.1 | 33.8 | 252.6 | |||||||||||||||||||||
Total benefits and expenses | $ | 51.5 | $ | 390.5 | $ | 176.6 | $ | 84.2 | $ | 7.1 | $ | 33.8 | $ | 743.7 | ||||||||||||||
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7. | Collateral Finance Facilities and Securitization Structures (continued) |
As at and for the Year Ended December 31, 2006 | ||||||||||||||||||||||||
Ballantyne | Orkney | Orkney | ||||||||||||||||||||||
(U.S. dollars in millions) | Re | I | Re II | HSBC I | HSBC II | Total | ||||||||||||||||||
Assets | ||||||||||||||||||||||||
Investments | $ | 2,423.0 | $ | 1,191.5 | $ | 556.2 | $ | 178.4 | $ | 509.2 | $ | 4,858.3 | ||||||||||||
Cash and cash equivalents | 170.4 | 105.8 | 27.2 | 15.5 | 24.0 | 342.9 | ||||||||||||||||||
Other assets | 83.3 | 36.7 | 75.9 | 0.7 | 1.0 | 197.6 | ||||||||||||||||||
Total assets | $ | 2,676.7 | $ | 1,334.0 | $ | 659.3 | $ | 194.6 | $ | 534.2 | $ | 5,398.8 | ||||||||||||
Liabilities | ||||||||||||||||||||||||
Reserves for future policy benefits | $ | 630.4 | $ | 258.8 | $ | 82.6 | $ | — | $ | — | $ | 971.8 | ||||||||||||
Collateral finance facilities | 1,739.5 | 850.0 | 450.0 | 188.5 | 529.4 | 3,757.4 | ||||||||||||||||||
Other liabilities | 23.7 | 42.6 | 6.4 | 5.2 | — | 77.9 | ||||||||||||||||||
Total liabilities | $ | 2,393.6 | $ | 1,151.4 | $ | 539.0 | $ | 193.7 | $ | 529.4 | $ | 4,807.1 | ||||||||||||
Revenues | ||||||||||||||||||||||||
Premiums earned, net | $ | 219.7 | $ | 121.3 | $ | 62.9 | $ | — | $ | — | $ | 403.9 | ||||||||||||
Investment income, net | 91.2 | 65.1 | 29.6 | 10.5 | 26.4 | 222.8 | ||||||||||||||||||
Net realized gains (losses) | 0.4 | (0.4 | ) | — | — | — | — | |||||||||||||||||
Total revenues | $ | 311.3 | $ | 186.0 | $ | 92.5 | $ | 10.5 | $ | 26.4 | $ | 626.7 | ||||||||||||
Expenses | ||||||||||||||||||||||||
Claims and other policy benefits | $ | 276.8 | $ | 83.9 | $ | 45.1 | $ | — | $ | — | $ | 405.8 | ||||||||||||
Acquisition costs and other insurance expenses, net | 53.2 | 27.0 | 11.4 | — | — | 91.6 | ||||||||||||||||||
Operating expenses | 0.4 | 0.3 | 0.3 | — | — | 1.0 | ||||||||||||||||||
Collateral finance facilities expense | 70.0 | 51.9 | 28.0 | 10.5 | 22.9 | 183.3 | ||||||||||||||||||
Total benefits and expenses | $ | 400.4 | $ | 163.1 | $ | 84.8 | $ | 10.5 | $ | 22.9 | $ | 681.7 | ||||||||||||
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8. | Debt Obligations and Other Funding Arrangements | |
Long-term debt consists of: |
December 31, | December 31, | |||||||
(U.S. dollars in thousands) | 2007 | 2006 | ||||||
Capital securities due 2032 | $ | 17,500 | $ | 17,500 | ||||
Preferred trust securities due 2033 | 20,000 | 20,000 | ||||||
Trust preferred securities due 2033 | 10,000 | 10,000 | ||||||
Trust preferred securities due 2034 | 32,000 | 32,000 | ||||||
Trust preferred securities due 2034 | 50,000 | 50,000 | ||||||
$ | 129,500 | $ | 129,500 | |||||
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8. | Debt Obligations and Other Funding Arrangements (continued) |
191
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8. | Debt Obligations and Other Funding Arrangements (continued) |
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8. | Debt Obligations and Other Funding Arrangements (continued) |
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8. | Debt Obligations and Other Funding Arrangements (continued) |
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9. | Fair Value of Financial Instruments (continued) |
December 31, 2007 | December 31, 2006 | |||||||||||||||
Carrying | Estimated Fair | Carrying | Estimated Fair | |||||||||||||
(U.S. dollars in thousands) | Value | Value | Value | Value | ||||||||||||
Assets | ||||||||||||||||
Fixed maturity investments | $ | 7,621,242 | $ | 7,621,242 | $ | 8,065,524 | $ | 8,065,524 | ||||||||
Preferred stock | 88,973 | 88,973 | 116,933 | 116,933 | ||||||||||||
Other investments | 62,664 | 62,664 | 65,448 | 65,448 | ||||||||||||
Funds withheld at interest (excluding cash) | 1,597,336 | 1,680,665 | 1,942,079 | 1,974,741 | ||||||||||||
Liabilities | ||||||||||||||||
Collateral finance facilities | $ | 3,980,379 | $ | 3,878,682 | $ | 3,757,435 | $ | 3,757,435 | ||||||||
Long term debt | 129,500 | 113,500 | 129,500 | 113,500 | ||||||||||||
Amounts payable under funding agreements | 100,320 | 70,320 | 365,331 | 256,000 |
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10. | Mezzanine Equity (continued) |
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10. | Mezzanine Equity (continued) |
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(i) | 3,953,183 ordinary shares, par value $0.01 per share (equal to 9.9% of the aggregate number of ordinary shares issued and outstanding on December 31, 2004, taking into account such issuance); | ||
(ii) | Class C Warrants to purchase 3,206,431 ordinary shares (equal to the difference between (A) 19.9% of the ordinary shares issued and outstanding on December 31, 2004 (without taking into account the issuance of ordinary shares pursuant to (i) above) and (B) the number of ordinary shares issued to the Cypress Entities as provided in (i) above); and | ||
(iii) | The 7.00% Convertible Junior Subordinated Notes discussed in Note 8 “Debt Obligations and Other Funding Arrangements”. |
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
2007 | 2006 | 2005 | ||||||||||
Ordinary shares | ||||||||||||
Beginning of year | 60,554,104 | 53,391,939 | 39,931,145 | |||||||||
Issuance to holders of HyCUs on conversion of purchase contracts | 7,440,478 | — | — | |||||||||
Issuance to holders of restricted stock awards | 388,313 | — | — | |||||||||
Ordinary shares issued | — | 6,578,948 | 7,660,000 | |||||||||
Issuance to employees on exercise of options and awards | 475 | 583,217 | 423,467 | |||||||||
Issuance on exercise of warrants | — | — | 5,377,327 | |||||||||
End of year | 68,383,370 | 60,554,104 | 53,391,939 | |||||||||
Non-cumulative perpetual preferred shares | ||||||||||||
Beginning of year | 5,000,000 | 5,000,000 | — | |||||||||
Non-cumulative perpetual preferred shares issued | — | — | 5,000,000 | |||||||||
End of year | 5,000,000 | 5,000,000 | 5,000,000 | |||||||||
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(U.S. dollars in thousands) | December 31, 2007 | December 31, 2006 | December 31, 2005 | |||||||||
Premiums assumed | $ | 2,275,144 | $ | 2,176,623 | $ | 2,155,279 | ||||||
Premiums ceded | (385,387 | ) | (334,638 | ) | (221,349 | ) | ||||||
Premiums earned | $ | 1,889,757 | $ | 1,841,985 | $ | 1,933,930 | ||||||
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Options issued under the 2007 Plan vest as follows: | |||
• | 50% of an option grant to an employee or consultant vests based on the recipient’s continued employment with the Company (“Time-Based Options”). 20% of the Time-Based Options vest on the grant date and an additional 20% vest in four equal installments on each of the first, second, third and fourth anniversary of the grant date, based on continued employment. The Time-Based Options are exercisable upon vesting. | ||
• | 50% of an option grant to an employee or consultant vests based on the achievement of certain performance targets as established by the Board with respect to each relevant fiscal year (“Performance-Based Options”). 10% of the Performance-Based Options vest following the close of each of the five fiscal years following the grant date, subject to the Company’s attainment of the performance targets established by the Board with respect to the relevant fiscal year. In addition, 10% of the Performance-Based Options vest following the close of each of the five fiscal years following the grant date, subject to the recipient’s respective division’s or segment’s attainment of the performance targets established by the Board with respect to the relevant fiscal year. Although the Performance-Based Options may vest, they shall not become exercisable until the end of the fifth fiscal year following May 7, 2007; provided, however, that if the Company achieves an A- rating or better from Standard & Poor’s or AM Best within eighteen (18) months following the closing of the 2007 New Capital Transaction, all Performance-Based Options with regard to fiscal years 2007 and 2008 will fully vest and become exercisable. | ||
• | 100% of options granted to directors vest on the grant date and are exercisable. |
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Year Ended | Year Ended | Year Ended | |||||||||||
December 31, | December 31, | December 31, | |||||||||||
2007 | 2006 | 2005 | |||||||||||
Outstanding, beginning of year | 1,715,019 | 2,583,737 | 2,488,736 | ||||||||||
Granted | 8,356,000 | 154,000 | 631,001 | ||||||||||
Exercised | — | (583,217 | ) | (422,867 | ) | ||||||||
Cancelled | (1,384,175 | ) | (439,501 | ) | (113,133 | ) | |||||||
Outstanding, end of year | 8,686,844 | 1,715,019 | 2,583,737 | ||||||||||
Options exercisable, end of year | 4,542,319 | 1,118,872 | 1,587,203 | ||||||||||
Outstanding, beginning of year | $ | 19.55 | ||
Granted | $ | 4.51 | ||
Exercised | — | |||
Cancelled | $ | 9.15 | ||
Outstanding, end of year | $ | 6.74 | ||
Options exercisable, end of year | $ | 8.87 | ||
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Year Ended | Year Ended | Year Ended | |||||||||||
December 31, 2007 | December 31, 2006 | December 31, 2005 | |||||||||||
Nonvested, beginning of year | 481,667 | 792,668 | 569,334 | ||||||||||
Granted | 8,356,000 | 154,000 | 631,001 | ||||||||||
Vested | (4,642,667 | ) | (307,667 | ) | (327,000 | ) | |||||||
Cancelled | (279,000 | ) | (157,334 | ) | (80,667 | ) | |||||||
Nonvested, end of year | 3,916,000 | 481,667 | 792,668 | ||||||||||
Nonvested, beginning of year | $ | 11.37 | ||
Granted | $ | 2.41 | ||
Vested | $ | 3.14 | ||
Cancelled | $ | 3.03 | ||
Nonvested, end of year | $ | 2.61 | ||
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, 2007 | December 31 2006 | December 31, 2005 | ||||||||||
Weighted average grant date fair value of options granted during the year | $ | 2.4140 | $ | 11.9471 | $ | 11.1375 | ||||||
Total intrinsic value of options exercised | $ | — | $ | 4,151,363 | $ | 4,898,372 | ||||||
Total fair value of options vested | $ | 14,598,636 | $ | 3,186,767 | $ | 2,471,917 |
Options Outstanding | Options Exercisable | |||||||||||||||||||||||||||
Weighted | Weighted | |||||||||||||||||||||||||||
Weighted | Average | Weighted | Average | |||||||||||||||||||||||||
Number of | Average | Remaining | Number of | Average | Remaining | |||||||||||||||||||||||
Year of | Range of Exercise | Shares | Exercise | Contractual | Shares | Exercise | Contractual | |||||||||||||||||||||
Grant | Prices | Outstanding | Price | Life | Exercisable | Price | Life | |||||||||||||||||||||
1998 | $ | 15.00 – 15.00 | 300,002 | $ | 15.00 | 0.92 | 300,002 | $ | 15.00 | 0.92 | ||||||||||||||||||
1999 | $ | 7.94 – 15.00 | 98,600 | $ | 14.30 | 1.22 | 98,600 | $ | 14.30 | 1.22 | ||||||||||||||||||
2000 | $ | 7.94 – 9.00 | 68,000 | $ | 8.84 | 2.53 | 68,000 | $ | 8.84 | 2.53 | ||||||||||||||||||
2001 | $ | 13.50 – 18.76 | 81,167 | $ | 14.30 | 2.56 | 81,167 | $ | 14.30 | 2.56 | ||||||||||||||||||
2002 | $ | 16.58 – 21.51 | 286,050 | $ | 17.94 | 4.20 | 286,050 | $ | 17.94 | 4.20 | ||||||||||||||||||
2003 | $ | 17.47 – 17.70 | 19,000 | $ | 17.64 | 5.29 | 19,000 | $ | 17.64 | 5.29 | ||||||||||||||||||
2004 | $ | 21.70 – 23.61 | 51,000 | $ | 22.27 | 6.44 | 51,000 | $ | 22.27 | 6.44 | ||||||||||||||||||
2005 | $ | 24.17 – 26.10 | 351,000 | $ | 25.53 | 7.72 | 351,000 | $ | 25.53 | 7.72 | ||||||||||||||||||
2006 | $ | 18.90 – 24.75 | 90,000 | $ | 24.41 | 8.14 | 90,000 | $ | 24.41 | 8.14 | ||||||||||||||||||
2007 | $ | 0.82 – 4.76 | 7,342,025 | $ | 4.51 | 9.58 | 3,197,500 | $ | 4.65 | 9.56 | ||||||||||||||||||
$ | 0.82 – 26.10 | 8,686,844 | $ | 6.74 | 8.77 | 4,542,319 | $ | 8.87 | 8.02 | |||||||||||||||||||
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• | Expected dividend yield –The Company does not have a dividend policy at this time. We have assumed no dividends and under the Forbearance Agreement with HSBC, we are prohibited from declaring any cash dividend, exclusive of the Non-Cumulative Perpetual Preferred Shares, during the forbearance period from November 26, 2006 until December 31, 2008 and, therefore, we have used 0% for the expected dividend yield. | ||
• | Expected volatility– The expected volatility is a measure of the amount by which a price has fluctuated and is expected to fluctuate during a period of time. The expected volatility of the Company’s stock is based on historical volatility. | ||
• | Expected term –The expected term represents the anticipated amount of time between the grant date of the option and the exercise date or cancellation date based on historical data. | ||
• | Risk free interest rate –The risk-free interest rate at the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. |
July 18 – | ||
December 31, | ||
2007 | ||
Expected dividend yield | 0.00% | |
Range of expected volatility | 63.35% – 69.87 % | |
Range of expected term | 5.6 years – 8.2 years | |
Range of risk free interest rate | 2.97% – 4.97% |
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Year Ended | Year Ended | Year Ended | |||||||||||
December 31, | December 31, | December 31, | |||||||||||
2007 | 2006 | 2005 | |||||||||||
Outstanding, beginning of year | 634,002 | 659,200 | 95,700 | ||||||||||
Granted | — | 283,000 | 589,000 | ||||||||||
Granted for dividends earned | 4,425 | — | — | ||||||||||
Exercised | (775 | ) | (18,013 | ) | — | ||||||||
Cancelled | (249,339 | ) | (290,185 | ) | (25,500 | ) | |||||||
Ordinary shares issued, May 14, 2007 | (388,313 | ) | — | — | |||||||||
Outstanding, end of year | — | 634,002 | 659,200 | ||||||||||
Restricted share units exercisable, end of year | — | — | — | ||||||||||
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December 31, | December 31, | |||||||
2006 | 2005 | |||||||
Weighted average grant date fair value of awards | $ | 23.6080 | $ | 24.2249 | ||||
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December 31, | December 31, | |||||||
(U.S. dollars in thousands) | 2007 | 2006 | ||||||
Deferred tax asset | ||||||||
Net operating losses | $ | 312,242 | $ | 268,158 | ||||
Reserves for future policy benefits | 105,007 | 113,892 | ||||||
Unrealized depreciation on investments | — | 15,730 | ||||||
Other than temporary impairments | 57,161 | — | ||||||
Intangible assets | 6,137 | 7,069 | ||||||
Alternative minimum tax credit | 7,882 | 2,442 | ||||||
Collateral finance facilities costs | 6,957 | 7,221 | ||||||
Other | 19,517 | 16,545 | ||||||
Total deferred tax asset | 514,903 | 431,057 | ||||||
Deferred tax liability | ||||||||
Unrealized appreciation on investments | (9,218 | ) | — | |||||
Undistributed earnings of U.K. subsidiaries | (3,346 | ) | (3,345 | ) | ||||
Deferred acquisition costs | (75,731 | ) | (65,599 | ) | ||||
Reserves for future policy benefits | (131,431 | ) | (210,184 | ) | ||||
Present value of in-force | (14,367 | ) | (15,932 | ) | ||||
Other | (1,397 | ) | (1,113 | ) | ||||
Total deferred tax liability | (235,490 | ) | (296,173 | ) | ||||
Net deferred tax asset before valuation allowance | 279,413 | 134,884 | ||||||
Valuation allowance | (272,590 | ) | (304,861 | ) | ||||
Net deferred tax asset (liability) | $ | 6,823 | $ | (169,977 | ) | |||
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�� | ||||||||||||
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
(U.S. dollars in thousands) | 2007 | 2006 | 2005 | |||||||||
Current tax expense (benefit) | $ | 7,329 | $ | (1,272 | ) | $ | 3,168 | |||||
Deferred tax (benefit) expense | (164,929 | ) | 221,864 | (19,602 | ) | |||||||
Total tax (benefit) expense | $ | (157,600 | ) | $ | 220,592 | $ | (16,434 | ) | ||||
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
(U.S. dollars in thousands) | 2007 | 2006 | 2005 | |||||||||
Expected tax provision at weighted average rate | $ | (216,082 | ) | $ | (83,209 | ) | $ | (20,290 | ) | |||
Change in valuation allowance | 74,729 | 293,890 | — | |||||||||
Intercompany note cancellation | (29,308 | ) | — | — | ||||||||
Write-down of goodwill | — | 9,432 | — | |||||||||
Other and state taxes | 13,061 | 479 | 3,856 | |||||||||
Total tax (benefit) expense | $ | (157,600 | ) | $ | 220,592 | $ | (16,434 | ) | ||||
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Year Ended | ||||
(U.S. dollars in thousands) | December 31, 2007 | |||
Total unrecognized tax benefits at January 1, 2007 | $ | 72,709 | ||
Gross amount of increases for prior year’s tax positions | — | |||
Gross amount of increases for current year’s tax position | 114,705 | |||
Gross amount of decreases in unrecognized tax benefits taken in the current period | — | |||
Amount of decreases related to settlements | (165 | ) | ||
Reductions due to lapse of statutes of limitation | (59 | ) | ||
Foreign exchange and acquisitions | 36 | |||
Total unrecognized tax benefits at December 31, 2007 | $ | 187,226 | ||
Unrecognized tax benefits that, if recognized, would favorably impact the effective tax rate | $ | 17,159 | ||
Year Ended | ||||
(U.S. dollars in thousands) | December 31, 2007 | |||
Total interest and penalties in the balance sheet at January 1, 2007 | $ | 9,238 | ||
Total interest and penalties in the statement of operations | 4,043 | |||
Total interest and penalties in the balance sheet at December 31, 2007 | $ | 13,281 | ||
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Major Tax Jurisdictions | Open Years | |||
U.S. | ||||
Life Group | 2001 through 2007 | |||
Non-Life Group | 2005 through 2007 | |||
Ireland | 2003 through 2007 | |||
U.K. | 2001 through 2007 |
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Year Ended | Year Ended | Year Ended | ||||||||||
December 31, | December 31, | December 31, | ||||||||||
(U.S. dollars in thousands, except share data) | 2007 | 2006 | 2005 | |||||||||
Numerator | ||||||||||||
Net income (loss) | $ | (895,742 | ) | $ | (366,714 | ) | $ | 130,197 | ||||
Dividend declared on non-cumulative perpetual preferred shares | (9,062 | ) | (9,062 | ) | (4,758 | ) | ||||||
Deemed dividend on beneficial conversion feature related to convertible cumulative participating preferred shares | (120,750 | ) | — | — | ||||||||
Imputed divided on prepaid variable share forward contract | — | (881 | ) | — | ||||||||
Net income (loss) available (attributable) to ordinary shareholders | $ | (1,025,554 | ) | $ | (376,657 | ) | $ | 125,439 | ||||
Denominator | ||||||||||||
Denominator for basic earnings (loss) per ordinary share | ||||||||||||
Weighted average number of ordinary shares | 67,303,066 | 56,182,222 | 43,838,261 | |||||||||
Effect of dilutive securities | ||||||||||||
— Convertible cumulative participating preferred shares (convertible to 150,000,000 ordinary shares)* | — | — | — | |||||||||
— Stock options and restricted stock | — | — | 661,693 | |||||||||
— Warrants | — | — | 2,237,663 | |||||||||
— 4.5% Convertible Notes and Hybrid Capital Units | — | — | 793,499 | |||||||||
Denominator for dilutive earnings (loss) per ordinary share | 67,303,066 | 56,182,222 | 47,531,116 | |||||||||
Basic earnings (loss) per ordinary share | $ | (15.24 | ) | $ | (6.70 | ) | $ | 2.86 | ||||
Diluted earnings (loss) per ordinary share | $ | (15.24 | ) | $ | (6.70 | ) | $ | 2.64 | ||||
* | Due to the anti-dilutive effect on EPS, the following securities could potentially dilute EPS in the future: |
• | Convertible cumulative participating preferred shares — 150,000,000 ordinary shares | ||
• | Stock options — 8,686,844 ordinary shares | ||
• | Warrants — 2,650,000 ordinary shares |
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Year ended December 31, 2007 | ||||||||||||||||
Life Reinsurance | ||||||||||||||||
Corporate | ||||||||||||||||
(U.S. dollars in thousands) | North America | International | and Other | Total | ||||||||||||
Revenues | ||||||||||||||||
Premiums earned, net | $ | 1,773,388 | $ | 116,369 | $ | — | $ | 1,889,757 | ||||||||
Investment income, net | 577,256 | 12,529 | 9,913 | 599,698 | ||||||||||||
Fee and other income | 14,917 | 818 | 3,110 | 18,845 | ||||||||||||
Net realized losses | (969,494 | ) | (3,482 | ) | (6,367 | ) | (979,343 | ) | ||||||||
Gain on extinguishment of third party debt | 20,043 | — | — | 20,043 | ||||||||||||
Change in value of embedded derivatives, net | (43,627 | ) | — | — | (43,627 | ) | ||||||||||
Total revenues | 1,372,483 | 126,234 | 6,656 | 1,505,373 | ||||||||||||
Benefits and expenses | ||||||||||||||||
Claims and other policy benefits | 1,473,563 | 84,686 | — | 1,558,249 | ||||||||||||
Interest credited to interest sensitive contract liabilities | 135,366 | — | — | 135,366 | ||||||||||||
Acquisition costs and other insurance expenses, net | 354,347 | 26,587 | 7,319 | 388,253 | ||||||||||||
Operating expenses | 53,358 | 39,450 | 76,108 | 168,916 | ||||||||||||
Collateral finance facilities expense | 274,734 | — | 14,364 | 289,098 | ||||||||||||
Interest expense | 12,726 | 11 | 5,435 | 18,172 | ||||||||||||
Total benefits and expenses | 2,304,094 | 150,734 | 103,226 | 2,558,054 | ||||||||||||
Loss before income taxes and minority interest | $ | (931,611 | ) | $ | (24,500 | ) | $ | (96,570 | ) | $ | (1,052,681 | ) | ||||
Year ended December 31, 2006 | ||||||||||||||||
Life Reinsurance | ||||||||||||||||
Corporate | ||||||||||||||||
(U.S. dollars in thousands) | North America | International | and Other | Total | ||||||||||||
Revenues | ||||||||||||||||
Premiums earned, net | $ | 1,719,239 | $ | 122,746 | $ | — | $ | 1,841,985 | ||||||||
Investment income, net | 584,359 | 24,106 | 8,159 | 616,624 | ||||||||||||
Fee and other income | 11,491 | — | 3,002 | 14,493 | ||||||||||||
Net realized (losses) gains | (19,043 | ) | (10,851 | ) | 2,489 | (27,405 | ) | |||||||||
Change in value of embedded derivatives, net | (16,197 | ) | — | — | (16,197 | ) | ||||||||||
Total revenues | 2,279,849 | 136,001 | 13,650 | 2,429,500 | ||||||||||||
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Year ended December 31, 2006 | ||||||||||||||||
Life Reinsurance | ||||||||||||||||
Corporate | ||||||||||||||||
North America | International | and Other | Total | |||||||||||||
Benefits and expenses | ||||||||||||||||
Claims and other policy benefits | 1,468,346 | 101,126 | — | 1,569,472 | ||||||||||||
Interest credited to interest sensitive contract liabilities | 172,967 | — | — | 172,967 | ||||||||||||
Acquisition costs and other insurance expenses, net | 360,737 | 37,332 | 11,116 | 409,185 | ||||||||||||
Operating expenses | 58,133 | 31,236 | 62,942 | 152,311 | ||||||||||||
Goodwill impairment | — | 33,758 | 367 | 34,125 | ||||||||||||
Collateral finance facilities expense | 205,210 | — | 10,581 | 215,791 | ||||||||||||
Interest expense | 11,613 | — | 11,526 | 23,139 | ||||||||||||
Total benefits and expenses | 2,277,006 | 203,452 | 96,532 | 2,576,990 | ||||||||||||
Income (loss) before income taxes and minority interest | $ | 2,843 | $ | (67,451 | ) | $ | (82,882 | ) | $ | (147,490 | ) | |||||
Year ended December 31, 2005 | ||||||||||||||||
Life Reinsurance | ||||||||||||||||
Corporate | ||||||||||||||||
(U.S. dollars in thousands) | North America | International | and Other | Total | ||||||||||||
Revenues | ||||||||||||||||
Premiums earned, net | $ | 1,814,875 | $ | 119,055 | $ | — | $ | 1,933,930 | ||||||||
Investment income, net | 341,539 | 11,488 | 2,810 | 355,837 | ||||||||||||
Fee and other income | 9,233 | — | 3,083 | 12,316 | ||||||||||||
Net realized gains | 1,121 | 624 | 1,993 | 3,738 | ||||||||||||
Change in value of embedded derivatives, net | (8,492 | ) | — | — | (8,492 | ) | ||||||||||
Total revenues | 2,158,276 | 131,167 | 7,886 | 2,297,329 | ||||||||||||
Benefits and expenses | ||||||||||||||||
Claims and other policy benefits | 1,365,599 | 76,906 | — | 1,442,505 | ||||||||||||
Interest credited to interest sensitive contract liabilities | 132,968 | — | — | 132,968 | ||||||||||||
Acquisition costs and other insurance expenses, net | 400,992 | 20,722 | 2,061 | 423,775 | ||||||||||||
Operating expenses | 48,849 | 25,276 | 41,448 | 115,573 | ||||||||||||
Collateral finance facilities expense | 43,113 | — | 5,033 | 48,146 | ||||||||||||
Interest expense | 10,823 | — | 9,915 | 20,738 | ||||||||||||
Total benefits and expenses | 2,002,344 | 122,904 | 58,457 | 2,183,705 | ||||||||||||
Income (loss) before income taxes and minority interest | $ | 155,932 | $ | 8,263 | $ | (50,571 | ) | $ | 113,624 | |||||||
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December 31, | December 31, | |||||||
(U.S. dollars in thousands) | 2007 | 2006 | ||||||
Assets | ||||||||
Life Reinsurance | ||||||||
North America | $ | 11,540,151 | $ | 12,288,682 | ||||
International | 439,719 | 432,897 | ||||||
Total Life Reinsurance | 11,979,870 | 12,721,579 | ||||||
Corporate and Other | 841,193 | 884,511 | ||||||
Total | $ | 12,821,063 | $ | 13,606,090 | ||||
Financial | ||||||||||||
(U.S. dollars in millions) | Traditional | Solutions | Total | |||||||||
Year Ended December 31, 2007 | ||||||||||||
Life Reinsurance North America | $ | 1,737.2 | $ | 36.2 | $ | 1,773.4 | ||||||
Life Reinsurance International | 116.4 | — | 116.4 | |||||||||
Total | $ | 1,853.6 | $ | 36.2 | $ | 1,889.8 | ||||||
Year Ended December 31, 2006 | ||||||||||||
Life Reinsurance North America | $ | 1,681.7 | $ | 37.5 | $ | 1,719.2 | ||||||
Life Reinsurance International | 122.8 | — | 122.8 | |||||||||
Total | $ | 1,804.5 | $ | 37.5 | $ | 1,842.0 | ||||||
Year Ended December 31, 2005 | ||||||||||||
Life Reinsurance North America | $ | 1,762.1 | $ | 52.8 | $ | 1,814.9 | ||||||
Life Reinsurance International | 119.0 | — | 119.0 | |||||||||
Total | $ | 1,881.1 | $ | 52.8 | $ | 1,933.9 | ||||||
(U.S. dollars in millions) | North | |||||||||||||||||||
Year Ended | America | Europe | Asia | Other | Total | |||||||||||||||
December 31, 2007 | $ | 2,147.4 | $ | 89.3 | $ | 28.8 | $ | 0.2 | $ | 2,265.7 | ||||||||||
December 31, 2006 | $ | 2,067.6 | $ | 57.1 | $ | 44.3 | $ | 6.8 | $ | 2,175.8 | ||||||||||
December 31, 2005 | $ | 2,050.7 | $ | 38.5 | $ | 52.9 | $ | 10.6 | $ | 2,152.7 |
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Quarter Ended | ||||||||||||||||
(U.S. dollars in thousands, except share data) | December 31, 2007 | September 30, 2007 | June 30, 2007 | March 31, 2007 | ||||||||||||
Total revenue | $ | (128,904 | ) | $ | 415,880 | $ | 612,653 | $ | 605,744 | |||||||
Loss from continuing operations before income taxes and minority interest | (782,866 | ) | (198,079 | ) | (51,637 | ) | (20,099 | ) | ||||||||
Net (loss) income | (775,145 | ) | (190,075 | ) | 102,690 | (33,212 | ) | |||||||||
Dividend declared on non-cumulative perpetual preferred shares | (2,265 | ) | (2,266 | ) | (2,265 | ) | (2,266 | ) | ||||||||
Deemed dividend on beneficial conversion feature related to convertible cumulative participating preferred shares | — | — | (120,750 | ) | — | |||||||||||
Imputed dividend on prepaid variable share forward contract | — | — | — | — | ||||||||||||
Net loss attributable to ordinary shareholders | $ | (777,410 | ) | $ | (192,341 | ) | $ | (20,325 | ) | $ | (35,478 | ) | ||||
Basic loss per ordinary share | $ | (11.37 | ) | $ | (2.81 | ) | $ | (0.30 | ) | $ | (0.55 | ) | ||||
Diluted loss per ordinary share | $ | (11.37 | ) | $ | (2.81 | ) | $ | (0.30 | ) | $ | (0.55 | ) | ||||
Quarter Ended | ||||||||||||||||
(U.S. dollars in thousands, except share data) | December 31, 2006 | September 30, 2006 | June 30, 2006 | March 31, 2006 | ||||||||||||
Total revenue | $ | 646,207 | $ | 611,346 | $ | 593,626 | $ | 578,321 | ||||||||
(Loss) income from continuing operations before income taxes and minority interest | (114,825 | ) | (6,806 | ) | (32,413 | ) | 6,554 | |||||||||
Net (loss) income | (231,558 | ) | (27,415 | ) | (121,590 | ) | 13,849 | |||||||||
Dividend declared on non-cumulative perpetual preferred shares | (2,265 | ) | (2,266 | ) | (2,265 | ) | (2,266 | ) | ||||||||
Imputed dividend on prepaid variable share forward contract | — | (809 | ) | (72 | ) | — | ||||||||||
Net (loss) income (attributable) available to ordinary shareholders | $ | (233,823 | ) | $ | (30,490 | ) | $ | (123,927 | ) | $ | 11,583 | |||||
Basic (loss) earnings per ordinary share | $ | (3.86 | ) | $ | (0.54 | ) | $ | (2.31 | ) | $ | 0.22 | |||||
Diluted (loss) earnings per ordinary share | $ | (3.86 | ) | $ | (0.54 | ) | $ | (2.31 | ) | $ | 0.20 | |||||
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(U.S. dollars in thousands) | ||||
Year ending December 31, | ||||
2008 | $ | 4,691 | ||
2009 | 4,270 | |||
2010 | 3,995 | |||
2011 | 4,087 | |||
2012 | 4,236 | |||
Thereafter | 13,783 | |||
Total future lease commitments | $ | 35,062 | ||
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Statutory Capital & Surplus | Statutory Net Earned Income (Loss) | |||||||||||||||||||
(U.S. dollars in thousands) | December 31, 2007 | December 31, 2006 | December 31, 2007 | December 31, 2006 | December 31, 2005 | |||||||||||||||
Scottish Re (U.S.), Inc. | $ | 248,558 | $ | 344,663 | $ | (345,575 | ) | $ | (187,622 | ) | $ | (244,965 | ) | |||||||
Scottish Re Life Corporation | $ | 93,276 | $ | 81,294 | $ | 9,792 | $ | (3,741 | ) | $ | 8,757 | |||||||||
Orkney Re | $ | 874,876 | $ | 123,169 | $ | (23,834 | ) | $ | (67,372 | ) | $ | (562,783 | ) |
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December 31, 2007 | ||||||||
Statutory Net Earned | Statutory Capital | |||||||
(U.S. dollars in thousands) | Income (Loss) | & Surplus | ||||||
Financial statements — Delaware basis | $ | (23,834 | ) | $ | 874,876 | |||
Permitted valuation basis adjustment | (36,620 | ) | (751,054 | ) | ||||
Financial statements — NAIC basis | $ | (60,454 | ) | $ | 123,822 | |||
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• | The continuing deterioration in the U.S residential housing market in general and the market for sub-prime and Alt-A residential mortgage-backed securities specifically. These conditions have had, and will likely continue to have, a material adverse effect on the value of our consolidated investment portfolio and our capital and liquidity position; | ||
• | The negative outlooks placed on our financial strength ratings by each of the rating agencies in November 2007, followed by the ratings action taken by Standard & Poors (“S&P”) in early 2008 lowering the financial strength ratings of our operating subsidiaries from “BB+” to “BB” (marginal) and placing the ratings on CreditWatch with negative implications, as well as the subsequent ratings downgrades and negative outlooks placed on our financial strength ratings by other rating agencies (which ratings were subsequently lowered further, as described under “Competition and Ratings”), with the resulting material negative impact on our ability to achieve our previous goal of attaining an “A-” or better rating by the middle of 2009; and | ||
• | The material negative impact of ratings declines and negative outlooks by rating agencies on our ability to grow our life reinsurance businesses and maintain our core competitive capabilities. |
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• | Dispose of our non-core assets or lines of business, including the Life Reinsurance International Segment and the Wealth Management business; | ||
• | Develop, through strategic alliances or other means, opportunities to maximize the value of our core competitive capabilities within the Life Reinsurance North America Segment, including mortality assessment and treaty administration; and | ||
• | Rationalize our cost structure to preserve capital and liquidity. |
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Schedule | Page | ||||
I | Summary of Investments | 233 | |||
II | Condensed Financial Information | 233 | |||
III | Supplementary Insurance Information | 235 | |||
IV | Reinsurance | 237 | |||
V | Valuation and Qualifying Accounts | 238 |
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Year Ended December 31, 2007 | Amount at | |||||||||||
Estimated Fair | Which Shown in | |||||||||||
Amortized Cost | Value | Balance Sheet | ||||||||||
Type of investment | ||||||||||||
Fixed maturities | ||||||||||||
U.S. Treasury securities and U.S. government agency obligations | $ | 87,150 | $ | 89,448 | $ | 89,448 | ||||||
Corporate Securities | 2,773,880 | 2,798,304 | 2,798,304 | |||||||||
Municipal bonds | 55,466 | 56,198 | 56,198 | |||||||||
Mortgage or asset backed securities | 4,666,354 | 4,677,292 | 4,677,292 | |||||||||
Total fixed maturities | 7,582,850 | 7,621,242 | 7,621,242 | |||||||||
Preferred stock | 88,914 | 88,973 | 88,973 | |||||||||
Cash and cash equivalents | 822,851 | 822,851 | 822,851 | |||||||||
Other investments | 62,664 | 62,664 | 62,664 | |||||||||
Funds withheld at interest | 1,597,336 | 1,650,526 | 1,597,336 | |||||||||
Total investments, cash and cash equivalents | $ | 10,154,615 | $ | 10,246,256 | $ | 10,193,066 | ||||||
December 31, 2007 | December 31, 2006 | |||||||
Assets | ||||||||
Investment in subsidiaries on equity basis | $ | 818,944 | $ | 1,197,570 | ||||
Cash and cash equivalents | 6,123 | 14,238 | ||||||
Other assets | 87,186 | 26,993 | ||||||
$ | 912,253 | $ | 1,238,801 | |||||
Liabilities | ||||||||
Account payable and other liabilities | $ | 9,669 | $ | 37,944 | ||||
Mezzanine equity | 555,857 | 143,665 | ||||||
Total shareholders equity | 346,727 | 1,057,192 | ||||||
Total liabilities, minority interest, mezzanine equity and shareholder equity | $ | 912,253 | $ | 1,238,801 | ||||
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Year Ended | Year Ended | Year Ended | ||||||||||
December 31, 2007 | December 31, 2006 | December 31, 2005 | ||||||||||
Investment income, net | $ | 19,227 | $ | 21,917 | $ | 12,562 | ||||||
Net realized losses | (4 | ) | (82 | ) | (16 | ) | ||||||
Other loss, net of operating expenses | (28,087 | ) | (5,889 | ) | (1,155 | ) | ||||||
Interest expense | (5,301 | ) | (8,683 | ) | (9,728 | ) | ||||||
Income tax expense | 4 | (69 | ) | (9 | ) | |||||||
Income before undistributed (loss) earnings of subsidiaries | (14,161 | ) | 7,194 | 1,654 | ||||||||
Undistributed equity in (loss) earnings of subsidiaries | (881,581 | ) | (373,908 | ) | 128,543 | |||||||
Undistributed net (loss) income | $ | (895,742 | ) | $ | (366,714 | ) | $ | 130,197 | ||||
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, 2007 | December 31, 2006 | December 31, 2005 | ||||||||||
Operating activities | ||||||||||||
Undistributed net (loss) income | $ | (895,742 | ) | $ | (366,714 | ) | $ | 130,197 | ||||
Undistributed equity in (loss) earnings of subsidiaries | 881,581 | 373,908 | (128,543 | ) | ||||||||
Option and restricted stock unit expense | 20,067 | 2,586 | 5,377 | |||||||||
Other | (62,926 | ) | (49,631 | ) | 58,610 | |||||||
Net cash (used in) provided by operating activities | (57,020 | ) | (39,851 | ) | 65,641 | |||||||
Investing activities | ||||||||||||
Capital contributions to subsidiaries | (497,746 | ) | (23,047 | ) | (303,560 | ) | ||||||
Net cash used in investing activities | (497,746 | ) | (23,047 | ) | (303,560 | ) | ||||||
Financing activities | ||||||||||||
Net proceeds from issuance of convertible cumulative participating preferred shares | 555,857 | — | — | |||||||||
Net proceeds from issuance of ordinary shares and warrants | 78 | 153,698 | 179,466 | |||||||||
Proceeds from issuance to holders of HyCUs on conversion of purchase contracts | 7,338 | — | — | |||||||||
Redemption of convertible preferred shares | (7,338 | ) | — | — | ||||||||
Dividends paid on redemption of convertible preferred shares | (222 | ) | — | — | ||||||||
Net proceeds from issuance of preferred shares | — | — | 120,436 | |||||||||
Net proceeds from issuance of long term debt | — | (115,000 | ) | — | ||||||||
Dividends paid on non-cumulative perpetual preferred shares | (9,062 | ) | (9,062 | ) | (2,492 | ) | ||||||
Dividends paid on ordinary shares | — | (5,359 | ) | (8,990 | ) | |||||||
Net cash provided by financing activities | 546,651 | 24,277 | 288,420 | |||||||||
Net change in cash and cash equivalents | (8,115 | ) | (38,621 | ) | 50,501 | |||||||
Cash and cash equivalents, beginning of year | 14,238 | 52,859 | 2,358 | |||||||||
Cash and cash equivalents, end of year | $ | 6,123 | $ | 14,238 | $ | 52,859 | ||||||
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Year Ended December 31, 2007 | ||||||||||||||||||||||||||||
Future | ||||||||||||||||||||||||||||
Policy | ||||||||||||||||||||||||||||
Benefits | ||||||||||||||||||||||||||||
and Interest | Claims, | Amortization | ||||||||||||||||||||||||||
Deferred | Sensitive | Net | Losses and | of Deferred | Other | |||||||||||||||||||||||
Acquisition | Contract | Premium | Investment | Settlement | Acquisition | Operating | ||||||||||||||||||||||
Segment | Costs | Liabilities* | Revenue | Income | Expenses | Costs | Costs | |||||||||||||||||||||
Life Reinsurance North America | $ | 581,131 | $ | 6,306,254 | $ | 1,773,388 | $ | 577,256 | $ | 1,608,929 | $ | 56,982 | $ | 638,184 | ||||||||||||||
Life Reinsurance International | 32,808 | 226,112 | 116,369 | 12,529 | 84,686 | 18,946 | 47,101 | |||||||||||||||||||||
Corporate and Other | 6,826 | — | — | 9,913 | — | 565 | 102,661 | |||||||||||||||||||||
Total | $ | 620,765 | $ | 6,532,366 | $ | 1,889,757 | $ | 599,698 | $ | 1,693,615 | $ | 76,493 | $ | 787,946 | ||||||||||||||
* | Amounts due under funding agreements are reported in interest sensitive contract liabilities in the consolidated balance sheets and have been excluded in the table above. |
Year Ended December 31, 2006 | ||||||||||||||||||||||||||||
Future | ||||||||||||||||||||||||||||
Policy | ||||||||||||||||||||||||||||
Benefits | ||||||||||||||||||||||||||||
and Interest | Claims, | Amortization | ||||||||||||||||||||||||||
Deferred | Sensitive | Net | Losses and | of Deferred | Other | |||||||||||||||||||||||
Acquisition | Contract | Premium | Investment | Settlement | Acquisition | Operating | ||||||||||||||||||||||
Segment | Costs | Liabilities* | Revenue | Income | Expenses | Costs | Costs | |||||||||||||||||||||
Life Reinsurance North America | $ | 603,729 | $ | 6,614,862 | $ | 1,719,239 | $ | 584,359 | $ | 1,641,313 | $ | 75,952 | $ | 559,741 | ||||||||||||||
Life Reinsurance International | 7,618 | 245,108 | 122,746 | 24,106 | 101,126 | 29,598 | 72,728 | |||||||||||||||||||||
Corporate and Other | 7,390 | — | — | 8,159 | — | 3,922 | 92,610 | |||||||||||||||||||||
Total | $ | 618,737 | $ | 6,859,970 | $ | 1,841,985 | $ | 616,624 | $ | 1,742,439 | $ | 109,472 | $ | 725,079 | ||||||||||||||
* | Amounts due under funding agreements are reported in interest sensitive contract liabilities in the consolidated balance sheets and have been excluded in the table above. |
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Year Ended December 31, 2005 | ||||||||||||||||||||||||||||
Future | ||||||||||||||||||||||||||||
Policy | ||||||||||||||||||||||||||||
Benefits | Benefits, | |||||||||||||||||||||||||||
and Interest | Claims, | Amortization | ||||||||||||||||||||||||||
Deferred | Sensitive | Net | Losses and | of Deferred | Other | |||||||||||||||||||||||
Acquisition | Contract | Premium | Investment | Settlement | Acquisition | Operating | ||||||||||||||||||||||
Segment | Costs | Liabilities* | Revenue | Income | Expenses | Costs | Costs | |||||||||||||||||||||
Life Reinsurance North America | $ | 575,124 | $ | 6,575,044 | $ | 1,814,875 | $ | 341,539 | $ | 1,498,567 | $ | 50,847 | $ | 452,930 | ||||||||||||||
Life Reinsurance International | 8,147 | 216,651 | 119,055 | 11,488 | 76,906 | 17,232 | 28,766 | |||||||||||||||||||||
Corporate and Other | 11,312 | — | — | 2,810 | — | 827 | 57,630 | |||||||||||||||||||||
Total | $ | 594,583 | $ | 6,791,695 | $ | 1,933,930 | $ | 355,837 | $ | 1,575,473 | $ | 68,906 | $ | 539,326 | ||||||||||||||
* | Amounts due under funding agreements are reported in interest sensitive contract liabilities in the consolidated balance sheets and have been excluded in the table above. |
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Year Ended December 31, 2007 | ||||||||||||||||||||
Percentage | ||||||||||||||||||||
Ceded to | Assumed | of Amount | ||||||||||||||||||
Gross | Other | from Other | Assumed to | |||||||||||||||||
Amount | Companies | Companies | Net Amount | Net | ||||||||||||||||
Life Insurance In-force Premiums | $ | — | $ | (129,156,302 | ) | $ | 970,250,941 | $ | 841,094,639 | 115 | % | |||||||||
Life Reinsurance North America | $ | — | $ | (358,196 | ) | $ | 2,131,584 | $ | 1,773,388 | 120 | % | |||||||||
Life Reinsurance International | — | (27,191 | ) | 143,560 | 116,369 | 123 | % | |||||||||||||
Total | $ | — | $ | (385,387 | ) | $ | 2,275,144 | $ | 1,889,757 | 120 | % | |||||||||
Year Ended December 31, 2006 | ||||||||||||||||||||
Percentage of | ||||||||||||||||||||
Ceded to | Assumed | Amount | ||||||||||||||||||
Gross | Other | from Other | Assumed to | |||||||||||||||||
Amount | Companies | Companies | Net Amount | Net | ||||||||||||||||
Life Insurance In-force Premiums | $ | — | $ | (119,914,947 | ) | $ | 1,022,947,133 | $ | 903,032,186 | 113 | % | |||||||||
Life Reinsurance North America | $ | — | $ | (320,390 | ) | $ | 2,039,629 | $ | 1,719,239 | 119 | % | |||||||||
Life Reinsurance International | — | (14,248 | ) | 136,994 | 122,746 | 112 | % | |||||||||||||
Total | $ | — | $ | (334,638 | ) | $ | 2,176,623 | $ | 1,841,985 | 118 | % | |||||||||
Year Ended December 31, 2005 | ||||||||||||||||||||
Percentage | ||||||||||||||||||||
Ceded to | Assumed | of Amount | ||||||||||||||||||
Gross | Other | from Other | Assumed to | |||||||||||||||||
Amount | Companies | Companies | Net Amount | Net | ||||||||||||||||
Life Insurance In-force Premiums | $ | — | $ | (139,517,423 | ) | $ | 1,025,825,045 | $ | 886,307,622 | 116 | % | |||||||||
Life Reinsurance North America | $ | — | $ | (204,119 | ) | $ | 2,018,994 | $ | 1,814,875 | 111 | % | |||||||||
Life Reinsurance International | — | (17,230 | ) | 136,285 | 119,055 | 114 | % | |||||||||||||
Total | $ | — | $ | (221,349 | ) | $ | 2,155,279 | $ | 1,933,930 | 111 | % | |||||||||
* | Excludes business acquired from ING. |
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Year Ended December 31, 2007 | ||||||||||||||||
Balance at | Charges to | Charges to | ||||||||||||||
Beginning of | Costs and | Other | Balance at | |||||||||||||
Period | Expenses | Accounts | End of Period | |||||||||||||
Description | ||||||||||||||||
Allowance on income taxes | $ | 304,861 | $ | 74,729 | $ | (107,000 | ) | $ | 272,590 | |||||||
Reserve for uncollectible reinsurance | $ | 12,124 | $ | (3,660 | ) | $ | — | $ | 8,464 |
Year Ended December 31, 2006 | ||||||||||||||||
Balance at | Charges to | Charges to | ||||||||||||||
Beginning of | Costs and | Other | Balance at | |||||||||||||
Period | Expenses | Accounts | End of Period | |||||||||||||
Description | ||||||||||||||||
Allowance on income taxes | $ | 18,451 | $ | 293,890 | $ | (7,480 | ) | $ | 304,861 | |||||||
Reserve for uncollectible reinsurance | $ | 6,000 | $ | 6,124 | $ | — | $ | 12,124 |
Year Ended December 31, 2005 | ||||||||||||||||
Balance at | Charges to | Charges to | ||||||||||||||
Beginning of | Costs and | Other | Balance at | |||||||||||||
Period | Expenses | Accounts | End of Period | |||||||||||||
Description | ||||||||||||||||
Allowance on income taxes | $ | 22,148 | $ | — | $ | (3,697 | )* | $ | 18,451 | |||||||
Reserve for uncollectible reinsurance | $ | — | $ | 6,000 | $ | — | $ | 6,000 |
* | This valuation arose in respect of the acquisition of the ING individual life reinsurance business. This was established as a result of the purchase accounting for the acquisition and therefore has not been included in the determination of net income. |
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July 11, 2008 | /s/ Jonathan Bloomer | |||
July 11, 2008 | /s/ James Butler | |||
July 11, 2008 | /s/ James Chapman | |||
July 11, 2008 | /s/ Thomas Finke | |||
July 11, 2008 | /s/ Jeffrey Hughes | |||
July 11, 2008 | /s/ Robert Joyal | |||
July 11, 2008 | /s/ Larry Port | |||
July 11, 2008 | /s/ Michael Rollings | |||
July 11, 2008 | /s/ Seth Gardner | |||
July 11, 2008 | /s/ Raymond Wechsler | |||
July 11, 2008 | /s/ George Zippel |
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