Scottish Annuity & Life Insurance Company (Cayman) Ltd. Pro Forma Financial
Statements
Unaudited Pro Forma Balance Sheet as of September 30, 2004.....................1
Unaudited Pro Forma Statement of Income for the nine months ended September
30, 2004.......................................................................2
Unaudited Pro Forma Statement of Income for the year
ended December 31, 2003........................................................3
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AND
CONSOLIDATED STATEMENTS OF INCOME
The following unaudited pro forma consolidated balance sheet as of
September 30, 2004 presents the financial position of Scottish Annuity & Life
Insurance Company (Cayman) Ltd. (SALIC) as if the acquisition of ING Individual
Re Business (Individual Life) had occurred on September 30, 2004. The unaudited
pro forma combined balance sheet should be read in conjunction with the notes
to the Unaudited Pro Forma Consolidated Balance Sheet and Consolidated
Statements of Income and with the historical consolidated financial statements
and related notes included elsewhere in this Offering Circular. The unaudited
pro forma combined balance sheet is not intended to be indicative of the
combined financial position that would have been reported if the acquisition
had occurred at September 30, 2004 nor does it purport to be indicative of the
combined financial position which may be reported in the future.
AS OF SEPTEMBER 30, 2004
(IN MILLIONS)
----------------------------------------------------------------
INDIVIDUAL PRO-FORMA
SALIC LIFE ADJUSTMENTS COMBINED
------------- ------------ ----------------- -------------
ASSETS
Cash and investments ................................ $ 2,948.4 $ 1,844.8 $ (53.1)(1) $ 4,740.1
Funds withheld at interest .......................... 1,478.9 -- -- 1,478.9
Amount recoverable from reinsurers .................. 676.6 -- -- 676.6
Other assets......................................... 1,168.0 870.0 (666.0)(2) 1,372.0
---------- ---------- ---------- ----------
Total assets ....................................... $ 6,271.9 $ 2714.8 $ (719.1) $ 8,267.6
========== ========== ========== ==========
LIABILITIES
Reserves for future policy benefits ................. $ 1,451.5 $ 1,511.7 $ 24.3 (3) $ 2,987.5
Interest sensitive contract liabilities ............. 3,136.9 -- -- 3,136.9
Other liabilities ................................... 867.2 229.7 50.0 (4) 1,146.9
---------- ---------- ---------- ----------
Total liabilities .................................. 5,455.6 1,741.4 74.3 7,271.3
Minority interest ................................... 9.5 -- -- 9.5
Shareholders equity ................................. 806.8 973.4 (793.4)(5) 986.8
---------- ---------- ---------- ----------
Total liabilities and shareholders' equity ......... $ 6,271.9 $ 2,714.8 $ (719.1) $ 8,267.6
========== ========== ========== ==========
- ----------
(1) The adjustment to investments and cash and other assets includes $180
million of proceeds from the securities issued to the Cypress entities
and $50 million in proceeds from the issuance of the trust preferred
securities. The additional amounts are offset by an adjustment for cash
and investments that were not transferred over from Individual Life as a
result of this transaction.
(2) This represents a write-off of the historical deferred acquisition costs
as of September 30, 2004 and certain assets that were not transferred
over from Individual Life as a result of this transaction.
(3) Policy and claims reserves were adjusted to balances valued in accordance
with US GAAP as of September 30, 2004.
(4) This represents the issuance of $50 million in trust preferred
securities.
(5) This represents various changes to equity as a result of these
transactions. Pro forma combined shareholders' equity includes $180
million in equity raised from the Cypress entities.
1
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AND
CONSOLIDATED STATEMENTS OF INCOME
The following unaudited pro forma consolidated statements of operation for
the nine month period ended September 30, 2004 presents operating results of
Scottish Annuity & Life Insurance Company (Cayman) Ltd. (SALIC) as if the
acquisition of ING Individual Re Business (Individual Life) had occurred on
January 1, 2004. The unaudited pro forma combined statement of income should be
read in conjunction with the notes to the Unaudited Pro Forma Consolidated
Balance Sheet and Consolidated Statements of Income and with the historical
consolidated financial statements and related notes included elsewhere in this
Offering Circular. The unaudited pro forma combined statement of income is not
intended to be indicative of the combined results of operations that would have
been reported if the acquisition had occurred at January 1, 2004 nor does it
purport to be indicative of combined results of operations which may be
reported in the future.
NINE MONTHS ENDED SEPTEMBER 30, 2004
(IN MILLIONS)
-------------------------------------------------------------
INDIVIDUAL PRO-FORMA
SALIC LIFE ADJUSTMENTS COMBINED
----------- ------------ ---------------- -------------
Premium earned, net .................................... $ 368.0 $ 874.5 $ $ 1,242.5
Investment income, net ................................. 151.3 103.2 (40.6)(1) 213.9
Other income ........................................... 4.4 -- -- 4.4
-------- --------- --------- ----------
523.7 977.7 (40.6) 1,460.8
Claims and other benefits .............................. 278.3 654.2 (36.9)(2) 895.6
Interest credited to interest sensitive contract
liabilities ........................................... 77.3 -- -- 77.3
Acquisition costs and other insurance expenses, net..... 105.2 421.1 (228.7)(3) 297.6
Operating expenses ..................................... 40.3 42.2 13.5 (4) 96.0
Interest expense ....................................... 2.9 -- 2.1 (5) 5.0
-------- --------- --------- ----------
504.0 1,117.5 (250.0)
Income (loss) before income taxes and minority
interest .............................................. 19.7 (139.8) 209.4 89.3
Income tax provision benefit ........................... (5.4) (48.9) 62.8 (6) 8.5
-------- --------- --------- ----------
Income (loss) before minority interest ................. 25.1 (90.9) 146.6 80.8
Minority interest ...................................... 0.4 -- -- 0.4
-------- --------- --------- ----------
Net income (loss) ...................................... $ 24.7 $ (90.9) $ 146.6 $ 80.4
======== ========= ========= ==========
- ----------
(1) The adjustment to investment income represents a deduction for income
from derivative financial instruments included in the Individual Life
business. We did not acquire and would not have invested in these
derivative financial instruments. In addition we have adjusted the
investment income for changes in the asset base of the Individual Life
business upon its acquisition. We have not adjusted investment income to
include income on the $50 million in proceeds from the issuance of the
trust preferred securities and $180 million from the sale of common stock
to the Cypress entities. We estimate that additional investment income on
these proceeds would have amounted to $10 million had the transactions
occurred at January 1, 2004.
(2) Policy and claims reserves were adjusted to balances valued in accordance
with US GAAP as of January 1, 2004.
(3) This adjustment represents the capitalization of deferred acquisition
costs of new business had we written it as of January 1, 2004 adjusted by
the write-off of the historical deferred acquisition costs.
(4) Additional transitional expenses and letter of credit fees would be
required under this transaction. We have not reduced operating expenses
by $6 million in anticipated saving of expenses due to the elimination of
duplicated costs primarily in personnel and information technology.
(5) This adjustment represents the interest expense we would have to pay
holders of the $50 million trust preferred securities at 5.5% had we
issued them as of January 1, 2004.
(6) This adjustment increases the income tax provision to actual based on the
effective income tax rate of SALIC.
2
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET AND
CONSOLIDATED STATEMENTS OF INCOME
The following unaudited pro forma consolidated statements of operation for
the year ended December 31, 2003 presents operating results of Scottish Annuity
& Life Insurance Company (Cayman) Ltd. (SALIC) as if the acquisition of ING
Individual Re Business (Individual Life) had occurred on January 1, 2003. The
unaudited pro forma combined statement of income should be read in conjunction
with the notes to the Unaudited Pro Forma Consolidated Balance Sheet and
Consolidated Statements of Income and with the historical consolidated
financial statements and related notes included elsewhere in this Offering
Circular. The unaudited pro forma combined statement of income is not intended
to be indicative of the combined results of operations that would have been
reported if the acquisition had occurred at January 1, 2003 nor does it purport
to be indicative of combined results of operations which may be reported in the
future.
YEAR ENDED DECEMBER 31, 2003
(IN MILLIONS)
-------------------------------------------------------------
INDIVIDUAL PRO-FORMA
SALIC LIFE ADJUSTMENTS COMBINED
----------- ------------ ---------------- -------------
Premium earned, net ..................................... $ 266.1 $ 911.5 $ -- $ 1,177.6
Investment income, net .................................. 137.6 99.2 (17.2)(1) 219.6
Other income ............................................ 12.5 1.3 -- 13.8
-------- --------- --------- ----------
416.2 1,012.0 (17.2) 1,411.0
Claims and other benefits ............................... 192.8 828.3 (138.3)(2) 882.8
Interest credited to interest sensitive contract
liabilities ............................................ 89.0 -- -- 89.0
Acquisition costs and other insurance expenses, net...... 91.8 189.3 4.0 (3) 285.1
Operating expenses ...................................... 32.7 46.1 12.2 (4) 91.0
Interest expense ........................................ 1.2 -- 2.8 (5) 4.0
-------- --------- --------- ----------
407.5 1,063.7 (119.3) 1,351.9
Income (loss) before income taxes and minority
interest ............................................... 8.7 (51.7) 102.1 59.1
Income tax provision (benefit) .......................... (13.4) (18.1) 28.1 (6) (3.4)
-------- --------- --------- ----------
Income (loss) before minority interest .................. 22.1 (33.6) 74.0 62.5
Minority interest ....................................... 0.1 -- -- 0.1
-------- --------- --------- ----------
Income (loss) before cumulative effect of change in
accounting ............................................. 22.0 (33.6) 74.0 62.4
Cumulative effect of change in accounting principle ..... (19.5) -- -- (19.5)
-------- --------- --------- ----------
Net income (loss) ....................................... $ 2.5 $ (33.6) $ 74.0 $ 42.9
======== ========= ========= ==========
- ----------
(1) The adjustment to investment income represents a deduction for income
from derivative financial instruments included in the Individual Life
business. We did not acquire and would not have invested in these
derivative financial instruments. In addition we have adjusted the
investment income for changes in the asset base of the Individual Life
business upon its acquisition. We have not adjusted investment income to
include income on the $50 million in proceeds from the issuance of the
trust preferred securities and $180 million from the sale of common stock
to the Cypress entities. We estimate that additional investment income on
these proceeds would have amounted to $13 million had the transactions
occurred at January 1, 2003.
(2) Policy and claims reserves were adjusted to balances valued in accordance
with US GAAP as of January 1, 2003.
(3) This adjustment represents the capitalization of deferred acquisition
costs of new business had we written it as of January 1, 2003 adjusted by
the write-off of the historical deferred acquisition costs.
(4) Additional transitional expenses and letter of credit fees would be
required under this transaction. We have not reduced operating expenses
by $6 million in anticipated saving of expenses due to the elimination of
duplicated costs primarily in personnel and information technology.
(5) This adjustment represents the interest expense we would have to pay
holders of the $50 million trust preferred securities at 5.5% had we
issued them as of January 1, 2003.
(6) This adjustment increases the income tax provision to actual based on the
effective income tax rate of SALIC.
3
