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Exhibit 99.1
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholder
World-Wide Holdings Limited
We have audited the accompanying consolidated balance sheets of World-Wide Holdings Limited as of September 30, 2001 and 2000, and the related consolidated statements of income, comprehensive income, shareholder's equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurances about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of World-Wide Holdings Limited at September 30, 2001 and 2000 and the consolidated results of its operations and its consolidated cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.
/s/ERNST & YOUNG LLP |
London, England
February 26, 2002
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WORLD-WIDE HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
(Expressed in Thousands of United States Dollars)
| September 30, | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | |||||||
ASSETS | |||||||||
Investments: | |||||||||
Fixed maturity securities available for sale at fair value | $ | 85,930 | $ | 79,027 | |||||
Trading equity securities at fair value | 19,695 | 26,035 | |||||||
Cash and cash equivalents | 15,287 | 13,927 | |||||||
TOTAL INVESTMENTS | 120,912 | 118,989 | |||||||
Accrued investment income | 3,132 | 2,541 | |||||||
Reinsurance receivables | 32,997 | 61,792 | |||||||
Deferred acquisition costs | 6,663 | 7,465 | |||||||
Other assets | 8,893 | 6,285 | |||||||
TOTAL ASSETS | $ | 172,597 | $ | 197,072 | |||||
LIABILITIES AND SHAREHOLDER'S EQUITY | |||||||||
Liabilities: | |||||||||
Reserves for future policy benefits | $ | 66,750 | $ | 55,061 | |||||
Investment-type products | 24,949 | 33,044 | |||||||
Due to reinsurers | 4,345 | 38,374 | |||||||
Benefits payable | 693 | 963 | |||||||
Accounts payable and accrued expenses | 18,384 | 3,228 | |||||||
Deferred tax liability | 10,049 | 12,513 | |||||||
TOTAL LIABILITIES | 125,170 | 143,183 | |||||||
Shareholder's Equity: | |||||||||
Common stock, par value $1.692 per share; 5,000,000 shares authorized, issued, and outstanding | 8,458 | 8,458 | |||||||
Additional paid-in capital | 21,444 | 21,444 | |||||||
Accumulated other comprehensive income (loss): | |||||||||
Unrealized gain on investments, net | 1,391 | 61 | |||||||
Foreign currency translation adjustments, net | (1,539 | ) | (2,426 | ) | |||||
Retained earnings | 17,673 | 26,352 | |||||||
TOTAL SHAREHOLDER'S EQUITY | 47,427 | 53,889 | |||||||
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY | $ | 172,597 | $ | 197,072 | |||||
See Accompanying Notes to Consolidated Financial Statements
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WORLD-WIDE HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF INCOME
(Expressed in Thousands of United States Dollars)
| Years Ended September 30, | |||||
---|---|---|---|---|---|---|
| 2001 | 2000 | ||||
REVENUES | ||||||
Premiums earned | $ | 35,635 | $ | 25,906 | ||
Net investment income | 7,551 | 8,628 | ||||
Change in unrealized gain on trading securities | (6,202 | ) | 3,047 | |||
Other income | (285 | ) | 93 | |||
TOTAL REVENUES | 36,699 | 37,674 | ||||
BENEFITS AND EXPENSES | ||||||
Claims and other policy benefits | 23,370 | 24,353 | ||||
Acquisition costs and other insurance expenses | 4,809 | 3,300 | ||||
Operating expenses | 4,660 | 3,688 | ||||
TOTAL BENEFITS AND EXPENSES | 32,839 | 31,341 | ||||
NET INCOME BEFORE INCOME TAX EXPENSE | 3,860 | 6,333 | ||||
Income tax expense | 1,158 | 1,830 | ||||
NET INCOME | $ | 2,702 | $ | 4,503 | ||
See Accompanying Notes to Consolidated Financial Statements
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WORLD-WIDE HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Expressed in Thousands of United States Dollars)
| Years Ended September 30, | |||||||
---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | ||||||
NET INCOME | $ | 2,702 | $ | 4,503 | ||||
OTHER COMPREHENSIVE INCOME (LOSS) | ||||||||
Unrealized gain on investments, net | 1,330 | 458 | ||||||
Foreign currency translation adjustments, net | 887 | (3,809 | ) | |||||
Total other comprehensive income (loss) | 2,217 | (3,351 | ) | |||||
COMPREHENSIVE INCOME | $ | 4,919 | $ | 1,152 | ||||
See Accompanying Notes to Consolidated Financial Statements
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WORLD-WIDE HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(Expressed in Thousands of United States Dollars, except for number of shares)
| Years Ended September 30, | ||||||
---|---|---|---|---|---|---|---|
| 2001 | 2000 | |||||
ORDINARY SHARES | 5,000,000 | 5,000,000 | |||||
SHARE CAPITAL | $ | 8,458 | $ | 8,458 | |||
ADDITIONAL PAID-IN CAPITAL | 21,444 | 21,444 | |||||
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | |||||||
Beginning of period | (2,365 | ) | 986 | ||||
Unrealized gain on investments, net | 1,330 | 458 | |||||
Foreign currency translation adjustments, net | 887 | (3,809 | ) | ||||
End of period | (148 | ) | (2,365 | ) | |||
RETAINED EARNINGS | |||||||
Beginning of period | 26,352 | 21,849 | |||||
Net income | 2,702 | 4,503 | |||||
Dividends declared | (11,381 | ) | — | ||||
End of period | 17,673 | 26,352 | |||||
TOTAL SHAREHOLDER'S EQUITY | $ | 47,427 | $ | 53,889 | |||
See Accompanying Notes to Consolidated Financial Statements
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WORLD-WIDE HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in Thousands of United States Dollars)
| Years Ended September 30, | |||||||
---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | ||||||
OPERATING ACTIVITIES | ||||||||
Net income | $ | 2,702 | $ | 4,503 | ||||
Items not affecting cash: | ||||||||
Amortization of investments | (2,277 | ) | (495 | ) | ||||
Amortization of deferred acquisition costs | 796 | 879 | ||||||
Deferred income taxes | (3,739 | ) | 1,449 | |||||
Change in unrealized loss (gain) on trading securities | 6,202 | (3,047 | ) | |||||
Income credits on investment-type products | (8,095 | ) | 2,671 | |||||
Changes in assets and liabilities: | ||||||||
Accrued investment income | (591 | ) | 35 | |||||
Reinsurance receivables | 28,795 | 21,535 | ||||||
Other assets | (2,608 | ) | (4,532 | ) | ||||
Reserve for future policy benefits | 11,689 | 2,428 | ||||||
Due to reinsurers | (34,029 | ) | (17,454 | ) | ||||
Benefits payable | (270 | ) | (290 | ) | ||||
Accounts payable and accrued expenses | 3,775 | 456 | ||||||
Net cash provided by operating activities | 2,350 | 8,138 | ||||||
INVESTING ACTIVITIES | ||||||||
Purchase of investments | (41,793 | ) | (62,100 | ) | ||||
Proceeds from sales and maturities of investments | 37,514 | 48,652 | ||||||
Cash received from assumption of reinsurance block of business | — | 21,572 | ||||||
Net cash provided by investing activities | (4,279 | ) | 8,124 | |||||
FINANCING ACTIVITIES | ||||||||
Accrued dividends payable | 11,381 | — | ||||||
Withdrawals from investment-type product liabilities | (8,087 | ) | (11,629 | ) | ||||
Net cash used in financing activities | 3,294 | (11,629 | ) | |||||
OTHER | ||||||||
Effect of exchange rate changes on cash and cash equivalents | (5 | ) | (3,106 | ) | ||||
Net change in cash and cash equivalents | 1,360 | 1,527 | ||||||
Cash and cash equivalents, beginning of period | 13,927 | 12,400 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 15,287 | $ | 13,927 | ||||
See Accompanying Notes to Consolidated Financial Statements
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SUPPLEMENTAL SCHEDULE OF INVESTING AND FINANCING ACTIVITIES
In connection with the assumption of a reinsurance block of business as discussed in Note 2, the following assets and liabilities were assumed:
| September 30, 2000 | ||
---|---|---|---|
Trading equity securities | $ | 25,861 | |
Cash and cash equivalents | 21,572 | ||
Reinsurance receivables | 4,350 | ||
Deferred acquisition costs | 8,417 | ||
Total assets assumed | $ | 60,200 | |
Reserves for future policy benefits | $ | 26,231 | |
Investment-type products | 31,381 | ||
Benefits payable | 1,043 | ||
Due to reinsurers | 1,545 | ||
Total liabilities assumed | $ | 60,200 | |
See Accompanying Notes to Consolidated Financial Statements
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WORLD-WIDE HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001
1. ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION
Organization and Business
World-Wide Holdings Limited (World-Wide Holdings) is a holding company incorporated in England and Wales in 1987. World-Wide Holdings has two wholly owned subsidiaries, World-Wide Reassurance Company Limited (World-Wide Reassurance) which is a life and health reinsurance company, incorporated in England and Wales in 1964, and World-Wide Corporate Capital Limited (World-Wide Corporate Capital), which is a Lloyd's corporate capital provider, incorporated in England and Wales in 2001.
World-Wide Reassurance's primary line of business is to transact international reinsurance business with companies primarily in the Middle East, Europe and other overseas territories, as well as the retrocession of reinsurance with reinsurance companies in the United States. World-Wide Corporate Capital Limited was admitted as a corporate member of Lloyd's in November 2001, and will be providing capacity to one Lloyd's life underwriting syndicate, effective January 1, 2002.
As at September 30, 2001, World-Wide Holdings was a wholly owned subsidiary of Pacific Life Insurance Company (Pacific Life), a California stock life insurance company. On August 6, 2001, Pacific Life entered into a share purchase agreement with Scottish Annuity & Life Holdings, Ltd., a company incorporated in the Cayman Islands. Under the terms of this agreement, Pacific Life exchanged its 100% ownership of World-Wide Holdings for newly issued ordinary shares in Scottish Annuity & Life Holdings, Ltd. The transaction closed on December 31, 2001, at which date World-Wide Holdings became a 100% owned subsidiary of Scottish Annuity & Life Holdings, Ltd.
World-Wide Holdings and World-Wide Reassurance (collectively, World Wide) is engaged in only one segment of business, life and health reinsurance.
Basis of Presentation
Accounting Principles and Consolidation—The accompanying consolidated financial statements of World-Wide Holdings have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and include the accounts of World-Wide Holdings and its wholly owned subsidiaries World-Wide Reassurance and World-Wide Corporate Capital. All significant intercompany transactions and balances have been eliminated on consolidation.
Estimates, Risks and Uncertainties—The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
World-Wide operates in a business environment which is subject to various risks and uncertainties. Such risks and uncertainties include, but are not limited to, interest rate risk, investment market risk, credit risk, and legal and regulatory changes.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments
Fixed maturity securities are classified as available for sale and are reported at fair value, with unrealized gains and losses, net of deferred income taxes, recorded as a component of other comprehensive income. The cost of fixed maturity securities is adjusted for the amortization of premiums and discounts which is reflected in net investment income. Trading equity securities are reported at fair value with unrealized gains included in change in unrealized gain on trading securities. The fair values of the securities are based on quoted market prices.
Realized gains and losses on investment transactions are determined on a specific identification basis and are included in investment income.
Cash and Cash Equivalents
Cash and cash equivalents include all liquid debt instruments with an original maturity of three months or less. Cash and cash equivalents are recorded at face value, which approximates fair value.
Deferred Acquisition Costs
The costs of acquiring new reinsurance business, principally ceding commissions, underwriting, record keeping and other expenses, which vary with and are primarily related to the production of new business, are capitalized and amortized in future periods. The effect on the amortization of deferred acquisition costs of revisions to estimated gross profits will be reflected in earnings in the period such estimated gross profits are revised.
For the years ending September 30, 2001 and 2000, amortization of deferred acquisition costs amounted to $2.3 million and $1.2 million, respectively.
Reserves For Future Policy Benefits
Benefit reserves for future benefits under life insurance contracts reinsured are estimated using actuarial assumptions for mortality, withdrawal assumptions, investment yields and expenses based on World-Wide Reassurance's experience. Interest rate assumptions ranged from 3.5% to 4.5% for the years ended September 30, 2001 and 2000.
Investment-Type Products
Investment-type products are recorded at account value and represent segregated contracts in which the investment results attained generally pass through to the contract holder. Income is credited to these products based on the investment results and is included in claims and other policy benefits. The account value approximates fair value.
Revenues, Benefits and Expenses
Premiums for reinsurance transactions are included in revenues over the premium paying period of the underlying policies. Related policy benefits and expenses are provided against the revenues to recognize profits over the estimated lives of the policies. Fees from investment-type products are earned over the life of the contracts.
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Assumptions of blocks of in-force business are accounted for in results of operations only from the respective date of assumption with the initial transfer of assets and liabilities recorded on the balance sheet.
Investment income is recorded as earned.
Translation of Foreign Currencies
World-Wide maintains its books and records in both the British pounds and United States dollars. World-Wide also transacts business in many foreign currencies that are converted and then settled in either British pounds or United States dollars. The financial statement accounts expressed in British pounds are translated into United States dollars in accordance with Statement of Financial Accounting Standards (SFAS) No. 52,Foreign Currency Translation (SFAS 52). In accordance with SFAS 52, functional currency assets and liabilities are translated into United States dollars generally using current rates of exchange prevailing at the balance sheet date and the related translation adjustments are recorded as a separate component of comprehensive income, net of tax. Income statement accounts are translated using average exchange rates.
Income Taxes
Income taxes are recorded in accordance with SFAS No. 109,Accounting for Income Taxes. In accordance with this statement, deferred income taxes reflect the net tax effect of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. There is no valuation allowance currently applied to any deferred tax assets related to impairment.
Undistributed earnings of World-Wide Reassurance are not taxable until there is a distribution of current or accumulated earnings and profits in the form of dividends or other distributions. World-Wide Holdings would then be subject to United Kingdom taxation. Deferred taxes have been provided for undistributed earnings. As of September 30, 2001, World-Wide Reassurance had undistributed earnings of $12.7 million subject to tax upon distribution. The current tax rate for World-Wide Holdings as of September 30, 2001 is the United Kingdom statutory tax rate of 30%.
Fair Value of Financial Instruments
The fair value of assets and liabilities included on the consolidated balance sheets which qualify as financial instruments under SFAS No. 107,Disclosure About Fair Value of Financial Instruments, approximate the carrying amount presented in the consolidated financial statements.
Reclassifications
Certain amounts in the financial statements for the year ended September 30, 2000 have been reclassified to conform to the current year presentation.
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3. INVESTMENTS
The amortized cost, gross unrealized gains and losses, and fair value of fixed maturity securities available for sale are shown below. The fair value of publicly traded securities is based on quoted market prices. For securities not actively traded, fair values were provided by independent pricing services, primarily brokers of these securities. World-Wide also estimates certain fair values based on interest rates, credit quality and average maturity or from securities with comparable trading characteristics.
| September 30, 2001 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||
| (in thousands) | |||||||||||
Foreign governments | $ | 5,275 | $ | 247 | $ | — | $ | 5,522 | ||||
Corporate securities | 78,668 | 1,853 | 113 | 80,408 | ||||||||
Total | $ | 83,943 | $ | 2,100 | $ | 113 | $ | 85,930 | ||||
| September 30, 2000 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||
| (in thousands) | |||||||||||
Foreign governments | $ | 6,404 | $ | 159 | $ | — | $ | 6,563 | ||||
Corporate securities | 72,536 | 371 | 443 | 72,464 | ||||||||
Total | $ | 78,940 | $ | 530 | $ | 443 | $ | 79,027 | ||||
The contractual maturities of fixed maturity securities as of September 30, 2001, by contractual repayment date of principal, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
| Amortized Cost | Fair Value | ||||
---|---|---|---|---|---|---|
| (in thousands) | |||||
Due in one year or less | $ | 10,529 | $ | 10,737 | ||
Due in one year through five years | 53,235 | 54,527 | ||||
Due in five years through ten years | 20,179 | 20,666 | ||||
Due after ten years | — | — | ||||
Total | $ | 83,943 | $ | 85,930 | ||
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Major categories of net investment income are as follows for the years ended:
| September 30, | |||||
---|---|---|---|---|---|---|
| 2001 | 2000 | ||||
Fixed maturity securities | $ | 6,552 | $ | 7,779 | ||
Equity securities | 538 | 268 | ||||
Cash and cash equivalents | 461 | 581 | ||||
Net investment income | $ | 7,551 | $ | 8,628 | ||
Proceeds from the sales of available for sale securities amounted to $37.3 million and $19.1 million for the years ending September 30, 2001 and 2000, respectively. Gross gains of $505,000 and $85,000 and gross losses of $118,000 and $77,000 on sales of available for sale securities were realized for the years ended September 30, 2001 and 2000, respectively.
As of September 30, 2001 and 2000, World-Wide did not have a material concentration of investments in a single issuer, industry, or geographic location.
4. COMPREHENSIVE INCOME
Comprehensive income, in accordance with SFAS No. 130,Reporting Comprehensive Income, requires unrealized gains and losses on World-Wide's available for sale investments and the foreign currency translation adjustment to be included in other comprehensive income. The table below shows the gross and net of tax components of other comprehensive income.
| Year Ended September 30, 2001 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| Before Taxes | Tax | Net of Tax | |||||||
| (in thousands) | |||||||||
Unrealized gain, net, on available for sale securities arising during the year | $ | 2,257 | $ | (463 | ) | $ | 1,794 | |||
Less reclassification adjustment for gains realized in net income | (357 | ) | (107 | ) | (464 | ) | ||||
Foreign currency translation adjustments | 1,267 | (380 | ) | 887 | ||||||
Total | $ | 3,167 | $ | (950 | ) | $ | 2,217 | |||
| Year Ended September 30, 2000 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| Before Taxes | Tax | Net of Tax | |||||||
| (in thousands) | |||||||||
Unrealized gain, net, on available for sale securities arising during the year | $ | 662 | $ | (198 | ) | $ | 464 | |||
Less reclassification adjustment for gains realized in net income | (8 | ) | 2 | (6 | ) | |||||
Foreign currency translation adjustments | (6,647 | ) | 2,838 | (3,809 | ) | |||||
Total | $ | (5,993 | ) | $ | 2,642 | $ | (3,351 | ) | ||
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5. INCOME TAXES
The components of income tax expense are as follows for the years ended:
| September 30, | |||||
---|---|---|---|---|---|---|
| 2001 | 2000 | ||||
| (in thousands) | |||||
Current tax expense | $ | 4,571 | $ | 381 | ||
Deferred tax expense | (3,413 | ) | 1,449 | |||
Total income tax expense | $ | 1,158 | $ | 1,830 | ||
World-Wide's effective tax rate approximated the statutory tax rate of 30% for the tax years ended 2001 and 2000.
Significant components of the net deferred tax liability are as follows as of:
| September 30, | ||||||
---|---|---|---|---|---|---|---|
| 2001 | 2000 | |||||
| (in thousands) | ||||||
Undistributed earnings of World-Wide Reassurance | $ | 3,280 | $ | 6,194 | |||
Reserves for future policy benefits | 7,317 | 4,728 | |||||
Deferred acquisition costs | 1,999 | 2,150 | |||||
Amortization on bonds | (947 | ) | 427 | ||||
Pension liability | (87 | ) | (176 | ) | |||
Other | (455 | ) | 1,197 | ||||
Net deferred tax liability from operations | 11,107 | 14,520 | |||||
Other comprehensive income | (1,058 | ) | (2,007 | ) | |||
Total deferred tax liability | $ | 10,049 | $ | 12,513 | |||
6. COMMITMENTS AND CONTINGENCIES
World-Wide leases its office facility under an operating lease. Rent expense, which is included in operating expenses, in connection with this lease was $149,000 and $195,000 for the years ended September 30, 2001 and 2000, respectively. The lease expired in October 2001 and World-Wide is currently in the process of negotiating its renewal. Assuming the lease agreement will be renewed, the aggregate minimum future annual commitment as of September 30, 2001 through the term of the lease is expected to be $192,000.
World-Wide, from time to time, may be a defendant in legal proceedings relative to the conduct of its insurance business. These legal proceedings are a normal part of its business.
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7. REINSURANCE AND RELATED PARTY TRANSACTIONS
World-Wide Reassurance has reinsurance arrangements with various insurance companies who are seeking to provide for the greater diversification of business, control exposures to potential losses arising from large risks and provide additional capacity for growth.
All insurance premiums earned are assumed from various insurance companies. World-Wide Reassurance then retrocedes a portion of these premiums to other insurance companies. The retrocession of such business does not relieve World-Wide Reassurance of its liability and, as such, failure of retrocessionaires to honor their obligations could result in losses. World-Wide Reassurance evaluates the financial condition of its reinsurers and monitors concentrations of credit risk. As of September 30, 2001, World-Wide had no significant reinsurance-related concentrations of credit risk.
Net premiums earned were as follows:
| Years Ended September 30, | |||||
---|---|---|---|---|---|---|
| 2001 | 2000 | ||||
| (in thousands) | |||||
Premiums assumed | $ | 41,009 | $ | 30,035 | ||
Premiums retroceded | 5,374 | 4,129 | ||||
Net premiums earned | $ | 35,635 | $ | 25,906 | ||
Reinsurance receivables as of September 30, 2001 and 2000 include reserve balances for reinsurance retroceded amounting to $20.3 million and $33.2 million, respectively.
World-Wide Reassurance has entered into reinsurance arrangements with Pacific Life. Pacific Life cedes to World-Wide Reassurance certain blocks of individual life insurance on an automatic and facultative basis. The risks transferred to World-Wide Reassurance generally represent mortality risks. Included and netted in other assets are future policy benefits and unpaid claims of $304,000 and $594,000 as of September 30, 2001 and 2000, respectively. Premiums assumed for the years ended September 30, 2001 and 2000 amounted to $2.9 million and $2.5 million, respectively. Policy benefits amounted to $2.2 million and $1.9 million for the years ended September 30, 2001 and 2000, respectively.
8. PENSION PLAN
World-Wide Holdings provides a funded defined benefit pension plan covering all eligible employees. The assets of the plan are held separately from those of World-Wide Holdings and are invested with an insurance company. World-Wide Holdings's funding policy for the plan is to make contributions to the plan so as to spread the cost of the pension over the employee's working life with
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World-Wide Holdings. Components of the net periodic pension expense are as follows for the years ended:
| September 30, | ||||||
---|---|---|---|---|---|---|---|
| 2001 | 2000 | |||||
| (in thousands) | ||||||
Service cost—benefits earned during the year | $ | 280 | $ | 268 | |||
Interest cost on projected benefit obligation | 194 | 214 | |||||
Expected return on plan assets | (248 | ) | (200 | ) | |||
Amortization of transition obligation | 66 | 66 | |||||
Net periodic pension expense | $ | 292 | $ | 348 | |||
The following tables set forth the change in benefit obligation, plan assets and the funded status reconciliation as of:
| September 30, | |||||||
---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | ||||||
| (in thousands) | |||||||
Change in Benefit Obligation: | ||||||||
Benefit obligation, beginning of year | $ | 3,367 | $ | 3,402 | ||||
Service cost | 280 | 268 | ||||||
Interest cost | 194 | 214 | ||||||
Benefits paid | (145 | ) | (140 | ) | ||||
Translation adjustment | (13 | ) | (377 | ) | ||||
Benefit obligation, end of year | $ | 3,683 | $ | 3,367 | ||||
| September 30, | |||||||
---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | ||||||
| (in thousands) | |||||||
Change in Plan Assets: | ||||||||
Fair value of plan assets, beginning of year | $ | 2,716 | $ | 2,364 | ||||
Actual return on plan assets | (353 | ) | 393 | |||||
Employer contributions | 1,026 | 382 | ||||||
Benefits paid | (145 | ) | (140 | ) | ||||
Translation adjustment | 10 | (283 | ) | |||||
Fair value of plan assets, end of year | $ | 3,254 | $ | 2,716 | ||||
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| September 30, | |||||||
---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | ||||||
| (in thousands) | |||||||
Funded Status Reconciliation: | ||||||||
Funded status | $ | (429 | ) | $ | (651 | ) | ||
Unrecognized transition asset | 182 | 248 | ||||||
Unrecognized actuarial gain | (182 | ) | (183 | ) | ||||
Accrued pension cost | $ | (429 | ) | $ | (586 | ) | ||
In determining the actuarial present value of the projected benefit obligation as of September 30, 2001 and 2000, the weighted average discount rate used was 5.75% and 6.5%, respectively, and the rate of increase in future compensation levels was 4.5% and 5.5%, respectively. The expected long-term rate of return on plan assets was 7.0% in 2001 and 8.0% in 2000.
9. STATUTORY REQUIREMENTS
In connection with the Insurance Companies Act 1982, World-Wide Reassurance is required to maintain statutory minimum net capital requirements of $14.9 million and $11.4 million as of September 30, 2001 and 2000, respectively. World-Wide Reassurance had statutory capital in excess of these minimum requirements of $29.3 million and $31.2 million as of September 30, 2001 and 2000, respectively.
10. COMPANIES ACT 1985
These financial statements do not comprise World-Wide's "statutory accounts" within the meaning of section 240 of the Companies Act 1985 of Great Britain. Statutory accounts for the year ended September 30, 2001, on which the auditors' report was unqualified, have been delivered to the Registrar of Companies for England and Wales.
11. SUBSEQUENT EVENT
On August 6, 2001, Pacific Life entered into a share purchase agreement with Scottish Annuity & Life Holdings, Ltd. This transaction closed on December 31, 2001, at which time Pacific Life exchanged its ownership interest in World-Wide Holdings for newly issued Scottish Annuity & Life Holdings, Ltd. ordinary shares valued at approximately $78 million. Pacific Life became the largest shareholder of Scottish Annuity & Life Holdings, Ltd. with an approximate 22.5% interest in the issued and outstanding Scottish Annuity & Life Holdings, Ltd. ordinary shares. In connection with the closing of this transaction, World-Wide Holdings paid a dividend to Pacific Life of $11.4 million during December 2001. This dividend was declared by the Board of Directors of World-Wide Holdings on August 5, 2001, and has been provided for in these financial statements.
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REPORT OF INDEPENDENT AUDITORS
WORLD-WIDE HOLDINGS LIMITED CONSOLIDATED BALANCE SHEETS (Expressed in Thousands of United States Dollars)
WORLD-WIDE HOLDINGS LIMITED CONSOLIDATED STATEMENTS OF INCOME (Expressed in Thousands of United States Dollars)
WORLD-WIDE HOLDINGS LIMITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Expressed in Thousands of United States Dollars)
WORLD-WIDE HOLDINGS LIMITED CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (Expressed in Thousands of United States Dollars, except for number of shares)
WORLD-WIDE HOLDINGS LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in Thousands of United States Dollars)
WORLD-WIDE HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 2001