Scottish Re Group Limited Announces Operating Results for the Third Quarter
Ended September 30, 2003
HAMILTON, Bermuda--(BUSINESS WIRE)--Oct. 24, 2003--Scottish Re Group Limited
(NYSE:SCT) today reported that income from continuing operations for the quarter
ended September 30, 2003 was $1.8 million, or $0.05 per diluted share, as
compared to $7.1 million, or $0.25 per diluted share for the prior year period.
Net operating earnings were $0.8 million, or $0.02 per diluted share for the
quarter ended September 30, 2003 as compared to $11.7 million, or $0.42 per
diluted share for the prior year period.
Net operating earnings is a non-GAAP measurement. We determine net operating
earnings by adjusting GAAP income from continuing operations by net realized
capital gains and losses as adjusted for the related effects upon the
amortization of deferred acquisition costs and taxes. While these items may be
significant components in understanding and assessing the Company's consolidated
financial performance, the Company believes that the presentation of net
operating earnings enhances the understanding of its results of operations by
highlighting earnings attributable to the normal, recurring operations of its
business. However, net operating earnings are not a substitute for income from
continuing operations determined in accordance with GAAP.
The results for the quarter ended September 30, 2003 were adversely impacted by
a $12.5 million charge to account for revised reporting of death claims by a
ceding company client in connection with two annuity reinsurance treaties.
During its routine monthly review of the treaties, Scottish Re identified
inconsistencies in information that was reported by the ceding company to
Scottish Re for the month ended August 2003. These inconsistencies were
discussed with the ceding company, which undertook its own internal review. The
results of this review were recently completed, and resulted in the
determination that death claims had been consistently under-reported to Scottish
Re since the inception of the relationship in early 2000. In addition, Scottish
Re's internal compliance auditor recently completed an on-site examination of
the ceding company's records to confirm the under-reported amounts. In light of
the impact of the revised death claims on the estimated gross profits of the two
treaties in question, the Company has increased the amortization of deferred
acquisition costs on the two treaties, along with two other related treaties.
The impact of the charge on net income for the quarter ended September 30, 2003
was $10.4 million.
Income from continuing operations for the nine months ended September 30, 2003
was $18.5 million, or $0.60 per diluted share, compared to $20.0 million, or
$0.77 per diluted share for the prior year period. Net operating earnings for
the nine months ended September 30, 2003 amounted to $22.7 million, or $0.74 per
diluted share compared to $27.0 million, or $1.04 per diluted share for the
prior year period.
Net income for the quarter, including the results of the discontinued Luxembourg
operations, amounted to $1.6 million, or $0.05 per diluted share as compared to
$7.0 million or $0.25 per diluted share for the prior year period. Net income
for the nine months ended September 30, 2003 was $16.7 million or $0.55 per
diluted share, compared to $19.8 million, or $0.76 per diluted share in the
prior year period.
During 2003, the Company adopted the modified prospective method of fair
value-based stock option expense provisions of SFAS No. 123 as amended by SFAS
No. 148. "Accounting for Stock-Based Compensation -- Transition and Disclosure,
an Amendment of FASB Statement No. 123." This has resulted in a charge to income
of $77,000 and $158,000 in the three- and nine-month periods ended September 30,
2003.
"The charge relating to under-reported claims is a tremendous disappointment to
us," said Michael C. French, Chairman and Chief Executive Officer of Scottish Re
Group Limited . "However, even after adjusting for this reporting error, we
expect these treaties to continue to contribute to the profitability of our
annuity reinsurance business."
Total revenue for the quarter increased to $134.6 million from $79.2 million for
the prior year period, an increase of 70%. Excluding realized gains and losses,
total revenue for the quarter increased to $133.8 million from $85.1 million for
the prior year period, an increase of 57%. Total revenue for the first nine
months increased to $360.9 million from $197.0 million, an increase of 83%.
Total benefits and expenses increased to $140.9 million for the quarter from
$72.3 million, an increase of 95%, and to $350.4 million from $176.7 million in
the first nine months, an increase of 98%. The increases were principally driven
by the growth in the Company's global life reinsurance business.
The Company's total assets were $4.2 billion as of September 30, 2003. The core
investment portfolio, comprising fixed maturity investments and most of the cash
and cash equivalents, totaled $1.8 billion, and had an average quality rating of
"A+," an effective duration of 4.3 years and a weighted average book yield of
4.8%. This compares with a portfolio balance of $1.2 billion, an average quality
rating of "AA-," effective duration of 3.0 years and an average book yield of
4.9% as of December 31, 2002.
Funds withheld at interest, totaling $1.2 billion, had an average quality rating
of "A-," an effective duration of 5.1 years and a weighted average book yield of
6.3% at September 30, 2003. This compares with a total of $1.1 billion with an
average quality rating of "A-," an effective duration of 5.4 years and an
average book yield of 6.5% at December 31, 2002. The market value of the funds
withheld at interest amounted to $1.3 billion at September 30, 2003.
"The environment to prudently grow our business remains exceptional as the
number of competitors decreases due to consolidation and the amount of life
reinsurance capacity continues to shrink," said Scott E. Willkomm, President of
Scottish Re Group Limited . "However, growth without disciplined pricing and
risk management is a recipe for disappointment."
"This year, we have not significantly grown our Financial Solutions business
despite many quoting opportunities because our pricing and risk management
objectives were not always achievable," Mr. Willkomm added. "On the other hand,
our traditional mortality risk transfer business has exhibited excellent growth,
consistent profitability and better than expected mortality experience."
As of September 30, 2003, the Company had approximately $105.2 billion of life
reinsurance in force covering 1,972,000 lives with an average benefit per life
of $53,000 in its North American operations. As of December 31, 2002, the
Company had approximately $68.0 billion of life reinsurance in force covering
1,387,000 lives. For the first nine months of 2003, the Company's actual
mortality experience was 97% of expected levels, and 92% of expected levels on a
cumulative basis since the launch of the Company's North American operations in
2000.
The Company's book value per share was $19.18 at September 30, 2003 as compared
to $18.24 per share at December 31, 2002.
On September 2, 2003, the Company announced that its shareholders approved
changing the Company's name to Scottish Re Group Limited from Scottish Annuity &
Life Holdings, Ltd. In addition, the Company's wholly owned subsidiary
World-Wide Reassurance Company Limited has changed its name to Scottish Re
Limited. The Company intends to unify its corporate identity under the Scottish
Re banner to more accurately reflect the Company's mission by emphasizing its
life reinsurance business and provide a strong and consistent brand for its
operating companies.
The Company's earnings conference call will be held at 8:30 AM EDT on Friday
October 24, 2003. The dial-in number is 703-871-3029 or 877-282-2316 and the
reservation number is 299961. A replay of the call will be available beginning
at 3:00 PM on Friday, October 24, 2003 and running through Friday, November 14,
2003. The dial-in number for the replay is 703-925-2533 or 888-266-2081 and the
PIN code is 299961. In addition, a simultaneous Web cast, as well as an
on-demand replay, of the conference call will be available at the Company's Web
site, www.scottishre.com/conferencecall.
Scottish Re Group Limited is a global life reinsurance specialist and issuer of
customized life insurance based wealth management products for high net worth
individuals and families. Scottish Re Group Limited has operating companies in
Bermuda, Charlotte, North Carolina, Dublin, Ireland, Grand Cayman and Windsor,
England. Its flagship operating subsidiaries include Scottish Annuity & Life
Insurance Company (Cayman) Ltd. and Scottish Re (U.S.), Inc., which are rated A-
(excellent) by A.M. Best, A (strong) by Fitch Ratings, A3 (good) by Moody's and
A- (strong) by Standard & Poor's and Scottish Re Limited (formerly World-Wide
Reassurance Limited), which is rated A- (excellent) by A.M. Best, A (strong) by
Fitch Ratings and A- (strong) by Standard & Poor's. Additional information about
Scottish Re can be obtained from its Web site, www.scottishre.com.
Certain statements included herein are "forward-looking statements" within the
meaning of the federal securities laws. The management of Scottish Re Group
Limited (the "Company") cautions that forward-looking statements are not
guarantees, and that actual results could differ materially from those expressed
or implied in the forward-looking statements. Important events that could cause
the actual results of operations or financial condition of the Company to differ
include, but are not necessarily limited to, the Company's ability to attract
clients and generate business; the competitive environment; the Company's
ability to underwrite business; performance of outside service providers;
mortality risk; surrender risk; investment risk (including asset value risk,
reinvestment risk and disintermediation risk); the impact of unforeseen economic
changes (such as changes in interest rates, currency exchange rate, inflation
rates, recession and other external economic factors); the impact of terrorist
activities on the economy, the insurance and related industries in general and
the Company in particular; regulatory changes (such as changes in U.S. tax law
and insurance regulation which directly affect the competitive environment for
the Company's products); rating agency policies and practices; and loss of key
executives.
Investors are also directed to consider the risks and uncertainties discussed in
documents filed by the Company with the Securities and Exchange Commission.
(Tables to follow)
Scottish Re Group Limited
Financial Highlights
(Stated in Thousands of United States Dollars, Except Per Share Data)
(Unaudited)
----------------------------------------------------------------------
Three Three Nine months Nine months
months months ended ended
ended ended September September
September September 30, 2003 30, 2002
30, 2003 30, 2002
---------------------------------------------
Total revenue $134,550 $79,196 $360,902 $197,016
Net operating earnings(a) 842 11,664 22,717 27,006
Income from continuing
operations 1,782 7,106 18,522 20,044
Net income 1,625 6,979 16,740 19,826
Net operating earnings
per share
Basic $0.03 $0.43 $0.78 $1.10
Diluted $0.02 $0.42 $0.74 $1.04
Income from continuing
operations per share
Basic $0.05 $0.26 $0.64 $0.81
Diluted $0.05 $0.25 $0.60 $0.77
Earnings per share
Basic $0.05 $0.26 $0.57 $0.81
Diluted $0.05 $0.25 $0.55 $0.76
Dividends per share $0.05 $0.05 $0.15 $0.15
Weighted average shares
Outstanding
Basic 33,248,670 26,910,907 29,119,913 24,604,864
Diluted 35,225,380 27,943,453 30,667,667 25,958,339
(a) Excludes effect of realized gains (losses), amortization of related DAC and
losses from discontinued operations (See Supplemental Schedule).
September 30, December 31,
2003 2002
------------ ------------
Book value per
share -- including
effect of SFAS 115 $19.18 $18.24
Book value per
share -- excluding
effect of SFAS 115 (See
supplemental schedule) $18.54 $17.91
Scottish Re Group Limited
Consolidated Balance Sheets
(Stated in Thousands of United States Dollars)
September 30, December 31,
2003 2002
--------------------------
(Unaudited)
Assets
Fixed maturity investments $1,592,692 $1,003,946
Preferred stock 68,271 --
Investment in unit-linked securities - 16,497
Cash and cash equivalents 143,097 149,666
Other investments 5,644 5,631
Funds withheld at interest 1,243,909 1,101,836
--------------------------
Total investments 3,053,613 2,277,576
Accrued interest receivable 17,395 11,910
Reinsurance balances and risk fees
receivable 81,670 39,805
Deferred acquisition costs 284,936 213,516
Amounts recoverable from reinsurers 24,450 22,608
Present value of in force business 14,026 18,181
Goodwill 35,847 35,847
Fixed assets 11,010 6,493
Other assets 9,126 11,702
Segregated assets 695,592 653,588
--------------------------
Total assets $4,227,665 $3,291,226
==========================
Liabilities
Reserves for future policy benefits $510,484 $386,807
Interest sensitive contract liabilities 2,141,724 1,567,176
Unit-linked contract liabilities - 17,069
Accounts payable and accrued expenses 15,370 15,702
Reinsurance balances payable 52,167 16,348
Deferred tax liability 4,725 9,071
Current income tax payable 431 1,873
Long term debt 132,500 132,500
Segregated liabilities 695,592 653,588
--------------------------
Total liabilities 3,552,993 2,800,134
--------------------------
Shareholders' equity
Share capital, par value $0.01 per share:
Issued and fully paid: 35,184,411 ordinary
shares (2002 - 26,927,456) 352 269
Additional paid- in capital 572,436 416,712
Accumulated other comprehensive income
Unrealized appreciation on
investments, net of tax 22,423 8,930
Other comprehensive income 6,534 4,537
Retained earnings 72,927 60,644
--------------------------
Total shareholders' equity 674,672 491,092
--------------------------
Total liabilities and shareholders' equity $4,227,665 $3,291,226
==========================
Scottish Re Group Limited
Consolidated Statements of Income
(Stated in Thousand of United States Dollars)
(Unaudited)
Three Three Nine Nine
months months months months
ended ended ended ended
September September September September
30, 2003 30, 2002 30, 2003 30, 2002
--------- --------- --------- ---------
Revenues
Premiums earned $92,741 $55,122 $252,296 $124,105
Investment income, net 38,133 28,663 106,272 76,530
Fee income 2,932 1,340 7,303 5,615
Realized gains (losses) 744 (5,929) (4,969) (9,234)
--------- --------- --------- ---------
Total revenues 134,550 79,196 360,902 197,016
--------- --------- --------- ---------
Benefits and expenses
Claims and other policy
benefits 69,424 35,645 177,886 86,276
Interest credited to interest
sensitive contract liabilities 33,294 13,224 66,061 33,543
Acquisition costs and other
insurance expenses 27,593 16,923 76,132 39,792
Operating expenses 8,753 6,386 24,767 16,539
Interest expense 1,869 111 5,533 593
--------- --------- --------- ---------
Total benefits and
expenses 140,933 72,289 350,379 176,743
--------- --------- --------- ---------
Income from continuing
operations before income taxes (6,383) 6,907 10,523 20,273
Income tax benefit (expense) 8,165 199 7,999 (229)
--------- --------- --------- ---------
Income from continuing
operations 1,782 7,106 18,522 20,044
Loss from discontinued
operations (157) (127) (1,782) (218)
--------- --------- --------- ---------
Net income $1,625 $6,979 $16,740 $19,826
========= ========= ========= =========
Scottish Re Group Limited
Supplemental Information - Non-GAAP Financial Measures
Net Operating Earnings and Book Value Per Share
(Stated in Thousand of United States Dollars,
Except Per Share Amounts)
(Unaudited)
Three Three Nine months Nine months
months months ended ended
ended ended September September
September September 30, 2003 30, 2002
30, 2003 30, 2002
----------- ----------- ----------- -----------
Net operating earnings
- ----------------------
Income from continuing
operations $1,782 $7,106 $18,522 $20,044
Realized losses
(gains) - non taxable
companies (1,070) 875 966 1,412
Realized losses -
taxable companies 326 5,054 4,003 7,822
Taxes on realized
gains and losses (196) (1,371) (774) (2,272)
----------- ----------- ----------- -----------
Net operating earnings $842 $11,664 $22,717 $27,006
=========== =========== =========== ===========
Net operating earnings
per share
Basic $0.03 $0.43 $0.78 $1.10
Diluted $0.02 $0.42 $0.74 $1.04
=========== =========== =========== ===========
Weighted average
number of shares
Outstanding
Basic 33,248,670 26,910,907 29,119,913 24,604,864
Diluted 35,225,380 27,943,453 30,667,667 25,958,339
September 30, December 31,
2003 2002
-------------------------------
Book Value Per Share
- ---------------------------------------
Shareholders' equity $674,672 $491,092
Less: Unrealized appreciation on
investments, net of tax 22,423 8,930
-------------------------------
Shareholders' equity excluding effect
of SFAS 115 $652,249 $482,162
===============================
Number of shares outstanding 35,184,411 26,927,456
Book value per share - excluding effect
of SFAS 115 $18.54 $17.91
CONTACT: Scottish Re Group Limited
Scott E. Willkomm, 441-298-4364
scott.willkomm@scottishre.com
SOURCE: Scottish Re Group Limited