Scottish Re Group Limited Announces Operating Results for the Fourth Quarter and
Year Ended December 31, 2003
HAMILTON, Bermuda--(BUSINESS WIRE)--Feb. 12, 2004--Scottish Re Group Limited
(NYSE:SCT) today reported that income from continuing operations for the quarter
ended December 31, 2003 was $30.3 million, or $0.82 per diluted share, as
compared to $13.2 million, or $0.47 per diluted share for the prior year period.
Net operating earnings were $18.3 million, or $0.50 per diluted share for the
quarter ended December 31, 2003 as compared to $14.3 million, or $0.51 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
reinsurance business. However, net operating earnings are not a substitute for
income from continued operations determined in accordance with GAAP.
Income from continuing operations for the year ended December 31, 2003 was $48.8
million, or $1.52 per diluted share, compared to $33.2 million, or $1.25 per
diluted share for the prior year period. Net operating earnings for the year
ended December 31, 2003 amounted to $41.0 million, or $1.27 per diluted share
compared to $41.3 million, or $1.56 per diluted share for the prior year period.
Net income for the quarter, including the results of the discontinued Luxembourg
operations and the cumulative effect of the change in accounting principle
amounted to $10.5 million, or $0.29 per diluted share as compared to $12.7
million or $0.45 per diluted share for the prior year period. Net income for the
year ended December 31, 2003 was $27.3 million or $0.85 per diluted share,
compared to $32.5 million, or $1.23 per diluted share in the prior year period.
During the quarter, the Company adopted Derivatives Implementation Group
Implementation Issue No. 36, "Embedded Derivatives: Bifurcation of a Debt
Instrument that Incorporates Both Interest Rate Risk and Credit Rate Risk
Exposures that are Unrelated or Only Partially Related to the Credit worthiness
of the Issuer of the Instrument." The initial adoption has resulted in a loss,
after tax and after related amortization of deferred acquisition costs of $19.5
million. This has been recorded as a cumulative effect of change in accounting
principle in our consolidated statement of income for the quarter and year ended
December 31, 2003. The change in fair value of the derivative for the quarter
was a gain of $13.9 million, net of related amortization of deferred acquisition
costs.
During 2003, the Company also 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 $49,000 and $207,000 in the three months and year ended December 31, 2003,
respectively.
"With this earnings report, we complete our fifth year in the life reinsurance
business on a favorable note," said Michael C. French, Chairman and Chief
Executive Officer of Scottish Re Group Limited. "Clearly, the Company has
recovered from a disappointing third quarter and is exceptionally well
positioned to deliver earnings growth, book value per share growth and expanding
returns on equity consistent with our long-term plans to build value for all
shareholders."
Total revenue for the quarter increased to $196.5 million from $109.2 million
for the prior year period, an increase of 80%. Excluding realized gains and
losses and the change in fair value of the embedded derivative, total revenue
for the quarter increased to $182.0 million from $110.8 million for the prior
year period, an increase of 64%. Total revenue for the year increased to $557.4
million from $306.2 million, an increase of 82%. Total revenue for the year,
excluding realized gains and losses and the change in value of embedded
derivatives, increased from $317.0 million to $547.9 million, an increase of
73%. Total benefits and expenses increased to $169.2 million for the quarter
from $98.1 million, an increase of 72%, and to $519.6 million from $274.9
million for the year, an increase of 89%. The increases were principally driven
by the growth in the Company's reinsurance business both in North America and in
our International operations.
The Company's total assets were $6.1 billion as of December 31, 2003. This
includes approximately $1.4 billion of assets arising on the acquisition of ERC
Life. The core investment portfolio, comprising fixed maturity investments and
most of the cash and cash equivalents, totaled $2.4 billion, and had an average
quality rating of "AA-", an effective duration of 3.9 years and a weighted
average book yield of 4.5%. This compares with a portfolio balance of $1.1
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 $1.5 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 December 31, 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 $1.6 billion at December 31, 2003.
During the quarter, the Company privately placed $30 million of trust preferred
securities. In December we completed a public offering of 5,750,000 Hybrid
Capital Units ("HyCUs"), which included an over allotment option of 750,000
HyCUs. The net proceeds of the offering were $138.2 million. Each HyCU consists
of a forward purchase contract issued by the Company and a convertible preferred
share redeemable on May 21, 2007.
"Over the past five years we have successfully built a leading global life
reinsurance specialist," said Scott E. Willkomm, President of Scottish Re Group
Limited. "We have the people, the knowledge and the financial resources to
capitalize on favorable market opportunities to grow our business and produce
superior risk adjusted returns."
As of December 31, 2003, the Company had approximately $275 billion of life
reinsurance in force covering 6.2 million lives with an average benefit per life
of $43,000 in our North American operations. This includes $156 billion of in
force arising on the acquisition of ERC Life. As of December 31, 2002, the
Company had approximately $68.0 billion of life reinsurance in force covering
1,387,000 lives.
The Company's book value per share was $18.73 at December 31, 2003 as compared
to $18.24 per share at December 31, 2002.
On December 22, 2003, we completed the acquisition of 95% of the outstanding
capital stock of ERC Life Reinsurance Corporation, which we refer to as ERC
Life, for $151 million in cash, subject to certain closing adjustments. ERC Life
was a subsidiary of General Electric's Employers Reinsurance Corporation.
The Company's earnings conference call will be held at 11.00 a.m on Thursday,
February 12, 2004. The dial-in number is (703) 871-3096 or (888) 747-3526 and
the reservation number is 370621. A replay of the call will be available
beginning at 3:00 pm on Thursday, February 12, 2004 and running through
Thursday, March 4, 2004. The dial-in number for the replay is (703) 925-2533 or
(888) 266-2081 and the PIN code is 370621. 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, http://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, http://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.
Scottish Re Group Limited
Financial Highlights
(Stated in Thousands of United States Dollars, Except Per Share Data)
- ----------------------------------------------------------------------
Three Three
months months
ended ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2003 2002 2003 2002
-------- -------- -------- --------
Total revenue $196,464 $109,196 $557,366 $306,212
Net operating
earnings(1) 18,329 14,338 41,047 41,345
Income from continuing
operations 30,266 13,191 48,788 33,235
Net income 10,540 12,698 27,280 32,524
Net operating earnings
per share
Basic $0.52 $0.53 $1.34 $1.64
Diluted $0.50 $0.51 $1.27 $1.56
Earnings per share from
continuing operations
Basic $0.86 $0.49 $1.59 $1.32
Diluted $0.82 $0.47 $1.51 $1.25
Earnings per share
Basic $0.30 $0.47 $0.89 $1.29
Diluted $0.29 $0.45 $0.85 1.23
Dividends per share $0.05 $0.05 $0.20 $0.20
Weighted average shares
Outstanding
Basic 35,201,157 26,927,456 30,652,719 25,190,283
Diluted 36,919,283 28,128,344 32,228,001 26,505,611
(1) Excludes effect of realized gains (losses), change in value of embedded
derivatives, amortization of related deferred acquisition costs and losses from
discontinued operations.
Dec. 31, Dec. 31,
2003 2002
---------- ----------
Book value per share -
including effect of SFAS
115 and fair value of
derivatives $ 18.73 $18.24
Book value per share -
excluding effect of SFAS
115 and fair value of
derivatives $ 18.51 $17.91
Scottish Re Group Limited
Consolidated Balance Sheets
(Stated in Thousands of United States Dollars)
Dec. 31, Dec. 31,
2003 2002
---------- ----------
Assets
Fixed maturity investments $2,014,719 $1,003,946
Preferred stock 126,449 --
Investment in unit-linked securities -- 16,497
Cash and cash equivalents 298,149 149,666
Other investments 17,678 5,631
Funds withheld at interest 1,469,425 1,101,836
----------------------
Total investments 3,926,420 2,277,576
Accrued interest receivable 22,789 11,910
Reinsurance balances and risk fees receivable 196,192 39,805
Deferred acquisition costs 308,591 213,516
Amounts recoverable from reinsurers 737,429 22,608
Present value of inforce business 13,479 18,181
Goodwill 35,847 35,847
Fixed assets 11,800 6,493
Other assets 45,209 11,702
Deferred tax benefit 11,724 --
Segregated assets 743,137 653,588
----------------------
Total assets $6,052,617 $3,291,226
======================
Liabilities
Reserves for future policy benefits $1,502,415 $386,807
Interest sensitive contract liabilities 2,633,346 1,567,176
Unit-linked contract liabilities -- 17,069
Accounts payable and accrued expenses 31,673 15,702
Reinsurance balances payable 125,756 16,348
Other liabilities 30,546 --
Deferred tax liability -- 9,071
Current income tax payable 12,177 1,873
Long term debt 162,500 132,500
Segregated liabilities 743,137 653,588
----------------------
Total liabilities 5,241,550 2,800,134
----------------------
Minority Interest 9,295 --
Mezzanine Equity 141,928 --
Shareholders' equity
Share capital, par value $0.01 per share:
Issued and fully paid: 35,228,411 ordinary
shares (2002 - 26,927,456) 352 269
Additional paid- in capital 548,750 416,712
Accumulated other comprehensive income
Unrealized appreciation on investments, net of
tax 16,848 8,930
Other comprehensive income 12,186 4,537
Retained earnings 81,708 60,644
----------------------
Total shareholders' equity 659,844 491,092
----------------------
Total liabilities and shareholders' equity $6,052,617 $3,291,226
======================
Scottish Re Group Limited
Consolidated Statements of Income
(Stated in Thousands of United States Dollars)
Three Three
months months
ended ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2003 2002 2003 2002
--------------------------------------------
Revenues
Premiums earned $139,679 $78,432 $391,976 $202,536
Investment income, net 41,756 31,376 148,028 107,906
Fee income 604 958 7,907 6,574
Realized gains (losses) 522 (1,570) (4,448) (10,804)
Change in value of embedded
derivatives 13,903 -- 13,903 --
--------------------------------------------
Total revenues 196,464 109,196 557,366 306,212
--------------------------------------------
Benefits and expenses
Claims and other
policy benefits 97,977 55,882 275,863 142,158
Interest credited to
interest sensitive
contract liabilities 23,119 14,597 89,180 48,140
Acquisition costs and other
insurance expenses 39,868 20,281 116,000 60,073
Operating expenses 6,254 6,548 31,021 23,086
Interest expense 2,024 821 7,557 1,414
--------------------------------------------
Total benefits
and expenses 169,242 98,129 519,621 274,871
--------------------------------------------
Income from continuing
operations before
income taxes and
minority interest 27,222 11,067 37,745 31,341
Income tax benefit 3,106 2,124 11,105 1,894
--------------------------------------------
Income from continuing
operations before
minority interest 30,328 13,191 48,850 33,235
Minority interest (62) -- (62) --
--------------------------------------------
Income from continuing
operations 30,266 13,191 48,788 33,325
Loss from discontinued
operations (189) (493) (1,971) (711)
Cumulative effect of change
in accounting principle (19,537) -- (19,537) --
--------------------------------------------
Net income $10,540 $12,698 $27,280 $32,524
============================================
Scottish Re Group Limited
Supplemental Information -
Net Operating Earnings and Book Value Per Share
(Stated in Thousands of United States Dollars, Except Per Share
Amounts)
Three Three
months months
ended ended Year ended Year ended
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2003 2002 2003 2002
--------------------------------------------
Net operating earnings
- ----------------------
Income from continuing
operations $30,266 $13,191 $48,789 $33,235
Realized losses (gains) -
non taxable companies (281) 310 685 1,722
Realized losses (gains) -
taxable companies (240) 1,259 3,763 9,082
Change in value of
embedded derivatives -
non taxable companies (388) -- (388) --
Change in value of
embedded derivatives -
taxable companies (13,516) -- (13,516) --
Taxes on realized
gains/losses and change
in value of embedded
derivatives 2,488 (422) 1,714 (2,694)
--------------------------------------------
Net operating earnings $18,329 $14,338 $41,047 $41,345
============================================
Net operating earnings per
share
Basic $0.52 $0.53 $1.34 $1.64
Diluted $0.50 $0.51 $1.27 $1.56
Weighted average number of shares
Outstanding
Basic 35,201,157 26,927,456 30,652,719 25,190,283
Diluted 36,919,283 28,128,344 32,228,001 26,505,611
Dec. 31, Dec. 31,
2003 2002
----------------------
Book Value Per Share
- --------------------
Shareholders' equity $659,844 $491,092
Unrealized appreciation on investments,
net of tax (16,848) (8,930)
Fair value of embedded derivatives 9,049 --
----------------------
Total $652,045 $482,162
======================
No. of shares 35,228,411 26,927,456
Book value per share - excluding effect of SFAS
115 and fair value of embedded derivatives $ 18.51 $17.91
CONTACT: Scottish Re Group Limited, Hamilton
Scott E. Willkomm, 441-298-4364
scott.willkomm@scottishre.com
SOURCE: Scottish Re Group Limited