Unaudited Pro Forma Consolidated Statement of Income
The following unaudited pro forma consolidated statement of operations for the
year ended December 31, 2003 presents operating results of Scottish Re Group
Limited (Scottish Re) as if the acquisition of ERC Life Reinsurance Corporation
(ERC Life) had occurred on January 1, 2003. Pro forma adjustments are based on
available information and certain assumptions that management of Scottish Re
believes are reasonable. The unaudited pro forma consolidated financial
information should be read in conjunction with other financial information
incorporated by reference in this Form 8K/A. The unaudited pro forma
consolidated financial information is not intended to be indicative of the
consolidated results of operations that would have been reported if the
acquisition had occurred at January 1, 2003 or of the consolidated results of
future operations.
Year Ended December 31, 2003
Scottish Re ERC Life Adjustments Pro Forma
Combined
------------------------------------------------------------------
Premiums earned $384,520 $182,749 $567,269
Investment income,net 147,697 37,806 (17,151) (1) 168,352
Realized gains (losses) (4,448) 1,644 7,045 (2) 4,241
Change in value of embedded derivatives 13,903 - 13,903
Fee income 7,823 6,632 14,455
------------------------------------------------------------------
549,495 228,831 (10,106) (3) 768,220
------------------------------------------------------------------
Claims and other policy benefits 271,468 153,861 425,329
Interest credited to interest sensitive contract liabilitues 89,180 - 89,180
Acquisition costs and other insurance expenses, net 114,509 37,636 (10,264) (3) 141,881
Operating expenses
30,922 8,470 39,392
Interest expense 7,557 - 7,557
------------------------------------------------------------------
513,636 199,967 (10,264) (3) 703,339
------------------------------------------------------------------
Income before income taxes and minority interest 35,859 28,864 158 64,881
Taxes 11,746 (7,977) 56 (4) 3,825
------------------------------------------------------------------
Income before minority interest 47,605 20,887 214 68,706
Minority interest (1,055) (5) (1,055)
------------------------------------------------------------------
Income from continuing operations before cumulative
effect of change in accounting principle $ 47,605 $ 20,887 $ (841) $ 67,651
==================================================================
Earnings per share from continuing operations before
cumulative effect of change in accounting principles
Basic $ 1.55 $ 2.21
Diluted $ 1.48 $ 2.10
Weighted average shares outstanding
Basic 30,652,719 30,652,719
Diluted 32,228,001 32,228,001
(1) Prior to the acquisition of ERC Life by Scottish Re, ERC Life made certain
dividend payments. The estimated investment income adjustment has been
calculated to eliminate investment income assumed to have been earned on funds
used to pay these dividends and is based on a yield of 5.3%.
(2) The adjustment to realized gains(losses) is in respect of gains arising on
investments sold to fund the dividends described in Note 1.
(3) Acquisition costs and other insurance expenses include the amortization of
deferred acquisition costs. Under purchase accounting the total purchase is
allocated to the acquired assets and liabilities based on their fair values.
Deferred acquisition costs of ERC Life have no fair value and therefore there
will be no amortization subsequent to the acquisition.
(4) This adjustment is the tax effect of the items discussed in Notes 1, 2 and 3
at an effective tax rate of 35%.
(5) Scottish Re acquired 95% of ERC Life. This adjustment is the minority
interest of 5%.