Scottish Re Group Limited Announces Operating Results for the Second Quarter
Ended June 30, 2004
HAMILTON, Bermuda--(BUSINESS WIRE)--Aug. 5, 2004--Scottish Re Group Limited
(NYSE:SCT) today reported that income from continuing operations for the quarter
ended June 30, 2004 was $27.6 million, or $0.74 per diluted ordinary share, as
compared to $9.3 million, or $0.33 per diluted ordinary share for the prior year
period. Income from continuing operations for the six months ended June 30, 2004
was $37.6 million, or $1.01 per diluted ordinary share, as compared to $16.7
million, or $0.59 per diluted ordinary share for the prior year period.
Net operating earnings were $17.0 million, or $0.46 per diluted ordinary share
for the quarter ended June 30, 2004 as compared to $12.5 million, or $0.44 per
diluted ordinary share for the prior year period. Net operating earnings were
$33.6 million, or $0.90 per diluted ordinary share for the six months ended June
30, 2004 as compared to $21.9 million, or $0.77 per diluted ordinary 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 and the change in value of embedded derivatives 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.
Net income for the quarter amounted to $27.6 million, or $0.74 per diluted
ordinary share as compared to $7.9 million or $0.28 per diluted ordinary share
for the prior year period. Net income for the six months ended June 30, 2004
amounted to $37.6 million, or $1.01 per diluted ordinary share as compared to
$15.1 million or $0.53 per diluted ordinary share for the prior year period.
"We continue to make significant progress in transitioning the administration of
the ERC block of business we acquired at the end of December. Early in the
second quarter, we assumed control of the claims processing functions and took
the opportunity to ensure that we were up to date with any processing backlogs
and to adapt the function to our systems and procedures," said Michael C.
French, Chairman and Chief Executive Officer of Scottish Re Group Limited . "In
the first quarter, we anticipated that there would be some catch up as we
applied Scottish Re's methods and procedures. However, the financial impact of
the processing backlogs was greater than estimated. As a consequence, we are
reporting operating earnings per share at the low end of our guidance range for
the quarter."
Mr. French added, "Nevertheless, the performance of this block of business has
been consistent with our expectations for the first half of this year."
Total revenue for the quarter increased to $228.8 million from $129.5 million
for the prior year period, an increase of 76%. Excluding realized gains and
losses and the change in fair value of the embedded derivative, total revenue
for the quarter increased to $215.9 million from $132.9 million for the prior
year period, an increase of 62%. Total revenue for the six months ended June 30,
2004 increased to $408.0 million from $226.4 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
$402.3 million from $232.1 million for the prior year period, an increase of
73%.
Total benefits and expenses increased to $203.4 million for the quarter from
$120.3 million, an increase of 69%. For the six months ended June 30, 2004,
total benefits and expenses increased to $371.3 million from $209.4 million, an
increase of 77%. The increases in both total revenues and total benefits and
expenses were principally driven by the acquisition of Scottish Re Life
Corporation (previously ERC Life) and growth in the Company's reinsurance
business in North America.
The Company's total assets were $6.9 billion as of June 30, 2004. The core
investment portfolio, comprising fixed maturity investments, preferred stock and
most of the cash and cash equivalents, totaled $3.0 billion, and had an average
quality rating of "AA-", an effective duration of 3.5 years and a weighted
average book yield of 4.1%. This compares with a portfolio balance of $2.4
billion, an average quality rating of "AA-", effective duration of 3.9 years and
an average book yield of 4.5% as of December 31, 2003.
Funds withheld at interest, totaling $1.5 billion, had an average quality rating
of "A-", an effective duration of 4.9 years and a weighted average book yield
6.3% at June 30, 2004. This compares with a total of $1.5 billion with an
average quality rating of "A-", an effective duration of 5.1 years and an
average book yield of 6.3% at December 31, 2003. The market value of the funds
withheld at interest amounted to $1.5 billion at June 30, 2004.
"While we are reporting operating earnings per share at the low end of our
guidance range for the quarter, our guidance for the full year of $2.10 to $2.30
per share has not changed," said Scott E. Willkomm, President of Scottish Re
Group Limited . "Furthermore, our 15% return on equity objective remains
achievable by 2006."
As of June 30, 2004, the Company had approximately $298 billion of life
reinsurance in force covering 7.4 million lives with an average benefit per life
of $50,000 in our North American operations. As of December 31, 2003, the
Company had reinsurance in-force of approximately $275 billion on 6.2 million
lives with an average benefit per life of $43,000. Mortality experience in the
quarter was in line with expectations.
The Company's book value per share was $18.66 at June 30, 2004 as compared to
$18.73 per share at December 31, 2003.
The Company's earnings conference call will be held at 11:00 a.m (EDT) on
Thursday, August 5, 2004. The dial-in number is (703) 639-1201 or (866) 252-0351
and the reservation number is 515174. A replay of the call will be available
beginning at 3:00 p.m. on Thursday, August 5, 2004 and running through Thursday,
August 19, 2004. The dial-in number for the replay is (703) 925-2533 or (888)
266-2081 and the PIN code is 515174. 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 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, Scottish Re Limited, which is rated A-
(excellent) by A.M. Best, A (strong) by Fitch Ratings and A- (strong) by
Standard & Poor's and Scottish Re Life Corporation Limited which is rated
A-(excellent) by A.M. Best. 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 Six months Six months
months months ended ended
ended ended June 30, June 30,
June 30, June 30, 2004 2003
2004 2003
--------------------------------------------
Total revenue $228,813 $129,539 $407,989 $226,352
Net operating earnings (a) 16,995 12,455 33,610 21,875
Income from continuing
operations 27,555 9,317 37,648 16,740
Net income 27,555 7,872 37,648 15,115
Net operating earnings per
share
Basic $0.48 $0.46 $0.95 $0.81
Diluted $0.46 $0.44 $0.90 $0.77
Earnings per share from
continuing operations
Basic $0.77 $0.34 $1.06 $0.62
Diluted $0.74 $0.33 $1.01 $0.59
Earnings per share
Basic $0.77 $0.29 $1.06 $0.56
Diluted $0.74 $0.28 $1.01 $0.53
Dividends per share $0.05 $0.05 $0.10 $0.10
Weighted average ordinary
shares
Outstanding
Basic 35,747,254 27,101,357 35,537,458 27,038,103
Diluted 37,328,448 28,536,448 37,279,282 28,333,354
(a) Excludes effect of realized gains and losses, change in value of embedded
derivative, amortization of related deferred acquisition costs and losses from
discontinued operations.
June 30, December
2004 31, 2003
----------------------
Book value per share - including effect of SFAS
115 and fair value of derivatives $18.66 $18.73
Book value per share - excluding effect of SFAS
115 and fair value of derivatives $19.17 $18.51
Consolidated Balance Sheets
(Stated in Thousands of United States Dollars)
2004 31, 2003
----------------------
Assets
Fixed maturity investments $2,548,635 $2,014,719
Preferred stock 134,139 126,449
Cash and cash equivalents 270,503 298,149
Other investments 16,755 17,678
Funds withheld at interest 1,474,287 1,469,425
----------------------
Total investments 4,444,319 3,926,420
Accrued interest receivable 26,408 22,789
Reinsurance balances and risk fees receivable 321,824 196,192
Deferred acquisition costs 391,049 308,591
Amounts recoverable from reinsurers 746,161 737,429
Present value of inforce business 11,922 13,479
Goodwill 35,847 35,847
Fixed assets 12,615 11,800
Other assets 56,095 45,209
Deferred tax benefit 32,348 12,624
Segregated assets 794,020 743,137
----------------------
Total assets $6,872,608 $6,053,517
======================
Liabilities
Reserves for future policy benefits $1,683,686 $1,502,415
Interest sensitive contract liabilities 3,220,301 2,633,346
Accounts payable and accrued expenses 25,836 31,673
Reinsurance balances payable 105,452 125,756
Other liabilities 23,025 30,546
Current income tax payable 5,991 13,077
Long term debt 194,500 162,500
Segregated liabilities 794,020 743,137
----------------------
Total liabilities 6,052,811 5,242,450
----------------------
Minority Interest 9,188 9,295
Mezzanine Equity 142,145 141,928
Shareholders' equity
Share capital, par value $0.01 per share:
Issued and fully paid: 35,828,462 ordinary
shares (2003 - 35,228,411) 358 352
Additional paid- in capital 555,445 548,750
Accumulated other comprehensive income
Unrealized appreciation (depreciation) on
investments, net of tax (15,261) 16,848
Other comprehensive income 12,122 12,186
Retained earnings 115,800 81,708
----------------------
Total shareholders' equity 668,464 659,844
----------------------
Total liabilities and shareholders' equity $6,872,608 $6,053,517
======================
Scottish Re Group Limited
Consolidated Statements of Income
(Stated in Thousand of United States Dollars)
Three Three Six Six
months months months months
ended ended ended ended
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
-----------------------------------
Revenues
Premiums earned $157,884 $94,737 $291,231 $159,556
Investment income, net 54,817 35,814 104,919 68,138
Fee income 3,189 2,380 6,141 4,371
Realized losses (1,687) (3,392) (266) (5,713)
Change in value of embedded
derivatives 14,610 - 5,964 -
-----------------------------------
Total revenues 228,813 129,539 407,989 226,352
-----------------------------------
Benefits and expenses
Claims and other policy benefits 123,975 65,549 219,142 108,463
Interest credited to interest
sensitive
contract liabilities 25,465 16,874 49,658 32,767
Acquisition costs and other
insurance expenses 40,100 27,884 72,969 48,539
Operating expenses 10,901 8,148 23,755 16,013
Interest expense 2,996 1,851 5,773 3,664
-----------------------------------
Total benefits and expenses 203,437 120,306 371,297 209,446
-----------------------------------
Income before income taxes and
minority interest 25,376 9,233 36,692 16,906
Income tax benefit (expense) 2,168 84 1,294 (166)
-----------------------------------
Income from continuing operations
before minority interest 27,544 9,317 37,986 16,740
Minority interest 11 - (338) -
-----------------------------------
Income from continuing operations 27,555 9,317 37,648 16,740
Loss from discontinued operations - (1,445) - (1,625)
-----------------------------------
Net income $27,555 $7,872 $37,648 $15,115
===================================
Scottish Re Group Limited
Supplemental Information - Net Operating Earnings
and Book Value Per Share
(Stated in Thousand of United States Dollars,
Except Per Share Amounts)
Three Three Six months Six months
months months ended June ended June
ended ended 30, 2004 30, 2003
June 30, June 30,
2004 2003
--------------------------------------------
Net operating earnings
- --------------------------
Income from continuing
operations $27,555 $9,317 $37,648 $16,740
Realized losses (gains)-
non taxable companies (534) 968 1,587 2,036
Realized losses (gains) -
taxable companies 2,221 2,424 (1,321) 3,677
Change in value of
embedded derivatives -
non taxable companies (33) -- 258 --
Change in value of
embedded derivatives -
taxable companies (14,577) -- (6,222) --
Taxes on realized
gains/losses and change
in value of embedded
derivatives 2,363 (254) 1,660 (578)
--------------------------------------------
Net operating earnings $16,995 $12,455 $33,610 $21,875
============================================
Net operating earnings per
share
Basic $0.48 $0.46 $0.95 0.81
Diluted $0.46 $0.44 $0.90 0.77
============================================
Weighted average number of
shares
Outstanding
Basic 35,747,254 27,101,357 35,537,458 27,038,103
Diluted 37,328,448 28,536,448 37,279,282 28,333,354
June 30, December
2004 31, 2003
----------------------
Book Value Per Share
- ------------------------------------------------
Shareholders' equity $668,464 $659,844
Unrealized depreciation (appreciation) on
investments, net of taxes 15,261 (16,848)
Fair value of embedded derivatives 3,084 9,049
----------------------
Total $686,809 $652,045
======================
Number of shares 35,828,462 35,228,411
Book value per share - excluding effect of SFAS
115 and fair value of embedded derivatives
$ 19.17 $ 18.51