Scottish Re Group Limited Announces Operating Results for the Third
Quarter Ended September 30, 2004
HAMILTON, Bermuda--(BUSINESS WIRE)--Nov. 4, 2004--Scottish Re Group Limited
(NYSE:SCT) today reported that income from continuing operations for the quarter
ended September 30, 2004 was $12.8 million, or $0.34 per diluted ordinary share,
as compared to $1.8 million, or $0.05 per diluted ordinary share for the prior
year period. Income from continuing operations for the nine months ended
September 30, 2004 was $50.5 million, or $1.35 per diluted ordinary share, as
compared to $18.5 million, or $0.60 per diluted ordinary share for the prior
year period.
Net operating earnings were $20.0 million, or $0.54 per diluted ordinary share
for the quarter ended September 30, 2004 as compared to $0.8 million, or $0.02
per diluted ordinary share for the prior year period. Net operating earnings
were $53.7 million, or $1.44 per diluted ordinary share for the nine months
ended September 30, 2004 as compared to $22.7 million, or $0.74 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 $12.8 million, or $0.34 per diluted
ordinary share as compared to $1.6 million or $0.05 per diluted ordinary share
for the prior year period. Net income for the nine months ended September 30,
2004 amounted to $50.5 million, or $1.35 per diluted ordinary share as compared
to $16.7 million or $0.55 per diluted ordinary share for the prior year period.
"We are pleased to report that we continue to successfully grow our business
both organically and through acquisitions," said Michael C. French, Chairman and
Chief Executive Officer of Scottish Re Group Limited . "For the quarter and nine
month period ended September 30, 2004, the ERC acquisition contributed net
operating earnings in line with our expectations for that business."
Mr. French added, "Clearly, the Company 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 $198.1 million from $134.6 million
for the prior year period, an increase of 47%. Excluding realized gains and
losses and the change in fair value of the embedded derivative, total revenue
for the quarter increased to $207.0 million from $133.8 million for the prior
year period, an increase of 55%. Total revenue for the nine months ended
September 30, 2004 increased to $606.1 million from $360.9 million for the prior
year period, an increase of 68%. Excluding realized gains and losses and the
change in fair value of the embedded derivative, total revenue for the nine
months ended September 30, 2004 increased to $609.3 million from $365.9 million
for the prior year period, an increase of 67%.
Total benefits and expenses increased to $189.5 million for the quarter from
$140.9 million, an increase of 34%. For the nine months ended September 30,
2004, total benefits and expenses increased to $560.8 million from $350.4
million, an increase of 60%. 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 September 30, 2004. The core
investment portfolio, comprising fixed maturity investments, preferred stock and
most of the cash and cash equivalents, totaled $3.1 billion, and had an average
quality rating of "AA-", an effective duration of 3.3 years and a weighted
average book yield of 4.3%. 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 4.8 years and a weighted average book yield
6.2% at September 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 September 30, 2004.
As of September 30, 2004, the Company had approximately $307.4 billion of life
reinsurance in force covering 7.5 million lives with an average benefit per life
of $41,000 in our North American operations. As of December 31, 2003, the
Company had approximately $275.0 billion of life reinsurance in force covering
6.2 million lives with an average benefit per life of $43,000.
"Our operating expenses were approximately $0.02 to $0.03 higher than expected
due to professional fees incurred in the quarter related to Sarbanes-Oxley
Section 404 implementation," said Scott E. Willkomm, President of Scottish Re
Group Limited . "Our mortality experience continues to be favorable, with actual
experience in the third quarter of the year at about 98% of expected levels."
The Company's book value per share was $20.08 at September 30, 2004 as compared
to $18.73 per share at December 31, 2003.
On October 18, 2004, the Company announced that it had agreed to acquire the
individual life reinsurance business of ING Re. Scottish Re will reinsure the
liabilities of all of ING Re's individual life reinsurance business through a
coinsurance transaction. ING Re will transfer to Scottish Re assets equal to
reserves of approximately $800.0 million and will pay a ceding commission of
$560.0 million. These assets will be held in trust to secure the reserve
obligations of the business. Additionally, ING Re will transfer certain
operating assets associated with the business. Following the acquisition, the
Company will have approximately $1 trillion of face amount of life reinsurance
in-force, $8.8 billion in assets, $2.1 billion in revenues and a capital base of
approximately $1.3 billion.
In addition to the assets to be transferred by ING Re, the Company will raise an
additional $230.0 million in new capital, which will satisfy the capital
requirements for the acquired business. This new capital includes $180.0 million
to be provided by The Cypress Group, a private equity firm, and an additional
$50 million of trust preferred securities.
During the quarter ended September 30, 2004, EITF 04-8 "The Effect of
Contingently Convertible Debt on Diluted Earnings Per Share" was issued. EITF
04-8 requires that certain instruments with embedded conversion features that
are contingent upon market price triggers be included in diluted earnings per
share calculations regardless of whether the contingency has been met. The
Company's 4.5% senior convertible notes are convertible on the basis of a market
price trigger. On October 26, 2004, the Company amended the terms of these notes
so that we are required to settle the principal amount of $115.0 million in
cash. As a result we shall continue to apply the treasury stock method in
calculating diluted earnings per share for amounts in excess of the principal of
$115.0 million.
The Company's earnings conference call will be held at 11.00 a.m (EDT) on,
Thursday, November 4, 2004. The dial-in number is (703) 679-5950 or (877)
502-2902 and the reservation number is 1298568. A replay of the call will be
available beginning at 1:00 pm on Thursday, November 4, 2004 and running through
Thursday, November 18, 2004. The dial-in number for the replay is (706) 645-9291
or (800) 642-1687 and the PIN code is 1298568. 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.
Scottish Re Group Limited
Financial Highlights
(Stated in Thousands of United States Dollars, Except Per Share Data)
---------------------------------------------------------------------
(Unaudited)
-----------
Three months ended Nine months ended
--------------------------------------------
September September September September
30, 2004 30, 2003 30, 2004 30, 2003
--------------------------------------------
Total revenue $198,144 $134,550 $606,134 $360,902
Net operating earnings(a) 20,046 842 53,656 22,717
Income from continuing
operations 12,806 1,782 50,455 18,522
Net income 12,806 1,625 50,455 16,740
Net operating earnings per
share
Basic $0.56 $0.03 $1.51 $0.78
Diluted $0.54 $0.02 $1.44 $0.74
Earnings per share from
continuing operations
Basic $0.36 $0.05 $1.42 $0.64
Diluted $0.34 $0.05 $1.35 $0.60
Earnings per share
Basic $0.36 $0.05 $1.42 $0.57
Diluted $0.34 $0.05 $1.35 $0.55
Dividends per share $0.05 $0.05 $0.15 $0.15
Weighted average ordinary
shares
Outstanding
Basic 35,869,413 33,248,670 35,648,913 29,119,913
Diluted 37,244,288 35,240,768 37,268,420 30,647,580
(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.
September December
30, 2004 31, 2003
----------------------
Book value per share -
including effect of SFAS
115 and fair value of
derivatives $20.08 $18.73
Book value per share -
excluding effect of SFAS
115 and fair value of
derivatives $19.68 $18.51
Consolidated Balance Sheets
(Stated in Thousands of United States Dollars)
September 30, December 31,
2004 2003
------------- -------------
Assets
Fixed maturity investments $2,797,450 $2,014,719
Preferred stock 125,082 126,449
Cash and cash equivalents 191,016 298,149
Other investments 16,412 17,678
Funds withheld at interest 1,477,870 1,469,425
------------- -------------
Total investments $4,607,830 $3,926,420
Accrued interest receivable 24,159 22,789
Reinsurance balances and risk fees
receivable 290,763 196,192
Deferred acquisition costs 411,540 308,591
Amounts recoverable from reinsurers 703,288 737,429
Present value of inforce business 38,349 13,479
Goodwill 34,125 35,847
Fixed assets 12,242 11,800
Other assets 11,999 45,209
Current income tax receivable 10,716 -
Deferred tax benefit 8,913 12,624
Segregated assets 740,220 743,137
------------- -------------
Total assets $6,894,144 $6,053,517
============= =============
Liabilities
Reserves for future policy benefits $1,603,840 $1,502,415
Interest sensitive contract liabilities 3,136,930 2,633,346
Structured finance facility liability 200,000 -
Accounts payable and accrued expenses 23,223 31,673
Reinsurance balances payable 93,678 125,756
Other liabilities 28,932 30,546
Current income tax payable - 13,077
Long term debt 194,500 162,500
Segregated liabilities 740,220 743,137
------------- -------------
Total liabilities 6,021,323 5,242,450
------------- -------------
Minority Interest 9,535 9,295
Mezzanine Equity 142,296 141,928
Shareholders' equity
Share capital, par value $0.01 per share:
Issued and fully paid: 35,905,962 ordinary
shares (2003 - 35,228,411) 359 352
Additional paid- in capital 556,173 548,750
Accumulated other comprehensive income
Unrealized appreciation on investments, net
of tax 23,633 16,848
Other comprehensive income 14,011 12,186
Retained earnings 126,814 81,708
------------- -------------
Total shareholders' equity 720,990 659,844
------------- -------------
Total liabilities and shareholders' equity $6,894,144 $6,053,517
============= =============
Scottish Re Group Limited
Consolidated Statements of Income
(Stated in Thousand of United States Dollars)
Three months ended Nine months ended
---------------------- ---------------------
September September September September
30, 2004 30, 2003 30, 2004 30, 2003
----------- ---------- ---------- ----------
Revenues
Premiums earned $148,987 $92,741 $440,217 $252,296
Investment income, net 55,519 38,133 160,439 106,272
Fee income 2,545 2,932 8,686 7,303
Realized (losses) gains (3,398) 744 (3,664) (4,969)
Change in value of
embedded derivatives (5,509) - 456 -
----------- ---------- ---------- ----------
Total revenues 198,144 134,550 606,134 360,902
----------- ---------- ---------- ----------
Benefits and expenses
Claims and other policy
benefits 104,970 69,424 324,112 177,886
Interest credited to
interest sensitive
contract liabilities 27,685 33,294 77,342 66,061
Acquisition costs and
other insurance expenses 40,312 27,593 113,282 76,132
Operating expenses 13,214 8,753 36,969 24,767
Interest expense 3,352 1,869 9,126 5,533
----------- ---------- ---------- ----------
Total benefits and
expenses 189,533 140,933 560,831 350,379
----------- ---------- ---------- ----------
Income (loss) before
income taxes and minority
interest 8,611 (6,383) 45,303 10,523
Income tax benefit
(expense) 4,212 8,165 5,507 7,999
----------- ---------- ---------- ----------
Income from continuing
operations before
minority interest 12,823 1,782 50,810 18,522
Minority interest (17) - (355) -
----------- ---------- ---------- ----------
Income from continuing
operations 12,806 1,782 50,455 18,522
Loss from discontinued
operations - (157) - (1,782)
----------- ---------- ---------- ----------
Net income $12,806 $1,625 $50,455 $16,740
=========== ========== ========== ==========
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 months ended Nine months ended
---------------------- ---------------------
September September September September
30, 2004 30, 2003 30, 2004 30, 2003
----------- ---------- ---------- ----------
Net operating earnings
- --------------------------
Income from continuing
operations $12,806 $1,782 $50,455 $18,522
Realized losses (gains):
non taxable companies 3,012 (1,070) 4,599 966
taxable companies 386 326 (935) 4,003
Change in value of embedded derivatives:
non taxable companies 101 -- 359 --
taxable companies 5,407 -- (815) --
Taxes on above items (1,666) (196) (7) (774)
----------- ---------- ---------- ----------
Net operating earnings $20,046 $842 $53,656 $22,717
=========== ========== ========== ==========
Net operating earnings per
share
Basic $0.56 $0.03 $1.51 $0.78
Diluted $0.54 $0.02 $1.44 $0.74
Weighted average number of
shares Outstanding
Basic 35,869,413 33,248,670 35,648,913 29,119,913
Diluted 37,244,288 35,240,768 37,268,420 30,647,580
September 30, December 31,
2004 2003
------------- ------------
Book Value Per Share
- --------------------
Shareholders' equity $720,990 $659,844
Unrealized appreciation on
investments, net of taxes (23,633) (16,848)
Fair value of embedded derivatives 9,268 9,049
--------------------------
Total $706,625 $652,045
==========================
Number of shares 35,905,962 35,228,411
Book value per share - excluding effect of
SFAS 115 and fair value of embedded
derivatives $ 19.68 $ 18.51
Scottish Re Group Limited
Supplemental Information - Segment Operating Results
(Stated in Thousand of United States Dollars)
Life Reinsurance North America
Three months ended Nine months ended
----------------------------------------
September September September September
30, 2004 30, 2003 30, 2004 30, 2003
---------- --------- --------- ---------
Premiums earned $119,468 $62,446 $352,340 $158,471
Investment income, net 53,250 34,889 151,636 97,169
Fee income 1,445 2,128 5,795 4,523
Realized (losses) gains (1,289) 395 (1,149) (4,656)
Change in value of embedded
derivatives (5,509) - 456 -
---------- --------- --------- ---------
Total revenues 167,365 99,858 509,078 255,507
---------- --------- --------- ---------
Claims and other policy
benefits 88,070 46,559 266,147 118,785
Interest credited to interest
sensitive contract
liabilities 27,685 33,294 77,342 66,061
Acquisition costs and other
insurance expenses, net 35,374 21,634 100,611 55,900
Operating expenses 4,437 2,404 13,543 6,819
Interest expense 1,266 235 2,892 712
---------- --------- --------- ---------
Total benefits and expenses 156,832 104,126 460,535 248,277
---------- --------- --------- ---------
Income before income taxes
and minority interest 10,533 (4,268) 48,543 7,230
Income taxes 5,828 8,176 6,751 9,399
---------- --------- --------- ---------
Income before minority
interest $16,361 $3,908 $55,294 $16,629
========== ========= ========= =========
Net operating earnings
- ----------------------
Income from continuing
operations $16,344 $3,908 $54,939 $16,629
Realized losses (gains):
non taxable companies 836 (632) 2,351 1,615
taxable companies 454 237 (1,202) 3,041
Change in value of embedded
derivatives:
non taxable companies 101 - 359 -
taxable companies 5,407 - (815) -
Taxes on above items (1,691) (169) 44 (605)
---------- --------- --------- ---------
Net operating earnings $21,451 $3,344 $55,676 $20,680
========== ========= ========= =========
Scottish Re Group Limited
Supplemental Information - Segment Operating Results (continued)
(Stated in Thousand of United States Dollars)
Life Reinsurance International
Three months ended Nine months ended
----------------------------------------
September September September September
30, 2004 30, 2003 30, 2004 30, 2003
---------- --------- --------- ---------
Premiums earned $29,519 $30,295 $87,877 $93,825
Investment income, net 2,105 1,860 7,828 5,604
Realized gains (losses) 67 (89) (273) (962)
---------- --------- --------- ---------
Total revenues 31,691 32,066 95,432 98,467
---------- --------- --------- ---------
Claims and other policy
benefits 16,900 22,865 57,965 59,101
Acquisition costs and other
insurance expenses, net 4,488 5,355 10,982 18,576
Operating expenses 4,941 3,584 13,107 9,425
---------- --------- --------- ---------
Total benefits and expenses 26,329 31,804 82,054 87,102
---------- --------- --------- ---------
Income before income taxes
and minority interest 5,362 262 13,378 11,365
Income taxes (636) (11) (1,280) (1,306)
---------- --------- --------- ---------
Income before minority
interest $4,726 $251 $12,098 $10,059
========== ========= ========= =========
Net operating earnings
- ----------------------
Income from continuing
operations $4,726 $251 $12,098 $10,059
Realized losses (gains):
taxable companies (67) 89 273 962
Taxes on above item 25 (27) (53) (169)
---------- --------- --------- ---------
Net operating earnings $4,684 $313 $12,318 $10,852
========== ========= ========= =========
Scottish Re Group Limited
Supplemental Information - Segment Operating Results (continued)
(Stated in Thousand of United States Dollars)
OTHER
Three months ended Nine months ended
----------------------------------------
September September September September
30, 2004 30, 2003 30, 2004 30, 2003
---------- --------- --------- ---------
Investment income, net $164 $1,384 $975 $3,499
Fee income 1,100 804 2,891 2,780
Realized (losses) gains (2,176) 438 (2,242) 649
---------- --------- --------- ---------
Total (loss) revenues (912) 2,626 1,624 6,928
---------- --------- --------- ---------
Acquisition costs and other
insurance expenses, net 450 604 1,689 1,656
Operating expenses 3,836 2,765 10,320 8,523
Interest expense 2,086 1,634 6,233 4,821
---------- --------- --------- ---------
Total benefits and expenses 6,372 5,003 18,242 15,000
---------- --------- --------- ---------
Loss before income taxes and
minority interest (7,284) (2,377) (16,618) (8,072)
Income taxes (980) - 36 (94)
---------- --------- --------- ---------
Income before minority
interest $(8,264) $(2,377) $(16,582) $(8,166)
========== ========= ========= =========
Net operating earnings
- ----------------------
Income from continuing
operations (8,264) (2,377) (16,582) (8,166)
Realized losses (gains):
non taxable companies 2,176 (438) 2,248 (649)
taxable companies (1) - (6) -
Taxes on above items - - 2 -
---------- --------- --------- ---------
Net operating earnings $(6,089) $(2,815) $(14,338) $(8,815)
========== ========= ========= =========