Scottish Re Group Limited Announces Operating Results for the Fourth Quarter and
Year Ended December 31, 2004
HAMILTON, Bermuda--(BUSINESS WIRE)--Feb. 17, 2005--Scottish Re Group Limited
(NYSE:SCT) today reported that income from continuing operations for the quarter
ended December 31, 2004 was $19.5 million, or $0.52 per diluted ordinary share,
as compared to $30.3 million, or $0.82 per diluted ordinary share for the prior
year period. Income from continuing operations for the year ended December 31,
2004 was $69.8 million, or $1.86 per diluted ordinary share, as compared to
$48.8 million, or $1.51 per diluted ordinary share for the prior year period.
Net operating earnings were $26.0 million, or $0.69 per diluted ordinary share
for the quarter ended December 31, 2004 as compared to $18.3 million, or $0.50
per diluted ordinary share for the prior year period. Net operating earnings
were $79.6 million, or $2.12 per diluted ordinary share for the year ended
December 31, 2004 as compared to $41.0 million, or $1.27 per diluted ordinary
share for the prior year period.
"This year was transformational for Scottish Re," said Michael C. French,
Chairman of Scottish Re Group Limited. "We expect the momentum we gained in 2004
from the acquisition of ING Re's individual life reinsurance business, along
with our numerous innovative capital markets financings will carry through into
2005 and beyond."
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, the change in value of embedded derivatives as
adjusted for the related effects upon the amortization of deferred acquisition
costs, acquisition-related due diligence costs and taxes related to these items.
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 $19.3 million, or $0.51 per diluted
ordinary share as compared to $10.5 million or $0.29 per diluted ordinary share
for the prior year period. Net income for the year ended December 31, 2004
amounted to $69.6 million, or $1.86 per diluted ordinary share as compared to
$27.3 million or $0.85 per diluted ordinary share for the prior year period.
Total revenue for the quarter increased to $215.4 million from $196.5 million
for the prior year period, an increase of 10%. Excluding realized gains and
losses and the change in fair value of embedded derivatives, total revenue for
the quarter increased to $216.9 million from $182.0 million for the prior year
period, an increase of 19%. Total revenue for the year ended December 31, 2004
increased to $816.6 million from $557.4 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 year ended December 31,
2004 increased to $821.2 million from $547.9 million for the prior year period,
an increase of 50%.
Total benefits and expenses increased to $202.4 million for the quarter from
$169.2 million, an increase of 20%. For the year ended December 31, 2004, total
benefits and expenses increased to $759.1 million from $519.6 million, an
increase of 46%. 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 $9.4 billion as of December 31, 2004. The core
investment portfolio, comprising fixed maturity investments, preferred stock and
most of the cash and cash equivalents, totaled $4.3 billion, and had an average
quality rating of "AA-", an effective duration of 3.8 years and a weighted
average book yield of 4.2%. 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 $2.0 billion, had an average quality rating
of "A+", an effective duration of 3.9 years and a weighted average book yield
6.2% at December 31, 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 $2.1 billion at December 31, 2004.
"Scottish Re's accomplishments are reflected in our strong growth in return on
equity and operating earnings and book value per share," said Scott E. Willkomm,
President and Chief Executive Officer of Scottish Re Group Limited . "These
factors were offset by higher than expected Sarbanes-Oxley costs that reduced
our net operating earnings per share by $0.05 for the quarter and $0.07 for the
year."
As of December 31, 2004, the Company had approximately $1.0 trillion of life
reinsurance in force covering approximately 14 million lives with an average
benefit per life of $73,000 in our North American operations. Excluding the
business acquired from ING, we had approximately $305 billion of life
reinsurance in force covering 7 million lives with an average benefit per life
of $45,000. As of December 31, 2003, the Company had reinsurance of
approximately $275.0 billion of life insurance in-force on 6.2 million lives and
our average benefit coverage per life was $43,000.
The Company's book value per share was $21.58 at December 31, 2004 as compared
to $18.73 per share at December 31, 2003.
On December 31, 2004, we completed the acquisition of the individual life
reinsurance business of ING Re. In connection with the acquisition, we issued an
additional $230 million of capital to support the ING Re block. This $230
million included $180.0 million of securities to The Cypress Group, a private
equity firm, and $50 million of trust preferred securities.
The Company's earnings conference call will be held at 11.00 a.m (EDT) on,
Thursday, February 17, 2005. The dial-in number is (877) 502-2902 or (706)
679-5950 and the reservation number is 3500149. A replay of the call will be
available beginning at 1:00 pm on Thursday, February 17, 2005 and running
through Thursday, March 3, 2005. The dial-in number for the replay is (800)
642-1687 or (706) 645-9291 and the PIN code is 3500149 . 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 Twelve months ended
December 31 December 31
--------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- -----------
Total revenue $215,446 $196,465 $816,618 $557,367
Net operating earnings (a) 26,033 18,331 79,577 41,047
Income from continuing
operations 19,492 30,268 69,834 48,789
Net income 19,284 10,542 69,626 27,281
Net operating earnings per share
Basic $0.72 $0.52 $2.23 $1.34
Diluted $0.69 $0.50 $2.12 $1.27
Earnings per share from continuing
operations
Basic $0.54 $0.86 $1.95 $1.59
Diluted $0.52 $0.82 $1.86 $1.51
Earnings per share
Basic $0.54 $0.30 $1.95 $0.89
Diluted $0.51 $0.29 $1.86 $0.85
Dividends per share $0.05 $0.05 $0.20 $0.20
Weighted average ordinary
shares
Outstanding
Basic 35,981,436 35,201,157 35,732,522 30,652,719
Diluted 37,847,645 36,919,283 37,508,292 32,228,001
(a) Excludes effect of realized gains and losses, change in value of
embedded derivative, amortization of related deferred acquisition
costs, losses from discontinued operations and acquisition-related due
diligence costs.
December 31, December 31,
2004 2003
------------ -------------
Book value per share - including effect of
SFAS 115 and fair value of derivatives $21.58 $18.73
Book value per share - excluding effect of
SFAS 115 and fair value of derivatives $21.35 $18.51
Consolidated Balance Sheets
(Stated in Thousands of United States Dollars)
December 31, December 31,
2004 2003
------------ ------------
Assets
Fixed maturity investments $3,392,463 $2,014,719
Preferred stock 125,204 126,449
Cash and cash equivalents 794,639 298,149
Other investments 16,458 17,678
Funds withheld at interest 2,014,589 1,469,425
---------- -----------
Total investments 6,343,353 3,926,420
Reinsurance balances and risk fees receivable 388,464 196,192
Deferred acquisition costs 417,306 308,591
Amounts recoverable from reinsurers 1,189,923 737,429
Other assets 275,753 141,748
Segregated assets 783,573 743,137
---------- -----------
Total assets $9,398,372 $6,053,517
========== ===========
Liabilities
Reserves for future policy benefits $3,239,982 $1,502,415
Interest sensitive contract liabilities 3,181,447 2,633,346
Collateral finance facility liability 200,000 -
Reinsurance balances payable 535,939 125,756
Other liabilities 157,793 75,296
Long term debt 285,782 162,500
Segregated liabilities 783,573 743,137
---------- -----------
Total liabilities 8,384,516 5,242,450
---------- -----------
Minority Interest 9,697 9,295
Mezzanine Equity 142,449 141,928
Shareholders' equity
Share capital, par value $0.01 per share:
Issued and fully paid: 39,931,145 ordinary
shares (2003 - 35,228,411) 399 352
Additional paid- in capital 684,719 548,750
Accumulated other comprehensive income 32,405 29,034
Retained earnings 144,187 81,708
---------- -----------
Total shareholders' equity 861,710 659,844
---------- -----------
Total liabilities and shareholders' equity $9,398,372 $6,053,517
========== ===========
Scottish Re Group Limited
Consolidated Statements of Income
(Stated in Thousand of United States Dollars)
Three months ended Twelve months ended
December 31 December 31
------------------ -------------------
2004 2003 2004 2003
--------- -------- --------- ---------
Revenues
Premiums earned $157,302 $139,680 $592,557 $391,976
Investment income, net 56,699 41,756 217,138 148,028
Realized gains (losses) (5,523) 521 (9,187) (4,448)
Change in value of embedded
derivatives 4,105 13,904 4,561 13,904
Fee income 2,863 604 11,549 7,907
--------- -------- --------- ---------
Total revenues 215,446 196,465 816,618 557,367
--------- -------- --------- ---------
Benefits and expenses
Claims and other policy benefits 107,708 98,000 430,565 275,887
Interest credited to interest
sensitive
contract liabilities 29,182 23,095 106,524 89,156
Acquisition costs and other
insurance expenses 39,596 39,868 149,993 116,000
Operating expenses 17,528 6,254 54,497 31,021
Acquisition-related due
diligence costs 4,644 - 4,644 -
Interest expense 3,776 2,024 12,902 7,557
--------- -------- --------- ---------
Total benefits and expenses 202,434 169,241 759,125 519,621
--------- -------- --------- ---------
Income before income taxes and
minority interest 13,012 27,224 57,493 37,746
Income tax benefit 6,655 3,106 12,872 11,105
--------- -------- --------- ---------
Income from continuing
operations before minority
interest 19,667 30,330 70,365 48,851
Minority interest (175) (62) (531) (62)
--------- -------- --------- ---------
Income from continuing
operations 19,492 30,268 69,834 48,789
Cumulative effect of accounting
principle change - (19,537) - (19,537)
Loss from discontinued
operations (208) (189) (208) (1,971)
--------- -------- --------- ---------
Net income $19,284 $10,542 $69,626 $27,281
========= ======== ========= =========
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 Twelve months ended
December 31 December 31
--------------------- ----------------------
2004 2003 2004 2003
---------- ---------- ---------- -----------
Net operating earnings
- ----------------------
Income from continuing
operations $19,492 $30,268 $69,834 $48,789
Realized losses (gains):
non taxable companies 5,854 (281) 10,453 685
taxable companies (331) (240) (1,266) 3,763
Change in value of embedded
derivatives:
non taxable companies (164) (388) 195 (388)
taxable companies (3,941) (13,516) (4,756) (13,516)
Taxes on above items 1,058 2,488 1,052 1,714
Due diligence costs (net
of taxation of $579) 4,065 - 4,065 -
---------- ---------- ---------- -----------
Net operating earnings $26,033 $18,331 $79,577 $41,047
========== ========== ========== ===========
Net operating earnings
Basic $0.72 $0.52 $2.23 $1.34
Diluted $0.69 $0.50 $2.12 $1.27
Weighted average number of
shares
Outstanding
Basic 35,981,436 35,201,157 35,732,522 30,652,719
Diluted 37,847,645 36,919,283 37,508,292 32,228,001
December 31, December 31,
2004 2003
------------ ------------
Book Value Per Share
- --------------------
Shareholders' equity $861,710 $659,844
Unrealized appreciation on investments, net of
taxes (14,339) (16,848)
Fair value of embedded derivatives 5,162 9,049
----------- ----------
Total $852,533 $652,045
=========== ==========
Number of shares 39,931,145 35,228,411
Book value per share - excluding effect of SFAS
115 and fair value of embedded derivatives
$ 21.35 $ 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 Twelve months ended
December 31 December 31
------------------ -------------------
2004 2003 2004 2003
-------- -------- --------- ---------
Premiums earned $118,259 $72,237 $470,600 $230,708
Investment income, net 54,373 38,561 206,009 135,731
Realized losses (6,826) (1,468) (7,975) (6,124)
Change in value of embedded
derivatives 4,105 13,904 4,561 13,904
Fee income 2,074 (457) 7,869 4,067
-------- -------- --------- ---------
Total revenues 171,985 122,777 681,064 378,286
-------- -------- --------- ---------
Claims and other policy benefits 82,770 52,925 348,919 171,711
Interest credited to interest
sensitive contract liabilities 29,182 23,095 106,524 89,156
Acquisition costs and other
insurance expenses, net 30,842 27,694 131,452 83,594
Operating expenses 4,494 1,826 18,036 8,646
Interest expense 1,599 397 4,491 1,109
-------- -------- --------- ---------
Total benefits and expenses 148,887 105,937 609,422 354,216
-------- -------- --------- ---------
Income before income taxes and
minority interest 23,098 16,840 71,642 24,070
Income tax benefit 5,936 4,534 12,686 13,934
-------- -------- --------- ---------
Income before minority interest 29,034 21,374 84,328 38,004
Minority interest (175) (62) (531) (62)
-------- -------- --------- ---------
Income from continuing operations $28,859 $21,312 $83,797 $37,942
======== ======== ========= =========
Net operating earnings
- ----------------------
Income from continuing operations $28,859 $21,312 $83,797 $37,942
Realized losses (gains):
non taxable companies 5,735 620 8,087 2,235
taxable companies 1,091 848 (112) 3,889
Change in value of embedded
derivatives:
non taxable companies (164) (388) 195 (388)
taxable companies (3,941)(13,516) (4,756) (13,516)
Taxes on above items 813 1,856 857 1,251
-------- -------- --------- ---------
Net operating earnings $32,393 $10,732 $88,068 $31,413
======== ======== ========= =========
Scottish Re Group Limited
Supplemental Information - Segment Operating Results (continued)
(Stated in Thousand of United States Dollars)
Life Reinsurance International
Three months ended Twelve months ended
December 31 December 31
------------------ -------------------
2004 2003 2004 2003
------- ------- -------- ---------
Premiums earned $39,043 $67,443 $121,957 $161,268
Investment income, net 2,195 1,933 10,023 7,537
Realized gains 1,076 1,510 803 548
------- ------- -------- ---------
Total revenues 42,314 70,886 132,783 169,353
------- ------- -------- ---------
Claims and other policy benefits 24,938 45,075 81,646 104,176
Acquisition costs and other
insurance expenses, net 8,330 11,567 16,428 30,143
Operating expenses 5,784 2,094 18,891 11,518
------- ------- -------- ---------
Total benefits and expenses 39,052 58,736 116,965 145,837
------- ------- -------- ---------
Income before income taxes 3,262 12,150 15,818 23,516
Income tax benefit (expense) 493 (1,411) (77) (2,719)
------- ------- -------- ---------
Income from continuing operations $3,755 $10,739 $15,741 $20,797
======= ======= ======== =========
Net operating earnings
- ----------------------
Income from continuing operations $3,755 $10,739 $15,741 $20,797
Realized losses (gains):
Non-taxable companies - (432) - (432)
taxable companies (1,076) (1,078) (803) (116)
Taxes on above item 141 629 88 460
------- ------- -------- ---------
Net operating earnings $2,820 $9,858 $15,026 $20,709
======= ======= ======== =========
Scottish Re Group Limited
Supplemental Information - Segment Operating Results (continued)
(Stated in Thousand of United States Dollars)
Other
Three months ended Twelve months ended
December 31 December 31
------------------ -------------------
2004 2003 2004 2003
-------- ------- --------- --------
Investment income, net $131 $1,262 $1,106 $4,760
Realized gains (losses) 227 479 (2,015) 1,128
Fee income 789 1,061 3,680 3,840
-------- ------- --------- --------
Total revenues 1,147 2,802 2,771 9,728
-------- ------- --------- --------
Acquisition costs and other
insurance expenses, net 424 607 2,113 2,263
Operating expenses 7,250 2,334 17,570 10,857
Due diligence costs 4,644 - 4,644 -
Interest expense 2,177 1,627 8,411 6,448
-------- ------- --------- --------
Total benefits and expenses 14,495 4,568 32,738 19,568
-------- ------- --------- --------
Loss before income taxes (13,348) (1,766) (29,967) (9,840)
Income tax benefit (expense) 226 (17) 263 (110)
-------- ------- --------- --------
Loss from continuing operations $(13,122)$(1,783) $(29,704) $(9,950)
======== ======= ========= ========
Net operating loss
- ------------------
Loss from continuing operations (13,122) (1,783) (29,704) (9,950)
Realized losses (gains):
non taxable companies 119 (469) 2,366 (1,118)
taxable companies (346) (10) (351) (10)
Taxes on above items 104 3 107 3
Due diligence costs (net of
taxation of $579) 4,065 - 4,065 -
-------- ------- --------- --------
Net operating loss $(9,180)$(2,259) $(23,517)$(11,075)
======== ======= ========= ========
CONTACT: Scottish Re Group Limited
Scott E. Willkomm, 441-298-4364
scott.willkomm@scottishre.com
SOURCE: Scottish Re Group Limited