Unaudited Pro Forma Consolidated Balance Sheet and Consolidated Statements of
Income
The following unaudited pro forma consolidated statements of income for the nine
month period ended September 30, 2004 present operating results of Scottish Re
Group Limited as if the acquisition of the individual in-force life reinsurance
business of ING (Individual Life) had occurred on January 1, 2004. Pro forma
adjustments are based on available information and certain assumptions that
management of Scottish Re Group Limited believe are reasonable.
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, 2004 nor does it purport
to be indicative of combined results of operations which may be reported in the
future.
Nine months ended September 30, 2004
(in millions)
Scottish Re Individual Pro-Forma
Group Limited Life Adjustments Combined
------------------------------------------------------------
Premiums earned, net $ 435.3 $ 874.5 $ - $ 1,309.8
Investment income, net 160.4 79.5 (43.1) (1) 196.8
Other income 5.5 29.3 - 34.8
------------- ------------ ------------ -------------
601.2 983.3 (43.1) 1,541.4
Claims and other benefits 322.9 654.2 (32.0) (2) 945.1
Interest credited to interest sensitive contract liabilities 77.3 - - 77.3
Acquisition costs and other insurance expenses, net 110.4 421.1 (234.7) (3) 296.8
Operating expenses 37.0 42.2 13.5 (4) 92.7
Interest expense 9.1 - 4.2 (5) 13.3
------------- ------------ ------------ ------------
556.7 1,117.5 (249.0) 1,425.2
Income (loss) before income taxes and minority interest 44.5 (134.2) 205.9 116.2
Income tax provision (benefit) (6.2) (47.0) 61.3 (6) 8.1
------------- ------------ ------------ ------------
Income (loss) before minority interest 50.7 (87.2) 144.6 108.1
Minority interest 0.4 - - 0.4
------------- ------------ ------------ ------------
Net income (loss) $ 50.3 $ (87.2) $ 144.6 $ 107.7
============= ============ ============ ============
Earnings per ordinary share - basic $ 1.41 $ 2.52
Earnings per ordinary share - diluted $ 1.35 $ 2.42
Weighted average number of ordinary shares outstanding
Basic 35,648,913 7,159,614 (7) 42,808,527
Diluted 37,268,420 7,159,614 (7) 44,428,034
(1). The adjustment to investment income represents a deduction for income from
derivative financial instruments of $29.6 million included in the Individual
Life business. We did not acquire and would not have invested in these
derivative financial instruments. In addition we have deducted $13.5 million of
investment income for changes in the asset base of the Individual Life business
on its acquisition. We have not adjusted investment income to include income on
the proceeds of $230 million of additional capital, in the form of equity and
debt, we raised to meet the capital needs of the acquired business. We estimate
that additional investment income on these proceeds would have amounted to $10
million had the transactions occurred at January 1, 2004.
(2). Policy and claims reserves were adjusted to balances valued in accordance
with purchase accounting as of January 1, 2004.
(3). This adjustment represents the capitalization of deferred acquisition costs
of new business had we written it as of January 1, 2004 adjusted by the
elimination of the historical deferred acquisition cost amortization of
Individual Life as the deferred acquisition costs have been eliminated under
purchase accounting.
(4). Transition expenses and additional letter of credit fees of $13.5 million
would be required under this transaction. We have not reduced operating expenses
by $5 million in anticipated saving of expenses due to the elimination of
duplicated costs, primarily personnel and information technology costs.
(5). This adjustment represents the interest expense we would have to pay
holders of the $50 million trust preferred securities at 5.5% and interest
expense on the $41.3 million of 7.00% Convertible Junior Subordinated Notes due
2034 (Notes) issued to certain affiliates of The Cypress Group, L.L.C. (Cypress
Entities) had they been issued at January 1, 2004. These debt offerings provide
capital for the acquired business.
(6). This adjustment increases the income tax provision to the anticipated
amount based on the effective income tax rate of Scottish Re Group Limited.
(7) 3,953,183 ordinary shares and 3,206,431 warrants issued to the Cypress
Entities to provide capital for the acquired business. It does not include
2,130,709 shares to be issued to the Cypress entities on conversion of the Notes
which requires shareholder approval.
The following unaudited pro forma consolidated statements of income for the year
ended December 31, 2003 present operating results of Scottish Re Group Limited
as if the acquisition of Individual Life had occurred on January 1, 2003. Pro
forma adjustments are based on available information and certain assumptions
that management of Scottish Re Group Limited believes are reasonable.
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 nor does it purport
to be indicative of combined results of operations which may be reported in the
future.
Year ended December 31, 2003
(in millions)
Scottish Re Individual Pro-Forma
Group Limited Life Adjustments Combined
------------------------------------------------------------
Premiums earned, net $ 392.0 $ 911.5 $ - $ 1,303.5
Investment income, net 148.0 104.6 (15.0) (1) 237.6
Other income 17.4 (11.0) - 6.4
------------- ------------ ----------- ------------
557.4 1,005.1 (15.0) 1,547.5
Claims and other benefits 275.8 828.3 (145.5) (2) 958.6
Interest credited to interest sensitive contract liabilities 89.2 - - 89.2
Acquisition costs and other insurance expenses, net 116.0 189.3 (2.0) (3) 303.3
Operating expenses 31.0 44.8 12.2 (4) 88.0
Interest expense 7.6 - 5.6 (5) 13.2
------------- ------------ ----------- ------------
519.6 1,062.4 (129.7) 1,452.3
Income (loss) before income taxes and minority interest 37.8 (57.3) 114.7 95.2
Income tax provision (benefit) (11.1) (20.0) 31.4 (6) 0.3
------------- ------------ ----------- ------------
Income (loss) before minority interest 48.9 (37.3) 83.3 94.9
Minority interest 0.1 - - 0.1
------------- ------------ ----------- ------------
Income (loss) before cumulative effect of change in
accounting principle 48.8 (37.3) 83.3 94.8
Cumulative effect of change in accounting principle (19.5) - - (19.5)
Loss from discontinued operations (2.0) - - (2.0)
------------- ------------ ----------- ------------
Net income (loss) $ 27.3 $ (37.3) $ 83.3 $ 73.3
============= ============ =========== ============
Basic earnings per share
Income from continuing operations before cumulative effect of
change in accounting principle $ 1.59 $ 2.51
Cumulative effect of change in accounting principle (0.64) (0.64)
Discontinued operations (0.06) (0.06)
------------- -------------
Net income $ 0.89 $ 1.81
============= =============
Diluted earnings per share
Income from continuing operations before cumulative effect of
change in accounting principle $ 1.51 $ 2.41
Cumulative effect of change in accounting principle (0.60) (0.60)
Discontinued operations (0.06) (0.06)
------------- -------------
Net income $ 0.85 $ 1.75
============= =============
Weighted average number of ordinary shares outstanding
Basic 30,652,719 7,159,614 (7) 37,812,333
Diluted 32,228,001 7,159,614 (7) 39,387,615
(1). The adjustment to investment income represents an increase of $3 million
for losses from derivative financial instruments included in the Individual Life
business. We did not acquire and would not have invested in these derivative
financial instruments. In addition we have deducted $18.0 million of investment
income for changes in the asset base of the Individual Life business on its
acquisition. We have not adjusted investment income to include income on the
proceeds of $230 million of additional capital, in the form of equity and debt,
we raised to meet the capital needs of the acquired business. We estimate that
additional investment income on these proceeds would have amounted to $13
million had the transactions occurred at January 1, 2003.
(2). Policy and claims reserves were adjusted to balances valued in accordance
with purchase accounting as of January 1, 2003.
(3). This adjustment represents the capitalization of deferred acquisition costs
of new business had we written it as of January 1, 2003 adjusted by the
elimination of the historical deferred acquisition cost amortization of
Individual Life as the deferred acquisition costs have been eliminated under
purchase accounting.
(4). Transition expenses and additional letter of credit fees of $12.2 million
would be required under this transaction. We have not reduced operating expenses
by $6 million in anticipated saving of expenses due to the elimination of
duplicated costs, primarily personnel and information technology costs.
(5). This adjustment represents the interest expense we would have to pay
holders of the $50 million trust preferred securities at 5.5% and interest
expense on the $41.3 million of Notes issued to the Cypress Entities had they
been issued at January 1, 2003. These debt offerings provide capital for the
acquired business.
(6). This adjustment increases the income tax provision to the anticipated
amount based on the effective income tax rate of Scottish Re Group Limited.
(7) 3,953,183 ordinary shares and 3,206,431 warrants issued to the Cypress
Entities to provide capital for the acquired business. It does not include
2,130,709 shares to be issued to the Cypress entities on conversion of the Notes
which requires shareholder approval.
The following unaudited pro forma condensed consolidated balance sheet as of
September 30, 2004 presents the financial position of Scottish Re Group Limited
as if the acquisition of Individual Life had occurred on September 30, 2004. Pro
forma adjustments are based on available information and certain assumptions
that management of Scottish Re Group Limited believes are reasonable. The
unaudited pro forma consolidated financial information is not intended to be
indicative of the consolidated financial position that would have been reported
if the acquisition had occurred at September 30, 2004 nor does it purport to be
indicative of the combined financial position which may be reported in the
future.
As of September 30, 2004
(in millions)
Scottish Re Individual Pro-Forma
Group Limited Life Adjustments Combined
------------------------------------------------------------
ASSETS
Cash and investments $ 3,129.9 $ 1,741.5 $ 59.5 (1) $ 4,930.9
Funds withheld at interest 1,477.9 - - 1,477.9
Risk balances and risk fees receivable 288.4 204.0 - 492.4
Deferred acquisition costs 411.8 513.3 (513.3) (2) 411.8
Amount recoverable from reinsurers 703.3 203.9 - 907.2
Other assets 141.3 240.2 (240.2) (2) 141.3
Segregated assets 740.2 - - 740.2
------------- ------------- ----------- ------------
Total Assets $ 6,892.8 $ 2,902.9 $ (694.0) $ 9,101.7
============= ============= =========== ============
LIABILITIES
Reserves for future policy benefits $ 1,602.3 $ 1,714.3 $ 55.6 (3) $ 3,372.2
Interest sensitive contract liabilities 3,136.9 $ - $ - 3,136.9
Other liabilities 540.7 $ 232.4 67.8 (4) 840.9
Segregated liabilities 740.2 - - 740.2
------------- ------------- ----------- ------------
Total Liabilities 6,020.1 1,946.7 123.4 8,090.2
Minority interest 9.5 - - 9.5
Mezzanine equity 142.3 - - 142.3
Shareholders' equity 720.9 956.2 (817.4) (5) 859.7
------------- ------------- ----------- ------------
Total Liabilities and Shareholders' Equity $ 6,892.8 $ 2,902.9 $ (694.0) $ 9,101.7
============= ============= =========== ============
(1). The adjustment to investments and cash and other assets includes $230
million of proceeds from additional capital raised to meet the capital
requirements of the acquired business. The additional amounts are offset by an
adjustment for cash and investments that will not be transferred from Individual
Life as a result of this transaction.
(2). This represents a write-off of the historical deferred acquisition costs as
of September 30, 2004 and certain assets that will not be transferred from
Individual Life as a result of this transaction.
(3). Policy and claims reserves were adjusted to balances valued in accordance
with purchase accounting requirements as of September 30, 2004.
(4). This represents the issuance of $50 million in trust preferred securities
and $41.3 million of Notes to the Cypress Entities. These Notes will be
converted into ordinary shares on shareholder approval.
(5). This represents the elimination of the historical shareholders' equity of
Individual Life of $956.2 million offset by $138.8 million in equity raised from
the Cypress Entities. It does not include $41.3 million of Notes issued to the
Cypress Entities.