Scottish Re Group Limited Announces Operating Results for the First Quarter
Ended March 31, 2005
HAMILTON, Bermuda--(BUSINESS WIRE)--May 9, 2005--Scottish Re Group Limited
(NYSE:SCT) today reported that net income for the quarter ended March 31, 2005
was $33.4 million, or $0.74 per diluted ordinary share, as compared to $10.1
million, or $0.27 per diluted ordinary share for the prior year period.
Net operating earnings were $26.9 million, or $0.60 per diluted ordinary share
for the quarter ended March 31, 2005 as compared to $16.6 million or $0.45 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 net income 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 net income determined in accordance with GAAP.
Total revenue for the quarter ended March 31, 2005 increased to $558.1 million
from $179.2 million for the prior year period, an increase of 211%. Excluding
realized gains and losses and the change in fair value of the embedded
derivative, total revenue for the quarter ended March 31, 2005 increased to
$549.4 million from $186.4 million for the prior year period, an increase of
195%. Total benefits and expenses increased to $524.7 million for the quarter
ended March 31, 2005 from $167.9 million, an increase of 213%. The increases
were principally driven by the acquisition of the ING Re individual life
business and growth in the Company's reinsurance business in North America.
The Company's operating expense ratio (which is the ratio of operating expenses
to total revenue excluding realized gains/losses and the change in value of
embedded derivatives) for the twelve months ended March 31, 2005 was 5.5%, as
compared to an operating expense ratio of 6.6% for the year ended December 31,
2004.
The Company's total assets were $10.1 billion as of March 31, 2005. The core
investment portfolio, comprising fixed maturity investments, preferred stock and
substantially all of the cash and cash equivalents, totaled $5.4 billion and had
an average quality rating of "AA-", an effective duration of 3.5 years and a
weighted average book yield of 4.3%. This compares with a portfolio balance of
$4.3 billion, an average quality rating of "AA-," effective duration of 3.8
years and an average book yield of 4.2% as of December 31, 2004.
Funds withheld at interest, totaling $1.9 billion, had an average quality rating
of "A", an effective duration of 5.2 years and a weighted average book yield of
5.8% at March 31, 2005. This compares with a total of $2.1 billion with an
average quality rating of "A+", an effective duration of 3.9 years and an
average book yield of 5.2% at December 31, 2004. Significant amounts of cash
received as of December 31, 2004 in connection with the closing of the ING
acquisition temporarily reduced the effective duration and average book yield,
and increased the average quality rating of our funds withheld portfolio at
December 31, 2004 as compared to March 31, 2005. The market value of the funds
withheld at interest amounted to $1.9 billion at March 31, 2005.
"We are pleased to report net operating earnings of $0.60 this first quarter,
which is the midpoint of our publicly issued guidance range," said Scott E.
Willkomm, President and Chief Executive Officer of Scottish Re Group Limited .
"This strong showing was driven, in large part, by the performance of our
traditional life reinsurance business in the United States and the contribution
of the ING acquisition."
"According to the recently released Society of Actuaries market share
statistics, we are also pleased to report that Scottish Re was ranked second in
the United States in terms of inforce ordinary life reinsurance for 2004," he
said. "While these market share statistics evidence the impact of the ING Re
acquisition and the overall growth of the Scottish Re franchise, we must
reaffirm that we are not driven by market share objectives, and remain committed
to quality over quantity in building our business."
"On a trailing twelve months basis, our return on average equity - measured by
dividing net operating earnings by average shareholders equity excluding the
effect of FAS 115 and the change in fair value of embedded derivatives - was
11.9%, up from 11.3% for fiscal 2004," Mr. Willkomm added. "Thus, we continue to
make demonstrable progress towards our 15% ROE goal."
As of March 31, 2005, the Company had approximately $1.0 trillion of life
reinsurance in force covering approximately 13.5 million lives with an average
benefit per life of $74,000 in our North American operations. As of March 31,
2004, we had approximately $286.0 billion of life reinsurance in force in our
Life Reinsurance North America segment covering 6.9 million lives with an
average benefit per life of $41,000. Mortality experience in the first quarter
was slightly better than expected and on an inception to date basis, mortality
experience was approximately 95% of expected levels.
The Company's book value per share was $21.75 at March 31, 2005 as compared to
$21.60 per share at December 31, 2004. Including the Cypress warrants and
excluding the effect of FAS 115 and the fair value of embedded derivatives our
book value per share was $20.36 at March 31, 2005 compared to $19.80 at December
31, 2004.
In connection with the acquisition of ING Re, the Company raised approximately
$180 million of new equity capital from the Cypress Group by issuing to Cypress
on December 31, 2004 (1) 3,953,183 ordinary shares; (2) Class C Warrants to
purchase 3,206,431 ordinary shares and (3) notes convertible into 2,170,896
ordinary shares. The conversion of the Class C Warrants and the convertible
notes into ordinary shares was subject to shareholder and regulatory approvals.
On April 7, 2005, shareholder approval was received and on May 4, 2005 all
regulatory approvals were received. Accordingly, as of May 11, 2005, all common
equivalents will be converted into the Company's ordinary shares resulting in
the Cypress Group owning 9,330,510 of the Company's ordinary shares.
The Company's earnings conference call will be held at 11.00 am (EDT) on
Tuesday, May 10, 2005. The dial-in number is 877-502-2902 or 706-679-5950 and
the reservation number is 5412793. A replay of the call will be available
beginning at 1:00 pm on Tuesday, May 10, 2005 and running through Tuesday, May
24, 2005. The dial-in number for the replay is 800-642-1687 or 706-645-9291 and
the PIN code is 5412793. 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, http://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, http://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)
- ----------------------------------------------------------------------
Three months ended Three months ended
March 31, 2005 March 31, 2004
------------------ ------------------
Total revenue $558,131 $179,179
Net operating earnings(a) 26,930 16,613
Net income 33,420 10,096
Net operating earnings per share
Basic $0.67 $0.47
Diluted $0.60 $0.45
Earnings per share
Basic $0.84 $0.29
Diluted $0.74 $0.27
Dividends per share $0.05 $0.05
Weighted average shares
Outstanding
Basic 39,970,965 35,327,658
Diluted 45,192,171 37,230,112
(a)Excludes effect of realized gains and losses, change in value of
embedded derivatives and amortization of related deferred
acquisition costs.
March 31, 2005 December 31, 2004
-------------- -----------------
Book value per share - including
effect of SFAS 115 and fair
value of derivatives $21.75 $21.60
Book value per share - excluding
effect of SFAS 115 and fair
value of derivatives and
including the Cypress warrants $20.36 $19.80
Scottish Re Group Limited
Consolidated Balance Sheets
(Stated in Thousands of United States Dollars)
March 31, December 31,
2005 2004
--------------- ----------------
Assets
Fixed maturity investments $4,445,745 $3,392,463
Preferred stock 124,537 125,204
Cash and cash equivalents 831,078 794,639
Other investments 24,979 16,250
Funds withheld at interest 1,920,730 2,056,280
--------------- ----------------
Total investments 7,347,069 6,384,836
Accrued interest receivable 40,983 32,092
Reinsurance balances and risk fees
receivable 492,217 470,817
Deferred acquisition costs 491,643 417,306
Amounts recoverable from reinsurers 766,207 774,503
Present value of inforce business 60,500 62,164
Goodwill 34,125 34,125
Fixed assets 16,914 17,177
Other assets 44,247 21,749
Current income tax receivable 2,553 7,712
Deferred tax benefit 25,289 15,030
Segregated assets 774,162 783,573
--------------- ----------------
Total assets $10,095,909 $9,021,084
=============== ================
Liabilities
Reserves for future policy benefits $3,537,190 $3,370,562
Interest sensitive contract
liabilities 3,258,276 3,181,447
Collateral finance facilities 1,050,000 200,000
Accounts payable and accrued expenses 13,708 23,337
Reinsurance balances payable 105,371 116,589
Other liabilities 47,915 44,974
7.00% Convertible junior subordinated
notes 42,005 41,282
Long term debt 244,500 244,500
Segregated liabilities 774,162 783,573
--------------- ----------------
Total liabilities 9,073,127 8,006,264
--------------- ----------------
Minority Interest 9,844 9,697
Mezzanine Equity 142,599 142,449
Shareholders' Equity
Share capital, par value $0.01 per
share:
Issued and fully paid: 40,022,945
ordinary shares (2004 - 39,931,145) 400 399
Additional paid- in capital 687,024 684,719
Accumulated other comprehensive
income 5,703 31,604
Retained earnings 177,212 145,952
--------------- ----------------
Total shareholders' equity 870,339 862,674
--------------- ----------------
Total liabilities and shareholders'
equity $10,095,909 $9,021,084
=============== ================
Scottish Re Group Limited
Consolidated Statements of Income
(Stated in Thousand of United States Dollars)
Three months ended Three months ended
March 31, 2005 March 31, 2004
------------------- --------------------
Revenues
Premiums earned $465,249 $133,347
Investment income, net 80,479 50,103
Fee income 3,624 2,953
Realized gains 3,294 1,421
Change in value of embedded
derivatives, net 5,485 (8,645)
------------------- --------------------
Total revenues 558,131 179,179
------------------- --------------------
Benefits and expenses
Claims and other policy
benefits 363,272 95,167
Interest credited to interest
sensitive contract
liabilities 30,642 24,193
Acquisition costs and other
insurance expenses, net 93,211 32,869
Operating expenses 24,569 12,854
Collateral finance facilities
expense 7,420 -
Interest expense 5,594 2,777
------------------- --------------------
Total benefits and
expenses 524,708 167,860
------------------- --------------------
Income before income taxes
and minority interest 33,423 11,319
Income tax benefit (expense) 368 (874)
------------------- --------------------
Income before minority
interest 33,791 10,445
Minority interest (371) (349)
------------------- --------------------
Net income $33,420 $10,096
=================== ====================
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 Three months ended
March 31, 2005 March 31, 2004
------------------- -------------------
Net operating earnings
- ----------------------
Net income $33,420 $10,096
Realized losses (gains) - non
taxable companies (2,215) 2,121
Realized gains - taxable
companies (1,079) (3,542)
Change in value of embedded
derivatives - non taxable
companies (326) 290
Change in value of embedded
derivatives - taxable
companies (5,159) 8,355
Taxes on realized gains/losses
and change in value of
embedded derivatives 2,289 (707)
------------------- -------------------
Net operating earnings $26,930 $16,613
=================== ===================
Net operating earnings per
share
Basic $0.67 $0.47
Diluted $0.60 $0.45
=================== ===================
Weighted average number of
shares
Outstanding
Basic 39,970,965 35,327,658
Diluted 45,192,171 37,230,112
March 31, December 31,
2005 2004
--------------- ---------------
Book Value Per Share
- --------------------
Shareholders' equity $870,339 $862,674
Unrealized (depreciation) appreciation
on investments, net of deferred
acquisition costs and taxes 10,051 (13,661)
Fair value of embedded derivatives (322) 5,162
--------------- ---------------
Total $880,068 $854,175
=============== ===============
Number of shares 40,022,945 39,931,145
Shares arising on conversion of
warrants 3,206,431 3,206,431
--------------- ---------------
Total 43,229,376 43,137,576
=============== ===============
Book value per share - excluding
effect of SFAS 115 and fair value
of embedded derivatives and
including Cypress warrants $20.36 $ 19.80
Scottish Re Group Limited
Supplemental Information - Segment Operating Results
(Stated in Thousand of United States Dollars)
Life Reinsurance North America
Three months ended
March 31
-----------------------------
2005 2004
-------------- --------------
Premiums earned $437,873 $105,601
Investment income, net 77,531 47,407
Fee income 2,900 2,103
Realized gains 1,441 1,693
Change in value of embedded derivatives,
net 5,485 (8,645)
-------------- --------------
Total revenues 525,230 148,159
-------------- --------------
Claims and other policy benefits 344,188 75,592
Interest credited to interest sensitive
contract liabilities 30,642 24,193
Acquisition costs and other insurance
expenses, net 89,055 29,536
Operating expenses 11,672 4,964
Collateral finance facilities expense 6,185 -
Interest expense 2,708 686
-------------- --------------
Total benefits and expenses 484,450 134,971
-------------- --------------
Income before income taxes and minority
interest 40,780 13,188
Income tax benefit (expense) 212 (813)
-------------- --------------
Income before minority interest 40,992 12,375
Minority interest (371) (349)
-------------- --------------
Net income $40,621 $12,026
============== ==============
Net operating earnings
- ----------------------
Net income $40,621 $12,026
Realized gains (1,441) (1,693)
Change in value of embedded derivatives,
net (5,485) 8,645
Taxes on above items 2,246 (686)
-------------- --------------
Net operating earnings $35,941 $18,292
============== ==============
Scottish Re Group Limited
Supplemental Information - Segment Operating Results (continued)
(Stated in Thousand of United States Dollars)
Life Reinsurance International
Three months ended
March 31
-----------------------------
2005 2004
-------------- --------------
Premiums earned $27,376 $27,746
Investment income, net 2,590 2,149
Realized gains (losses) 497 (151)
-------------- --------------
Total revenues 30,463 29,744
-------------- --------------
Claims and other policy benefits 19,084 19,575
Acquisition costs and other insurance
expenses, net 3,637 2,649
Operating expenses 5,849 4,408
-------------- --------------
Total benefits and expenses 28,570 26,632
-------------- --------------
Income before income taxes 1,893 3,112
Income tax benefit (expense) 130 (38)
-------------- --------------
Net income $2,023 $3,074
============== ==============
Net operating earnings
- ----------------------
Net income $2,023 $3,074
Realized losses (gains) (497) 151
Taxes on realised losses (gains) 165 (23)
-------------- --------------
Net operating earnings $1,691 $3,202
============== ==============
Scottish Re Group Limited
Supplemental Information - Segment Operating Results (continued)
(Stated in Thousand of United States Dollars)
Corporate & Other
Three months ended
March 31
-----------------------------
2005 2004
-------------- --------------
Investment income, net $358 $547
Fee income 724 850
Realized gains (losses) 1,356 (121)
-------------- --------------
Total revenues 2,438 1,276
-------------- --------------
Acquisition costs and other insurance
expenses, net 519 684
Operating expenses 7,048 3,482
Collateral finance facilities expense 1,235 -
Interest expense 2,886 2,091
-------------- --------------
Total benefits and expenses 11,688 6,257
-------------- --------------
Loss before income taxes (9,250) (4,981)
Income tax benefit (expense) 26 (23)
Net income (loss) $(9,224) $(5,004)
============== ==============
Net operating loss
- ------------------
Net income (loss) $(9,224) $(5,004)
Realized losses (gains) (1,356) 121
Taxes on realised losses (gains) (122) 2
-------------- --------------
Net operating loss $(10,702) $(4,881)
============== ==============
Scottish Re Group Limited
Supplemental Information - Statement of Income - Business
Acquired from ING
(Stated in Thousand of United States Dollars)
Three months ended
March 31, 2005
------------------
Premiums earned $288,231
Investment income, net 17,509
Realized gains 1,900
Change in value of embedded derivatives, net 4,386
------------------
Total revenues 312,026
------------------
Claims and other policy benefits 229,488
Acquisition costs and other insurance expenses, net 58,484
Operating expenses 5,173
------------------
Total benefits and expenses 293,145
------------------
Income before income taxes and minority interest $18,881
==================
CONTACT: Scottish Re Group Limited , Hamilton
Scott E. Willkomm, 441-298-4364
scott.willkomm@scottishre.com
SOURCE: Scottish Re Group Limited