Scottish Re Group Limited Announces Operating Results for the Third Quarter
Ended September 30, 2005
Company Release - 11/03/2005
HAMILTON, Bermuda--(BUSINESS WIRE)--Nov. 3, 2005--Scottish Re Group Limited
(NYSE:SCT) today reported that net income available to ordinary shareholders for
the quarter ended September 30, 2005 was $31.9 million, or $0.66 per diluted
ordinary share, as compared to $11.6 million, or $0.31 per diluted ordinary
share for the prior year period. Net income available to ordinary shareholders
for the nine months ended September 30, 2005 was $66.9 million or $1.42 per
diluted ordinary share, as compared to $50.3 million, or $1.35 per diluted
ordinary share for the prior year period.
Net operating earnings available to ordinary shareholders was $32.6 million, or
$0.67 per diluted ordinary share for the quarter ended September 30, 2005, as
compared to $18.8 million, or $0.51 per diluted ordinary share for the prior
year period. Net operating earnings available to ordinary shareholders was $79.3
million, or $1.68 per diluted ordinary share for the nine months ended September
30, 2005, as compared to $53.5 million, or $1.44 per diluted ordinary share for
the prior year period.
"Net operating earnings available to ordinary shareholders" is a non-GAAP
measurement. We determine net operating earnings available to ordinary
shareholders by adjusting net income available to ordinary shareholders 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 available to ordinary shareholders enhances the understanding of its
results of operations by highlighting earnings attributable to the normal,
recurring operation of its reinsurance business. However, net operating earnings
available to ordinary shareholders are not a substitute for net income
determined in accordance with GAAP. Reconciliations to net income available to
ordinary shareholders are provided in the following tables.
"We are pleased to report net operating earnings available to ordinary
shareholders of $0.67 per share this quarter," 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."
"From an operational perspective, the integration of the ING business continues
to progress on plan and the continued development of our corporate
infrastructure in response to our high growth is proceeding well. We continue to
see attractive opportunities in our key markets. As just recently announced, we
opened our Singapore office and expect strong growth in our Asian business."
Total revenues for the quarter increased to $561.6 million from $195.1 million
for the prior year period, an increase of 188%. Excluding realized gains and
losses and the change in value of embedded derivatives, total revenues for the
quarter increased to $562.8 million from $204.0 million for the prior year
period, an increase of 176%. Total revenues for the nine months ended September
30, 2005 increased to $1.6 billion from $601.2 million for the prior year
period, an increase of 170%.
Excluding realized gains and losses and the change in value of embedded
derivatives, total revenues for the nine months increased to $1.6 billion from
$604.4 million for the prior year period, an increase of 171%. Total benefits
and expenses increased to $533.7 million for the quarter from $188.9 million, an
increase of 183%. For the nine months ended September 30, 2005, total benefits
and expenses increased to $1.6 billion from $556.7 million, an increase of 182%.
The increases were principally driven by the acquisition of the ING individual
life reinsurance 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 and losses and the change in value of
embedded derivatives) for the last twelve months ended September 30, 2005 was
5.5%, as compared to an operating expense ratio of 6.7% for the year ended
December 31, 2004. Operating expenses in the third quarter were approximately $6
million greater than the second quarter of 2005 of which approximately $3
million is due to professional fees incurred in connection with implementing the
requirements of the Sarbanes-Oxley Act of 2002 on the business acquired from
ING.
The Company's total assets were $10.4 billion as of September 30, 2005. The core
investment portfolio, comprising fixed maturity investments, preferred stock and
most of the cash and cash equivalents, totaled $5.6 billion, and had an average
quality rating of "AA-," an effective duration of 3.5 years and a weighted
average book yield of 4.8%. 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 5.1 years and a weighted average book yield
5.8% at September 30, 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. The market value of the funds
withheld at interest amounted to $1.9 billion at September 30, 2005.
As of September 30, 2005, the Company had approximately $1 trillion of life
reinsurance in force covering 13.9 million lives with an average benefit per
life of $74,000 in our North American operations. As of September 30, 2004, we
had approximately $307 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.
The Company's book value per share was $20.60 at September 30, 2005 as compared
to $21.60 per share at December 31, 2004. Fully diluted book value per share was
$20.53 at September 30, 2005 as compared to $19.43 at December 31, 2004.
On a trailing twelve months basis, the Company's return on average equity -
measured by dividing net operating earnings available to ordinary shareholders
by average shareholders' equity excluding the effect of FAS 115 and the change
in value of embedded derivatives - was 12.1%.
On July 6, 2005, the Company issued 5 million perpetual preferred shares and
declared a $0.4984 per share dividend (comprised of the $0.4531 per share
regular quarterly dividend plus a one-time $0.0453 per share dividend for the
period July 6, 2005 to July 14, 2005) for the period July 6 through October 15.
The Company's earnings conference call will be held at 11:00 am (EST) on Friday,
November 4, 2005. The dial-in number is (877) 502-2902 or (706) 679-5950 and the
reservation number is 1419708. A replay of the call will be available beginning
at 1:00 pm on Friday, November 4, 2005 and running through Friday, November 18,
2005. The dial-in number for the replay is (800) 642-1687 or (706) 645-9291 and
the PIN code is 1419708. 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, the Cayman Islands, Guernsey, Ireland, Singapore, the United Kingdom
and the United States. 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 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 Share Data)
(Unaudited)
Three Three Nine Nine
months months months months
ended ended ended ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004
----------- ----------- ----------- ----------
Total revenues $561,553 $195,085 $1,623,461 $601,171
Net operating
earnings available
to ordinary
shareholders(1) 32,636 18,818 79,283 53,544
Net income 34,410 11,578 69,421 50,343
Net income available
to ordinary
shareholders 31,918 11,578 66,929 50,343
Net operating
earnings per
ordinary share
Basic $0.72 $0.52 $1.84 $1.50
Diluted $0.67 $0.51 $1.68 $1.44
Earnings per ordinary
share
Basic $0.70 $0.32 $1.56 $1.41
Diluted $0.66 $0.31 $1.42 $1.35
Dividends per
ordinary share $0.05 $0.05 $0.15 $0.15
Weighted average
ordinary shares
Outstanding
Basic 45,517,832 35,869,413 43,004,046 35,648,913
Diluted 48,543,262 37,244,288 47,080,247 37,268,420
(1) Excludes effect of realized gains and losses, change in value of embedded
derivatives as adjusted for the related effects of amortization of deferred
acquisition costs and taxes and dividends on the perpetual preferred
shares.
September December
30, 2005 31, 2004
----------- ----------
Book value per
ordinary share $20.60 $21.60
Fully diluted book
value per ordinary
share - excluding
other comprehensive
income and value of
embedded derivatives $20.53 $19.43
Scottish Re Group Limited
Consolidated Balance Sheets
(Stated in Thousands of United States Dollars, Except Share Data)
September December
30, 2005 31, 2004
------------ -----------
(Unaudited)
Assets
Fixed maturity investments $5,062,020 $3,392,463
Preferred stock 156,422 125,204
Cash and cash equivalents 486,527 794,639
Other investments 49,759 16,250
Funds withheld at interest 1,892,077 2,056,280
------------ -----------
Total investments 7,646,805 6,384,836
Accrued interest receivable 41,368 32,092
Reinsurance balances and risk fees
receivable 522,885 470,817
Deferred acquisition costs 505,506 417,306
Amounts recoverable from reinsurers 731,578 774,503
Present value of in-force business 56,763 62,164
Goodwill 34,125 34,125
Other assets 63,488 38,925
Current income tax receivable 16,791 7,712
Deferred tax benefit 34,805 15,030
Segregated assets 772,526 783,573
------------ -----------
Total assets $10,426,640 $9,021,084
============ ===========
Liabilities
Reserves for future policy benefits $3,592,779 $3,370,562
Interest sensitive contract liabilities 3,283,154 3,181,447
Collateral finance facilities 1,050,000 200,000
Accounts payable and other liabilities 104,413 68,311
Reinsurance balances payable 161,277 116,589
7.00% Convertible junior subordinated notes - 41,282
Long term debt 244,500 244,500
Segregated liabilities 772,526 783,573
------------ -----------
Total liabilities 9,208,649 8,006,264
------------ -----------
Minority interest 9,977 9,697
Mezzanine equity 142,906 142,449
Shareholders' equity
Ordinary shares, par value $0.01 per share:
Issued: 45,627,372 shares (2004 -
39,931,145) 456 399
Preferred shares, par value $0.01:
Issued: 5,000,000 shares 125,000 -
Additional paid- in capital 729,773 684,719
Accumulated other comprehensive income 3,704 31,604
Retained earnings 206,175 145,952
------------ -----------
Total shareholders' equity 1,065,108 862,674
------------ -----------
Total liabilities, minority interest,
mezzanine equity and shareholders' equity $10,426,640 $9,021,084
============ ===========
Scottish Re Group Limited
Consolidated Statements of Income
(Stated in Thousands of United States Dollars)
(Unaudited)
Three Three Nine Nine
months months months months
ended ended ended ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004
----------- ----------- ----------- -----------
Revenues
Premiums earned, net $467,907 $145,928 $1,371,782 $435,254
Investment income,
net 92,132 55,519 256,165 160,439
Fee income 2,801 2,545 9,209 8,686
Realized gains
(losses) 1,344 (3,398) 5,572 (3,664)
Change in value of
embedded
derivatives, net (2,631) (5,509) (19,267) 456
----------- ----------- ----------- -----------
Total revenues 561,553 195,085 1,623,461 601,171
----------- ----------- ----------- -----------
Benefits and expenses
Claims and other
policy benefits 356,127 104,701 1,030,893 322,856
Interest credited to
interest sensitive
contract liabilities 36,724 27,685 99,089 77,342
Acquisition costs and
other insurance
expenses, net 89,027 38,554 306,465 109,012
Operating expenses 32,909 13,214 83,979 36,969
Collateral finance
facilities expense 13,230 1,385 32,470 1,385
Interest expense 5,690 3,352 16,096 9,126
----------- ----------- ----------- -----------
Total benefits
and expenses 533,707 188,891 1,568,992 556,690
----------- ----------- ----------- -----------
Income before income
taxes and minority
interest 27,846 6,194 54,469 44,481
Income tax benefit 6,677 5,401 15,233 6,217
----------- ----------- ----------- -----------
Income before
minority interest 34,523 11,595 69,702 50,698
Minority interest (113) (17) (281) (355)
----------- ----------- ----------- -----------
Net income $34,410 $11,578 $69,421 $50,343
Dividend declared on
non-cumulative
perpetual preferred
shares (2,492) - (2,492) -
----------- ----------- ----------- -----------
Net income available
to ordinary
shareholders $31,918 $11,578 $66,929 $50,343
=========== =========== =========== ===========
Scottish Re Group Limited
Supplemental Information - Net Operating Earnings Available to
Ordinary Shareholders
(Stated in Thousands of United States Dollars, Except Per Share
Amounts)
(Unaudited)
Three Three Nine Nine
months months months months
ended ended ended ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004
----------- ----------- ----------- -----------
Net operating
earnings available
to ordinary
shareholders
- ---------------------
Net income available
to ordinary
shareholders $31,918 $11,578 $66,929 $50,343
Realized losses
(gains) (1,344) 3,398 (5,572) 3,664
Change in value of
embedded derivatives 2,631 5,509 19,267 (456)
Taxes on realized
gains/losses and
change in value of
embedded derivatives (569) (1,667) (1,341) (7)
----------- ----------- ----------- -----------
Net operating
earnings available
to ordinary
shareholders $32,636 $18,818 $79,283 $53,544
=========== =========== =========== ===========
Net operating
earnings per share
available to
ordinary
shareholders
Basic $0.72 $0.52 $1.84 $1.50
Diluted $0.67 $0.51 $1.68 $1.44
=========== =========== =========== ===========
Weighted average
number of ordinary
shares outstanding
Basic 45,517,832 35,869,413 43,004,046 35,648,913
Diluted 48,543,262 37,244,288 47,080,247 37,268,420
"Net operating earnings available to ordinary shareholders" is a non-GAAP
measurement. We determine net operating earnings available to ordinary
shareholders by adjusting net income available to ordinary shareholders 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 available to ordinary shareholders enhances the understanding of its
results of operations by highlighting earnings attributable to the normal,
recurring operation of its reinsurance business. However, net operating earnings
available to ordinary shareholders are not a substitute for net income
determined in accordance with GAAP.
Scottish Re Group Limited
Supplemental Information - Segment Operating Results
(Stated in Thousands of United States Dollars)
(Unaudited)
Life Reinsurance North America
Three months ended Nine months ended
September 30 September 30
- ---------------------------------------------------------------------
2005 2004 2005 2004
- --------------------- ----------- ---------- ----------- ------------
Premiums earned, net $425,037 $119,468 $1,273,597 $352,340
Investment income,
net 88,490 53,250 246,977 151,636
Fee income 2,010 1,445 6,916 5,795
Realized gains
(losses) (160) (1,289) 3,490 (1,149)
Change in value of
embedded
derivatives, net (2,631) (5,509) (19,267) 456
----------- ----------- ----------- -----------
Total revenues 512,746 167,365 1,511,713 509,078
----------- ----------- ----------- -----------
Claims and other
policy benefits 330,035 88,070 967,822 266,147
Interest credited to
interest sensitive
contract liabilities 36,724 27,685 99,089 77,342
Acquisition costs and
other insurance
expenses, net 78,575 33,989 287,368 99,226
Operating expenses 12,981 4,437 34,875 13,543
Collateral finance
facilities expense 11,850 1,385 28,483 1,385
Interest expense 3,062 1,266 8,427 2,892
----------- ----------- ----------- -----------
Total benefits and
expenses 473,227 156,832 1,426,064 460,535
----------- ----------- ----------- -----------
Income before income
taxes and minority
interest 39,519 10,533 85,649 48,543
Income tax benefit 4,705 5,828 13,383 6,749
----------- ----------- ----------- -----------
Income before
minority interest 44,224 16,361 99,032 55,292
Minority interest (113) (17) (281) (355)
----------- ----------- ----------- -----------
Net income $44,111 $16,344 $98,751 $54,937
=========== =========== =========== ===========
Net operating
earnings
- ---------------------
Net income $44,111 $16,344 $98,751 $54,937
Realized losses
(gains) 160 1,289 (3,490) 1,149
Change in value of
embedded
derivatives, net 2,631 5,509 19,267 (456)
Taxes on above items (556) (1,691) (1,514) 44
----------- ----------- ----------- -----------
Net operating
earnings $46,346 $21,451 $113,014 $55,674
=========== =========== =========== ===========
Scottish Re Group Limited
Supplemental Information - Segment Operating Results (continued)
(Stated in Thousands of United States Dollars)
(Unaudited)
Life Reinsurance International
Three months ended Nine months ended
September 30 September 30
----------------------- -----------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Premiums earned, net $42,870 $26,460 $98,185 $82,914
Investment income,
net 2,734 2,105 7,676 7,828
Realized gains
(losses) (82) 67 502 (273)
----------- ----------- ----------- -----------
Total revenues 45,522 28,632 106,363 90,469
----------- ----------- ----------- -----------
Claims and other
policy benefits 26,092 16,631 63,071 56,709
Acquisition costs and
other insurance
expenses, net 9,933 4,115 17,545 8,097
Operating expenses 6,728 4,941 19,863 13,107
----------- ----------- ----------- -----------
Total benefits and
expenses 42,753 25,687 100,479 77,913
----------- ----------- ----------- -----------
Income before income
taxes 2,769 2,945 5,884 12,556
Income tax benefit
(expense) 2,363 553 2,298 (569)
----------- ----------- ----------- -----------
Net income $5,132 $3,498 $8,182 $11,987
=========== =========== =========== ===========
Net operating
earnings
- ---------------------
Net income $5,132 $3,498 $8,182 $11,987
Realized losses
(gains) 82 (67) (502) 273
Taxes on realised
losses (gains) (7) 24 168 (53)
----------- ----------- ----------- -----------
Net operating
earnings $5,207 $3,455 $7,848 $12,207
=========== =========== =========== ===========
Scottish Re Group Limited
Supplemental Information - Segment Operating Results (continued)
(Stated in Thousands of United States Dollars)
(Unaudited)
Corporate & Other
Three months ended Nine months ended
September 30 September 30
----------------------- -----------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Investment income,
net $908 $164 $1,512 $975
Fee income 791 1,100 2,293 2,891
Realized gains
(losses) 1,586 (2,176) 1,580 (2,242)
----------- ----------- ----------- -----------
Total revenues 3,285 (912) 5,385 1,624
----------- ----------- ----------- -----------
Acquisition costs and
other insurance
expenses, net 519 450 1,552 1,689
Operating expenses 13,200 3,836 29,241 10,319
Collateral finance
facilities expense 1,380 - 3,987 -
Interest expense 2,628 2,086 7,669 6,234
----------- ----------- ----------- -----------
Total benefits and
expenses 17,727 6,372 42,449 18,242
----------- ----------- ----------- -----------
Loss before income
taxes (14,442) (7,284) (37,064) (16,618)
Income tax benefit
(expense) (391) (980) (448) 37
----------- ----------- ----------- -----------
Net loss $(14,833) $(8,264) $(37,512) $(16,581)
=========== =========== =========== ===========
Net operating loss
- ---------------------
Net loss $(14,833) $(8,264) $(37,512) $(16,581)
Realized losses
(gains) (1,586) 2,176 (1,580) 2,242
Taxes on realised
losses (gains) (6) - 5 2
Dividend declared on
non-cumulative
perpetual preferred
shares (2,492) - (2,492) -
----------- ----------- ----------- -----------
Net operating loss $(18,917) $(6,088) $(41,579) $(14,337)
=========== =========== =========== ===========
Scottish Re Group Limited
Supplemental Information - Business Acquired from ING
(Stated in Thousands of United States Dollars)
This supplemental information is in respect of the business acquired from
ING. This information also includes premiums earned, claims and other policy
benefits and acquisition costs and other insurance expenses in respect of 2005
new business. As this block is integrated into our existing North America
traditional solutions business, we do not allocate shared operating expenses
directly to the results of the block.
(Unaudited)
Three Nine
months months
ended ended
September September
30, 2005 30, 2005
----------- -----------
Premiums earned (1) $295,102 $862,109
Investment income, net 19,105 55,198
Realized gains (losses) (903) 1,392
Change in value of embedded derivatives, net (2,832) (16,063)
----------- -----------
Total revenues 310,472 902,636
----------- -----------
Claims and other policy benefits (1) 226,592 639,137
Acquisition costs and other insurance
expenses, net (1) 51,035 187,414
Operating expenses(2) 4,813 14,503
----------- -----------
Total benefits and expenses 282,440 841,054
----------- -----------
Income before income taxes and minority
interest $28,032 $61,582
=========== ===========
(1) Includes amounts in respect of 2005 new business.
(2) Operating expenses include only direct expenses and do not include an
allocation of shared expenses from our North American operation.
Scottish Re Group Limited
Supplemental Information - Book Value Per Ordinary Share and
Fully Diluted Book Value Per Ordinary Share
(Stated in Thousands of United States Dollars, Except Share
Amounts)
Fully diluted book value per ordinary share is a non-GAAP measure, based on
total shareholders' equity plus the assumed proceeds from the exercise of
outstanding options, warrants, and other convertible securities, divided by the
sum of shares, options and warrants outstanding, and the number of shares
required upon the conversion of convertible securities. The Company believes
that fully diluted book value per ordinary share more accurately reflects the
book value that is attributable to an ordinary share.
(Unaudited)
September December
30, 2005 31, 2004
----------- -----------
Shareholders' equity - end of period $1,065,108 $862,674
Other comprehensive income (3,704) (31,604)
Fair value of embedded derivative, net 24,429 5,162
Preferred shares (125,000) -
Net proceeds from assumed:
Conversion of options 49,336 37,085
Conversion of warrants 39,750 39,782
Conversion of mezzanine equity 143,750 143,750
Conversion of 7% convertible notes - 41,282
----------- -----------
Numerator for diluted book value per share
calculation $1,193,669 $1,098,131
=========== ===========
Ordinary shares outstanding-end of period 45,627,372 39,931,145
Potential shares issued from assumed:
Exercise of options and restricted
stock units 3,359,436 2,491,236
Conversion of warrants 2,650,000 5,856,431
Conversion of mezzanine equity 6,029,781 6,099,025
Conversion of 4.5% senior convertible notes 473,273 -
Conversion of 7% convertible notes - 2,130,709
----------- -----------
Denominator for diluted book value per share
calculation 58,139,862 56,508,546
=========== ===========
Book value per ordinary share $20.60 $21.60
Fully diluted book value per ordinary share
(excluding other comprehensive income and
the value of embedded derivatives) $20.53 $19.43
CONTACT: Scottish Re Group Limited
Scott E. Willkomm, 441-298-4364
scott.willkomm@scottishre.com
SOURCE: Scottish Re Group Limited