Scottish Re Group Limited
Crown House, Third Floor
4 Par-la-Ville Road
Post Office Box HM 2939
Hamilton, HM MX Bermuda
February 21, 2006
BY EDGAR AND FEDERAL EXPRESS
Jim B. Rosenberg
Division of Corporation Finance
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: Scottish Re Group Limited
Form 10-K for the Fiscal Year Ended December 31, 2004
Filed March 18, 2005
File Number: 001-16855
Dear Mr. Rosenberg:
This letter is being submitted in response to the comments given by the
staff (the "Staff") of the Division of Corporation Finance of the United States
Securities and Exchange Commission (the "Commission") set forth in your letter
dated January 31, 2006 to Dean E. Miller, Executive Vice President and Chief
Financial Officer of Scottish Re Group Limited (the "Company"), with respect to
the above-referenced Form 10-K for the fiscal year ended December 31, 2004 (the
"Form 10-K"). In preparing this response letter, we had the benefit of a
clarifying telephone conversation on February 9, 2006 with Ms. Vanessa
Robertson, Staff Accountant.
For your convenience, the Company sets forth each comment from your comment
letter in bold typeface and include the Company's response below it.
Form 10-K for the Fiscal Year Ended December 31, 2004
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Management's Discussion and Analysis of Financial Condition and Results of
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Operations
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Critical Accounting Policies, page 38
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1. We note your response to comment one and your proposed disclosures. You
state that adjustments have generally not been significant relative to the
overall reserves
Mr. Jim B. Rosenberg
February 21, 2006
Page 2
for future policy benefits. Please quantify for us the significance of
these adjustments relative to net income.
To address this comment, we propose to amend the last sentence of the second
paragraph of our proposed disclosure, as set forth in our January 17, 2006
letter, to read as follows: "The adjustments in a given period have generally
not been significant relative to the overall reserves for future policy benefits
or our results of operations." Please also see our response to your Comment 3
below.
2. We note your response to comment two and your proposed disclosures. Please
provide us in disclosure-type format whether there have been any
significant adjustments in the past. In addition, please quantify the
amount of assumed premiums that are estimated and provide a discussion of
the quantitative and qualitative impact that reasonably likely changes in
one or more of the assumptions would have on reported results, financial
position and liquidity.
Due to the nature of the life reinsurance industry, most of our assumed premiums
are estimated each reporting period. These estimates are performed at the treaty
level and are trued up each month or quarter, depending on the frequency of the
cedant reporting. Adjustments to our estimates are typically small and due to
the large number of treaties tend to net each other out in the aggregate.
However, as described on page 46 of the 2004 Form 10K, in 2003 as part of the
implementation of the International Segment's new administrative system and the
conversion from a cash to an accrual basis, there was a one-time adjustment to
assumed premiums of $23.4m. [It should be noted that claims were also adjusted
in 2003 by a similar amount with the net impact on the results of operations
being much smaller.]
To address your comment, we propose the following amended disclosure, to be
included beginning with the Company's 2005 Form 10K.
For our traditional life reinsurance business, we estimate assumed premiums
using actuarial model projections at the treaty level. Consistent with
reinsurance industry practices, these models use the most recent policy level
data available from our ceding companies and our estimate of new business for
treaties still open to new business. The estimated premiums from the models are
then compared to historical trends in reported assumed premiums by treaty and
other information and adjusted if appropriate. Actual results could differ from
these estimates. The adjustments in a given period have generally not been
significant to the overall premiums or the results of operations.
Based on historical experience, the creditworthiness of ceding companies and our
contractual right of offset, uncollectible assumed premium amounts have been
infrequent and not material. Any provision for doubtful accounts would be
recorded on a specific case-by-case basis.
Mr. Jim B. Rosenberg
February 21, 2006
Page 3
3. We note your response to comment three. We believe that the additional
information you provided in your response would be useful to investors
since you state in your disclosures that changes in assumptions for
mortality, persistency and interest could result in material changes to the
financial statements. Please provide us in disclosure-type format expanded
disclosures regarding the fact that the assumptions are locked in and the
potential effect on earnings.
To address your comment, we propose for our 2005 Form 10K to replace the first
paragraph of the Critical Accounting Policies section (page 38 of our 2004 Form
10K) with the following:
Statement of Financial Accounting Standard ("SFAS") No. 60 "Accounting and
Reporting by Insurance Enterprises" applies to our traditional life policies
with continuing premiums. For these policies, reserves for future policy
benefits are computed based upon expected mortality rates, lapse rates,
investment yields, expenses and other assumptions established at policy issue,
including a margin for adverse deviation. Once these assumptions are made for a
given treaty or group of treaties, they will not be changed over the life of the
treaty. We periodically review actual historical experience and relative
anticipated experience compared to the assumptions used to establish reserves
for future policy benefits. Further, we determine whether actual and anticipated
experience indicates that existing policy reserves together with the present
value of future gross premiums are sufficient to cover the present value of
future benefits, settlement and maintenance costs and to recover unamortized
acquisition costs. Significant changes in experience or assumptions may require
us to provide for expected losses on a group of treaties by establishing
additional net reserves. Because of the many assumptions and estimates used in
establishing reserves and the long-term nature of the reinsurance contracts, the
reserving process, while based on actuarial science, is inherently uncertain.
We primarily rely on our own valuation and administration systems to establish
reserves for future policy benefits. The reserves for future policy benefits may
differ from those established by ceding companies due to the use of different
assumptions, based principally on actual and anticipated experience, including
industry experience and standards. We rely on our ceding companies, however, to
provide accurate policy level data, including face amount, age, duration and
other characteristics as well as underlying premiums and claims. This data
constitutes the primary information used to establish reserves for essentially
all of our future policy benefits. The use of reinsurance intermediaries in our
transactions with ceding companies has been infrequent. In the few instances in
which intermediaries are involved, we receive data from the intermediary in a
similar timeframe and fashion as if received directly from the ceding company.
Claims payable for incurred but not reported losses are determined using case
basis estimates and lag studies of past experience. The time lag from the date
of the claim or death to when the ceding company reports the claim to us can
vary significantly by ceding company, but generally averages around 2 months. We
update our analysis of incurred but not reported losses, including lag studies,
on a quarterly basis and adjust its claim liabilities accordingly. The
adjustments in a
Mr. Jim B. Rosenberg
February 21, 2006
Page 4
given period have generally not been significant relative to the overall
reserves for future policy benefits or our results of operations.
In the underwriting process, we perform procedures to evaluate the ceding
company's process for compiling and reporting data. After entering into a
reinsurance contract, we work closely with our ceding companies to help ensure
information submitted by them is in accordance with the underlying reinsurance
contracts. Additionally, we have a dedicated compliance team that performs
extensive audits, including on-site audits and desk reviews, of the information
provided by ceding companies. In addition to ceding company audits, we routinely
perform analysis, at a treaty level, to compare the actual results of ceding
companies against initial pricing and expected results. Generally, there have
been few disputes or disagreements with ceding companies and most are resolved
through normal administration procedures.
Occasionally, we experience processing backlogs and establish reserves for
processing backlogs with a goal of clearing all backlogs as quickly as possible.
There were no significant processing backlogs at December 31, 2004.
Consolidated Financial Statements
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Notes to Consolidated Financial Statements
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Note 19. Mezzanine equity, page 110
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4. We note your response to comment seven. Please confirm that you will define
the term HyCUs in the notes of the 2005 10-K and that you will clarify that
the convertible preferred shares are conditionally redeemable.
The Company confirms that it will define the term HyCUs in the notes of the
2005 Form 10-K and clarify that the convertible preferred shares are
conditionally redeemable.
Note 22. Taxation
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5. We note your response to comment eight. However, it does not appear as
though you have provided the components of income before income tax as
either domestic or foreign. Please confirm that you will provide this
information in the 2005 10-K or clarify where this information is
disclosed.
The Company confirms that it will provide this information in the 2005 Form
10-K.
*****
Mr. Jim B. Rosenberg
February 21, 2006
Page 5
Thank you for your consideration. If you have further questions or
comments, please contact me at (704) 544-5839.
Sincerely,
/s/ Dean E. Miller
Dean E. Miller
Executive Vice President and Chief
Financial Officer
Vanessa Robertson
Securities and Exchange Commission
Lisa Vanjoske
Securities and Exchange Commission
Scott E. Willkomm
Scottish Re Group Limited
Paul Goldean
Scottish Re Group Limited
Charles Anderson
Scottish Holdings, Inc.
Marty Connor
Ernst & Young
Stephen G. Rooney
LeBoeuf, Lamb, Greene & MacRae LLP