Scottish Re Group Limited Announces Operating Results for the Fourth Quarter and
Year Ended December 31, 2005
Company Release - 02/16/2006 17:51
HAMILTON, Bermuda, Feb. 16 /PRNewswire-FirstCall/ -- Scottish Re Group Limited
(NYSE: SCT) today reported that net income available to ordinary shareholders
for the quarter ended December 31, 2005 was $58.5 million, or $1.18 per diluted
ordinary share, as compared to $21.0 million, or $0.56 per diluted ordinary
share for the prior year period. Net income available to ordinary shareholders
for the year ended December 31, 2005 was $125.4 million or $2.64 per diluted
ordinary share, as compared to $71.4 million, or $1.90 per diluted ordinary
share for the prior year period.
Net operating earnings available to ordinary shareholders were $50.8 million, or
$1.03 per diluted ordinary share for the quarter ended December 31, 2005 as
compared to $26.8 million, or $0.71 per diluted ordinary share for the prior
year period. Net operating earnings available to ordinary shareholders was
$130.1 million, or $2.74 per diluted ordinary share for the year ended December
31, 2005 as compared to $80.4 million, or $2.14 per diluted ordinary share for
the prior year period.
"Net operating earnings available to ordinary shareholders" is a non-GAAP
measurement. The Company determines 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 related to these items as well as
acquisition-related due diligence costs in 2004. 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 very pleased with the results for the quarter ended December 31, 2005.
With this strong performance, we have met our earnings guidance for both the
quarter and full year and significantly enhanced the return on equity to our
shareholders. These quality earnings were driven by the excellent contribution
made from our traditional reinsurance business in North America but performance
from all areas of the business was solid for the period. In addition, I am
particularly pleased with the successful completion of the integration of the
ING business and the migration of our administration operations from Charlotte
to Denver. Finally, the capital market transactions completed in December capped
an excellent year for our Company and I look forward to carrying this momentum
into 2006," said Scott E. Willkomm, President and Chief Executive Officer of
Scottish Re Group Limited.
Total revenues for the quarter increased to $675.0 million from $211.1 million
for the prior year period, an increase of 220%. Excluding realized gains and
losses and the change in value of the embedded derivatives, total revenues for
the quarter increased to $666.0 million from $211.6 million for the prior year
period, an increase of 215%. Total revenues for the year ended December 31, 2005
increased to $2.3 billion from $814.4 million for the prior year, an increase of
182%. Excluding realized gains and losses and the change in value of the
embedded derivatives, total revenues for the year increased to $2.3 billion from
$818.1 million for the prior year, an increase of 181%.
Total benefits and expenses increased to $615.8 million for the quarter from
$200.1 million, an increase of 208%. For the year ended December 31, 2005, total
benefits and expenses increased to $2.2 billion from $758.9 million, an increase
of 188%. The increases in revenues and expenses were principally driven by the
acquisition on December 31, 2004 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 year ended December 31, 2005 was 5.0%, as compared
to an operating expense ratio of 6.7% for the year ended December 31, 2004.
The Company's total assets were $12.0 billion as of December 31, 2005. The core
investment portfolio, comprising fixed maturity investments, preferred stock and
most of the cash and cash equivalents, totaled $6.8 billion, and had an average
quality rating of "AA", an effective duration of 2.9 years and a weighted
average book yield of 4.9%. 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 $2.3 billion, had an average quality rating
of "A+", an effective duration of 5.1 years and a weighted average book yield of
5.6% at December 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. The
market value of the funds withheld at interest amounted to $2.6 billion at
December 31, 2005.
As of December 31, 2005, the Company had approximately $1.0 trillion of life
reinsurance in force covering 13.5 million lives with an average benefit per
life of $76,000 in our North American operations. As of December 31, 2004, the
Company had just over $1.0 trillion of life reinsurance in force covering 14.2
million lives with an average benefit per life of $71,000 in our North American
operations.
The Company's book value per ordinary share was $21.48 at December 31, 2005 as
compared to $21.60 per share at December 31, 2004. Fully diluted book value per
share was $21.17 at December 31, 2005 as compared to $19.43 at December 31,
2004.
The Company's return on average shareholders' equity for the year - measured by
dividing net operating earnings available to ordinary shareholders by average
shareholders' equity excluding the effect of other comprehensive income and the
change in value of embedded derivatives - was 12.98% compared to 10.90% in 2004.
On December 21, 2005, the Company closed its second securitization of excess
reserves arising from Regulation XXX offering $455.0 million of 30-year maturity
securities through Orkney Re II plc, an Irish special purpose vehicle.
Consistent with the first securitization, the securities have recourse only to
Orkney Re II and not to any other Scottish Re entity.
Also in December, the Company completed two transactions that together provided
approximately $2.0 billion in collateral to fund Regulation XXX reserve
requirements that were assumed in connection with the acquisition of ING Re's
individual life reinsurance business. The first transaction is a 20 year
collateral finance facility with HSBC Bank USA that provides approximately $1.0
billion of Regulation XXX support and an enhancement to the facility that was
originally completed in 2004. The second transaction is a long-term reinsurance
facility with a third party, Bermuda-domiciled reinsurer that provides up to
$1.0 billion of Regulation XXX collateral support.
On December 23, 2005, the Company completed a public offering of 7,660,000
shares (which includes the over allotment option of 1,410,000 shares) priced at
$24.00 per share which yielded net proceeds of $174.1 million. In addition, the
Company entered into forward equity sale agreements with Bear, Stearns & Co.
Inc. and Lehman Brothers Inc. who agree to pay the Company $75.0 million in the
third quarter of 2006 and an additional $75.0 million in the fourth quarter of
2006, subject to the Company's right to receive a portion of such payment prior
to the settlement dates. In exchange, on each of such dates the Company has the
option to deliver to Bear, Stearns & Co. Inc. and Lehman Brothers Inc. a
variable number of ordinary shares based on the average market price of the
ordinary shares, subject to a floor price of $22.80 and a cap price of $28.80.
Dean E. Miller, Chief Financial Officer, noted "Within just twelve months of
purchase, the Company has successfully and fully integrated the ING business and
secured permanent funding for more than 40% of Regulation XXX reserve
requirements associated with the block of business. These accomplishments
clearly illustrate the Company's operational and financial effectiveness when
large blocks of business are acquired."
The Company's earnings conference call will be held at 11:00 a.m. (EST) on
Friday, February 17, 2006. The dial-in number is (877) 502 2902 or (706) 679
5950 and the reservation number is 4083288. A replay of the call will be
available beginning at 1:00 pm on Friday, February 17, 2006 and running through
Friday, March 3, 2006. The dial-in number for the replay is (800) 642 1687 or
(706) 645 9291 and the PIN code is 4083288. 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. Scottish Re
has operating companies in Bermuda, Charlotte, North Carolina, Dublin, Ireland,
Grand Cayman, Windsor, England and a representative office in Singapore. Its
flagship 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, which is rated A-
(excellent) by A.M. Best. Scottish Re Capital Markets, Inc., a member of
Scottish Re Group Limited, is a registered broker dealer that specializes in
securitization of life insurance assets and liabilities. Additional information
about Scottish Re Group Limited 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 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 months Three months
ended ended Year ended Year ended
December 31, December 31, December 31, December 31,
2005 2004 2005 2004
Total revenues $674,980 $211,113 $2,297,329 $814,387
Net operating
earnings available
to ordinary
shareholders* 50,777 26,817 130,058 80,360
Net income 60,776 21,046 130,197 71,391
Net income
available
to ordinary
shareholders 58,510 21,046 125,439 71,391
Net operating
earnings per
ordinary share
Basic $1.10 $0.75 $2.97 $2.25
Diluted $1.03 $0.71 $2.74 $2.14
Earnings per
ordinary share
Basic $1.26 $0.58 $2.86 $2.00
Diluted $1.18 $0.56 $2.64 $1.90
Dividends per
ordinary share $0.05 $0.05 $0.20 $0.20
Weighted average
ordinary shares
Outstanding
Basic 46,312,567 35,981,436 43,838,261 35,732,522
Diluted 49,450,464 37,847,645 47,531,116 37,508,292
*Excludes the effects of 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, taxes related to these items as well
as acquisition-related due diligence costs in 2004, and dividends on the
perpetual preferred shares.
December 31, December 31,
2005 2004
Basic book value
per ordinary share $21.48 $21.60
Basic book value
per ordinary share -
excluding other
comprehensive income
and value of embedded
derivatives $21.89 $20.92
Fully diluted book
value per ordinary
share - excluding
other comprehensive
income and value of
embedded derivatives $21.17 $19.43
Scottish Re Group Limited
Consolidated Balance Sheets
(Stated in Thousands of United States Dollars, Except Share Data)
December 31, December 31,
2005 2004
(Unaudited)
Assets
Fixed maturity investments $5,292,595 $3,392,463
Preferred stock 133,804 125,204
Cash and cash equivalents 1,420,205 794,639
Other investments 54,619 16,250
Funds withheld at interest 2,292,659 2,056,280
Total investments 9,193,882 6,384,836
Accrued interest receivable 44,012 32,092
Reinsurance balances and
risk fees receivable 630,129 495,517
Deferred acquisition costs 594,583 417,306
Amounts recoverable from reinsurers 551,288 680,956
Present value of in-force business 54,743 62,164
Goodwill 34,125 34,125
Other assets 87,198 38,926
Current income tax receivable - 7,712
Deferred tax benefit 55,453 15,030
Segregated assets 760,707 783,573
Total assets
$12,006,120 $8,952,237
Liabilities
Reserves for future policy benefits $3,477,222 $3,301,715
Interest sensitive contract liabilities 3,907,573 3,181,447
Collateral finance facilities 1,985,681 200,000
Accounts payable and other liabilities 83,130 68,311
Reinsurance balances payable 114,078 116,589
Current income tax payable 9,155 -
7.00% Convertible junior subordinated notes - 41,282
Long term debt 244,500 244,500
Segregated liabilities 760,707 783,573
Total liabilities 10,582,046 7,937,417
Minority interest 9,305 9,697
Mezzanine equity 143,057 142,449
Shareholders' equity
Ordinary shares, par value
$0.01 per share:
Issued 53,391,939 shares
(2004 - 39,931,145) 534 399
Preferred shares, par value $0.01:
Issued: 5,000,000 shares 125,000 -
Additional paid- in capital 893,767 684,719
Accumulated other comprehensive income (9,991) 31,604
Retained earnings 262,402 145,952
Total shareholders' equity 1,271,712 862,674
Total liabilities, minority interest,
mezzanine equity and shareholders'
equity $12,006,120 $8,952,237
Scottish Re Group Limited
Consolidated Statements of Income
(Stated in Thousands of United States Dollars)
(Unaudited)
Three months Three months
ended ended Year ended Year ended
December 31, December 31 December 31, December 31,
2005 2004 2005 2004,
Revenues
Premiums earned, net $563,262 $152,089 $1,933,930 $589,445
Investment income, net 99,672 56,699 355,837 217,138
Fee income 3,106 2,860 12,316 11,547
Realized gains (losses) (1,834) (4,640) 3,738 (8,304)
Change in value of
embedded derivatives, net 10,774 4,105 (8,492) 4,561
Total revenues 674,980 211,113 2,297,329 814,387
Benefits and expenses
Claims and other
policy benefits 411,613 103,109 1,442,505 425,965
Interest credited to
interest sensitive
contract liabilities 33,879 29,182 132,968 106,525
Acquisition costs and
other insurance expenses,
net 118,424 40,292 423,775 151,405
Operating expenses 31,595 17,689 115,573 54,658
Due diligence costs - 4,643 - 4,643
Collateral finance
facilities expense 15,675 1,339 48,146 2,724
Interest expense 4,641 3,891 20,738 13,016
Total benefits and
expenses 615,827 200,145 2,183,705 758,936
Income from continuing
operations before income
taxes and minority
interest 59,153 10,968 113,624 55,451
Income tax benefit 1,202 10,462 16,434 16,679
Income from continuing
operations before
minority interest 60,355 21,430 130,058 72,130
Minority interest 421 (176) 139 (531)
Income from
continuing operations 60,776 21,254 130,197 71,599
Loss from discontinued
operations - (208) - (208)
Net income 60,776 21,046 130,197 71,391
Dividends declared on
non-cumulative perpetual
preferred shares (2,266) - (4,758) -
Net income available to
ordinary shareholders $58,510 $21,046 $125,439 $71,391
Scottish Re Group Limited
Supplemental Information - Net Operating Earnings
(Stated in Thousands of United States Dollars, Except Per Share Amounts)
(Unaudited)
Three months Three months
ended ended Year ended Year ended
December 31, December 31, December 31, December 31,
2005 2004 2005 2004
Net operating earnings
available to ordinary
shareholders
Net income available to
ordinary shareholders $58,510 $21,046 $125,439 $71,391
Realized losses (gains) 1,834 4,640 (3,738) 8,304
Change in value of
embedded derivatives,
net (10,774) (4,105) 8,492 (4,561)
Taxes on realized
gains/losses and change
in value of embedded
derivatives 1,207 1,172 (135) 1,162
Due diligence costs (net
of taxation of $579) - 4,064 - 4,064
Net operating earnings
available to ordinary
shareholders $50,777 $26,817 $130,058 $80,360
Net operating earnings
per share available to
ordinary shareholders
Basic $1.10 $0.75 $2.97 $2.25
Diluted $1.03 $0.71 $2.74 $2.14
Weighted average number
of ordinary shares
outstanding
Basic 46,312,567 35,981,436 43,838,261 35,732,522
Diluted 49,450,464 37,847,645 47,531,116 37,508,292
Scottish Re Group Limited
Supplemental Information - Segment Operating Results
(Stated in Thousands of United States Dollars)
(Unaudited)
Life Reinsurance North America
Three months ended Year ended
December 31 December 31
2005 2004 2005 2004
Premiums earned, net $541,679 $113,631 $1,814,875 $466,927
Investment income, net 94,562 54,373 341,539 206,009
Fee income 2,316 7,867
2,071 9,233
Realized gains (losses) (2,368) (6,826) 1,121 (7,974)
Change in value of
embedded
derivatives, net 10,774 4,105 (8,492) 4,561
Total revenues 646,963 167,354 2,158,276 677,390
Claims and other
policy benefits 397,777 78,172 1,365,599 344,319
Interest credited to
interest sensitive
contract liabilities 33,879 29,182 132,968 106,525
Acquisition costs and
other insurance
expenses, net 114,026 31,477 400,992 131,658
Operating expenses 13,975 4,865 48,849 18,408
Collateral finance
facilities expense 14,630 1,339 43,113 2,724
Interest expense 2,396 1,714 10,823 4,605
Total benefits and
expenses 576,683 146,749 2,002,344 608,239
Income before income
taxes and minority
interest $70,280 $20,605 $155,932 $69,151
Pre-tax operating
earnings
Pre-tax income $70,280 $20,605 $155,932 $69,151
Realized losses (gains) 2,368 6,826 (1,121) 7,974
Change in value of
embedded derivatives,
net (10,774) (4,105) 8,492 (4,561)
Pre-tax operating
earnings $61,874 $23,326 $163,303 $72,564
Scottish Re Group Limited
Supplemental Information - Segment Operating Results (continued)
(Stated in Thousands of United States Dollars)
(Unaudited)
Life Reinsurance International
Three months ended Year ended
December 31 December 31
2005 2004 2005 2004
Premiums earned, net $21,583 $38,458 $119,055 $122,518
Investment income, net 3,812 2,195 11,488 10,023
Realized gains 760 1,958 1,263 1,685
Total revenues 26,155 42,611 131,806 134,226
Claims and other policy
benefits 13,836 24,937 76,906 81,646
Acquisition costs and other
insurance expenses, net 3,889 8,390 20,722 17,634
Operating expenses 5,414 5,692 25,276 18,798
Total benefits and expenses 23,139 39,019 122,904 118,078
Income before income taxes
$3,016 $3,592 $8,902 $16,148
Pre-tax operating earnings
Pre-tax income $3,016 $3,592 $8,902 $16,148
Realized gains (760) (1,958) (1,263) (1,685)
Pre-tax operating earnings $2,256 $1,634 $7,639 $14,463
Scottish Re Group Limited
Supplemental Information - Segment Operating Results (continued)
(Stated in Thousands of United States Dollars)
(Unaudited)
Corporate & Other
Three months ended Year ended
December 31 December 31
2005 2004 2005 2004
Investment income, net $1,298 $131 $2,810 $1,106
Fee income 790 789 3,083 3,680
Realized gains (losses) (226) 228 1,354 (2,015)
Total revenues 1,862 1,148 7,247 2,771
Acquisition costs and other
insurance expenses, net 509 425 2,061 2,113
Operating expenses 12,206 7,132 41,448 17,452
Due diligence costs - 4,643 - 4,643
Collateral finance facilities 1,045 - 5,033 -
expense
Interest expense 2,245 2,177 9,915 8,411
Total benefits and expenses 16,005 14,377 58,457 32,619
Loss before income taxes $(14,143) $(13,229) $(51,210) $(29,848)
Pre-tax operating loss
Pre-tax loss $(14,143) $(13,229) $(51,210) $(29,848)
Realised losses (gains) 226 (228) (1,354) 2,015
Due diligence costs - 4,643 - 4,643
Pre-tax operating loss $(13,917) $(8,814) $(52,564) $(23,190)
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)
(Unaudited)
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.
December 31, December 31,
2005 2004
Shareholders' equity - end of period $1,271,712 $862,674
Other comprehensive income 9,991 (31,604)
Fair value of embedded derivative, net 11,810 5,162
Preferred shares (125,000) -
Net proceeds from assumed:
Conversion of options 48,374 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 $1,400,387 $1,098,131
Ordinary shares outstanding-end of period 53,391,939 39,931,145
Potential shares issued from assumed:
Exercise of options and restricted
stock units 3,390,936 2,491,236
Conversion of warrants 2,650,000 5,856,431
Conversion of mezzanine equity 6,099,025 6,099,025
Conversion of 4.5% senior convertible
notes 612,780 -
Conversion of 7% convertible notes - 2,130,709
Denominator for diluted book value per share
calculation 66,144,680 56,508,546
Basic book value per ordinary share $21.48 $21.60
Basic book value per ordinary share -
excluding other comprehensive income and
value of embedded derivatives $21.89 $20.92
Fully diluted book value per ordinary share -
excluding other comprehensive income and the
value of embedded derivatives $21.17 $19.43
Dean E. Miller
EVP & Chief Financial Officer
Scottish Re Group Limited
(441) 298-4395
dean.miller@scottishre.com
SOURCE Scottish Re Group Limited
-0- 02/16/2006
/CONTACT: Dean E. Miller, EVP & Chief Financial Officer, Scottish Re
Group Limited, +1-441-298-4395, dean.miller@scottishre.com /
/Web site: http://www.scottishre.com /
(SCT)