Company Release - 08/03/2006 23:45
_________________
Scottish Re Group Limited Announces Operating Results for the Second Quarter
Ended June 30, 2006
HAMILTON, Bermuda--(BUSINESS WIRE)--Aug. 3, 2006--
Scottish Re Group Limited (NYSE:SCT) today reported that the net loss available
to ordinary shareholders for the three months ended June 30, 2006 was $123.9
million, or a loss of $2.31 per diluted ordinary share, as compared to net
income available to ordinary shareholders of $1.6 million, or $0.03 per diluted
ordinary share for the prior year period. The net loss available to ordinary
shareholders for the six months ended June 30, 2006 was $112.3 million, or a
loss of $2.10 per diluted ordinary share, as compared to net income available to
ordinary shareholders of $35.0 million, or $0.76 per diluted ordinary share for
the prior year period.
The net operating loss available to ordinary shareholders was $130.3 million, or
a loss of $2.43 per diluted ordinary share for the three months ended June 30,
2006 as compared to net operating earnings of $19.7 million or $0.42 per diluted
ordinary share for the prior year period. The net operating loss available to
ordinary shareholders was $116.0 million, or a loss of $2.17 per diluted
ordinary share for the six months ended June 30, 2006 as compared to net
operating earnings of $46.6 million or $1.01 per diluted ordinary share for the
prior year period.
"The results for the quarter are a sharp departure from our original projections
and estimates provided to our stakeholders" said Paul Goldean, Interim Chief
Executive Officer. "While we are very disappointed with the results, we believe
that the core fundamentals of the business are sound. In fact, our mortality
experience for the quarter was in line with expectations."
The net operating loss for the second quarter was primarily attributable to the
following factors:
i. Tax expense of $89.0 million principally related to a $112.4 million
valuation allowance established on deferred tax assets. The valuation allowance
resulted from revised statutory and tax projections of the Company combined with
a reassessment of certain tax planning strategies;
ii. An approximate $8.0 million reduction in premium accruals in North America
resulting from a revision of estimates relating to prior periods;
iii. A deferred acquisition cost adjustment of approximately $13.0 million due
to higher than expected lapses on certain fixed annuity treaties;
iv. External retrocession and reserve adjustments of approximately $21.0 million
due to revisions in estimates resulting from improved data and systems which
administer retrocession accounts; and
v. Severance and retirement and other non-recurring operating expenses of
approximately $9.0 million.
"It is important, however, to keep the loss in perspective and to note that
Scottish Re continues to have sufficient sources of liquidity, collateral and
capital to meet the near-term needs of the business." said Dean Miller, Chief
Financial Officer. "Of particular note is that all operating
subsidiaries remain capitalized well in excess of their minimum required levels
as prescribed by their respective Regulators. We look forward to sharing
additional information at our scheduled earnings call and additionally, have
posted to our web-site, www.scottishre.com, a Financial Supplement to add
further clarification to our financial results for the quarter."
Total revenues for the three months ended June 30, 2006 increased to $593.6
million from $502.0 million for the prior year period, an increase of 18%.
Excluding realized gains and losses and the change in value of the embedded
derivatives, total revenues for the three months ended June 30, 2006 increased
to $597.6 million from $523.2 million for the prior year period, an increase of
14%. Total revenues for the six months ended June 30, 2006 increased to $1,171.9
million from $1,058.6 million for the prior year period, an increase of 11%.
Excluding realized gains and losses and the change in value of the embedded
derivatives, total revenues for the six months ended June 30, 2006 increased to
$1,179.3 million from $1,071.0 million for the prior year period, an increase of
10%. Premiums earned in the three months ended June 30, 2006 were negatively
impacted by revisions to previous premium accrual estimates of approximately $8
million (pre-tax) and adjustments related to retro premiums of approximately $13
million (pre-tax). The investment portfolio, which increased by $1.74 billion
from the closing of the Ballantyne Re transaction in May, continued to perform
well with an average yield of 5.5% compared to an average yield for the first
quarter 2006 of 5.3%.
Total benefits and expenses increased to $626.0 million for the three months
ended June 30, 2006 from $508.8 million for the prior year period, an increase
of 23%. Total benefits and expenses increased to $1,197.8 million for the six
months ended June 30, 2006 from $1,032.0 million for the prior year period, an
increase of 16%. Total benefits and expenses exceeded estimates due to
refinements in our external retrocession reserves of approximately $7 million
(pre-tax). In addition, an adjustment of approximately $13 million (pre-tax) to
write-down deferred acquisition costs was made to reflect the Company's current
best estimate of lapses on certain fixed annuity treaties.
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 six months ended June 30, 2006 was 6.0%, as
compared to an operating expense ratio of 5.0% for the year ended December 31,
2005. Operating expenses for the quarter were negatively impacted by severance
and retirement expenses of approximately $5.0 million, expenses related to the
International segment expansion and various professional fees that on a combined
basis amounted to an additional $3.0 million.
For the three months ended June 30, 2006, the Company had a pre-tax loss of
$32.4 million before Minority Interest and recorded an initial tax benefit of
$23.4 million on those losses. In addition, the Company recorded a $112.4
million valuation allowance resulting in a total tax charge of $89.0 million for
the period.
The Company's book value per share was $17.73 at June 30, 2006 as compared to
$21.48 per share at December 31, 2005. Fully converted book value per share was
$19.27 at June 30, 2006 as compared to $21.17 at December 31, 2005.
The Company's earnings conference call will be held at 8:30 am (EDT) on Friday,
August 4, 2006. The dial-in number is 877-502-2902 or 706-679-5950 and the
conference ID is 2906522.
A replay of the call will be available beginning at 12:30 pm on Friday, August
4, 2006 and running through Friday, August 18, 2006. The dial-in number for the
replay is 800-642-1687 or 706-645-9291 and the conference ID is 2906522. An
on-demand replay of the conference call will be available at the Company's Web
site, www.scottishre.com.
About Scottish Re
Scottish Re Group Limited is a global life reinsurance specialist. Scottish Re
has operating businesses in Bermuda, Grand Cayman, Guernsey, Ireland, Singapore,
the United Kingdom and the United States. Its flagship operating subsidiaries
include Scottish Annuity & Life Insurance Company (Cayman) Ltd. and Scottish Re
(U.S.), Inc.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, 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.
(Tables to follow)
Scottish Re Group Limited
Financial Highlights
(Stated in Thousands of United States Dollars, Except Share Data)
(Unaudited)
Three months ended Six months ended
June 30 June 30
----------------------- -----------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Total revenue $593,626 $502,046 $1,171,947 $1,058,609
Net operating earnings
(loss) available to
ordinary
shareholders* (130,313) 19,715 (116,038) 46,645
Net income (loss) (121,590) 1,591 (107,741) 35,011
Net income (loss)
available to ordinary
shareholders (123,927) 1,591 (112,344) 35,011
Net operating earnings
(loss) per ordinary share
Basic $(2.43) $0.45 $(2.17) $1.12
Diluted $(2.43) $0.42 $(2.17) $1.01
Earnings (loss) per
ordinary share
Basic $(2.31) $0.04 $(2.10) $0.84
Diluted $(2.31) $0.03 $(2.10) $0.76
Dividends declared per
ordinary share $0.00 $0.05 $0.05 $0.10
Weighted average
ordinary shares
Outstanding
Basic 53,720,242 43,462,385 53,578,152 41,726,320
Diluted 53,720,242 47,136,889 53,578,152 46,179,275
*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, and taxes related to these items as
well as dividends on the perpetual preferred shares and imputed dividend on
prepaid variable share forward contract.
June 30, December,
2006 2005
-----------------------------------------------
Book value per
ordinary share $17.73 $21.48
Basic book value per
ordinary share -
excluding other
comprehensive income
and value of
embedded derivatives $19.45 $ 21.89
Fully diluted book
value per ordinary
share - excluding
other comprehensive
income and value of
embedded derivatives $19.27 $21.17
Scottish Re Group Limited
Consolidated Balance Sheets
(Stated in Thousands of United States Dollars, Except Share Data)
June 30, December 31,
2006 2005
------------ --------------
(Unaudited)
Assets
Fixed maturity investments $8,126,980 $5,292,595
Preferred stock 128,137 133,804
Cash and cash equivalents 1,563,341 1,420,205
Other investments 64,701 54,619
Funds withheld at interest 2,175,141 2,597,416
------------ --------------
Total investments 12,058,300 9,498,639
Accrued interest receivable 71,411 44,012
Reinsurance balances and risk fees
receivable 306,454 325,372
Deferred acquisition costs 643,211 594,583
Amounts recoverable from reinsurers 532,000 551,288
Present value of in-force business 52,924 54,743
Goodwill 34,125 34,125
Other assets 124,349 87,198
Deferred tax benefit 5,901 55,453
Segregated assets 776,048 760,707
------------ --------------
Total assets $14,604,723 $12,006,120
============ ==============
Liabilities
Reserves for future policy benefits $4,101,799 $3,477,222
Interest sensitive contract liabilities 4,089,373 3,907,573
Collateral finance facilities 3,725,161 1,985,681
Loans payable 64,856 -
Accounts payable and other liabilities 71,528 83,130
Reinsurance balances payable 187,438 114,078
Current income tax payable 3,487 9,155
Long term debt 244,500 244,500
Segregated liabilities 776,048 760,707
------------ --------------
Total liabilities 13,264,190 10,582,046
------------ --------------
Minority interest 9,284 9,305
Mezzanine equity 143,359 143,057
Shareholders' equity
Ordinary shares, par value $0.01 per
share:
Issued: 53,745,156 shares (2005 -
53,391,939) 537 534
Preferred shares, par value $0.01 per
share:
Issued: 5,000,000 shares (2005 -
5,000,000) 125,000 125,000
Additional paid- in capital 903,422 893,767
Prepaid variable share forward contract 110,031 -
Accumulated other comprehensive income (95,799) (9,991)
Retained earnings 144,699 262,402
------------ --------------
Total shareholders' equity 1,187,890 1,271,712
------------ --------------
Total liabilities, minority interest,
mezzanine equity and shareholders'
equity $14,604,723 $12,006,120
============ ==============
Scottish Re Group Limited
Consolidated Statements of Income (Loss)
(Stated in Thousands of United States Dollars)
(Unaudited)
Three months ended Six months ended
June 30 June 30
-------------------- ---------------------
2006 2005 2006 2005
---------- --------- ---------- ----------
Revenues
Premiums earned $444,942 $436,893 $893,963 $900,573
Investment income, net 147,977 83,554 276,999 164,033
Fee income 4,639 2,785 8,372 6,409
Realized gains (losses) (11,298) 934 (24,899) 4,229
Change in value of embedded
derivatives, net 7,366 (22,120) 17,512 (16,635)
---------- --------- ---------- ----------
Total revenues 593,626 502,046 1,171,947 1,058,609
---------- --------- ---------- ----------
Benefits and expenses
Claims and other policy
benefits 372,101 311,493 746,564 674,766
Interest credited to
interest sensitive
contract liabilities 55,399 31,723 98,100 62,365
Acquisition costs and other
insurance expenses, net 104,872 122,494 192,403 214,136
Operating expenses 39,365 26,500 70,457 51,069
Collateral finance
facilities expense 47,236 11,821 78,323 19,241
Interest expense 7,066 4,813 11,959 10,407
---------- --------- ---------- ----------
Total benefits and
expenses 626,039 508,844 1,197,806 1,031,984
---------- --------- ---------- ----------
Income (loss) before income
taxes and minority
interest (32,413) (6,798) (25,859) 26,625
Income tax benefit
(expense) (89,043) 8,187 (81,586) 8,555
---------- --------- ---------- ----------
Income (loss) before
minority interest (121,456) 1,389 (107,445) 35,180
Minority interest (134) 202 (296) (169)
---------- --------- ---------- ----------
Net income (loss) (121,590) 1,591 (107,741) 35,011
Dividends declared on non-
cumulative preferred
shares (2,265) - (4,531) -
Imputed dividend on prepaid
variable share forward
contract (72) - (72) -
---------- --------- ---------- ----------
Net income (loss) available
to ordinary shareholders $(123,927) $1,591 $(112,344) $35,011
========== ========= ========== ==========
Scottish Re Group Limited
Supplemental Information - Net Operating Earnings (Loss)
(Stated in Thousands of United States Dollars, Except Share Data)
(Unaudited)
Three months ended Six months ended
June 30 June 30
----------------------- -----------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Net operating earnings
(loss) available to
ordinary shareholders
- ----------------------
Net income (loss)
available to ordinary
shareholders $(123,927) $1,591 $(112,344) $35,011
Realized losses
(gains) 11,298 (934) 24,899 (4,229)
Change in value of
embedded derivatives,
net (7,366) 22,120 (17,512) 16,635
Taxes on realized
gains (losses) and
change in value of
embedded derivatives (10,318) (3,062) (11,081) (772)
----------- ----------- ----------- -----------
Net operating earnings
(loss) available to
ordinary shareholders $(130,313) $19,715 $(116,038) $46,645
=========== =========== =========== ===========
Net operating earnings
(loss) per share available to ordinary shareholders
Basic $(2.43) $0.45 $(2.17) $1.12
Diluted $(2.43) $0.42 $(2.17) $1.01
=========== =========== =========== ===========
Weighted average
number of ordinary
shares outstanding
Basic 53,720,242 43,462,385 53,578,152 41,726,320
Diluted 53,720,242 47,136,889 53,578,152 46,179,275
"Net operating earnings (loss) available to ordinary shareholders" is a non-GAAP
measurement. The Company determines net operating earnings (loss) available to
ordinary shareholders by adjusting net income (loss) 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 (loss) 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
(loss) available to ordinary shareholders is not a substitute for net income
(loss) determined in accordance with GAAP. Reconciliations to net income (loss)
available to ordinary shareholders are provided in the following tables.
Scottish Re Group Limited
Supplemental Information - Segment Operating Results
(Stated in Thousands of United States Dollars)
(Unaudited)
Life Reinsurance North America
Three months ended Six months ended
June 30 June 30
------------------- --------------------
2006 2005 2006 2005
--------- --------- --------- ----------
Premiums earned, net $407,549 $408,877 $836,467 $845,972
Investment income, net 136,763 80,956 260,704 158,487
Fee income 3,879 2,007 6,896 4,907
Realized gains (losses) (5,479) 2,208 (19,398) 3,650
Change in value of embedded
derivatives, net 7,366 (22,120) 17,512 (16,635)
--------- --------- ---------- ---------
Total revenues 550,078 471,928 1,102,181 996,381
--------- --------- ---------- ---------
Claims and other policy
benefits 338,626 293,599 685,906 637,787
Interest credited to interest
sensitive contract
liabilities 55,399 31,723 98,100 62,365
Acquisition costs and other
insurance expenses, net 97,280 117,927 181,688 206,205
Operating expenses 14,538 10,221 29,130 21,894
Collateral finance facilities
expense 45,891 10,448 76,434 16,633
Interest expense 3,038 2,657 5,600 5,365
--------- --------- ---------- ---------
Total benefits and expenses 554,772 466,575 1,076,858 950,249
--------- --------- ---------- ---------
Income (loss) before income
taxes and minority interest $(4,694) $5,353 $25,323 $46,132
========= ========= ========== =========
Pre tax operating earnings (loss)
- ---------------------------------
Pre-tax income (loss) $(4,694) $5,353 $25,323 $46,132
Realized losses (gains) 5,479 (2,208) 19,398 (3,650)
Change in value of embedded
derivatives, net (7,366) 22,120 (17,512) 16,635
--------- --------- ---------- ---------
Pre-tax operating earnings
(loss) $(6,581) $25,265 $27,209 $59,117
========= ========= ========== =========
Scottish Re Group Limited
Supplemental Information - Segment Operating Results (continued)
(Stated in Thousands of United States Dollars)
(Unaudited)
Life Reinsurance International
Three months ended Six months ended
June 30 June 30
------------------ ------------------
2006 2005 2006 2005
--------- -------- --------- --------
Premiums earned, net $37,393 $28,016 $57,496 $54,601
Investment income, net 8,971 2,352 11,960 4,942
Realized gains (losses) (6,908) 88 (8,046) 585
--------- -------- --------- --------
Total revenues 39,456 30,456 61,410 60,128
--------- -------- --------- --------
Claims and other policy benefits 33,475 17,894 60,658 36,979
Acquisition costs and other
insurance expenses, net 6,185 4,053 9,002 6,898
Operating expenses 7,874 7,285 13,651 13,134
--------- -------- --------- --------
Total benefits and expenses 47,534 29,232 83,311 57,011
--------- -------- --------- --------
Income (loss) before income
taxes $(8,078) $1,224 $(21,901) $3,117
========= ======== ========= ========
Pre-tax operating earnings (loss)
- ---------------------------------
Pre-tax income (loss) $(8,078) $1,224 $(21,901) $3,117
Realized losses (gains) 6,908 (88) 8,046 (585)
--------- -------- --------- --------
Pre-tax operating earnings
(loss) $(1,170) $1,136 $(13,855) $2,532
========= ======== ========= ========
Scottish Re Group Limited
Supplemental Information - Segment Operating Results (continued)
(Stated in Thousands of United States Dollars)
(Unaudited)
Corporate & Other
Three months ended Six months ended
June 30 June 30
------------------- -------------------
2006 2005 2006 2005
--------- --------- --------- ---------
Investment income, net $2,243 $246 $4,335 $604
Fee income 760 778 1,476 1,502
Realized gains (losses) 1,089 (1,362) 2,545 (6)
--------- --------- --------- ---------
Total revenues 4,092 (338) 8,356 2,100
--------- --------- --------- ---------
Acquisition costs and other
insurance expenses, net 1,407 514 1,713 1,033
Operating expenses 16,953 8,994 27,676 16,041
Collateral finance facilities
expense 1,345 1,373 1,889 2,608
Interest expense 4,028 2,156 6,359 5,042
--------- --------- --------- ---------
Total benefits and expenses 23,733 13,037 37,637 24,724
--------- --------- --------- ---------
Loss before income taxes $(19,641) $(13,375) $(29,281) $(22,624)
========= ========= ========= =========
Pre-tax operating loss
- ----------------------
Pre-tax loss $(19,641) $(13,375) $(29,281) $(22,624)
Realized losses (gains) (1,089) 1,362 (2,545) 6
--------- --------- --------- ---------
Pre-tax operating loss $(20,730) (12,013) $(31,826) $(22,618)
========= ========= ========= =========
Source: Scottish Re Group Limited
Contact: Scottish Re Group Limited
Dean E. Miller, 441-298-4395
dean.miller@scottishre.com