Scottish Re Group Limited Announces Operating Results for the Third Quarter
Ended September 30, 2006
HAMILTON, Bermuda, Nov. 9 /PRNewswire-FirstCall/ -- Scottish Re Group Limited
(NYSE: SCT) today reported that the net loss available to ordinary shareholders
for the three months ended September 30, 2006 was $30.5 million, or a loss of
$0.54 per diluted ordinary share, as compared to net income available to
ordinary shareholders of $31.9 million, or $0.66 per diluted ordinary share for
the prior year period. The net loss available to ordinary shareholders for the
nine months ended September 30, 2006 was $142.8 million, or a loss of $2.61 per
diluted ordinary share, as compared to net income available to ordinary
shareholders of $66.9 million, or $1.42 per diluted ordinary share for the prior
year period.
The net operating loss available to ordinary shareholders was $24.0 million, or
a loss of $0.42 per diluted ordinary share for the three months ended September
30, 2006 as compared to net operating earnings of $32.6 million or $0.67 per
diluted ordinary share for the prior year period. The net operating loss
available to ordinary shareholders was $140.0 million, or a loss of $2.56 per
diluted ordinary share for the nine months ended September 30, 2006 as compared
to net operating earnings of $79.3 million or $1.68 per diluted ordinary share
for the prior year period.
"The Company has been in a very difficult period the past several months, but
has continued to maintain its focus on the core business. Excluding the expected
one-off expenses related to our current situation and the unusually high tax
expense for the quarter, the third quarter results reflect an underlying core
profitability that is within our expectations. It is important to note that our
mortality continues to be in line with expectations," said Paul Goldean, Chief
Executive Officer of Scottish Re Group Limited.
Mr. Goldean further added, "We are continuing our pursuit of strategic
alternatives for Scottish Re, including a possible sale of the Company or a
significant equity infusion by new investors. At this time, we cannot give
assurances that an agreement with any party will be reached, or the price at
which a transaction may be consummated, which may be below the share price as of
market close on November 9, 2006. However, we do expect the process to conclude
within the next several weeks."
"In view of the confidential and sensitive nature of negotiations at this time,
we will not be holding our usual earnings conference call. We do not expect to
make any further announcements, nor can we answer any inquiries about the
process until an agreement is reached or we have otherwise terminated the
process. We ask our stakeholders to review our Form 10Q and Financial Data
Supplement, both of which are available on our website, for additional details
regarding our third quarter financial results."
Total revenues for the three months ended September 30, 2006 increased to $611.3
million from $563.7 million for the prior year period, an increase of 8%.
Excluding realized gains and losses and the change in value of the embedded
derivatives, total revenues for the three months ended September 30, 2006
increased to $618.3 million from $565.0 million for the prior year period, an
increase of 9%. Total revenues for the nine months ended September 30, 2006
increased to $1,783.3 million from $1,622.3 million for the prior year period,
an increase of 10%. Excluding realized gains and losses and the change in value
of the embedded derivatives, total revenues for
the nine months ended September 30, 2006 increased to $1,797.6 million from
$1,636.0 million for the prior year period, an increase of 10%.
Total benefits and expenses increased to $618.2 million for the three months
ended September 30, 2006 from $535.9 million for the prior year period, an
increase of 15%. Total benefits and expenses increased to $1,816.0 million for
the nine months ended September 30, 2006 from $1,567.9 million for the prior
year period, an increase of 16%.
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 nine months ended September 30, 2006 was 6.1%, as
compared to an operating expense ratio of 5.0% for the year ended December 31,
2005. The increase in operating expense ratio is directly related to the
additional severance, legal, actuarial and directors' costs incurred as a result
of our current situation and strategic process.
For the three months ended September 30, 2006, the Company had a pre-tax loss of
$6.8 million before minority interest as compared to a pre-tax profit of $27.8
million for the prior year period. Income tax expense in the third quarter ended
September 30, 2006 was $20.8 million compared to an income tax benefit of $6.7
million in the same period in 2005. The change in our effective tax rate in the
third quarter ended September 30, 2006 compared to the same period in 2005 is
primarily related to a $30.1 million valuation allowance established on deferred
tax assets.
Scottish Re has submitted its Form 10Q to the Securities and Exchange Commission
(SEC); however, due to the Veteran's Day holiday tomorrow, the form will not be
available via the SEC website until Monday, November 13, 2006. The Company's
Form 10Q is immediately available on Scottish Re's website, www.scottishre.com,
along with a Financial Data Supplement that provides further clarification of
the third quarter financial results.
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 website, 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; 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); changes in expectations
regarding future realization of gross deferred tax assets; uncertainties about
our ability to raise equity capital or other sources of liquidity; 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.
Dean E. Miller Scottish Re Group Limited
Tel. # (441) 298-4395
dean.miller@scottishre.com
Scottish Re Group Limited
Financial Highlights
(Stated in Thousands of United States Dollars,
Except Share Data)
(Unaudited)
Three months ended Nine months ended
September 30 September 30
2006 2005 2006 2005
Total revenue $611,346 $563,740 $1,783,293 $1,622,349
Net operating earnings (loss)
available to ordinary
shareholders* (23,953) 32,636 (139,984) 79,281
Net income (loss) (27,415) 34,410 (135,156) 69,421
Net income (loss) available to
ordinary shareholders (30,490) 31,918 (142,834) 66,929
Net operating earnings (loss)
per ordinary share
Basic $(0.42) $0.72 $(2.56) $1.84
Diluted $(0.42) $0.67 $(2.56) $1.68
Earnings (loss) per ordinary
share
Basic $(0.54) $0.70 $(2.61) $1.56
Diluted $(0.54) $0.66 $(2.61) $1.42
Dividends declared per ordinary
share $ - $0.05 $0.10 $0.15
Weighted average ordinary
shares outstanding
Basic 56,933,566 45,517,832 54,708,914 43,004,046
Diluted 56,933,566 48,543,262 54,708,914 47,080,247
* 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.
September 30, December 31,
2006 2005
Book value per ordinary share $19.13 $21.48
Basic book value per ordinary
share - excluding other
comprehensive income and
value of embedded derivatives $19.27 $21.89
Fully diluted book value per
ordinary share - excluding
other comprehensive income and
value of embedded derivatives $18.94 $21.17
Scottish Re Group Limited
Consolidated Balance Sheets
(Stated in Thousands of United States Dollars, Except Share Data)
September 30, December 31,
2006 2005
(Unaudited)
Assets
Fixed maturity investments $7,526,756 $5,292,595
Preferred stock 129,977 133,804
Cash and cash equivalents 1,356,092 1,420,205
Other investments 65,130 54,619
Funds withheld at interest 2,076,097 2,597,416
Total investments 11,154,052 9,498,639
Accrued interest receivable 59,767 44,012
Reinsurance balances and risk fees
receivable 423,759 325,372
Deferred acquisition costs 620,412 594,583
Amounts recoverable from reinsurers 570,834 551,288
Present value of in-force business 51,471 54,743
Goodwill 34,125 34,125
Other assets 172,072 87,198
Deferred tax benefit - 55,453
Segregated assets 739,410 760,707
Total assets $13,825,902 $12,006,120
Liabilities
Reserves for future policy benefits $3,663,489 $3,477,222
Interest sensitive contract liabilities 3,582,687 3,907,573
Collateral finance facilities 3,745,918 1,985,681
Accounts payable and other liabilities 101,862 83,130
Reinsurance balances payable 260,101 114,078
Current income tax payable 4,451 9,155
Deferred tax liability 47,106 -
Long term debt 244,500 244,500
Segregated liabilities 739,410 760,707
Total liabilities 12,389,524 10,582,046
Minority interest 9,329 9,305
Mezzanine equity 143,512 143,057
Shareholders' equity
Ordinary shares, par value $0.01 per
share: Issued 60,554,104 shares
(2005 - 53,391,939) 606 534
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 1,049,790 893,767
Accumulated other comprehensive income (6,068) (9,991)
Retained earnings 114,209 262,402
Total shareholders' equity 1,283,537 1,271,712
Total liabilities, minority interest,
mezzanine equity and shareholders'
equity $13,825,902 $12,006,120
Scottish Re Group Limited
Consolidated Statements of Income (Loss)
(Stated in Thousands of United States Dollars)
(Unaudited)
Three months ended Nine months ended
September 30 September 30
2006 2005 2006 2005
Revenues
Premiums earned $453,521 $470,094 $1,347,484 $1,370,667
Investment income, net 162,408 92,132 439,407 256,165
Fee income 2,380 2,801 10,752 9,210
Realized gains (losses) (1,072) 1,344 (25,971) 5,573
Change in value of embedded
derivatives, net (5,891) (2,631) 11,621 (19,266)
Total revenues 611,346 563,740 1,783,293 1,622,349
Benefits and expenses
Claims and other policy
benefits 377,713 356,127 1,124,277 1,030,893
Interest credited to interest
sensitive contract liabilities 42,423 36,724 140,523 99,089
Acquisition costs and other
insurance expenses, net 86,241 91,214 278,644 305,350
Operating expenses 39,447 32,909 109,904 83,978
Collateral finance facilities
expense 67,323 13,230 145,646 32,471
Interest expense 5,005 5,690 16,964 16,097
Total benefits and
expenses 618,152 535,894 1,815,958 1,567,878
Income (loss) before income
taxes and minority interest (6,806) 27,846 (32,665) 54,471
Income tax benefit (expense) (20,841) 6,677 (102,427) 15,232
Income (loss) before minority
interest (27,647) 34,523 (135,092) 69,703
Minority interest 232 (113 (64) (282)
Net income (loss) (27,415) 34,410 (135,156) 69,421
Dividends declared on
non-cumulative preferred
shares (2,266) (2,492) (6,797) (2,492)
Imputed dividend on prepaid
variable share forward contract (809) - (881) -
Net income (loss) available
to ordinary shareholders $(30,490) $31,918 $(142,834) $66,929
Scottish Re Group Limited
Supplemental Information - Net Operating Earnings (Loss)
(Stated in Thousands of United States Dollars, Except Share Data)
(Unaudited)
Three months ended Nine months ended
September 30 September 30
2006 2005 2006 2005
Net operating earnings
(loss) available to
ordinary shareholders
Net income (loss) available
to ordinary shareholders $(30,490) $31,918 $(142,834) $66,929
Realized losses (gains) 1,072 (1,344) 25,971 (5,573)
Change in value of embedded
derivatives, net 5,891 2,631 (11,621) 19,266
Taxes on realized gains
(losses) and change in value
of embedded derivatives (426) (569) (11,500) (1,341)
Net operating earnings
(loss) available to ordinary
shareholders $(23,953) $32,636 $(139,984) $79,281
Net operating earnings
(loss) per share available
to ordinary shareholders
Basic $(0.42) $0.72 $(2.56) $1.84
Diluted $(0.42) $0.67 $(2.56) $1.68
Weighted average number of
ordinary shares
outstanding
Basic 56,933,566 45,517,832 54,708,914 43,004,046
Diluted 56,933,566 48,543,262 54,708,914 47,080,247
"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 Nine months ended
September 30 September 30
2006 2005 2006 2005
Premiums earned, net $421,707 $427,224 $1,258,174 $1,273,196
Investment income, net 151,872 88,490 412,576 246,977
Fee income 1,620 2,010 8,516 6,917
Realized gains (losses) 173 (160) (19,225) 3,490
Change in value of
embedded derivatives,
net (5,891) (2,631) 11,621 (19,266)
Total revenues 569,481 514,933 1,671,662 1,511,314
Claims and other
policy benefits 360,968 330,035 1,046,874 967,822
Interest credited to
interest sensitive
contract liabilities 42,423 36,724 140,523 99,089
Acquisition costs and
other insurance expenses,
net 74,082 80,762 255,770 286,967
Operating expenses 14,569 12,981 43,699 34,875
Collateral finance
facilities expense 63,866 11,850 140,300 28,483
Interest expense 2,986 3,062 8,586 8,427
Total benefits and
expenses 558,894 475,414 1,635,752 1,425,663
Income before income
taxes and minority
interest $10,587 $39,519 $35,910 $85,651
Pre tax operating
earnings
Pre-tax income $10,587 $39,519 $35,910 $85,651
Realized losses (gains) (173) 160 19,225 (3,490)
Change in value of
embedded derivatives,
net 5,891 2,631 (11,621) 19,266
Pre-tax operating
earnings $16,305 $42,310 $43,514 $101,427
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
2006 2005 2006 2005
Premiums earned, net $31,814 $42,870 $89,310 $97,471
Investment income, net 8,528 2,734 20,488 7,676
Realized gains (losses) (2,832) (82) (10,878) 503
Total revenues 37,510 45,522 98,920 105,650
Claims and other policy benefits 16,745 26,092 77,403 63,071
Acquisition costs and other
insurance expenses, net 9,396 9,933 18,398 16,831
Operating expenses 7,678 6,728 21,329 19,862
Total benefits and expenses 33,819 42,753 117,130 99,764
Income (loss) before income
taxes $3,691 $2,769 $(18,210) $5,886
Pre-tax operating earnings
(loss)
Pre-tax income (loss) $3,691 $2,769 $(18,210) $5,886
Realized losses (gains) 2,832 82 10,878 (503)
Pre-tax operating earnings
(loss) $6,523 $2,851 $(7,332) $5,383
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
2006 2005 2006 2005
Investment income, net $2,008 $908 $6,343 $1,512
Fee income 760 791 2,236 2,293
Realized gains 1,587 1,586 4,132 1,580
Total revenues 4,355 3,285 12,711 5,385
Acquisition costs and other
insurance expenses, net 2,763 519 4,476 1,552
Operating expenses 17,200 13,200 44,876 29,241
Collateral finance facilities
expense 3,457 1,380 5,346 3,988
Interest expense 2,019 2,628 8,378 7,670
Total benefits and expenses 25,439 17,727 63,076 42,451
Loss before income taxes $(21,084) $(14,442) $(50,365) $(37,066)
Pre-tax operating loss
Pre-tax loss $(21,084) $(14,442) $(50,365) $(37,066)
Realized gains (1,587) (1,586) (4,132) (1,580)
Pre-tax operating loss $(22,671) (16,028) $(54,497) $(38,646)
SOURCE Scottish Re Group Limited
Contact: Dean E. Miller, Scottish Re Group Limited, 441-298-4395,
dean.miller@scottishre.com