UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(Rule 14a-101)
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SCOTTISH RE GROUP LIMITED
-------------------------
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Scottish Re Group Limited Announces Operating Results for the Fourth Quarter and
Year Ended December 31, 2006
HAMILTON, Bermuda, Feb. 20 /PRNewswire-FirstCall/ -- Scottish Re Group Limited
(NYSE: SCT) today reported that the net loss available to ordinary shareholders
for the three months ended December 31, 2006 was $233.8 million, or a loss of
$3.86 per diluted ordinary share, as compared to net income available to
ordinary shareholders of $58.5 million, or $1.18 per diluted ordinary share for
the prior year period. The net loss available to ordinary shareholders for the
year ended December 31, 2006 was $376.7 million, or a loss of $6.70 per diluted
ordinary share, as compared to net income available to ordinary shareholders of
$125.4 million, or $2.64 per diluted ordinary share for the prior year.
The net operating loss available to ordinary shareholders for the three months
ended December 31, 2006 was $228.4 million, or a loss of $3.77 per diluted
ordinary share, as compared to net operating earnings of $50.8 million, or $1.03
per diluted ordinary share for the prior year period. The net operating loss
available to ordinary shareholders for the year ended December 31, 2006 was
$368.3 million, or a loss of $6.56 per diluted ordinary share, as compared to
net operating earnings of $130.1 million, or $2.74 per diluted ordinary share
for the prior year.
"We are disappointed with the results for the quarter, but are pleased with our
ability to maintain our business throughout this very difficult period. Although
the consequences of the rating downgrades have continued to impact our operating
results, we are confident that the proposed transaction with MassMutual Capital
and Cerberus (the "Investors") will significantly improve our financial
situation and stabilize the Company as we move into the second quarter of 2007,"
said Paul Goldean, Chief Executive Officer of Scottish Re Group Limited.
Mr. Goldean further added, "We have been working closely with the Investors
throughout our closing process for the fourth quarter ended December 31, 2006.
Due to the operating results for the quarter, combined with the Investors'
continued detailed review of our operations, the Investors requested additional
protections in our agreement with them. Under the terms of an amendment to the
Securities Purchase Agreement unanimously approved by our Board of Directors on
February 19, 2007, we have agreed to provide an additional indemnity to the
Investors, in an amount not to exceed $68.5 million, with respect to adverse
mortality experience in our in-force ING Block (measured over a period of up to
three years commencing January 1, 2007). As with the existing indemnification
provisions in the Securities Purchase Agreement, we will settle any such
indemnification obligation through the adjustment of the number of ordinary
shares into which the convertible shares may be converted and all
indemnification matters will be submitted to the independent members of our
Board of Directors."
Mr. Goldean concluded by stating, "I can affirmatively state that MassMutual
Capital and Cerberus remain committed to closing the transaction and the
amendment noted above is not expected to have any impact on the timing of the
closing."
In order to provide our shareholders an opportunity to consider the amendment,
we will circulate a Supplement to our Proxy Statement containing information
about the amendment on or about February 21, 2007 and we intend to adjourn to
March 2, 2007 the Extraordinary General Meeting originally planned for February
23, 2007. The Extraordinary General Meeting will be held at the Fairmont
Princess Hotel, 76 Pitts Bay Road, Pembroke HM 11, Hamilton Bermuda HM CX at
11 a.m. local time. If you have already sent in a proxy relating to the
Extraordinary General Meeting, you do not need to take any additional action if
you do not want to change your vote, and your previously provided proxy will be
voted at the meeting as you so indicated.
The net operating loss for the fourth quarter was primarily attributable to the
following factors:
1. 5% higher than expected mortality in our North America Segment of
approximately $11.0 million;
2. Unfavorable lapse experience in our North America Segment of
approximately $14.0 million;
3. The reversal of an expected recovery from a specific client of
approximately $15.0 million due to corrected data from the client;
4. The write-off of goodwill and unrecoverable deferred acquisition costs
of approximately $34.0 million and $12.0 million, respectively, related
to our International Segment;
5. Tax expense of $118.2 million principally related to a $91.0 million
valuation allowance established on deferred tax assets. The valuation
allowance resulted from a specific tax planning strategy no longer being
available to the Company. The other components of the higher tax expense
primarily related to valuation allowance movements on deferred tax
assets based on actual results of legal entity statutory income and
movements in statutory reserves for the period; and
6. Higher operating expenses, including legal, directors' fees and the
relocation of our offices from Windsor to London (approximately $14.0
million in total) plus higher collateral finance facility and interest
costs as a result of our rating downgrades and liquidity situation
(approximately $8.0 million).
Total revenues for the three months ended December 31, 2006 decreased to $668.2
million from $675.0 million for the prior year period, a decrease of 1.0%.
Excluding realized gains and losses and the change in value of the embedded
derivatives, total revenues for the three months ended December 31, 2006
increased to $675.5 million from $666.0 million for the prior year period, an
increase of 1.4%. Total revenues for the year ended December 31, 2006 increased
to $2,451.5 million from $2,297.3 million for the prior year, an increase of
6.7%. Excluding realized gains and losses and the change in value of the
embedded derivatives, total revenues for the year ended December 31, 2006
increased to $2,473.1 million from $2,302.1 million for the prior year, an
increase of 7.4%.
Total benefits and expenses increased to $783.0 million for the three months
ended December 31, 2006 from $615.8 million for the prior year period, an
increase of 27.2%. Total benefits and expenses increased to $2,599.0 million for
the year ended December 31, 2006 from $2,183.7 million for the prior year, an
increase of 19.0%.
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, 2006 was 6.2%, as compared
to an operating expense ratio of 5.0% for the prior year.
For the three months ended December 31, 2006, the Company had a pre-tax loss of
$114.8 million before minority interest as compared to a pre-tax profit of $59.2
million for the prior year period. Income tax expense for the three months ended
December 31, 2006 was $118.2 million compared to an income tax benefit of $1.2
million in the same year period. For the year ended December 31, 2006, the
Company had a pre-tax loss of $147.5 million before minority interest as
compared to a pre-tax profit of $113.6 million for the prior year. Income tax
expense for the year ended December 31, 2006 was $220.6 million compared to an
income tax benefit of $16.4 million in the prior year. The change in our
effective tax rate in the fourth quarter ended December 31, 2006 compared to the
prior year is primarily related to valuation allowance movements on deferred tax
assets.
We look forward to sharing additional information at our scheduled earnings call
and additionally, have posted to our Website, http://www.scottishre.com a
Financial Data Supplement to add further clarification to our financial results
for the quarter.
The Company's earnings listen-only conference call will be held at 8:30 am (EST)
on Wednesday, February 21, 2007. The dial-in number is (888) 603-6873 (U.S.) or
(973) 582-2706 (International) and the passcode is 8375492. The conference call
will also be broadcast live via audio Webcast, which will be available on the
home page of the Company's Website at http://www.scottishre.com. Following the
earnings conference call, a replay of the call will be available for two weeks
beginning at 10:30 am (EST) on Wednesday, February 21, 2007, and ending on
Tuesday, March 6, 2007. The dial-in number for the call replay is (877) 519-4471
(U.S.) or (973) 341-3080 (International) and the passcode is 8375492. An audio
Webcast of the call will be archived and available for the same period on the
Company's Website at http://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., Scottish Re (U.S.),
Inc. and Scottish Re Limited. Additional information about Scottish Re Group
Limited can be obtained from its Website, http://www.scottishre.com.
Certain statements included herein are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act. Forward-looking
statements involve known and unknown risks, uncertainties and other factors,
which may cause the actual results to differ materially from the forward-
looking statements. Management of the Company cautions that these forward-
looking statements are not guarantees of our future performance and are subject
to risks and uncertainties that could cause actual results to differ materially
from the results expressed or implied by 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:
* our ability to consummate the close of the MassMutual Capital and Cerberus
transaction (including obtaining necessary regulatory approvals and shareholder
approval) and realize the benefits of such transaction;
* impact on our financial condition of the failure to complete the close of the
MassMutual Capital and Cerberus transaction;
* the validity of assumptions and methodologies used by management in analyzing
potential run-off scenarios and in predicting our further capital and liquidity
needs and the inability to predict with certainty any future scenarios;
* uncertainties relating to the ratings accorded to us and our insurance
subsidiaries;
* uncertainties in our ability to raise equity capital or other sources of
funding to support ongoing capital and liquidity needs;
* uncertainties relating to future actions that may be taken by creditors,
regulators and ceding insurers relating to our ratings and financial condition;
* the risk that our risk analysis and underwriting may be inadequate;
* changes in expectations regarding future realization of gross deferred tax
assets;
* exposure to mortality experience which differs from our assumptions;
* risks arising from our investment strategy, including risks related to the
market value of our investments, fluctuations in interest rates and our need for
liquidity;
* uncertainties arising from control of our invested assets by third parties;
* developments in global financial markets that could affect our investment
portfolio and fee income;
* changes in the rate of policyholder withdrawals or recapture of reinsurance
treaties;
* the risk that our retrocessionaires may not honor their obligations to us;
* terrorist attacks on the United States and the impact of such attacks on the
economy in general and on our business in particular;
* political and economic risks in developing countries;
* the impact of acquisitions, including our ability to successfully integrate
acquired businesses, the competing demands for our capital and the risk of
undisclosed liabilities;
* risk that an ownership change will result in a limitation on our ability to
fully utilize tax net operating losses;
* loss of the services of any of our key employees;
* losses due to foreign currency exchange rate fluctuations;
* uncertainties relating to government and regulatory policies (such as
subjecting us to insurance regulation or taxation in additional jurisdictions);
* risks relating to recent class action litigations;
* the competitive environment in which we operate and associated pricing
pressures; and
* changes in accounting principles.
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)
Three months ended Year ended
December 31 December 31
2006 2005 2006 2005
(Unaudited) (Unaudited) (Unaudited) (Audited)
Total revenue $668,207 $674,980 $2,451,500 $2,297,329
Net operating earnings (loss)
available to ordinary
shareholders* (228,371) 50,778 (368,348) 130,058
Net income (loss) (231,558) 60,776 (366,714) 130,197
Net income (loss) available
to ordinary shareholders (233,823) 58,510 (376,657) 125,439
Net operating earnings (loss)
per ordinary share
Basic $(3.77) $1.10 $(6.56) $2.97
Diluted $(3.77) $1.03 $(6.56) $2.74
Earnings (loss) per ordinary
share
Basic $(3.86) $1.26 $(6.70) $2.86
Diluted $(3.86) $1.18 $(6.70) $2.64
Dividends declared per
ordinary share $0.00 $0.05 $0.10 $0.20
Weighted average ordinary
shares outstanding
Basic 60,554,104 46,312,567 56,182,222 43,838,261
Diluted 60,554,104 49,450,464 56,182,222 47,531,116
* 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.
December 31, December 31,
2006 2005
Book value per ordinary share $15.39 $21.48
Basic book value per ordinary share - excluding
other comprehensive income and value of
embedded derivatives $15.50 $21.89
Fully converted book value per ordinary share -
excluding other comprehensive income and value
of embedded derivatives $15.78 $21.17
Scottish Re Group Limited
Consolidated Balance Sheets
(Stated in Thousands of United States Dollars, Except Share Data)
December 31, December 31,
2006 2005
(Unaudited) (Audited)
Assets
Fixed maturity investments $8,065,524 $5,292,595
Preferred stock 116,933 133,804
Cash and cash equivalents 622,756 1,420,205
Other investments 65,448 54,619
Funds withheld at interest 1,942,079 2,597,416
Total investments 10,812,740 9,498,639
Accrued interest receivable 57,538 44,012
Reinsurance balances and risk fees receivable 481,908 426,838
Deferred acquisition costs 618,737 594,583
Amounts recoverable from reinsurers 554,589 560,005
Present value of in-force business 48,779 54,743
Goodwill - 34,125
Other assets 178,311 87,198
Deferred tax assets - 55,453
Segregated assets 683,470 760,707
Total assets $13,436,072 $12,116,303
Liabilities
Reserves for future policy benefits $3,919,901 $3,526,220
Interest sensitive contract liabilities 3,399,410 3,907,573
Collateral finance facilities 3,757,435 1,985,681
Accounts payable and other liabilities 95,260 83,130
Reinsurance balances payable 72,304 175,263
Current income tax payable 48 9,155
Deferred tax liability 169,977 -
Long term debt 129,500 244,500
Segregated liabilities 683,470 760,707
Total liabilities 12,227,305 10,692,229
Minority interest 7,910 9,305
Mezzanine equity 143,665 143,057
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 1,050,860 893,767
Accumulated other comprehensive income (loss) 340 (9,991)
Retained (deficit) earnings (119,614) 262,402
Total shareholders' equity 1,057,192 1,271,712
Total liabilities, minority interest,
mezzanine equity and shareholders' equity $13,436,072 $12,116,303
Scottish Re Group Limited
Consolidated Statements of Income (Loss)
(Stated in Thousands of United States Dollars)
Three months ended Year ended
December 31 December 31
2006 2005 2006 2005
(Unaudited) (Unaudited) (Unaudited) (Audited)
Revenues
Premiums earned $494,501 $563,263 $1,841,985 $1,933,930
Investment income, net 177,217 99,672 616,624 355,837
Fee income 3,741 3,106 14,493 12,316
Realized gains (losses) (1,434) (1,835) (27,405) 3,738
Change in value of embedded
derivatives, net (5,818) 10,774 5,803 (8,492)
Total revenues 668,207 674,980 2,451,500 2,297,329
Benefits and expenses
Claims and other policy
benefits 467,195 411,612 1,591,472 1,442,505
Interest credited to interest
sensitive contract liabilities 32,444 33,879 172,967 132,968
Acquisition costs and other
insurance expenses, net 130,541 118,425 409,185 423,775
Operating expenses 42,407 31,595 152,311 115,573
Goodwill impairment 34,125 - 34,125 -
Collateral finance facilities
expense 70,145 15,675 215,791 48,146
Interest expense 6,175 4,641 23,139 20,738
Total benefits and expenses 783,032 615,827 2,598,990 2,183,705
Income (loss) before income
taxes and minority interest (114,825) 59,153 (147,490) 113,624
Income tax benefit (expense) (118,165) 1,202 (220,592) 16,434
Income (loss) before minority
interest (232,990) 60,355 (368,082) 130,058
Minority interest 1,432 421 1,368 139
Net income (loss) (231,558) 60,776 (366,714) 130,197
Dividends declared on
non-cumulative preferred
shares (2,265) (2,266) (9,062) (4,758)
Imputed dividend on prepaid
variable share forward contract - - (881) -
Net income (loss) available to
ordinary shareholders $(233,823) $58,510 $(376,657) $125,439
Scottish Re Group Limited
Supplemental Information - Net Operating Earnings (Loss)
(Stated in Thousands of United States Dollars, Except Share Data)
"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.
Three months ended Year ended
December 31 December 31
2006 2005 2006 2005
(Unaudited) (Unaudited) (Unaudited) (Audited)
Net operating earnings (loss)
available to ordinary
shareholders
Net income (loss) available
to ordinary shareholders $(233,823) $58,510 $(376,657) $125,439
Realized losses (gains) 1,434 1,835 27,405 (3,738)
Change in value of embedded
derivatives, net 5,818 (10,774) (5,803) 8,492
Taxes on realized gains
(losses) and change in value
of embedded derivatives (1,800) 1,207 (13,293) (135)
Net operating earnings (loss)
available to ordinary
shareholders $(228,371) $50,778 $(368,348) $130,058
Net operating earnings (loss)
per share available to
ordinary shareholders
Basic $(3.77) $1.10 $(6.56) $2.97
Diluted $(3.77) $1.03 $(6.56) $2.74
Weighted average number of
ordinary shares outstanding
Basic 60,554,104 46,312,567 56,182,222 43,838,261
Diluted 60,554,104 49,450,464 56,182,222 47,531,116
Scottish Re Group Limited
Supplemental Information - Segment Operating Results
(Stated in Thousands of United States Dollars)
Life Reinsurance North America
Three months ended Year ended
December 31 December 31
2006 2005 2006 2005
(Unaudited) (Unaudited) (Unaudited) (Audited)
Revenues
Premiums earned, net $461,065 $541,679 $1,719,239 $1,814,875
Investment income, net 171,783 94,562 584,359 341,539
Fee income 2,975 2,316 11,491 9,233
Realized gains (losses) 182 (2,369) (19,043) 1,121
Change in value of embedded
derivatives, net (5,818) 10,774 5,803 (8,492)
Total revenues 630,187 646,962 2,301,849 2,158,276
Benefits and expenses
Claims and other policy
benefits 443,472 397,777 1,490,346 1,365,599
Interest credited to interest
sensitive contract liabilities 32,444 33,879 172,967 132,968
Acquisition costs and other
insurance expenses, net 104,967 114,025 360,737 400,992
Operating expenses 14,434 13,974 58,133 48,849
Collateral finance facilities
expense 64,910 14,630 205,210 43,113
Interest expense 3,027 2,396 11,613 10,823
Total benefits and expenses 663,254 576,681 2,299,006 2,002,344
Income (loss) before income
taxes and minority interest $(33,067) $70,281 $2,843 $155,932
Pre tax operating earnings
(loss)
Pre-tax income (loss) $(33,067) $70,281 $2,843 $155,932
Realized losses (gains) (182) 2,369 19,043 (1,121)
Change in value of embedded
derivatives, net 5,818 (10,774) (5,803) 8,492
Pre-tax operating earnings
(loss) $(27,431) $61,876 $16,083 $163,303
Scottish Re Group Limited
Supplemental Information - Segment Operating Results (continued)
(Stated in Thousands of United States Dollars)
Life Reinsurance International
Three months ended Year ended
December 31 December 31
2006 2005 2006 2005
(Unaudited) (Unaudited) (Unaudited) (Audited)
Revenues
Premiums earned, net $33,436 $21,584 $122,746 $119,055
Investment income, net 3,618 3,812 24,106 11,488
Realized gains (losses) (691) 760 (11,569) 1,263
Total revenues 36,363 26,156 135,283 131,806
Benefits and expenses
Claims and other policy
benefits 23,723 13,835 101,126 76,906
Acquisition costs and other
insurance expenses, net 18,934 3,891 37,332 20,722
Operating expenses 9,907 5,414 31,236 25,276
Goodwill impairment 33,758 - 33,758 -
Total benefits and expenses 86,322 23,140 203,452 122,904
Income (loss) before income
taxes $(49,959) $3,016 $(68,169) $8,902
Pre-tax operating earnings
(loss)
Pre-tax income (loss) $(49,959) $3,016 $(68,169) $8,902
Realized losses (gains) 691 (760) 11,569 (1,263)
Pre-tax operating earnings
(loss) $(49,268) $2,256 $(56,600) $7,639
Scottish Re Group Limited
Supplemental Information - Segment Operating Results (continued)
(Stated in Thousands of United States Dollars)
Corporate & Other
Three months ended Year ended
December 31 December 31
2006 2005 2006 2005
(Unaudited) (Unaudited) (Unaudited) (Audited)
Revenues
Investment income, net $1,816 $1,298 $8,159 $2,810
Fee income 766 790 3,002 3,083
Realized gains (losses) (925) (226) 3,207 1,354
Total revenues 1,657 1,862 14,368 7,247
Benefits and expenses
Acquisition costs and other
insurance expenses, net 6,640 509 11,116 2,061
Operating expenses 18,066 12,207 62,942 41,448
Goodwill impairment 367 - 367 -
Collateral finance facilities
expense 5,235 1,045 10,581 5,033
Interest expense 3,148 2,245 11,526 9,915
Total benefits and expenses 33,456 16,006 96,532 58,457
Loss before income taxes $(31,799) $(14,144) $(82,164) $(51,210)
Pre-tax operating loss
Pre-tax loss $(31,799) $(14,144) $(82,164) $(51,210)
Realized losses (gains) 925 226 (3,207) (1,354)
Pre-tax operating loss $(30,874) (13,918) $(85,371) $(52,564)
Dean E. Miller
Scottish Re Group Limited
Tel. # (441) 298-4395 dean.miller@scottishre.com
SOURCE Scottish Re Group Limited
__________
Contact: Dean E. Miller of Scottish Re Group Limited, +1-441-298-4395,
dean.miller@scottishre.com