UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 11-K
FOR ANNUAL REPORTS OF EMPLOYEE STOCK REPURCHASE SAVINGS AND SIMILAR PLANS
PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2006
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to
Commission File Number 001-16855
A. Full title of the plan and the address of the plan, if different from that of
the issuer named below:
SCOTTISH HOLDINGS, INC. 401(K) AND PROFIT SHARING PLAN
B. Name of issuer of the securities held pursuant to the plan and the address of
its principal executive office:
SCOTTISH RE GROUP LIMITED
Crown House, Second Floor
4 Par-la-Ville Road
Hamilton HM12, Bermuda
AUDITED FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
Scottish Holdings, Inc. 401(k) and Profit Sharing Plan
As of and for the Years Ended December 31, 2006 and 2005
Scottish Holdings, Inc. 401(k) and Profit Sharing Plan
Audited Financial Statements
and Supplemental Schedule
As of and for the Years Ended December 31, 2006 and 2005
Contents
Report of Independent Registered Public Accounting Firm......................1
Audited Financial Statements
Statements of Net Assets Available for Benefits..............................2
Statement of Changes in Net Assets Available for Benefits....................3
Notes to Financial Statements................................................4
Supplemental Schedule
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)..............10
Report of Independent Registered Public Accounting Firm
The Plan Administrator and Participants
Scottish Holdings, Inc. 401(k) and Profit Sharing Plan
We have audited the accompanying statements of net assets available for benefits
of the Scottish Holdings, Inc. 401(k) and Profit Sharing Plan as of December 31,
2006 and 2005 and the related statement of changes in net assets available for
benefits for the year ended December 31, 2006. These financial statements are
the responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Plan's internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the Plan's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
December 31, 2006 and 2005 and the changes in its net assets available for
benefits for the year ended December 31, 2006, in conformity with U.S. generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of assets
(held at end of year) as of December 31, 2006, is presented for purposes of
additional analysis and is not a required part of the financial statements but
is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in our audits of the financial statements and, in our
opinion, is fairly stated in all material respects in relation to the financial
statements taken as a whole.
Charlotte, North Carolina /s/ Ernst & Young LLP
June 29, 2007
1
Scottish Holdings, Inc. 401(k) and Profit Sharing Plan
Statements of Net Assets Available for Benefits
December 31,
2006 2005
-------------------------
Assets
Investments, at fair value $11,227,481 $7,324,195
Receivable from participant - 124,952
-------------------------
Net assets available for benefits $11,227,481 $7,449,147
=========================
See accompanying notes.
2
Scottish Holdings, Inc. 401(k) and Profit Sharing Plan
Statement of Changes in Net Assets Available for Benefits
Year Ended December 31, 2006
Additions
Investment income:
Interest .................................................... $ 6,060
Dividends ................................................... 528,163
Net depreciation in fair value of investments ............... (202,020)
-------------
332,203
Contributions:
Participants ................................................ 2,198,420
Rollovers ................................................... 593,412
Employer, net of forfeitures ................................ 1,704,058
-------------
4,495,890
-------------
Total additions ............................................... 4,828,093
Deduction
Benefits paid to participants ................................. 1,049,759
-------------
1,049,759
Net increase 3,778,334
Net assets available for benefits:
Beginning of year ........................................... 7,449,147
-------------
End of year ................................................. $ 11,227,481
=============
See accompanying notes.
3
Scottish Holdings, Inc. 401(k) and Profit Sharing Plan
Notes to the Financial Statements
December 31, 2006
1. Description of Plan
The following description of the Scottish Holdings, Inc. (the Company) 401(k)
and Profit Sharing Plan (the Plan) provides only general information.
Participants should refer to the Plan document for a more complete description
of the Plan's provisions.
General
The Plan is a defined contribution plan covering substantially all employees of
Scottish Holdings, Inc., with certain exceptions as provided in the Plan
document, and the following subsidiaries (collectively, the Plan Sponsor):
o Scottish Re (U.S.), Inc.
o Scottish Annuity & Life International Insurance Company (Bermuda), Ltd.
o Scottish Re (Dublin) Limited (U.S. citizens or U.S. residents only)
An employee is eligible for the Plan on the first day of the month following
completion of one hour of service as defined in the Plan document.
The Plan is subject to the provisions of the Employee Retirement Income Security
Act of 1974 (ERISA), as amended. The Company serves as Plan administrator and
trustee of the Plan.
Effective January 1, 2005, eligible participants may contribute up to 100% of
their pre-tax compensation, as defined in the Plan document, subject to Internal
Revenue Service (IRS) limitations. Prior to January 1, 2005, the deferral limit
was 7.5%. Participants may also contribute amounts representing distributions
from other qualified plans. Participants who have attained age 50 before the end
of the Plan year are eligible to make catch-up contributions. The maximum
participant catch-up contribution amount for 2006 and 2005 was $5,000 and
$4,000, respectively. The Company matches 100% of a participant's total pre-tax
contributions for the Plan year which do not exceed 7.5% of a participant's
compensation for the portion of the year during which the participant elected to
make pre-tax contributions. Additional amounts may be contributed by the Company
at its sole and unrestricted discretion. The amount of such profit sharing
contribution is determined by the Company and is allocated to participants
pro-rata based on compensation. Employees are eligible to receive the profit
sharing contribution if they are active employees on the last day of the Plan
year. There were no profit sharing contributions to the Plan during 2006 or
2005.
Upon enrollment, a participant may direct contributions in 1% increments to any
of the Plan's fund options. Participants may change their investment options on
each business day of the Plan year.
4
Scottish Holdings, Inc. 401(k) and Profit Sharing Plan
Notes to the Financial Statements (continued)
1. Description of Plan (continued)
Participant Accounts
Each participant's account is credited with the participant's contributions and
allocations of (a) the Company's contributions and (b) Plan earnings.
Allocations are based upon participant earnings and account balance as defined
in the Plan document. The benefit to which a participant is entitled is the
benefit that can be provided from the participant's vested account balance.
Forfeited balances of terminated participants' nonvested accounts are used to
fund the employer's contributions to the Plan. The balance in the forfeiture
account at December 31, 2006 and 2005 was $8,249 and $24,431, respectively. The
amount of forfeitures used to reduce employer contributions during 2006 and 2005
was $40,641 and $67,545, respectively.
Vesting
Participants are immediately vested in their contributions plus actual earnings
thereon. Vesting in the Company's qualified matching contribution portion of
their account, which represents matches up to 4% of compensation, plus actual
earnings thereon is 100% at the time of contribution. Vesting in the Company's
matching contribution portion of their account, which represents matches greater
than 4% of compensation but not more than 7.5% of compensation, plus actual
earnings thereon is based on years of continuous service. A participant is 100%
vested after three years of credited service. Vesting in the Company's profit
sharing contribution is based on years of continuous service and a participant
is 100% vested after 5 years of credited service.
For vesting purposes, the method of tracking employment time changed from actual
hours worked in a plan year to an elapsed time.
A change in control occurred on May 7, 2007, upon acquisition of 25% or more of
the combined voting power of the Parent Company, Scottish Re Group Limited
("Parent"). All employees that were actively employed on May 7, 2007 and were
hired on or before May 1, 2007 will be 100% vested in all matching contributions
in current and in the future. Any employee hired after May 1, 2007 will be
subject to the vesting provisions under the above guidelines.
5
Scottish Holdings, Inc. 401(k) and Profit Sharing Plan
Notes to the Financial Statements (continued)
1. Description of Plan (continued)
Participant Loans
Participants may borrow from their 401(k) accounts a minimum amount of $1,000 up
to a maximum amount equal to the lesser of (1) 50% of their vested account
balance or (2) $50,000 reduced by the outstanding balance owed by the
participant during the period up to one year before the issuance of the loan.
Loan terms may not exceed 5 years unless the loan is being used to buy or build
the participant's personal residence. Loans are secured by the balance in the
participant's account and bear interest at a rate equal to the prime lending
rate plus one percentage point. The interest rate will be approved at the time
of the loan and remain constant throughout the loan period. Principal and
interest are paid ratably through regular periodic payroll deductions if the
participant is an employee or in substantially equal installments in the case of
a non-employee.
A loan is not available from the portion of a participant's account balance
consisting of profit sharing contributions or the pension plan (account balances
previously transferred-in and merged from the Scottish Holdings, Inc. Money
Purchase Pension Plan on January 1, 2003).
Payment of Benefits
Participant 401(k) account balances may be distributed upon termination of
service, retirement, proven financial hardship, or death. Participant profit
sharing and pension plan account balances may be distributed upon termination of
service, retirement, or death. A terminated, retired, or hardship participant
may receive the vested value of his or her 401(k) and profit sharing accounts in
a lump sum amount. Annuity payment options are also provided for beneficiaries
of deceased participants or for participants with pension plan account balances.
Such annuity payments are distributed based on the vested value of the
participant account in substantially equal installments over a period not
exceeding the estimated life expectancy of the participant or such beneficiary.
Distributions from the Parent Common Stock Fund may be distributed in cash or in
shares of the Parent Company's common stock, if so elected.
As of December 31, 2006 and 2005, there were no benefit amounts participants
elected to withdraw from the Plan that were approved and processed for payment,
but were not yet paid.
6
Scottish Holdings, Inc. 401(k) and Profit Sharing Plan
Notes to the Financial Statements (continued)
1. Description of Plan (continued)
Subsequent Plan Changes
Effective January 1, 2007, the plan added a Roth feature in addition to the
pretax contribution. Furthermore, the Plan has added the feature of a true up
contribution for any participant that contributes more than the amount matched
at each payroll period. The contribution will be matched as soon as
administratively possible after the end of the year. In addition, the Plan has
been amended for hardship qualifications by adding that the repair of damage to
a participant's principal residence would qualify for the casualty deduction
under Code section 165 and by adding payments for burial or funeral expenses for
the Participant's deceased parent, spouse, children or dependents under Code
section 152.
Plan Termination
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate the
Plan subject to the provisions of ERISA. In the event of Plan termination,
participants will become 100% vested in their accounts.
Administrative Expenses
Administrative expenses for the Plan are paid by the Company.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statement in conformity with U.S. generally
accepted accounting principles requires management to make estimates that affect
the amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
7
Scottish Holdings, Inc. 401(k) and Profit Sharing Plan
Notes to the Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Investment Valuation and Income Recognition
The Plan's investments are stated at fair value which equals the quoted market
price on the last business day of the plan year. The shares of registered
investment companies are valued at quoted market prices which represent the net
asset values of shares held by the Plan at year-end. The Plan's investments in
the Scottish Re Group Limited common stock are stated at fair value based on
quoted market prices. The participant loans are valued at their outstanding
balances, which approximate fair value. Investments in the money market fund are
short term and generally valued at cost, which approximates the fair value.
Purchases and sales of security transactions are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Dividends are recorded on the
ex-dividend date.
3. Investments
During 2006, the Plan's investments (including investments purchased, sold as
well as held during the year) depreciated in fair value as determined by quoted
market prices as follows:
Net Appreciation /
(Depreciation) in Fair
Value of Investments
----------------------
Registered Investment Companies $ 516,790
Parent Company Common Stock (718,810)
----------------------
$ (202,020)
======================
8
Scottish Holdings, Inc. 401(k) and Profit Sharing Plan
Notes to the Financial Statements (continued)
3. Investments (continued)
Investments that represent 5% or more of fair value of the Plan's net assets are
as follows:
December 31
2006 2005
---------------------------------
Investments at fair value:
American Funds Growth Fund of America 1,305,512 802,377
Davis New York Venture Fund 1,532,900 990,970
Fidelity Advisor Mid Cap Fund 1,092,167 705,806
Janus Advisor Balanced Fund 1,123,628 859,668
Janus Advisor Flexible Income Fund 581,844 475,197
Columbia Acorn Fund 943,059 581,439
SSGA S & P 500 Index Fund 1,436,985 825,926
Templeton Foreign Fund 1,011,150 635,804
UBS Money Market Fund* 1,449,350 776,289
* Party-in-interest Transaction
4. Income Tax Status
The Plan has received a determination letter from the IRS dated November 5,
2003, stating that the Plan is qualified under Section 401(a) of the Internal
Revenue Code (the "Code") and, therefore, the related trust is exempt from
taxation. Subsequent to this determination by the Internal Revenue Service, the
Plan was amended. Once qualified, the Plan is required to operate in conformity
with the Code to maintain its qualification.
5. Party-in-interest Transactions
The Plan invests in common stock of the Parent. Purchases of Scottish Re Group
Limited common stock must be made on the open market. The Plan also invests in a
money market fund of the Plan custodian, UBS. Investment balances for the stock
and money market fund are listed in Footnote 3 of these notes to the financial
statements.
9
Scottish Holdings, Inc. 401(k) and Profit Sharing Plan
Notes to the Financial Statements (continued)
6. Risks and Uncertainties
The Plan invests in various investment securities. Investment securities are
exposed to various risks such as interest rate, market and credit risks. Due to
the level of risk associated with certain investments securities, it is at least
reasonably possible that changes in the values of investment securities will
occur in the near term and such changes could materially affect participants'
account balances and the amounts reported in the statements of net assets
available for benefits.
7. Receivable from Participant
The receivable from participant at December 31, 2005 reflected a duplicate
benefit payment distribution. The item was subsequently collected.
10
Supplemental Schedule
Scottish Holdings, Inc. 401(k) and Profit Sharing Plan
Schedule H, Line 4i - Schedule of Assets
(Held At End of Year)
EIN #52-2234408 Plan # 001
December 31, 2006
(c)
(b) Description of Investment,
Identity of Issue, Including Maturity Date, Rate (e)
Borrower, Lessor or of Interest, Collateral, (d) Current
(a) Similar Party Par or Maturity Value Cost Value
-------------------------------------------------------------------------------
Davis New York Venture Fund + $ 1,532,900
Janus Advisor Balanced Fund + 1,123,628
SSGA S&P 500 Index Fund + 1,436,985
American Funds Growth Fund of America + 1,305,512
Fidelity Advisor Mid Cap Fund + 1,092,167
Templeton Foreign Fund + 1,011,150
Columbia Acorn Fund + 943,059
* Scottish Re Group Limited Common Stock + 280,290
Janus Advisor Flexible Income Fund + 581,844
Alliance Bernstein Global Strategic Income Fund + 365,912
-----------
* UBS Money Market Portfolio, 4.76% + 1,449,350
* Participant Loans Interest rates ranging from
5.00-8.00%, maturity dates
ranging from 1-15 years 104,684
-----------
$11,227,481
===========
* Represents party-in-interest
+ Cost information is not presented, as investment is participant directed
Signatures
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other persons who administer the employee benefit plan) have
duly caused this annual report to be signed on its behalf by the undersigned
hereunto duly authorized.
SCOTTISH HOLDINGS, INC. 401(K) AND PROFIT SHARING PLAN
Date: June 29, 2007 /s/ Paul Goldean
--------------------------------------------
Name: Paul Goldean
Title: President and Chief Executive Officer