[Scottish Re Group Limited Letterhead]
October 26, 2007
BY EDGAR AND FEDERAL EXPRESS
- ----------------------------
Jim B. Rosenberg
Senior Assistant Chief Accountant
Division of Corporation Finance
United States Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: Scottish Re Group Limited
Form 10-K for the Fiscal Year Ended December 31, 2006
Filed March 1, 2007
Amended Form 10-K for the Fiscal Year Ended December 31, 2006
Filed April 26, 2007
Form 10-Q for the Quarter Ended June 30, 2007
Filed August 14, 2007
File Number: 001-16855
Dear Mr. Rosenberg:
This letter is being submitted in response to the remaining comment
given telephonically by the staff (the "Staff") of the Division of Corporation
Finance of the United States Securities and Exchange Commission (the
"Commission") on October 18, 2007 to Duncan Hayward, Chief Accounting Officer of
Scottish Re Group Limited (the "Company"), with respect to the above-referenced
Form 10-K for the fiscal year ended December 31, 2006, as amended (the "Form
10-K"), and the Form 10-Q for the quarter ended June 30, 2007 (the "Form 10-Q").
For your convenience, we set forth the Staff's comment in bold
typeface and include the Company's response below it.
Due to the significant discussion that is related to the premium accrual in the
second quarter of 2006, please provide us proposed revised disclosure that
provides a more detailed discussion of the facts and circumstances that led to
the adjustments made to your premium accrual as provided in your response in
paragraphs 3 and 4 [of the Company's prior response letter dated October 10,
2007]. Also include in your proposed revised disclosure the impact that these
facts and circumstances may potentially have on future periods.
Please see below the following revised disclosure which we
propose to include in the MD&A Section of our Form 10-K for the year ended
December 31, 2007.
Mr. Jim B. Rosenberg
October 26, 2007
Page 2
Premiums earned during 2006 decreased 5% to $1,719.2 million compared
to $1,814.9 million in 2005. A portion of this decrease was due to a curtailment
of a number of large treaties immediately following the ING acquisition that did
not meet our risk management criteria and a shift in business mix from
coinsurance to yearly renewable term life reinsurance. Also impacting premiums
were adjustments in the second quarter of 2006 related to revisions of certain
estimates. In respect of the newly acquired ING block in December 2004, we made
an adjustment to revise our premium accrual estimates by $8.0 million in the
second quarter of 2006.
The adjustment of $8.0 million was comprised of two adjustments of
$4.0 million each and related primarily to the newly acquired ING block in
December 2004. In respect of the first $4.0 million adjustment, we conducted a
review of the policy administration data provided to us by ING in the first year
post acquisition of the block, which exhibited unusual premium levels as a
result of two policy years of data being received together. This data had been
used for trend purposes for the accrual estimate as of December 31, 2005. Based
on actual cash received and the analysis of the data, we determined a different
trend on which to base our premium accrual and, consequently, reduced our
premium accrual estimate by $4.0 million.
In respect of the second $4.0 million adjustment, we made a revision
to our previous estimation process for a certain group of new issuances from
late 2004, for which our administrative system did not have sufficient
historical information to provide a best estimate at December 31, 2005. During
2006, we determined the premium estimates for these new issuances based on
actual cash received. We then revised the premium accrual because our updated
data from the administrative system showed clearer historical trends of actual
cash received for our automatic premium estimation process.
In total, a net impact of $4.0 million on premium accrual adjustments
for the North America segment for the year ended December 31, 2006 was recorded
in the context of a total premium accrual of $242.0 million as of December 31,
2005. This represented revisions to all premium accrual estimates recorded in
that year, inclusive of the aforementioned $8.0 million recorded in respect of
the ING block. The impact on net income of these adjustments was immaterial
given that we had offsetting reserves and allowances against the premium
accrual. We consider this revision of premium accrual to have been within
management's expectation of the normal variability of such an estimate.
Our estimation processes may lead to subsequent adjustments as actual
results differ from these estimates. In respect of premium accrual estimates for
the year ended December 31, 2006 we recorded adjustments totaling $7.0 million
which were recorded in the year ended December 31, 2007. We consider these
adjustments to our premium accruals to have been within management's expectation
of the normal variability of such an estimate and the impact on net income from
these adjustments was immaterial.
In addition, as a result of an initiative to improve the quality of
our external retrocession data and related administration systems, we made a
number of revisions to the estimates and underlying assumptions used in
calculating our retrocession premiums. As a
Mr. Jim B. Rosenberg
October 26, 2007
Page 3
result, during the second quarter of 2006, we recorded an additional
retrocession adjustment of approximately $13.0 million. In connection with our
periodic internal review of the underlying performance of our treaties, we
recorded a $16.5 million experience refund adjustment that reduced our third
quarter of 2006 premiums. These experience refunds related to underlying
profitability of specific assumed treaties, most notable within our ING block.
Treaty provisions for these contracts permit our clients to participate in the
overall profitability of the business, assuming certain financial measurement
thresholds are met. In the fourth quarter of 2006, we recorded a $5.3 million
collectability allowance pertaining to accruals for recoveries of retroceded
premiums. Experience refunds on retroceded business were approximately $9.0
million favorable in 2006. These experience refunds are directly related to our
underlying mortality experience. The above favorable amount partially offsets
the adverse mortality experienced in 2006, as discussed below.
Finally, premiums earned in 2006 were lower than in 2005 due to the
termination of new business on certain treaties, an overall reduction in new
business volume and a decrease in renewal premiums as a result of the rating
downgrades in mid 2006. Traditional life reinsurance new business face amounts
assumed was $56.0 billion in 2006 compared to $131.0 billion in 2005.
Thank you for your consideration. If you have further questions or
comments, please contact me at +44 (0)20 7709 1910.
Sincerely,
/s/ Duncan Hayward
-------------------------------
Duncan Hayward
Sasha Parikh
Securities and Exchange Commission
James Atkinson
Securities and Exchange Commission
George Zippel
Scottish Re Group Limited
Paul Goldean
Scottish Re Group Limited
Charles Anderson
Scottish Re Group Limited
Amy Baker
Mr. Jim B. Rosenberg
October 26, 2007
Page 4
Ernst & Young LLP
Andy Betts
Ernst & Young LLP
Stephen G. Rooney
Dewey & LeBoeuf LLP