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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 7, 2008
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SCOTTISH RE GROUP LIMITED
(Exact name of registrant as specified in its charter)
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Cayman Islands 001-16855 98-0362785
(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification No.)
P.O. Box HM 2939
Crown House, Second Floor, 4 Par-la-Ville Road
Hamilton HM12
Bermuda N/A
(Address of Principal Executive Offices) (Zip Code)
(441) 295-4451
Registrant's telephone number, including area code
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act
(17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act
(17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
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Item 4.02. Non-Reliance on Previously Issued Financial Statements or a
Related Audit Report or Completed Interim Review.
On May 7, 2008, Scottish Re Group Limited (the "Company") determined that
the Quarterly Report on Form 10-Q for the period ended September 30, 2007 should
no longer be relied upon until such time as an amended Form 10-Q has been filed,
for the reasons set forth below.
As more fully described in a press release dated March 27, 2008, the
Company has been conducting additional work to evaluate and conclude on the
amount of other-than-temporary impairment charges to be recognized in the
consolidated financial statements in accordance with US Generally Accepted
Accounting Principles ("US GAAP"). As part of this ongoing review process, the
Company has reassessed the prior accounting for certain investments in
beneficial interests in securitized financial assets of less than high credit
quality with contractual cash flows, including asset backed securities. The
Company is required to apply the accounting guidance in Emerging Issues Task
Force ("EITF") Issue No. 99-20, "Recognition of Interest Income and Impairment
on Purchased Beneficial Interests and Beneficial Interests That Continue to Be
Held by a Transferor in Securitized Financial Assets" ("EITF 99-20"). EITF 99-20
provides that a security within its scope is other-than-temporarily impaired if,
based on the holder's best estimate of cash flows that a market participant
would use in determining the current fair value of the security, there has been
an adverse change in expected cash flows.
As part of its continuing review, the Company has determined that its
accounting procedures in place as of September 30, 2007 did not operate
effectively to ensure full conformance with the applicable guidance in EITF
99-20.
Specifically:
1. While the Company employed a process to evaluate other-than-temporary
impairments, the process previously used by the Company indicated that
many impaired securities were only temporarily impaired because the
cash flow projections provided by a third party investment manager did
not result in principal losses on those securities. However, the
Company has determined that those cash flow projections were not
reflective of estimates a market participant would use in determining
the current market value of those securities, leading to an
understatement of other-than-temporary impairment charges for those
securities within the scope of EITF 99-20.
2. The Company's cash flow analysis was limited to sub-prime and Alt-A
securities. The Company did not perform cash flow analyses for
securities that were not sub-prime or Alt-A, which include beneficial
interests in credit card receivables and automobile loans, as well as
commercial mortgage-backed securities.
As such, the Company has determined that the financial statements included
in its Quarterly Report on Form 10-Q at and for the period ended September 30,
2007, which report was filed with the Securities and Exchange Commission ("SEC")
on November 9, 2007, did not reflect the correct amount of other-than-temporary
impairment in
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accordance with EITF 99-20 and no longer should be relied upon. The Company
continues to review, and has yet to conclude upon, the amount of the restatement
for the quarter ended September 30, 2007. The Company has concluded that the
misapplication of the EITF 99-20 accounting guidance is not material to any
other prior period financial statement.
Subsequent to September 30, 2007, the Company amended and strengthened its
procedures and financial processes relating to securities within the scope of
EITF 99-20 to conform to that guidance.
Material Weakness in Internal Control over Financial Reporting
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In connection with the restatement described above, the Company's Chief
Executive Officer and Chief Financial Officer, in conjunction with the Company's
management, have determined that, as of September 30, 2007, the Company had a
material weakness in its internal control over financial reporting, as defined
in the standards established by the Public Company Accounting Oversight Board.
Specifically, as of September 30, 2007, the Company had a material weakness
relating to its controls over its process for analyzing and concluding on
other-than temporary impairments. The Company has determined that the design and
operation of internal controls over the accounting for other-than-temporary
impairments of investments were inadequate to ensure full conformance with
applicable US GAAP such as to prevent and detect any material misstatement in
the amount of other-than-temporary impairments.
Remediation Status
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To address this material weakness in internal controls over financial
reporting, the Company has been taking the following actions since September 30,
2007:
1. Hired additional experienced, senior financial personnel to provide
improved oversight of the Company's accounting activities;
2. Improved the governance process over the Company's investment
activities, including the formation within the Company of a Group
Investment Committee separate from the Investment Committee of the
Board of Directors; and
3. Amending and strengthening its procedures, processes and related
controls within its investment accounting function, in particular its
process for analyzing and concluding on other-than-temporary
impairments for its investment securities.
Management and the Company's Audit Committee discussed the matters
disclosed in this Current Report on Form 8-K with Ernst & Young LLP, the
Company's independent registered public accounting firm. The Company is working
to complete an amendment that corrects this error expeditiously; however, the
referenced financial statements should not be relied upon until such time as the
Company files its corrected interim financial statements.
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Item 8.01. Other Events.
The Company continues to work diligently on completing its Annual Report on
Form 10-K for the year ended December 31, 2007, the filing of which has been
delayed for the reasons stated in the Company's Form 12b-25 filings on March 12,
2008 and on March 27, 2008; however, the Company is unable to specify at this
time when it will be in a position to make the filing.
Although the Company has not yet determined the amount of
other-than-temporary impairments for the fourth quarter of 2007, the Company
believes that the amounts will significantly exceed those previously reported
for prior periods. Accordingly, the Company currently anticipates that its net
loss after tax for the year ended December 31, 2007 will be significantly
greater than its net loss reported for the year ended December 31, 2006,
although the exact amount of such change cannot be determined at this time.
Consequently, the amount of the Company's consolidated shareholders equity at
December 31, 2007 will be significantly reduced from the levels previously
reported although the amount cannot be determined at this time.
In addition, the Company has filed today a Form 15 notice of suspension of
its duty to file periodic reports under the Securities Exchange Act of 1934. As
a result of the delisting of the Company's shares from the New York Stock
Exchange and the fact that there are less than 300 holders of record of its
shares, the Company has no obligation to continue to file, and does not plan to
file, periodic reports with the SEC for any periods after January 1, 2008. The
Company does plan to file its Form 10-K for the year ended December 31, 2007 as
soon as it is completed, as well as an amended Form 10-Q for the periods ended
September 30, 2007 to correct the error described in Item 4.02 above.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
SCOTTISH RE GROUP LIMITED
By: /s/ Paul Goldean
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Paul Goldean
Chief Administrative Officer
Dated: May 13, 2008