UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2001
[ ] 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 0-29788
SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.
(Exact Name of Registrant as Specified in Its Charter)
Cayman Islands Not Applicable
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
P.O. Box 10657 APO
Grand Pavilion Commercial Centre
802 West Bay Road
George Town, Grand Cayman
Cayman Islands, British West Indies Not Applicable
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (345) 949-2800
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
As of May 1, 2001, Registrant had 15,615,240 Ordinary Shares outstanding.
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets - March 31, 2001 (Unaudited) and
December 31, 2000 1
Unaudited Consolidated Statements of Income - Three Months ended
March 31, 2001 and 2000 2
Unaudited Consolidated Statements of Comprehensive Income -
Three Months ended March 31, 2001 and 2000 3
Unaudited Consolidated Statements of Shareholders' Equity -
Three Months ended March 31, 2001 and 2000 4
Unaudited Consolidated Statements of Cash Flows -
Three Months ended March 31, 2001 and 2000 5
Notes to Unaudited Consolidated Financial Statements at
March 31, 2001 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16
PART II OTHER INFORMATION
ITEM 1 through ITEM 6 17
SIGNATURES 18
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Scottish Annuity & Life Holdings, Ltd.
Consolidated Balance Sheets
(Dollars in thousands)
March 31, 2001 December 31,
(unaudited) 2000
-----------------------------------------
ASSETS
Fixed maturity investments, available for sale, at fair $ 601,353 $ 581,020
value (Amortized cost $599,109; 2000 - $584,493)
Cash and cash equivalents 21,740 47,763
Funds withheld at interest 51,164 46,256
-----------------------------------------
Total investments 674,257 675,039
Receivables:
Accrued interest 6,065 6,710
Risk fees 1,039 961
Policy loans 769 441
Reinsurance 18,445 30,595
Due from investment brokers 5,184 -
Deferred acquisition costs 36,620 30,922
Present value of inforce business 10,381 10,433
Other intangible assets 7,793 7,888
Deferred tax benefit 1,728 2,192
Fixed assets 2,956 2,482
Due from related party 218 218
Other assets 1,658 868
Current income tax receivable 35 87
Segregated assets 460,719 409,660
-----------------------------------------
Total assets $1,227,867 $1,178,496
=========================================
LIABILITIES
Reserves for future policy benefits $ 180,882 $ 182,391
Interest sensitive contract liabilities 332,080 320,732
Due to investment brokers - 4,462
Accounts payable and accrued expenses 3,671 18,867
Segregated liabilities 460,719 409,660
-----------------------------------------
Total liabilities 977,352 936,112
-----------------------------------------
MINORITY INTEREST 2,758 2,820
-----------------------------------------
SHAREHOLDERS' EQUITY
Share capital, par value $0.01 per share:
Issued and fully paid: 15,615,240 ordinary shares
(2000 - 15,614,240)
(Excludes 2,962,200 held in Treasury; 2000 - 2,962,200) 156 156
Additional paid in capital 223,779 223,771
Accumulated other comprehensive income (loss) -
Unrealized appreciation (depreciation) on investments, 1,430 (3,822)
net of tax
Retained earnings 22,392 19,459
-----------------------------------------
Total shareholders' equity 247,757 239,564
-----------------------------------------
Total liabilities and shareholders' equity $1,227,867 $1,178,496
=========================================
See Accompanying Notes to Unaudited Consolidated Financial Statements
Scottish Annuity & Life Holdings, Ltd.
Unaudited Consolidated Statements of Income
(Dollars in thousands, except per share data)
Three months ended Three months ended
March 31, 2001 March 31, 2000
----------------------------------------
REVENUES
Premiums earned $ 9,520 $ 32
Fee income 699 450
Investment income, net 11,747 9,765
Realized gains (losses) 38 (128)
----------------------------------------
Total revenues 22,004 10,119
----------------------------------------
BENEFITS & EXPENSES
Claims and other policy benefits 7,334 1,615
Interest credited to interest sensitive 4,219 3,660
contract liabilities
Acquisition costs and other insurance expenses 4,116 614
Operating expenses 2,631 2,140
----------------------------------------
Total benefits & expenses 18,300 8,029
----------------------------------------
Net income before income taxes and minority 3,704 2,090
interest
Income taxes 52 59
----------------------------------------
Net income before minority interest 3,652 2,031
Minority interest 62 -
----------------------------------------
Net income $ 3,714 $ 2,031
========================================
Earnings per share
Basic $ 0.24 $ 0.13
========================================
Diluted $ 0.23 $ 0.13
========================================
Dividends per share $ 0.05 $ 0.05
========================================
Weighted average number of shares outstanding:
Basic 15,614,418 16,046,740
========================================
Diluted 16,136,716 16,047,729
========================================
See Accompanying Notes to Unaudited Consolidated Financial Statements
Scottish Annuity & Life Holdings, Ltd.
Unaudited Consolidated Statements of Comprehensive Income
(Dollars in thousands)
Three months ended Three months ended
March 31, 2001 March 31, 2000
- ------------------------------------------------------------------------------------------------
Net income $3,714 $2,031
-------------------------------------------
Other comprehensive income (loss), net of tax
Unrealized appreciation (depreciation) on
investments: 5,230 (303)
Add: reclassification adjustment for investment
losses included in net income, net of tax 22 128
-------------------------------------------
Unrealized appreciation (depreciation) on investments 5,252 (175)
-------------------------------------------
Comprehensive income $8,966 $1,856
===========================================
See Accompanying Notes to Unaudited Consolidated Financial Statements
Scottish Annuity & Life Holdings, Ltd.
Unaudited Consolidated Statements of Shareholders' Equity
(Dollars in thousands)
Three months ended Three months ended
March 31, 2001 March 31, 2000
- -------------------------------------------------------------------------------------------------------------------
SHARE CAPITAL:
Beginning of period $ 156 $ 160
Shares issued - -
-------------------------------------------------
156 160
-------------------------------------------------
ADDITIONAL PAID IN CAPITAL:
Beginning of period 223,771 227,535
Issuance of equity on exercise of options 8 -
Issuance of equity options - 9
-------------------------------------------------
223,779 227,544
-------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Beginning of period (3,822) (15,685)
Unrealized appreciation (depreciation) on investments 5,252 (175)
-------------------------------------------------
1,430 (15,860)
-------------------------------------------------
RETAINED EARNINGS:
Beginning of period 19,459 6,651
Net income 3,714 2,031
Dividends paid (781) (802)
-------------------------------------------------
22,392 7,880
-------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $247,757 $219,724
=================================================
See Accompanying Notes to Unaudited Consolidated Financial Statements
Scottish Annuity & Life Holdings, Ltd.
Unaudited Consolidated Statements of Cash Flows
(Dollars in thousands)
Three months ended Three months ended
March 31, 2001 March 31, 2000
------------------------------------------
OPERATING ACTIVITIES
Net income $ 3,714 $ 2,031
Items not affecting cash:
Net realized (gains) losses on securities (38) 128
Amortization of investments (330) (43)
Non cash salaries and professional fees - 9
Minority interest (62) -
Depreciation 151 63
Amortization of deferred acquisition costs 3,126 71
Amortization of present value of inforce business 52 -
Amortization of other intangible assets 95 -
Interest credited to interest sensitive contract liabilities 4,219 3,660
Changes in assets and liabilities:
Accrued interest 645 805
Risk fees (78) 266
Reinsurance 12,150 (8,126)
Deferred acquisition costs (8,824) (1,060)
Deferred tax benefit - 60
Other assets (790) 79
Current income tax receivable 52 96
Reserve for future policy benefits (1,509) (3,169)
Accounts payable and accrued expenses (15,196) (205)
------------------------------------------
Net cash used in operating activities (2,623) (5,335)
------------------------------------------
INVESTING ACTIVITIES
Purchase of investments (65,655) (30,519)
Proceeds on sales of investments 32,313 30,993
Proceeds on maturity of investments 19,096 18,675
Due to / from investment broker (9,646) 41
Funds withheld at interest (4,908) -
Purchase of present value of inforce business - (103)
Purchase of intangible assets - (50)
Due to related party on purchase of subsidiary - (11,562)
Proceeds from sale of fixed assets 8 -
Purchase of fixed assets (635) (599)
------------------------------------------
Net cash (used in) provided by investing activities (29,427) 6,876
------------------------------------------
FINANCING ACTIVITIES
Deposits to interest sensitive contract liabilities 13,806 8,076
Withdrawals from interest sensitive contract liabilities (6,678) (6,373)
Policy loans (328) 34
Net proceeds from issue of company stock 8 -
Dividends paid (781) (802)
------------------------------------------
Net cash provided by financing activities 6,027 935
------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (26,023) 2,476
Cash and cash equivalents, beginning of period 47,763 29,000
------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 21,740 $ 31,476
==========================================
See Accompanying Notes to Unaudited Consolidated Financial Statements
Scottish Annuity & Life Holdings, Ltd.
Notes to Unaudited Consolidated Financial Statements
March 31, 2001
1. Basis of presentation
Accounting Principles - The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles in the United States of America ("GAAP") for and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by GAAP for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. The results for the period are not necessarily
indicative of the results to be expected for the entire year.
For further information, refer to the consolidated financial statements and
footnotes included in our annual report on Form 10-K for the period ended
December 31, 2000.
We have reclassified some figures from our 2000 financial statements to
conform to our 2001 presentation. These reclassifications had no effect on net
income or shareholders' equity as previously reported.
All amounts are reported in thousands of United States dollars (except per
share amounts).
2. Deferred acquisition costs
The change in deferred acquisition costs ("DAC") is as follows:
Three months ended Three months ended
March 31, 2001 March 31, 2000
------------------------------------------------
Balance January 1 $30,922 $1,920
Expenses deferred 8,824 1,059
Amortization expense (3,126) (71)
------------------------------------------------
Balance March 31 $36,620 $2,908
================================================
Scottish Annuity & Life Holdings, Ltd.
Notes to Unaudited Consolidated Financial Statements
March 31, 2001
3. Earnings per ordinary share
Basic earnings per share ("EPS") exclude the dilutive effect of options and
warrants. Diluted EPS includes the dilutive effect of these securities using
the treasury stock method. The weighted average number of shares is calculated
by weighting how long the shares have been outstanding over the accounting
period.
Three months Three months
ended ended
March 31, 2001 March 31, 2000
--------------------------------------
Numerator:
Net income $ 3,714 $ 2,031
--------------------------------------
Denominator:
Denominator for basic earnings per share - 15,614,418 16,046,740
Weighted average number of shares
Effect of dilutive securities - Stock Options 522,298 989
--------------------------------------
Denominator for dilutive earnings per share 16,136,716 16,047,729
--------------------------------------
Basic earnings per share $ 0.24 $ 0.13
======================================
Diluted earnings per share $ 0.23 $ 0.13
======================================
4. Comprehensive income
We report comprehensive income in accordance with SFAS 130, which requires
unrealized gains and losses on the Company's available for sale investments to
be included in other comprehensive income in the statement of Shareholders'
equity. The table below shows the gross and net of tax components of other
comprehensive income.
Three months ended March 31, 2001
Before Tax Tax Net of Tax
Unrealized gains on available for sale
investments arising during the period $5,757 $(527) $5,230
Less-: reclassification adjustment for gains
realized in net income (40) 62 22
-----------------------------------------------------
Other comprehensive income $5,717 $(465) $5,252
=====================================================
Three months ended March 31, 2000
Before Tax Tax Net of Tax
Unrealized (losses) on available for sale
investments arising during the period $(303) $ - $(303)
Less-: reclassification adjustment for
losses realized in net income 128 - 128
-----------------------------------------------------
Other comprehensive income $(175) $ - $(175)
====================================================
Scottish Annuity & Life Holdings, Ltd.
Notes to Unaudited Consolidated Financial Statements
March 31, 2001
5. Segment Reporting
Income from insurance operations is split into two segments: Life
Reinsurance and Wealth Management.
The segment reporting for the lines of business is as follows:
Three months ended Three months ended
March 31, 2001 March 31, 2000
------------------------------------------
REVENUES
Life Reinsurance $19,347 $ 7,023
Wealth Management 612 451
Other (1) 2,045 2,645
------------------------------------------
Total $22,004 $10,119
==========================================
NET INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST
Life Reinsurance $ 1,923 $ (84)
Wealth Management 209 160
Other (2) 1,572 2,014
------------------------------------------
Total $ 3,704 $ 2,090
==========================================
March 31, 2001 December 31, 2000
------------------------------------------
ASSETS BY SEGMENT
Life Reinsurance $ 638,049 $ 636,382
Wealth Management 483,608 431,670
Other 106,210 110,444
------------------------------------------
Total $1,227,867 $1,178,496
==========================================
(1) Includes investment income on unallocated capital and realized gains and
losses.
(2) Includes corporate expenses.
Scottish Annuity & Life Holdings, Ltd.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Scottish Annuity & Life Holdings, Ltd. ("Scottish Holdings", "we", "our",
or "the Company") is a Cayman Islands holding company that was incorporated in
May 1998 and completed its initial public offering ("IPO") on November 30, 1998.
Through our wholly owned subsidiaries, we provide life reinsurance to life
insurance companies and issue variable insurance policies to high net worth
individuals.
We have two wholly-owned direct subsidiaries: Scottish Annuity & Life
Insurance Company (Cayman) Ltd. ("SALIC"), a Cayman Islands insurance company
formed by the Company in 1998; and The Scottish Annuity Company (Cayman) Ltd.
("SAC"), a Cayman Islands insurance company that was incorporated in 1994 and
acquired by the Company in 1999.
Scottish Re (U.S.), Inc. ("Scottish Re") is a Delaware insurance company
that was acquired by SALIC in 1999. Scottish Re provides life reinsurance to
life insurance companies. Scottish Re is licensed to do business in the United
States by 15 states and admitted as a reinsurer in an additional 30 states.
Scottish Re (Dublin) Limited ("Dublin") was incorporated in Dublin, Ireland
in 2000 to provide reinsurance for our group companies. Dublin commenced writing
business in January 2001.
We have a 50.01% holding in Scottish Crown Group (Bermuda) Ltd. ("Scottish
Crown"). As of December 31, 2000, Scottish Crown owned two Bermuda-licensed
insurance companies that are engaged in the issuance of variable insurance
policies to high net worth individuals. In February 2001, Scottish Holdings
(U.S.), Inc., a wholly owned subsidiary of SALIC, acquired 100% of one of the
Bermuda-licensed insurance companies.
All amounts are reported in thousands of United States dollars (except per
share amounts).
Earnings per share
Three months ended Three months ended
March 31, 2001 March 31, 2000
Net income $ 3,714 $ 2,031
=========== ===========
Basic EPS $ 0.24 $ 0.13
=========== ===========
Diluted EPS $ 0.23 $ 0.13
=========== ===========
Weighted average number of shares outstanding:
Basic 15,614,418 16,046,740
----------- -----------
Diluted 16,136,716 16,047,729
----------- ===========
Our Net income for the first quarter of $3.7 million was an 83% increase
over the same quarter in 2000. This increase is primarily due to increased
income from our Life Reinsurance and Wealth Management operations, an improved
return on our investment portfolio and a reduction in realized losses on
investments.
Earnings per share increased 77% on a diluted basis from $0.13 to $0.23.
The increase in earnings per share was entirely due to increased earnings. The
effect of our repurchase of shares in the latter part of 2000 was offset by the
dilutive effect of stock options in the first quarter of 2001.
Revenues
Revenues have increased 117% to $22.0 million in the first three months of
2001 compared to $10.1 million in the same period of 2000 due primarily to the
growth in our Life Reinsurance operations and an increase in investment income
based on the increase in invested assets and the improvement in the yield on
such assets.
Revenue is made up as follows:
Three months ended Three months ended
March 31, 2001 March 31, 2000
Premiums earned $ 9,520 $ 32
Fee income 699 450
Investment income, net 11,747 9,765
Realized gains (losses) 38 (128)
------------------------------------------
Total Revenues $22,004 $10,119
==========================================
Premiums earned
Premiums earned during the first quarter of 2001 are in respect of 23
reinsurance clients and premiums from a block of Accident & Health business
previously written by Scottish Re before we acquired the company and which is
now in run-off. Premiums earned in the first quarter of 2000 are in relation to
the Accident & Health business in existence when we acquired Scottish Re. As of
March 31, 2001 we reinsure approximately $15.8 billion of life coverage on
393,000 lives. The average benefit coverage per life is $40 thousand and the
maximum corporate retention on any one life is $1 million.
We anticipate a steady flow of premiums in future quarters from these
treaties.
Fee income
Fee income includes fees earned from our Wealth Management products offered
to high net worth individuals by SALIC and SAC in the Cayman Islands and
Scottish Crown in Bermuda. These fees increased from $450 thousand to $619
thousand in the first quarter due primarily to increases in variable account
balances on which we earn fees and in the number of clients. Scottish Re also
earns fees on certain financial reinsurance treaties issued to U.S. insurance
company clients.
Fees earned are as follows:
Three months ended Three months ended
March 31, 2001 March 31, 2000
Life Reinsurance $ 80 $ -
Wealth Management 619 450
------------------------------------------
Total $699 $450
==========================================
At March 31, 2001 we have 83 annuity clients with total assets of $377.9
million and 22 variable life clients with total assets of $82.8 million and a
total face amount of $480.4 million. At March 31, 2000 we had 80 annuity
clients with total assets of $262.5 million and 4 variable life clients with
total assets of $7.6 million and a total face amount of $41.2 million.
The change in the segregated assets is as follows:
Three months ended Three months ended
March 31, 2001 March 31, 2000
-------------------------------------------
Balance January 1 $409,660 $256,546
Deposits 62,199 8,955
Withdrawals (1,300) (5,596)
Investment performance (1) (9,840) 10,231
-------------------------------------------
Balance March 31 $460,719 $270,136
===========================================
(1) Investment performance for the period is determined using actual asset
valuations where available and estimates where actual data is not available.
Investment income
Net investment income increased from $9.8 million to $11.7 million as a
result of an increase in total investments and an increase in our average book
yield.
The split of investment income by segment is as follows:
Three months ended Three months ended
March 31, 2001 March 31, 2000
Life Reinsurance $ 9,704 $6,991
Wealth Management 2 2
Other 2,041 2,772
------------------------------------------
Total $11,747 $9,765
==========================================
Capital has been contributed to SALIC and Scottish Re and is utilized to
support the reinsurance agreements in place; more capital will be contributed as
required. Capital that is not yet allocated is invested to provide investment
income at competitive rates. Such investment income is shown as other in the
above table.
Benefits & Expenses
Three months ended Three months ended
March 31, 2001 March 31, 2000
Claims and other policy benefits $ 7,334 $1,615
Interest credited to interest sensitive contract 4,219 3,660
liabilities
Acquisition costs and other insurance expenses 4,116 614
Operating expenses 2,631 2,140
------------------------------------------
Total benefits & expenses $18,300 $8,029
==========================================
Claims and other policy benefits
Claims and other policy benefits increased from $1.6 million to $7.3
million in the first quarter as a result of new reinsurance clients. We are
recording claims and policy benefit expenses in respect of 24 reinsurance
clients and the run-off of a small amount of Accident & Health business in the
first three months of 2001. In the first three months of 2000 we had benefit
expenses in relation to one reinsurance client and the Accident & Health
business.
Interest credited to interest sensitive contract liabilities
Interest credited to interest sensitive contract liabilities increased from
$3.7 million to $4.2 million for the first three months as a result of new
reinsurance treaties written by SALIC offset by a reduction in interest credited
to annuities in Scottish Re. Interest is calculated based on the liabilities
recorded on the balance sheet at the rate of interest required by the
reinsurance agreement.
Acquisition costs and other insurance expenses
Acquisition costs and other insurance expenses increased from $614 thousand
to $4.1 million in the first quarter as a result of the new reinsurance
treaties.
The components of these expenses are as follows:
Three months ended Three months ended
March 31, 2001 March 31, 2000
Commissions, excise taxes and other insurance expenses $ 9,762 $ 1,602
Deferred expenses (8,824) (1,059)
Amortization - PVIF 52 -
Amortization - DAC 3,126 71
-------------------------------------------
Total $ 4,116 $ 614
===========================================
Commissions & excise taxes vary with premiums earned. Insurance expenses
include direct and indirect expenses of those departments involved in the
marketing, underwriting and issuing of reinsurance agreements. Of these total
expenses a portion is deferred and amortized over the life of the reinsurance
treaty or in relation to the estimated gross profit in respect of our interest
sensitive contracts.
The split of these expenses between segments is as follows:
Three months ended Three months ended
March 31, 2001 March 31, 2000
Life Reinsurance $3,950 $519
Wealth Management 166 95
------------------------------------------
Total $4,116 $614
==========================================
Operating expenses
Operating expenses increased from $2.1 million to $2.6 million for the
quarter as a result of increased reinsurance activity and increased personnel
costs. The split of these expenses between segments is as follows:
Three months ended Three months ended
March 31, 2001 March 31, 2000
Life Reinsurance $1,920 $1,313
Wealth Management 238 197
Other 473 630
------------------------------------------
Total $2,631 $2,140
==========================================
Increased business activity in 2001 has resulted in an increase in
corporate overhead costs being allocated to lines of business.
Income taxes
The income tax expense decreased in the first three months of 2001 to $52
thousand from $59 thousand in the first three months of 2000. The 2001
calculation includes the earnings of Scottish Re and Dublin less a release of
capital loss carryforwards by Scottish Re. The tax expense in 2000 is related
to the earnings of Scottish Re.
Minority interest
Minority interest income represents the minority's share of the loss
recorded by Scottish Crown in the first quarter 2001.
Investments
General Re - New England Asset Management, Inc. manages our investment
portfolio. Our investment guidelines are designed to diversify the portfolio
and maximize investment income while limiting risk in an asset-liability
management, enterprise context. At March 31, 2001, the portfolio had an average
quality rating of "AA-", an average effective duration of 2.77 years and an
average book yield of 6.94%. This compares with an average quality rating of
"AA-", an average duration of 2.62 years and an average book yield of 7.24%
respectively at December 31, 2000. The decline in average book yield was due to
a decline in LIBOR and other floating-rate indices with which the yield of a
portion of our assets floats. These assets are approximately matched by
floating-rate liabilities, on which the cost of funds declined by a similar
amount. The average book yield on the fixed-rate portion of the portfolio
increased from 7.12% to 7.18%. A realized gain of $40 thousand was recognized
on investments during the first quarter of 2001 as compared to a realized loss
of $128 thousand in the first quarter of 2000. At March 31, 2001 the portfolio
had unrealized gains of $1.4 million net of tax as compared to unrealized losses
of $3.8 million net of tax at December 31, 2000, these amounts are shown on the
balance sheet as part of Shareholders' equity entitled Accumulated other
comprehensive income.
Subsequent event
Effective as of April 30, 2001, one of our clients exercised its right to
recapture a block of business ceded to us in 1999. The recapture will reduce
our investment portfolio, interest sensitive contract liabilities, net
investment income and interest credited to interest sensitive contract
liabilities, but will not materially affect net income. Nevertheless, we expect
that other reinsurance transactions will offset the effects of the recapture.
Liquidity and Capital Resources
Cash flow
Cash flow from operations for the quarter was a negative $2.6 million
compared to a negative $5.3 million in the first quarter of 2000. Although
premiums written and renewal premiums received in the first quarter of the year
are typically lower than in later quarters, causing reduced cash inflows, the
payment of claims and general operating expenses continue on a more level basis
throughout the year. We also had significant cash outflows in the first quarter
of 2000 related to the start up of Scottish Re. Scottish Re had no cash inflows
in the first quarter of 2000 and minimal cash inflows in the first quarter 2001,
but should begin to produce significant cash inflows in second quarter 2001.
Our cash flow from operations may be positive or negative in any specific
quarter depending on the amount of new life reinsurance business written in the
quarter and the level of ceding commissions paid in connection with writing that
business offset by the level of renewal premiums earned in the quarter.
Capital and Collateral
At March 31, 2001, total capitalization was $247.8 million. We currently
have no material commitments for capital expenditures.
During the first quarter of 2001, we paid dividends totaling $0.05 per
share or $781 thousand.
We have in place a credit facility with a U.S. bank that provides up to $70
million that we can use for a combination of borrowings and outstanding letters
of credit. Under the agreement, we may borrow at a predetermined interest rate
of 40 basis points over LIBOR. The agreement expires in July 2001, but is
renewable with the agreement of both parties. We have letters of credit
outstanding at March 31, 2001 in the amount of $26.9 million in support of our
reinsurance business. The agreement requires that we pledge assets as
collateral with a market value not less than 111% of the sum of outstanding
borrowing and letters of credit.
Forward Looking Statements
Some of the statements contained in this report are not historical facts
and are forward-looking 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. When used, the words "may",
"will", "expect", "anticipate", "continue", "estimate", "project", "plan",
"intend" and similar expressions identify forward-looking statements. These
forward-looking statements involve risks and uncertainties including, but not
limited to, the following: our ability to execute the business plan; changes in
the general economic conditions including the performance of the financial
markets and interest rates; changes in insurance regulations or taxes; changes
in rating agency policy; the loss of key executives; trends in the insurance and
reinsurance industries; government regulations; trends that may affect our
financial condition or results of operations; and the declaration and payment of
dividends. Potential investors are cautioned that any forward-looking
statements are not guarantees of future performance and are subject to risks and
uncertainties. Actual results may differ materially from those included within
the forward-looking statements as a result of various factors. Factors that
could cause or contribute to such differences include, but are not limited to,
those described under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and under the heading "Risk
Factors of Investing in our Ordinary Shares" set forth in our Annual Report on
Form 10-K filed with the Securities and Exchange Commission. We assume no
obligation to update any forward-looking statement to reflect actual results or
changes in or additions to the factors affecting such forward-looking
statements.
Risk Factors of Investing in Our Ordinary Shares
Investing in our Ordinary Shares involves a high degree of risk. Prior to
investing in the Ordinary Shares, potential investors should consider carefully
the risk factors set forth in our Annual Report on Form 10-K filed with the
Securities and Exchange Commission, in addition to the other information set
forth in this Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes since December 31, 2000. Please refer
to "Item 7A: Quantitative and Qualitative Disclosures About Market Risk" in our
Annual Report on Form 10-K.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not currently involved in any litigation or arbitration.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Default Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Securities Holders
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the three-month period ended March 31,
2001.
SIGNATURES
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, thereunto duly authorized.
SCOTTISH ANNUITY & LIFE HOLDINGS, LTD.
Date: May 14, 2001 By: /s/ Michael C. French
Michael C. French
Chief Executive Officer
Date: May 14, 2001 By: /s/ Scott E. Willkomm
Scott E. Willkomm
President & Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)