10-Q 1 form10q.txt FORM 10-Q 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, 2002 [ ] 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 98-0362785 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) P.O. Box HM 2939 Crown House, Third Floor 4 Par-la-Ville Road Hamilton HM08 Bermuda Not Applicable (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (441) 295-4451 (Former name, former address and former fiscal year, if changed since last report) 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, 2002, Registrant had 26,905,123 ordinary shares outstanding. Table of Contents PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets - March 31, 2002 (Unaudited) and December 31, 2001 1 Unaudited Consolidated Statements of Income - Three months ended March 31, 2002 and 2001 2 Unaudited Consolidated Statements of Comprehensive Income - Three months ended March 31, 2002 and 2001 3 Unaudited Consolidated Statements of Shareholders' Equity - Three months ended March 31, 2002 and 2001 4 Unaudited Consolidated Statements of Cash Flows - Three months ended March 31, 2002 and 2001 5 Notes to Unaudited Consolidated Financial Statements at March 31, 2002 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 11 CONDITION AND RESULTS OF OPERATIONS ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 23 PART II OTHER INFORMATION ITEM 1 through ITEM 6 24 SIGNATURES 28 i PART I. FINANCIAL INFORMATION Item 1. Financial Statements Scottish Annuity & Life Holdings, Ltd. Consolidated Balance Sheets (Dollars in thousands)
March 31, December 31, 2002 2001 (unaudited) -------------------- -------------------- ASSETS Fixed maturity investments, available for sale, at fair value (Amortized cost $634,188; 2001 - $588,542) $ 623,927 $ 583,890 Investment in unit-linked securities 20,136 20,705 Cash and cash equivalents 48,158 94,581 Policy loans 735 801 Other investments 10,016 10,120 Funds withheld at interest 725,271 562,446 -------------------- -------------------- Total investments 1,428,243 1,272,543 Receivables: Accrued interest 9,242 9,335 Risk fees 1,672 1,436 Reinsurance 52,313 59,221 Deferred acquisition costs 131,073 113,898 Amount recoverable from reinsurers 18,521 19,212 Present value of in-force business 19,662 20,383 Goodwill 31,970 30,970 Fixed assets 5,592 5,459 Due from related party 1,831 1,892 Other assets 7,888 8,764 Current income tax receivable 2,998 4,441 Segregated assets 603,600 602,800 -------------------- -------------------- Total assets $ 2,314,605 $ 2,150,354 ==================== ==================== LIABILITIES Reserves for future policy benefits $ 374,948 $ 379,618 Interest sensitive contract liabilities 888,175 718,815 Unit-linked contract liabilities 21,641 25,503 Borrowings 63,231 65,145 Accounts payable and accrued expenses 15,290 17,332 Reinsurance payables 4,866 4,258 Deferred tax liability 4,521 5,601 Other liabilities 8,213 - Segregated liabilities 603,600 602,800 -------------------- -------------------- Total liabilities 1,984,485 1,819,072 -------------------- -------------------- SHAREHOLDERS' EQUITY Share capital, par value $0.01 per ordinary share: Issued and fully paid: 20,155,123 ordinary shares (2001 - 20,144,956) 202 201 Additional paid- in capital 301,646 301,542 Accumulated other comprehensive loss (8,884) (3,626) Retained earnings 37,156 33,165 -------------------- -------------------- Total shareholders' equity 330,120 331,282 -------------------- -------------------- Total liabilities and shareholders' equity $ 2,314,605 $ 2,150,354 ==================== ====================
See Accompanying Notes to Unaudited Consolidated Financial Statements 1 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, 2002 March 31, 2001 ------------------- ------------------ REVENUES Premiums earned $ 31,355 $ 9,520 Fee income 2,074 699 Investment income, net 21,730 11,747 Realized gains (losses) (1,464) 38 ------------------- ------------------ Total revenues 53,695 22,004 ------------------- ------------------ BENEFITS AND EXPENSES Claims and other policy benefits 23,887 7,334 Interest credited to interest sensitive contract liabilities 9,178 4,219 Acquisition costs and other insurance expenses, net 10,637 4,116 Operating expenses 4,344 2,631 Interest expense 344 - ------------------- ------------------ Total benefits and expenses 48,390 18,300 ------------------- ------------------ Net income before income taxes and minority interest 5,305 3,704 Income tax expense 307 52 ------------------- ------------------ Net income before minority interest 4,998 3,652 Minority interest - 62 ------------------- ------------------ Net income $ 4,998 $ 3,714 =================== ================== Earnings per ordinary share - Basic $ 0.25 $ 0.24 =================== ================== Earnings per ordinary share -Diluted $ 0.23 $ 0.23 =================== ================== Dividends per ordinary share $ 0.05 $ 0.05 =================== ================== Weighted average number of ordinary shares outstanding Basic 20,146,139 15,614,418 ------------------- ------------------ Diluted 21,352,993 16,136,716 ------------------- ------------------
See Accompanying Notes to Unaudited Consolidated Financial Statements 2 Scottish Annuity & Life Holdings, Ltd. Unaudited Consolidated Statements of Comprehensive Income (Dollars in thousands)
Three months ended Three months ended March 31, 2002 March 31, 2001 ------------------- ------------------- Net income $ 4,998 $ 3,714 ------------------- ------------------- Other comprehensive income (loss), net of tax Unrealized appreciation (depreciation) on investments: (5,874) 5,230 Add: reclassification adjustment for investment losses included in net income 1,280 22 ------------------- ------------------- Unrealized appreciation (depreciation) on investments (4,594) 5,252 net of income tax expense (benefit) of $(1,015) and $465 ------------------- ------------------- Cumulative translation adjustment (664) - ------------------- ------------------- Comprehensive income (loss) $ (260) $ 8,966 =================== ===================
See Accompanying Notes to Unaudited Consolidated Financial Statements 3 Scottish Annuity & Life Holdings, Ltd. Unaudited Consolidated Statements of Shareholders' Equity (Dollars in thousands)
Three months Three months ended ended March 31, 2002 March 31, 2001 ------------------------- ------------------------ ORDINARY SHARES Beginning of period 20,144,956 15,614,240 Issuance to employees on exercise of options 10,167 1,000 ------------------------- ------------------------ End of period 20,155,123 15,615,240 ------------------------- ------------------------ SHARE CAPITAL: Beginning of period $ 201 $ 156 Issuance to employees on exercise of options 1 - ------------------------- ------------------------ End of period 202 156 ------------------------- ------------------------ ADDITIONAL PAID-IN CAPITAL: Beginning of period 301,542 223,771 Issuance to employees on exercise of options 104 8 ------------------------- ------------------------ End of period 301,646 223,779 ------------------------- ------------------------ ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): Unrealized appreciation (depreciation) on investments Beginning of period (3,626) (3,822) Change in period (net of tax) (4,594) 5,252 ------------------------- ------------------------ End of period (8,220) 1,430 ------------------------- ------------------------ Cumulative translation adjustment (664) - ------------------------- ------------------------ ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (8,884) 1,430 ------------------------- ------------------------ RETAINED EARNINGS: Beginning of period 33,165 19,459 Net income 4,998 3,714 Dividends paid (1,007) (781) ------------------------- ------------------------ End of period 37,156 22,392 ------------------------- ------------------------ TOTAL SHAREHOLDERS' EQUITY $ 330,120 $ 247,757 ========================= ========================
See Accompanying Notes to Unaudited Consolidated Financial Statements 4 Scottish Annuity & Life Holdings, Ltd. Unaudited Consolidated Statements of Cash Flows (Dollars in thousands)
Three months ended Three months ended March 31, 2002 March 31, 2001 --------------------- -------------------- OPERATING ACTIVITIES Net income $ 4,998 $ 3,714 Items not affecting cash: Net realized (gains) losses 1,464 (38) Amortization of investments (28) (330) Minority interest - (62) Depreciation 302 151 Amortization of deferred acquisition costs 5,485 3,126 Amortization of present value of inforce business 722 52 Amortization of other intangible assets - 95 Interest credited to interest sensitive contract liabilities 9,178 4,219 Changes in assets and liabilities: Accrued interest 93 645 Risk fees (236) (78) Reinsurance receivables and payables 4,325 12,150 Deferred acquisition costs (22,660) (8,824) Deferred tax benefit (65) - Other assets (1,708) (790) Current income tax receivable 1,444 52 Reserve for future policy benefits (3,262) (1,509) Unit linked contract liabilities (359) - Due from related party 61 - Accounts payable and accrued expenses (2,043) (15,196) Other (180) - --------------------- -------------------- Net cash used in operating activities (2,469) (2,623) --------------------- -------------------- INVESTING ACTIVITIES Purchase of securities (89,474) (65,655) Proceeds from sales of investments 23,073 32,313 Proceeds from maturity of investments 18,373 19,096 Other assets and liabilities 10,797 (9,646) Funds withheld at interest (162,825) (4,908) Costs on acquisition of World-Wide (1,000) - Other investments 105 - Policy loans 66 (328) Purchase of fixed assets (435) (627) --------------------- -------------------- Net cash used in investing activities (201,320) (29,755) --------------------- -------------------- FINANCING ACTIVITIES Deposits to interest sensitive contract liabilities 172,375 13,806 Withdrawals from interest sensitive contract liabilities (12,193) (6,678) Borrowings (1,914) - Issuance of ordinary shares 105 8 Dividends paid (1,007) (781) --------------------- -------------------- Net cash provided by financing activities 157,366 6,355 --------------------- -------------------- NET CHANGE IN CASH AND CASH EQUIVALENTS (46,423) (26,023) Cash and cash equivalents, beginning of period 94,581 47,763 --------------------- -------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 48,158 $ 21,740 ===================== ====================
See Accompanying Notes to Unaudited Consolidated Financial Statements 5 Scottish Annuity & Life Holdings, Ltd. Notes to Unaudited Consolidated Financial Statements March 31, 2002 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") 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, 2001. All amounts are reported in thousands of United States dollars (except per share amounts). Prior period amounts have been reclassified to conform to the current year presentation. 2. Business acquisitions On December 31, 2001, we completed the purchase of World-Wide Holdings and its wholly owned subsidiary World-Wide Reassurance. The excess of the purchase price over net assets acquired was $31.6 million and is recorded as goodwill. Goodwill arising on the purchase of World-Wide has increased from $30.6 million at December 31, 2001 because of additional costs of $1 million, relating to the acquisition, which were incurred during the quarter. In June 2001, the Financial Accounting Standards Board issued SFAS 141, "Business Combinations," and SFAS 142, "Goodwill and Other Intangible Assets," effective for fiscal years beginning after December 15, 2001. Under the new rules goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. We have applied the new rules on accounting for goodwill and other intangible assets in this quarter. Our reported earnings and financial position for 2001 do not reflect significant amounts of amortization of goodwill. During fiscal 2002 we will perform the first of the required impairment tests of goodwill and have not yet determined what the effect of these tests will be on our earnings and financial position. 6 Scottish Annuity & Life Holdings, Ltd. Notes to Unaudited Consolidated Financial Statements March 31, 2002 Pro forma information related to our acquisition of World-Wide Holdings is prepared for the three-month period ended March 31, 2001, and illustrates the effects of the acquisition as if it had occurred at the beginning of the period.
Scottish Annuity World-Wide Holdings Combined (1) & Life Holdings, Ltd. Revenues $22,004 $8,497 $30,951 =================== ==================== ==================== Net Income $3,714 $516 $4,230 =================== ==================== ==================== Earnings per ordinary share (2) - basic $0.24 $0.21 =================== ==================== diluted $0.23 $0.20 =================== ====================
(1) Combined includes pro forma adjustments. (2) Combined amounts are calculated using historical weighted average number of ordinary shares plus 4,532,380 ordinary shares issued to acquire World-Wide Holdings. 7 Scottish Annuity & Life Holdings, Ltd. Notes to Unaudited Consolidated Financial Statements March 31, 2002 3. Business segments We report segments in accordance with SFAS 131, "Disclosures about Segments of an Enterprise and Related Information." Our main lines of business are Life Reinsurance and Wealth Management. The segment reporting for the lines of business is as follows: Three months ended Three months ended March 31, 2002 March 31, 2001 --------------------- --------------------- REVENUES Life Reinsurance North America $39,064 $19,623 International 13,242 - --------------------- --------------------- Total Life Reinsurance 52,306 19,623 Wealth Management 698 612 Other 691 1,769 --------------------- --------------------- Total $53,695 $22,004 ===================== ===================== NET INCOME BEFORE INCOME TAXES AND MINORITY INTEREST Life Reinsurance North America $4,403 $3,041 International 1,733 - --------------------- --------------------- Total Life Reinsurance 6,136 3,041 Wealth Management (71) 234 Other (760) 429 --------------------- --------------------- Total $5,305 $3,704 ===================== ===================== March 31, March 31, 2002 2001 --------------------- --------------------- ASSETS BY SEGMENT Life Reinsurance North America $1,436,996 $638,049 International 164,130 - --------------------- --------------------- Total Life Reinsurance 1,601,126 $638,049 Wealth Management 633,952 483,608 Other 79,527 106,210 --------------------- --------------------- Total $2,314,605 $1,227,867 ===================== ===================== 8 Scottish Annuity & Life Holdings, Ltd. Notes to Unaudited Consolidated Financial Statements March 31, 2002 4. Earnings per ordinary share The following table sets forth the computation of basic and diluted earnings per ordinary share:
Three months ended Three months ended March 31, 2002 March 31, 2001 ------------------ ------------------ Numerator: Net income $4,998 $3,714 ------------------ ----------------- Denominator: Denominator for basic earnings per ordinary share - Weighted average number of ordinary shares 20,146,139 15,614,418 Effect of dilutive securities - Stock options 797,257 522,298 - Warrants 409,597 - ------------------ ----------------- Denominator for dilutive earnings per ordinary share 21,352,993 16,136,716 ------------------ ----------------- Basic earnings per ordinary share $0.25 $0.24 ================== ================= Diluted earnings per ordinary share $0.23 $0.23 ================== =================
5. Other investments Other investments are made up of a fund of funds that is carried at fair value of $5.0 million and a surplus note purchased from a U.S. life insurance company in connection with a reinsurance transaction that we entered into in the second quarter of 2001. The surplus note pays interest to us at an annual rate of 11%, matures on May 16, 2016 and is carried at cost of $5.0 million. 6. Deferred acquisition costs The change in deferred acquisition costs is as follows:
Three months ended Three months ended March 31, 2002 March 31, 2001 ------------------- ------------------- Balance beginning of period $113,898 $30,922 Expenses deferred 22,660 8,824 Amortization expense (5,485) (3,126) ------------------- ------------------- Balance end of period $131,073 $36,620 =================== ===================
7. Borrowings We have in place a credit facility with a U.S. bank that provides a combination of borrowings and letters of credit totaling $70 million. Under the agreement, we may borrow at a rate of 40 basis points over LIBOR. The agreement expires on June 30, 2002, but is renewable with the agreement of both parties. At March 31, 2002 borrowings totaled $40 million under this credit facility. These borrowings were repaid subsequent to March 31, 2002 with the proceeds of the equity offering (See Note 8 to the Financial Statements). We also have borrowings of $23.2 million in connection with a reverse repurchase agreement with a major broker/dealer. Under this agreement, we have sold agency mortgage backed securities with the agreement to repurchase them at a fixed price, providing the dealer with a spread that equates to an effective borrowing cost linked to one-month LIBOR. This agreement is renewable monthly at the discretion of the broker/dealer. At March 31, 2002 the one-month LIBOR rate applicable to borrowings was 1.88%. 9 Scottish Annuity & Life Holdings, Ltd. Notes to Unaudited Consolidated Financial Statements March 31, 2002 8. Shareholders' equity On April 4, 2002, we completed a public offering of 6,750,000 ordinary shares (which included the over-allotment option of 750,000 ordinary shares) in which we raised aggregate net proceeds of approximately $115 million. We have used the proceeds of the equity offering to repay short-term borrowings of $40 million and will use the remainder for general corporate purposes. 10 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., which we call Scottish Holdings, is a holding company organized under the laws of the Cayman Islands with its principal executive office in Bermuda. We are a reinsurer of life insurance, annuities and annuity-type products. These products are written by life insurance companies and other financial institutions located principally in the United States as well as around the world. We refer to this portion of our business as Life Reinsurance North America. On December 31, 2001 we completed the purchase of World-Wide Holdings Limited and its subsidiary World-Wide Reassurance Company Limited. World-Wide specializes in niche markets in developed countries and broader life insurance markets in the developing world. We refer to this portion of our business as Life Reinsurance International. To a lesser extent, we directly issue variable life insurance and variable annuities and similar products to high net worth individuals and families for insurance, investment and estate planning purposes. We refer to this portion of our business as Wealth Management. All amounts in tables are reported in thousands of United States dollars, except per share amounts. Revenues We derive revenue from four principal sources: o premiums from reinsurance assumed on life business; o fee income from our variable life insurance and variable annuity products and from financial reinsurance transactions; o investment income from our investment portfolio; and o realized gains and losses from our investment portfolio. Premiums from reinsurance assumed on life business are included in revenues over the premium paying period of the underlying policies. When we acquire blocks of in-force business, we account for these transactions as purchases, and our results of operations include the net income from these blocks as of their respective dates of acquisition. Reinsurance assumed on annuity business does not generate premium income but generates investment income over time on the assets we receive from the ceding company. In our Wealth Management business, when we sell a variable life insurance policy or a variable annuity contract, we charge mortality, expense and distribution risk fees that are based on total assets in each policyholder's separate account. In the case of variable life insurance policies, we also charge a cost of insurance fee based on the amount necessary to cover the death benefit under the policy. We also earn fees in our financial reinsurance transactions with U.S. insurance company clients. Because some of these transactions do not satisfy the risk transfer rules for reinsurance accounting, the premiums and benefits are not reported in the consolidated statements of income. Our investment income includes interest earned on our fixed income investments and income from funds withheld at interest under modified coinsurance agreements. Under GAAP, because our fixed income investments are held as available for sale, these securities are carried at fair value, and unrealized appreciation and depreciation on these securities is not included in investment income on our statements of income, but is included in comprehensive income as a separate component of shareholders' equity. Realized gains and losses include gains and losses on investment securities that we sell during a period and write downs of securities deemed to be other than temporarily impaired. Expenses We have five principal types of expenses: o claims and policy benefits under our reinsurance contracts; 11 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations o interest credited to interest sensitive contract liabilities; o acquisition costs and other insurance expenses; o operating expenses; and o interest expense. When we issue a Life Reinsurance contract, we establish reserves for benefits. These reserves are our estimates of what we expect to pay in claims and policy benefits and related expenses under the contract or policy. From time to time, we may also add to reserves if our experience leads us to believe that benefit claims and expenses will ultimately be greater than the existing reserve. We report the provision for these reserves as an expense during the period when the reserve or additional reserve is established. In connection with reinsurance of annuity and annuity-type products, we record a liability for interest sensitive contract liabilities, which represents the amount ultimately due to the policyholder. We credit interest to these contracts each period at the rates determined in the underlying contract, and the amount is reported as interest credited to interest sensitive contract liabilities on our consolidated statements of income. A portion of the costs of acquiring new business, such as commissions, certain internal expenses related to our policy issuance and underwriting departments and some variable selling expenses are capitalized. The resulting deferred acquisition costs asset is amortized over future periods based on our expectations as to the emergence of future gross profits from the underlying contracts. These costs are dependent on the structure, size and type of business written. For certain products, we may retrospectively adjust our amortization when we revise our estimate of current or future gross profits to be realized. The effects of this adjustment are reflected in earnings in the period in which we revise our estimate. Operating expenses consist of salary and salary related expenses, legal and professional fees, rent and office expenses, travel and entertainment, directors' expenses, insurance and other similar expenses, except to the extent capitalized in deferred acquisition costs. Interest expense consists of interest charges on our borrowings. Factors affecting profitability We seek to generate profits from three principal sources. First, in our Life Reinsurance business, we seek to receive reinsurance premiums and financial reinsurance fees that, together with income from the assets in which those premiums are invested, exceed the amounts we ultimately pay as claims and policy benefits, acquisition costs and ceding commissions. Second, in our Wealth Management business, we seek to generate fee income that will exceed the expenses of maintaining and administering our variable life insurance and variable annuity products. Third, within our investment guidelines, we seek to maximize the return on our unallocated capital. The following factors affect our profitability: o the volume of business we write; o our ability to assess and price adequately for the risks we assume; o the mix of different types of business that we reinsure, because profits on some kinds of business emerge later than on other types; o our ability to manage our assets and liabilities to manage investment and liquidity risk; o the level of fees that we charge on our Wealth Management contracts; and o our ability to control expenses. In addition, our profits can be affected by a number of factors that are not within our control. For example, movements in interest rates can affect the volume of business that we write, the income earned from our investments, the interest we credit on interest sensitive contracts, the level of surrender activity on contracts that we reinsure and the rate at which we amortize deferred acquisition costs. Other external factors that can affect profitability include mortality experience that varies from our assumed mortality and changes in regulation or tax laws which may affect the attractiveness of our products or the costs of doing business. 12 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Our results of operations for the three-month period ended March 31, 2001 do not include the results of operations of World-Wide Holdings, which we acquired at the close of business on December 31, 2001. Earnings per ordinary share
Three months ended Three months ended March 31, 2002 March 31, 2001 ------------------- ------------------- Net income $4,998 $3,714 =================== =================== Basic earnings per ordinary share $0.25 $0.24 =================== =================== Diluted earnings per ordinary share $0.23 $0.23 =================== =================== Weighted average number of ordinary shares outstanding: Basic 20,146,139 15,614,418 ------------------- ------------------- Diluted 21,352,993 16,136,716 ------------------- -------------------
Our net income for the first quarter increased 35% to $5.0 million from $3.7 million in the same quarter in 2001. The increases are attributable to the inclusion of the net income of World-Wide, amounting to $1.4 million, for the first time since its acquisition, the continued growth in our core segments of Life Reinsurance North America and Wealth Management and an increase in investment income due to the increase in average invested assets offset in part by an increase in realized losses on fixed maturity investments. Earnings per ordinary share on a diluted basis amounted to $0.23 for the first quarter of both 2002 and 2001. Earnings per ordinary share was the net result of increased net income which was offset by the increase in the number of ordinary shares outstanding as a result of the acquisition of World-Wide and an increase in the dilutive effect of stock options and warrants. The earnings in the first quarter of 2002 included realized losses of $1.5 million compared to a realized gain of $38,000 in the first quarter of 2001. 13 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations
Three months ended Three months ended March 31, 2002 March 31, 2001 ------------------- ------------------ Net income $4,998 $3,714 Realized losses (gains) - non taxable companies 1,177 (38) Realized losses- taxable companies 287 - Provision for taxes -- taxable companies (157) - ------------------- ------------------ Net operating earnings $6,305 $3,676 =================== ================== Basic net operating earnings per ordinary share $0.31 $0.24 =================== ================== Diluted net operating earnings per ordinary share $0.30 $0.23 =================== ================== Weighted average number of ordinary shares outstanding Basic 20,146,139 15,614,418 ------------------- ------------------ Diluted 21,352,993 16,136,716 ------------------- ------------------
Net operating earnings increased 72% to $6.3 million in the first quarter from $3.7 million in the same quarter in 2001. Net operating earnings excludes the effect of net realized capital gains and losses, net of deferred acquisition costs, and non-recurring events and transactions. We determine net operating earnings by adjusting GAAP net income for net realized capital gains and losses, as adjusted for the related effects upon the amortization of deferred acquisition costs and taxes, and non-recurring items that we believe are not indicative of overall operating trends. While these items may be significant components in understanding and assessing our consolidated financial performance, we believe the presentation of net operating earnings enhances the understanding of our results of operations by highlighting earnings attributable to the normal, recurring operations of our business. However, net operating earnings are not a substitute for net income determined in accordance with GAAP. Revenues Revenues increased by 144% to $53.7 million in the first quarter of 2002 from $22.0 million in the same period of 2001. The increase was due primarily to the acquisition of World-Wide, the growth in our Life Reinsurance North America and Wealth Management operations and an increase in investment income due to growth in our invested assets resulting from new business. 14 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations Revenues consist of the following:
Three months ended Three months ended March 31, 2002 March 31, 2001 ------------------ ------------------- $31,355 $9,520 Premiums earned Fee income 2,074 699 Investment income, net 21,730 11,747 Realized gains (losses) (1,464) 38 ------------------ ------------------- Total revenues $53,695 $22,004 ================== ===================
Premiums earned Premiums earned during the first quarter increased 229% to $31.3 million. World-Wide's premiums earned amounted to $12.2 million. Premiums earned on Life Reinsurance North America operations increased by 101% and were from 45 clients. Premiums earned from these operations in the three month period ended March 31, 2001 were $9.5 million and were from 23 clients. As of March 31, 2002 we reinsured approximately $42.3 billion of life insurance in-force on 1,117,000 lives. Our average benefit coverage per life was $38,000. Our targeted maximum corporate retention on any one life is $1 million; however, we currently retrocede any liability in excess of $500,000. As of March 31, 2001 we reinsured approximately $15.8 billion of life insurance in-force on 393,000 lives. Our average benefit coverage per life was $40,000. Fee income Both Life Reinsurance and Wealth Management business generate fee income. In Life Reinsurance we earn fees on our financial reinsurance treaties that do not qualify under risk transfer rules for reinsurance accounting. Wealth Management fees increased in the first quarter of 2002 by $0.2 million from $0.6 million to $0.8 million primarily due to increases in variable account balances on which we earn fees and an increase in the number of clients. Fees earned are as follows: Three months ended Three months ended March 31, 2002 March 31, 2001 ------------------- ------------------- Life Reinsurance $1,293 $89 Wealth Management 781 610 ------------------- ------------------- Total $2,074 $699 =================== =================== 15 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations Wealth Management fees are earned from both life and annuity clients. The following table summarizes our client base with the associated segregated asset values and policy face amounts. March 31, March 31, 2002 2001 ---------------- ----------------- Number of clients - Life 43 22 - Annuity 91 83 ---------------- ----------------- 134 105 ---------------- ----------------- Segregated asset value - Life $130,600 $82,824 - Annuity 473,000 377,895 ---------------- ----------------- $603,600 $460,719 ---------------- ----------------- Face value - Life $843,112 $408,398 ---------------- ----------------- The change in the segregated assets is as follows: Three months ended Three months ended March 31, 2002 March 31, 2001 ------------------- ------------------- Balance at beginning of period $602,800 $409,660 Deposits 4,200 62,199 Withdrawals (650) (1,300) Investment performance (1) (2,750) (9,840) ------------------- ------------------- Balance at end of period $603,600 $460,719 =================== =================== (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 by $10.0 million or 85% to $21.7 million for the three months ended March 31, 2002 from $11.7 million for the prior year period as a result primarily of increases in average invested assets. Funds withheld at interest have grown from $51.2 million at March 31, 2001 to $725.3 million at March 31, 2002. The World-Wide fixed income portfolio totaled $83.8 million as of March 31, 2002. Excluding funds withheld at interest and the World-Wide portfolio, our general account portfolio has declined since March 31, 2001. This decline was the net result of the recapture by a ceding company of $187.5 million of assets in April 2001, offset in part by the addition of investments funded by new reinsurance transactions and borrowings. During the three month period ended March 31, 2002, as compared to the comparable period in 2001, average book yields were lower, particularly on floating rate assets and cash. Yields on floating rate assets move with LIBOR, which has decreased significantly. On the $569.2 million portfolio managed by General Re - New England Asset Management Inc. ("NEAM"), the yields on fixed rate assets were 6.97% and 7.18% at March 31, 2002 and 2001, respectively. Between those dates, however, LIBOR decreased to 1.88% from 5.08%, causing the yield on our floating rate assets to decrease to 4.17% from 6.58% and the yield on our cash and cash equivalents to decrease to 2.69% from 5.54%. Since the floating rate assets were funded by floating rate liabilities, the decrease in yield on assets had no material effect on earned margins. 16 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations The split of investment income by segment is as follows:
Three months ended Three months ended March 31, 2002 March 31, 2001 ------------------- ------------------- Life Reinsurance - North America $19,526 $9,980 - International 1,403 - Wealth Management 1 2 Other (1) 800 1,765 ------------------- ------------------- Total $21,730 $11,747 =================== ===================
(1) Other includes investment income on unallocated capital. Realized gains (losses) In the first quarter of 2002, realized losses on investments amounted to $1.5 million compared to a realized gain of $38,000 in the first quarter of 2001. Realized losses principally comprise the recognition of other than temporary impairments as required by EITF Issue No. 99-20, "Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets". A decline in fair value below the "amortized cost" basis is considered to be an other than temporary impairment whenever there is an adverse change in the amount or timing of cash flows to be received, regardless of the resulting yield, unless the decrease is solely a result of changes in market interest rates. Benefits and expenses
Three months ended Three months ended March 31, 2002 March 31, 2001 ------------------- ------------------- Claims and other policy benefits $23,887 $7,334 Interest credited to interest sensitive contract liabilities 9,178 4,219 Acquisition costs and other insurance expenses 10,637 4,116 Operating expenses 4,344 2,631 Interest expense 344 - ------------------- ------------------- $48,390 $18,300 Total benefits and expenses =================== ===================
Claims and other policy benefits Claims and other policy benefits increased by 226% to $23.9 million in the first quarter of 2002 from $7.3 million during the prior year period as a result of the acquisition of World-Wide, the increased number of clients and the increase in business from these clients. Claims and policyholder benefits in respect of World-Wide were $8.3 million. 17 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations Interest credited to interest sensitive contract liabilities Interest credited to interest sensitive contract liabilities increased by $5.0 million or 118% to $9.2 million for the first quarter of 2002 from $4.2 million in the first quarter of 2001. The increase was due to interest credited on new 2002 reinsurance treaties and increases in interest credited to policies which commenced in 2001 and 2000 due to increasing average liability balances. Acquisition costs and other insurance expenses Acquisition costs and other insurance expenses increased by $6.5 million or 158% to $10.6 million in the first quarter of 2002 from $4.1 million in the prior year period. The increase was a result of the acquisition of World-Wide, the increased number of reinsurance clients in our Life Reinsurance business and the increase in premiums earned over the last two years. The components of these expenses are as follows:
Three months ended Three months ended March 31, 2002 March 31, 2001 ------------------- ------------------- Commissions, excise taxes and other insurance expenses $27,090 $9,762 Deferral of expenses (22,660) (8,824) ------------------- ------------------- 4,430 938 Amortization - Present value of in-force business 722 52 Amortization - Deferred acquisition costs 5,485 3,126 ------------------- ------------------- Total $10,637 $4,116 =================== ===================
Commissions and excise taxes vary with premiums earned. Other insurance expenses include direct and indirect expenses of those departments involved in the marketing, underwriting and issuing of reinsurance treaties. 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, 2002 March 31, 2001 ------------------- ------------------- Life Reinsurance - North America $8,531 $3,950 - International 1,535 - Wealth Management 571 166 ------------------- ------------------- Total $10,637 $4,116 =================== ===================
Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations Operating expenses Operating expenses increased to $4.3 million for the first quarter of 2002 compared to $2.6 million in the first quarter of 2001 as a result of the acquisition of World-Wide and increased personnel costs. The split of these expenses between segments is as follows:
Three months ended Three months ended March 31, 2002 March 31, 2001 ------------------- ------------------- Life Reinsurance - North America $1,353 $1,049 - International 1,687 - Wealth Management 203 242 Other 1,101 1,340 ------------------- ------------------- Total $4,344 $2,631 =================== ===================
Other operating expenses include salaries, head office expenses, legal and professional fees and other expenses not related to either our Life Reinsurance or Wealth Management lines of business. Interest expense We incurred interest expense of $343,000 during the first quarter reflecting the use of borrowings as described in Note 7 to the consolidated financial statements. There were no borrowings during the quarter ended March 31, 2001. Income taxes Income tax expense includes taxes on the earnings of Scottish Re (U.S.), Inc., Scottish Annuity & Life International Insurance Company (Bermuda) Ltd., World-Wide Reassurance Company Limited and Scottish Re (Dublin) Limited. Minority interest We now own 100% of Scottish Annuity & Life Holdings (Bermuda) Limited (formerly Scottish Crown Group (Bermuda) Ltd.). In July 2001 we acquired the remaining 49.99% of Scottish Annuity & Life Holdings (Bermuda) that we did not own, and thereby eliminated the minority interest position. Financial Condition Investments At March 31, 2002 the portion of our investment portfolio controlled by us consisted of $672.1 of fixed income securities and cash. Of this total $569.2 million represented the fixed income portfolio controlled by NEAM, $97.8 million represented investments of World-Wide, which have historically been managed internally, and $5.1 represented other cash balances. At March 31, 2002, the portion of the portfolio managed by NEAM had an average Standard & Poor's rating of "A+", an average effective duration of 4.0 years and an average book yield of 6.40% as compared with an average rating of "A+", an average effective duration of 3.2 years and an average book yield of 6.68% at December 31, 2001. At March 31, 2002 the portion of the investment portfolio managed by World-Wide had an average rating of "AA- ", an average duration of 2.8 years and an average book yield of 5.50% as compared with an average rating of "AA- ", an average duration of 1.9 years and 19 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations an average book yield of 5.22% at December 31, 2001. At March 31, 2002 the unrealized depreciation on investments, net of tax was $8.2 million as compared with $3.6 million at December 31, 2001. These amounts are included on our consolidated balance sheets as part of shareholders' equity. At March 31, 2002 funds withheld at interest totaled $725.3 million with an average rating of "A", an average duration of 6.1 years and an average book yield of 6.96%. These are fixed income investments associated with modified coinsurance transactions and include marketable securities, commercial mortgages and private placements. Liquidity and Capital Resources Cash flow Cash flow from operations for the first quarter of 2002 was a negative $2.4 million compared to a negative $2.6 million in the prior year period. Although premiums written and renewal premiums received in the first quarter of the year are typically lower than in later quarters, causing reduced cash flows, the payment of claims and operating expenses continue on a more level basis throughout the year. Our cash flow from operations may be positive or negative in any period depending on the amount of new Life Reinsurance business written, the level of ceding commissions paid in connection with writing that business and the level of renewal premiums earned in that period. Capital and collateral At March 31, 2002, total capitalization was $330.1 million ($331.3 million at December 31, 2001). The decrease in capitalization at March 31, 2002 is due to the increase in unrealized depreciation of investments and the cumulative translation adjustment offset by earnings for the period less dividends. On April 4, 2002, we completed a public offering of 6,750,000 ordinary shares (which included the over-allotment option of 750,000 ordinary shares) in which we raised aggregate net proceeds of approximately $115 million. We have used the proceeds of the offering to repay short-term borrowings of $40 million and will use the remainder for general corporate purposes. During the first quarter, we paid dividends totaling $0.05 per share or $1.0 million in the aggregate. We have in place a credit facility with a U.S. bank that provides up to $70 million in the form of borrowings or outstanding letters of credit. Under the agreement, we may borrow at a predetermined spread of 40 basis points over LIBOR. The agreement expired on April 30, 2002, but has been extended for a 60 day period. At that time it is renewable with the agreement of both parties. At March 31, 2002 and December 31, 2001, we had outstanding borrowings of $40 million. 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. Our borrowings under this facility were repaid with the proceeds of the public offering after the end of the first quarter. We have also borrowed $23.2 million ($25.1 million at December 31, 2001) under a reverse repurchase agreement with a major broker/dealer. Under this agreement, we have sold agency mortgage backed securities with the agreement to repurchase them at a fixed price, providing the dealer with a spread that equates to an effective borrowing cost linked to one-month LIBOR. This agreement is renewable monthly at the discretion of the broker/dealer. 20 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations We must have sufficient assets available for use as collateral to support borrowings, letters of credit, and certain reinsurance transactions. With these reinsurance transactions, the need for collateral letters of credit arises in four ways: - When Scottish Annuity & life Insurance Company (Cayman) Ltd. enters into a reinsurance treaty with a U.S. customer, it must pledge assets into a reserve credit trust with a U.S. bank in order that the ceding company may obtain reserve credit for the reinsurance transaction; in some cases, a letter of credit may be substituted for all or a portion of a reserve credit trust; - When Scottish Re (U.S.), Inc. enters into a reinsurance transaction, it typically incurs a need for additional statutory capital; this need can be met by its own capital surplus, an infusion of cash or assets from Scottish Annuity & Life Insurance Company (Cayman) Ltd. or by ceding a portion of the transaction to another company within the group or an unrelated reinsurance company, in which case that reinsurer must provide reserve credit by pledging assets in a reserve credit trust or pledging assets to a bank to support a letter of credit; - Scottish Re (U.S.), Inc. is licensed, accredited, approved or authorized to write reinsurance in 46 states and the District of Columbia. When Scottish Re (U.S.), Inc. enters into a reinsurance transaction with a customer domiciled in a state in which it is not licensed, accredited, authorized or approved reinsurer, it likewise must provide a reserve credit trust or letter of credit; and - Even when Scottish Re (U.S.), Inc. is licensed, accredited, approved or authorized to write reinsurance in the state, it may agree with a customer to provide a reserve credit trust or letter of credit voluntarily to mitigate the counter-party risk from the customer's perspective, thereby doing transactions that would be otherwise unavailable or would be available only on significantly less attractive terms; such a requirement most often arises in connection with interest-sensitive liabilities. Scottish Annuity & Life Insurance Company (Cayman) Ltd. has agreed with Scottish Re (U.S.), Inc. that it will (1) cause Scottish Re (U.S.), Inc. to maintain capital and surplus equal to the greater of $20.0 million or such amount necessary to prevent the occurrence of a Company Action Level Event under the risk-based capital laws of the State of Delaware and (2) provide Scottish Re (U.S.), Inc. with enough liquidity to meet its obligations in a timely manner. In addition, Scottish Annuity & Life Insurance Company (Cayman) Ltd. and Scottish Holdings have agreed with World-Wide Reassurance that in the event World-Wide Reassurance is unable to meet its obligations under its insurance and reinsurance agreements, Scottish Annuity & Life Insurance Company (Cayman) Ltd. (or if Scottish Annuity & Life Insurance Company (Cayman) Ltd. cannot fulfill such obligations, then Scottish Holdings) will assume all of World-Wide Reassurance's obligations under such agreements. Scottish Holdings and Scottish Annuity & Life Insurance Company (Cayman) Ltd. may, from time to time, execute additional agreements guaranteeing the performance and/or obligations of their subsidiaries. While we believe that we have sufficient assets available in the short term to support our liquidity and letter of credit needs, we may need to raise additional capital and/or find alternative assets or unsecured letters of credit to continue to grow. We expect that our cash and investments, together with cash generated from our businesses, will provide sufficient sources of liquidity to meet our current needs. However, if our business continues to grow significantly, we will need to raise additional capital. Off balance sheet arrangements We have no obligations, assets or liabilities other than those disclosed in the financial statements; no trading activities involving non-exchange traded contracts accounted for at fair value; and no relationships and transactions with persons or entities that derive benefits from their non-independent relationship with us or our related parties. Changes in Accounting Standards In June 2001, the Financial Accounting Standards Board issued SFAS 141, "Business Combinations," and SFAS 142, "Goodwill and Other Intangible Assets," effective for fiscal years beginning after December 15, 2001. Under the new rules, 21 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. We have applied the new rules on accounting for goodwill and other intangible assets in this quarter. Goodwill of $31.6 million arose on the acquisition of World-Wide at December 31, 2001. Our reported earnings and financial position for 2001 do not reflect significant amounts of amortization of goodwill. During fiscal 2002 we will perform the first of the required impairment tests of goodwill and have not yet determined what the effect of these tests will be on our earnings and financial position. 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. Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", "estimates", "may", "will", "continue", "project", and similar expressions, as well as statements in the future tense, identify forward-looking statements. 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 forward-looking statements. These risks and uncertainties include: - Uncertainties relating to the ratings accorded to our insurance subsidiaries; - Uncertainties relating to government and regulatory policies (such as subjecting us to insurance regulation or taxation in additional jurisdictions); - Exposure to mortality experience which differs from our assumptions; - Uncertainties arising from control of our assets by third parties; - The risk that our risk analysis and underwriting may be inadequate; - Risks arising from our investment strategy, including risks related to market value of our investments, fluctuations in interest rates and our need for liquidity; - The risk that our retrocessionaires may not honor their obligations to us; - Changes in capital needs; - The impact of acquisitions, including the ability to successfully integrate acquired businesses, the competing demands for our capital and the risk of undisclosed liabilities; - Loss of the service of any of our key employees; - Changes in accounting principles; - 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; - Losses due to foreign currency rate fluctuations; - Changes in the rate of policyholder withdrawals or recapture of reinsurance treaties; - The competitive environment in which we operate and associated pricing pressures; and - Developments in global financial markets that could affect our investment portfolio and fee income. The effects of these factors are difficult to predict. New factors emerge from time to time and we cannot assess the financial impact of any such factor on the business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward looking statement. Any forward looking statement speaks only as of the date of this report and we do not undertake any obligation to update any forward looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of unanticipated events. 22 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations 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, 2001. Please refer to "Item 7A: Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K. 23 PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is not currently involved in any material litigation or arbitration. Item 2. Changes in Securities and Use of Proceeds On April 4, 2002, the Company completed a public offering of 6,750,000 ordinary shares (Commission File Numbers 333-83696 and 333-85548), which included the over-allotment option of 750,000 ordinary shares, for an aggregate offering price of $123 million. After deducting estimated expenses of $8 million, the Company raised aggregate net proceeds of approximately $115 million. The managing underwriters were Bear, Stearns & Co. Inc., Putnam Lovell Securities Inc., Fox-Pitt, Kelton and Keefe Bruyette & Woods, Inc. The Company has used the proceeds of the offering to repay short term borrowings of $40 million and will use the remainder for general corporate purposes. 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 A. Exhibits Except as otherwise indicated, the following Exhibits are filed herewith and made a part hereof: Exhibit Description of Document Number 3.1 Memorandum of Association of the Company, as amended as of December 14, 2001 (incorporated herein by reference to the Company's Current Report on Form 8-K/A).(6) 3.2 Articles of Association of the Company, as amended as of December 14, 2001 (incorporated herein by reference to the Company's Current Report on Form 8-K/A).(6) 4.1 Specimen Ordinary Share Certificate (incorporated herein by reference to Exhibit 4.1 to the Company's registration Statement on Form S-1).(1) 4.2 Form of Amended and Restated Class A Warrant (incorporated herein by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-1).(1) 24 4.3 Form of Amended and Restated Class B Warrant (incorporated herein by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-1).(1) 4.4 Form of Securities Purchase Agreement for the Class A Warrants (incorporated herein by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-1).(1) 4.5 Form of Warrant Purchase Agreement for the Class B Warrants (incorporated herein by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-1).(1) 4.6 Form of Securities Purchase Agreement between the Company and the Shareholder Investors (incorporated herein by reference to Exhibit 4.10 to the Company's Registration Statement on Form S-1).(1) 4.7 Form of Securities Purchase Agreement between the Company and the Non-Shareholder Investors (incorporated herein by reference to Exhibit 4.12 to the Company's Registration Statement on Form S-1).(1) 10.1 Employment Agreement dated June 18, 1998 between the Company and Michael C. French (incorporated herein by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1).(1) 10.2 Second Amended and Restated 1998 Stock Option Plan effective October 22, 1998 (incorporated herein by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-1).(1) 10.3 Form of Stock Option Agreement in connection with 1998 Stock Option Plan (incorporated herein by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1).(1) 10.4 Agreement dated June 30, 1998 between the Company and International Risk Management (Cayman) Ltd. (incorporated herein by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1).(1) 10.5 Amended and Restated Insurance Administration, Services and Referral Agreement dated as of October 1, 1998 between the Company and The Scottish Annuity Company (Cayman) Ltd. (incorporated herein by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1).(1) 10.6 Form of Indemnification Agreement between the Company and each of its directors and officers (incorporated herein by reference to Exhibit 10.12 to the Company's Registration Statement on Form S-1).(1) 10.7 Investment Management Agreement dated October 22, 1998 between the Company and General Re-New England Asset Management, Inc. (incorporated herein by reference to Exhibit 10.14 to the Company's Registration Statement on Form S-1).(1) 10.8 Form of Omnibus Registration Rights Agreement (incorporated herein by reference to Exhibit 10.17 to the Company's Registration Statement on Form S-1).(1) 10.9 1999 Stock Option Plan (incorporated herein by reference to Exhibit 10.14 to the Company's 1999 Annual Report on Form 10-K).(2) 25 10.10 Form of Stock Options Agreement in connection with 1999 Stock Option Plan (incorporated herein by reference to Exhibit 10.15 to the Company's 1999 Annual Report on Form 10-K).(2) 10.11 Employment Agreement dated March 8, 2000 between the Company and Scott E. Willkomm. (incorporated herein by reference to Exhibit 10.16 to the Company's 1999 Annual Report on Form 10-K).(2) 10.12 Employment Agreement dated August 1, 2000 between the Company and Larry N. Stern (incorporated herein by reference to Exhibit 10.14 to the Company's 2000 Annual Report on Form 10-K).(3) 10.13 Employment Agreement dated August 18, 2000 between the Company and Thomas A. McAvity, Jr. (incorporated herein by reference to Exhibit 10.15 to the Company's 2000 Annual Report on Form 10-K).(3) 10.14 Employment Agreement dated September 18, 2000 between the Company and Oscar R. Scofield (incorporated herein by reference to Exhibit 10.16 to the Company's 2000 Annual Report on Form 10-K).(3) 10.15 Share Purchase Agreement by and between the Company and Pacific Life Insurance Company dated August 6, 2001 (incorporated by reference to the Company's Current Report on Form 8-K filed with the SEC on August 9, 2001). 10.16 Amendment No. 1, dated November 8, 2001, to Share Purchase Agreement dated August 2001 by and between the Company and Pacific Life Insurance Company (incorporated by reference to the Company's Current Report on Form 8-K).(5) 10.17 2001 Stock Option Plan (incorporated herein by reference to Exhibit 10.17 to the Company's 2001 Annual Report on Form 10-K).(4) 10.18 Form of Nonqualified Stock Option Agreement in connection with 2001 Stock Option Plan (incorporated herein by reference to Exhibit 10.18 to the Company's 2001 Annual Report on Form 10-K).(4) 10.19 Service Agreement dated December 31, 2001 between World-Wide Holdings, Paul Andrew Bispham and the Company (incorporated herein by reference to Exhibit 10.19 to the Company's 2001 Annual Report on Form 10-K).(4) 10.20 Registration Rights Agreement dated December 31, 2001 between the Company and Pacific Life Insurance Company (incorporated by reference to the Company's Current Report on Form 8-K).(5) 10.21 Stockholder Agreement dated December 31, 2001 between the Company and Pacific Life Insurance Company (incorporated by reference to the Company's Current Report on Form 8-K).(5) 10.22 Tax Deed of Covenant dated December 31, 2001 between the Company and Pacific Life Insurance Company (incorporated by reference to the Company's Current Report on Form 8-K).(5) 10.23 Letter Agreement dated December 28, 2001 between the Company and Pacific Life Insurance Company (incorporated by reference to the Company's Current Report on Form 8-K).(5) 26 (1) The Company's Registration Statement on Form S-1 was filed with the Securities and Exchange Commission on June 19, 1998, as amended. (2) The Company's 1999 Annual Report on Form 10-K was filed with the Securities and Exchange Commission on April 3, 2000. (3) The Company's 2000 Annual Report on Form 10-K was filed with the Securities and Exchange Commission on March 30, 2001. (4) The Company's 2001 Annual Report on Form 10-K was filed with the Securities and Exchange Commission on March 5, 2002. (5) The Company's Current Report on Form 8-K was filed with the Securities and Exchange Commission on December 31, 2001. (6) The Company's Current Report on Form 8-K/A was filed with the Securities and Exchange Commission on January 11, 2002. B. Reports on Form 8-K The following reports on Form 8-K were filed during the three-month period ended March 31, 2002. The Company filed a report on Form 8-K/A on January 11, 2002 to file under Item 5 (Other Events) the current text of the Company's Memorandum of Association and Articles of Association. The Company filed a report on Form 8-K on February 14, 2002 to report under Item 9 (Regulation FD Disclosure) that the Company had issued on February 13, 2002 a press release announcing its fourth quarter and year-end earnings. 27 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 13, 2002 By: /s/ Scott E. Willkomm Scott E. Willkomm President Date: May 13, 2002 By: /s/ Elizabeth A. Murphy Elizabeth A. Murphy Chief Financial Officer