EX-99.1 2 ex991.txt PRESS RELEASE Scottish Re Group Limited Announces Operating Results for the Second Quarter Ended June 30, 2004 HAMILTON, Bermuda--(BUSINESS WIRE)--Aug. 5, 2004--Scottish Re Group Limited (NYSE:SCT) today reported that income from continuing operations for the quarter ended June 30, 2004 was $27.6 million, or $0.74 per diluted ordinary share, as compared to $9.3 million, or $0.33 per diluted ordinary share for the prior year period. Income from continuing operations for the six months ended June 30, 2004 was $37.6 million, or $1.01 per diluted ordinary share, as compared to $16.7 million, or $0.59 per diluted ordinary share for the prior year period. Net operating earnings were $17.0 million, or $0.46 per diluted ordinary share for the quarter ended June 30, 2004 as compared to $12.5 million, or $0.44 per diluted ordinary share for the prior year period. Net operating earnings were $33.6 million, or $0.90 per diluted ordinary share for the six months ended June 30, 2004 as compared to $21.9 million, or $0.77 per diluted ordinary share for the prior year period. Net operating earnings is a non-GAAP measurement. We determine net operating earnings by adjusting GAAP income from continuing operations by net realized capital gains and losses and the change in value of embedded derivatives as adjusted for the related effects upon the amortization of deferred acquisition costs and taxes. While these items may be significant components in understanding and assessing the Company's consolidated financial performance, the Company believes that the presentation of net operating earnings enhances the understanding of its results of operations by highlighting earnings attributable to the normal, recurring operations of its reinsurance business. However, net operating earnings are not a substitute for income from continued operations determined in accordance with GAAP. Net income for the quarter amounted to $27.6 million, or $0.74 per diluted ordinary share as compared to $7.9 million or $0.28 per diluted ordinary share for the prior year period. Net income for the six months ended June 30, 2004 amounted to $37.6 million, or $1.01 per diluted ordinary share as compared to $15.1 million or $0.53 per diluted ordinary share for the prior year period. "We continue to make significant progress in transitioning the administration of the ERC block of business we acquired at the end of December. Early in the second quarter, we assumed control of the claims processing functions and took the opportunity to ensure that we were up to date with any processing backlogs and to adapt the function to our systems and procedures," said Michael C. French, Chairman and Chief Executive Officer of Scottish Re Group Limited . "In the first quarter, we anticipated that there would be some catch up as we applied Scottish Re's methods and procedures. However, the financial impact of the processing backlogs was greater than estimated. As a consequence, we are reporting operating earnings per share at the low end of our guidance range for the quarter." Mr. French added, "Nevertheless, the performance of this block of business has been consistent with our expectations for the first half of this year." Total revenue for the quarter increased to $228.8 million from $129.5 million for the prior year period, an increase of 76%. Excluding realized gains and losses and the change in fair value of the embedded derivative, total revenue for the quarter increased to $215.9 million from $132.9 million for the prior year period, an increase of 62%. Total revenue for the six months ended June 30, 2004 increased to $408.0 million from $226.4 million for the prior year period, an increase of 80%. Excluding realized gains and losses and the change in fair value of the embedded derivative, total revenue for the quarter increased to $402.3 million from $232.1 million for the prior year period, an increase of 73%. Total benefits and expenses increased to $203.4 million for the quarter from $120.3 million, an increase of 69%. For the six months ended June 30, 2004, total benefits and expenses increased to $371.3 million from $209.4 million, an increase of 77%. The increases in both total revenues and total benefits and expenses were principally driven by the acquisition of Scottish Re Life Corporation (previously ERC Life) and growth in the Company's reinsurance business in North America. The Company's total assets were $6.9 billion as of June 30, 2004. The core investment portfolio, comprising fixed maturity investments, preferred stock and most of the cash and cash equivalents, totaled $3.0 billion, and had an average quality rating of "AA-", an effective duration of 3.5 years and a weighted average book yield of 4.1%. This compares with a portfolio balance of $2.4 billion, an average quality rating of "AA-", effective duration of 3.9 years and an average book yield of 4.5% as of December 31, 2003. Funds withheld at interest, totaling $1.5 billion, had an average quality rating of "A-", an effective duration of 4.9 years and a weighted average book yield 6.3% at June 30, 2004. This compares with a total of $1.5 billion with an average quality rating of "A-", an effective duration of 5.1 years and an average book yield of 6.3% at December 31, 2003. The market value of the funds withheld at interest amounted to $1.5 billion at June 30, 2004. "While we are reporting operating earnings per share at the low end of our guidance range for the quarter, our guidance for the full year of $2.10 to $2.30 per share has not changed," said Scott E. Willkomm, President of Scottish Re Group Limited . "Furthermore, our 15% return on equity objective remains achievable by 2006." As of June 30, 2004, the Company had approximately $298 billion of life reinsurance in force covering 7.4 million lives with an average benefit per life of $50,000 in our North American operations. As of December 31, 2003, the Company had reinsurance in-force of approximately $275 billion on 6.2 million lives with an average benefit per life of $43,000. Mortality experience in the quarter was in line with expectations. The Company's book value per share was $18.66 at June 30, 2004 as compared to $18.73 per share at December 31, 2003. The Company's earnings conference call will be held at 11:00 a.m (EDT) on Thursday, August 5, 2004. The dial-in number is (703) 639-1201 or (866) 252-0351 and the reservation number is 515174. A replay of the call will be available beginning at 3:00 p.m. on Thursday, August 5, 2004 and running through Thursday, August 19, 2004. The dial-in number for the replay is (703) 925-2533 or (888) 266-2081 and the PIN code is 515174. In addition, a simultaneous Web cast, as well as an on-demand replay, of the conference call will be available at the Company's Web site, www.scottishre.com/conferencecall. Scottish Re Group Limited is a global life reinsurance specialist and issuer of customized life-insurance based wealth management products for high net worth individuals and families. Scottish Re Group Limited has operating companies in Bermuda, Charlotte, North Carolina, Dublin, Ireland, Grand Cayman and Windsor, England. Its operating subsidiaries include Scottish Annuity & Life Insurance Company (Cayman) Ltd. and Scottish Re (U.S.), Inc. which are rated A- (excellent) by A.M. Best, A (strong) by Fitch Ratings, A3 (good) by Moody's and A- (strong) by Standard & Poor's, Scottish Re Limited, which is rated A- (excellent) by A.M. Best, A (strong) by Fitch Ratings and A- (strong) by Standard & Poor's and Scottish Re Life Corporation Limited which is rated A-(excellent) by A.M. Best. Additional information about Scottish Re can be obtained from its Web site, www.scottishre.com. Certain statements included herein are "forward-looking statements" within the meaning of the federal securities laws. The management of Scottish Re Group Limited (the "Company") cautions that forward-looking statements are not guarantees, and that actual results could differ materially from those expressed or implied in the forward-looking statements. Important events that could cause the actual results of operations or financial condition of the Company to differ include, but are not necessarily limited to, the Company's ability to attract clients and generate business; the competitive environment; the Company's ability to underwrite business; performance of outside service providers; mortality risk; surrender risk; investment risk (including asset value risk, reinvestment risk and disintermediation risk); the impact of unforeseen economic changes (such as changes in interest rates, currency exchange rate, inflation rates, recession and other external economic factors); the impact of terrorist activities on the economy, the insurance and related industries in general and the Company in particular; regulatory changes (such as changes in U.S. tax law and insurance regulation which directly affect the competitive environment for the Company's products); rating agency policies and practices; and loss of key executives. Investors are also directed to consider the risks and uncertainties discussed in documents filed by the Company with the Securities and Exchange Commission. (Tables to follow) Scottish Re Group Limited Financial Highlights (Stated in Thousands of United States Dollars, Except Per Share Data) (Unaudited) ---------------------------------------------------------------------- Three Three Six months Six months months months ended ended ended ended June 30, June 30, June 30, June 30, 2004 2003 2004 2003 -------------------------------------------- Total revenue $228,813 $129,539 $407,989 $226,352 Net operating earnings (a) 16,995 12,455 33,610 21,875 Income from continuing operations 27,555 9,317 37,648 16,740 Net income 27,555 7,872 37,648 15,115 Net operating earnings per share Basic $0.48 $0.46 $0.95 $0.81 Diluted $0.46 $0.44 $0.90 $0.77 Earnings per share from continuing operations Basic $0.77 $0.34 $1.06 $0.62 Diluted $0.74 $0.33 $1.01 $0.59 Earnings per share Basic $0.77 $0.29 $1.06 $0.56 Diluted $0.74 $0.28 $1.01 $0.53 Dividends per share $0.05 $0.05 $0.10 $0.10 Weighted average ordinary shares Outstanding Basic 35,747,254 27,101,357 35,537,458 27,038,103 Diluted 37,328,448 28,536,448 37,279,282 28,333,354 (a) Excludes effect of realized gains and losses, change in value of embedded derivative, amortization of related deferred acquisition costs and losses from discontinued operations. June 30, December 2004 31, 2003 ---------------------- Book value per share - including effect of SFAS 115 and fair value of derivatives $18.66 $18.73 Book value per share - excluding effect of SFAS 115 and fair value of derivatives $19.17 $18.51 Consolidated Balance Sheets (Stated in Thousands of United States Dollars) 2004 31, 2003 ---------------------- Assets Fixed maturity investments $2,548,635 $2,014,719 Preferred stock 134,139 126,449 Cash and cash equivalents 270,503 298,149 Other investments 16,755 17,678 Funds withheld at interest 1,474,287 1,469,425 ---------------------- Total investments 4,444,319 3,926,420 Accrued interest receivable 26,408 22,789 Reinsurance balances and risk fees receivable 321,824 196,192 Deferred acquisition costs 391,049 308,591 Amounts recoverable from reinsurers 746,161 737,429 Present value of inforce business 11,922 13,479 Goodwill 35,847 35,847 Fixed assets 12,615 11,800 Other assets 56,095 45,209 Deferred tax benefit 32,348 12,624 Segregated assets 794,020 743,137 ---------------------- Total assets $6,872,608 $6,053,517 ====================== Liabilities Reserves for future policy benefits $1,683,686 $1,502,415 Interest sensitive contract liabilities 3,220,301 2,633,346 Accounts payable and accrued expenses 25,836 31,673 Reinsurance balances payable 105,452 125,756 Other liabilities 23,025 30,546 Current income tax payable 5,991 13,077 Long term debt 194,500 162,500 Segregated liabilities 794,020 743,137 ---------------------- Total liabilities 6,052,811 5,242,450 ---------------------- Minority Interest 9,188 9,295 Mezzanine Equity 142,145 141,928 Shareholders' equity Share capital, par value $0.01 per share: Issued and fully paid: 35,828,462 ordinary shares (2003 - 35,228,411) 358 352 Additional paid- in capital 555,445 548,750 Accumulated other comprehensive income Unrealized appreciation (depreciation) on investments, net of tax (15,261) 16,848 Other comprehensive income 12,122 12,186 Retained earnings 115,800 81,708 ---------------------- Total shareholders' equity 668,464 659,844 ---------------------- Total liabilities and shareholders' equity $6,872,608 $6,053,517 ====================== Scottish Re Group Limited Consolidated Statements of Income (Stated in Thousand of United States Dollars) Three Three Six Six months months months months ended ended ended ended June 30, June 30, June 30, June 30, 2004 2003 2004 2003 ----------------------------------- Revenues Premiums earned $157,884 $94,737 $291,231 $159,556 Investment income, net 54,817 35,814 104,919 68,138 Fee income 3,189 2,380 6,141 4,371 Realized losses (1,687) (3,392) (266) (5,713) Change in value of embedded derivatives 14,610 - 5,964 - ----------------------------------- Total revenues 228,813 129,539 407,989 226,352 ----------------------------------- Benefits and expenses Claims and other policy benefits 123,975 65,549 219,142 108,463 Interest credited to interest sensitive contract liabilities 25,465 16,874 49,658 32,767 Acquisition costs and other insurance expenses 40,100 27,884 72,969 48,539 Operating expenses 10,901 8,148 23,755 16,013 Interest expense 2,996 1,851 5,773 3,664 ----------------------------------- Total benefits and expenses 203,437 120,306 371,297 209,446 ----------------------------------- Income before income taxes and minority interest 25,376 9,233 36,692 16,906 Income tax benefit (expense) 2,168 84 1,294 (166) ----------------------------------- Income from continuing operations before minority interest 27,544 9,317 37,986 16,740 Minority interest 11 - (338) - ----------------------------------- Income from continuing operations 27,555 9,317 37,648 16,740 Loss from discontinued operations - (1,445) - (1,625) ----------------------------------- Net income $27,555 $7,872 $37,648 $15,115 =================================== Scottish Re Group Limited Supplemental Information - Net Operating Earnings and Book Value Per Share (Stated in Thousand of United States Dollars, Except Per Share Amounts) Three Three Six months Six months months months ended June ended June ended ended 30, 2004 30, 2003 June 30, June 30, 2004 2003 -------------------------------------------- Net operating earnings -------------------------- Income from continuing operations $27,555 $9,317 $37,648 $16,740 Realized losses (gains)- non taxable companies (534) 968 1,587 2,036 Realized losses (gains) - taxable companies 2,221 2,424 (1,321) 3,677 Change in value of embedded derivatives - non taxable companies (33) -- 258 -- Change in value of embedded derivatives - taxable companies (14,577) -- (6,222) -- Taxes on realized gains/losses and change in value of embedded derivatives 2,363 (254) 1,660 (578) -------------------------------------------- Net operating earnings $16,995 $12,455 $33,610 $21,875 ============================================ Net operating earnings per share Basic $0.48 $0.46 $0.95 0.81 Diluted $0.46 $0.44 $0.90 0.77 ============================================ Weighted average number of shares Outstanding Basic 35,747,254 27,101,357 35,537,458 27,038,103 Diluted 37,328,448 28,536,448 37,279,282 28,333,354 June 30, December 2004 31, 2003 ---------------------- Book Value Per Share ------------------------------------------------ Shareholders' equity $668,464 $659,844 Unrealized depreciation (appreciation) on investments, net of taxes 15,261 (16,848) Fair value of embedded derivatives 3,084 9,049 ---------------------- Total $686,809 $652,045 ====================== Number of shares 35,828,462 35,228,411 Book value per share - excluding effect of SFAS 115 and fair value of embedded derivatives $ 19.17 $ 18.51