EX-99.1 2 ex99-1.txt PRESS RELEASE Scottish Re Group Limited Announces Operating Results for the Third Quarter Ended September 30, 2004 HAMILTON, Bermuda--(BUSINESS WIRE)--Nov. 4, 2004--Scottish Re Group Limited (NYSE:SCT) today reported that income from continuing operations for the quarter ended September 30, 2004 was $12.8 million, or $0.34 per diluted ordinary share, as compared to $1.8 million, or $0.05 per diluted ordinary share for the prior year period. Income from continuing operations for the nine months ended September 30, 2004 was $50.5 million, or $1.35 per diluted ordinary share, as compared to $18.5 million, or $0.60 per diluted ordinary share for the prior year period. Net operating earnings were $20.0 million, or $0.54 per diluted ordinary share for the quarter ended September 30, 2004 as compared to $0.8 million, or $0.02 per diluted ordinary share for the prior year period. Net operating earnings were $53.7 million, or $1.44 per diluted ordinary share for the nine months ended September 30, 2004 as compared to $22.7 million, or $0.74 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 $12.8 million, or $0.34 per diluted ordinary share as compared to $1.6 million or $0.05 per diluted ordinary share for the prior year period. Net income for the nine months ended September 30, 2004 amounted to $50.5 million, or $1.35 per diluted ordinary share as compared to $16.7 million or $0.55 per diluted ordinary share for the prior year period. "We are pleased to report that we continue to successfully grow our business both organically and through acquisitions," said Michael C. French, Chairman and Chief Executive Officer of Scottish Re Group Limited . "For the quarter and nine month period ended September 30, 2004, the ERC acquisition contributed net operating earnings in line with our expectations for that business." Mr. French added, "Clearly, the Company is exceptionally well positioned to deliver earnings growth, book value per share growth and expanding returns on equity consistent with our long-term plans to build value for all shareholders." Total revenue for the quarter increased to $198.1 million from $134.6 million for the prior year period, an increase of 47%. Excluding realized gains and losses and the change in fair value of the embedded derivative, total revenue for the quarter increased to $207.0 million from $133.8 million for the prior year period, an increase of 55%. Total revenue for the nine months ended September 30, 2004 increased to $606.1 million from $360.9 million for the prior year period, an increase of 68%. Excluding realized gains and losses and the change in fair value of the embedded derivative, total revenue for the nine months ended September 30, 2004 increased to $609.3 million from $365.9 million for the prior year period, an increase of 67%. Total benefits and expenses increased to $189.5 million for the quarter from $140.9 million, an increase of 34%. For the nine months ended September 30, 2004, total benefits and expenses increased to $560.8 million from $350.4 million, an increase of 60%. 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 September 30, 2004. The core investment portfolio, comprising fixed maturity investments, preferred stock and most of the cash and cash equivalents, totaled $3.1 billion, and had an average quality rating of "AA-", an effective duration of 3.3 years and a weighted average book yield of 4.3%. 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 4.8 years and a weighted average book yield 6.2% at September 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 September 30, 2004. As of September 30, 2004, the Company had approximately $307.4 billion of life reinsurance in force covering 7.5 million lives with an average benefit per life of $41,000 in our North American operations. As of December 31, 2003, the Company had approximately $275.0 billion of life reinsurance in force covering 6.2 million lives with an average benefit per life of $43,000. "Our operating expenses were approximately $0.02 to $0.03 higher than expected due to professional fees incurred in the quarter related to Sarbanes-Oxley Section 404 implementation," said Scott E. Willkomm, President of Scottish Re Group Limited . "Our mortality experience continues to be favorable, with actual experience in the third quarter of the year at about 98% of expected levels." The Company's book value per share was $20.08 at September 30, 2004 as compared to $18.73 per share at December 31, 2003. On October 18, 2004, the Company announced that it had agreed to acquire the individual life reinsurance business of ING Re. Scottish Re will reinsure the liabilities of all of ING Re's individual life reinsurance business through a coinsurance transaction. ING Re will transfer to Scottish Re assets equal to reserves of approximately $800.0 million and will pay a ceding commission of $560.0 million. These assets will be held in trust to secure the reserve obligations of the business. Additionally, ING Re will transfer certain operating assets associated with the business. Following the acquisition, the Company will have approximately $1 trillion of face amount of life reinsurance in-force, $8.8 billion in assets, $2.1 billion in revenues and a capital base of approximately $1.3 billion. In addition to the assets to be transferred by ING Re, the Company will raise an additional $230.0 million in new capital, which will satisfy the capital requirements for the acquired business. This new capital includes $180.0 million to be provided by The Cypress Group, a private equity firm, and an additional $50 million of trust preferred securities. During the quarter ended September 30, 2004, EITF 04-8 "The Effect of Contingently Convertible Debt on Diluted Earnings Per Share" was issued. EITF 04-8 requires that certain instruments with embedded conversion features that are contingent upon market price triggers be included in diluted earnings per share calculations regardless of whether the contingency has been met. The Company's 4.5% senior convertible notes are convertible on the basis of a market price trigger. On October 26, 2004, the Company amended the terms of these notes so that we are required to settle the principal amount of $115.0 million in cash. As a result we shall continue to apply the treasury stock method in calculating diluted earnings per share for amounts in excess of the principal of $115.0 million. The Company's earnings conference call will be held at 11.00 a.m (EDT) on, Thursday, November 4, 2004. The dial-in number is (703) 679-5950 or (877) 502-2902 and the reservation number is 1298568. A replay of the call will be available beginning at 1:00 pm on Thursday, November 4, 2004 and running through Thursday, November 18, 2004. The dial-in number for the replay is (706) 645-9291 or (800) 642-1687 and the PIN code is 1298568. 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. Scottish Re Group Limited Financial Highlights (Stated in Thousands of United States Dollars, Except Per Share Data) --------------------------------------------------------------------- (Unaudited) ----------- Three months ended Nine months ended -------------------------------------------- September September September September 30, 2004 30, 2003 30, 2004 30, 2003 -------------------------------------------- Total revenue $198,144 $134,550 $606,134 $360,902 Net operating earnings(a) 20,046 842 53,656 22,717 Income from continuing operations 12,806 1,782 50,455 18,522 Net income 12,806 1,625 50,455 16,740 Net operating earnings per share Basic $0.56 $0.03 $1.51 $0.78 Diluted $0.54 $0.02 $1.44 $0.74 Earnings per share from continuing operations Basic $0.36 $0.05 $1.42 $0.64 Diluted $0.34 $0.05 $1.35 $0.60 Earnings per share Basic $0.36 $0.05 $1.42 $0.57 Diluted $0.34 $0.05 $1.35 $0.55 Dividends per share $0.05 $0.05 $0.15 $0.15 Weighted average ordinary shares Outstanding Basic 35,869,413 33,248,670 35,648,913 29,119,913 Diluted 37,244,288 35,240,768 37,268,420 30,647,580 (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. September December 30, 2004 31, 2003 ---------------------- Book value per share - including effect of SFAS 115 and fair value of derivatives $20.08 $18.73 Book value per share - excluding effect of SFAS 115 and fair value of derivatives $19.68 $18.51 Consolidated Balance Sheets (Stated in Thousands of United States Dollars) September 30, December 31, 2004 2003 ------------- ------------- Assets Fixed maturity investments $2,797,450 $2,014,719 Preferred stock 125,082 126,449 Cash and cash equivalents 191,016 298,149 Other investments 16,412 17,678 Funds withheld at interest 1,477,870 1,469,425 ------------- ------------- Total investments $4,607,830 $3,926,420 Accrued interest receivable 24,159 22,789 Reinsurance balances and risk fees receivable 290,763 196,192 Deferred acquisition costs 411,540 308,591 Amounts recoverable from reinsurers 703,288 737,429 Present value of inforce business 38,349 13,479 Goodwill 34,125 35,847 Fixed assets 12,242 11,800 Other assets 11,999 45,209 Current income tax receivable 10,716 - Deferred tax benefit 8,913 12,624 Segregated assets 740,220 743,137 ------------- ------------- Total assets $6,894,144 $6,053,517 ============= ============= Liabilities Reserves for future policy benefits $1,603,840 $1,502,415 Interest sensitive contract liabilities 3,136,930 2,633,346 Structured finance facility liability 200,000 - Accounts payable and accrued expenses 23,223 31,673 Reinsurance balances payable 93,678 125,756 Other liabilities 28,932 30,546 Current income tax payable - 13,077 Long term debt 194,500 162,500 Segregated liabilities 740,220 743,137 ------------- ------------- Total liabilities 6,021,323 5,242,450 ------------- ------------- Minority Interest 9,535 9,295 Mezzanine Equity 142,296 141,928 Shareholders' equity Share capital, par value $0.01 per share: Issued and fully paid: 35,905,962 ordinary shares (2003 - 35,228,411) 359 352 Additional paid- in capital 556,173 548,750 Accumulated other comprehensive income Unrealized appreciation on investments, net of tax 23,633 16,848 Other comprehensive income 14,011 12,186 Retained earnings 126,814 81,708 ------------- ------------- Total shareholders' equity 720,990 659,844 ------------- ------------- Total liabilities and shareholders' equity $6,894,144 $6,053,517 ============= ============= Scottish Re Group Limited Consolidated Statements of Income (Stated in Thousand of United States Dollars) Three months ended Nine months ended ---------------------- --------------------- September September September September 30, 2004 30, 2003 30, 2004 30, 2003 ----------- ---------- ---------- ---------- Revenues Premiums earned $148,987 $92,741 $440,217 $252,296 Investment income, net 55,519 38,133 160,439 106,272 Fee income 2,545 2,932 8,686 7,303 Realized (losses) gains (3,398) 744 (3,664) (4,969) Change in value of embedded derivatives (5,509) - 456 - ----------- ---------- ---------- ---------- Total revenues 198,144 134,550 606,134 360,902 ----------- ---------- ---------- ---------- Benefits and expenses Claims and other policy benefits 104,970 69,424 324,112 177,886 Interest credited to interest sensitive contract liabilities 27,685 33,294 77,342 66,061 Acquisition costs and other insurance expenses 40,312 27,593 113,282 76,132 Operating expenses 13,214 8,753 36,969 24,767 Interest expense 3,352 1,869 9,126 5,533 ----------- ---------- ---------- ---------- Total benefits and expenses 189,533 140,933 560,831 350,379 ----------- ---------- ---------- ---------- Income (loss) before income taxes and minority interest 8,611 (6,383) 45,303 10,523 Income tax benefit (expense) 4,212 8,165 5,507 7,999 ----------- ---------- ---------- ---------- Income from continuing operations before minority interest 12,823 1,782 50,810 18,522 Minority interest (17) - (355) - ----------- ---------- ---------- ---------- Income from continuing operations 12,806 1,782 50,455 18,522 Loss from discontinued operations - (157) - (1,782) ----------- ---------- ---------- ---------- Net income $12,806 $1,625 $50,455 $16,740 =========== ========== ========== ========== 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 months ended Nine months ended ---------------------- --------------------- September September September September 30, 2004 30, 2003 30, 2004 30, 2003 ----------- ---------- ---------- ---------- Net operating earnings -------------------------- Income from continuing operations $12,806 $1,782 $50,455 $18,522 Realized losses (gains): non taxable companies 3,012 (1,070) 4,599 966 taxable companies 386 326 (935) 4,003 Change in value of embedded derivatives: non taxable companies 101 -- 359 -- taxable companies 5,407 -- (815) -- Taxes on above items (1,666) (196) (7) (774) ----------- ---------- ---------- ---------- Net operating earnings $20,046 $842 $53,656 $22,717 =========== ========== ========== ========== Net operating earnings per share Basic $0.56 $0.03 $1.51 $0.78 Diluted $0.54 $0.02 $1.44 $0.74 Weighted average number of shares Outstanding Basic 35,869,413 33,248,670 35,648,913 29,119,913 Diluted 37,244,288 35,240,768 37,268,420 30,647,580 September 30, December 31, 2004 2003 ------------- ------------ Book Value Per Share -------------------- Shareholders' equity $720,990 $659,844 Unrealized appreciation on investments, net of taxes (23,633) (16,848) Fair value of embedded derivatives 9,268 9,049 -------------------------- Total $706,625 $652,045 ========================== Number of shares 35,905,962 35,228,411 Book value per share - excluding effect of SFAS 115 and fair value of embedded derivatives $ 19.68 $ 18.51 Scottish Re Group Limited Supplemental Information - Segment Operating Results (Stated in Thousand of United States Dollars) Life Reinsurance North America Three months ended Nine months ended ---------------------------------------- September September September September 30, 2004 30, 2003 30, 2004 30, 2003 ---------- --------- --------- --------- Premiums earned $119,468 $62,446 $352,340 $158,471 Investment income, net 53,250 34,889 151,636 97,169 Fee income 1,445 2,128 5,795 4,523 Realized (losses) gains (1,289) 395 (1,149) (4,656) Change in value of embedded derivatives (5,509) - 456 - ---------- --------- --------- --------- Total revenues 167,365 99,858 509,078 255,507 ---------- --------- --------- --------- Claims and other policy benefits 88,070 46,559 266,147 118,785 Interest credited to interest sensitive contract liabilities 27,685 33,294 77,342 66,061 Acquisition costs and other insurance expenses, net 35,374 21,634 100,611 55,900 Operating expenses 4,437 2,404 13,543 6,819 Interest expense 1,266 235 2,892 712 ---------- --------- --------- --------- Total benefits and expenses 156,832 104,126 460,535 248,277 ---------- --------- --------- --------- Income before income taxes and minority interest 10,533 (4,268) 48,543 7,230 Income taxes 5,828 8,176 6,751 9,399 ---------- --------- --------- --------- Income before minority interest $16,361 $3,908 $55,294 $16,629 ========== ========= ========= ========= Net operating earnings ---------------------- Income from continuing operations $16,344 $3,908 $54,939 $16,629 Realized losses (gains): non taxable companies 836 (632) 2,351 1,615 taxable companies 454 237 (1,202) 3,041 Change in value of embedded derivatives: non taxable companies 101 - 359 - taxable companies 5,407 - (815) - Taxes on above items (1,691) (169) 44 (605) ---------- --------- --------- --------- Net operating earnings $21,451 $3,344 $55,676 $20,680 ========== ========= ========= ========= Scottish Re Group Limited Supplemental Information - Segment Operating Results (continued) (Stated in Thousand of United States Dollars) Life Reinsurance International Three months ended Nine months ended ---------------------------------------- September September September September 30, 2004 30, 2003 30, 2004 30, 2003 ---------- --------- --------- --------- Premiums earned $29,519 $30,295 $87,877 $93,825 Investment income, net 2,105 1,860 7,828 5,604 Realized gains (losses) 67 (89) (273) (962) ---------- --------- --------- --------- Total revenues 31,691 32,066 95,432 98,467 ---------- --------- --------- --------- Claims and other policy benefits 16,900 22,865 57,965 59,101 Acquisition costs and other insurance expenses, net 4,488 5,355 10,982 18,576 Operating expenses 4,941 3,584 13,107 9,425 ---------- --------- --------- --------- Total benefits and expenses 26,329 31,804 82,054 87,102 ---------- --------- --------- --------- Income before income taxes and minority interest 5,362 262 13,378 11,365 Income taxes (636) (11) (1,280) (1,306) ---------- --------- --------- --------- Income before minority interest $4,726 $251 $12,098 $10,059 ========== ========= ========= ========= Net operating earnings ---------------------- Income from continuing operations $4,726 $251 $12,098 $10,059 Realized losses (gains): taxable companies (67) 89 273 962 Taxes on above item 25 (27) (53) (169) ---------- --------- --------- --------- Net operating earnings $4,684 $313 $12,318 $10,852 ========== ========= ========= ========= Scottish Re Group Limited Supplemental Information - Segment Operating Results (continued) (Stated in Thousand of United States Dollars) OTHER Three months ended Nine months ended ---------------------------------------- September September September September 30, 2004 30, 2003 30, 2004 30, 2003 ---------- --------- --------- --------- Investment income, net $164 $1,384 $975 $3,499 Fee income 1,100 804 2,891 2,780 Realized (losses) gains (2,176) 438 (2,242) 649 ---------- --------- --------- --------- Total (loss) revenues (912) 2,626 1,624 6,928 ---------- --------- --------- --------- Acquisition costs and other insurance expenses, net 450 604 1,689 1,656 Operating expenses 3,836 2,765 10,320 8,523 Interest expense 2,086 1,634 6,233 4,821 ---------- --------- --------- --------- Total benefits and expenses 6,372 5,003 18,242 15,000 ---------- --------- --------- --------- Loss before income taxes and minority interest (7,284) (2,377) (16,618) (8,072) Income taxes (980) - 36 (94) ---------- --------- --------- --------- Income before minority interest $(8,264) $(2,377) $(16,582) $(8,166) ========== ========= ========= ========= Net operating earnings ---------------------- Income from continuing operations (8,264) (2,377) (16,582) (8,166) Realized losses (gains): non taxable companies 2,176 (438) 2,248 (649) taxable companies (1) - (6) - Taxes on above items - - 2 - ---------- --------- --------- --------- Net operating earnings $(6,089) $(2,815) $(14,338) $(8,815) ========== ========= ========= =========