EX-99.1 2 ex99-1.txt PRESS RELEASE Scottish Re Group Limited Announces Operating Results for the First Quarter Ended March 31, 2005 HAMILTON, Bermuda--(BUSINESS WIRE)--May 9, 2005--Scottish Re Group Limited (NYSE:SCT) today reported that net income for the quarter ended March 31, 2005 was $33.4 million, or $0.74 per diluted ordinary share, as compared to $10.1 million, or $0.27 per diluted ordinary share for the prior year period. Net operating earnings were $26.9 million, or $0.60 per diluted ordinary share for the quarter ended March 31, 2005 as compared to $16.6 million or $0.45 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 net income 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 net income determined in accordance with GAAP. Total revenue for the quarter ended March 31, 2005 increased to $558.1 million from $179.2 million for the prior year period, an increase of 211%. Excluding realized gains and losses and the change in fair value of the embedded derivative, total revenue for the quarter ended March 31, 2005 increased to $549.4 million from $186.4 million for the prior year period, an increase of 195%. Total benefits and expenses increased to $524.7 million for the quarter ended March 31, 2005 from $167.9 million, an increase of 213%. The increases were principally driven by the acquisition of the ING Re individual life business and growth in the Company's reinsurance business in North America. The Company's operating expense ratio (which is the ratio of operating expenses to total revenue excluding realized gains/losses and the change in value of embedded derivatives) for the twelve months ended March 31, 2005 was 5.5%, as compared to an operating expense ratio of 6.6% for the year ended December 31, 2004. The Company's total assets were $10.1 billion as of March 31, 2005. The core investment portfolio, comprising fixed maturity investments, preferred stock and substantially all of the cash and cash equivalents, totaled $5.4 billion and had an average quality rating of "AA-", an effective duration of 3.5 years and a weighted average book yield of 4.3%. This compares with a portfolio balance of $4.3 billion, an average quality rating of "AA-," effective duration of 3.8 years and an average book yield of 4.2% as of December 31, 2004. Funds withheld at interest, totaling $1.9 billion, had an average quality rating of "A", an effective duration of 5.2 years and a weighted average book yield of 5.8% at March 31, 2005. This compares with a total of $2.1 billion with an average quality rating of "A+", an effective duration of 3.9 years and an average book yield of 5.2% at December 31, 2004. Significant amounts of cash received as of December 31, 2004 in connection with the closing of the ING acquisition temporarily reduced the effective duration and average book yield, and increased the average quality rating of our funds withheld portfolio at December 31, 2004 as compared to March 31, 2005. The market value of the funds withheld at interest amounted to $1.9 billion at March 31, 2005. "We are pleased to report net operating earnings of $0.60 this first quarter, which is the midpoint of our publicly issued guidance range," said Scott E. Willkomm, President and Chief Executive Officer of Scottish Re Group Limited . "This strong showing was driven, in large part, by the performance of our traditional life reinsurance business in the United States and the contribution of the ING acquisition." "According to the recently released Society of Actuaries market share statistics, we are also pleased to report that Scottish Re was ranked second in the United States in terms of inforce ordinary life reinsurance for 2004," he said. "While these market share statistics evidence the impact of the ING Re acquisition and the overall growth of the Scottish Re franchise, we must reaffirm that we are not driven by market share objectives, and remain committed to quality over quantity in building our business." "On a trailing twelve months basis, our return on average equity - measured by dividing net operating earnings by average shareholders equity excluding the effect of FAS 115 and the change in fair value of embedded derivatives - was 11.9%, up from 11.3% for fiscal 2004," Mr. Willkomm added. "Thus, we continue to make demonstrable progress towards our 15% ROE goal." As of March 31, 2005, the Company had approximately $1.0 trillion of life reinsurance in force covering approximately 13.5 million lives with an average benefit per life of $74,000 in our North American operations. As of March 31, 2004, we had approximately $286.0 billion of life reinsurance in force in our Life Reinsurance North America segment covering 6.9 million lives with an average benefit per life of $41,000. Mortality experience in the first quarter was slightly better than expected and on an inception to date basis, mortality experience was approximately 95% of expected levels. The Company's book value per share was $21.75 at March 31, 2005 as compared to $21.60 per share at December 31, 2004. Including the Cypress warrants and excluding the effect of FAS 115 and the fair value of embedded derivatives our book value per share was $20.36 at March 31, 2005 compared to $19.80 at December 31, 2004. In connection with the acquisition of ING Re, the Company raised approximately $180 million of new equity capital from the Cypress Group by issuing to Cypress on December 31, 2004 (1) 3,953,183 ordinary shares; (2) Class C Warrants to purchase 3,206,431 ordinary shares and (3) notes convertible into 2,170,896 ordinary shares. The conversion of the Class C Warrants and the convertible notes into ordinary shares was subject to shareholder and regulatory approvals. On April 7, 2005, shareholder approval was received and on May 4, 2005 all regulatory approvals were received. Accordingly, as of May 11, 2005, all common equivalents will be converted into the Company's ordinary shares resulting in the Cypress Group owning 9,330,510 of the Company's ordinary shares. The Company's earnings conference call will be held at 11.00 am (EDT) on Tuesday, May 10, 2005. The dial-in number is 877-502-2902 or 706-679-5950 and the reservation number is 5412793. A replay of the call will be available beginning at 1:00 pm on Tuesday, May 10, 2005 and running through Tuesday, May 24, 2005. The dial-in number for the replay is 800-642-1687 or 706-645-9291 and the PIN code is 5412793. 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, http://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, http://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) ---------------------------------------------------------------------- Three months ended Three months ended March 31, 2005 March 31, 2004 ------------------ ------------------ Total revenue $558,131 $179,179 Net operating earnings(a) 26,930 16,613 Net income 33,420 10,096 Net operating earnings per share Basic $0.67 $0.47 Diluted $0.60 $0.45 Earnings per share Basic $0.84 $0.29 Diluted $0.74 $0.27 Dividends per share $0.05 $0.05 Weighted average shares Outstanding Basic 39,970,965 35,327,658 Diluted 45,192,171 37,230,112 (a)Excludes effect of realized gains and losses, change in value of embedded derivatives and amortization of related deferred acquisition costs. March 31, 2005 December 31, 2004 -------------- ----------------- Book value per share - including effect of SFAS 115 and fair value of derivatives $21.75 $21.60 Book value per share - excluding effect of SFAS 115 and fair value of derivatives and including the Cypress warrants $20.36 $19.80 Scottish Re Group Limited Consolidated Balance Sheets (Stated in Thousands of United States Dollars) March 31, December 31, 2005 2004 --------------- ---------------- Assets Fixed maturity investments $4,445,745 $3,392,463 Preferred stock 124,537 125,204 Cash and cash equivalents 831,078 794,639 Other investments 24,979 16,250 Funds withheld at interest 1,920,730 2,056,280 --------------- ---------------- Total investments 7,347,069 6,384,836 Accrued interest receivable 40,983 32,092 Reinsurance balances and risk fees receivable 492,217 470,817 Deferred acquisition costs 491,643 417,306 Amounts recoverable from reinsurers 766,207 774,503 Present value of inforce business 60,500 62,164 Goodwill 34,125 34,125 Fixed assets 16,914 17,177 Other assets 44,247 21,749 Current income tax receivable 2,553 7,712 Deferred tax benefit 25,289 15,030 Segregated assets 774,162 783,573 --------------- ---------------- Total assets $10,095,909 $9,021,084 =============== ================ Liabilities Reserves for future policy benefits $3,537,190 $3,370,562 Interest sensitive contract liabilities 3,258,276 3,181,447 Collateral finance facilities 1,050,000 200,000 Accounts payable and accrued expenses 13,708 23,337 Reinsurance balances payable 105,371 116,589 Other liabilities 47,915 44,974 7.00% Convertible junior subordinated notes 42,005 41,282 Long term debt 244,500 244,500 Segregated liabilities 774,162 783,573 --------------- ---------------- Total liabilities 9,073,127 8,006,264 --------------- ---------------- Minority Interest 9,844 9,697 Mezzanine Equity 142,599 142,449 Shareholders' Equity Share capital, par value $0.01 per share: Issued and fully paid: 40,022,945 ordinary shares (2004 - 39,931,145) 400 399 Additional paid- in capital 687,024 684,719 Accumulated other comprehensive income 5,703 31,604 Retained earnings 177,212 145,952 --------------- ---------------- Total shareholders' equity 870,339 862,674 --------------- ---------------- Total liabilities and shareholders' equity $10,095,909 $9,021,084 =============== ================ Scottish Re Group Limited Consolidated Statements of Income (Stated in Thousand of United States Dollars) Three months ended Three months ended March 31, 2005 March 31, 2004 ------------------- -------------------- Revenues Premiums earned $465,249 $133,347 Investment income, net 80,479 50,103 Fee income 3,624 2,953 Realized gains 3,294 1,421 Change in value of embedded derivatives, net 5,485 (8,645) ------------------- -------------------- Total revenues 558,131 179,179 ------------------- -------------------- Benefits and expenses Claims and other policy benefits 363,272 95,167 Interest credited to interest sensitive contract liabilities 30,642 24,193 Acquisition costs and other insurance expenses, net 93,211 32,869 Operating expenses 24,569 12,854 Collateral finance facilities expense 7,420 - Interest expense 5,594 2,777 ------------------- -------------------- Total benefits and expenses 524,708 167,860 ------------------- -------------------- Income before income taxes and minority interest 33,423 11,319 Income tax benefit (expense) 368 (874) ------------------- -------------------- Income before minority interest 33,791 10,445 Minority interest (371) (349) ------------------- -------------------- Net income $33,420 $10,096 =================== ==================== 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 Three months ended March 31, 2005 March 31, 2004 ------------------- ------------------- Net operating earnings ---------------------- Net income $33,420 $10,096 Realized losses (gains) - non taxable companies (2,215) 2,121 Realized gains - taxable companies (1,079) (3,542) Change in value of embedded derivatives - non taxable companies (326) 290 Change in value of embedded derivatives - taxable companies (5,159) 8,355 Taxes on realized gains/losses and change in value of embedded derivatives 2,289 (707) ------------------- ------------------- Net operating earnings $26,930 $16,613 =================== =================== Net operating earnings per share Basic $0.67 $0.47 Diluted $0.60 $0.45 =================== =================== Weighted average number of shares Outstanding Basic 39,970,965 35,327,658 Diluted 45,192,171 37,230,112 March 31, December 31, 2005 2004 --------------- --------------- Book Value Per Share -------------------- Shareholders' equity $870,339 $862,674 Unrealized (depreciation) appreciation on investments, net of deferred acquisition costs and taxes 10,051 (13,661) Fair value of embedded derivatives (322) 5,162 --------------- --------------- Total $880,068 $854,175 =============== =============== Number of shares 40,022,945 39,931,145 Shares arising on conversion of warrants 3,206,431 3,206,431 --------------- --------------- Total 43,229,376 43,137,576 =============== =============== Book value per share - excluding effect of SFAS 115 and fair value of embedded derivatives and including Cypress warrants $20.36 $ 19.80 Scottish Re Group Limited Supplemental Information - Segment Operating Results (Stated in Thousand of United States Dollars) Life Reinsurance North America Three months ended March 31 ----------------------------- 2005 2004 -------------- -------------- Premiums earned $437,873 $105,601 Investment income, net 77,531 47,407 Fee income 2,900 2,103 Realized gains 1,441 1,693 Change in value of embedded derivatives, net 5,485 (8,645) -------------- -------------- Total revenues 525,230 148,159 -------------- -------------- Claims and other policy benefits 344,188 75,592 Interest credited to interest sensitive contract liabilities 30,642 24,193 Acquisition costs and other insurance expenses, net 89,055 29,536 Operating expenses 11,672 4,964 Collateral finance facilities expense 6,185 - Interest expense 2,708 686 -------------- -------------- Total benefits and expenses 484,450 134,971 -------------- -------------- Income before income taxes and minority interest 40,780 13,188 Income tax benefit (expense) 212 (813) -------------- -------------- Income before minority interest 40,992 12,375 Minority interest (371) (349) -------------- -------------- Net income $40,621 $12,026 ============== ============== Net operating earnings ---------------------- Net income $40,621 $12,026 Realized gains (1,441) (1,693) Change in value of embedded derivatives, net (5,485) 8,645 Taxes on above items 2,246 (686) -------------- -------------- Net operating earnings $35,941 $18,292 ============== ============== Scottish Re Group Limited Supplemental Information - Segment Operating Results (continued) (Stated in Thousand of United States Dollars) Life Reinsurance International Three months ended March 31 ----------------------------- 2005 2004 -------------- -------------- Premiums earned $27,376 $27,746 Investment income, net 2,590 2,149 Realized gains (losses) 497 (151) -------------- -------------- Total revenues 30,463 29,744 -------------- -------------- Claims and other policy benefits 19,084 19,575 Acquisition costs and other insurance expenses, net 3,637 2,649 Operating expenses 5,849 4,408 -------------- -------------- Total benefits and expenses 28,570 26,632 -------------- -------------- Income before income taxes 1,893 3,112 Income tax benefit (expense) 130 (38) -------------- -------------- Net income $2,023 $3,074 ============== ============== Net operating earnings ---------------------- Net income $2,023 $3,074 Realized losses (gains) (497) 151 Taxes on realised losses (gains) 165 (23) -------------- -------------- Net operating earnings $1,691 $3,202 ============== ============== Scottish Re Group Limited Supplemental Information - Segment Operating Results (continued) (Stated in Thousand of United States Dollars) Corporate & Other Three months ended March 31 ----------------------------- 2005 2004 -------------- -------------- Investment income, net $358 $547 Fee income 724 850 Realized gains (losses) 1,356 (121) -------------- -------------- Total revenues 2,438 1,276 -------------- -------------- Acquisition costs and other insurance expenses, net 519 684 Operating expenses 7,048 3,482 Collateral finance facilities expense 1,235 - Interest expense 2,886 2,091 -------------- -------------- Total benefits and expenses 11,688 6,257 -------------- -------------- Loss before income taxes (9,250) (4,981) Income tax benefit (expense) 26 (23) Net income (loss) $(9,224) $(5,004) ============== ============== Net operating loss ------------------ Net income (loss) $(9,224) $(5,004) Realized losses (gains) (1,356) 121 Taxes on realised losses (gains) (122) 2 -------------- -------------- Net operating loss $(10,702) $(4,881) ============== ============== Scottish Re Group Limited Supplemental Information - Statement of Income - Business Acquired from ING (Stated in Thousand of United States Dollars) Three months ended March 31, 2005 ------------------ Premiums earned $288,231 Investment income, net 17,509 Realized gains 1,900 Change in value of embedded derivatives, net 4,386 ------------------ Total revenues 312,026 ------------------ Claims and other policy benefits 229,488 Acquisition costs and other insurance expenses, net 58,484 Operating expenses 5,173 ------------------ Total benefits and expenses 293,145 ------------------ Income before income taxes and minority interest $18,881 ================== CONTACT: Scottish Re Group Limited , Hamilton Scott E. Willkomm, 441-298-4364 scott.willkomm@scottishre.com SOURCE: Scottish Re Group Limited